-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
 MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
 TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
 ESWmUWS+cTpznd5zNoUVeK/zcjbNCFjgxofpTZFYgOXJupBYyOEbsswXTQv0Gz95
 dOmu7xim3L2+hM/oE8nCag==

<SEC-DOCUMENT>0001019687-05-002158.txt : 20050809
<SEC-HEADER>0001019687-05-002158.hdr.sgml : 20050809
<ACCEPTANCE-DATETIME>20050809172856
ACCESSION NUMBER:		0001019687-05-002158
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		12
CONFORMED PERIOD OF REPORT:	20050630
FILED AS OF DATE:		20050809
DATE AS OF CHANGE:		20050809

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			AMERICAN TECHNOLOGY CORP /DE/
		CENTRAL INDEX KEY:			0000924383
		STANDARD INDUSTRIAL CLASSIFICATION:	HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651]
		IRS NUMBER:				870361799
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0930

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-24248
		FILM NUMBER:		051011142

	BUSINESS ADDRESS:	
		STREET 1:		13114 EVENING CREEK DRIVE SOUTH
		CITY:			SAN DIEGO
		STATE:			CA
		ZIP:			92128
		BUSINESS PHONE:		6196792114

	MAIL ADDRESS:	
		STREET 1:		13114 EVENING CREEK DRIVE SOUTH
		CITY:			SAN DIEGO
		STATE:			CA
		ZIP:			92128
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>atco_10q-063005.htm
<TEXT>
<html>
  <head>
    <title>
      Unassociated Document
</title><!-- Licensed to: PublicEase, Inc.-->
<!-- Document Created using EDGARIZER HTML 3.0.0.39895 -->
<!-- Copyright 2005 EDGARfilings, Ltd., an IEC company.-->
<!-- All rights reserved EDGARfilings.com -->
</head>
  <body>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr valign="top">
            <td>
              <hr style="MARGIN-TOP: -2px" noshade size="5">
              <hr style="MARGIN-TOP: -10px" noshade size="1">
            </td>
          </tr>

      </table>
    </div>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong><font size="4">UNITED
      STATES<br>SECURITIES AND EXCHANGE
      COMMISSION</font></strong><br>Washington, D.C. 20549</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="4"><strong>FORM
      10-Q</strong></font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td colspan="2" height="22"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">(Mark
              one)</font></td>
          </tr>
          <tr>
            <td width="5%"><font style="FONT-FAMILY: wingdings" size="3">x</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">QUARTERLY
              REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
              EXCHANGE ACT OF 1934 </font></td>
          </tr>
          <tr>
            <td>&#160;</td>
            <td>&#160;</td>
          </tr>
          <tr>
            <td colspan="2">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">For
                the quarterly period ended June 30, 2005 </font></div>
            </td>
          </tr>
          <tr>
            <td>&#160;</td>
            <td>&#160;</td>
          </tr>
          <tr>
            <td colspan="2">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">or
</font></div>
            </td>
          </tr>
          <tr>
            <td>&#160;</td>
            <td>&#160;</td>
          </tr>
          <tr>
            <td><font style="FONT-FAMILY: wingdings" size="3">o</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">TRANSITION
              REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
              EXCHANGE ACT OF 1934</font></td>
          </tr>
          <tr>
            <td>&#160;</td>
            <td>&#160;</td>
          </tr>
          <tr>
            <td colspan="2">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">For
                the transition period from ____________ to ____________.
                </font></div>
            </td>
          </tr>

      </table>
    </div>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Commission
      File Number: <u>000-24248</u></font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong><font size="5">AMERICAN
      TECHNOLOGY
      CORPORATION</font></strong><br>(Exact name of registrant as specified in its
      charter)</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td width="50%">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Delaware</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">87-0361799</font></div>
            </td>
          </tr>
          <tr>
            <td>
              <hr noshade size="1" width="60">
            </td>
            <td>
              <hr noshade size="1" width="70">
            </td>
          </tr>
          <tr>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">(State
                or other jurisdiction of incorporation or
                organization)</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">(I.R.S.
                Employer Identification Number)</font></div>
            </td>
          </tr>
          <tr>
            <td>&#160;</td>
            <td>&#160;</td>
          </tr>
          <tr>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">13114
                Evening Creek Drive South, San Diego,
                California</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">92128</font></div>
            </td>
          </tr>
          <tr>
            <td>
              <hr noshade size="1" width="305">
            </td>
            <td>
              <hr noshade size="1" width="50">
            </td>
          </tr>
          <tr>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">(Address
                of principal executive offices)</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">(Zip
                Code)</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td>&#160;</td>
          </tr>
          <tr>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(858)
                679-2114 </font></div>
            </td>
          </tr>
          <tr>
            <td>
              <hr noshade size="1" width="85">
            </td>
          </tr>
          <tr>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(Registrant&#8217;s
                telephone number, including area
                code)&#160;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <p align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Indicate
      by check mark whether the registrant (1) has filed all reports
      required to be filed by Section 13 or 15(d) of the Securities Exchange Act
      of
      1934 during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such
      filing requirements for the past 90 days.</font>&#160;<font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">YES</font><font style="FONT-FAMILY: wingdings" size="3">x</font><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">
      &#160;NO <font style="FONT-FAMILY: wingdings" size="3">o</font></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Indicate
      by
      check mark whether the registrant is an accelerated filer (as defined in Rule
      12b-2 of the Exchange Act).&#160;</font><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">YES</font><font style="FONT-FAMILY: wingdings" size="3">x</font><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">
      &#160;NO <font style="FONT-FAMILY: wingdings" size="3">o</font></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Indicate
      the
      number of shares outstanding of each of the issuer&#8217;s classes of common stock, as
      of August 2, 2005.</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td width="50%">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font size="2">Common
                Stock, $0.00001 par value</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font size="2">24,239,840</font></div>
            </td>
          </tr>
          <tr>
            <td>
              <hr noshade size="1" width="200">
            </td>
            <td>
              <hr noshade size="1" width="60">
            </td>
          </tr>
          <tr>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font size="2">(Class)</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font size="2">(Number
                of
                Shares)</font></div>
            </td>
          </tr>

      </table>
    </div>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">1</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td>
              <hr style="MARGIN-TOP: -2px" noshade size="1">
              <hr style="MARGIN-TOP: -10px" noshade size="5">
            </td>
          </tr>

      </table>
    </div>
    <p style="PAGE-BREAK-BEFORE: always">
    </p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">AMERICAN
      TECHNOLOGY CORPORATION<br><br><a name="INDEX_">INDEX</a></font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td colspan="3" valign="bottom">&#160;</td>
            <td valign="bottom"><strong><font size="1">Page</font></strong></td>
          </tr>
          <tr>
            <td colspan="3" valign="bottom">&#160;&#160;</td>
            <td align="right" valign="bottom">&#160;</td>
          </tr>
          <tr>
            <td colspan="3" valign="bottom"><a href="#a1"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">PART
              I.
              FINANCIAL INFORMATION</font></a></td>
            <td align="right" valign="bottom" width="4%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">3</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="bottom" width="5%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td colspan="2" valign="bottom"><a href="#a2"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Item
              1.
              Financial Statements:</font></a></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">3</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="bottom" width="4%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="bottom"><a href="#a3"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Balance
              Sheets
              as of June 30, 2005 and September 30, 2004 (unaudited)</font></a></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">3</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="bottom"><a href="#a4"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Statements
              of
              Operations for the three and nine months ended June 30, 2005 and 2004
              (unaudited)</font></a></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">4</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2"><a href="#a5">Statements
              of Cash Flows for the nine months ended
              June 30, 2005 and 2004 (unaudited)</a></font></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">5</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="bottom"><a href="#a6"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Notes
              to Interim
              Financial Statements (unaudited)</font></a></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">6</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td colspan="2" valign="bottom"><a href="#a7"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Item
              2.
              Management&#8217;s Discussion and Analysis of Financial Condition and Results of
              Operations</font></a></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">16</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td colspan="2" valign="bottom"><a href="#a8"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Item
              3.
              Quantitative and Qualitative Disclosures about Market Risk</font></a></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">38</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td colspan="2" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2"><a href="#a9">Item
              4. Controls and Procedures</a></font></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">38</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td colspan="3" valign="bottom"><a href="#a10"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">PART
              II. OTHER
              INFORMATION</font></a></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">39</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td colspan="2" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2"><a href="#a11">Item
              1. Legal Proceedings</a></font></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">39</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td colspan="2" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2"><a href="#a12">Item
              2. Unregistered Sales of Equity Securities and Use of
              Proceeds</a></font></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">39</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td colspan="2" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2"><a href="#a13">Item
              3. Defaults upon Senior Securities</a></font></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">39</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td colspan="2" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2"><a href="#a14">Item
              4. Submission of Matters to a Vote of Security
              Holders</a></font></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">40</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td colspan="2" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2"><a href="#a15">Item
              5. Other Information</a></font></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">40</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td colspan="2" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2"><a href="#a16">Item
              6. Exhibits</a></font></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">41</font></td>
          </tr>
          <tr>
            <td colspan="4" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td colspan="3" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2"><a href="#a17">SIGNATURES</a></font></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">42</font></td>
          </tr>
          <tr>
            <td colspan="3" valign="bottom">&#160;</td>
            <td align="right" valign="bottom">&#160;</td>
          </tr>
          <tr>
            <td colspan="3" valign="bottom"><a href="#a18"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">EXHIBIT
              INDEX
              </font></a></td>
            <td align="right" valign="bottom"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">43</font></td>
          </tr>

      </table>
    </div>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">2</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong><a name="a1">PART
      I. FINANCIAL INFORMATION</a></strong></font><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong><br><br><a name="a2">Item
      1. Financial Statements. </a></strong></font></p>
    <p align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">American
      Technology Corporation<br></font></strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><a name="a3">BALANCE
      SHEETS<br>(Unaudited)</a></font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">June
              30,<br>2005</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">September
              30,<br>2004 (a)</font></th>
            <th>&#160;</th>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">ASSETS</font></strong></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Current
              Assets:</font></strong></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Cash</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,369,591</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">4,178,968</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Trade
              accounts receivable, less allowance
              of<br>&#160;&#160;&#160;&#160;$105,000 and $25,000 for doubtful
              accounts,
              respectively</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">507,308</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">926,747</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Inventories,
              net</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,571,620</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">651,095</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Prepaid
              expenses and other</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">329,576</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">156,419</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Prepaid
              transaction costs</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">659,846</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Total
              current
              assets</font></strong></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">5,437,941</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">5,913,229</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Equipment,
              </font></strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">net</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">692,865</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">453,355</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Patents,
              </font></strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">net</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,355,153</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,278,707</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Total
              assets</font></strong></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">7,485,959</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">7,645,291</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">LIABILITIES
              AND
              STOCKHOLDERS&#8217; EQUITY</font></strong></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Current
              Liabilities:</font></strong></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;Accounts
              payable</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,121,358</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,300,075</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;Accrued
              liabilities:</font></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Payroll
              and related</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">561,338</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">302,706</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Deferred
              revenue</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">450,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">322,344</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Warranty
              reserve</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">228,487</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">331,917</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Legal
              settlements</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">150,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Other</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">39,890</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">22,236</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Capital
              lease short-term portion</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">11,828</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">10,967</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Derivative
              instrument</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">659,846</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Total
              current
              liabilities</font></strong></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">4,072,747</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,440,245</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Long-Term
              Liabilities:</font></strong></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">8%
              Unsecured Subordinated Promissory Notes, net of
              $553,447<br>&#160;&#160;and $0 debt discount</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,446,553</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Capital
              lease long-term portion</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">3,148</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">12,131</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Total
              liabilities</font></strong></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">5,522,448</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,452,376</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Commitments
              and
              contingencies</font></strong></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td>
            </td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Stockholders&#8217;
              equity</font></strong></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Preferred
              stock, $0.00001 par value; 5,000,000 shares
              authorized:</font></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Series
              D Preferred stock 250,000 shares designated: 0
              and&#160;50,000<br>&#160;&#160;&#160;&#160;issued and outstanding,
              respectively. Liquidation<br>&#160;&#160;&#160;&#160;preference of $0 and
              $572,500, respectively.</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Series
              E Preferred stock 350,000 shares designated: 0
              and 233,250<br>&#160;&#160;&#160;&#160;issued and outstanding,
              respectively. Liquidation preference<br>&#160;&#160;&#160;&#160;of $0 and
              $2,556,000, respectively.</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">3</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Common
              stock, $0.00001 par value; 50,000,000 shares
              authorized;<br>&#160;&#160;21,336,489 and 19,808,819 shares issued and
              outstanding respectively.</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">213</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">198</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Additional
              paid-in capital</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">51,023,426</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">47,520,207</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Accumulated
              deficit</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(49,060,128</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(42,327,493</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Total
              stockholders&#8217; equity</font></strong></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,963,511</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">5,192,915</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Total
              liabilities and stockholders&#8217; equity</font></strong></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">7,485,959</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">7,645,291</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>

      </table>
    </div><br>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;See
              accompanying notes to interim financial
              statements.</font></td>
          </tr>
          <tr>
            <td colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;(a)
              Derived from the audited financial statements as of
              September 30, 2004.</font></td>
          </tr>

      </table>
    </div>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">3</font></p>
    <hr noshade size="5">
    <p align="center" style="PAGE-BREAK-BEFORE: always; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2"><strong>American
      Technology Corporation</strong><br><a name="a4">STATEMENTS
      OF OPERATIONS<br>(Unaudited) </a></font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr valign="bottom">
            <td>&#160;</td>
            <td colspan="5">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">For
                the three
                months ended June 30,</font></strong></div>
            </td>
            <td>&#160;</td>
            <td colspan="5">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">For
                the nine
                months ended June 30,</font></strong></div>
            </td>
            <td>&#160;</td>
          </tr>
          <tr valign="bottom">
            <td>&#160;</td>
            <td colspan="5">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>&#160;</td>
            <td colspan="5">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>&#160;</td>
          </tr>
          <tr valign="bottom">
            <td><font size="1">&#160;&#160;</font></td>
            <td colspan="2">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">2005</font></strong></div>
            </td>
            <td><font size="1">&#160;&#160;</font></td>
            <td colspan="2">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">2004</font></strong></div>
            </td>
            <td><font size="1">&#160;&#160;</font></td>
            <td colspan="2">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">2005</font></strong></div>
            </td>
            <td><font size="1">&#160;&#160;</font></td>
            <td colspan="2">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">2004</font></strong></div>
            </td>
            <td><font size="1">&#160;&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Revenues:</font></strong></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="9%">&#160;</td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="9%">&#160;</td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="9%">&#160;</td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="9%">&#160;</td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Product
              sales</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,378,648</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,089,359</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">8,539,855</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">4,201,193</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Contract
              and license</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">15,149</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">17,922</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">80,249</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">174,116</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Total
              revenues</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,393,797</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,107,281</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">8,620,104</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">4,375,309</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Cost
              of revenues</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">991,790</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,006,319</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">3,973,461</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,360,021</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Gross
              profit</font></strong></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">402,007</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,100,962</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">4,646,643</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,015,288</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Operating
              expenses:</font></strong></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Selling,
              general and administrative</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,879,021</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,614,351</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">6,968,972</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">3,766,137</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Research
              and development</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,268,468</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">890,299</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">4,181,476</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,983,518</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Total
              operating expenses</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">4,147,489</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,504,650</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">11,150,448</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">5,749,655</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Loss
              from operations</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(3,745,482</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(1,403,688</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(6,503,805</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(3,734,367</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Other
              income
              (expense):</font></strong></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Interest
              income</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">16,687</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">13,731</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">46,035</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">44,596</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Interest
              expense</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(131,904</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(454</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(274,865</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(2,263</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Unrealized
              gain on derivative revaluation</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">451,190</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">183,259</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Warrant
              impairment expense</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(183,259</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(183,259</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Total
              other income (expense)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">152,714</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">13,277</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(228,830</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">42,333</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net
              loss</font></strong></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(3,592,768</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(1,390,411</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(6,732,635</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(3,692,034</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Dividend
              requirements on convertible preferred stock</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">387,019</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,796,426</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,087,570</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net
              loss
              available to common stockholders</font></strong></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(3,592,768</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(1,777,430</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(8,529,061</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(4,779,604</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net
              loss per
              share of common stock - basic and diluted</font></strong></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(0.17</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(0.09</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(0.41</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(0.24</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Average
              weighted
              number of common shares outstanding</font></strong></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">21,328,989</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">19,719,657</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">20,599,047</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">19,534,343</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">See
      accompanying notes to interim financial statements.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">4</font></p>
    <hr noshade size="5">
    <p align="center" style="PAGE-BREAK-BEFORE: always; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2"><strong>American
      Technology Corporation </strong><br><a name="a5">STATEMENTS OF CASH FLOWS<br>(Unaudited) </a></font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">For
              the nine months ended June 30,</font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="5">
              <hr style="COLOR: #000000" size="1">
            </th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <th><font size="1">&#160;&#160;</font></th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2005</font></th>
            <th><font size="1">&#160;&#160;</font></th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2004</font></th>
            <th><font size="1">&#160;&#160;</font></th>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Increase
              (Decrease) in Cash</font></strong></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Operating
              Activities:</font></strong></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net
              loss</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(6,732,635</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(3,692,034</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Adjustments
              to reconcile net loss to net
              cash<br>&#160;&#160;&#160;used in operations:</font></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Depreciation
              and amortization</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">320,158</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">164,920</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Allowance
              for doubtful accounts</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">80,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Warranty
              provision</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(16,915</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">83,233</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Provision
              for obsolete inventory</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">183,535</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Options
              granted for compensation</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">329,202</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">150,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Common
              stock issued for legal
              settlement</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">140,175</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Amortization
              of debt discount</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">190,530</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Changes
              in assets and liabilities:</font></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;&#160;&#160;&#160;&#160;Trade
              accounts receivable</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">339,439</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">(1,202,762</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">)</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;&#160;&#160;Inventories</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(1,104,060</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(488,864</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;&#160;&#160;Prepaid
              expenses and other</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(173,157</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(221,109</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;&#160;&#160;Accounts
              payable</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">821,283</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">430,086</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;&#160;&#160;Warranty
              payments</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(86,515</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(37,588</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;&#160;&#160;Accrued
              liabilities</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">253,942</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(95,414</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net
              cash used in operating activities</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(5,455,018</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(4,909,532</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Investing
              Activities:</font></strong></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Purchase
              of equipment</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(448,535</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(299,623</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Patent
              costs paid</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(187,579</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(254,096</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net
              cash used in investing activities</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(636,114</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(553,719</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Financing
              Activities:</font></strong></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Payments
              on capital lease</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(8,122</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(7,341</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Proceeds
              from issuance of unsecured promissory notes</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,979,023</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Proceeds
              from exercise of common stock warrants</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,661,277</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">50,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Proceeds
              from exercise of stock options</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">649,577</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,056,367</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net
              cash provided by financing activities</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">4,281,755</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,099,026</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net
              decrease in cash</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(1,809,377</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(4,364,225</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Cash,
              beginning of period</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">4,178,968</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">9,850,358</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Cash,
              end of period</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,369,591</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">5,486,133</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><strong><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Supplemental
              Disclosure of Cash Flow Information</font></strong></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Cash
              paid for interest</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">44,443</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,263</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Cash
              paid for taxes</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Non-cash
              financing activities:</font></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Warrants
              issued for offering costs</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">843,105</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Warrants
              issued for debt financing</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">723,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Common
              stock issued on conversion of Series E
              preferred stock</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,604,238</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">320,414</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Common
              stock issued on conversion of Series D
              preferred stock</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">581,666</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;Common
              stock issued for legal settlement
              accrual</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">248,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">See
      accompanying notes to interim financial statements.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">5</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2"><strong><a name="a6">1.
      OPERATIONS </a></strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">American
      Technology Corporation (the Company) is engaged in design, development and
      commercialization of sound, acoustic and other technologies. The Company
      produces products based on its HyperSonic&#174; Sound (HSS&#174;), Long Range Acoustic
      Device (LRAD&#8482;), Medium Range Acoustic Device (MRAD<sup>TM</sup>), NeoPlanar&#174; and
      other sound technologies.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The Company&#8217;s
      operations are organized into two segments by the end-user markets they serve.
      The Commercial Products Group, (Commercial Group), formerly known as the
      Business Products and Licensing Group, markets and licenses HSS and NeoPlanar
      products to companies that employ audio in consumer, commercial and professional
      applications. The Government and Force Protection Systems Group (Government
      Group) markets LRAD, MRAD, NeoPlanar, SoundCluster&#8482; and HSS products to
      government and military customers and to the expanding force protection and
      commercial security markets.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The Company&#8217;s
      principal markets for its proprietary sound reproduction technologies and
      products are in North America, Europe and Asia.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The Company
      continues to be subject to certain risks, including history of net losses and
      expectation to continue to incur net losses; dependence on a limited number
      of
      customers; reliance on third-party suppliers and manufacturers; competition;
      the
      uncertainty of the market for new sound products; limited manufacturing,
      marketing and sales experience; uncertainty regarding future warranty costs;
      and
      the substantial uncertainty of ability to achieve profitability and positive
      cash flow.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>2.
      &#160;STATEMENT OF PRESENTATION AND MANAGEMENT&#8217;S PLAN </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The
      accompanying unaudited interim financial statements have been prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America for interim financial information. In the opinion of management, the
      interim financial statements reflect all adjustments of a normal recurring
      nature necessary for a fair presentation of the results for interim periods.
      Operating results for the three and nine months are not necessarily indicative
      of the results that may be expected for the year. The interim financial
      statements and notes thereto should be read in conjunction with the Company&#8217;s
      audited financial statements and notes thereto for the year ended September
      30,
      2004 included in the Company&#8217;s annual report on Form 10-K. Certain amounts
      reported in prior periods have been reclassified to be consistent with the
      current period presentation.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Other
      than
      cash of $2,369,591 at June 30, 2005, accounts receivable collections and the
      net
      proceeds of the equity financing completed in July 2005 (see Note 15 below)
      (the
      2005 Equity Financing), the Company has no other material unused sources of
      liquidity at this time. The Company has financed its operations primarily
      through cash generated from product sales and from financing activities.
      Management expects to incur additional operating losses during the balance
      of
      fiscal 2005 as a result of expenditures for research and development and
      marketing costs. The timing and amounts of these expenditures and the extent
      of
      the Company&#8217;s operating losses will depend on future product sales levels and
      other factors, some of which are beyond management&#8217;s control. Based on the
      Company&#8217;s cash position at June 30, 2005 and the proceeds of the 2005 Equity
      Financing, and assuming currently planned expenditures and level of operations,
      management believes the Company will have sufficient capital resources for
      at
      least the next twelve months. Management believes product sales will provide
      additional operating funds. If required, management has significant flexibility
      to adjust the level of research and development and selling and administrative
      expenses based on the availability of resources.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>3.
      &#160;NET LOSS PER SHARE </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Basic
      earnings (loss) per share includes no dilution and is computed by dividing
      income (loss) available to common stockholders, after deduction for cumulative
      imputed and accreted dividends, by the weighted average number of common shares
      outstanding for the period. Diluted earnings (loss) per share reflects the
      potential dilution of securities that could share in the earnings of an entity.
      The Company&#8217;s losses for the periods presented cause the inclusion of potential
      common stock instruments outstanding to be antidilutive. Stock options and
      warrants exercisable into 4,442,044 shares of common stock were outstanding
      at
      June&#160;30, 2005 and stock options, warrants and convertible preferred
      stock
      exercisable or convertible into 5,071,647 shares of common stock were
      outstanding at June 30, 2004. These securities are not included in the
      computation of diluted earnings (loss) per share because of the losses but
      could
      potentially dilute earnings (loss) per share in future periods.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">6</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The
      Company allocated
      the proceeds from prior preferred stock issuances between the preferred stock
      and warrants and also calculated the beneficial conversion discount for each
      series of preferred stock. The value of the beneficial conversion discount
      and
      the value of the warrants were recorded as a deemed dividend and were accreted
      over the conversion period of the preferred stock. Net loss available to common
      stockholders was increased in each period presented in computing net loss per
      share by the accretion of the value of these imputed deemed dividends. Such
      imputed deemed dividends were not included in the Company&#8217;s stockholders&#8217; equity
      as the Company has an accumulated deficit. Amounts were included in net loss
      available to common stockholders. The imputed deemed dividends were not
      contractual obligations of the Company to pay such imputed dividends. All of
      the
      Company&#8217;s outstanding shares of Series D and E Preferred Stock were converted to
      common stock during the quarter ending March 31, 2005.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The
      provisions of each of the Company&#8217;s series of preferred stock also provided for
      a 6% per annum accretion in the conversion value (similar to a dividend). These
      amounts also increased the net loss available to common stockholders. Net loss
      available to common stockholders is computed as follows:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Three
              Months Ended <br>June 30, </font></th>
            <th>&#160;</th>
            <th colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Nine
              Months Ended <br>June 30, </font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2005</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2004</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2005</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2004</font></th>
            <th>&#160;</th>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net
              loss</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="9%" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(3,592,768</font></td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="9%" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(1,390,411</font></td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="9%" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(6,732,635</font></td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="9%" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(3,692,034</font></td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Imputed
              deemed dividends on Series D and E<br>&#160;&#160;warrants
              issued with preferrd stock</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(100,179</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(592,137</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(347,292</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Imputed
              deemed dividends on Series D and E<br>&#160;&#160;preferred
              stock</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(243,396</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(1,146,917</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(603,386</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Accretion
              on preferred stock at 6% stated rate:</font></td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right">&#160;</td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Series
              D preferred stock</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(7,500</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(9,167</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(22,500</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Series
              E preferred stock</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(35,944</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(48,205</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(114,392</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net
              loss available to common stockholders</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(3,592,768</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(1,777,430</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(8,529,061</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(4,779,604</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">On January
      18, 2005, the Company gave notice to all holders of Series D and Series E
      Preferred Stock that it had elected to convert all of the outstanding shares
      of
      Series D and Series E Preferred Stock to common stock. The designations, rights
      and preferences of the Series D and Series E Preferred Stock permitted the
      Company to exercise this conversion option if the market price of its common
      stock exceeded $9.50 for ten consecutive trading days and certain other
      conditions were satisfied. The price condition was satisfied on January 6,
      2005.
      The conversion of the Series D Preferred Stock was effective on January 18,
      2005
      and resulted in all 50,000 issued and outstanding shares of Series D Preferred
      Stock converting into an aggregate of 129,259 shares of common stock. The
      conversion of the Series E Preferred Stock was effective on February 1, 2005,
      and resulted in all 233,250 issued and outstanding shares of Series E Preferred
      Stock converting into an aggregate of 801,306 shares of common stock.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">As all
      the
      Series D and Series E Preferred Stock were called for conversion as described
      above, $1,504,711 of deemed dividends were accelerated and accreted in the
      quarter ending March 31, 2005, in addition to the accretion of $13,940 at the
      stated rate of 6%, increasing the net loss available to common stockholders
      for
      that period.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">7</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>4.
      &#160;STOCK-BASED COMPENSATION </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The Company
      accounts for employee stock-based compensation using the intrinsic value method.
      In most cases, the Company does not recognize compensation expense for its
      employee stock option grants, as they have been granted at the fair market
      value
      of the underlying common stock at the grant date. Had compensation expense
      for
      the Company&#8217;s employee stock option grants been determined based on the fair
      value at the grant date for awards through June 30, 2005 consistent with the
      provisions of Statement of Financial Accounting Standards No. 123, its after-tax
      net income and after-tax net income per share would have been reduced to the
      pro
      forma amounts indicated below:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">Three
              Months Ended<br>June 30, </font></th>
            <th>&#160;</th>
            <th colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">Nine
              Months Ended<br>June 30, </font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2005</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2004</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2005</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2004</font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="2">
              <hr style="COLOR: #000000" size="1">
            </th>
            <th>&#160;</th>
            <th colspan="2">
              <hr style="COLOR: #000000" size="1">
            </th>
            <th>&#160;</th>
            <th colspan="2">
              <hr style="COLOR: #000000" size="1">
            </th>
            <th>&#160;</th>
            <th colspan="2">
              <hr style="COLOR: #000000" size="1">
            </th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net
              loss available to common shareholders</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="9%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(3,592,768</font></td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="9%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(1,777,430</font></td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="9%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(8,529,061</font></td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="9%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(4,779,604</font></td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Plus:
              Stock-based employee
              compensation<br>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;expense
              included in reported net loss</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">57,619</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">324,582</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Less:
              Total stock-based employee compensation
              expense<br>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;determined
              using fair value based method</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(326,240</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(150,489</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(1,210,466</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(658,344</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Pro
              forma net loss available to common stockholders</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(3,861,389</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(1,927,919</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(9,414,945</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(5,437,948</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net
              loss per common share - basic<br>&#160;&#160;and diluted - as
              reported</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(0.17</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(0.09</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(0.41</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(0.24</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net
              loss per common share - basic<br>&#160;&#160;and diluted - pro
              forma</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(0.18</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(0.10</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(0.46</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(0.28</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The Company
      estimates the fair value of each stock award at the grant date by using the
      Black-Scholes option-pricing model with the following weighted average
      assumptions used for grants in 2005 and 2004, respectively:&#160;dividend
      yield
      of zero percent for each period; expected volatility of 53 to 58 percent in
      2005
      and 60 to 75 percent in 2004; risk-free interest rates of 3.82 to 1.84 percent;
      and expected lives of 2.5 years for each period. The estimated fair value of
      the
      options so determined is then amortized to expense over the options&#8217; vesting
      periods. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>5.
      &#160;RECENT ACCOUNTING PRONOUNCEMENTS </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In December
      2004, the Financial Accounting Standards Board (FASB) issued Financial
      Accounting Standard (FAS) 123R, &#8220;Share Based Payment&#8221; (&#8220;Statement
      123R&#8221;)&#160;Although Statement 123R states that it is effective for public
      companies at the beginning of the first interim or annual period after June
      15,
      2005, the Securities and Exchange Commission has adopted a rule delaying the
      required compliance date to the first interim or annual reporting period of
      the
      registrant&#8217;s first fiscal year beginning on or after June 15, 2005. Therefore,
      the Company will first be required to comply with Statement 123R in the quarter
      ending December 31, 2005. This statement eliminates the ability to account
      for
      share-based compensation using the intrinsic value-based method under APB
      Opinion No. 25, &#8220;Accounting for Stock Issued to Employees.&#8221; Statement 123R would
      require the Company to calculate 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. Currently, the
      Company discloses the pro forma net income (loss) and the related pro forma
      income (loss) per share information in accordance with FAS 123 and FAS 148,
      &#8220;Accounting for Stock-Based Compensation Costs-Transition and Disclosure.&#8221; The
      Company has not evaluated the impact that Statement 123R will have on its
      financial position and results of operations.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In November
      2004, the FASB issued SFAS No. 151, &#8220;Inventory Costs an amendment of ARB 43,
      Chapter&#160;4.&#8221; SFAS No. 151 clarifies that abnormal amounts of idle facility
      expense, freight, handling costs, and wasted materials (spoilage) should be
      recognized as current-period charges and requires the allocation of fixed
      production overheads to inventory based on the normal capacity of the production
      facilities. SFAS No. 151 is effective for fiscal years beginning after June
      15,
      2005. The Company is currently evaluating the financial statement impact of
      the
      implementation of SFAS No. 151.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">8</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In
      December 2004, the
      FASB issued SFAS No. 153, &#8220;Exchanges of Non-monetary Assets, an Amendment of APB
      Opinion No. 29&#8221;, which is effective for non-monetary exchanges occurring in
      fiscal periods beginning after June&#160;15, 2005. SFAS No. 153 amends APB
      Opinion No. 29, &#8220;Accounting for Non-monetary Transactions&#8221; to eliminate the
      exception for non-monetary exchanges of similar productive assets and replaces
      it with a general exception for exchanges of non-monetary assets that do not
      have commercial substance. A non-monetary exchange has commercial substance
      if
      the future cash flows of the entity are expected to change significantly as
      a
      result of the exchange. The Company does not expect SFAS No. 153 to affect
      the
      Company&#8217;s financial condition or results of operations.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In September
      2004, the Emerging Issues Task Force (EITF) reached consensus on EITF Issue
      04-8, &#8220;The Effect of Contingently Convertible Debt on Diluted Earnings per
      Share&#8221;, which provides guidance on when the dilutive effect of contingently
      convertible debt securities with a market price trigger should be included
      in
      diluted earnings per share. The guidance is effective for all periods ending
      after December&#160;15, 2004. The&#160;Company&#8217;s adoption of EITF 04-8 did not
      have an impact on the Company&#8217;s loss per share calculation for the periods
      presented herein and is not expected to have an impact in the future.
</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In March
      2005, the FASB issued Interpretation No. 47 (&#8220;FIN 47&#8221;), &#8220;Accounting for
      Conditional Asset Retirement Obligations.&#8221; FIN 47 clarifies that an entity must
      record a liability for a &#8220;conditional&#8221; asset retirement obligation if the fair
      value of the obligation can be reasonably estimated. The provision is effective
      no later than the end of fiscal years ending after December&#160;15, 2005.
      The
      Company does not expect FIN 47 to affect the Company&#8217;s financial condition or
      results of operations. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In May
      2005,
      the FASB issued SFAS No. 154, &#8220;Accounting Changes and Error Corrections&#8221;,
      applying to all voluntary accounting principle changes as well as the accounting
      for and reporting of such changes. SFAS No. 154 replaces APB Opinion No. 20,
      &#8220;Accounting Changes&#8221;, and SFAS No. 3, &#8220;Reporting Accounting Changes in Interim
      Financial Statements.&#8221; SFAS No. 154 is effective for accounting changes and
      corrections of errors made in fiscal years beginning after December&#160;15,
      2005. The Company does not expect SFAS No. 154 to affect the Company&#8217;s financial
      condition or results of operations.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In March
      2005, the Securities and Exchange Commission (&#8220;SEC&#8221;) issued staff accounting
      bulletin 107 (&#8220;SAB 107&#8221;) which expresses views of the SEC staff regarding the
      interaction between Statement 123R and certain SEC rules and regulations and
      provide the staff&#8217;s views regarding the valuation of share-based payment
      arrangements for public companies. SAB 107 provides guidance related to
      share-based payment transactions with non-employees, the transition from
      nonpublic to public entity status, valuation methods (including assumptions
      such
      as expected volatility and expected term), the accounting for certain redeemable
      financial instruments issued under share-based payment arrangements, the
      classification of compensation expense, non-GAAP financial measures, first-time
      adoption of Statement 123R in an interim period, capitalization of compensation
      cost related to share-based payment arrangements, the accounting for income
      tax
      effects of share-based payment arrangements upon adoption of Statement 123R,
      the
      modification of employee share options prior to adoption of Statement 123R
      and
      disclosures in Management&#8217;s Discussion and Analysis subsequent to adoption of
      Statement 123R. The Company has not evaluated the impact that SAB 107 will
      have
      on its financial position and results of operations.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">9</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>6.
      &#160;INVENTORIES AND CONTRACT MANUFACTURING</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Inventory
      is
      stated at the lower of cost, which approximates actual costs on a standard
      cost
      basis, or market. At June 30, 2005 $104,535 of inventory was located at the
      Company&#8217;s contract manufacturer.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Inventories
      consisted of the following:</font></p>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" width="70%">

          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">June
              30,<br>2005 </font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">September
              30,<br>2004 </font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Finished
              goods</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="15%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">901,323</font></td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="15%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">342,647</font></td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Raw
              materials</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">963,832</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">418,448</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,865,155</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">761,095</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Reserve
              for obsolescence</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(293,535</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(110,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,571,620</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">651,095</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">During
      the
      nine months ended June 30, 2005, the Company shipped materials to its contract
      manufacturer, booked an amount due from the contract manufacturer and reduced
      inventory by $439,312. The Company did not recognize any revenue on these
      transactions. At June 30, 2005, the remaining balance due from the contract
      manufacturer, for shipments made to it, was $67,619. The contract manufacturer
      is using these materials to build products for the Company. The amount due
      from
      the contract manufacturer of $67,619 has been netted against the payable due
      to
      the contract manufacturer.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>7.
      &#160;CUSTOMER CONCENTRATION </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">For the
      three
      months ended June 30, 2005, sales to one customer in the Government Group
      accounted for 62% of total revenues. At June 30, 2005, this customer accounted
      for 21% of accounts receivable, net, and three other customers accounted for
      30%, 21% and 14% of accounts receivable, net, respectively. No other customer
      accounted for more than 10% of accounts receivable, net, at June 30, 2005.
      For
      the three months ended June 30, 2004, sales to three customers in the Government
      Group accounted for 62%, 22% and 13% of total revenues. At June 30, 2004 the
      accounts receivable from these three customers accounted for 40%, 28% and 6%
      of
      accounts receivable, net, respectively and no other customer accounted for
      more
      than 10% of accounts receivable, net. For the nine months ended June 30, 2005,
      sales to one customer in the Government Group accounted for 79% of total
      revenues and sales to a second customer in the Government Group, including
      affiliates of the customer, accounted for 10% of total revenues. For the nine
      months ended June 30, 2004, sales to two customers in the Government Group
      accounted for 51% and 28% of total revenues, respectively. Management believes
      that the loss of any one of these significant customers would have a material
      adverse effect on the Company&#8217;s results of operations and financial
      condition.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>8.
      &#160;INTANGIBLES </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Patents
      are
      carried at cost and, when granted, are amortized over their estimated useful
      lives. The carrying value of patents is periodically reviewed and impairments,
      if any, are recognized when the expected future benefit to be derived from
      an
      individual intangible asset is less than its carrying value. Patents consisted
      of the following:</font></p>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" width="70%">

          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="2">
              <div><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">June
                30,</font></div>
              <div><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">&#160;2005</font></div>
            </th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">September
              30,<br>2004 </font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Cost</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="15%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,770,856</font></td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="15%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,578,578</font></td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Accumulated
              amortization</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(415,703</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(299,871</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net
              patent</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,355,153</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,278,707</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td align="left">&#160;</td>
          </tr>

      </table>
    </div>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>9.
      &#160;PRODUCT WARRANTY COST </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The Company
      establishes a warranty reserve based on anticipated warranty claims at the
      time
      product revenue is recognized. Factors affecting warranty reserve levels include
      the number of units sold and anticipated cost of warranty repairs and
      anticipated rates of warranty claims. The Company evaluates the adequacy of
      the
      provision for warranty costs each reporting period.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Changes
      in
      the warranty reserve during the three and nine months ended June 30, 2005 and
      2004 were as follows:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">Three
              Months Ended<br>June 30, </font></th>
            <th>&#160;</th>
            <th colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">Nine
              Months Ended<br>June 30, </font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <th><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">&#160;</font></th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2005</font></th>
            <th><font size="1">&#160;</font></th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2004</font></th>
            <th><font size="1">&#160;</font></th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2005</font></th>
            <th><font size="1">&#160;&#160;</font></th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2004</font></th>
            <th><font size="1">&#160;</font></th>
          </tr>
          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="2">
              <hr style="COLOR: #000000" size="1">
            </th>
            <th>&#160;</th>
            <th colspan="2">
              <hr style="COLOR: #000000" size="1">
            </th>
            <th>&#160;</th>
            <th colspan="2">
              <hr style="COLOR: #000000" size="1">
            </th>
            <th>&#160;</th>
            <th colspan="2">
              <hr style="COLOR: #000000" size="1">
            </th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Beginning
              balance</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="11%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">238,837</font></td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="11%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">325,000</font></td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="11%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">331,917</font></td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="11%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">319,500</font></td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Warranty
              provision, net</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">59,809</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">57,300</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(16,915</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">83,233</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Warranty
              deductions</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(70,159</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(17,155</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(86,515</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(37,588</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Ending
              balance</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">228,487</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">365,145</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">228,487</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">365,145</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>10.
      &#160;UNSECURED SUBORDINATED PROMISSORY NOTES AND RELATED PARTY
      TRANSACTION</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In December
      2004, the Company sold an aggregate of $2,000,000 of 8% unsecured subordinated
      promissory notes due December 31, 2006. Interest on these notes accrues at
      the
      rate of 8% per year and is due and payable quarterly in arrears. For the three
      and nine months ended June 30, 2005, the Company recorded interest on these
      notes of $39,890 and $82,849, respectively. The Company was required to use
      40%
      of the net proceeds of any future equity financing to prepay these notes, and
      the balance due on the notes and accrued interest were paid in full in July
      2005
      following the completion of the 2005 Equity Financing (see Note 15). In
      connection with the issuance of the notes, the purchasers were granted warrants
      to purchase an aggregate of 150,000 shares of common stock. The exercise price
      of the warrants was $9.28 per share for purchasers who were directors, officers,
      employees or consultants of the Company, or affiliates of such persons, and
      $8.60 per share for other purchasers. Warrants exercisable for 75,000 shares
      were issued at each such exercise price. The fair value of such warrants, which
      amounted to $723,000, and closing costs of $20,977&#160;were recorded as
      debt
      discount and amortized over the term of the notes. The following variables
      were
      used to determine the fair value of the warrants under the Black-Scholes option
      pricing model:&#160;volatility of 56%, term of five years, risk free interest
      of
      2.97% and underlying stock price equal to fair market value at the time of
      grant. For the three and nine months ended June 30, 2005, $91,737 and $190,530,
      respectively, of debt discount was amortized.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">A trust
      affiliated with an officer, director and significant stockholder of the Company
      purchased one of the aforementioned promissory notes in the principal amount
      of
      $500,000 and received a warrant exercisable for 37,500 shares with an exercise
      price of $9.28 per share.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">11</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>11.
      &#160;STOCKHOLDERS&#8217; EQUITY </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><u>Summary
      </u></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The following
      table summarizes changes in equity components from transactions during the
      nine
      months ended June 30, 2005:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr valign="bottom" bgcolor="#ffffff">
            <td align="left" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" colspan="4" width="15%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font size="1">Preferred
                Stock</font></strong>&#160;</div>
            </td>
            <td align="left" width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" colspan="5" width="16%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Common
                Stock</font></strong>&#160;</div>
            </td>
            <td align="left" width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" colspan="2" width="9%" style="BORDER-BOTTOM: #ffffff solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">&#160;<strong><font size="1">Additional<br>Paid-in</font></strong></div>
            </td>
            <td align="left" width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" width="8%" style="BORDER-BOTTOM: #ffffff solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font size="1">Accumulated</font></strong>&#160;</div>
            </td>
            <td align="left" width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" width="8%" style="BORDER-BOTTOM: #ffffff solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font size="1">Total
                <br>Stockholders&#8217;<br>Equity</font></strong></div>
            </td>
            <td align="left" width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#ffffff">
            <td align="left" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" width="6%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font size="1">Shares</font></strong></div>
            </td>
            <td align="left" width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" colspan="2" width="7%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font size="1">Amount</font></strong>&#160;</div>
            </td>
            <td align="left" width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" colspan="2" width="7%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font size="1">Shares</font></strong></div>
            </td>
            <td align="left" width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" width="6%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font size="1">Amount</font></strong></div>
            </td>
            <td align="left" width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" colspan="2" width="9%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font size="1">Capital</font></strong></div>
            </td>
            <td align="left" width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" colspan="2" width="9%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font size="1">&#160;Deficit</font></strong></div>
            </td>
            <td align="left" width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" colspan="2" width="9%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font size="1">&#160;(Deficit)&#160;</font></strong></div>
            </td>
            <td align="left" width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1"><strong>&#160;Balance,
              October 1, 2004</strong></font></td>
            <td align="right" width="6%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">283,250</font></td>
            <td align="left" width="2%">&#160;</td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">$</font></td>
            <td align="right" width="6%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">3</font></td>
            <td align="left" width="2%">&#160;</td>
            <td align="right" width="1%">&#160;</td>
            <td align="right" width="6%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">19,808,819</font></td>
            <td align="left" width="2%">&#160;</td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">$</font></td>
            <td align="right" width="6%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">198</font></td>
            <td align="left" width="2%">&#160;</td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">$</font></td>
            <td align="right" width="8%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">47,520,207</font></td>
            <td align="left" width="2%">&#160;</td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">$</font></td>
            <td align="right" width="8%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">(42,327,493</font></td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">)</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">$</font></td>
            <td align="right" width="8%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">5,192,915</font></td>
            <td align="left" width="2%">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Stock
              issued upon exercise of 369,568 warrants</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">369,568</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">4</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">1,661,273</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">1,661,277</font></td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Conversion
              of Series D Preferred Stock</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">(50,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">)</font></td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">(1</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">)</font></td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">129,259</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">1</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Conversion
              of Series E Preferred Stock</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">(233,250</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">)</font></td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">(2</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">)</font></td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">801,306</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">8</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">(6</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">)</font></td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Cashless
              exercise of 25,000 Warrants</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">20,425</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Stock
              issued upon exercise of stock options</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">189,612</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">2</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">649,575</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">649,577</font></td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Value
              assigned to extension of time to exercise<br>92,675
              options</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">324,582</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">324,582</font></td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Debt
              discount for 150,000 warrants granted on 8%<br>unsecured
              subordinated promissory notes</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">723,000</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">723,000</font></td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Issuance
              of stock options and warrants for<br>services</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">4,620</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">4,620</font></td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Issuance
              of common stock for legal settlement</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">17,500</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">140,175</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">140,175</font></td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Deemed
              dividends and accretion on convertible<br>preferred stock of
              $1,796,426</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Net
              loss for the period</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">(6,732,635</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">)</font></td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">(6,732,635</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">)</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="left">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1"><strong>&#160;Balance,
              June 30, 2005</strong></font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#8212;</font></td>
            <td align="left">&#160;</td>
            <td align="right">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">21,336,489</font></td>
            <td align="left">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">213</font></td>
            <td align="left">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">51,023,426</font></td>
            <td align="left">&#160;</td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">(49,060,128</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">1,963,511</font></td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="left">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td align="left">&#160;</td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="2">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">During
      the
      quarter ended March 31, 2005, all previously outstanding shares of Series D
      and
      Series E Preferred Stock were converted into an aggregate of 930,565 shares
      of
      common stock and no preferred stock was outstanding at June 30, 2005.
</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><u>Committed
      Equity Financing Facility </u></font></p>
    <p align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In
      December 2004, the Company entered into a common stock purchase agreement,
      registration rights agreement and warrant as part of a Committed Equity
      Financing Facility (CEFF) with Kingsbridge Capital Ltd., pursuant to which
      Kingsbridge committed to purchase up to $25 million of the Company&#8217;s common
      stock. As part of the arrangement, the Company issued a warrant to Kingsbridge
      to purchase 275,000 shares of its common stock at a price of $8.60 per share.
      The warrant was exercisable beginning six months after the date of grant and
      for
      a period of five years thereafter. Subject to certain conditions, including
      the
      effectiveness of a registration statement registering the shares issuable to
      Kingsbridge, the Company had the right to require Kingsbridge to purchase a
      maximum of 3,684,782 newly-issued shares of its common stock at a price between
      88% and 92% of the volume weighted average price during a 15 day purchase
      period. The 3,684,782 share maximum also included any shares that the Company
      may have issued in lieu of paying Kingsbridge liquidated damages in the event
      that a registration statement was unavailable for the resale of the securities
      purchased by Kingsbridge under the CEFF once the registration statement had
      been
      declared effective. The Company had no obligation to draw down all or any
      portion of the commitment during its 24-month term.</font></p>
    <p align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">As
      part of the arrangement, the Company also agreed to file a registration
      statement, within 45 days after entering into the agreement for the CEFF, for
      the resale of shares to be acquired under the CEFF, or upon exercise of the
      warrant. In January 2005, the Company filed the required resale registration
      statement. In June 2005, the Company decided to terminate the CEFF; and on
      July
      1, 2005, the Company requested withdrawal of the registration
      statement.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">12</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In
      July 2005, the
      Company entered into a termination, settlement and release agreement with
      Kingsbridge. Under the terms of this agreement, the Company and Kingsbridge
      agreed that the common stock purchase agreement entered into with Kingsbridge
      in
      December 2004, and the related registration rights agreement and warrant issued
      to Kingsbridge of the same date would be terminated, and Kingsbridge would
      return the warrant, which was not exercised, to the Company for cancellation.
      No
      shares were sold to Kingsbridge under the CEFF prior to the termination. The
      Company incurred no early termination penalties in connection with this
      termination. The termination agreement contains a mutual release of&#160;claims.
      </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The fair
      value of the warrant at the date of issuance, which amounted to $843,105, and
      legal, audit and associated fees of $293,826, were recorded as prepaid
      transaction costs. The following variables were used to determine the fair
      value
      of the warrant under the Black-Scholes option pricing model: volatility of
      56%,
      term of 5.5 years, risk free interest of 2.97% and underlying stock price equal
      to fair market value at the time of issuance. The warrant has been accounted
      for
      as a derivative instrument in accordance with Emerging Issues Task Force (EITF)
      00-19 &#8220;Accounting for Derivative Financial Instruments, Indexed to, and
      Potentially Settled in a Company&#8217;s Own Stock.&#8221; As a derivative, the fair value
      of the warrant is recorded as a liability at its estimated fair value at each
      balance sheet date until the effective date of the related registration
      statement, or upon warrant exercise, when the warrant liability, as may be
      further revalued, would have been reclassified to equity. Changes in the fair
      value of the warrant are recorded as other income or expense in the accompanying
      income statement. For the three and nine months ended June 30, 2005, $451,190
      and $183,259, respectively, was recorded as unrealized gain on derivative
      revaluation for the change in valuation of the fair value of the warrant.
</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Due to
      the
      decision to terminate this financing, the Company determined that the value
      of
      the prepaid transaction cost asset was impaired at June 30, 2005. Accordingly,
      the Company recognized an impairment charge in the total amount of $477,085,
      of
      which $293,826 is legal, audit and associated fees and is recorded as selling,
      general and administrative expense for the three and nine months ended June
      30,
      2005, and $183,259,is the excess of the fair value of the warrant over the
      associated derivative instrument liability and is recorded as warrant impairment
      expense for the three and nine months ended June 30, 2005. The remaining asset
      of $659,846 in prepaid transaction costs will be offset against the derivative
      instrument liability of the same amount during the quarter ending September
      30,
      2005, with no net effect on other income or expense. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><u>Stock
      Options </u></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">During
      the
      nine months ended June 30, 2005, the Company recorded non-cash compensation
      expense of $266,963 for the extension of time to exercise stock options for
      former employees relating to an aggregate of 92,675 shares of common stock
      and
      $57,619 for option expense relating to options for 68,125 shares held by an
      officer of the Company who transitioned from employee to consultant. For the
      three and nine months ended June 30, 2005, the Company also recognized $1,540
      and $4,620 of non-cash compensation expense, respectively, for the value of
      options granted to non-employees. These options were valued in the same manner
      as described in Note 4 for employee options. There were no non-cash compensation
      expenses for the quarter ended June 30, 2004 or for the nine months ended June
      30, 2004. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The following
      table summarizes information about stock option activity during the nine months
      ended June&#160;30, 2005:</font></p>
    <div>
      <div>
        <table align="center" border="0" cellpadding="0" cellspacing="0" width="70%">

            <tr valign="bottom" bgcolor="#ffffff">
              <td align="left">&#160;</td>
              <td align="right" colspan="5" width="33%">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">Options&#160;<br>&nbsp;</font></div>
              </td>
              <td align="left" width="2%">&#160;</td>
            </tr>
            <tr valign="bottom" bgcolor="#ffffff">
              <td align="left" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
              <td align="right" colspan="2" width="15%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">Number
                  of</font></div>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">Shares&#160;</font></div>
              </td>
              <td align="left" width="3%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
              <td align="right" colspan="2" width="15%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">Weighted
                  Average</font></div>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">Exercise
                  Price&#160;</font></div>
              </td>
              <td align="left" width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            </tr>
            <tr valign="bottom" bgcolor="#eaf9e8">
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Outstanding
                October 1, 2004</font></td>
              <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
              <td align="right" width="14%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,839,498</font></td>
              <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
              <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
              <td align="right" width="14%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">4.68</font></td>
              <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            </tr>
            <tr valign="bottom">
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;&#160;Granted</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">797,500</font></td>
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">7.63</font></td>
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            </tr>
            <tr valign="bottom" bgcolor="#eaf9e8">
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;&#160;Exercised</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(189,612</font></td>
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(3.43</font></td>
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            </tr>
            <tr valign="bottom">
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;&#160;&#160;Canceled/expired</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(313,576</font></td>
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(6.26</font></td>
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            </tr>
            <tr>
              <td>&#160;</td>
              <td colspan="2">
                <hr style="COLOR: #000000" size="1">
              </td>
              <td>&#160;</td>
              <td colspan="2">
                <hr style="COLOR: #000000" size="1">
              </td>
              <td>&#160;</td>
            </tr>
            <tr valign="bottom" bgcolor="#eaf9e8">
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Outstanding
                June 30, 2005</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,133,810</font></td>
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">5.53</font></td>
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            </tr>
            <tr>
              <td>&#160;</td>
              <td colspan="2">
                <hr style="COLOR: #000000" size="2">
              </td>
              <td>&#160;</td>
              <td colspan="2">
                <hr style="COLOR: #000000" size="2">
              </td>
              <td>&#160;</td>
            </tr>
            <tr valign="bottom">
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Exercisable
                June 30, 2005</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,000,240</font></td>
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
              <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">4.26</font></td>
              <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            </tr>
            <tr>
              <td>&#160;</td>
              <td colspan="2">
                <hr style="COLOR: #000000" size="2">
              </td>
              <td>&#160;</td>
              <td colspan="2">
                <hr style="COLOR: #000000" size="2">
              </td>
              <td>&#160;</td>
            </tr>

        </table>
      </div>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Options
      outstanding are exercisable at prices ranging from $2.50 to $10.06 and expire
      over the period from 2005 to 2010 with an average life of 3.1 years. </font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">13</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><u>Stock
      Purchase
      Warrants </u></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The following
      table summarizes information about warrant activity during the nine months
      ended
      June 30, 2005:</font></p>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" width="70%">

          <tr valign="bottom" bgcolor="#ffffff">
            <td align="left">&#160;</td>
            <td align="right" colspan="5" width="33%">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">Warrants<br></font><font style="DISPLAY: inline" size="2">&#160;</font></div>
            </td>
            <td align="right" width="2%">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#ffffff">
            <td align="left" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" colspan="2" width="15%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">Number
                of<br>Shares</font></div>
            </td>
            <td align="left" width="3%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" colspan="2" width="15%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">Weighted
                Average<br>Exercise Price</font></div>
            </td>
            <td align="right" width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Outstanding
              October 1, 2004</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td align="right" width="14%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">2,352,802</font></td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">$</font></td>
            <td align="right" width="14%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">3.74</font></td>
            <td align="right" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;&#160;&#160;&#160;Issued</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">425,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">8.72</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;&#160;&#160;&#160;Exercised</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">(394,568</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">(4.34</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">)</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;&#160;&#160;&#160;Canceled/expired</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">(75,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">(11.00</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">)</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Outstanding
              June 30, 2005</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">2,308,234</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">4.32</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td align="left">&#160;</td>
            <td align="left" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td align="left">&#160;</td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">At June
      30,
      2005, the following stock purchase warrants were outstanding arising from
      offerings and other transactions:</font></p>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" width="50%">

          <tr valign="bottom">
            <td align="right" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman"><strong>Number
                of<br>Shares&#160;</strong></font></div>
            </td>
            <td align="left" style="BORDER-BOTTOM: #ffffff solid"><font style="DISPLAY: inline; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
            <td style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman"><strong>Exercise<br>Price</strong></font></div>
            </td>
            <td align="right" style="BORDER-BOTTOM: #ffffff solid"><font style="DISPLAY: inline; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
            <td align="right" nowrap style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman"><strong>Expiration<br>Date&#160;</strong></font></div>
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#ffffff">
            <td align="right" width="15%"><font style="DISPLAY: inline; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
            <td align="left" width="15%"><font style="DISPLAY: inline; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
            <td width="15%"><font style="DISPLAY: inline; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
            <td align="right" width="15%">&#160;</td>
            <td align="right" nowrap width="20%">&#160;</td>
          </tr>
          <tr valign="bottom">
            <td align="right" width="15%" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">655,000</font></td>
            <td align="left" width="15%" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td width="15%" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;2</font><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">.00</font></td>
            <td align="right" width="15%" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" nowrap width="20%" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">September
              30,
              2006</font></td>
          </tr>
          <tr valign="bottom">
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">451,880</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;3</font><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">.01</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">March
              31, 2007</font></td>
          </tr>
          <tr valign="bottom">
            <td align="right" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">272,729</font></td>
            <td align="left" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;6</font><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">.75</font></td>
            <td align="right" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">July
              10,
              2007</font></td>
          </tr>
          <tr valign="bottom">
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">100,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;4</font><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">.25</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">September
              30, 2007</font></td>
          </tr>
          <tr valign="bottom">
            <td align="right" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">353,625</font></td>
            <td align="left" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;3</font><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">.25</font></td>
            <td align="right" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">December
              31,
              2007</font></td>
          </tr>
          <tr valign="bottom">
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">50,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;3</font><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">.63</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">April
              8, 2008</font></td>
          </tr>
          <tr valign="bottom">
            <td align="right" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">75,000</font></td>
            <td align="left" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;8</font><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">.60</font></td>
            <td align="right" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">December
              31,
              2009</font></td>
          </tr>
          <tr valign="bottom">
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">75,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;9</font><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">.28</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">December
              31, 2009</font></td>
          </tr>
          <tr valign="bottom">
            <td align="right" bgcolor="#eaf9e8" style="BORDER-BOTTOM: #000000 thin solid"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">275,000</font></td>
            <td align="left" bgcolor="#eaf9e8" style="BORDER-BOTTOM: #ffffff solid"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td bgcolor="#eaf9e8" style="BORDER-BOTTOM: #ffffff solid"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;8</font><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">.60</font></td>
            <td align="right" bgcolor="#eaf9e8" style="BORDER-BOTTOM: #ffffff solid"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" bgcolor="#eaf9e8" style="BORDER-BOTTOM: #ffffff solid"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">June
              14,
              2010</font></td>
          </tr>
          <tr valign="bottom">
            <td align="right" colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">&#160;&#160;&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="right" style="BORDER-BOTTOM: #000000 double"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">2,308,234</font></td>
            <td align="left" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">As a result
      of the termination of the Kingsbridge Agreement (see Committed Equity Financing
      Facility section above), the warrant for 275,000 shares which was exercisable
      until June 14, 2010 at $8.60 per share was cancelled on July 11, 2005.
</font></p>
    <p align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The
      warrants exercisable for 272,729 shares which expire on July 10, 2007
      contain anti-dilution provisions, and as a result of the 2005 Equity Financing
      (see Note&#160;15 below) the exercise price of those warrants will adjust
      from
      $6.75 to $6.55 at the option of the holders.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>12.
      &#160;BUSINESS SEGMENT DATA </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The Company
      is engaged in design, development and commercialization of sound, acoustic
      and
      other technologies. The Company&#8217;s operations are organized into two segments by
      the end-user markets they serve. The Company&#8217;s reportable segments are strategic
      business units that sell the Company&#8217;s products to distinct distribution
      channels. The Commercial Products Group (Commercial Group) markets and licenses
      HSS, NeoPlanar and other sound products incorporating the Company&#8217;s technologies
      to companies that employ audio in consumer, commercial and professional
      applications. The Government and Force Protection Systems Group (Government
      Group) markets LRAD, MRAD, NeoPlanar, Sound Cluster and HSS sound products
      to
      government and military customers and to the expanding force protection and
      commercial security markets. The segments are managed separately because each
      segment requires different selling and marketing strategies as the class of
      customers within each segment is different.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The
      accounting policies of the segments are the same as those described in the
      summary of significant accounting policies. The Company does not allocate
      operating expenses or assets between its two reportable segments. Accordingly
      the measure of profit for each reportable segment is gross profit.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">14</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always">&#160;</p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">Three
              Months Ended<br>June 30,</font></th>
            <th>&#160;</th>
            <th colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">Nine
              Months Ended<br>June 30,</font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="3"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2005</font></th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2004</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2005</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2004</font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Revenues:</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%" bgcolor="#eaf9e8">&#160;</td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Commercial
              Products Group</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">172,687</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">270,494</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">469,560</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">807,589</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Government
              Group</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,221,110</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,836,787</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">8,150,544</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">3,567,720</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,393,797</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,107,281</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">8,620,104</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">4,375,309</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>

      </table>
    </div><br>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">Three
              Months Ended<br>June 30,</font></th>
            <th>&#160;</th>
            <th colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">Nine
              Months Ended<br>June 30,</font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2005</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2004</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2005</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2004</font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Gross
              Profit (Loss):</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Commercial
              Products Group</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(91,184</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(167,833</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(703,617</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(244,625</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Government
              Group</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">493,191</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,268,795</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">5,350,260</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,259,913</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">402,007</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,100,962</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">4,646,643</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,015,288</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>13.
      &#160;LEGAL PROCEEDINGS </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In September
      2003, the Company filed a complaint against eSoundIdeas, Inc., in the Superior
      Court of California, County of San Diego, alleging breach of contract and
      seeking a declaratory judgment to the effect that a License, Purchase and
      Marketing Agreement dated September 28, 2000 (the &#8220;ESI License Agreement&#8221;) with
      eSoundIdeas, a California partnership, was properly terminated in May 2003.
      The
      principals of eSoundIdeas are Greg O. Endsley and Douglas J. Paschall. The
      principals also founded a corporation, eSoundIdeas, Inc., which purported to
      assume the contractual obligations of eSoundIdeas. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In April
      2005, the Company, ESI and its two principals entered into a Settlement
      Agreement and Mutual Release. As part of the settlement, the Company agreed
      to
      pay $150,000, which was previously accrued and recorded as a general and
      administrative expense, and to issue 17,500 shares of common stock to ESI.
      The
      fair market value of these as of April 27, 2005 of $140,175 was recorded in
      the
      quarter ended March 31, 2005 as a general and administrative expense. In
      addition, Mr. Endsley and Mr. Paschall will be entitled to receive an aggregate
      commission equal to 1% of net sales from April 1, 2005 to September 28, 2007,
      of
      the Company&#8217;s HSS products specifically targeted for use in North America in the
      point of sale/purchase, kiosk, display, event, trade show and exhibit markets,
      subject to a maximum aggregate commission of $500,000. The Company also granted
      the recipients of the shares &#8220;piggyback&#8221; rights to have their shares included on
      future registration statements that the Company might file.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The Company
      may at times be involved in litigation in the ordinary course of business.
      The
      Company will also, from time to time, when appropriate in management&#8217;s
      estimation, record adequate reserves in the Company&#8217;s financial statements for
      pending litigation. Except as set forth above, there are no pending material
      legal proceedings to which the Company is a party or to which any of its
      property is subject.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>14.
      &#160;INCOME TAXES </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">At June
      30,
      2005, a valuation allowance has been provided to offset the net deferred tax
      asset as management has determined that it is more likely than not that the
      deferred tax asset will not be realized. At September 30, 2004 the Company
      had
      for federal income tax purposes net operating loss carryforwards of
      approximately $37,400,000, which expire through 2025 of which certain amounts
      are subject to significant limitations under the Internal Revenue Code of 1986,
      as amended.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>15.</strong>
      &#160;<strong>SUBSEQUENT EVENTS</strong></font></p>
    <p align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">On
      July 18, 2005, the Company sold 2,868,851 shares of common stock at a purchase
      price of $4.88 per share (the 2005 Equity Financing). The Company also issued
      warrants in two series to the investors to purchase 1,581,919 shares of common
      stock. The &#8220;A&#8221; Warrants are exercisable for an aggregate of 717,213 shares of
      common stock at an exercise price of $6.36 per share until July 18, 2009. The
      &#8220;B&#8221; Warrants are exercisable for an aggregate of 864,706 shares of common stock
      at an exercise price of $7.23 per share and are exercisable from the date the
      registration statement referred to below becomes effective until the date six
      months after that effective date.</font></p>
    <p>&#160;</p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">15</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always">&#160;</p>
    <p align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The
      gross proceeds from this financing were approximately $14 million.
      The Company incurred financing and closing costs of approximately $740,000.
      The
      Company used approximately $2.0 million of the gross proceeds to discharge
      the
      principal balance of and accrued interest on the 8% unsecured subordinated
      promissory notes due December 31, 2006 (see Note&#160;10). The Company entered
      into a registration rights agreement with the investors, and agreed to prepare
      and file, within 30 days following the issuance of the securities, a
      registration statement covering the resale of the shares of common stock sold
      and the common stock issuable upon the exercise of the warrants. Failure to
      have
      an effective registration statement within 90 days obligates the Company to
      pay
      liquidated damages to the purchasers in the amount of 0.5% of the&#160;gross
      proceeds per month until 180 days after the closing and 1% of the gross proceeds
      per month&#160;thereafter.</font></p>
    <p align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The
      Company has also agreed to submit the financing to a vote of its
      stockholders for approval prior to June 2006. The Company further agreed that,
      subject to certain exceptions, if during the next year it sells shares of its
      common stock, or options or warrants to purchase shares of its common stock,
      in
      a private placement or in a public offering using a Form S-3, the purchasers
      will have certain rights of first refusal to participate in the financing.
      The
      Company has also agreed to indemnify the purchasers for certain
      losses.</font></p>
    <p align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The
&#8220;A&#8221;
      Warrants and &#8220;B&#8221; Warrants contain provisions that would adjust
      the exercise price, and in inverse proportion adjust the number of shares
      subject to the warrant, in the event the Company pays or effects stock dividends
      or splits, or in the event the Company sells shares of its common stock at
      a
      purchase price, or options or warrants to purchase shares of its common stock
      having an exercise price, less than the exercise price of the applicable
      warrant. The &#8220;A&#8221; Warrants also feature a net exercise provision, which enables
      the holder to choose to exercise the warrant without paying cash by surrendering
      shares subject to the warrant with a market value equal to the exercise price.
      This right is available only if a registration statement covering the shares
      subject to the &#8220;A&#8221; Warrants is not available after it is initially declared
      effective. The Company has the right to redeem the &#8220;B&#8221; Warrants if the closing
      price of the shares of its common stock is $10.00 or greater for 15 consecutive
      trading days and the holder does not exercise within 20 days after the Company
      gives notice of redemption.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong><a name="a7">Item
      2. &#160;Management&#8217;s Discussion and Analysis of Financial
      Condition and Results of Operations </a></strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The following
      discussion should be read in conjunction with the accompanying unaudited interim
      financial statements and the related notes included under Item 1 of this
      Quarterly Report on Form 10-Q, together with Management&#8217;s Discussion and
      Analysis of Financial Condition and Results of Operations included in the
      Company&#8217;s Annual Report on Form 10-K for the year ended September 30,
      2004.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The following
      discussion provides an overview of our results of operations for the three
      and
      nine months ended June 30, 2005 and 2004. Significant period-to-period variances
      in the statements of operations are discussed under the caption &#8220;Results of
      Operations.&#8221; Our financial condition and cash flows are discussed under the
      caption &#8220;Liquidity and Capital Resources.&#8221;</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Forward
      Looking Statements </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><i>This
      report contains certain statements of a forward-looking nature relating to
      future events or future performance. Words such as</i>
      &#160;&#8220;<i>expects,</i>&#8221;<i>&#8220;anticipates,</i>&#8221;&#8220;<i>intends,</i>&#8221;&#8220;<i>plans,</i>&#8221;&#8220;<i>believes,</i>&#8221;&#8220;<i>seeks,</i>&#8221;&#8220;<i>estimates</i>&#8221;<i>
      and similar expressions or variations of such words are intended to identify
      forward-looking statements, but are not the only means of identifying
      forward-looking statements. Prospective investors are cautioned that such
      statements are only predictions and that actual events or results may differ
      materially. In evaluating such statements, prospective investors should
      specifically consider various factors identified in this report, including
      the
      matters set forth below under the caption</i>&#8220;<i>Business Risks</i>&#8221;<i>, which
      could cause actual results to differ materially from those indicated by such
      forward-looking statements.</i></font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">16</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Overview
      </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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&#174; Sound or HSS&#174;.
      We believe we are also the leader in developing and commercializing high
      intensity directed acoustical devices, branded as Long Range Acoustic Device
      or
      LRAD&#8482; and Medium Range Acoustic Device or MRAD&#8482;. We have more than 55 patents
      issued world-wide covering our various sound technologies, of which over 45
      are
      patents issued in the United States. We also have over 265 pending patent
      applications world-wide, of which over 110 are pending patent applications
      in
      the United States.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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&#160;at approximately half the cost. We are utilizing our technologies
      and products to provide solutions for difficult acoustic challenges.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The four
      major products from our technology portfolio are listed below. </font></p>
    <div align="left">
      <table bgcolor="#ffffff" cellpadding="0" cellspacing="0" width="100%">

          <tr bgcolor="#ffffff">
            <td width="3%">&#160;</td>
            <td valign="top" width="3%">&#160;<font size="2">&#8226;</font></td>
            <td width="94%"><font size="2">Our HyperSonic sound, or HSS, technology
              is a
              new parametric speaker technology that creates sound &#8220;in the air.&#8221; 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.</font></td>
          </tr>
          <tr bgcolor="#ffffff">
            <td width="3%">&#160;</td>
            <td width="3%">&#160;</td>
            <td width="94%">&#160;</td>
          </tr>
          <tr bgcolor="#ffffff">
            <td width="3%">&#160;</td>
            <td valign="top" width="3%">&#160;<font size="2">&#8226;</font></td>
            <td width="94%"><font size="2">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 &#8220;The Sound of Force Protection&#8482;&#8221;, 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.</font></td>
          </tr>
          <tr bgcolor="#ffffff">
            <td width="3%">&#160;</td>
            <td width="3%">&#160;</td>
            <td width="94%">&#160;</td>
          </tr>
          <tr bgcolor="#ffffff">
            <td width="3%">&#160;</td>
            <td valign="top" width="3%">&#160;<font size="2">&#8226;</font></td>
            <td width="94%"><font size="2">Our NeoPlanar&#174; 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. </font></td>
          </tr>
          <tr bgcolor="#ffffff">
            <td width="3%">&#160;</td>
            <td width="3%">&#160;</td>
            <td width="94%">&#160;</td>
          </tr>
          <tr bgcolor="#ffffff">
            <td width="3%">&#160;</td>
            <td valign="top" width="3%"><font size="2">&#8226;</font>&#160;</td>
            <td width="94%"><font size="2">Our SoundCluster&#8482; 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. </font></td>
          </tr>

      </table>
    </div>
    <div>&#160;</div>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">17</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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&#160;distances.
      </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Our primary
      products sold to date have been LRAD and HSS products. During the nine months
      ended June&#160;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 our products at a new contract manufacturer.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Overall
      Performance</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">For our
      third
      fiscal quarter ended June 30, 2005, revenues were 34% lower than the same period
      in the prior fiscal year primarily as a result of reduced LRAD deliveries to
      government customers. Operating expenses for the third fiscal quarter were
      66%
      higher than the comparable prior year period, and as a result, our net loss
      for
      the quarter ended June 30, 2005, was 158% higher than for the comparable prior
      year period. Our revenues for the three months ended June 30, 2005 were
      $1,393,797, compared to $2,107,281 for the three months ended June 30, 2004.
      Our
      gross profit for the three months ended June 30, 2005 was 29% of revenues,
      compared to 52% of revenues for the comparable period in the prior fiscal year.
      We recorded a gross profit of $402,007 for the three months ended June 30,
      2005,
      which was $698,955 lower than the gross profit of $1,100,962 for the three
      months ended June 30, 2004. Operating expenses increased from $2,504,650 for
      the
      three months ended June 30, 2004 to $4,147,489 for the three months ended June
      30, 2005. In addition, for the three months ended June 30, 2005, there was
      $115,217 of net interest expense associated with subordinated notes sold in
      December 2004. Our net loss increased from $1,390,411 for the three months
      ended
      June 30, 2004 to $3,592,768 for the three months ended June 30, 2005.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">As a result
      of our performance for the quarter and the substantial completion of major
      development projects such as MRAD, HSS 450 and SoundVector, we initiated an
      effort to reduce expenses while we continue to focus our efforts on near-term
      revenue and gross margin improvement from our existing, marketable products.
      As
      a result we decreased our headcount from 71 employees at March 31, 2005, to
      46
      employees as of June 30, 2005. The majority of the reductions were in research
      and development. At June&#160;30, 2005, 9&#160;employees were in research
      and
      development, 13 were in production, quality assurance and materials control,
      11
      were in general and administrative and 13 were in marketing, sales and
      licensing. We are closely monitoring expenses for all of our departments. Our
      policy is to establish a compelling business case for all
      initiatives.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Our various
      technologies are high risk in nature. Our future is largely dependent upon
      the
      success of our sound technologies. We invest significant funds in research
      and
      development, marketing and sales and on patent applications related to our
      proprietary technologies. Unanticipated technical or manufacturing obstacles
      can
      arise at any time and disrupt sales or licensing activities and result in
      lengthy and costly delays. See &#8220;Business Risks&#8221; below.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">18</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Recent
      Developments </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In May
      2005,
      Carl Gruenler, Vice President, Government and Force Protection Systems Group,
      left our company. Kalani Jones, President and Chief Operating Officer, assumed
      Mr. Gruenler&#8217;s duties. In July 2005, A.J. Ballard was appointed as Senior
      Director of the Government and Force Protection Systems&#160;Group, reporting
      to
      Kalani Jones.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In June
      2005
      we entered into a design and manufacturing licensing agreement with ECCO Group
      (ECCO), the world&#8217;s largest manufacturer of backup alarms for commercial
      vehicles. The agreement covers the initial licensing and product development
      of
      our SoundVector technology to ECCO and its affiliates for backup vehicle alarms
      and similar uses. The agreement includes technology transfer, product
      development assistance and upfront licensing fees, with royalties payable,
      based
      on unit volume production. The agreement is renewable on an annual basis after
      an initial three-year term, with further fees due upon
      each&#160;renewal.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In July
      2005
      we entered into an agreement to terminate the Committed Equity Financing
      Facility with Kingsbridge Capital Limited entered into in December 2004. The
      termination agreement resulted from our determination that the common stock
      purchase agreement was no longer consistent with our financing plans.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In July
      2005
      we completed an institutional financing providing gross proceeds of $14 million.
      After paying financing and closing costs and retiring approximately $2 million
      of unsecured subordinated promissory notes, we expect to use the net proceeds
      for marketing, sales and deliveries of our proprietary directed sound products
      and for general working capital.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Critical
      Accounting Policies </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">We have
      identified the policies below as critical to our business operations and the
      understandings of our results of operations. Our accounting policies are more
      fully described in our financial statements located in Item 1 of Part I,
&#8220;Financial Statements.&#8221;</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The methods,
      estimates and judgments we use in applying our accounting policies, in
      conformity with generally accepted accounting principles in the United States,
      have a significant impact on the results we report in our financial statements.
      We base our estimates on historical experience and on various other assumptions
      that we believe to be reasonable under the circumstances. The estimates affect
      the carrying values of assets and liabilities. Actual results may differ from
      these estimates under different assumptions or conditions. We believe that
      the
      following discussion addresses our most critical accounting policies, which
      are
      those that are most important to the portrayal of our financial condition and
      results of operations and require our most difficult, subjective, and complex
      judgments, often as a result of the need to make estimates about the effect
      of
      matters that are inherently uncertain.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><i>Revenue
      Recognition.</i> &#160;We currently derive our revenue primarily from two
      sources: (i) component and product sale revenues and associated engineering
      and
      installation, which we refer to collectively as Product Sales and (ii) contract
      and license fee revenue. Product Sales revenues are recognized in the periods
      that products are shipped to customers, FOB shipping point or destination,
      when
      a signed contract exists, the fee is fixed and determinable, collection of
      resulting receivables is probable and there are no remaining obligations.
      Revenues from engineering contracts are recognized based on milestones or
      completion of the contracted services. Revenues from ongoing per unit license
      fees are earned based on units shipped incorporating our patented proprietary
      technologies and are recognized in the period when the ultimate customer accepts
      the product and collectibility is reasonably assured. Revenues from up-front
      license and other fees and annual license fees are generally recognized ratably
      over the specified term of the particular license or agreement.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><i>Valuation
      of Intangible Assets.</i> &#160;Intangible assets include purchased technology
      and patents, which are amortized over their estimated useful lives. We must
      make
      judgments and estimates regarding the future utility and carrying value of
      intangible assets. The carrying values of such assets are periodically reviewed
      and impairments, if any, are recognized when the expected future benefit to
      be
      derived from an individual intangible asset is less than its carrying value.
      Our
      judgments and estimates regarding carrying value and impairment of intangible
      assets have an impact on our financial statements.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">19</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><i>Warranty
      Reserve.</i> &#160;We establish a warranty reserve based on anticipated warranty
      claims at the time product revenue is recognized. These warranties require
      us to
      make estimates regarding the amount and costs of warranty repairs we expect
      to
      make over a period of time. Factors affecting warranty reserve levels include
      the number of units sold and anticipated cost of warranty repairs and
      anticipated rates of warranty claims. We evaluate the adequacy of the provision
      for warranty costs each reporting period. See Note 9 to our financial statements
      for additional information regarding warranties. The estimates we use have
      an
      impact on our financial statements. In the three and nine months ended June
      30,
      2005, we recorded a net warranty reduction of $10,350 and $103,430,
      respectively, as a result of the following:&#160;(a) we reduced the warranty
      reserve that we had previously established in fiscal 2003 for HSS Generation
      1
      products, primarily as a result of the expiration of the warranty period for
      HSS
      Generation 1 products sold, and (b)&#160;we recorded a warranty provision
      for
      current sales.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><i>Guarantees
      and Indemnifications</i>. Under our bylaws, we have agreed to indemnify our
      officers and directors for certain events. We also enter into certain
      indemnification agreements in the normal course of our business. We have no
      liabilities recorded for such indemnities.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><i>Deferred
      Tax Asset. </i>We have provided a full valuation reserve related to our
      substantial deferred tax asset as management has determined that it is more
      likely than not that the deferred tax asset will not be realized. In the future,
      if sufficient evidence of our ability to generate sufficient future taxable
      income in certain tax jurisdictions becomes apparent, we may be required to
      reduce our valuation allowances, resulting in income tax benefits in our
      statement of operations. We evaluate the realizability of the deferred tax
      assets and assess the need for valuation allowance quarterly. The utilization
      of
      the net operating loss carryforwards could be substantially limited due to
      restrictions imposed under federal and state laws upon a change in ownership.
      Congress passed the American Jobs Creation Act of 2004 in October 2004. The
      new
      law contains numerous changes to existing tax laws, including both domestic
      and
      foreign tax incentives. We have not yet determined what impact, if any, this
      new
      law may have on our deferred tax asset, or our future results of operations
      and
      financial condition.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><i>Valuation
      of Inventory. </i>Our inventory is comprised of raw materials, assemblies and
      finished products that we intend to sell to our customers<i>. </i>We must
      periodically make judgments and estimates regarding the future utility and
      carrying value of our inventory. The carrying value of our inventory is
      periodically reviewed and impairments, if any, are recognized when the expected
      future benefit from our inventory is less than its carrying value. In the
      quarter ended June 30, 2005, we reviewed the carrying value of our inventory
      and
      decreased the reserve for obsolescence to $293,535 from the level of $349,986
      at
      March 31, 2005. The reserve is primarily for raw materials and finished goods
      that were used on older HSS and PMT products for which there is anticipated
      to
      be reduced demand.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Results
      of Operations </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><u>Revenues
      </u></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Revenues
      for
      the three months ended June 30, 2005 were $1,393,797, representing a 34%
      decrease from $2,107,281 in revenues for the three months ended June 30, 2004.
      Revenues for the three months ended June 30, 2005 included $1,378,648 of product
      sales and $15,149 of contract and license revenues. Revenues for the three
      months ended June 30, 2004 consisted of $2,089,359 of product sales and $17,922
      of contract and license revenues. The decrease in revenues was due to reduced
      sales of LRAD products by our Government Group and reduced sales of HSS products
      by our Commercial Products Group. The prior year period also included revenues
      from the sale of a 5MC public address system which we did not market during
      the
      current period. Our revenues are highly dependent on the timing of large orders
      from a small number of customers. We expect continued uneven quarterly revenues
      in future periods due to the lack of established markets for our proprietary
      products. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">At June
      30,
      2005, we had $450,000 in deferred revenue consisting of deposits for existing
      contracts, agreements and licenses.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">20</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Revenues
      for the nine
      months ended June 30, 2005 were $8,620,104, representing a 97% increase from
      $4,375,309 in revenues for the nine months ended June 30, 2004. Revenues for
      the
      nine months ended June 30, 2005 and June 30, 2004 included $8,539,855 and
      $4,201,193 of product sales, and $80,249 and $174,116 of contract and license
      revenues, respectively. The increase in product sales was due primarily to
      increased sales of LRAD products by our Government Group. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">We have
      only
      a limited record of recurring sales, so we do not consider order backlog to
      be
      an important index of future performance at this time. Our backlog is affected
      by the timing of large orders and order deliveries, especially to government
      customers. Our order backlog was approximately $660,000 at June 30, 2005 and
      approximately $46,800 at June 30, 2004. Backlog orders are subject to
      modification, cancellation or rescheduling by our customers. Future shipments
      may also be delayed due to production delays, component shortages and other
      production and delivery related issues.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Our
      Commercial Products Group, or Commercial Group, markets and licenses HSS,
      NeoPlanar and SoundVector products to companies, which employ audio in consumer,
      commercial and professional applications. Our Government and Force Protection
      Systems Group, or Government Group, markets LRAD, NeoPlanar, SoundCluster and
      HSS products to government and military customers and to the expanding force
      protection and commercial security markets.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Presented
      below is a summary of revenues by business segment: </font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">Three
              Months Ended<br>June 30,</font></th>
            <th>&#160;</th>
            <th colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">Nine
              Months Ended<br>June 30,</font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="3"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2005</font></th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2004</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2005</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2004</font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Revenues:</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Commercial
              Products Group</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">172,687</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">270,494</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">469,560</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">807,589</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Government
              Group</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,221,110</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,836,787</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">8,150,544</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">3,567,720</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,393,797</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,107,281</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">8,620,104</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">4,375,309</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>
          <tr>
            <td>
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
            <td colspan="3">
            </td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Commercial
      Group revenues for all reported periods consisted primarily of HSS and Neoplanar
      product sales. Commercial Group revenues for the three and nine month periods
      ended June 30, 2004 consisted of multiple small volume sales. Commercial Group
      revenues for the three and nine month periods ended June&#160;30, 2005 reflect
      a
      shift in our marketing focus to high volume contracts. These contracts require
      much longer sales cycles, and we had not at June 30, 2005 recognized significant
      revenues from such contracts.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Government
      Group revenues for all reported periods consisted primarily of sales of LRAD,
      NeoPlanar, and 5MC products and engineering services such as installation design
      and support. These revenues are derived primarily from a limited number of
      large
      orders, and the timing of follow-on orders, if any, is difficult to predict.
      Government Group sales for the three and nine month periods ended June 30,
      2005
      consisted primarily of LRAD and NeoPlanar product sales and, to a much lesser
      extent, engineering services.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">For the
      three
      months ended June 30, 2005, sales to one customer in the Government Group
      accounted for 62% of total revenues and sales to a second customer in the
      Government Group, including affiliates of the customer, accounted for 12% of
      total revenues. For the nine months ended June 30, 2005, sales to one customer
      in the Government Group accounted for 79% of total revenues and sales to a
      second customer in the Government Group, including affiliates of the customer,
      accounted for 10% of total revenues. For the three months ended June 30, 2004,
      sales to three customers accounted for 62%, 22% and 13% of total revenues,
      respectively. For the nine months ended June 30, 2004, sales to two customers
      in
      the Government Group accounted for 51% and 28% of total revenues, respectively.
      The loss of any one of these significant customers would have a material adverse
      effect on our results of operations and financial condition.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">21</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><u>Gross
      Profit</u></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Presented
      below is the gross profit or loss by business segment:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">Three
              Months Ended<br>June 30,</font></th>
            <th>&#160;</th>
            <th colspan="5"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">Nine
              Months Ended<br>June 30,</font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2005</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2004</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2005</font></th>
            <th>&#160;</th>
            <th colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">2004</font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Gross
              Profit (Loss):</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="1%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="10%">&#160;</td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Commercial
              Products Group</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(91,184</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(167,833</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(703,617</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">(244,625</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">)</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;&#160;Government
              Group</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">493,191</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,268,795</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">5,350,260</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,259,913</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">402,007</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">1,100,962</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">4,646,643</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,015,288</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The overall
      gross profit for the three months ended June 30, 2005 was $402,007, or 29%
      of
      revenues, compared to gross profit of $1,100,962, or 52% of revenues, for the
      comparable period of the prior fiscal year. Gross profit as a percentage of
      revenues declined over the comparable period of the prior fiscal year as a
      result of reduced gross profit in our Government Group, offset in part by
      decreased gross losses in our Commercial Group. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The overall
      gross profit for the nine months ended June 30, 2005 was $4,646,643, or 54%
      of
      revenues, compared to gross profit of $2,015,288, or 46% of revenues, for the
      comparable period of the prior fiscal year. The significant improvement in
      gross
      profit as a percentage of revenues reflected improved gross profit in our
      Government Group, offset in part by increased gross losses in our Commercial
      Group and increased expenses for inventory reserves.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">We
      experienced gross losses in our Commercial Group for the three and nine months
      ended June 30, 2005 of $91,184 and $703,617, respectively, as limited sales
      were
      not sufficient to absorb fixed manufacturing overhead costs and substantial
      reserves were taken for obsolete and slow moving inventory, particularly for
      our
      older HSS products. For the three and nine months ended June 30, 2004, we had
      gross losses in our Commercial Group of $167,833 and $244,625 respectively,
      primarily as a result of limited sales compared to fixed overhead and warranty
      costs. During fiscal year 2003 and fiscal 2004 we changed our HSS Generation
      1
      emitter design to eliminate the requirement for a vacuum in the emitter, and
      we
      improved film quality. During fiscal 2004, we made further raw material
      improvements in the electronics and the manner in which the film and emitters
      are produced. In May 2005 we introduced a new, lower-cost model of our HSS
      product. We believe that the latest generation of our products will be more
      reliable. We expect that warranty costs will decrease in fiscal 2005, and that
      as the volume of HSS product sales grow, we will achieve positive gross margins
      in future periods.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Gross
      profit
      for our Government Group for the three and nine months ended June 30, 2005,
      was
      $493,191 and $5,350,260, respectively, compared to $1,268,795 and $2,259,913
      for
      the three and nine months ended June 30, 2004. Cost of revenues for the three
      and nine months ended June 30, 2005 included $127,214&#160;of costs associated
      with the partial shipment of an order.&#160; The revenue associated with
      the
      order will be recognized upon shipment of complete products which is expected
      to
      occur in our fiscal fourth quarter. Gross profit percentage continues to be
      highly dependent on sales prices, sales volumes, purchasing costs and overhead
      allocations. Our various sound products have different margins, so product
      sales
      mix will materially affect gross profits. In addition, we continue to make
      model
      updates and changes including raw material and component changes, which change
      product costs and may result in expense for raw material and products that
      are
      deemed obsolete. We therefore do not believe that historical gross profit
      margins should be relied upon as an indicator of future gross profit
      margins.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><u>Selling,
      General and Administrative Expenses </u></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Selling,
      general and administrative expenses were 207% of revenues for the three months
      ended June 30, 2005 compared to 77% of revenues for the three months ended
      June
      30, 2004. These costs for the three months ended June 30, 2005 totaled
      $2,879,021, which represents an increase of $1,264,670 from selling, general
      and
      administrative expenses of $1,614,351 for the three months ended June 30, 2004.
      </font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">22</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The
      overall increase
      for the three months ended June 30, 2005 included the following: </font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="3%">
            </td>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$31,989
              increase in personnel and related expenses due to increases
              in headcount and salaries. </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$296,381
              increase in travel and entertainment, marketing expenses
              and the cost of demonstration units, due to increased sales
              efforts.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$98,069
              increase in commission expenses due to a higher commission
              rate.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$29,755
              increase in insurance expenses.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$259,619
              increase in consulting services primarily due to costs
              associated with compliance with the Sarbanes-Oxley Act of
              2002.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$44,275
              increase in accounting and auditing expense due to higher
              fees for services provided.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$46,753
              increase in expenses related to board of directors fees,
              filings and shareholder activities.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$80,000
              increase in bad debt expense due to one overdue
              payment.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$293,826
              of impairment charge related to the legal, audit and
              associated fees originally recorded as prepaid transaction costs
              associated with the Committed Equity Financing Facility with Kingsbridge.
              The impairment charge resulted from our decision in June 2005 to terminate
              such facility. </font></td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Selling,
      general and administrative expenses were 81% of revenues for the nine months
      ended June 30, 2005 compared to 86% for nine months ended June 30, 2004. These
      costs for the nine months ended June&#160;30, 2005 totaled $6,968,972, which
      represents an increase of $3,202,835 from selling general and administrative
      expenses of $3,766,137 for the nine months ended June 30, 2004. The overall
      increase for the nine months ended June 30, 2005 included the
      following:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="3%">
            </td>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$591,239
              increase in personnel and related expenses due to
              increases in headcount and salaries.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$311,250
              increase in commission expenses resulting from increased
              sales in our Government Group.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$439,313
              increase in legal expense related to the litigation which
              settled in April 2005 and increased legal costs of public company
              compliance.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$534,217
              increase in travel and entertainment, marketing expenses
              and the cost of demonstration units, as a result of increased sales
              efforts.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$125,291
              increase in insurance expenses due to higher business
              insurance costs and higher Director&#8217;s and Officer&#8217;s liability
              insurance.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$101,464
              increase in depreciation expenses due to an increase in
              depreciable capital assets.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$76,988
              increase in accounting and auditing expense due to higher
              fees for services provided.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$277,709
              increase in consulting services primarily due to costs
              associated with compliance with the Sarbanes-Oxley Act of
              2002.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$80,909
              increase in bad debt expense primarily due to one overdue
              payment.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$60,091
              increase in rent expense due to additional space
              requirements and higher rental rate.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$79,399
              non-cash expense for the modification of stock options for
              a terminated employee.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$293,826
              of impairment charge related to the legal, audit and
              associated fees originally recorded as prepaid transaction costs
              associated with the Committed Equity Financing Facility with Kingsbridge.
              The impairment charge resulted from our decision in June 2005 to terminate
              such facility. </font></td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">We expect
      selling, general and administrative expenses to increase in future periods
      as we
      increase our marketing efforts for our proprietary sound technologies. We will
      also incur substantial additional expense over the remainder of fiscal 2005
      to
      improve and document our internal control over financial reporting in
      anticipation of management&#8217;s required assessment of the effectiveness of our
      internal control over financial reporting and the attestation of such assessment
      by our independent registered public accounting firm, required by Section 404
      of
      the Sarbanes-Oxley Act of 2002 in connection with our report on Form 10-K for
      the fiscal year ending September 30, 2005.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">23</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><u>Research
      and
      Development Expenses </u></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Research
      and
      development expenses increased by $378,169 from $890,299 to $1,268,468 for
      the
      three months ended June 30, 2005. Research and development expenses as a
      percentage of sales were 91% for the three months ended June 30, 2005 compared
      to 42% for the three months ended June 30, 2004. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The overall
      increase for the three months ended June 30, 2005 included the
      following:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="3%">
            </td>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$309,311
              increase in personnel and related costs, as we
              significantly increased our engineering design and development
              capability.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$45,517
              increase for prototypes and other parts relating to our
              continuing effort to design and develop new and more reliable
              products.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$41,683
              decrease for professional services and consulting
              expenses.</font></td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Research
      and
      development expenses increased by $2,197,958 from $1,983,518 for the nine months
      ended June 30, 2004 to $4,181,476 for the nine months ended June 30, 2005.
      Research and development expenses as a percentage of sales were 49% for the
      nine
      months ended June 30, 2005 compared to 45% for the nine months ended June 30,
      2004. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The overall
      increase for the nine months ended June 30, 2005 included the
      following:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="3%">
            </td>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$1,306,830
              increase in personnel and related costs as we
              significantly increased our engineering design and development
              capability.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$245,183
              non-cash expense associated with the modification of stock
              options of terminated employees.</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="24">
            </td>
            <td valign="top" width="24"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$583,756
              increase for prototypes and other parts relating to our
              continuing effort to design and develop new and more reliable
              products.</font></td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Research
      and
      development expenses vary period to period due to the timing of projects, the
      availability of funds for research and development and the timing and extent
      of
      use of outside consulting, design and development firms. We expect our research
      and development expenses to decrease in future periods as a result of the
      completion of major projects and the reduction in the number of employees who
      are directly involved in product development and technology development.
</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><u>Loss
      From
      Operations </u></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Loss from
      operations was $3,745,482 for the three months ended June 30, 2005 compared
      to
      $1,403,688 for the three months ended June 30, 2004. The increase in loss from
      operations reflected a $1,642,839 increase in total operating expenses, and
      a
      decrease of $698,955 in gross profit. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Loss from
      operations was $6,503,805 for the nine months ended June 30, 2005 compared
      to
      $3,734,367 for the nine months ended June 30, 2004. The increase in loss from
      operations was due to a $5,400,793 increase in total operating expenses, offset
      in part by an increase of $2,631,355 in gross profit. Losses from operations
      are
      expected to continue in the current fiscal year.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">24</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><u>Other
      Income
      (Expense) </u></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">We recorded
      $152,714 of other income and $228,830 of other expense for the three and nine
      months ended June 30, 2005, compared with $13,277 and $42,333 of other income
      for the three and nine months ended June&#160;30, 2004. Other income for
      the
      three and nine months ended June 30, 2005 included $451,190 and $183,259,
      respectively, of unrealized gain on derivative revaluation related to the
      decrease in the fair value of the warrant issued to Kingsbridge Capital Limited
      in December 2004. Other income for the three and nine month periods ended June
      30, 2005 was also reduced by a warrant impairment charge of $183,259 in each
      period, which represented the difference at June 30, 2005 between the fair
      value
      of the warrant determined at the date of issuance and the derivative instrument
      liability associated with such warrant. The impairment resulted from our
      decision in June 2005 to terminate that Kingsbridge financing arrangement,
      which
      termination became effective in July&#160;2005. The remaining asset of $659,846
      in prepaid transaction costs representing the unimpaired fair value of the
      warrant at June 30, 2005, and the remaining derivative instrument liability
      of
      the same amount, will be offset during the quarter ending September 30, 2005,
      with no net effect on other income or expense. We also incurred interest expense
      of $131,904 and $274,865 in the three and nine months ended June&#160;30,
      2005,
      primarily due to interest earned on the notes issued in December 2004 and the
      amortization of the debt discount on those notes. We recognized $16,687 and
      $46,035 of interest income from invested cash balances during the three and
      nine
      months ended June 30, 2005. During the three and nine months ended June 30,
      2004, we recorded interest expense of $454 and $2,263, respectively, and $13,731
      and $44,596, respectively, of interest income from invested cash balances.
      </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><u>Net
      Loss
</u></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net loss
      for
      the three months ended June 30, 2005 was $3,592,768 compared to net loss of
      $1,390,411 for the three months ended June 30, 2004. The increase in net loss
      resulted primarily from higher operating expenses and decreases in gross margins
      from the comparable prior period. The unrealized derivative revaluation credit
      to expense of $451,190 offset in part by the $183,259 warrant impairment expense
      recorded for the three months ended June 30, 2005 also reduced the net loss
      for
      the period. Net loss for the nine months ended June 30, 2005 was $6,732,635
      compared to net loss of $3,692,034 for the nine months ended June 30, 2004.
      The
      increase in net loss for the nine months ended June 30, 2005 as compared to
      the
      comparable period in the prior year resulted primarily from higher operating
      expenses, offset in part by increases in gross margins. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><u>Net
      Loss
      Available to Common Stockholders </u></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Net loss
      available to common stockholders was increased in each affected period&#160;in
      computing net loss per share by the accretion of the value of imputed deemed
      dividends arising from the beneficial conversion discount and the value of
      warrants associated with convertible preferred stock outstanding during each
      period. The imputed deemed dividends were not contractual obligations to pay
      such imputed dividends. Net&#160;loss available to common stockholders was
      also
      increased by the 6% accretion (similar to a dividend) on outstanding preferred
      stock. These amounts aggregated $-0-and $1,796,426 for the three and nine months
      ended June 30, 2005, and $387,019 and $1,087,570 for the three and nine months
      ended June 30, 2004. Accordingly, the net loss available to common stockholders
      was $3,592,768 and $8,529,061 for the three and nine months ended June 30,
      2005,
      and $1,777,430 and $4,779,604 for the three and nine months ended June 30,
      2004.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">On January
      18, 2005, we gave notice to all holders of Series D and Series E Preferred
      Stock
      that we had elected to convert the shares of Series D and Series E Preferred
      Stock to common stock. All 50,000 issued and outstanding shares of Series D
      Preferred Stock converted into an aggregate of 129,259 shares of common stock
      on
      the date of notice, and all 233,250 issued and outstanding shares of Series
      E
      Preferred Stock converted into an aggregate of 801,306 shares of common stock
      on
      February 1, 2005. As all the Series D and Series E Preferred Stock was called
      for conversion as described above, $1,504,711 was accreted in the second fiscal
      quarter, in addition to the accretion of $13,940 at the stated rate of 6%,
      and
      increased the net loss available to common stockholders.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Liquidity
      and Capital Resources </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">We have
      experienced significant negative cash flow from operating activities including
      developing and introducing our proprietary sound technologies. Our net cash
      used
      in operating activities was $5,455,018 for the nine months ended June 30, 2005
      compared to $4,909,532 for the nine months ended June 30, 2004. For the nine
      months ended June 30, 2005, the net loss of $6,732,635 included certain expenses
      not requiring the use of cash totaling $1,226,685. For the nine months ended
      June 30, 2005, cash was used in operating activities through an increase of
      $1,104,060 in inventory, an increase of $173,157 in prepaid expenses and $86,515
      in warranty deductions. Cash was provided in operating activities through a
      decrease of $339,439 in accounts receivable, an increase of $1,075,225 in
      accounts payable and accrued liabilities.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">At June
      30,
      2005, we had accounts receivable of $507,308 as compared to $926,747 at
      September 30, 2004. The balance at June 30, 2005 represented approximately
      37
      days of revenues. One customer accounted for 30% of accounts receivable, two
      other customers accounted for 21% each of accounts receivable and a fourth
      customer accounted for 14% of accounts receivable at June 30, 2005. No other
      customer accounted for more than 10% of accounts receivable at June 30, 2005.
      Terms with individual customers vary greatly. We typically require pre-payment
      or a maximum of thirty-day terms for our proprietary sound technology products.
      Our receivables can also vary substantially due to overall sales volumes and
      due
      to quarterly and seasonal variations in sales and timing of shipments to and
      receipts from large customers and the timing of contract payments.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">25</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">For
      the nine months
      ended June 30, 2005 and June 30, 2004 we used cash of $448,535 and $299,623,
      respectively, for the purchase of equipment and software and made investments
      of
      $187,579 and $254,096, respectively, in patents and new patent applications.
      We
      anticipate a continued investment in patents for the balance of fiscal 2005.
      </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Cash from
      financing activities provided $4,281,755 and $1,099,026 for the nine months
      ended June 30, 2005 and June 30, 2004. During the nine months ended June 30,
      2005, we received $2,000,000 from the sale of unsecured promissory notes,
      $1,661,277 from the exercise of common stock warrants and $649,577 from the
      exercise of stock options. During the nine months ended June 30, 2004, we
      received $50,000 from the exercise of common stock warrants and $1,056,367
      from
      the exercise of common stock options.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">At June
      30,
      2005, we had working capital of $1,365,194 compared to working capital of
      $3,472,984 at September 30, 2004.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In December
      2004, we sold for cash in a private offering an aggregate of $2,000,000 of
      unsecured subordinated promissory notes due December 31, 2006. In connection
      with the financing, we also issued five-year warrants to purchase an aggregate
      of 150,000 shares, 75,000 of which have an exercise price of $9.28 per share,
      and 75,000 of which have an exercise price of $8.60 per share. A trust
      affiliated with Elwood G. Norris, our Chairman and the beneficial owner of
      19.5%
      of our common stock before the financing, purchased a note in the principal
      amount of $500,000 and received a warrant exercisable for 37,500 shares with
      an
      exercise price of $9.28 per share. In July 2005, we redeemed the notes and
      paid
      all interest due using proceeds from the financing described below.</font></p>
    <p align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In
      July 2005, we sold 2,868,851 shares of common stock at a purchase price of
      $4.88
      per share. We also issued warrants in two series to the investors to purchase
      1,581,919 shares of common stock. The &#8220;A&#8221; Warrants are exercisable for an
      aggregate of 717,213 shares of common stock at an exercise price of $6.36 per
      share until July 18, 2009. The &#8220;B&#8221; Warrants are exercisable for an aggregate of
      864,706 shares of common stock at an exercise price of $7.23 per share and
      are
      exercisable from the date the registration statement referred to below becomes
      effective until the date six months after that effective date.</font></p>
    <p align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The
      gross proceeds from this financing were $14 million. We incurred
      financing and closing costs of approximately $740,000. We entered into a
      registration rights agreement with the investors, and agreed to prepare and
      file, within 30 days a registration statement covering the resale of the shares
      of common stock sold and the common stock issuable upon the exercise of the
      warrants. Failure to have an effective registration statement within 90 days
      obligates us to pay liquidated damages to the purchasers in the amount of 0.5%
      of the gross proceeds per month until 180 days after the closing, and 1% of
      the
      gross proceeds per month thereafter. We used approximately $2.0 million of
      the
      gross proceeds to discharge the principal balance of and accrued interest on
      the
      unsecured subordinated promissory notes described above.</font></p>
    <p align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">We
      have also agreed to submit the financing to a vote of our stockholders for
      approval prior to June 2006. We further agreed that, subject to certain
      exceptions, if during the next year we sell shares of our common stock, or
      options or warrants to purchase shares of our common stock, in a private
      placement or in a public offering using a Form S-3, the purchasers will have
      certain rights of first refusal to participate in the financing. We have also
      agreed to indemnify the purchasers for certain losses.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The &#8220;A&#8221;
      Warrants and &#8220;B&#8221; Warrants contain provisions that would adjust the exercise
      price, and in inverse proportion adjust the number of shares subject to the
      warrant, in the event we pay or effect stock dividends or splits, or in the
      event we sell shares of our common stock at a purchase price, or options or
      warrants to purchase shares of our common stock having an exercise price, less
      than the exercise price of the applicable warrant. The &#8220;A&#8221; Warrants also feature
      a net exercise provision, which enables the holder to choose to exercise the
      warrant without paying cash by surrendering shares subject to the warrant with
      a
      market value equal to the exercise price. This right is available only if a
      registration statement covering the shares subject to the &#8220;A&#8221; Warrants is not
      available after it is initially declared effective. We have the right to redeem
      the &#8220;B&#8221; Warrants if the closing price of the shares of our common stock is
      $10.00 or greater for 15 consecutive trading days and the holder does not
      exercise within 20 days after we give notice of redemption.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">26</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Other
      than cash and
      cash equivalents, we have no other unused sources of liquidity at this time.
      We
      expect to incur additional operating losses as a result of expenditures for
      research and development and marketing costs for our sound products and
      technologies. The timing and amounts of these expenditures and the extent of
      our
      operating losses will depend on many factors, some of which are beyond our
      control. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In July
      2005
      we entered into a termination, settlement and release agreement with Kingsbridge
      Capital Limited. Under the terms of this agreement, we and Kingsbridge agreed
      that the common stock purchase agreement we entered into with Kingsbridge in
      December 2004, and the related registration rights agreement and warrant we
      issued to Kingsbridge of the same date, would be terminated, and Kingsbridge
      would return the warrant, which has not been exercised, to us for cancellation.
      We incurred no early termination penalties in connection with this termination.
      The termination agreement contains a mutual release of claims.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The
      termination agreement resulted from our determination that the common stock
      purchase agreement was no longer consistent with our financing plans, due to
      various factors, including anticipated capital requirements and timing, market
      conditions, and SEC requirements for transaction structure.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Based
      on our
      current cash position, and assuming currently planned expenditures and level
      of
      operations, we believe we will have sufficient cash for operations for at least
      the next twelve months. We believe sales of LRAD, MRAD, HSS and, to a lesser
      extent, NeoPlanar products, will continue to contribute cash in fiscal 2005.
      In
      the event that we need additional funds, there can be no guarantee that we
      will
      be able to raise funds on terms acceptable to us, or at all. We have flexibility
      to adjust the level of research and development and selling and administrative
      expenses based on the availability of resources. However, reductions in
      expenditures could delay development and adversely affect our ability to
      generate future revenues.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Contractual
      Commitments and Commercial Commitments
</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The following
      table summarizes our contractual obligations at June 30, 2005, and the effect
      such obligations are expected to have on our liquidity and cash flow in future
      periods:</font></p>
    <p align="center">&#160;</p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="750">

          <tr valign="bottom" bgcolor="#ffffff">
            <td align="left" colspan="2" width="332">&#160;</td>
            <td align="right" colspan="12" width="443">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman"><strong>Payments
                Due by Period</strong></font></div>
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#ffffff">
            <td align="left" width="419" style="BORDER-BOTTOM: #000000 thin solid"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman"><strong>Contractual
              Obligations</strong></font></td>
            <td align="left" width="4" style="BORDER-BOTTOM: #ffffff thin solid">&#160;</td>
            <td align="right" colspan="2" width="95" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">Total</font></div>
            </td>
            <td align="left" width="29" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" colspan="2" width="9%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">Less
                than 1<br>Year</font></div>
            </td>
            <td align="left" width="29" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" colspan="2" width="9%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">1-3
                Years</font></div>
            </td>
            <td align="left" width="29" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" width="68" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">4-5
                Years</font></div>
            </td>
            <td align="left" width="29" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            <td align="right" width="68" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 7pt; FONT-FAMILY: Times New Roman">After
                5<br>Years</font></div>
            </td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left" colspan="2" width="332"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Capital
              leases</font></td>
            <td align="right" width="25"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="78"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">18,142</font></td>
            <td align="left" width="29"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="9"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="78"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">12,806</font></td>
            <td align="left" width="29"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="9"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" width="78"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">5,336</font></td>
            <td align="left" width="29"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="68"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left" width="29"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" width="68"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left" colspan="2" width="332"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Operating
              leases</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">291,282</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">239,171</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">52,110</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left" colspan="2" width="332"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Long
              term
              debt</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,000,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,000,000</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
          </tr>
          <tr>
            <td colspan="2" width="332">
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>
            </td>
            <td align="right">
              <hr style="COLOR: #000000" size="1">
            </td>
          </tr>
          <tr valign="bottom">
            <td align="left" colspan="2" width="332" bgcolor="#EAF9E8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Total
              contractual cash obligations</font></td>
            <td align="right" bgcolor="#EAF9E8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" bgcolor="#EAF9E8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,309,424</font></td>
            <td align="left" bgcolor="#EAF9E8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" bgcolor="#EAF9E8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" bgcolor="#EAF9E8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">251,977</font></td>
            <td align="left" bgcolor="#EAF9E8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" bgcolor="#EAF9E8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">$</font></td>
            <td align="right" bgcolor="#EAF9E8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">2,057,446</font></td>
            <td align="left" bgcolor="#EAF9E8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" bgcolor="#EAF9E8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
            <td align="left" bgcolor="#EAF9E8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td align="right" bgcolor="#EAF9E8"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#8212;</font></td>
          </tr>
          <tr>
            <td colspan="2" width="332">
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right" colspan="2">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right">
              <hr style="COLOR: #000000" size="2">
            </td>
            <td>
            </td>
            <td align="right">
              <hr style="COLOR: #000000" size="2">
            </td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The Company
      had no material purchase obligations at June 30, 2005.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>New
      Accounting Pronouncements </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">A number
      of
      new pronouncements have been issued for future implementation as discussed
      in
      the footnotes to our interim financial statements (see Note 5).</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Business
      Risks </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><i>An
      investment in our company involves a high degree of risk. In addition to the
      other information included in this report, you should carefully consider the
      following risk factors in evaluating an investment in our company. You should
      consider these matters in conjunction with the other information included or
      incorporated by reference in this report. 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.</i></font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">27</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>We
      have a
      history of net losses. We expect to continue to incur net losses and we may
      not
      achieve or maintain profitability. </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>We
      may need additional capital for growth. </strong>&#160;</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.
      </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">government
              spending levels; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">introduction
              of new competing technologies; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">failure
              of sales from our Government Group and Commercial Group to
              meet planned projections; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">product
              mix and effect on margins; and </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">acceptance
              of our products in new markets.
</font></td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Our
      equity financings impose certain liquidated damages which may impair our
      liquidity and ability to raise capital.</strong> &#160;</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">In connection
      with our July 2005 equity financing, we entered into a registration rights
      agreement with some of the investors, pursuant to which we agreed to prepare
      and
      file a registration statement 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 the amount
      of 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&#160;effective.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>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.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">28</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>We
      must expand
      our customer base in order to grow our business.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">our
              ability to manufacture reliable products that have the features
              that are required by our customers;&#160;</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">our
              ability to expand relationships with existing customers and to
              develop relationships with new customers that will lead to additional
              orders for our products;&#160;</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">our
              ability to develop and expand new markets for directed sound
              products; and&#160;</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">our
              ability to develop international product distribution directly
              or through strategic partners. </font></td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>The
      growth of our Government Group revenues is materially dependent on acceptance
      of
      our LRAD&#160;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&#160;affected.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>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.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>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&#160;operations.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">29</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Our
      products
      have never been produced in quantity, and we may incur significant and
      unpredictable warranty costs as these products are mass
      produced.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">At June
      30,
      2005, we had a warranty reserve of $228,487. We recorded substantial warranty
      reserves 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.
      </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>We
      could incur charges for excess and obsolete inventory.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>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.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">our
              ability to develop and supply sound reproduction components to
              customers, distributors or OEMs or to license our technologies;
              </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">market
              acceptance of and changes in demand for our products or
              products of our customers; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">gains
              or losses of significant customers, distributors or strategic
              relationships; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">unpredictable
              volume and timing of customer orders; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">the
              availability, pricing and timeliness of delivery of components
              for our products and OEM products; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">fluctuations
              in the availability of manufacturing capacity or
              manufacturing yields and related manufacturing costs; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">the
              timing of new technological advances, product announcements or
              introductions by us, by OEMs or licensees and by our competitors;
              </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">product
              obsolescence and the management of product transitions and
              inventory; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">unpredictable
              warranty costs associated with new product models;
              </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">production
              delays by customers, distributors, OEMs or by us or our
              suppliers; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">seasonal
              fluctuations in sales; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">the
              conditions of other industries, such as military and commercial
              industries, into which our technologies may be licensed; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">general
              consumer electronics industry conditions, including changes
              in demand and associated effects on inventory and inventory practices;
              </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">general
              economic conditions that could affect the timing of
              customer orders and capital spending and result in order cancellations
              or
              rescheduling; and </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">general
              political conditions in this country and in various other
              parts of the world that could affect spending for the products that
              we
              offer. </font></td>
          </tr>

      </table>
    </div>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">30</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><br>Some
      or all of
      these factors could adversely affect demand for our products or technologies,
      and therefore adversely affect our future operating results.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Our
      expenses may vary from period to period, which could affect quarterly results
      and our stock price.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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:&#160;</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">the
              timing and extent of our research and development
              efforts;</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">investments
              and costs of maintaining or protecting our intellectual
              property; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">the
              extent of marketing and sales efforts to promote our products
              and technologies; and</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">the
              timing of personnel and consultant
              hiring.</font></td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Many
      potential competitors who have greater resources and experience than we do
      may
      develop products and technologies that make ours obsolete.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Sound
      reproduction markets are subject to rapid technological change, so our success
      will depend on our ability to develop and introduce new
      technologies.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Our
      competitive position will be seriously damaged if we cannot obtain patent
      protection for important&#160;differentiating aspects of our products or
      otherwise protect intellectual property rights in our
      technology.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">31</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Our
      competitive position will be seriously damaged if our products are found to
      infringe on the intellectual property rights of others.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">cease
              selling, incorporating or using products or services that
              incorporate the challenged intellectual property; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">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 </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">redesign
              products or services that incorporate the disputed
              technology. </font></td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">32</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Our
      HSS
      technology is subject to government regulation, which could lead to
      unanticipated expense or litigation. </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>We
      may face personal injury and other liability claims that harm our reputation
      and
      adversely affect our sales and financial condition.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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&#8217;s attention and resources, and negative publicity.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>We
      may not be successful in obtaining the necessary licenses required for us to
      sell some of our products abroad.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>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.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">changes
              in tariff regulations; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">political
              instability, war, terrorism and other political risks;
              </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">foreign
              currency exchange rate fluctuations; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">establishing
              and maintaining relationships with local distributors
              and dealers; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">lengthy
              shipping times and accounts receivable payment cycles;
              </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">import
              and export licensing requirements; </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">compliance
              with a variety of foreign laws and regulations,
              including unexpected changes in taxation and regulatory requirements;
              </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">greater
              difficulty in safeguarding intellectual property than in
              the U.S.; and </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">difficulty
              in staffing and managing geographically diverse
              operations. </font></td>
          </tr>

      </table>
    </div>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">33</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>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.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>We
      are dependent on third - party manufacturers. </strong>&#160;</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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 <u>-</u> party contract
      manufacturer to manufacture our other&#160;products, and we intend to continue
      to use a single manufacturer for these products in the future. A&#160;contract
      manufacturing partner,&#160;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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>We
      rely on outside suppliers to provide a large number of components incorporated
      in our products.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>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.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">34</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>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.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">include
              provisions that allow the government agency to terminate
              the contract without penalty under some circumstances;&#160;</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">be
              subject to purchasing decisions of agencies that are subject to
              political influence;&#160;</font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">contain
              onerous procurement procedures; and&#160;&#160;
              </font></td>
          </tr>
          <tr>
            <td valign="top">
            </td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">be
              subject to cancellation if government funding becomes
              unavailable. </font></td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>If
      our key employees do not continue to work for us, our business will be harmed
      because competition for replacements is intense.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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&#160;suffer.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>We
      may not address successfully the problems encountered in connection with any
      potential future acquisitions.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">problems
              assimilating the purchased technologies, products or
              business operations; </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">problems
              maintaining uniform standards, procedures, controls and
              policies;&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">unanticipated
              costs associated with the acquisition; </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">diversion
              of management&#8217;s attention from our core business;
              </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">adverse
              effects on existing business relationships with suppliers
              and customers; </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">risks
              associated with entering new markets in which we have no or
              limited prior experience; </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">potential
              loss of key employees of acquired businesses; and
              </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">increased
              legal and accounting costs as a result of the newly
              adopted rules and regulations related to the Sarbanes-Oxley Act of
              2002.
              </font></td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">35</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>We
      are subject
      to increased costs as a result of newly adopted accounting and Securities and
      Exchange Commission regulations.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>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.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>There
      are a large number of shares that we sold in our 2005 Equity Financing that
      must
      be registered in a registration statement, and the sale of these shares may
      depress the price of our common stock.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">To the
      extent
      that the investors in our 2005 Equity Financing sell shares of our common stock
      under an effective registration statement, 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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>The
      sale of material amounts of shares by the 2005 Equity Financing selling
      stockholders could encourage short sales by third parties. These sales could
      contribute to the future decline of our stock&#160;price.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The sale
      of
      material amounts of common stock by selling stockholders under the registration
      statement for the 2005 Equity Financing 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.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">36</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always">
    </p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>We
      may issue additional common stock in the future and this stock may reduce the
      value of your common stock.</strong> &#160;</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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. </font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Sales
      of common stock issuable on the exercise of outstanding options and warrants,
      may depress the price of our common stock. </strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>We
      may issue preferred stock in the future, and the terms of the preferred stock
      may reduce the value of your common stock.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong>Our
      stock price is volatile and may continue to be volatile in the
      future.</strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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:</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">our
              anticipated or actual operating results; </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">developments
              concerning our sound reproduction technologies;
              </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">technological
              innovations or setbacks by us or our competitors;
              </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">conditions
              in the consumer electronics market; </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">announcements
              of merger or acquisition transactions; </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">changes
              in personnel within our company; and </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#8226;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">other
              events or factors and general economic and market conditions.
              </font></td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">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.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">37</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always">
    </p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong><a name="a8">Item
      3. Quantitative and Qualitative Disclosures about Market Risk.
</a></strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Market
      risk
      represents the risk of loss that may impact our financial position, results
      of
      operations or cash flows due to adverse changes in market prices, including
      interest rate risk and other relevant market rate or price risks. We do not
      use
      derivative financial instruments in our investment portfolio.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">We are
      exposed to some market risk through interest rates, related to our investment
      of
      current cash and cash equivalents of approximately $2.4 million at June 30,
      2005. Based on this balance, a change of one percent in interest rate would
      cause a change in interest income of $24,000. The risk is not considered
      material and we manage such risk by continuing to evaluate the best investment
      rates available for short-term high quality investments.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong><a name="a9">Item
      4. Controls and Procedures. </a></strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">We maintain
      disclosure controls and procedures designed to ensure that material information
      related to us, including our consolidated subsidiaries, is recorded, processed,
      summarized and reported within the time periods specified in the SEC rules
      and
      forms.</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top" width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">(a)
</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">As
              of the end of the period covered by this report, we carried out
              an evaluation under the supervision and with the participation of
              management, including our co-principal executive officers and principal
              financial officer, of the effectiveness of the design and operation
              of our
              disclosure controls and procedures (as defined in Rules 13a-15(e) or
              15d-15(e) under the Securities Exchange Act of 1934). Based upon that
              evaluation, our co-principal executive officers and principal financial
              officer concluded, as of the date of such evaluation, that the design
              and
              operation of such disclosure controls and procedures were effective,
              as of
              June 30, 2005.</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">(b)
</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Except
              as set forth below, no significant changes were made in our
              internal control over financial reporting (as defined in Rules 13a-15(f)
              or 15d-15(f) of the Exchange Act) during our most recent fiscal quarter
              that has materially affected, or is reasonably likely to materially
              affect, our internal control over financial reporting. As a result
              of a
              notification from our independent registered accounting firm to our
              Audit
              Committee that we had not followed all appropriate period close down
              procedures for our quarter ended December 31, 2004, referencing deficient
              procedures for evaluation of the accrual for bonuses for which executives
              were eligible, we have rectified this significant deficiency by
              accelerating the timing of the Compensation Committee&#8217;s assessment for
              executive bonuses earned in the period.</font></td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><i>Limitations</i>.
      Our management, including our co-principal executive
      officers and principal financial officer, does not expect that our disclosure
      control or internal controls over financial reporting will prevent all errors
      or
      all instances of fraud. A control system, no matter how well designed and
      operated, can provide only reasonable, not absolute, assurance that the control
      system&#8217;s objectives will be met. Further, the design of a control system must
      reflect the fact that there are resource constraints, and the benefits of
      controls must be considered relative to their costs. Because of the inherent
      limitations in all control systems, no evaluation of controls can provide
      absolute assurance that all control issues and instances of fraud, if any,
      within our company have been detected. These inherent limitations include the
      realities that judgments in decision-making can be faulty, and that breakdowns
      can occur because of simple error or mistake. Controls can also be circumvented
      by the individual acts of some persons, by collusion of two or more people,
      or
      by management override of the controls. The design of any system of control
      is
      based in part upon certain assumptions about the likelihood of future events,
      and any design may not succeed in achieving its stated goals under all potential
      future conditions. Over time, controls may become inadequate because of changes
      in conditions or deterioration in the degree of compliance with policies or
      procedures. Because of the inherent limitation of a cost-effective control
      system, misstatements due to error or fraud may occur and not be
      detected.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">38</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always">
    </p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong><a name="a10">PART
      II. OTHER INFORMATION </a></strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong><a name="a11">Item
      1. &#160;Legal Proceedings. </a></strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Reference
      is
      made to Note 13 of our Notes to Interim Financial Statements included in Part
      I,
      Item 1 of this report for information regarding Legal Proceedings.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong><a name="a12">Item
      2. &#160;Unregistered Sales of Equity Securities and Use of
      Proceeds. </a></strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">None.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong><a name="a13">Item
      3. &#160;Defaults Upon Senior Securities. </a></strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Not
      applicable.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">39</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always">
    </p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong><a name="a14">Item
      4. &#160;Submission of Matters to a Vote of Security Holders.
</a></strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">At the
      Company&#8217;s Annual Meeting of Stockholders held on April 28, 2005, the following
      individuals, all of the members of the Board of Directors were
      elected:&#160;Elwood G. Norris, Kalani Jones, Richard M. Wagner, David J.
      Carter
      and Daniel Hunter. For each elected director, the results of the voting
      were:</font></p>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" width="70%">

          <tr valign="bottom">
            <th>&#160;</th>
            <th nowrap><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">Affirmative
              Votes</font></th>
            <th>&#160;</th>
            <th nowrap><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="1">Votes
              Withheld</font></th>
            <th>&#160;</th>
          </tr>
          <tr valign="bottom">
            <td align="left">&#160;</td>
            <td align="right">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
            <td align="right">
              <hr style="COLOR: #000000" size="1">
            </td>
            <td align="left">&#160;</td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Elwood
              G. Norris</font></td>
            <td width="18%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">18,356,226</font></td>
            <td align="left" width="4%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td width="18%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">133,565</font></td>
            <td align="left" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Kalani
              Jones</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">18,361,088</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">128,703</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Richard
              M. Wagner</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">18,270,422</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">219,369</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">David
              J. Carter</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">18,353,065</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">136,726</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>
          <tr valign="bottom" bgcolor="#eaf9e8">
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Daniel
              Hunter</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">18,388,270</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">101,521</font></td>
            <td align="left"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">&#160;</font></td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Our
      stockholders also voted to ratify the selection of BDO Seidman, LLP as our
      independent auditors for the fiscal year ending September 30, 2005. The results
      of the voting on this proposal were:</font></p>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" width="70%">

          <tr>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Affirmative
                Votes</font></strong></div>
            </td>
            <td><font size="1">&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Negative
                Votes</font></strong></div>
            </td>
            <td><font size="1">&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Abstentions</font></strong></div>
            </td>
            <td><font size="1">&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Broker
                Non-Votes</font></strong></div>
            </td>
            <td>&#160;</td>
          </tr>
          <tr>
            <td>
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>&#160;</td>
            <td>
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>&#160;</td>
            <td>
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>&#160;</td>
            <td>
              <hr style="COLOR: #000000" size="1">
            </td>
            <td height="2%">&#160;</td>
          </tr>
          <tr bgcolor="#eaf9e8">
            <td width="23%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">18,352,033
</font></td>
            <td width="3%" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td width="23%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">119,771</font></td>
            <td width="3%" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td width="23%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">17,987
</font></td>
            <td width="3%" bgcolor="#eaf9e8"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">-0-</font></td>
            <td width="3%">&#160;</td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The foregoing
      proposal was approved and accordingly ratified.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Our
      stockholders also voted to approve the American Technology Corporation 2005
      Equity Incentive Plan. The results of the voting on this proposal
      were:</font></p>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" width="70%">

          <tr>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Affirmative
                Votes</font></strong></div>
            </td>
            <td>&#160;</td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Negative
                Votes</font></strong></div>
            </td>
            <td>&#160;</td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Abstentions</font></strong></div>
            </td>
            <td>&#160;</td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="1">Broker
                Non-Votes</font></strong></div>
            </td>
            <td>&#160;</td>
          </tr>
          <tr>
            <td>
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>&#160;</td>
            <td>
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>&#160;</td>
            <td>
              <hr style="COLOR: #000000" size="1">
            </td>
            <td>&#160;</td>
            <td>
              <hr style="COLOR: #000000" size="1">
            </td>
            <td height="2%">&#160;</td>
          </tr>
          <tr bgcolor="#eaf9e8">
            <td width="23%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">8,251,891
</font></td>
            <td width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td width="23%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">629,311
</font></td>
            <td width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td width="23%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">88,615
</font></td>
            <td width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">9,519,974</font></td>
            <td width="3%">&#160;</td>
          </tr>

      </table>
    </div>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The foregoing
      proposal was approved.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong><a name="a15">Item
      5. &#160;Other Information. </a></strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">On August
      5,
      2005, our Compensation Committee approved amendments to our 2005 Equity
      Incentive Plan and standard forms of Stock Option Agreement and Stock Award
      Agreement for the 2005 Equity Incentive Plan. The amendments were made in
      response to comments of the California Department of Corporations in connection
      with our application for qualification of the 2005 Equity Incentive Plan in
      California. The amendments included a modification of the definition of Change
      in Control to narrow the circumstances defined as a Change in Control, and
      clarifications that any right of repurchase we might reserve in an award
      agreement and any rights of transferability we might permit in an award
      agreement, must conform to limitations contained in regulations promulgated
      by
      the California Department of Corporations. The amended 2005 Equity Incentive
      Plan and standard forms of Stock Option Agreement and Stock Award Agreement
      are
      attached to this report as Exhibits 10.9, 10.11 and 10.12.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The foregoing
      disclosure is made in lieu of disclosure under Item 1.01 on Form 8-K.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">As disclosed
      in Note 11 to our financial statements included in this report, as a result
      of
      our decision in June 2005 to terminate the Committed Equity Financing Facility
      with Kingsbridge Capital Limited, we determined that the prepaid transaction
      costs asset associated with the fair value of the warrant issued to Kingsbridge
      and the legal, audit and other fees associated with the financing, was impaired
      at June 30, 2005. Accordingly, we recognized an impairment charge in the total
      amount of $477,085, $293,826 of which represents legal, audit and associated
      fees and is recorded as selling, general and administrative expense for the
      three and nine months ended June 30, 2005, and $183,259 of which represents
      the
      excess of the fair value of the warrant over the associated derivative
      instrument liability and is recorded as a warrant impairment expense for the
      three and nine months ended June 30, 2005. The remaining asset of $659,846
      in
      prepaid transaction costs will be offset against the derivative instrument
      liability of the same amount in the quarter ending September 30, 2005, with
      no
      net effect on other income or expense.</font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">The foregoing
      disclosure is made in lieu of disclosure under Item 2.06 on Form 8-K.</font></p>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">40</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always">
    </p>
    <p><strong><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2"><a name="a16">Item
      6. &#160;Exhibits</a></font></strong></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top" width="6%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.1
</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Separation
              and Release Agreement with Carl Gruenler. Filed as
              Exhibit 99.1 to the Registrant&#8217;s Form 8-K filed June 17, 2005.
              +</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.2
</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Consulting
              Agreement with Carl Gruenler. Filed as Exhibit 99.2 to
              the Registrant&#8217;s Form 8-K filed June 17, 2005. </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.3</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Termination,
              Settlement and Release Agreement with Kingsbridge
              Capital Limited dated as of July&#160;8, 2005.</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.4</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Securities
              Purchase Agreement dated July 14, 2005. Filed as Exhibit
              99.1 to the Registrant&#8217;s Form 8-K filed July 19, 2005.</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.5</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Registration
              Rights Agreement dated July 14, 2005. Filed as Exhibit
              99.2 to the Registrant&#8217;s Form 8-K filed July 19, 2005.</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.6</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Form
              of Warrant-A issued July 18, 2005. Filed as Exhibit 99.3 to
              the Registrant&#8217;s Form 8-K filed July 19, 2005.</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.7</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Form
              of Warrant-B issued July 18, 2005. Filed as Exhibit 99.4 to
              the Registrant&#8217;s Form 8-K filed July 19, 2005.</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.8</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Engagement
              letter dated July 15, 2005. Filed as Exhibit 99.5 to the
              Registrant&#8217;s Form 8-K filed July 19, 2005.</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.9</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">2005
              Equity Incentive Plan as amended August 5, 2005.
              +</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.10</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Form
              of Stock Option Agreement under the 2005 Equity Incentive Plan
              for grants prior to August 5, 2005. Filed as Exhibit 99.2 to the
              Registrant&#8217;s Form S-8 filed June 2, 2005. +</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.11</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Form
              of Stock Option Agreement under the 2005 Equity Incentive Plan
              for grants on or after August 5, 2005. +</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.12</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Form
              of Stock Award Agreement under the 2005 Equity Incentive Plan.
              +</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.13</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Summary
              Sheet of Director and Executive Officer Compensation.
              +</font></td>
          </tr>
          <tr>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top">&#160;</td>
            <td valign="top"><font size="2">10.14</font></td>
            <td valign="top"><font size="2">Agreement of Settlement and Mutual
              Release,
              dated April 27, 2005, with eSoundIdeas, Inc., SoundIdeas, Greg O. Endsley,
              Douglas J. Paschall and Gordon &amp; Holmes.</font></td>
          </tr>
          <tr>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top">&#160;</td>
            <td valign="top"><font size="2">10.15</font></td>
            <td valign="top"><font size="2">Registration Rights Agreement, dated
              April 27,
              2005, with Greg O. Endsley, Douglas J. Paschall and Gordon &amp;
              Holmes.</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">31.1
</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Certification
              of Elwood G. Norris, Co-Principal Executive Officer,
              pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange
              Act
              of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
              of
              2002. </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">31.2
</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Certification
              of Kalani Jones, Co-Principal Executive Officer,
              pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange
              Act
              of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
              of
              2002. </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">31.3
</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Certification
              of Michael A. Russell, Principal Financial Officer,
              pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange
              Act
              of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
              of
              2002. </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">32.1
</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Certification
              pursuant to 18 U.S.C. Section 1350, as adopted
              pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed
              by
              Elwood G. Norris and Kalani Jones, Co-Principal Executive Officers,
              and
              Michael A. Russell, Principal Financial Officer. </font></td>
          </tr>
          <tr>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top">&#160;</td>
            <td colspan="2" valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2"><strong>+
              Management contract or compensatory plan or arrangement.</strong>
              &#160;</font></td>
          </tr>

      </table>
    </div>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">41</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always">
    </p>
    <p align="center" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong><a name="a17">SIGNATURES
</a></strong></font></p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2">Pursuant
      to
      the requirements of the Securities Exchange Act of 1934, the registrant has
      duly
      caused this report to be signed on its behalf by the undersigned thereunto
      duly
      authorized.</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td width="55%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;&#160;</font></td>
            <td colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">AMERICAN
              TECHNOLOGY CORPORATION </font></td>
          </tr>
          <tr>
            <td>&#160;</td>
            <td colspan="2">&#160;</td>
          </tr>
          <tr>
            <td><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;&#160;</font></td>
            <td colspan="2"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;&#160;</font></td>
          </tr>
          <tr>
            <td><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;&#160;</font></td>
            <td width="3%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">By:
</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">/S/
              MICHAEL A. RUSSELL</font></td>
          </tr>
          <tr>
            <td><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;&#160;</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;&#160;</font></td>
            <td>
              <hr style="COLOR: #000000" align="left" size="1" width="300">
            </td>
          </tr>
          <tr valign="top">
            <td><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Date:&#160;
              August 9, 2005</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;&#160;</font></td>
            <td><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Michael
              A. Russell, Chief Financial Officer<br>(Principal Financial
              and Accounting Officer<br>and duly authorized to sign on behalf of<br>the
              Registrant) </font></td>
          </tr>

      </table>
    </div>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">42</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always">
    </p>
    <p><font style="FONT-FAMILY: Times New Roman, Times, Serif" size="2"><strong><u><a name="a18">Exhibit
      Index</a></u></strong> &#160;</font></p>
    <div>
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="2%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top" width="6%"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.1
</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Separation
              and Release Agreement with Carl Gruenler. Filed as
              Exhibit 99.1 to the Registrant&#8217;s Form 8-K filed June 17, 2005.
              +</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.2
</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Consulting
              Agreement with Carl Gruenler. Filed as Exhibit 99.2 to
              the Registrant&#8217;s Form 8-K filed June 17, 2005. </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.3</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Termination,
              Settlement and Release Agreement with Kingsbridge
              Capital Limited dated as of July&#160;8, 2005.</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.4</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Securities
              Purchase Agreement dated July 14, 2005. Filed as Exhibit
              99.1 to the Registrant&#8217;s Form 8-K filed July 19, 2005.</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.5</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Registration
              Rights Agreement dated July 14, 2005. Filed as Exhibit
              99.2 to the Registrant&#8217;s Form 8-K filed July 19, 2005.</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.6</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Form
              of Warrant-A issued July 18, 2005. Filed as Exhibit 99.3 to
              the Registrant&#8217;s Form 8-K filed July 19, 2005.</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.7</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Form
              of Warrant-B issued July 18, 2005. Filed as Exhibit 99.4 to
              the Registrant&#8217;s Form 8-K filed July 19, 2005.</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.8</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Engagement
              letter dated July 15, 2005. Filed as Exhibit 99.5 to the
              Registrant&#8217;s Form 8-K filed July 19, 2005.</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.9</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">2005
              Equity Incentive Plan as amended August 5, 2005.
              +</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.10</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Form
              of Stock Option Agreement under the 2005 Equity Incentive Plan
              for grants prior to August 5, 2005. Filed as Exhibit 99.2 to the
              Registrant&#8217;s Form S-8 filed June 2, 2005. +</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.11</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Form
              of Stock Option Agreement under the 2005 Equity Incentive Plan
              for grants on or after August 5, 2005.+</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.12</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Form
              of Stock Award Agreement under the 2005 Equity Incentive Plan.
              +</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">10.13</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Summary
              Sheet of Director and Executive Officer Compensation.
              +</font></td>
          </tr>
          <tr>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top">&#160;</td>
            <td valign="top"><font size="2">10.14</font></td>
            <td valign="top"><font size="2">Agreement of Settlement and Mutual
              Release,
              dated April 27, 2005, with eSoundIdeas, Inc., SoundIdeas, Greg O. Endsley,
              Douglas J. Paschall and Gordon &amp; Holmes.</font></td>
          </tr>
          <tr>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top">&#160;</td>
            <td valign="top"><font size="2">10.15</font></td>
            <td valign="top"><font size="2">Registration Rights Agreement, dated
              April 27,
              2005, with Greg O. Endsley, Douglas J. Paschall and Gordon &amp;
              Holmes.</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">31.1
</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Certification
              of Elwood G. Norris, Co-Principal Executive Officer,
              pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange
              Act
              of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
              of
              2002. </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">31.2
</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Certification
              of Kalani Jones, Co-Principal Executive Officer,
              pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange
              Act
              of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
              of
              2002. </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">31.3
</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Certification
              of Michael A. Russell, Principal Financial Officer,
              pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange
              Act
              of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
              of
              2002. </font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
          </tr>
          <tr>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">&#160;</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">32.1
</font></td>
            <td valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">Certification
              pursuant to 18 U.S.C. Section 1350, as adopted
              pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed
              by
              Elwood G. Norris and Kalani Jones, Co-Principal Executive Officers,
              and
              Michael A. Russell, Principal Financial Officer. </font></td>
          </tr>
          <tr>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
            <td valign="top">&#160;</td>
          </tr>
          <tr>
            <td valign="top">&#160;</td>
            <td colspan="2" valign="top"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2"><strong>+
              Management contract or compensatory plan or arrangement.</strong>
              &#160;</font></td>
          </tr>

      </table>
    </div>
    <p align="center"><font style="FONT-FAMILY: Times New Roman, Times, serif" size="2">43</font></p>
    <hr noshade size="5">
    <p style="PAGE-BREAK-BEFORE: always">
    </p>
  </body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>2
<FILENAME>ex_10-3.htm
<DESCRIPTION>TERMINATION, SETTLEMENT AND RELEASE AGREEMENT
<TEXT>
<HTML>
<HEAD>
<TITLE></TITLE>
</HEAD>
<BODY>
<p align="right"><font face="Times New Roman, Times, serif"><b><font size="2">Exhibit 10.3</font></b></font></p>
<p align="right"><font face="Times New Roman, Times, serif"><b><font size="2"><i>Execution Copy</i></font></b></font></p>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><U>TERMINATION, SETTLEMENT AND RELEASE AGREEMENT</U></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>This TERMINATION, SETTLEMENT AND RELEASE AGREEMENT (this &#147;<U>Agreement</U>&#148;) dated as of July 8,&nbsp;2005 is by and between KINGSBRIDGE CAPITAL LIMITED (&#147;<U>Kingsbridge</U>&#148;) and AMERICAN TECHNOLOGY CORPORATION (&#147;<U>ATC</U>&#148;).</FONT></P>
<P align=center><u><font size="2" face="Times New Roman, Times, serif">W I T N E S S E T H</font></u> :</P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>WHEREAS, Kingsbridge and ATC have entered into a Common Stock Purchase Agreement, a Registration Rights
Agreement and a Warrant, each dated as of December 14, 2004 (collectively, the &#147;<U>Documents</U>&#148;);</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>WHEREAS, the parties hereto desire to terminate the Documents to which they are a party as provided
herein;</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>NOW, THEREFORE, in consideration of the agreements set forth below, and other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows:</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>1.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Termination of the Documents</U>. &nbsp;Each of the parties hereto agrees that, effective upon the (i) receipt by Kingsbridge&#146;s counsel,
Clifford Chance US LLP, of $33,264.90 in outstanding fees, costs and expenses incurred in connection
with the Documents and this Agreement (the &#147;<U>Amount Due</U>&#148;) and (ii) the surrender of the Warrant by Kingsbridge to ATC, or the delivery by Kingsbridge
of an affidavit of loss therefor, (a)&nbsp;each Document to which it is a party is hereby terminated
and upon such termination the parties hereto shall have no further interest under, or rights, remedies
or obligations under or arising out of any of the transactions undertaken pursuant to, any of the
Documents, such termination to be effective as of the effectiveness hereof, and, except as provided
in this Agreement, each party hereby releases each other party from any and all further obligations
thereunder, (b)&nbsp;any requirement for notice (whether written or oral) with respect to the termination
of any of the Documents is hereby waived by the respective parties to the Documents, (c)&nbsp;any
other requirement or condition precedent to the termination of any of the Documents is hereby waived
or shall be deemed to have been satisfied, as the case may be, as of the date hereof, and (d)&nbsp;all
assignments, liens and security interests granted in connection with the Documents are hereby terminated
and released.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>2.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Release</U>.&nbsp; Upon termination of the Documents, each party agrees to forever release the other and its affiliates,
officers, directors, employees, agents, successors and assigns from all debts, <FONT style="TEXT-DECORATION: none">liabilities, </FONT>claims and causes of action, whether known or unknown, and whether sounding in contract, tort, law
or in equity and whether liquidated, unliquidated, contingent or disputed relating directly or indirectly
to the Documents at any time up to and including the date of the execution of this Agreement.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2><FONT style="TEXT-DECORATION: none">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
giving this release, which includes claims which may be unknown to the parties at present, the parties
hereby acknowledge that they have read and understand Section 1542 of the Civil Code of the State
of California which reads as follows:</FONT></FONT></P>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=158>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT style="TEXT-DECORATION: none">A general release does not extend to claims which the creditor does not know or suspect to exist in
his favor at the time of executing the release, which if known by him must have materially affected
his settlement with the debtor.</FONT></FONT></TD></TR>
</TABLE>


<P align=center><FONT face="Times New Roman, Times, serif" size=2>-1-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<p align="right"><font face="Times New Roman, Times, serif"><b><font size="2"><i>Execution Copy</i></font></b></font></p>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2><FONT style="TEXT-DECORATION: none">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It
is the parties intent in giving this release to expressly waive and relinquish all rights and benefits
under Section 1542 and any law or legal principle of similar effect in any jurisdiction with respect
to claims released hereby.</FONT></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Negotiations and Discussions</U>. &nbsp;The existence of any and all negotiations leading up to this Agreement as well as all discussions
held subsequent to the execution of this Agreement shall be subject to Federal Rule of Evidence 408,
a copy of which is attached hereto.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>4.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Further Assurances; Delivery of Instruments</U>. &nbsp;Each of the parties hereto agrees to authorize, and to promptly execute and deliver, such documents
or instruments as any party may reasonably request in order to evidence the termination of the Documents.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>5.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Representations and Warranties</U>. &nbsp;Each person signing this Agreement on behalf of a party which is a corporation, trust, limited liability
company, partnership or other entity represents and warrants to the other parties that such person
has been duly authorized to execute and deliver this Agreement on behalf of the party for whom it
is signing and to bind that party to the terms of this Agreement.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>6.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Payment</U>. &nbsp;The Amount Due under this Agreement shall be paid by wire transfer of immediately available funds
to the following account:</FONT></P>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=105>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Citibank, N.A.</FONT></TD></TR>
<TR>
<TD vAlign=top width=96>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>399 Park Avenue</FONT></TD></TR>
<TR>
<TD vAlign=top width=96>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>New York, NY 10043</FONT></TD></TR>
<TR>
<TD vAlign=top width=96>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Clifford Chance US LLP Account Number:&nbsp; 30440197</FONT></TD></TR>
<TR>
<TD vAlign=top width=96>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>SWIFT Code:&nbsp; CITIUS33</FONT></TD></TR>
<TR>
<TD vAlign=top width=96>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>ABA Number: 021000089</FONT></TD></TR>
<TR>
  <TD vAlign=top>&nbsp;</TD>
  <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Invoice #: 512922</FONT></TD>
</TR>
</TABLE>

<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>7.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Non-Disparagement</U>. &nbsp;Each party hereto agrees that, except as required by applicable law<FONT style="TEXT-DECORATION: none"> or the rules of any stock exchange or trading market applicable to such party</FONT>, or compelled by process of law, at any time following the date hereof, neither it, nor any person
acting on its behalf, shall hereafter (i) make any derogatory,<FONT style="TEXT-DECORATION: none">or</FONT> disparaging statement about the other party or any of the other party&#146;s current officers, directors,
employees, shareholders, lenders or counsel or any persons who were officers, directors, employees,
shareholders, lenders or counsel of the other party; or (ii) without the other party&#146;s prior
written consent, <FONT style="TEXT-DECORATION: none">issue any press release concerning</FONT> the other party or the past or present officers, directors, employees, shareholders, lenders or counsel
of the other party.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>8.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Counterparts</U>. &nbsp;This Agreement may be executed in any number of counterparts and by different parties hereto on separate
counterparts, each such counterpart, when executed and delivered, shall be deemed an original and
all of such counterparts, taken together, shall constitute one and the same Agreement. Delivery of
an executed signature page to this Agreement by facsimile transmission shall be effective as delivery
of a manually executed counterpart hereof.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>9.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <B><U>GOVERNING LAW</U></B><B>. </B>&nbsp;<B>THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.</B></FONT></P>
<B></B>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-2-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<p align="right"><font face="Times New Roman, Times, serif"><b><font size="2"><i>Execution Copy</i></font></b></font></p>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the date first
above written.</FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="55%"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td nowrap><font size="2" face="Times New Roman, Times, serif">KINGSBRIDGE CAPITAL LIMITED</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td nowrap><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td nowrap><font size="2" face="Times New Roman, Times, serif">By:<u>&nbsp;&nbsp;&nbsp; /s/ Adam Gurney&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td nowrap><font size="2" face="Times New Roman, Times, serif">Name:<u>&nbsp; Adam Gurney&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td nowrap><font size="2" face="Times New Roman, Times, serif">Title:<u>&nbsp; Director&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td nowrap><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td nowrap><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td nowrap><font size="2" face="Times New Roman, Times, serif">For AMERICAN TECHNOLOGY CORPORATION</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td nowrap><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td nowrap><font size="2" face="Times New Roman, Times, serif">By:<u>&nbsp;&nbsp;&nbsp;&nbsp; /s/ Michael A. Russell&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td nowrap><font size="2" face="Times New Roman, Times, serif">Name:<u>&nbsp; Michael A. Russell&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td nowrap><font size="2" face="Times New Roman, Times, serif">Title:<u>&nbsp; Chief Financial Officer&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
  </tr>
</table>

<P align=center><FONT face="Times New Roman, Times, serif" size=2>-3-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>3
<FILENAME>ex_10-9.htm
<DESCRIPTION>2005 EQUITY INCENTIVE PLAN
<TEXT>
<HTML>
<HEAD>
<TITLE></TITLE>
</HEAD>
<BODY>
<P align=right><font size="2"><b><font face="Times New Roman, Times, serif">Exhibit 10.9 </font></b></font></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>AMERICAN TECHNOLOGY CORPORATION<br>
</B></FONT><FONT face="Times New Roman, Times, Serif" size=2><B>2005 EQUITY INCENTIVE PLAN</B></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>1.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Purpose of the Plan</u></B></FONT><u><FONT face="Times New Roman, Times, Serif" size=2></FONT></u><FONT face="Times New Roman, Times, Serif" size=2> .&nbsp;The purpose of this Plan is to encourage ownership in the Company by key personnel whose long-term
service is considered essential to the Company&#146;s continued progress and, thereby, encourage
recipients to act in the stockholders&#146; interest and share in the Company&#146;s success. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>2.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Definitions</u></B></FONT><u><FONT face="Times New Roman, Times, Serif" size=2></FONT></u><FONT face="Times New Roman, Times, Serif" size=2> .&nbsp;As used herein, the following definitions shall apply: </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Administrator&#148; shall mean the Board, any Committees or such delegates as shall be administering
the Plan in accordance with Section 4 of the Plan. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Affiliate&#148; shall mean any entity that is directly or indirectly controlled by the Company
or any entity in which the Company has a significant ownership interest as determined by the Administrator.
</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Applicable Laws&#148; shall mean the requirements relating to the administration of stock plans
under federal and state laws, any stock exchange or quotation system on which the Company has listed
or submitted for quotation the Common Stock to the extent provided under the terms of the Company&#146;s
agreement with such exchange or quotation system and, with respect to Awards subject to the laws
of any foreign jurisdiction where Awards are, or will be, granted under the Plan, the laws of such
jurisdiction. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Award&#148; shall mean, individually or collectively, a grant under the Plan of Options, Stock
Awards, SARs, or Cash Awards.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Awardee&#148; shall mean a Service Provider who has been granted an Award under the Plan. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Award Agreement&#148; shall mean an Option Agreement, Stock Award Agreement, SAR Award Agreement,
and/or Cash Award Agreement, which may be in written or electronic format, in such form and with
such terms as may be specified by the Administrator, evidencing the terms and conditions of an individual
Award. Each Award Agreement is subject to the terms and conditions of the Plan.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Award Transfer Program&#148; shall mean any program instituted by the Administrator which would
permit Participants the opportunity to transfer any outstanding Awards to a financial institution
or other person or entity selected by the Administrator.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Board&#148; shall mean the Board of Directors of the Company. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Cash Award&#148; shall mean a bonus opportunity awarded under Section 13 pursuant to which a
Participant may become entitled to receive an amount based on the satisfaction of such performance
criteria as are specified in the agreement or other documents evidencing the Award (the &#147;Cash
Award Agreement&#148;). </FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Change in Control&#148; shall mean any of the following, unless the Administrator provides otherwise:
</FONT></P>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(i)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> any merger or consolidation in which the Company shall not be the surviving entity (or survives only
as a subsidiary of another entity whose stockholders did not own all or substantially all of the
Common Stock in substantially the same proportions as immediately prior to such transaction);</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(ii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> the sale of all or substantially all of the Company&#146;s assets to any other person or entity (other
than a wholly-owned subsidiary);</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(iii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> the acquisition of beneficial ownership of a controlling interest (including, without limitation,
power to vote) in the outstanding shares of Common Stock by any person or entity (including a &#147;group&#148;
as defined by or under Section 13(d)(3) of the Exchange Act); or</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(iv)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> the dissolution or liquidation of the Company.</FONT></TD></TR></TABLE>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>Notwithstanding the foregoing, the term &#147;Change in Control&#148; shall not include any under written
public offering of Shares registered under the Securities Act of 1933, as amended.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Code&#148; shall mean the Internal Revenue Code of 1986, as amended.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Committee&#148; shall mean a committee of Directors appointed by the Board in accordance with
Section 4 of the Plan.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Common Stock&#148; shall mean the common stock of the Company.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Company&#148; shall mean American Technology Corporation, a Delaware corporation, or its successor.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Consultant&#148; shall mean any person engaged by the Company or any Affiliate to render services
to such entity as an advisor or consultant.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Conversion Award&#148; has the meaning set forth in Section 4(b)(xii) of the Plan.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Director&#148; shall mean a member of the Board.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Dividend Equivalent&#148; shall mean a credit, made at the discretion of the Administrator, to
the account of a Participant in an amount equal to the cash dividends paid on one Share for each
Share represented by an Award held by such Participant.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Employee&#148; shall mean a regular, active employee of the Company or any Affiliate, including
an Officer and/or Director. Within the limitations of Applicable Law, the Administrator shall have
the discretion to determine the effect upon an Award and upon an individual&#146;s status as an Employee
in the case of (i) any individual who is classified by the Company or its Affiliate as leased from
or otherwise employed by a third party or as intermittent or temporary, even if any such classification
is changed retroactively as a result of an audit, litigation or otherwise, (ii) any leave of absence
approved by the Company or an Affiliate, (iii) any transfer between locations of employment with
the Company or an Affiliate or between the Company and any Affiliate or between any Affiliates, (iv)
any change in the Awardee&#146;s status from an employee to a Consultant or Director, and (v) at
the request of the Company or an Affiliate an employee becomes employed by any partnership, joint
venture or corporation not meeting the requirements of an Affiliate in which the Company or an Affiliate
is a party.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Exchange Act&#148; shall mean the Securities Exchange Act of 1934, as amended.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Exchange Program&#148; shall mean a program under which (i) outstanding Awards are surrendered
or cancelled in exchange for Awards of the same type (which may have lower exercise prices and different
terms), Awards of a different type, and/or cash, and/or (ii) the exercise price of an outstanding
Award is reduced. The terms and conditions of any Exchange Program will be determined by the Administrator
in its sole discretion.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Fair Market Value&#148; shall mean, unless the Administrator determines otherwise, as of any
date, the closing price for such Common Stock as of such date (or if no sales were reported on such
date, the closing price on the last preceding day for which a sale was reported), as reported in
such source as the Administrator shall determine.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Grant Date&#148; shall mean the date upon which an Award is granted to an Awardee pursuant to
this Plan.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Incentive Stock Option&#148; shall mean an Option intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code and the regulations promulgated thereunder.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Nonstatutory Stock Option&#148; shall mean an Option not intended to qualify as an Incentive
Stock Option.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Officer&#148; shall mean a person who is an officer of the Company within the meaning of Section
16 of the Exchange Act and the rules and regulations promulgated thereunder.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Option&#148; shall mean a right granted under Section 8 of the Plan to purchase a certain number
of Shares at such exercise price, at such times, and on such other terms and conditions as are specified
in the agreement or other documents evidencing the Award (the &#147;Option Agreement&#148;). Both
Options intended to qualify as Incentive Stock Options and Nonstatutory Stock Options may be granted
under the Plan.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Participant&#148; shall mean the Awardee or any person (including any estate) to whom an Award
has been assigned or transferred as permitted hereunder.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Plan&#148; shall mean this American Technology Corporation 2005 Equity Incentive Plan, as amended
from time to time.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Prior Plan&#148; shall mean the Company&#146;s 2002 Stock Option Plan authorizing up to 2,350,000
Shares for issuance pursuant to stock options.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Qualifying Performance Criteria&#148; shall have the meaning set forth in Section 14(b) of the
Plan.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Related Corporation&#148; shall mean any parent or subsidiary (as defined in Sections 424(e)
and (f) of the Code) of the Company.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Rule 701&#148; shall mean Rule 701 promulgated under the Securities Act of 1933, as amended.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Service Provider&#148; shall mean an Employee, Director, or Consultant.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Share&#148; shall mean a share of the Common Stock, as adjusted in accordance with Section 15
of the Plan.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Stock Award&#148; shall mean an award or issuance of Shares or Stock Units made under Section
11 of the Plan, the grant, issuance, retention, vesting and/or transferability of which is subject
during specified periods of time to such conditions (including continued service or performance conditions)
and terms as are expressed in the agreement or other documents evidencing the Award (the &#147;Stock
Award Agreement&#148;).</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Stock Appreciation Right&#148; or &#147;SAR&#148; shall mean an Award, granted alone or in connection
with an Option, that pursuant to Section 12 of the Plan is designated as a SAR. The terms of the
SAR are expressed in the agreement or other documents evidencing the Award (the &#147;SAR Agreement&#148;).</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Stock Unit&#148; shall mean a bookkeeping entry representing an amount equivalent to the fair
market value of one Share, payable in cash, property or Shares. Stock Units represent an unfunded
and unsecured obligation of the Company, except as otherwise provided for by the Administrator. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;10% Stockholder&#148; shall mean the owner of stock (as determined under Section&nbsp;424(d)
of the Code) possessing more than 10% of the total combined voting power of all classes of stock
of the Company (or any Related Corporation).</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Termination of Service&#148; shall mean ceasing to be a Service Provider. However, for Incentive
Stock Option purposes, Termination of Service will occur when the Awardee ceases to be an employee
(as determined in accordance with Section 3401(c) of the Code and the regulations promulgated thereunder)
of the Company or one of its Related Corporations. The Administrator shall determine whether any
corporate transaction, such as a sale or spin-off of a division or business unit, or a joint venture,
shall be deemed to result in a Termination of Service. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>&#147;Total and Permanent Disability&#148; shall have the meaning set forth in Section 22(e)(3) of
the Code. </FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>3.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Stock Subject to the Plan</u>.</B></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><u>Aggregate Limits</u>.</FONT></P>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(i)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> The number of Shares initially reserved for issuance under the Plan through Awards is a maximum of
3,312,501 Shares. Such reserve shall consist of (A) the number of Shares available for issuance,
as of the effective date of the Plan, under the Prior Plan, plus (B) those Shares that are issuable
upon exercise of (x) options granted pursuant to the Prior Plan, or (y) &#147;Prior Plan Options&#148;
as such term is defined in the Prior Plan, in either case which expire or become unexercisable for
any reason without having been exercised in full after the effective date of the Plan, plus (C) an
additional increase of 1,500,000 Shares to be approved by the Company&#146;s shareholders on the
effective date of the Plan. Notwithstanding the foregoing, the maximum aggregate number of Shares
that may be issued under the Plan through Incentive Stock Options is 3,312.501. The limitations of
this Section 3(a)(i) shall be subject to the adjustments provided for in Section&nbsp;15 of the Plan.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(ii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Upon payment in Shares pursuant to the exercise of an Award, the number of Shares available for issuance
under the Plan shall be reduced only by the number of Shares actually issued in such payment. If
any outstanding Award expires or is terminated or canceled without having been exercised or settled
in full, or if Shares acquired pursuant to an Award subject to forfeiture or repurchase are forfeited
or repurchased by the Company, the Shares allocable to the terminated portion of such Award or such
forfeited or repurchased Shares shall again be available to grant under the Plan. Notwithstanding
the foregoing, the aggregate number of shares of Common Stock that may be issued under the Plan upon
the exercise of Incentive Stock Options shall not be increased for restricted Shares that are forfeited
or repurchased. Notwithstanding anything in the Plan, or any Award Agreement to the contrary, Shares
attributable to Awards transferred under any Award Transfer Program shall not be again available
for grant under the Plan. The Shares subject to the Plan may be either Shares reacquired by the Company,
including Shares purchased in the open market, or authorized but unissued Shares.</FONT></TD></TR></TABLE>

<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Code Section 162(m) Limit</u>. &nbsp;Subject to the provisions of Section 15 of the Plan, the aggregate number of Shares subject
to Awards granted under this Plan during any calendar year to any one Awardee shall not exceed 250,000,
except that in connection with his or her initial service, an Awardee may be granted Awards covering
up to an additional 500,000 Shares. Notwithstanding anything to the contrary in the Plan, the limitations
set forth in this Section&nbsp;3(b) shall be subject to adjustment under Section&nbsp;15 of the Plan
only to the extent that such adjustment will not affect the status of any Award intended to qualify
as &#147;performance based compensation&#148; under Code Section&nbsp;162(m). </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>4.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Administration of the Plan</u></B></FONT><FONT face="Times New Roman, Times, Serif" size=2>.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Procedure</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. </FONT></P>

<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(i)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Multiple Administrative Bodies</U>. The Plan shall be administered by the Board, a Committee and/or their delegates. </FONT></TD></TR></TABLE>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(ii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Section 162</U>. To the extent that the Administrator determines it to be desirable to qualify Awards granted hereunder
as &#147;performance-based compensation&#148; within the meaning of Section 162(m) of the Code, Awards
to &#147;covered employees&#148; within the meaning of Section 162(m) of the Code or Employees that
the Committee determines may be &#147;covered employees&#148; in the future shall be made by a Committee
of two or more &#147;outside directors&#148; within the meaning of Section 162(m) of the Code. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(iii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Rule 16b-3</U>. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3 promulgated
under the Exchange Act (&#147;Rule 16b-3&#148;), Awards to Officers and Directors shall be made in
such a manner to satisfy the requirement for exemption under Rule 16b-3. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(iv)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Other Administration</U>. The Board or a Committee may delegate to an authorized Officer or Officers of the Company the power
to approve Awards to persons eligible to receive Awards under the Plan who are not (A) subject to
Section 16 of the Exchange Act or (B) at the time of such approval, &#147;covered employees&#148;
under Section 162(m) of the Code. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(v)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Delegation of Authority for the Day-to-Day Administration of the Plan</U>. Except to the extent prohibited by Applicable Law, the Administrator may delegate to one or more
individuals the day-to-day administration of the Plan and any of the functions assigned to it in
this Plan. Such delegation may be revoked at any time. </FONT></TD></TR></TABLE>

<P align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font size="2" face="Times New Roman, Times, serif">(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;<u>Powers of the Administrator</u>. &nbsp;Subject to the provisions of the Plan and, in the case of a Committee or delegates acting as
the Administrator, subject to the specific duties delegated to such Committee or delegates, the Administrator
shall have the authority, in its discretion:</font></P>

<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(i)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to select the Service Providers of the Company or its Affiliates to whom Awards are to be granted
hereunder; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(ii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to determine the number of shares of Common Stock to be covered by each Award granted hereunder; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(iii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to determine the type of Award to be granted to the selected Service Provider; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(iv)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to approve the forms of Award Agreements for use under the Plan; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(v)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted
hereunder. Such terms and conditions include, but are not limited to, the exercise and/or purchase
price, the time or times when an Award may be exercised (which may or may not be based on performance
criteria), the vesting schedule, any vesting and/or exercisability, acceleration or waiver of forfeiture
restrictions, the acceptable forms of consideration, the term, and any restriction or limitation
regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine and may be established at the time an Award is granted or
thereafter; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(vi)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to correct administrative errors; </FONT></TD></TR></TABLE>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(vii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to construe and interpret the terms of the Plan (including sub-plans and Plan addenda) and Awards
granted pursuant to the Plan; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(viii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to adopt rules and procedures relating to the operation and administration of the Plan to accommodate
the specific requirements of local laws and procedures. Without limiting the generality of the foregoing,
the Administrator is specifically authorized (A) to adopt the rules and procedures regarding the
conversion of local currency, withholding procedures and handling of stock certificates which vary
with local requirements and (B) to adopt sub-plans and Plan addenda as the Administrator deems desirable,
to accommodate foreign laws, regulations and practice; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(ix)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations
relating to sub-plans and Plan addenda; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(x)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to modify or amend each Award, including, but not limited to, the acceleration of vesting and/or exercisability,
provided, however, that any such amendment is subject to Section 16 of the Plan and may not materially
impair any outstanding Award unless agreed to in writing by the Participant; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(xi)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to allow Participants to satisfy withholding tax amounts by electing to have the Company withhold
from the Shares to be issued pursuant to an Award that number of Shares having a Fair Market Value
equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall
be determined in such manner and on such date that the Administrator shall determine or, in the absence
of provision otherwise, on the date that the amount of tax to be withheld is to be determined. All
elections by a Participant to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may provide; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(xii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to authorize conversion or substitution under the Plan of any or all stock options, stock appreciation
rights or other stock awards held by service providers of an entity acquired by the Company (the
&#147;Conversion Awards&#148;). Any conversion or substitution shall be effective as of the close
of the merger or acquisition. The Conversion Awards may be Nonstatutory Stock Options or Incentive
Stock Options, as determined by the Administrator, with respect to options granted by the acquired
entity. Unless otherwise determined by the Administrator at the time of conversion or substitution,
all Conversion Awards shall have the same terms and conditions as Awards generally granted by the
Company under the Plan; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(xiii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to authorize any person to execute on behalf of the Company any instrument required to effect the
grant of an Award previously granted by the Administrator; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(xiv)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to implement an Award Transfer Program;</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(xv)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to determine whether Awards will be settled in Shares, cash or in any combination thereof;</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(xvi)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to determine whether Awards will be adjusted for Dividend Equivalents;</FONT></TD></TR></TABLE>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(xvii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to establish a program whereby Service Providers designated by the Administrator can reduce compensation
otherwise payable in cash in exchange for Awards under the Plan;</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(xviii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to impose such restrictions, conditions or limitations as it determines appropriate as to the timing
and manner of any resales by a Participant or other subsequent transfers by the Participant of any
Shares issued as a result of or under an Award, including, without limitation, (A) restrictions under
an insider trading policy and (B) restrictions as to the use of a specified brokerage firm for such
resales or other transfers; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(xix)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to provide, either at the time an Award is granted or by subsequent action, that an Award shall contain
as a term thereof, a right, either in tandem with the other rights under the Award or as an alternative
thereto, of the Participant to receive, without payment to the Company, a number of Shares, cash
or a combination thereof, the amount of which is determined by reference to the value of the Award;</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(xx)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to institute an Exchange Program; and</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(xxi)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> to make all other determinations deemed necessary or advisable for administering the Plan and any
Award granted hereunder.</FONT></TD></TR></TABLE>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Effect of Administrator&#146;s Decision</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;All decisions, determinations and interpretations by the Administrator regarding the Plan,
any rules and regulations under the Plan and the terms and conditions of any Award granted hereunder,
shall be final and binding on all Participants. The Administrator shall consider such factors as
it deems relevant, in its sole and absolute discretion, to making such decisions, determinations
and interpretations, including, without limitation, the recommendations or advice of any officer
or other employee of the Company and such attorneys, consultants and accountants as it may select. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>5.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Eligibility</u></B></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Awards may be granted to Service Providers of the Company or any of its Affiliates.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>6.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Term of Plan</u></B></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The Plan shall become effective on the effective date of its approval by stockholders of the
Company. It shall continue in effect for a term of ten years from the date the Plan is approved by
stockholders of the Company unless terminated earlier under Section 16 of the Plan.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>7.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Term of Award</u></B></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The term of each Award shall be determined by the Administrator and stated in the Award Agreement.
In the case of an Option, the term shall be ten years from the Grant Date or such shorter term as
may be provided in the Award Agreement. </FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>8.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Options</u></B></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The Administrator may grant an Option or provide for the grant of an Option, either from time
to time in the discretion of the Administrator or automatically upon the occurrence of specified
events, including, without limitation, the achievement of performance goals, the satisfaction of
an event or condition within the control of the Awardee or within the control of others. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><u> Option Agreemen</u>t</FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Each Option Agreement shall contain provisions regarding (i) the number of Shares that may
be issued upon exercise of the Option, (ii) the type of Option, (iii) the exercise price of the Shares
and the means of payment for the Shares, (iv) the term of the Option, (v) such terms and conditions
on the vesting and/or exercisability of an Option as may be determined from time to time by the Administrator,
(vi) restrictions on the transfer of the Option and forfeiture provisions, and (vii) such further
terms and conditions, in each case not inconsistent with this Plan, as may be determined from time
to time by the Administrator. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Exercise Price</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The per share exercise price for the Shares to be issued pursuant to exercise of an Option
shall be determined by the Administrator, subject to the following: </FONT></P>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(i)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> In the case of an Incentive Stock Option, the per Share exercise price shall be no less than 100%
of the Fair Market Value per Share on the Grant Date. Notwithstanding the foregoing, if any Employee
to whom an Incentive Stock Option is granted is a 10% Stockholder, then the exercise price shall
not be less than 110% of the Fair Market Value of a share of Common Stock on the Grant Date.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(ii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> In the case of a Nonstatutory Stock Option, the per Share exercise price shall be no less than 100%
of the Fair Market Value per Share on the Grant Date. The per Share exercise price may also vary
according to a predetermined formula; provided, that the exercise price never falls below 100% of
the Fair Market Value per Share on the Grant Date. In the case of a Nonstatutory Stock Option intended
to qualify as &#147;performance-based compensation&#148; within the meaning of Section&nbsp;162(m)
of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the Grant Date.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(iii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Notwithstanding the foregoing, so long as the issuance and sale of securities under this Plan require
qualification under the California Corporate Securities Law of 1968, the per Share exercise price
of an Option shall be determined by the Administrator but shall not be less than 100% (or 110% in
the case of a person who owns on the date of grant of such Option, securities of the Company possessing
more than 10% of the total combined voting power of all classes of stock of the Company or any Related
Corporation) of the Fair Market Value of a share of Common Stock on the Grant Date.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(iv)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Notwithstanding the foregoing, at the Administrator&#146;s discretion, Conversion Awards may be granted
in substitution and/or conversion of options of an acquired entity, with a per Share exercise price
of less than 100% of the Fair Market Value per Share on the date of such substitution and/or conversion.
The terms of the Conversion Awards shall be determined by the Administrator in accordance with the
rules provided for in Code Section 424(a).</FONT></TD></TR></TABLE>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Vesting Period and Exercise Dates</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Options granted under this Plan shall vest and/or be exercisable at such time and in such installments
during the period prior to the expiration of the Option&#146;s term as determined by the Administrator.
The Administrator shall have the right to make the timing of the ability to exercise any Option granted
under this Plan subject to continued service, the passage of time and/or such performance requirements
as deemed appropriate by the Administrator. At any time after the grant of an Option, the Administrator
may reduce or eliminate any restrictions surrounding any Participant&#146;s right to exercise all
or part of the Option. Notwithstanding the foregoing, so long as the issuance and sale of securities
under this Plan require qualification under the California Corporate Securities Law of 1968, an Option
awarded to anyone other than an Officer, Director or Consultant of the Company shall vest at a rate
of at least 20% per year.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(d)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Form of Consideration</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The Administrator shall determine the acceptable form of consideration for exercising an Option,
including the method of payment, either through the terms of the Option Agreement or at the time
of exercise of an Option. Acceptable forms of consideration may include: </FONT></P>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(i)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> cash; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(ii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> check or wire transfer; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(iii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> subject to any conditions or limitations established by the Administrator, other Shares which (A)
in the case of Shares acquired upon the exercise of an Option, have been owned by the Participant
for more than six months (or such other period of time, as required by the applicable accounting
requirements) on the date of surrender or attestation and (B) have a Fair Market Value on the date
of surrender or attestation equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(iv)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> consideration received by the Company under a broker-assisted sale and remittance program acceptable
to the Administrator; </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(v)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> such other consideration and method of payment for the issuance of Shares to the extent permitted
by Applicable Laws; or </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(vi)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> any combination of the foregoing methods of payment. </FONT></TD></TR></TABLE>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(e)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Buyout Provisions</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The Administrator may at any time offer to buy out for a payment in Shares an Option previously
granted based on such terms and conditions as the Administrator shall establish and communicate to
the Participant at the time that such offer is made.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>9.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Incentive Stock Option Limitations</u></B>.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Eligibility</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Only employees (as determined in accordance with Section 3401(c) of the Code and the regulations
promulgated thereunder) of the Company or any of its Related Corporations may be granted Incentive
Stock Options. </FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><u>$100,000 Limitation</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Notwithstanding the designation &#147;Incentive Stock Option&#148; in an Option Agreement,
if and to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by the Awardee during any calendar year (under all
plans of the Company and any of its Related Corporations) exceeds $100,000, such Options shall be
treated as Nonstatutory Stock Options. An Incentive Stock Option is considered to be first exercisable
during a calendar year if the Incentive Stock Option will become exercisable at any time during the
year, assuming that any condition on the Awardee&#146;s ability to exercise the Incentive Stock Option
related to the performance of services is satisfied. If the Awardee&#146;s ability to exercise the
Incentive Stock Option in the year is subject to an acceleration provision, then the Incentive Stock
Option is considered first exercisable in the calendar year in which the acceleration provision is
triggered. For purposes of this Section 9(b), Incentive Stock Options shall be taken into account
in the order in which they were granted. However, because an acceleration provision is not taken
into account prior to its triggering, an Incentive Stock Option that becomes exercisable for the
first time during a calendar year by operation of such provision does not affect the application
of the $100,000 limitation with respect to any Incentive Stock Option (or portion thereof) exercised
prior to such acceleration. The Fair Market Value of the Shares shall be determined as of the Grant Date. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Leave of Absence</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;For purposes of Incentive Stock Options, no leave of absence may exceed three months, unless
reemployment upon expiration of such leave is provided by statute or contract. If reemployment upon
expiration of a leave of absence approved by the Company or a Related Corporation is not so provided
by statute or contract, an Awardee&#146;s employment with the Company shall be deemed terminated
on the first day immediately following such three month period of leave for Incentive Stock Option
purposes and any Incentive Stock Option granted to the Awardee shall cease to be treated as an Incentive
Stock Option upon the expiration of the three month period following the date the employment relationship
is deemed terminated. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(d)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Transferability</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The Option Agreement must provide that an Incentive Stock Option cannot be transferable by
the Awardee otherwise than by will or the laws of descent and distribution, and, during the lifetime
of such Awardee, must not be exercisable by any other person. Notwithstanding the foregoing, the
Administrator, in its sole discretion, may allow the Awardee to transfer his or her Incentive Stock
Option to a trust where under Section 671 of the Code and other Applicable Law, the Awardee is considered
the sole beneficial owner of the Option while it is held in the trust. If the terms of an Incentive
Stock Option are amended to permit transferability, the Option will be treated for tax purposes as
a Nonstatutory Stock Option.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(e)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Exercise Price</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The per Share exercise price of an Incentive Stock Option shall be determined by the Administrator
in accordance with Section 8(b)(i) of the Plan. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(f)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><u>10% Stockholder</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;If any Employee to whom an Incentive Stock Option is granted is a 10% Stockholder, then the
Option term shall not exceed five years measured from the date of grant of such Option.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(g)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Other Terms</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Option Agreements evidencing Incentive Stock Options shall contain such other terms and conditions
as may be necessary to qualify, to the extent determined desirable by the Administrator, with the
applicable provisions of Section 422 of the Code. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>10.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><u>Exercise of Option</u></B>.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Procedure for Exercise; Rights as a Stockholder</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. </FONT></P>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(i)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times
and under such conditions as determined by the Administrator and set forth in the respective Award
Agreement.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(ii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> An Option shall be deemed exercised when the Company receives (A) written or electronic notice of
exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option;
(B) full payment for the Shares with respect to which the related Option is exercised; and (C) with
respect to Nonstatutory Stock Options, payment of all applicable withholding taxes. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(iii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Shares issued upon exercise of an Option shall be issued in the name of the Participant or, if requested
by the Participant, in the name of the Participant and his or her spouse. Unless provided otherwise
by the Administrator or pursuant to this Plan, until the Shares are issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist with respect to the
Shares subject to an Option, notwithstanding the exercise of the Option. </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(iv)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> The Company shall issue (or cause to be issued) such Shares as soon as administratively practicable
after the Option is exercised. An Option may not be exercised for a fraction of a Share. </FONT></TD></TR></TABLE>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Effect of Termination of Service on Options</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. </FONT></P>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(i)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Generally</U>. Unless otherwise provided for by the Administrator, if a Participant ceases to be a Service Provider,
other than upon the Participant&#146;s death or Total and Permanent Disability, the Participant may
exercise his or her Option within such period of time as is specified in the Award Agreement to the
extent that the Option is vested on the date of termination (but in no event later than the expiration
of the term of such Option as set forth in the Award Agreement). Notwithstanding the foregoing, so
long as the issuance and sale of securities under this Plan require qualification under the California
Corporate Securities Law of 1968, upon Participant&#146;s Termination of Service, other than due
to death, Total and Permanent Disability, or cause, the Participant may exercise his or her Option
(i) at any time on or prior to the date determined by the Administrator, which date shall be at least
30 days subsequent to the Participant&#146;s termination date (but in no event later than the expiration
of the term of such Option), and (ii) only to the extent that the Participant was entitled to exercise
such Option on the termination date. In the absence of a specified time in the Award Agreement, the
vested portion of the Option will remain exercisable for three months following the Participant&#146;s
termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant
is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option
will revert to the Plan. If after termination the Participant does not exercise his or her Option
within the time specified by the Administrator, the Option will terminate, and the Shares covered
by such Option will revert to the Plan.</FONT></TD></TR></TABLE>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(ii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Disability of Awardee</U>. Unless otherwise provided for by the Administrator, if a Participant ceases to be a Service Provider
as a result of the Participant&#146;s Total and Permanent Disability, the Participant may exercise
his or her Option within such period of time as is specified in the Award Agreement to the extent
the Option is vested on the date of termination (but in no event later than the expiration of the
term of such Option as set forth in the Award Agreement). Notwithstanding the foregoing, so long
as the issuance and sale of securities under this Plan require qualification under the California
Corporate Securities Law of 1968, in the event of Participant&#146;s Termination of Service due to
his or her Total and Permanent Disability, the Participant may exercise his or her Option (i) at
any time on or prior to the date determined by the Administrator, which date shall be at least six
months subsequent to the termination date (but in no event later than the expiration date of the
term of his or her Option), and (ii) only to the extent that the Participant was entitled to exercise
such Option on the termination date. In the absence of a specified time in the Award Agreement, the
Option will remain exercisable for twelve months following the Participant&#146;s termination. Unless
otherwise provided by the Administrator, if at the time of disability the Participant is not vested
as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately
revert to the Plan on the date of the Participant&#146;s disability. If the Option is not so exercised
within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48>&nbsp;</TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(iii)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Death of Awardee</U>. Unless otherwise provided for by the Administrator, if a Participant dies while a Service Provider,
the Option may be exercised following the Participant&#146;s death within such period of time as
is specified in the Award Agreement to the extent that the Option is vested on the date of death
(but in no event may the Option be exercised later than the expiration of the term of such Option
as set forth in the Award Agreement), by the Participant&#146;s designated beneficiary, provided
such beneficiary has been designated prior to Participant&#146;s death in a form acceptable to the
Administrator. Notwithstanding the foregoing, so long as the issuance and sale of securities under
this Plan require qualification under the California Corporate Securities Law of 1968, in the event
that the Participant dies prior to a Termination of Service, the Participant&#146;s Option may be
exercised by the Participant&#146;s designated beneficiary (i) at any time on or prior to the date
determined by the Administrator, which date shall be at least six months subsequent to the date of
death (but in no event later than the expiration date of the term of his or her Option), and (ii)
only to the extent that the Participant was entitled to exercise the Option at the date of death.
If no such beneficiary has been designated by the Participant, then such Option may be exercised
by the personal representative of the Participant&#146;s estate or by the person(s) to whom the Option
is transferred pursuant to the Participant&#146;s will or in accordance with the laws of descent
and distribution. In the absence of a specified time in the Award Agreement, the Option will remain
exercisable for twelve months following Participant&#146;s death. Unless otherwise provided by the
Administrator, if at the time of death Participant is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option will immediately revert to the Plan on the
date of the Participant&#146;s death. If the Option is not so exercised within the time specified
herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.</FONT></TD></TR></TABLE>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>11.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Stock Awards</u></B>.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Stock Award Agreement</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Each Stock Award Agreement shall contain provisions regarding (i) the number of Shares subject
to such Stock Award or a formula for determining such number, (ii) the purchase price of the Shares,
if any, and the means of payment for the Shares, (iii) the performance criteria, if any, and level
of achievement versus these criteria that shall determine the number of Shares granted, issued, retained
and/or vested, (iv) such terms and conditions on the grant, issuance, vesting and/or forfeiture of
the Shares as may be determined from time to time by the Administrator, (v) restrictions on the transferability
of the Stock Award and (vi) such further terms and conditions in each case not inconsistent with
this Plan as may be determined from time to time by the Administrator.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>Notwithstanding the foregoing, so long as the issuance and sale of securities under this Plan require
qualification under the California Corporate Securities Law of 1968, the purchase price for restricted
Shares shall be determined by the Administrator, but shall not be less than 85% (or 100% in the case
of a person who owns on the date of grant of such restricted stock, securities of the Company possessing
more than 10% of the total combined voting power of all classes of stock of the Company or any Related
Corporation) of the Fair Market Value of a share of Common Stock on the date of grant of such restricted
stock.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Restrictions and Performance Criteria</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The grant, issuance, retention and/or vesting of each Stock Award may be subject to such performance
criteria and level of achievement versus these criteria as the Administrator shall determine, which
criteria may be based on financial performance, personal performance evaluations and/or completion
of service by the Awardee. Notwithstanding the foregoing, so long as the issuance and sale of securities
under this Plan require qualification under the California Corporate Securities Law of 1968, restricted
stock awarded to anyone other than an Officer, Director or Consultant of the Company shall vest at
a rate of at least 20% per year.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>Notwithstanding anything to the contrary herein, the performance criteria for any Stock Award that
is intended to satisfy the requirements for &#147;performance-based compensation&#148; under Section
162(m) of the Code shall be established by the Administrator based on one or more Qualifying Performance
Criteria selected by the Administrator and specified in writing. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Forfeiture</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Unless otherwise provided for by the Administrator, upon the Awardee&#146;s Termination of
Service, the Stock Award and the Shares subject thereto shall be forfeited, provided that to the
extent that the Participant purchased any Shares, the Company shall have a right to repurchase the
unvested Shares at the original price paid by the Participant, provided that for so long as the issuance
and sale of securities under this Plan require qualification under the California Corporate Securities
Law of 1968, the Company must exercise such right to repurchase (i)&nbsp;for either cash or cancellation
of purchase money indebtedness for such unvested Shares, and (ii)&nbsp;within 90 days of such Termination
of Service.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(d)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Rights as a Stockholder</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Unless otherwise provided by the Administrator, the Participant shall have the rights equivalent
to those of a stockholder and shall be a stockholder only after Shares are issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company)
to the Participant. Unless otherwise provided by the Administrator, a Participant holding Stock Units
shall be entitled to receive dividend payments as if he or she was an actual stockholder.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>12.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><u>Stock Appreciation Rights</u></B></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Subject to the terms and conditions of the Plan, a SAR may be granted to a Service Provider
at any time and from time to time as determined by the Administrator in its sole discretion. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Number of SARs</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The Administrator shall have complete discretion to determine the number of SARs granted to
any Service Provider. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Exercise Price and Other Terms</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The per SAR exercise price shall be no less than 100% of the Fair Market Value per Share on
the Grant Date. The Administrator, subject to the provisions of the Plan, shall have complete discretion
to determine the other terms and conditions of SARs granted under the Plan.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Exercise of SARs</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;SARs shall be exercisable on such terms and conditions as the Administrator, in its sole discretion,
shall determine. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(d)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>SAR Agreement</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Each SAR grant shall be evidenced by a SAR Agreement that will specify the exercise price,
the term of the SAR, the conditions of exercise, and such other terms and conditions as the Administrator,
in its sole discretion, shall determine. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(e)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Expiration of SARs</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;A SAR granted under the Plan shall expire upon the date determined by the Administrator, in
its sole discretion, and set forth in the SAR Agreement. Notwithstanding the foregoing, the rules
of Section 10(b) will also apply to SARs. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(f)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Payment of SAR Amount</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Upon exercise of a SAR, the Participant shall be entitled to receive a payment from the Company
in an amount equal to the difference between the Fair Market Value of a Share on the date of exercise
over the exercise price of the SAR. This amount shall be paid in Shares of equivalent value.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>13.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Cash Awards</u></B></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Each Cash Award will confer upon the Participant the opportunity to earn a future payment tied
to the level of achievement with respect to one or more performance criteria established for a performance
period. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Cash Award</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Each Cash Award shall contain provisions regarding (i) the performance goal(s) and maximum
amount payable to the Participant as a Cash Award, (ii) the performance criteria and level of achievement
versus these criteria which shall determine the amount of such payment, (iii) the period as to which
performance shall be measured for establishing the amount of any payment, (iv) the timing of any
payment earned by virtue of performance, (v) restrictions on the alienation or transfer of the Cash
Award prior to actual payment, (vi) forfeiture provisions, and (vii) such further terms and conditions,
in each case not inconsistent with the Plan, as may be determined from time to time by the Administrator.
The maximum amount payable as a Cash Award that is settled for cash may be a multiple of the target
amount payable, but the maximum amount payable pursuant to that portion of a Cash Award granted under
this Plan for any fiscal year to any Awardee that is intended to satisfy the requirements for &#147;performance
based compensation&#148; under Section&nbsp;162(m) of the Code shall not exceed $1,000,000.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Performance Criteria</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The Administrator shall establish the performance criteria and level of achievement versus
these criteria which shall determine the target and the minimum and maximum amount payable under
a Cash Award, which criteria may be based on financial performance and/or personal performance evaluations.
The Administrator may specify the percentage of the target Cash Award that is intended to satisfy
the requirements for &#147;performance-based compensation&#148; under Section 162(m) of the Code.
Notwithstanding anything to the contrary herein, the performance criteria for any portion of a Cash
Award that is intended to satisfy the requirements for &#147;performance-based compensation&#148;
under Section 162(m) of the Code shall be a measure established by the Administrator based on one
or more Qualifying Performance Criteria selected by the Administrator and specified in writing. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Timing and Form of Payment</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The Administrator shall determine the timing of payment of any Cash Award. The Administrator
may specify the form of payment of Cash Awards, which may be cash or other property, or may provide
for an Awardee to have the option for his or her Cash Award, or such portion thereof as the Administrator
may specify, to be paid in whole or in part in cash or other property. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(d)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Termination of Service</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The Administrator shall have the discretion to determine the effect of a Termination of Service
on any Cash Award due to (i) disability, (ii) retirement, (iii) death, (iv) participation in a voluntary
severance program, or (v) participation in a work force restructuring. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>14.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><u>Other Provisions Applicable to Awards</u></B>.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Non-Transferability of Awards</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;An Award may be exercised, during the lifetime of the Participant, only by the Participant,
and may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will, by the laws of descent and distribution, or as permitted by Rule 701; provided that
so long as the issuance and sale of securities under this Plan does not require qualification under
the California Corporate Securities Law of 1968, the Administrator may in each case determine otherwise.
If the Administrator makes an Award transferable, either at the time of grant or thereafter, such
Award shall contain such additional terms and conditions as the Administrator deems appropriate,
and any transferee shall be deemed to be bound by such terms upon acceptance of such transfer.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Qualifying Performance Criteria</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;For purposes of this Plan, the term &#147;Qualifying Performance Criteria&#148; shall mean
any one or more of the following performance criteria, either individually, alternatively or in any
combination, applied to either the Company as a whole or to a business unit, Affiliate or business
segment, either individually, alternatively or in any combination, and measured either annually or
cumulatively over a period of years, on an absolute basis or relative to a pre-established target,
to previous years&#146; results or to a designated comparison group, in each case as specified by
the Committee in the Award:&nbsp;(i)&nbsp;cash flow; (ii)&nbsp;earnings (including gross margin,
earnings before interest and taxes, earnings before taxes, and net earnings); (iii)&nbsp;earnings
per share; (iv)&nbsp;growth in earnings or earnings per share; (v)&nbsp;stock price; (vi)&nbsp;return
on equity or average stockholders&#146; equity; (vii)&nbsp;total stockholder return; (viii)&nbsp;return
on capital; (ix)&nbsp;return on assets or net assets; (x)&nbsp;return on investment; (xi)&nbsp;revenue;
(xii)&nbsp;income or net income; (xiii)&nbsp;operating income or net operating income; (xiv)&nbsp;operating
profit or net operating profit; (xv)&nbsp;operating margin; (xvi)&nbsp;return on operating revenue;
(xvii)&nbsp;market share; (xviii)&nbsp;contract awards or backlog; (xix)&nbsp;overhead or other expense
reduction; (xx)&nbsp;growth in stockholder value relative to the moving average of the S&amp;P 500
Index or a peer group index; (xxi)&nbsp;credit rating; (xxii)&nbsp;strategic plan development and
implementation; (xxiii)&nbsp;improvement in workforce diversity, (xxiv)&nbsp;EBITDA, and (xxv) any
other similar criteria. The Committee may appropriately adjust any evaluation of performance under
a Qualifying Performance Criteria to exclude any of the following events that occurs during a performance
period: (A)&nbsp;asset write-downs; (B)&nbsp;litigation or claim judgments or settlements; (C)&nbsp;the
effect of changes in tax law, accounting principles or other such laws or provisions affecting reported
results; (D)&nbsp;accruals for reorganization and restructuring programs; and (E)&nbsp;any extraordinary
non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or in management&#146;s
discussion and analysis of financial condition and results of operations appearing in the Company&#146;s
annual report to stockholders for the applicable year.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Certification</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Prior to the payment of any compensation under an Award intended to qualify as &#147;performance-based
compensation&#148; under Section 162(m) of the Code, the Committee shall certify the extent to which
any Qualifying Performance Criteria and any other material terms under such Award have been satisfied
(other than in cases where such relate solely to the increase in the value of the Common Stock). </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(d)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Discretionary Adjustments Pursuant to Section 162(m)</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Notwithstanding satisfaction of any completion of any Qualifying Performance Criteria, to the
extent specified at the time of grant of an Award to &#147;covered employees&#148; within the meaning
of Section 162(m) of the Code, the number of Shares, Options or other benefits granted, issued, retained
and/or vested under an Award on account of satisfaction of such Qualifying Performance Criteria may
be reduced by the Committee on the basis of such further considerations as the Committee in its sole
discretion shall determine.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(e)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><u>Section 409A</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Notwithstanding anything in the Plan to the contrary, it is the intent of the Company that
all Awards granted under this Plan shall not cause an imposition of the additional taxes provided
for in Section 409A(a)(1)(B) of the Code.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(f)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Financial Information</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;For so long as the issuance and sale of securities under this Plan require qualification under
the California Corporate Securities Law of 1968, the Company shall at least annually provide financial
statements to Participants as required by Section 260.140.46 of the California Code of Regulations.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>15.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Adjustments upon Changes in Capitalization, Dissolution, Merger or Asset Sale</u></B>.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Changes in Capitalization</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Subject to any required action by the stockholders of the Company, (i) the number and kind
of Shares covered by each outstanding Award, and the number and kind of shares of Common Stock which
have been authorized for issuance under the Plan but as to which no Awards have yet been granted
or which have been returned to the Plan upon cancellation or expiration of an Award, (ii) the price
per Share subject to each such outstanding Award, and (iii) the Share limitations set forth in Section
3 of the Plan, shall be proportionately adjusted for any increase or decrease in the number or kind
of issued shares resulting from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the number of issued shares
of Common Stock effected without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to have been &#147;effected
without receipt of consideration.&#148; Such adjustment shall be made by the Administrator, whose
determination in that respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Award. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Dissolution or Liquidation</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;In the event of the proposed dissolution or liquidation of the Company, the Administrator shall
notify each Participant as soon as practicable prior to the effective date of such proposed transaction.
The Administrator in its discretion may provide for an Option to be fully vested and exercisable
until ten days prior to such transaction. In addition, the Administrator may provide that any restrictions
on any Award shall lapse prior to the transaction, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has not been previously
exercised, an Award will terminate immediately prior to the consummation of such proposed transaction. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Change in Control</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;In the event there is a Change in Control of the Company, as determined by the Board or a Committee,
the Board or Committee may, in its discretion, (i) provide for the assumption or substitution of,
or adjustment to, each outstanding Award; (ii) accelerate the vesting of Options and SARs and terminate
any restrictions on Stock Awards or Cash Awards; and (iii) provide for the cancellation of Awards
for a cash payment to the Participant. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>16.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Amendment and Termination of the Plan</u></B>.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Amendment and Termination</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The Administrator may amend, alter or discontinue the Plan or any Award Agreement, but any
such amendment shall be subject to approval of the stockholders of the Company in the manner and
to the extent required by Applicable Law. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Effect of Amendment or Termination</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;No amendment, suspension or termination of the Plan shall impair the rights of any Award, unless
mutually agreed otherwise between the Participant and the Administrator, which agreement must be
in writing and signed by the Participant and the Company. Termination of the Plan shall not affect
the Administrator&#146;s ability to exercise the powers granted to it hereunder with respect to Awards
granted under the Plan prior to the date of such termination.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Effect of the Plan on Other Arrangements</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Neither the adoption of the Plan by the Board or a Committee nor the submission of the Plan
to the stockholders of the Company for approval shall be construed as creating any limitations on
the power of the Board or any Committee to adopt such other incentive arrangements as it or they
may deem desirable, including, without limitation, the granting of restricted stock or stock options
otherwise than under the Plan, and such arrangements may be either generally applicable or applicable
only in specific cases. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>17.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Designation of Beneficiary</u></B>.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> An Awardee may file a written designation of a beneficiary who is to receive the Awardee&#146;s rights
pursuant to Awardee&#146;s Award or the Awardee may include his or her Awards in an omnibus beneficiary
designation for all benefits under the Plan. To the extent that Awardee has completed a designation
of beneficiary such beneficiary designation shall remain in effect with respect to any Award hereunder
until changed by the Awardee to the extent enforceable under Applicable Law. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Such designation of beneficiary may be changed by the Awardee at any time by written notice. In the
event of the death of an Awardee and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such Awardee&#146;s death, the Company shall allow the executor
or administrator of the estate of the Awardee to exercise the Award, or if no such executor or administrator
has been appointed (to the knowledge of the Company), the Company, in its discretion, may allow the
spouse or one or more dependents or relatives of the Awardee to exercise the Award to the extent
permissible under Applicable Law. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>18.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>No Right to Awards or to Service</u></B></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;No person shall have any claim or right to be granted an Award and the grant of any Award shall
not be construed as giving an Awardee the right to continue in the service of the Company or its
Affiliates. Further, the Company and its Affiliates expressly reserve the right, at any time, to
dismiss any Service Provider or Awardee at any time without liability or any claim under the Plan,
except as provided herein or in any Award Agreement entered into hereunder. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>19.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Legal Compliance</u></B></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such
Award and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to such compliance. Notwithstanding
anything in the Plan to the contrary, it is the intent of the Company that the Plan shall be administered
so that the additional taxes provided for in Section 409A(a)(1)(B) of the Code are not imposed.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>20.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Inability to Obtain Authority</u></B></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;To the extent the Company is unable to or the Administrator deems that it is not feasible to
obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company&#146;s
counsel to be necessary to the lawful issuance and sale of any Shares hereunder, the Company shall
be relieved of any liability with respect to the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>21.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Reservation of Shares</u></B></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The Company, during the term of this Plan, will at all times reserve and keep available such
number of Shares as shall be sufficient to satisfy the requirements of the Plan. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>22.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Notice</u></B></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Any written notice to the Company required by any provisions of this Plan shall be addressed
to the Secretary of the Company and shall be effective when received. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>23.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Governing Law; Interpretation of Plan and Awards</u></B>.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> This Plan and all determinations made and actions taken pursuant hereto shall be governed by the substantive
laws, but not the choice of law rules, of the state of Delaware.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> In the event that any provision of the Plan or any Award granted under the Plan is declared to be
illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, such provision
shall be reformed, if possible, to the extent necessary to render it legal, valid and enforceable,
or otherwise deleted, and the remainder of the terms of the Plan and/or Award shall not be affected
except to the extent necessary to reform or delete such illegal, invalid or unenforceable provision. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(c)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> The headings preceding the text of the sections hereof are inserted solely for convenience of reference,
and shall not constitute a part of the Plan, nor shall they affect its meaning, construction or effect.
</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(d)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> The terms of the Plan and any Award shall inure to the benefit of and be binding upon the parties
hereto and their respective permitted heirs, beneficiaries, successors and assigns. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(e)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> All questions arising under the Plan or under any Award shall be decided by the Administrator in its
total and absolute discretion. In the event the Participant believes that a decision by the Administrator
with respect to such person was arbitrary or capricious, the Participant may request arbitration
with respect to such decision. The review by the arbitrator shall be limited to determining whether
the Administrator&#146;s decision was arbitrary or capricious. This arbitration shall be the sole
and exclusive review permitted of the Administrator&#146;s decision, and the Awardee shall as a condition
to the receipt of an Award be deemed to explicitly waive any right to judicial review.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>24.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Limitation on Liability</u></B></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The Company and any Affiliate which is in existence or hereafter comes into existence shall
not be liable to a Participant, an Employee, an Awardee or any other persons as to: </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(a)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>The Non-Issuance of Shares</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;The non-issuance or sale of Shares as to which the Company has been unable to obtain from any
regulatory body having jurisdiction the authority deemed by the Company&#146;s counsel to be necessary
to the lawful issuance and sale of any shares hereunder; and </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>(b)<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Tax Consequences</u></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Any tax consequence expected, but not realized, by any Participant, Employee, Awardee or other
person due to the receipt, exercise or settlement of any Option or other Award granted hereunder.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2><B>25.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <u>Unfunded Plan</u></B></FONT><FONT face="Times New Roman, Times, Serif" size=2>. &nbsp;Insofar as it provides for Awards, the Plan shall be unfunded. Although bookkeeping accounts
may be established with respect to Awardees who are granted Stock Awards under this Plan, any such
accounts will be used merely as a bookkeeping convenience. The Company shall not be required to segregate
any assets which may at any time be represented by Awards, nor shall this Plan be construed as providing
for such segregation, nor shall the Company nor the Administrator be deemed to be a trustee of stock
or cash to be awarded under the Plan. Any liability of the Company to any Participant with respect
to an Award shall be based solely upon any contractual obligations which may be created by the Plan;
no such obligation of the Company shall be deemed to be secured by any pledge or other encumbrance
on any property of the Company. Neither the Company nor the Administrator shall be required to give
any security or bond for the performance of any obligation which may be created by this Plan. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>IN WITNESS WHEREOF, the Company, by its duly authorized officer, has executed this Plan, effective
as of August __, 2005.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="50%">&nbsp;</td>
    <td><font face="Times New Roman, Times, Serif" size=2>AMERICAN TECHNOLOGY CORPORATION,<br>
    a Delaware corporation    </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font face="Times New Roman, Times, Serif" size=2>Date:&nbsp;&nbsp;August __, 2005</font></td>
    <td nowrap><font face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By:<u>&nbsp;/s/ Michael A. Russell&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font face="Times New Roman, Times, Serif" size=2>Its:&nbsp;Chief Financial Officer and Secretary</font></td>
  </tr>
</table>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;</FONT></P>
<HR noShade SIZE=5>
<P style="PAGE-BREAK-BEFORE: always">
</BODY></HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>4
<FILENAME>ex_10-11.htm
<DESCRIPTION>FORM OF STOCK OPTION
<TEXT>
<HTML>
<HEAD>
<TITLE></TITLE>
</HEAD>
<BODY>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td>&nbsp;</td>
    <td colspan="2" align="right"><p><b><font size="2" face="Times New Roman, Times, serif">Exhibit 10.11</font></b></p></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td colspan="2" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td colspan="2" align="right"><b><font face="Times New Roman, Times, Serif" size=2>AMERICAN TECHNOLOGY CORPORATION 2005 EQUITY INCENTIVE PLAN</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right"><b><font face="Times New Roman, Times, Serif" size=2>FORM:&nbsp;&nbsp;</font></b></td>
    <td width="15%"><b><font face="Times New Roman, Times, Serif" size=2>STOCK OPTION AGREEMENT</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right"><b><font face="Times New Roman, Times, Serif" size=2>APPROVED BY: &nbsp;</font></b></td>
    <td nowrap><b><font face="Times New Roman, Times, Serif" size=2>COMPENSATION COMMITTEE</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right"><b><font face="Times New Roman, Times, Serif" size=2>VERSION:&nbsp;&nbsp;</font></b></td>
    <td><b><font face="Times New Roman, Times, Serif" size=2>AUGUST 2005</font></b></td>
  </tr>
</table>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>AMERICAN TECHNOLOGY CORPORATION<BR>2005 EQUITY INCENTIVE PLAN<BR><U>STOCK OPTION AGREEMENT</U></B></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>Unless otherwise defined herein, the terms defined in the American Technology Corporation 2005 Equity
Incentive Plan shall have the same defined meanings in this Option Agreement. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2><B>I.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>NOTICE OF STOCK OPTION GRANT</U>.</B></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>You have been granted an option to purchase Common Stock, subject to the terms and conditions of the
Plan and this Option Agreement, as follows: </FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr valign="bottom">
    <td width="50">&nbsp;</td>
    <td width="350"><font face="Times New Roman, Times, Serif" size=2>Name of Optionee:&nbsp;</font></td>
    <td style="Border-bottom: 1pt solid black">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font face="Times New Roman, Times, Serif" size=2>Total&nbsp;Number&nbsp;of&nbsp;Shares&nbsp;Granted:</font></td>
    <td style="Border-bottom: 1pt solid black">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font face="Times New Roman, Times, Serif" size=2>Type of Option:</font></td>
    <td><font face="Times New Roman, Times, Serif" size=2>_____ Incentive Stock Option</font></td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="Times New Roman, Times, Serif" size=2>_____ Nonstatutory Stock Option</font></td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font face="Times New Roman, Times, Serif" size=2>Exercise Price per Share:</font></td>
    <td style="Border-bottom: 1pt solid black"><font face="Times New Roman, Times, Serif" size=2>$</font></td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font face="Times New Roman, Times, Serif" size=2>Grant Date:&nbsp;&nbsp;</font></td>
    <td style="Border-bottom: 1pt solid black">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font face="Times New Roman, Times, Serif" size=2>Vesting&nbsp;Commencement&nbsp;Date:</font></td>
    <td style="Border-bottom: 1pt solid black">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td><font face="Times New Roman, Times, Serif" size=2>Vesting Schedule:</font></td>
    <td><font face="Times New Roman, Times, Serif" size=2>This option may be exercised, in whole or in part, in accordance with the following schedule:</font></td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font face="Times New Roman, Times, Serif" size=2>[[___]% of the Shares subject to the option shall vest [__]&nbsp;months after the Vesting Commencement Date, and [__]% of the Shares subject to the option shall vest each [year/quarter/month] thereafter, subject to the optionee continuing to be a Service Provider on such dates.]</font></td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td valign="top"><font face="Times New Roman, Times, Serif" size=2>Termination Period:</font></td>
    <td valign="top"><font face="Times New Roman, Times, Serif" size=2>This option may be exercised for thirty (30) days after the optionee ceases to be a Service Provider. The Administrator determines when the optionee incurs a Termination of Service for this purpose. Upon the death or Total and Permanent Disability of the optionee, this option may be exercised for 12&nbsp;months after the optionee ceases to be a Service Provider. In no event shall this option be exercised later than the Term/Expiration Date provided for below. These time periods may be extended as set forth in Section II.I and II.J below.</font></td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td valign="top">&nbsp;</td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td valign="bottom"><font face="Times New Roman, Times, Serif" size=2>Term/Expiration Date:</font></td>
    <td valign="bottom" style="Border-bottom: 1pt solid black">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td valign="bottom">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>
<P style="PAGE-BREAK-BEFORE: always">
<P style="PAGE-BREAK-BEFORE: always">

<P><FONT face="Times New Roman, Times, Serif" size=2><B>II.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>AGREEMENT</U>.</B></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>A.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Grant of Option</U>. The Administrator hereby grants to the optionee named in the Notice of Stock Option Grant attached
as Part I of this Option Agreement (the &#147;Optionee&#148;) an option (the &#147;Option&#148;)
to purchase the number of Shares, as set forth in the Notice of Stock Option Grant, at the exercise
price per Share set forth in the Notice of Stock Option Grant (the &#147;Exercise Price&#148;), subject
to the terms and conditions of this Option Agreement and the Plan. This Option is intended to be
an Incentive Stock Option (&#147;ISO&#148;) or a Nonstatutory Stock Option (&#147;NSO&#148;), as
provided in the Notice of Stock Option Grant.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>B.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Exercise of Option</U>.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>1.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Vesting/Right to Exercise</U>. This Option is exercisable during its term in accordance with the Vesting Schedule set forth in the
Notice of Stock Option Grant, this Option Agreement and the applicable provisions of the Plan. This
Option will in no event become exercisable for additional Shares after a Termination of Service for
any reason. Notwithstanding the foregoing, this Option becomes exercisable in full if the Company
is subject to a Change in Control before the Optionee&#146;s Termination of Service, and the Optionee
is subject to an Involuntary Termination (defined below) in anticipation of or within 24 months after
the Change in Control. For purposes of this Option, the term &#147;Change in Control&#148; shall
not include any underwritten public offering of Shares registered under the Securities Act of 1933,
as amended (the &#147;Securities Act&#148;). This Option may also become exercisable in accordance
with Section II.J. below.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
term &#147;Involuntary Termination&#148; shall mean the Optionee&#146;s Termination of Service by
reason of:&nbsp;(i) the involuntary discharge of the Optionee by the Company (or the Affiliate employing
him or her) for reasons other than Cause (defined below), death or Total and Permanent Disability;
or (ii) the voluntary resignation of the Optionee following (A) a material adverse change in his
or her title, stature, authority or responsibilities with the Company (or the Affiliate employing
him or her), (B) a material reduction in his or her base salary or annual bonus opportunity or (C)
receipt of notice that his or her principal workplace will be relocated by more than 50 miles. The
term &#147;Cause&#148; shall mean (1) the Optionee&#146;s theft, dishonesty, or falsification of
any documents or records of the Company or any Affiliate; (2) the Optionee&#146;s improper use or
disclosure of confidential or proprietary information of the Company or any Affiliate that results
or will result in material harm to the Company or any Affiliate; (3) any action by the Optionee which
has a detrimental effect on the reputation or business of the Company or any Affiliate; (4) the Optionee&#146;s
failure or inability to perform any reasonable assigned duties after written notice from the Company
or an Affiliate, and a reasonable opportunity to cure, such failure or inability; (5) any material
breach by the Optionee of any employment or service agreement between the Optionee and the Company
or an Affiliate, which breach is not cured pursuant to the terms of such agreement; (6) the Optionee&#146;s
conviction (including any plea of guilty or nolo contendere) of any criminal act which impairs the
Optionee&#146;s ability to perform his or her duties with the Company or an Affiliate; or (7) violation
of a material Company policy.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-2-</FONT></P>
<HR noShade SIZE=5>
<P style="PAGE-BREAK-BEFORE: always">
<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>2.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Method of Exercise</U>. This Option is exercisable by delivering to the Administrator a fully executed &#147;Exercise Notice&#148;
or by any other method approved by the Administrator. The Exercise Notice shall provide that the
Optionee is electing to exercise the Option, the number of Shares in respect of which the Option
is being exercised (the &#147;Exercised Shares&#148;), and such other representations and agreements
as may be required by the Administrator. The Exercise Notice shall be accompanied by payment of the
full aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised
upon receipt by the Administrator of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price. The Optionee is responsible for filing any reports of remittance or other foreign
exchange filings required in order to pay the Exercise Price.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>C.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Limitation on Exercise</U>. The grant of this Option and the issuance of Shares upon exercise of this Option is subject to compliance
with all Applicable Laws. This Option may not be exercised if the issuance of Shares upon exercise
would constitute a violation of any Applicable Laws. In addition, this Option may not be exercised
unless (i) a registration statement under the Securities Act is in effect at the time of exercise
of this Option with respect to the Shares or (ii) in the opinion of legal counsel to the Company,
the Shares issuable upon exercise of this Option may be issued in accordance with the terms of an
applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED
THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY,
THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.
As a condition to the exercise of this Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as may be requested
by the Company. Any shares which are issued will be &#147;restricted securities&#148; as that term
is defined in Rule 144 under the Securities Act, and will bear an appropriate restrictive legend,
unless they are registered under the Securities Act. The Company is under no obligation to register
the Shares issuable upon exercise of this Option. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>D.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Method of Payment</U>. Payment of the aggregate Exercise Price shall be by any of the following methods; provided, however,
the payment shall be in strict compliance with all procedures established by the Administrator: </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>1.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> cash; </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>2.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> check or wire transfer; </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> subject to any conditions or limitations established by the Administrator, other Shares which (i)
in the case of Shares acquired upon the exercise of an option, have been owned by the Optionee for
more than six months on the date of surrender or attestation and (ii) have a Fair Market Value on
the date of surrender or attestation equal to the aggregate Exercise Price;</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-3-</FONT></P>
<HR noShade SIZE=5>
<P style="PAGE-BREAK-BEFORE: always">
<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>4.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> consideration received by the Company under a broker-assisted sale and remittance program acceptable
to the Administrator (Officers and Directors shall not be permitted to use this procedure if this
procedure would violate Section 402 of the Sarbanes-Oxley Act of 2002, as amended); or </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>5.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> any combination of the foregoing methods of payment.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>E.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Leave of Absence</U>. The Optionee shall not incur a Termination of Service when the Optionee goes on a military leave,
a sick leave or another bona fide leave of absence, if the leave was approved by the Company (or
Affiliate employing him or her) in writing and if continued crediting of service is required by the
terms of the leave or by applicable law. However, the Optionee incurs a Termination of Service when
the approved leave ends, unless the Optionee immediately returns to active work. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>For purposes of ISOs, no leave of absence may exceed three months, unless reemployment upon expiration
of such leave is provided by statute or contract. If reemployment upon expiration of a leave of absence
approved by the Company (or Affiliate employing him or her) is not so provided by statute or contract,
the Optionee shall be deemed to have incurred a Termination of Service on the first day immediately
following such three month period of leave for ISO purposes and this Option shall cease to be treated
as an ISO and shall terminate upon the expiration of the three month period following the date the
employment relationship is deemed terminated. </FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-4-</FONT></P>
<HR noShade SIZE=5>
<P style="PAGE-BREAK-BEFORE: always">
<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>F.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Non-Transferability of Option</U>. This Option may not be transferred in any manner otherwise than by will or by the laws of descent
and distribution and may be exercised during the lifetime of the Optionee only by the Optionee. The
terms of this Option Agreement and the Plan shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee. This Option may not be assigned, pledged or hypothecated
by the Optionee whether by operation of law or otherwise, and is not subject to execution, attachment
or similar process. Notwithstanding the foregoing, if this Option is designated as a Nonstatutory
Stock Option, the Administrator may, in its sole discretion, (i)&nbsp;allow the Optionee to transfer
this Option as permitted by Rule 701, or (ii)&nbsp;if the issuance and sale of securities under the
Plan does not require qualification under the California Corporate Securities Law of 1968, allow
the Optionee to transfer this Option as a gift to one or more family members. For purposes of this
Option Agreement, &#147;family member&#148; means a child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law (including adoptive relationships), any individual
sharing the Optionee&#146;s household (other than a tenant or employee), a trust in which one or
more of these individuals have more than 50% of the beneficial interest, a foundation in which the
Optionee or one or more of these persons control the management of assets, and any entity in which
the Optionee or one or more of these persons own more than 50% of the voting interest.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>G.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Term of Option</U>. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and
may be exercised during such term only in accordance with this Option Agreement and the Plan. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>H.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Tax Obligations</U>. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>1.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Withholding Taxes</U>. The Optionee agrees to make appropriate arrangements with the Administrator for the satisfaction
of all applicable Federal, state, local, and foreign income taxes, employment tax, and any other
taxes that are due as a result of the Option exercise. With the Administrator&#146;s consent, these
arrangements may include withholding Shares that otherwise would be issued to the Optionee pursuant
to the exercise of this Option. The Optionee acknowledges and agrees that the Company may refuse
to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered
at the time of exercise.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>2.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Notice of Disqualifying Disposition of ISO Shares</U>. If the Option is an ISO, and if the Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to the exercise of the ISO on or before the later of (i)&nbsp;the date two years after the
Grant Date, or (ii)&nbsp;the date one year after the date of exercise, the Optionee shall immediately
notify the Administrator in writing of such disposition. The Optionee agrees that the Optionee may
be subject to income tax withholding by the Company on the compensation income recognized by the
Optionee. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>I.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Extension if the Optionee Subject to Section 16(b)</U>. If a sale within the applicable Termination Period set forth in Section I of Shares acquired upon
the exercise of this Option would subject the Optionee to suit under Section 16(b) of the Exchange
Act, this Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no longer be subject to such
suit, (ii) the one hundred and ninetieth (190th) day after the Optionee&#146;s Termination of Service,
or (iii) the Expiration Date.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-5-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td>&nbsp;</td>
    <td align="right">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<P align=right>&nbsp;</P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>J.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Special Termination Period</U>. The Company has established an Insider Trading Policy (as such policy shall be amended from time
to time, the &#147;Policy&#148;) relative to trading while in possession of material, undisclosed
information. Under the Policy, officers, directors, employees and consultants of the Company and
its subsidiaries are prohibited from trading in securities of the Company during certain &#147;Blackout
Periods&#148; as described in the Policy. If (i) the last day of the Termination Period set forth
in Section I is during such a Blackout Period, or (ii) exercise of the Option on the last day of
the Termination Period set forth in Section I is prevented by operation of Section II.C above, then
this Option shall automatically remain exercisable until fourteen (14) days after the date that the
Company gives notice to the Optionee that there is no longer in effect a Blackout Period applicable
to the Optionee (if sale of Shares was prevented by clause (i) above) and/or that the Option is exercisable
(if exercise was prevented by clause (ii) above). Notwithstanding the provisions of this Section
II.J, in no event may this Option by exercised after the Expiration Date.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>K.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Change in Control</U>. In the event of a Change in Control prior to the Optionee&#146;s Termination of Service, the Option
will be assumed or an equivalent option or right substituted by the successor corporation or a parent
or subsidiary of the successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Optionee will fully vest in and have the right to exercise
the Option. In addition, if the Option becomes fully vested and exercisable in lieu of assumption
or substitution in the event of a Change in Control, the Administrator will notify the Optionee in
writing or electronically that the Option will be fully vested and exercisable for a period of time
determined by the Administrator in its sole discretion, and the Option will terminate upon the expiration
of such period.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-6-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=right>&nbsp;</P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>L.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Restrictions on Resale</U>. The Optionee agrees not to sell any Shares at a time when Applicable Law, Company policies or an
agreement between the Company and its underwriters prohibit a sale. This restriction shall apply
as long as the Optionee is a Service Provider and for such period of time after the Optionee&#146;s
Termination of Service as the Administrator may specify.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>M.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Lock-Up Agreement</U>. The Optionee hereby agrees that in connection with any underwritten public offering of Shares made
by the Company pursuant to a registration statement filed under the Securities Act, the Optionee
shall not offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make
any short sale of, or otherwise dispose of any Shares (including but not limited to Shares subject
to this Option) or any rights to acquire Shares of the Company for such period of time beginning
on the date of filing of such registration statement with the Securities and Exchange Commission
and ending at the time as may be established by the underwriters for such public offering; provided,
however, that such period of time shall end not later than one hundred eighty (180) days from the
effective date of such registration statement. The foregoing limitation shall not apply to shares
registered for sale in such public offering. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>N.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Entire Agreement; Governing Law</U>. This Option Agreement and the Plan constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely
to the Optionee&#146;s interest except by means of a writing signed by the Company and Optionee.
This Option Agreement is governed by the internal substantive laws, but not the choice of law rules,
of California. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>O.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>NO GUARANTEE OF CONTINUED SERVICE</U>. THE OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF THE OPTION PURSUANT TO THE VESTING SCHEDULE
HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). THE OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS OPTION AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE
VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT
AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE
WITH OPTIONEE&#146;S RIGHT OR THE COMPANY&#146;S RIGHT TO TERMINATE OPTIONEE&#146;S RELATIONSHIP
AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>By the Optionee&#146;s signature and the signature of the Company&#146;s representative below, the
Optionee and the Company agree that this Option is granted under and governed by the terms and conditions
of this Option Agreement and the Plan. The Optionee has reviewed this Option Agreement and the Plan
in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this
Option Agreement and fully understands all provisions of this Option Agreement and the Plan. The
Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations
of the Administrator upon any questions relating to this Option Agreement and the Plan.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-7-</FONT></P>
<HR noShade SIZE=5>
<P style="PAGE-BREAK-BEFORE: always">
<P style="PAGE-BREAK-BEFORE: always">
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>The Optionee further agrees that the Company may deliver by email all documents relating to the Plan
or this Option (including, without limitation, prospectuses required by the Securities and Exchange
Commission) and all other documents that the Company is required to deliver to its security holders
(including, without limitation, annual reports and proxy statements). The Optionee also agrees that
the Company may deliver these documents by posting them on a web site maintained by the Company or
by a third party under contract with the Company.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>By executing this Stock Option Agreement, the Optionee hereby warrants and represents that it is acquiring
this Option for its own account and that it has no intention of distributing, transferring or selling
all or any part of this Option except in accordance with the terms of this Stock Option Agreement
and Section 25102(f) of the California Corporations Code. The Optionee also hereby warrants and represents
that it has either (i) preexisting personal or business relationships with the Company or any of
its officers, directors or controlling persons, or (ii) the capacity to protect its own interests
in connection with the grant of this Option by virtue of its business or financial expertise, or
that of any of its professional advisors who are unaffiliated with and who are not compensated by
the Company or any of its Affiliates, directly or indirectly.</FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr valign="bottom">
    <td width="25%"><font face="Times New Roman, Times, Serif" size=2>OPTIONEE:</font></td>
    <td width="35%">&nbsp;</td>
    <td colspan="2"><font face="Times New Roman, Times, Serif" size=2>&nbsp;AMERICAN TECHNOLOGY CORPORATION</font></td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td colspan="2">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td style="Border-bottom: 1pt solid black">&nbsp;</td>
    <td>&nbsp;</td>
    <td width="2%" nowrap>&nbsp;</td>
    <td width="38%" >&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td><font face="Times New Roman, Times, Serif" size=2>Signature</font></td>
    <td>&nbsp;</td>
    <td width="2%" nowrap><font face="Times New Roman, Times, Serif" size=2>By</font></td>
    <td width="38%" style="Border-bottom: 1pt solid black">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td style="Border-bottom: 1pt solid black">&nbsp;</td>
    <td>&nbsp;</td>
    <td nowrap>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td><font face="Times New Roman, Times, Serif" size=2>Print Name</font></td>
    <td>&nbsp;</td>
    <td nowrap><font face="Times New Roman, Times, Serif" size=2>Title</font></td>
    <td style="Border-bottom: 1pt solid black">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td style="Border-bottom: 1pt solid black">&nbsp;</td>
    <td>&nbsp;</td>
    <td nowrap>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td><font face="Times New Roman, Times, Serif" size=2>Residence Address</font></td>
    <td>&nbsp;</td>
    <td nowrap>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td style="Border-bottom: 1pt solid black">&nbsp;</td>
    <td>&nbsp;</td>
    <td nowrap>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-8-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
</BODY></HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>5
<FILENAME>ex_10-12.htm
<DESCRIPTION>FORM OF STOCK AWARD AGREEMENT
<TEXT>
<HTML>
<HEAD>
<TITLE></TITLE>
</HEAD>
<BODY>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td>&nbsp;</td>
    <td colspan="2" align="right"><p><b><font size="2" face="Times New Roman, Times, serif">Exhibit 10.12</font></b></p></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td colspan="2" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td colspan="2" align="right"><p><font face="Times New Roman, Times, serif"><b><font size="2"> AMERICAN TECHNOLOGY CORPORATION 2005 EQUITY INCENTIVE PLAN</font></b></font></p>      </td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right"><b><font face="Times New Roman, Times, serif" size=2>FORM:&nbsp;&nbsp;</font></b></td>
    <td width="15%"><b> <font size="2" face="Times New Roman, Times, serif">STOCK AWARD AGREEMENT </font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right"><b><font face="Times New Roman, Times, serif" size=2>APPROVED BY: &nbsp;</font></b></td>
    <td nowrap><b><font face="Times New Roman, Times, serif" size=2>COMPENSATION COMMITTEE</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td align="right"><b><font face="Times New Roman, Times, serif" size=2>VERSION:&nbsp;&nbsp;</font></b></td>
    <td><b><font face="Times New Roman, Times, serif" size=2>AUGUST 2005</font></b></td>
  </tr>
</table>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>AMERICAN TECHNOLOGY CORPORATION<BR>2005 EQUITY INCENTIVE PLAN<BR><U>STOCK AWARD AGREEMENT</U></B></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>Unless otherwise defined herein, the terms defined in the American Technology Corporation 2005 Equity
Incentive Plan shall have the same defined meanings in this Stock Award Agreement. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>I.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><B><U>NOTICE OF RESTRICTED STOCK GRANT</U></B></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>You have been granted restricted shares of Common Stock, subject to the terms and conditions of the
Plan and this Stock Award Agreement, as follows:</FONT></P>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=53></TD>
<TD width="240" vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Name of Awardee:</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </U></FONT></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD>
<TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=53></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Total&nbsp;Number&nbsp;of&nbsp;Shares&nbsp;Granted:&nbsp;</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2> <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </U></FONT></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD>
<TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=53></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Purchase Price per Share:&nbsp;</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><U>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD>
<TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=53></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Fair Market Value per Share:</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><U>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD>
<TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=53></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Grant Date:&nbsp;</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2> <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </U></FONT></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD>
<TD vAlign=top>&nbsp;</TD>
</TR>
<TR>
<TD vAlign=top width=53></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Vesting&nbsp;Commencement&nbsp;Date:<U>


</U></FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2> <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </U></FONT></TD>
</TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD>
<TD vAlign=top>&nbsp;</TD>
</TR></TABLE>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=53></TD>
<TD vAlign=top width=240><FONT face="Times New Roman, Times, Serif" size=2>Vesting Schedule:</FONT></TD>
<TD vAlign=top><div align="justify"><FONT face="Times New Roman, Times, Serif" size=2>[Subject to Section II.H below, the first
  [ &nbsp;&nbsp;&nbsp;]% of the Shares subject to this Stock Award Agreement shall vest on the Vesting Commencement
  Date, and [&nbsp;&nbsp;&nbsp;&nbsp;]% of the Shares subject to this Stock Award Agreement shall vest each [month/quarter/year]
  of the Vesting Commencement Date, subject to the Awardee continuing to be a Service Provider on such
  dates. Vesting shall accelerate as provided in Section II.C below.]</FONT></div></TD></TR></TABLE>
<P align=center><FONT face="Times New Roman, Times, serif" size=2></FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">

<P><FONT face="Times New Roman, Times, Serif" size=2>II.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <B><U>AGREEMENT</U></B></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>A.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Grant of Restricted Stock</U>. Pursuant to the terms and conditions set forth in this Stock Award Agreement (including Section I
above) and the Plan, American Technology Corporation, a Delaware corporation (the &#147;Company&#148;),
grants to the Awardee named in Section I above, on the Grant Date set forth in Section I above, the
number of Shares set forth in Section I above. The granted Shares may be subject to a purchase price,
as set forth in Section I above.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>B.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Purchase of Restricted Stock</U>. If the granted Shares are subject to a purchase price, as set forth in Section I above, the Awardee
shall have the right to purchase such Shares at the specified purchase price in accordance with such
procedures as may be established by the Administrator from time to time.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>C.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Vesting</U>. The Awardee shall vest in the granted Shares in accordance with the vesting schedule provided for
in Section I above; provided, however, that the Awardee shall cease vesting in the granted Shares
upon the Awardee&#146;s Termination of Service. Notwithstanding the foregoing, the Awardee shall
vest in all granted Shares if the Company is subject to a Change in Control before the Awardee&#146;s
Termination of Service, and the Awardee is subject to an Involuntary Termination (defined below)
in anticipation of or within 24 months after the Change in Control. For purposes of this Award, the
term &#147;Change in Control&#148; shall not include any underwritten public offering of Shares registered
under the Securities Act of 1933, as amended (the &#147;Securities Act&#148;). </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
term &#147;Involuntary Termination&#148; shall mean the Awardee&#146;s Termination of Service by
reason of the involuntary discharge of the Awardee by the Company (or the Affiliate employing him
or her) for reasons other than Cause (defined below), death or Total and Permanent Disability. The
term &#147;Cause&#148; shall mean (1) the Awardee&#146;s theft, dishonesty, or falsification of any
documents or records of the Company or any Affiliate; (2) the Awardee&#146;s improper use or disclosure
of confidential or proprietary information of the Company or any Affiliate that results or will result
in material harm to the Company or any Affiliate; (3) any action by the Awardee which has a detrimental
effect on the reputation or business of the Company or any Affiliate; (4) the Awardee&#146;s failure
or inability to perform any reasonable assigned duties after written notice from the Company or an
Affiliate, and a reasonable opportunity to cure, such failure or inability; (5) any material breach
by the Awardee of any employment or service agreement between the Awardee and the Company or an Affiliate,
which breach is not cured pursuant to the terms of such agreement; (6) the Awardee&#146;s conviction
(including any plea of guilty or nolo contendere) of any criminal act which impairs the Awardee&#146;s
ability to perform his or her duties with the Company or an Affiliate; or (7) violation of a material Company policy. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>D.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Risk of Forfeiture</U>.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>1.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>General Rule</U>. The granted Shares shall initially be subject to a risk of forfeiture. The Shares subject to a risk
of forfeiture shall be referred to herein as &#147;Restricted Shares.&#148;&nbsp;The Awardee may
not transfer, assign, encumber, or otherwise dispose of any Restricted Shares other than in accordance
with this Stock Award Agreement and the Plan. If the Awardee transfers any Restricted Shares in accordance
with this Stock Award Agreement and the Plan, then this Section shall apply to the transferee to
the same extent as to the transferor.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-2-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">

<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>2.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Lapse of Risk of Forfeiture</U>. The risk of forfeiture shall lapse as the Awardee vests in the granted Shares in accordance with
the vesting schedule set forth in Section I above.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Forfeiture of Granted Shares</U>. The Restricted Shares shall automatically be forfeited and immediately returned to the Company upon
the Awardee&#146;s Termination of Service; provided that if any Restricted Shares were purchased
by the Awardee, then upon the Awardee&#146;s Termination of Service, the Company shall have the right
to repurchase such Restricted Shares at the original price paid by the Awardee at any time during
the 90-day period following the date of the Awardee&#146;s Termination of Service. The certificates
evidencing the Restricted Shares shall have stamped on them a special legend referring to the Company&#146;s
right of repurchase.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>4.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Additional Shares or Substituted Securities</U>. In the event of a stock split, reverse stock split, stock dividend, recapitalization, combination
or reclassification of the Common Stock or any other increase or decrease in the number of issued
and outstanding Shares effected without receipt of consideration by the Company, any new, substituted
or additional securities or other property (including money paid other than as an ordinary cash dividend)
which are by reason of such transaction distributed with respect to any Restricted Shares or into
which such Restricted Shares thereby become convertible shall immediately be subject to a risk of
forfeiture as provided herein.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>5.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Escrow</U>. Upon issuance, the certificates representing the granted Shares may, at the discretion of the Administrator,
be deposited in escrow with the Company to be held in accordance with the provisions of this Stock
Award Agreement. If the granted Shares are held in escrow, as provided in this subsection (5), any
new, substituted or additional securities or other property described in subsection (4) above shall
immediately be delivered to the Company to be held in escrow, but only to the extent the granted
Shares are at the time Restricted Shares. All regular cash dividends on Restricted Shares (or other
securities) at the time held in escrow shall be paid directly to the Awardee and shall not be held
in escrow. Restricted Shares, together with any other assets or securities held in escrow hereunder,
shall be (i)&nbsp;surrendered to the Company for cancellation upon forfeiture thereof, or (ii)&nbsp;released
to the Awardee upon request, but only to the extent that the granted Shares are no longer Restricted Shares.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>E.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Leave of Absence</U>. The Awardee shall not incur a Termination of Service when the Awardee goes on a military leave, a
sick leave or another bona fide leave of absence, if the leave was approved by the Company (or Affiliate
employing him or her) in writing and if continued crediting of service is required by the terms of
the leave or by applicable law. However, the Awardee incurs a Termination of Service when the approved
leave ends, unless the Awardee immediately returns to active work.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>F.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Rights as a Stockholder</U>. The Awardee shall have the rights of a stockholder of the Company, including the right to vote the
granted Shares.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>G.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Regulatory Compliance</U>. The issuance of Common Stock pursuant to this Stock Award Agreement shall be subject to full compliance
with all applicable requirements of law and the requirements of any stock exchange or interdealer
quotation system upon which the Common Stock may be listed or traded.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-3-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">

<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>H.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Vesting if Sale Prohibited by Insider Trading Policy</U>. The Company has established an Insider Trading Policy (as such policy shall be amended from time
to time, the &#147;Policy&#148;) relative to trading while in possession of material, undisclosed
information. Under the Policy, officers, directors, employees and consultants of the Company and
its subsidiaries are prohibited from trading in securities of the Company during certain &#147;Blackout
Periods&#148; as described in the Policy. If a scheduled vesting date for Shares falls on a day during
such a Blackout Period, then the Shares that would otherwise have vested on such date shall not vest
on such date, but shall instead vest, provided the Awardee remains a Service Provider, on the date
that is two (2) business days after the last day of the Blackout Period applicable to the Shares.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>I.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Withholding Tax</U>. The Company&#146;s obligation to deliver the granted Shares or to remove any restrictive legends
upon vesting of such Shares under the Plan shall be subject to the satisfaction of all applicable
federal, state, local and foreign income, and employment tax withholding requirements. The Awardee
shall pay to the Company an amount equal to the withholding amount (or the Company may withhold such
amount from the Awardee&#146;s salary) in cash. At the Administrator&#146;s election, the Awardee
may pay the withholding amount with Shares (including previously vested granted Shares); provided,
however, that payment in Shares shall be limited to the withholding amount calculated using the minimum
statutory withholding rates.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>J.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Certain Federal Income Tax Issues</U>.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>1.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Subject to provisions discussed in subsection (2) below, under Section 83 of the Code, the Awardee
will recognize ordinary income upon transfer of the Shares to the Awardee, measured as the difference
between the fair market value of the granted Shares on the date of transfer and the amount paid for
the granted Shares, if any. The capital gain holding period will begin on the date of transfer. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>2.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> To the extent that the granted Shares are subject to a &#147;substantial risk of forfeiture&#148;
(within the meaning of Section 83 of the Code) on the Grant Date, the Awardee will not recognize
ordinary income on the Grant Date. Instead, the Awardee will recognize ordinary income when the granted
Shares are no longer subject to a substantial risk of forfeiture (<U>i.e.</U>, as the Shares vest). The Awardee&#146;s ordinary income is measured as the difference between the
amount paid for the granted Shares, if any, and the fair market value of the granted Shares when
such Shares are no longer subject to a substantial risk of forfeiture. The capital gain holding period
for Shares subject to a substantial risk of forfeiture begins on the date when such Shares are no
longer subject to a substantial risk of forfeiture.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  &nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> If the Shares are subject to a substantial risk of forfeiture, the Awardee may nonetheless accelerate
his or her recognition of ordinary income, if any, and begin his or her capital gains holding period
by timely filing an election pursuant to Section 83(b) of the Code (the &#147;83(b) Election&#148;).
If the Awardee makes an 83(b) Election, the excess of (i)&nbsp;the fair market value of the granted
Shares on the Grant Date over (ii)&nbsp;the purchase price, if any, paid for the granted Shares will
be included in the Awardee&#146;s ordinary income. However, if the granted Shares are later forfeited,
the Awardee will not be entitled to a tax deduction or a refund of the tax already paid. If the Awardee
makes the 83(b) Election, the Awardee will not recognize any additional income when the granted Shares
vest and any appreciation in the value of the granted Shares after the election is not taxed as compensation
but instead is taxed as capital gain when the granted Shares are sold. </FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-4-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">

<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>4.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> The 83(b) Election must be filed with the Internal Revenue Service within 30&nbsp;days after the Shares
are transferred. Any ordinary income resulting from the election will be subject to applicable tax
withholding requirements, if the Awardee is an employee or former employee. The election is generally
irrevocable and cannot be made after the 30-day period has expired. In the event that the Awardee
makes an 83(b) Election, the Awardee agrees that (i) the Awardee will promptly provide the Company
with a copy of the 83(b) Election, as filed with the Internal Revenue Service, and (ii) the Company
may withhold from any payments due to the Awardee any applicable federal, state or local taxes and
such other deductions as are prescribed by law and/or the Awardee will pay to the Company all such
tax withholding amounts promptly upon request.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>5.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF U.S. FEDERAL INCOME TAXATION UPON THE AWARDEE WITH
RESPECT TO THE GRANT OF RESTRICTED SHARES UNDER THE PLAN. IT DOES NOT PURPORT TO BE A COMPLETE DISCUSSION
OF THE U.S. FEDERAL INCOME TAX CONSEQUENCES. IT DOES NOT DISCUSS THE INCOME TAX LAWS OF ANY STATE,
MUNICIPALITY OR FOREIGN COUNTRY IN WHICH THE AWARDEE&#146;S INCOME OR GAIN MAY BE TAXABLE. IN ANY
EVENT, THE AWARDEE IS HEREBY ADVISED TO CONSULT ITS OWN TAX ADVISOR AS TO THE CONSEQUENCES OF MAKING
AN 83(b) ELECTION. IF THE AWARDEE DESIRES TO MAKE AN 83(b) ELECTION, THEN IT IS THE AWARDEE&#146;S
RESPONSIBILITY TO TIMELY MAKE A VALID ELECTION.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>K.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><U>Plan</U>. This Stock Award Agreement is subject to all of the terms and provisions of the Plan, receipt of
a copy of which is hereby acknowledged by the Awardee. The Awardee hereby agrees to accept as binding,
conclusive, and final all decisions and interpretations of the Administrator upon any questions arising
under the Plan and this Stock Award Agreement.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>L.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Successors</U>. This Stock Award Agreement shall inure to the benefit of and be binding upon the parties hereto and
their legal representatives, heirs, and permitted successors and assigns.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>M.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Restrictions on Resale</U>. The Awardee agrees not to sell any Shares at a time when Applicable Laws, Company policies or an
agreement between the Company and its underwriters prohibit a sale. This restriction shall apply
as long as the Awardee is a Service Provider and for such period of time after the Awardee&#146;s
Termination of Service as the Administrator may specify.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-5-</FONT></P>
<HR noShade SIZE=5>
<P style="PAGE-BREAK-BEFORE: always">

<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>N.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;</FONT> <U>Lock-Up Agreement</U>. The Awardee hereby agrees that in connection with any underwritten public offering of Shares made
by the Company pursuant to a registration statement filed under the Securities Act, the Awardee shall
not offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any
short sale of, or otherwise dispose of any Shares (including but not limited to Shares subject to
this Award) or any rights to acquire Shares of the Company for such period of time beginning on the
date of filing of such registration statement with the Securities and Exchange Commission and ending
at the time as may be established by the underwriters for such public offering; provided, however,
that such period of time shall end not later than 180 days from the effective date of such registration
statement. The foregoing limitation shall not apply to shares registered for sale in such public offering. </FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>O.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Entire Agreement; Governing Law</U>. This Stock Award Agreement and the Plan constitute the entire agreement of the parties with respect
to the subject matter hereof and supersede in their entirety all prior undertakings and agreements
of the Company and the Awardee with respect to the subject matter hereof, and may not be modified
adversely to the Awardee&#146;s interest except by means of a writing signed by the Company and the
Awardee. This Stock Award Agreement is governed by the internal substantive laws, but not the choice
of law rules, of California.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>P.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;</FONT> <U>NO GUARANTEE OF CONTINUED SERVICE</U>. THE AWARDEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF THE SHARES PURSUANT TO THE VESTING SCHEDULE
HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED SHARES OR PURCHASING SHARES HEREUNDER). THE AWARDEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS STOCK AWARD AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER
AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH AWARDEE&#146;S RIGHT OR THE COMPANY&#146;S RIGHT TO TERMINATE AWARDEE&#146;S RELATIONSHIP
AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>By the Awardee&#146;s signature and the signature of the Company&#146;s representative below, the Awardee
and the Company agree that this Award is granted under and governed by the terms and conditions of
this Stock Award Agreement and the Plan. The Awardee has reviewed this Stock Award Agreement and
the Plan in their entirety, has had an opportunity to obtain the advice of counsel prior to executing
this Stock Award Agreement and fully understands all provisions of this Stock Award Agreement and
the Plan. The Awardee hereby agrees to accept as binding, conclusive and final all decisions or interpretations
of the Administrator upon any questions relating to this Stock Award Agreement and the Plan.</FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>The Awardee further agrees that the Company may deliver by email all documents relating to the Plan
or this Award (including, without limitation, prospectuses required by the Securities and Exchange
Commission) and all other documents that the Company is required to deliver to its security holders
(including, without limitation, annual reports and proxy statements). The Awardee also agrees that
the Company may deliver these documents by posting them on a web site maintained by the Company or
by a third party under contract with the Company.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-6-</FONT></P>
<hr noshade size=5>
<P style="PAGE-BREAK-BEFORE: always">

<P align=left><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>By executing this Stock Award Agreement, the Awardee hereby warrants and represents that it is acquiring
the Shares for its own account and that it has no intention of distributing, transferring or selling
all or any part of the Shares except in accordance with the terms of this Stock Award Agreement and
Section 25102(f) of the California Corporations Code. The Awardee also hereby warrants and represents
that it has either (i) preexisting personal or business relationships with the Company or any of
its officers, directors or controlling persons, or (ii) the capacity to protect its own interests
in connection with the grant of this Award by virtue of its business or financial expertise, or that
of any of its professional advisors who are unaffiliated with and who are not compensated by the
Company or any of its Affiliates, directly or indirectly.</FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr valign="bottom">
    <td width="25%"><font face="Times New Roman, Times, Serif" size=2><b>AWARDEE:</b></font></td>
    <td width="35%">&nbsp;</td>
    <td colspan="2" align="left"><font size="2" face="Times New Roman, Times, serif"><b>AMERICAN TECHNOLOGY CORPORATION</b></font></td>
  </tr>
  <tr valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td colspan="2">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td style="Border-bottom: 1pt solid black">&nbsp;</td>
    <td>&nbsp;</td>
    <td width="2%" nowrap>&nbsp;</td>

  </tr>
  <tr valign="bottom">
    <td><font face="Times New Roman, Times, Serif" size=2>Signature</font></td>
    <td>&nbsp;</td>
    <td nowrap><font face="Times New Roman, Times, Serif" size=2>By:</font></td>
    <td width="38%" style="Border-bottom: 1pt solid black">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td style="Border-bottom: 1pt solid black">&nbsp;</td>
    <td>&nbsp;</td>
    <td nowrap>&nbsp;</td>
    </tr>
  <tr valign="bottom">
    <td><font face="Times New Roman, Times, Serif" size=2>Printed Name</font></td>
    <td align="right">&nbsp;</td>
    <td nowrap><font face="Times New Roman, Times, Serif" size=2>Title:</font></td>
    <td width="38%" style="Border-bottom: 1pt solid black">&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td style="Border-bottom: 1pt solid black">&nbsp;</td>
    <td>&nbsp;</td>
    <td nowrap>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td><font face="Times New Roman, Times, Serif" size=2>Residence</font></td>
    <td>&nbsp;</td>
    <td nowrap>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="bottom">
    <td style="Border-bottom: 1pt solid black">&nbsp;</td>
    <td>&nbsp;</td>
    <td nowrap>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-7-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
</BODY></HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>6
<FILENAME>atco_ex1013.htm
<DESCRIPTION>SUMMARY SHEET OF COMPENSATION
<TEXT>
<html>
  <head>
    <title>
      Unassociated Document
</title><!-- Licensed to: PublicEase, Inc.-->
<!-- Document Created using EDGARIZER HTML 3.0.0.39895 -->
<!-- Copyright 2005 EDGARfilings, Ltd., an IEC company.-->
<!-- All rights reserved EDGARfilings.com -->
</head>
  <body bgcolor="#ffffff">
    <div><br>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>EXHIBIT
        10.13</strong></font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="right">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><u>AMERICAN
        TECHNOLOGY CORPORATION</u></strong></font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>SUMMARY
        SHEET</strong></font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>OF</strong></font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>DIRECTOR
        AND EXECUTIVE OFFICER COMPENSATION</strong></font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><u>Compensation
        of Directors</u></strong></font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Until
        June 2005, our non-employee directors did not receive cash fees as compensation
        for their services. In June 2005, we began compensating our non-employee
        directors in the amount of $1,000 per month, paid quarterly in arrears. Each
        of
        our non-employee directors serving between January 1 and May 31, 2005, was
        paid
        a one-time fee of $5,000 in recognition of service during that period. Our
        directors are also reimbursed for the expenses of attending directors&#8217; or
        committee meetings. Our directors have received in the past, and may receive
        in
        the future, stock option grants. In June 2005, we granted each of our
        non-employee directors an option exercisable for 50,000 shares of common
        stock
        with an exercise price equal to the closing price of the common stock on
        the
        date of grant and expiring five years after the date of grant. These options
        vest quarterly over five years, subject to continued service and other
        conditions.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><u>Compensation
        of Executive Officers</u></strong></font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
        executive officers of the Company serve at the discretion of the Board of
        Directors. From time to time, the Compensation Committee of the Board of
        Directors reviews and determines the salaries that are paid to the Company's
        executive officers. The following table sets forth the annual salary rates
        for
        the Company&#8217;s current executive officers as of the date of this report on Form
        10-Q:</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div>
        <table cellpadding="0" cellspacing="0" width="100%">

            <tr>
              <td align="left" valign="top" width="62%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Elwood
                  G. Norris, Chairman</font></div>
              </td>
              <td align="left" valign="top" width="16%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$200,000</font></div>
              </td>
            </tr>
            <tr>
              <td align="left" valign="top" width="62%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Kalani
                  Jones, President and Chief Operating Officer</font></div>
              </td>
              <td align="left" valign="top" width="16%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$220,000</font></div>
              </td>
            </tr>
            <tr>
              <td align="left" valign="top" width="62%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Michael
                  A. Russell, Chief Financial Officer and Secretary</font></div>
              </td>
              <td align="left" valign="top" width="16%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$185,000</font></div>
              </td>
            </tr>
            <tr>
              <td align="left" valign="top" width="62%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Bruce
                  Gray, Vice President of the Commercial Products Group</font></div>
              </td>
              <td align="left" valign="top" width="16%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$200,000</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><u>Employment
        Arrangements with Current Executive Officers</u></strong></font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
        following discussion summarizes the employment arrangements between us and
        our
        current executive officers as of the date of this report on Form
        10-Q:</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Mr.
        Elwood G. Norris </strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">-
        Effective September 1, 1997, we entered into a three year employment contract
        with Mr. Norris, for his services as Chief Technology Officer. The three-year
        term expired on August 31, 2000, but the agreement remains in effect until
        one
        party gives thirty days advance notice of termination to the other. Mr. Norris
        now serves as Chairman under the term of this agreement. The agreement, as
        amended by the Compensation Committee, provides for a base salary of $16,667
        per
        month. The agreement provides that Mr. Norris will participate in bonus,
        benefit
        and other incentives at the discretion of the Board of Directors. Mr. Norris
        has
        agreed not to disclose trade secrets and has agreed to assign certain inventions
        to us during employment. We are also obligated to pay Mr. Norris certain
        royalties. See "Certain Relationships and Related Transactions" in our Form
        10-K/A filed March 18, 2005.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Mr.
        Kalani Jones </strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">-
        We
        entered into a letter agreement dated as of August 28, 2003, as amended on
        October 20, 2003, under which Mr. Jones was employed as our Senior Vice
        President of Operations. Mr. Jones has since been promoted to President and
        Chief Operating Officer. The letter agreement provides for an annual base
        salary
        of $140,000, and an annual performance bonus of up to 30% of base salary
        to be
        determined by the Compensation Committee and the Board of Directors. Mr.
        Jones'
        base salary was $200,000 per year at September 30, 2004. </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br>&#160;</div>
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
        <div id="FTR">
          <div id="GLFTR" style="WIDTH: 100%" align="left">
          </div>
        </div>
        <div id="PN" style="PAGE-BREAK-AFTER: always">
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
          </div>
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
            <hr style="COLOR: black" noshade size="1">
          </div>
        </div>
        <div id="HDR">
          <div id="GLHDR" style="WIDTH: 100%" align="right">
          </div>
        </div>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
        January 27, 2005, our Compensation Committee increased Mr. Jones&#8217; current annual
        base salary to $220,000.&#160;&#160;For fiscal 2005, the Compensation
        Committee
        determined that Mr. Jones' bonus should be based upon a target bonus of 50%
        of
        base salary given his increased responsibilities as President and Chief
        Operating Officer.&#160;We expect future bonus determinations for Mr. Jones
        to
        be made based upon a target bonus of 50% of base salary.&#160;Mr. Jones'
        employment is terminable at-will by us or by Mr. Jones for any reason, with
        or
        without notice.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Mr.
        Michael Russell</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
        - We
        entered into a letter agreement dated June 15, 2004, under which Mr. Russell
        was
        employed as our Chief Financial Officer. Mr. Russell has also been appointed
        as
        our Secretary. The letter agreement provides for an annual base salary of
        $185,000, and an annual performance bonus of up to 25% of base salary to
        be
        determined by the Compensation Committee and the Board of Directors. Mr.
        Russell's employment is terminable at-will by us or by Mr. Russell for any
        reason, with or without notice.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Mr.
        Bruce Gray </strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">-We
        entered into a letter agreement with Mr. Bruce Gray, under which Mr. Gray
        was
        employed as our Vice President of the Commercial Products Group effective
        March
        21, 2005. The letter agreement provides for an annual base salary of $200,000,
        and an annual sales bonus of up to $100,000, payable on a quarterly basis,
        based
        on attaining quarterly and annual goals to be established. Mr. Gray's employment
        is terminable at-will by us or by Mr. Gray for any reason, with or without
        notice.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Executive
        officers in charge of revenue producing business segments also participate
        in a
        broad-based commission arrangement. Under our existing commission arrangement,
        commissions are awarded for each of our business segments based on achievement
        of operating plan revenue within the segment, with commissions increasing
        in
        percentage if operating plan is exceeded. Executive officers in charge of
        each
        business unit recommend an allocation of such commissions amongst sales
        personnel and themselves, which recommendation is reviewed and approved by
        the
        Chairman and the President. All commissions payable to executive officers
        are
        then reviewed and approved by the Compensation Committee. </font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
        <div id="FTR">
          <div id="GLFTR" style="WIDTH: 100%" align="left">&#160;</div>
        </div>
        <div id="PN" style="PAGE-BREAK-AFTER: always">
          <div style="WIDTH: 100%; TEXT-ALIGN: center">&#160;</div>
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
            <hr style="COLOR: black" noshade size="1">
          </div>
        </div>
        <div id="HDR">
          <div id="GLHDR" style="WIDTH: 100%" align="right">&#160;</div>
        </div>
      </div>
    </div>
  </body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>7
<FILENAME>ex_10-14.htm
<DESCRIPTION>AGREEMENT OF SETTLEMENT AND MUTUAL RELEASE
<TEXT>
<HTML>
<HEAD>
<TITLE></TITLE>
</HEAD>
<BODY>
<P align=right><FONT face="Times New Roman, Times, Serif" size=2><B>EXHIBIT 10.14</B></FONT></P>
<P align=right><FONT face="Times New Roman, Times, Serif" size=2><B>FINAL</B></FONT></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><U><B>AGREEMENT OF SETTLEMENT AND MUTUAL RELEASE</B></U></FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>1.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>PARTIES</U>. The parties to this Agreement of Settlement and Mutual Release (the &#147;Agreement&#148;) are American
Technology Corporation, a Delaware Corporation (&#147;ATC&#148; or the &#147;Company&#148;) on the
one hand, and eSoundIdeas, Inc, a California corporation (&#147;eSound&#148;), SoundIdeas, a general
partnership (&#147;SoundIdeas&#148;), Greg&nbsp;O. Endsley, an individual (&#147;Endsley&#148;) and
Douglas J. Paschall, an individual (&#147;Paschall&#148;), on the other hand. eSound, SoundIdeas,
Endsley and Paschall are referred to collectively as the &#147;ESI Parties.&#148;&nbsp;Gordon &amp;
Holmes LLP (&#147;Gordon &amp; Holmes&#148;) is a party for the limited purposes set forth in Sections
3.2, 3.5, 4 and its sub-parts, and 7.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>2.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>RECITALS</U>. This Agreement is made with reference to the following facts:</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>2.1<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> On September&nbsp;28, 2000, SoundIdeas entered into that certain License, Purchase and Marketing Agreement
(the &#147;Original License Agreement&#148;), pursuant to which ATC granted to SoundIdeas certain
rights to use and sell certain of ATC&#146;s products and trademarks in exchange for certain license
fees and other commitments. The Original License Agreement was purportedly amended on June&nbsp;20,
2002 pursuant to a First Amendment to License, Purchase and Marketing Agreement (the &#147;First
Amendment&#148;) to extend the term thereof and amend certain other provisions. ATC has denied the
validity of the First Amendment. The Original License Agreement, to the extent the same was amended
by the First Amendment, is referred to herein as the &#147;License Agreement.&#148;</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>2.2<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> On or about April&nbsp;25, 2001, ATC granted to each of Endsley and Paschall a Nonstatutory Stock
Option under ATC&#146;s 1997 Stock Option Plan to purchase 10,000 shares of common stock at an exercise
price of $4.50 per share (collectively, the &#147;Stock Options&#148;). On or about December&nbsp;11,
2002, ATC sent notices to Endsley and Paschall that the exercise period of the Stock Options terminated
on or about October&nbsp;5, 2002, as a result of the termination of Endsley&#146;s and Paschall&#146;s
consulting services to the Company on or about July&nbsp;5, 2002. Endsley and Paschall have disputed
the termination of the exercise periods of the Stock Options.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>2.3<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> On or about May&nbsp;23, 2003, ATC sent a notice of termination under License Agreement to eSound,
which purported to be the successor to SoundIdeas under the License Agreement. ATC believes such
notice was effective immediately, subject to a 60-day right of reinstatement, which expired. The
ESI Parties have disputed the validity of such termination.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>2.4<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> On or about September 17, 2003, ATC filed a civil lawsuit in the Superior Court of the State of California
for the County of San Diego entitled, after subsequent amendment, <U>American Technology Corporation v. SOUNDideas, Greg O. Endsley, Douglas J. Paschall, eSOUNDideas, Inc.
and Does 1 through 20</U>, Case No. GIC 818015 (the &#147;Original Action&#148;). On or about November 19, 2003, ATC filed separate
civil lawsuits against Endsley and Paschall in the same court entitled, respectively, <U>American Technology Corporation v. Greg O. Endsley</U>, Case No. GIC 821375, and <U>American Technology Corporation v. Douglas J. Paschall</U>, Case No. GIC 821376 (together, the &#147;Stock Option Actions&#148;). Endsley, Paschall and eSound
subsequently filed a cross-action against ATC in the Original Action on or about December 5, 2003.
The Original Action and the Stock Option Actions (collectively the &#147;Lawsuits&#148;) were thereafter
consolidated by the court, with the Original Action designated as the lead case.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-1-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>2.5<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> It is the intention of the parties hereto to settle and dispose of, fully and completely, any and
all claims, demands, causes of action, obligations, damages, and liabilities of any nature whatsoever,
existing prior to the effective date hereof, whether known or unknown, asserted in, arising out of,
connected with or incidental to the relationship and business dealings between ATC and the ESI Parties,
the License Agreement, the Stock Options and the Lawsuits.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>TERMS</U>.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.1<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> ATC agrees that within seven&nbsp;(7) days following the date of last signature on this Agreement
(the &#147;Effective Date&#148;), ATC will pay the aggregate of One Hundred Fifty Thousand Dollars
($150,000) to the Gordon&nbsp;&amp; Holmes Client Trust Account for the benefit of eSound. Payment
shall be made by ATC corporate check sent to Gordon &amp; Holmes in accordance with Section&nbsp;11.3.
For tax and other reporting purposes, ATC shall treat such payment as having been made to eSound.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.2<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> ATC further agrees that within seven&nbsp;(7) days following the Effective Date, ATC will cause its
transfer agent to issue the aggregate of Seventeen Thousand Five Hundred (17,500) shares (the &#147;Shares&#148;)
of ATC common stock, $0.00001 par value (&#147;Common Stock&#148;), to be divided as follows: 8,750
shares to Endsley and 8,750 shares to Paschall; provided that each of Endsley and Paschall hereby
instructs ATC to cause 3,500 shares of his shares (for a total of 7,000 shares) to be issued in the
name of Gordon &amp; Holmes as compensation for legal fees incurred by the ESI Parties in the defense
and prosecution of the claims described in Section 2.4. The share certificates to be issued by ATC
shall therefore be in the following denominations:</FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr align="left" valign="bottom">
    <td width="35%"><font size="2" face="Times New Roman, Times, serif">Endsley</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">5,250 shares</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">Paschall</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">5,250 shares</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">Gordon &amp; Holmes</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">7,000 shares</font></td>
  </tr>
</table>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>ATC&#146;s transfer agent shall be directed to deliver such share certificates by certified mail to
Gordon &amp; Holmes as promptly as practicable after issuance, but transfer agent records evidencing
such issuances shall be deemed to satisfy the delivery requirement in this Section&nbsp;3.2. All
such shares shall be &#147;restricted securities&#148; as that term is defined in Rule&nbsp;144(a)(3)
promulgated under the Securities Act of 1933, as amended (the &#147;Securities Act&#148;), and shall
bear an appropriate restrictive legend.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-2-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.3<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> ATC further agrees that within seven&nbsp;(7) days following the Effective Date, ATC will deliver
to Gordon &amp; Holmes for the benefit of eSound two&nbsp;(2) HSS Generation&nbsp;III emitters, model
number&nbsp;T220 (the &#147;Emitters&#148;). eSound will have two&nbsp;(2) business days after receipt
to confirm that the Emitters are in good working order. If either Emitter is not in good working
order, eSound shall notify ATC in writing and provide the non-confirming Emitter with such correspondence.
ATC shall replace such non-conforming Emitter with a new Emitter within seven&nbsp;(7) days of receipt,
subject to the same two&nbsp;(2) business day acceptance period in favor of eSound. Emitters not
rejected within such two&nbsp;(2) business day period shall be deemed accepted. EXCEPT AS SET FORTH
ABOVE, THE EMITTERS ARE BEING DELIVERED ON AN &#147;AS IS, WHERE IS&#148; BASIS, WITHOUT ANY REPRESENTATIONS
OR WARRANTIES AS TO CONDITION, OPERATION OR SUFFICIENCY WHATSOEVER. EXCEPT AS SET FORTH ABOVE, ATC
HEREBY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, WITH RESPECT TO THE
EMITTERS, INCLUDING ANY AND ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.4<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> ATC further agrees that Endsley and Paschall shall be entitled to receive a commission based on future
sales of HSS Products (as defined below) in certain Product Categories (as defined in <U>Exhibit B</U>), for the period beginning April 1, 2005 and ending September 28, 2007, equal to an aggregate of 1%
of Net Sales Value (defined below), divided equally between Endsley and Paschall (i.e., 0.5% to Endsley
and 0.5% to Paschall), subject to a maximum of Five Hundred Thousand Dollars ($500,000) in the aggregate
(i.e., $250,000 to Endsley and $250,000 to Paschall), all as more particularly described in this
Section 3.4, including its sub-parts. The term &#147;HSS Products&#148; shall mean products (including
but not limited to Parametric Speakers (defined below),&nbsp;and products incorporating power modulation
devices and related systems, devices, methods and processes to cause the generation of desired acoustic
frequencies by means of propagation from ultrasonic frequencies), which products, if produced without
an appropriate license or assignment of patent, would infringe the protectable rights in the patents
and patent applications (to the extent patents were or will be granted upon such applications) set
forth on Exhibit&nbsp;A to the Original License Agreement (the &#147;Patent Rights&#148;). &#147;Parametric
Speakers&#148; are speakers or devices that indirectly generate audible frequency tones from ultrasonic
tones. Notwithstanding anything to the contrary set forth above, the term &#147;HSS Products&#148;
shall not include any product or device based on ATC&#146;s Long Range Acoustic Device (LRAD) platform
and designed for long range hailing and warning, whether or not such product contains methods, features,
designs or inventions that would infringe the Patent Rights in the absence of an appropriate license or assignment of patent.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-3-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.4.1<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> ATC shall pay to Endsley and Paschall a commission (the &#147;Commission&#148;) equal to an aggregate
of One Percent&nbsp;(1%) of Net Sales Value (as defined below), divided equally between Endsley and
Paschall (i.e., 0.5% to Endsley and 0.5% to Paschall), for HSS Products sold by the Company after
April&nbsp;1, 2005, for use in the Product Categories (as defined in <U>Exhibit&nbsp;B</U>). For purposes of this Agreement, the term Net Sales Value shall mean the invoice price or contract
price charged by the Company in connection with the sale of an HSS Product for use in the Product
Categories; provided that the invoice price shall be reduced by (i)&nbsp;any allowances actually
made and taken for returns; (ii) cash discounts, rebates and promotional allowances actually allowed;
(iii)&nbsp;sales, use, value-added and similar taxes and duties and similar governmental assessments
to the extent included in the invoice or contract price; and (iv)&nbsp;transportation costs, including
packing, shipping, customs and insurance charges to the extend included in the invoice or contract
price. Net Sales Value shall not include revenues from: (a) extended warranties not included in the
standard invoice price for a product; (b) installation, warranty service, maintenance or repair;
(c) royalties or license fees (except such licenses that are incidental to the sale of HSS Products);
or (d) consulting services. ATC&#146;s internal use or consumption of an HSS Product for purposes
of research, development, testing, promotion or demonstration shall not be deemed a sale. If one
HSS Product is exchanged for another HSS Product, the exchange shall be considered a sale of the
newly provided product but the invoice or contract price for the newly provided product shall be
the monetary differential paid by the customer. The ESI Parties acknowledge that certain sales may
at the Company&#146;s discretion be made through one or more third-party distributors, and in such
case, Net Sales Value shall be determined based upon the invoice price the Company charges to its
distributor, reduced pursuant to clauses (i) through (iv) above. For HSS Products sold in combination
with one or more other products for a single invoice or contract price, Net Sales Value shall be
calculated by multiplying Net Sales Value of the combination product by the fraction A/(A+B) where
A is the sales price of the HSS Product in the combination when sold separately and B is the total
sales price of all other products in the combination when sold separately. If the HSS Product or
the other products included in the combination are not sold separately, ATC shall allocate the total
invoice or contract price among the components in good faith, which allocation shall be binding on
the parties absent a showing of bad faith. For purposes of this Section 3.4.1, a sale of an HSS Product
shall be deemed made when the revenue from such sale is recognized by ATC in accordance with generally accepted accounting principles. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.4.2<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> ATC shall retain all records pertaining to Net Sales Value (i.e., sales and accounting records for
transactions) supporting calculation of Commission payments until a date not earlier than September&nbsp;28,
2008. Endsley and Paschall, through an independent public accounting firm, shall have the right to
jointly audit such records. The costs of such audit will be paid entirely by Endsley and Paschall,
unless the audit shows an underpayment of more than the greater of (i) ten percent (10%) of the total
Commission due to Endsley and Paschall, combined, for the entire period covered by the audit (which
period shall commence no earlier than the completion date of the last audit), or (ii) $2,500 (a &#147;Qualifying
Underpayment&#148;). In case of a Qualifying Underpayment, ATC shall pay the reasonable cost of the
audit at the same time it pays the Commissions due. Such audit shall be commenced by written notice
given by both Endsley and Paschall. Endsley and Paschall shall not be entitled to more than one&nbsp;(1)
joint audit per twelve-month period unless a prior audit shall have disclosed a Qualifying Underpayment,
in which case, Endsley and Paschall shall thereafter be entitled to two&nbsp;(2) joint audits during
any twelve-month period (including the prior audit showing the Qualifying Underpayment). ATC may
require Endsley, Paschall and such independent public accountants first to sign a confidentiality
and/or a non-disclosure agreement reasonably satisfactory to the Company in which they agree not
to use or disclose any confidential information of ATC, including customer identities. The independent
public accountants shall provide a written report following each such audit, and shall provide a
copy of such report to ATC. Such report shall not be deemed conclusive as to the amount of Commissions
due. Disputes concerning the amount of Commissions due shall be handled in the manner set forth in Section&nbsp;3.4.9 below.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-4-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.4.3<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Notwithstanding any other provision in this Section&nbsp;3.4, no Commission shall accrue or be payable
by ATC with respect to sales deemed made after September&nbsp;28, 2007 (determined in accordance
with the last sentence of Section&nbsp;3.4.1). </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.4.4<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Notwithstanding any provision in this Section&nbsp;3.4 to the contrary, the maximum Commissions that
shall be payable to Endsley and Paschall will be Five Hundred Thousand Dollars ($500,000) in the
aggregate (i.e., $250,000 to Endsley and $250,000 to Paschall). Nothing in this Section&nbsp;3.4
or elsewhere in this Agreement shall be construed to grant to any of the ESI Parties any rights to
Commissions in excess of $500,000 in the aggregate. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.4.5<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Commissions payable to Endsley and Paschall under Section 3.4.1 shall be paid on a quarterly basis.
Commissions due for sales made during each calendar quarter shall be payable in cash and shall be
paid by ATC corporate check made out to the Gordon &amp; Holmes Client Trust Account and delivered
to Gordon &amp; Holmes (in accordance with Section&nbsp;11.3) within forty&nbsp;(40) days following
the end of calendar quarter. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.4.6<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> The obligations in this Section&nbsp;3.4 shall be binding upon ATC and each person or entity who takes
by assignment, license or other means ATC&#146;s rights to manufacture and sell HSS Products within
the Product Categories. For the avoidance of doubt, the obligations in this Section 3.4 are not binding
on persons or entities who distribute HSS Products within the Product Categories, where such products
are manufactured by or for ATC, whether or not such distributors have exclusive distribution rights
and whether or not such distributors provide specifications for the products so manufactured. Sales
to such distributors will be deemed sales by ATC as provided in Section&nbsp;3.4.1.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.4.7<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> ATC shall have the right but not the obligation to buy out its obligations pursuant to this Section&nbsp;3.4
at any time by paying to Endsley and Paschall an aggregate amount in cash equal to Five Hundred Thousand
($500,000) minus all Commissions previously paid pursuant to this Section&nbsp;3.4, to be divided
equally between Endsley and Paschall. Such payment shall be made by ATC corporate check made out
to the Gordon &amp; Holmes Client Trust Account and sent to Gordon &amp; Holmes in accordance with
Section&nbsp;11.3. Upon such a buy-out, all of ATC&#146;s obligations and all of Endsley&#146;s and
Paschall&#146;s rights under Section 3.4, including its sub-parts (including without limitation the
audit rights set forth in Section&nbsp;3.4.2) shall immediately terminate. ATC&#146;s election to
buy-out the Commission obligation will not impact the mutual general releases contained in this Agreement,
or give any party hereto the right to reinitiate litigation for the claims so released.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.4.8<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> The ESI Parties shall not sell, market or promote HSS Products in the Product Categories, or contact
customers or potential customers of ATC with the intent to influence the purchasing decisions of
such customers or potential customers.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-5-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.4.9<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> In the event ATC on the one hand, or Endsley and Paschall on the other hand, believe that there has
been an error made in the determination of Commissions, it shall provide written notice to the other(s)
specifying the specific factual basis for its position, including detail of the transactions or other
issues giving rise to its belief. Endsley and Paschall may give such notice only after completion
of an audit pursuant to Section 3.4.2, must include in any such written notice a copy of the report
of the independent public accountants, and must give such notice jointly. In the event the parties
agree that there has been an overpayment of Commissions by ATC, ATC may at its election (i) offset
future Commission payments by the amount of the overpayment or (ii) collect the amount of the overpayment
from Endsley and Paschall, who shall be jointly and severally liable therefor, in which case payment
shall be made to ATC by check within ten (10) business days of the determination of such overpayment.
In the event the parties agree that there has been an underpayment of Commissions by ATC, ATC shall
pay the amount of such underpayment (plus the reasonable audit fee upon a Qualifying Underpayment,
if applicable) to Endsley and Paschall within ten (10) business days following the determination
of such underpayment, in the manner provided by Section 3.4.5 above. In the event that ATC and Endsley
and Paschall are not able to resolve through negotiation any dispute concerning the determination
or payment of Commissions, the dispute shall be submitted to arbitration pursuant to Section 9 below,
and any overpayment or underpayment determined by the arbitrator shall be paid or offset in the manner set forth above.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.5<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> ATC, Endsley, Paschall and Gordon &amp; Holmes shall, as of the Effective Date, enter into the Registration
Rights Agreement in the form attached hereto as <U>Exhibit&nbsp;C</U> (the &#147;Registration Rights Agreement&#148;).</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.6<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Each of the ESI Parties expressly consents to the allocation of consideration set forth in Section
3 and its sub-parts, and agrees, jointly and severally, to indemnify, defend and hold harmless ATC
and each of the ATC Released Parties (defined in Section 5.1 below) from and against any and all
claims, demands, causes of action, obligations, damages, and liabilities, including reasonable attorneys
fees and costs, arising out of or relating to disputes between and among the ESI Parties as to the
allocation of consideration or to legal fees due and payable by the ESI Parties to Gordon &amp; Holmes.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>4.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>INVESTMENT REPRESENTATIONS</U></FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>Endsley, Paschall and Gordon &amp; Holmes (collectively, the &#147;Investors&#148;) severally represent
as follows (Endsley, Paschall and Gordon &amp; Holmes to initial each one). Gordon &amp; Holmes is
making these representations solely in its capacity as an intended transferee of 7,000 shares of
Common Stock, as set forth in Section 3.2 above. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>4.1<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Each Investor confirms that it has reviewed the information described in SEC Regulation D, Rule 502(b)(2)(ii)(B)
and (C), promulgated under the Securities Act, consisting of (i)&nbsp;ATC&#146;s Form 10-K for the
fiscal year ended September 30, 2004 (as amended), (ii)&nbsp;ATC&#146;s Form 10-Q for the fiscal
quarter ended December 31, 2004 (as amended), (iii) ATC&#146;s Forms 8-K filed December 30, 2004,
January 18, 2005 (as amended), January 31, 2005, February&nbsp;11, 2005, March&nbsp;25, 2005 and
April 1, 2005, and (iv)&nbsp;the description of the Common Stock attached hereto as Exhibit&nbsp;A.
The Investors acknowledge that the consideration for issuance of the Shares is the consideration
set forth in this Agreement, and is deemed paid upon the Effective Date.</FONT></P>

<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td align="center" valign="bottom"><font size="2"><u>&nbsp;&nbsp; /s/ GOE&nbsp;&nbsp;&nbsp;</u></font></td>
    <td align="center" valign="bottom"><u><font size="2">&nbsp;&nbsp;&nbsp;/s/ DJP&nbsp;&nbsp;&nbsp;</font></u></td>
    <td align="center" valign="bottom"><u><font size="2">/s/ Gordon &amp; Holmes</font></u></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="20%" align="center" valign="bottom" height="19"><font size="2" face="Times New Roman, Times, serif">Endsley</font></td>
    <td width="20%" align="center" valign="bottom" height="19"><font size="2" face="Times New Roman, Times, serif">Paschall</font></td>
    <td width="20%" align="center" valign="bottom" height="19"><font size="2" face="Times New Roman, Times, serif">Gordon &amp; Holmes</font></td>
    <td width="25%" height="19"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>

<P align=center><FONT face="Times New Roman, Times, serif" size=2>-6-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>4.2<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Each Investor, or its representatives or advisors, have had the opportunity to ask questions of and
receive answers from the officers of ATC, or persons acting on their behalf, concerning ATC, and
all such questions have been answered to the full satisfaction of each Investor or its representatives
or advisors. </FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td align="center" valign="bottom"><font size="2"><u>&nbsp;&nbsp; /s/ GOE&nbsp;&nbsp;&nbsp;</u></font></td>
    <td align="center" valign="bottom"><u><font size="2">&nbsp;&nbsp;&nbsp;/s/ DJP&nbsp;&nbsp;&nbsp;</font></u></td>
    <td align="center" valign="bottom"><u><font size="2">/s/ Gordon &amp; Holmes</font></u></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Endsley</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Paschall</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Gordon &amp; Holmes</font></td>
    <td width="25%"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>4.3<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> The Investors were not presented with or solicited by any leaflet, public promotional meeting, circular,
newspaper or magazine article, radio or television advertisement, or any other form of advertising
concerning an investment in ATC. </FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td align="center" valign="bottom"><font size="2"><u>&nbsp;&nbsp; /s/ GOE&nbsp;&nbsp;&nbsp;</u></font></td>
    <td align="center" valign="bottom"><u><font size="2">&nbsp;&nbsp;&nbsp;/s/ DJP&nbsp;&nbsp;&nbsp;</font></u></td>
    <td align="center" valign="bottom"><u><font size="2">/s/ Gordon &amp; Holmes</font></u></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Endsley</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Paschall</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Gordon &amp; Holmes</font></td>
    <td width="25%"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>4.4<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Each Investor acknowledges that neither the SEC nor any other state or federal agency has made any
determination as to the merits of an investment in the Shares, and that an investment in the Shares
involves a high degree of risk. </FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td align="center" valign="bottom"><font size="2"><u>&nbsp;&nbsp; /s/ GOE&nbsp;&nbsp;&nbsp;</u></font></td>
    <td align="center" valign="bottom"><u><font size="2">&nbsp;&nbsp;&nbsp;/s/ DJP&nbsp;&nbsp;&nbsp;</font></u></td>
    <td align="center" valign="bottom"><u><font size="2">/s/ Gordon &amp; Holmes</font></u></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Endsley</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Paschall</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Gordon &amp; Holmes</font></td>
    <td width="25%"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>4.5<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Each Investor is acquiring the Shares for investment and for its own accounts, and not with a view
to any distribution thereof.</FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td align="center" valign="bottom"><font size="2"><u>&nbsp;&nbsp; /s/ GOE&nbsp;&nbsp;&nbsp;</u></font></td>
    <td align="center" valign="bottom"><u><font size="2">&nbsp;&nbsp;&nbsp;/s/ DJP&nbsp;&nbsp;&nbsp;</font></u></td>
    <td align="center" valign="bottom"><u><font size="2">/s/ Gordon &amp; Holmes</font></u></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Endsley</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Paschall</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Gordon &amp; Holmes</font></td>
    <td width="25%"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>4.6<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Each Investor understands that the Shares have not been registered under the Securities Act in reliance
on the exemption provided in SEC Regulation&nbsp;D, Rule&nbsp;506, promulgated under Section&nbsp;4(2)
of the Securities Act, for securities sold in a private offering; and that the Shares have not been
registered under the &#147;blue sky&#148; laws of any state including California. The Shares have
not been qualified nor a permit obtained for issuance of securities from the California Department
of Corporations nor any other agency of the State of California and are being sold pursuant to the
exemptions provided in Section 25102(f) of the California Corporations Code. Each Investor further
understands that the Company&#146;s action in doing so is based in part on the representations of
the Investors made herein. </FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td align="center" valign="bottom"><font size="2"><u>&nbsp;&nbsp; /s/ GOE&nbsp;&nbsp;&nbsp;</u></font></td>
    <td align="center" valign="bottom"><u><font size="2">&nbsp;&nbsp;&nbsp;/s/ DJP&nbsp;&nbsp;&nbsp;</font></u></td>
    <td align="center" valign="bottom"><u><font size="2">/s/ Gordon &amp; Holmes</font></u></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Endsley</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Paschall</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Gordon &amp; Holmes</font></td>
    <td width="25%"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-7-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>4.7<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Each Investor understands that the Shares must be held indefinitely unless subsequently registered
under the Act and qualified or registered under other applicable state laws or unless an exemption
from such qualification or registration is available. Each Investor agrees that a notation of these
restrictions shall be placed upon the Shares and in the appropriate records of ATC. (The foregoing
representation shall not limit the Company&#146;s obligations set forth in the Registration Rights
Agreement.)</FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td align="center" valign="bottom"><font size="2"><u>&nbsp;&nbsp; /s/ GOE&nbsp;&nbsp;&nbsp;</u></font></td>
    <td align="center" valign="bottom"><u><font size="2">&nbsp;&nbsp;&nbsp;/s/ DJP&nbsp;&nbsp;&nbsp;</font></u></td>
    <td align="center" valign="bottom"><u><font size="2">/s/ Gordon &amp; Holmes</font></u></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Endsley</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Paschall</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Gordon &amp; Holmes</font></td>
    <td width="25%"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>4.8<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Each Investor understands the risks and other considerations related to an investment in the Shares.
Each Investor has such knowledge and experience in financial and business matters that it (alone
or with the aid of its investment advisors who are not compensated by ATC or any affiliate of ATC,
directly or indirectly) is capable of evaluating the merits and risks of acquiring, and protecting
its own interests in connection with, the Shares. </FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td align="center" valign="bottom"><font size="2"><u>&nbsp;&nbsp; /s/ GOE&nbsp;&nbsp;&nbsp;</u></font></td>
    <td align="center" valign="bottom"><u><font size="2">&nbsp;&nbsp;&nbsp;/s/ DJP&nbsp;&nbsp;&nbsp;</font></u></td>
    <td align="center" valign="bottom"><u><font size="2">/s/ Gordon &amp; Holmes</font></u></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Endsley</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Paschall</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Gordon &amp; Holmes</font></td>
    <td width="25%"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>4.9<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Each Investor (i)&nbsp;is able to bear the economic risk of an investment in ATC, (ii)&nbsp;has the
ability to hold the Shares indefinitely, (iii)&nbsp;represents that its overall commitment to investments
which are not readily marketable (such as the Shares) is not disproportionate to such Investor&#146;s
net worth, and (iv)&nbsp;has the financial ability to suffer a complete loss of its investment in
the Shares.</FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td align="center" valign="bottom"><font size="2"><u>&nbsp;&nbsp; /s/ GOE&nbsp;&nbsp;&nbsp;</u></font></td>
    <td align="center" valign="bottom"><u><font size="2">&nbsp;&nbsp;&nbsp;/s/ DJP&nbsp;&nbsp;&nbsp;</font></u></td>
    <td align="center" valign="bottom"><u><font size="2">/s/ Gordon &amp; Holmes</font></u></td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Endsley</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Paschall</font></td>
    <td width="20%" align="center" valign="bottom"><font size="2" face="Times New Roman, Times, serif">Gordon &amp; Holmes</font></td>
    <td width="25%"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>5.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>MUTUAL GENERAL RELEASES</U>. For good and valuable consideration, the receipt and sufficed of which are hereby acknowledged by
the parties, the parties promise, agree, and release and discharge as follows:</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>5.1<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Except for rights or claims created by this Agreement and the Registration Rights Agreement, the ESI
Parties hereby release, remise, and forever discharge ATC, including past, present and future parents,
subsidiaries, affiliates, predecessors, successors, assigns, directors, officers, agents, servants,
employees, administrators, insurers, accountants, and attorneys (the &#147;ATC Released Parties&#148;),
from any and all claims, demands, causes of action, obligations, damages, and liabilities existing
prior to the Effective Date, whether known or unknown, asserted in, arising out of, connected with
or incidental to the License Agreement, the Stock Options, the Lawsuits, or any other matter whatsoever
including, without limitation on the generality of the foregoing, any and all claims, demands, causes
of action, obligations, damages and liabilities which the ESI Parties could have asserted against
ATC or any ATC Released Party relating to the subject matter of the Lawsuits.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-8-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>5.2<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Except as to its rights under the Confidentiality Agreement dated March&nbsp;18, 2005, and except
for such rights or claims as may be created by this Agreement and the Registration Rights Agreement,
ATC hereby releases, remises, and forever discharges the ESI Parties, including the ESI Parties&#146;
past and present parents, subsidiaries, affiliates, predecessors, successors, assigns, directors,
officers, agents, servants, employees, administrators, insurers, accountants, and attorneys (the
&#147;ESI Released Parties&#148;), from any and all claims, demands, causes of action, obligations,
damages, and liabilities existing prior to the effective date hereof, whether known or unknown, asserted
in, arising out of, connected with or incidental to the License Agreement, the Stock Options, the
Lawsuits, or any other matter whatsoever including, without limitation on the generality of the foregoing,
any and all claims, counterclaims, demands, causes of action, obligations, damages and liabilities
which ATC could have asserted against the ESI Parties or the ESI Released Parties relating to the
subject matter of the Lawsuits.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>5.3<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> ATC and the ESI Parties specifically waive the benefit of the provisions of Section 1542 of the Civil
Code of the State of California and any similar laws of other jurisdictions, to the extent applicable.
Section&nbsp;1542 reads as follows:</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN
HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>5.4<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> The provisions, waivers and releases set forth in this Section 5 are binding upon each of ATC and
the ESI Parties and their respective agents, employees, attorneys, representatives, officers, directors,
general partners, limited partners, joint venturers, affiliates, assigns, heirs, successors in interest
and shareholders.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>5.5<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> The provisions, waivers and releases of this Section 5 shall inure to the benefit of each of ATC&#146;s
and the ESI Parties&#146; agents, attorneys, employees, representatives, officers, directors, divisions,
subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>5.6<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> The provisions of this Section 5 shall survive the termination of this Agreement, and full performance
of all the terms of this Agreement. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>5.7<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> In entering into this Agreement and the waivers provided for in this Section 5, each of ATC and the
ESI Parties assumes the risk of any misrepresentation, concealment or mistake. If either ATC or the
ESI Parties should subsequently discover that any fact relied upon by it in entering into this Agreement
was untrue, or that any fact was concealed from it or that its understanding of the facts or of the
law was incorrect, ATC or the ESI Parties shall not be entitled to any relief in connection therewith,
including any alleged right or claim to set aside or rescind this Agreement. This Agreement is intended
to be and is final and binding upon the parties hereto, regardless of any claims of misrepresentation,
promise made without the intention of performing, concealment of fact, mistake of fact or law, or
any other circumstances whatsoever.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-9-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>5.8<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Without limiting the generality of any provision of this Section 5, each of ATC and the ESI Parties
agree and acknowledge that the License Agreement was terminated on May&nbsp;23, 2003, and the Stock
Options ceased to be exercisable on October&nbsp;5, 2002, and no party thereto had any rights or
obligations under such agreements, following such respective dates.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>5.9<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Except as required in a subpoena issued to an ESI Party by a court of competent jurisdiction or an
order or judgment binding on an ESI Party, each of the ESI Parties agrees not to participate in or
assist in any manner any person or entity in any claim or cause of action such person or entity might
threaten or bring against ATC which in any way derives from any rights the ESI Parties formerly enjoyed
under the License Agreement, including without limitation any claims or causes of action by licensees,
sublicensees, assignees, finders or brokers of the ESI Parties, or other persons with contracting
relationships with the ESI Parties. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>6.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>REPRESENTATIONS AND WARRANTIES</U>. Each of the parties to this Agreement represents, warrants, and agrees as to itself as follows:</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>6.1<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Each of ATC and the ESI Parties have received independent legal advice from legal counsel with respect
to the advisability of making the settlement provided for herein, with respect to the advisability
of executing this Agreement, and with respect to the releases, waivers, and all other matters contained
herein.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>6.2<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Each of ATC and the ESI Parties or responsible officer thereof has read this Agreement and understands
the contents hereof. Each of the officers executing this Agreement on behalf of their respective
corporations or partnerships is empowered to do so and thereby binds his or her respective corporation
or partnership.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>6.3<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Each of ATC and the ESI Parties have not heretofore assigned, transferred, or granted, or purported
to assign, transfer, or grant, any of the claims, demands, causes of action, obligations, damages,
and liabilities disposed of by this Agreement.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>6.4<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Each of ATC and the ESI Parties will execute all such further and additional documents as shall be
reasonable, convenient, necessary or desirable to carry out the provisions of this Agreement.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>7.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>DISMISSAL</U>. ATC and the ESI Parties shall dismiss their respective claims in the Lawsuits with prejudice. A jointly
executed stipulation for dismissal shall be filed in the form attached hereto as <U>Exhibit&nbsp;D</U>. ATC and the ESI Parties agree that such dismissal shall be signed by counsel of record for all parties
concurrently with the execution of this Agreement, but shall be held in trust by Gordon &amp; Holmes
until such time as the deliverables provided for in Sections&nbsp;3.1, 3.2 and 3.3 are deemed received
by Gordon &amp; Holmes in accordance with such Sections. Within five court days thereafter, Gordon
&amp; Holmes shall cause the fully executed dismissal with prejudice to be filed with the court in
the Lawsuits, and after receiving conformed copies of same, shall provide all counsel for all parties
hereto with copies thereof.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-10-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>8.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>CONFIDENTIALITY</U>. ATC and the ESI Parties shall maintain as confidential all terms of this Agreement, and shall not
disclose any such information to any third party, except as is necessary to obtain court approval
of the dismissal of the Lawsuits, as is required by lawful court order or where disclosure to a third
party is necessary because their duties justify a need to know such information and then only after
such third parties have agreed to be bound by a confidentiality and/or a non-disclosure agreement
and clearly understand their obligations to protect the confidentiality of this Agreement. Notwithstanding
the foregoing, ATC shall be permitted to disclose the entry into this Agreement and such material
terms thereof, to the extent required by the Securities Act, the Securities Exchange Act of 1934,
as amended, the rules and regulations promulgated under both such acts, and the rules of the Nasdaq
Stock Market, in each case as determined in good faith by ATC, its principal executive and financial
officers who are required to certify the accuracy and completeness of reports filed with the Securities
and Exchange Commission, ATC&#146;s attorneys or ATC&#146;s independent registered public accounting
firm. Such disclosure may include the filing of this Agreement as an exhibit to filings made with
the Securities and Exchange Commission. ATC intends to file within four&nbsp;(4) business days after
the Effective Date a Form 8-K and/or a press release announcing this settlement. ATC agrees to provide
to the ESI Parties an advance copy of such Form&nbsp;8-K or press release, no less than twenty-four&nbsp;(24)
hours prior to its issuance and/or filing. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>9.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>STREAMLINED ARBITRATION</U>.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>9.1<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Each and every dispute, claim or controversy arising out of or relating to this Agreement, including
without limitation the payment of Commissions, or the breach, termination, enforcement, interpretation
or validity of this Agreement, including the determination of the scope or applicability of this
Agreement to arbitrate, shall be determined by arbitration in San&nbsp;Diego County, California,
before one&nbsp;(1) arbitrator. The arbitration shall be administered by JAMS, in accordance with
the following procedures: (i) a party desiring arbitration shall give written notice to the other
part(ies) and to JAMS; (ii) the parties shall agree on an arbitrator from the JAMS San Diego, California
panel within five (5) business days after such notice, and if they cannot agree within that time,
an arbitrator shall be selected by JAMS; (iii) there shall be no discovery permitted and no experts
designated (provided that a representative from the independent accounting firm which performed an
audit pursuant to Section 3.4.2 may testify in person); and (iv) subject to the foregoing limitations,
the arbitrator, once appointed, shall use all reasonable effort to conduct the arbitration and render
an award on the matters subject to arbitration as quickly as is reasonably possible, and in that
regard, to the extent the arbitrator considers such a procedure fair and adequate, (x) each Party
shall provide a written report of its position to the arbitrator(s) and to the other part(ies) within
five (5) business days after the arbitrator&#146;s initial consultation with the parties or their
counsel, (y) the arbitrator will select a date for a hearing, which, if reasonably possible, shall
be within fifteen (15) days after submission of the reports, and (z) the arbitrator shall render
his or her award quickly and need not provide findings or support for the award. The arbitrator shall
have no authority to award any amounts for incidental, special, consequential or punitive damages,
or amounts attributable to lost profits or lost savings. To the extent not in conflict with the above
procedures, the dispute shall be administered in accordance with the JAMS Streamlined Arbitration
Rules &amp; Procedures as revised February 19, 2005. Judgment on the Award may be entered in any
court having jurisdiction. This clause shall not preclude the parties from seeking provisional remedies
in aid of arbitration from a court of appropriate jurisdiction, but shall preclude the parties from
seeking in any court any damages not available in arbitration. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>9.2<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> The fees and expenses of the arbitration shall be divided equally by the ESI Parties on the one hand
and ATC on the other hand. Except as set forth above, each party shall bear its own expenses in the
arbitration and for any provisional remedies in aid of arbitration, and the arbitrator shall not
in its award or otherwise, allocate all or part of the costs of the arbitration, including the fees
of the arbitrator and the reasonable attorneys&#146; fees of the prevailing party, to any party other
than the party originally bearing such costs. </FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-11-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>10.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>SETTLEMENT</U>. This Agreement affects the settlement of claims which are denied and contested, and nothing contained
herein shall be construed as an admission by any party hereto of any liability of any kind to any
other party. Each of the parties hereto denies any liability in connection with any and all claims.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>11.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>MISCELLANEOUS</U>.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>11.1<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Governing Law</U>. This Agreement shall be deemed to have been executed and delivered within the State of California,
and the rights and obligations of the parties hereto shall be construed and enforced in accordance
with, and governed by, the laws of the State of California, without regard to its choice of law provisions,
and any applicable laws of the United States. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>11.2<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Successors and Assigns</U>. This Agreement (other than the provisions of Section&nbsp;3.4, which are subject to Section&nbsp;3.4.6
in lieu of this Section&nbsp;11.2) is binding upon and shall inure to the benefit of the parties
hereto, and their respective agents, employees, representatives, officers, directors, divisions,
parents, subsidiaries, affiliates, assigns, heirs, successors in interest, predecessors in interest,
partners and shareholders.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>11.3<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Notices</U>. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in
writing and shall be deemed effectively given upon personal delivery to the party to be notified,
upon transmission by facsimile at the facsimile number indicated for such party on the signature
page hereof, with confirmation of receipt, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof. Any party may change its address or facsimile
number by ten (10) days&#146; advance written notice to the other parties given in accordance herewith.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>11.4<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Counterparts</U>. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>11.5<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Titles and Subtitles</U>. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2>[Signature Pages Follow]</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-12-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2><B>IN WITNESS WHEREOF</B>, the parties have executed this Agreement as of the last date set forth below.</FONT></P>
<table width="700" border="0" cellspacing="0" cellpadding="0">
  <tr align="left" valign="bottom">
    <td width="50%"><font size="2" face="Times New Roman, Times, serif">THE COMPANY:</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">THE ESI PARTIES:</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif"><b>American Technology Corporation, a <br>
    Delaware corporation</b></font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><b>eSoundIdeas, Inc, <br>
    a California Corporation</b></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td nowrap><font size="2" face="Times New Roman, Times, serif">By:<u>/s/ Bruce A. Gray&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
    <td nowrap><font size="2" face="Times New Roman, Times, serif">By:<u>&nbsp;&nbsp;/s/ Greg O. Endlsey&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td nowrap><font size="2" face="Times New Roman, Times, serif">Name:<u>&nbsp;Bruce A. Gray&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Name:&nbsp;Greg O. Endsley</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td nowrap><font size="2" face="Times New Roman, Times, serif">Title:<u>&nbsp;Vice President, Government Group&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Title:<u>&nbsp;President&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td nowrap><font size="2" face="Times New Roman, Times, serif">Address:&nbsp;<u>13114 Evening Creek Dr. So.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Address:<u>&nbsp;25022 Footpath Ln. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td nowrap><font size="2" face="Times New Roman, Times, serif"><u>&nbsp;&nbsp;San Diego, CA&nbsp;92128&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
    <td nowrap><font size="2" face="Times New Roman, Times, serif"><u>&nbsp;&nbsp;Laguna Niguel, CA&nbsp;92677&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td nowrap><font size="2" face="Times New Roman, Times, serif"><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">Date:&nbsp;April <u>26</u>, 2005</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">By:<u>&nbsp;&nbsp;/s/ Douglas J. Paschell&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Name:&nbsp;Douglas J. Paschell</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Title:&nbsp;<u>Secretary&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Address:&nbsp;<u>5 Las Posadas&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><u>Rancho Santa Margarita, CA 92688&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Date:&nbsp;April <u>27&nbsp;</u>, 2005</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><b>SoundIdeas, a California General <br>
    Partnership</b></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td nowrap><font size="2" face="Times New Roman, Times, serif">By:<u>&nbsp;&nbsp;/s/ Greg O. Endlsey&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Name:&nbsp;Greg O. Endsley</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Title:<u>&nbsp;President&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Address:<u>&nbsp;25022 Footpath Ln.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><u></u></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><u>&nbsp;&nbsp;Laguna Niguel, CA&nbsp;92677&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">By: <u>/s/ Douglas J. Paschell.&nbsp;&nbsp;</u><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Name:&nbsp;Douglas J. Paschell</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Title:&nbsp;<u>Co-Founder&nbsp;&nbsp;</u><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><u>&nbsp;</u></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Address:<u> 5 Las Posadas&nbsp;&nbsp;</u><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><u>&nbsp;</u></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><u>Rancho Santa Margarita, CA 92688&nbsp;&nbsp;</u><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><u>&nbsp;</u></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td>&nbsp;</td>
    <td><font size="2" face="Times New Roman, Times, serif"><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Date:&nbsp;April <u>27</u>, 2005</font></td>
  </tr>
</table>

<P align=center><FONT face="Times New Roman, Times, serif" size=2>-13-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<table width="700" border="0" cellspacing="0" cellpadding="0">
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif"><B>Greg O. Endsley, an Individual</B></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif"><U>/s/ Greg O. Endlsey&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">Greg O. Endsley
      </font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2" nowrap><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" nowrap><font size="2" face="Times New Roman, Times, serif">Address:<U> 25022 Footpath Ln.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  </U>        </font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2" nowrap><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif"><u>Laguna Niguel, CA&nbsp;92677&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u> </font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2" nowrap><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif"><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2" nowrap><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif"><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2" nowrap><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">Date:&nbsp;April <U>&nbsp;26</U>, 2005</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2" nowrap><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif"><B>Douglas J. Paschall, an Individual</B></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif"><U>/s/ Douglas J. Paschell&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">Douglas J. Paschall
</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">Address:<u> 5 Las Posadas&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u>
        </font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif"><u>Rancho Santa Margarita, CA 92688&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u>
</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">Date:&nbsp;April &nbsp;<u>27</u>, 2005</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">APPROVED AS TO FORM:</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="top">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">GORDON &amp; HOLMES LLP (and agreed as to Sections<br>
    3.2, 3.5, 4 and its sub-parts, and 7)</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">SHEPPARD MULLIN RICHTER&nbsp;&amp; HAMPTON&nbsp;LLP</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2" nowrap><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="5%" nowrap><font size="2" face="Times New Roman, Times, serif">By:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td width="45%"><font size="2" face="Times New Roman, Times, serif"><u>/s/ John D. Tishler&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u> </font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td>&nbsp;</td>
    <td><font size="2" face="Times New Roman, Times, serif">John D. Tishler </font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td width="5%" nowrap><font size="2" face="Times New Roman, Times, serif">By:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    <td width="45%"><font size="2" face="Times New Roman, Times, serif">&nbsp;<u>/s/ Frederic C. Gordon&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<br>
    </u></font></td>
    <td>&nbsp;</td>
    <td><font size="2" face="Times New Roman, Times, serif">Counsel for American Technology
    </font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td>&nbsp;</td>
    <td><font size="2" face="Times New Roman, Times, serif">Counsel for eSoundIdeas, Inc, <br>
    </font></td>
    <td>&nbsp;</td>
    <td><font size="2" face="Times New Roman, Times, serif">Corporation </font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">SoundIdeas, Greg O. Endsley and </font></td>
    <td>&nbsp;</td>
    <td><font size="2" face="Times New Roman, Times, serif">12544 High Bluff Drive, Suite 300 </font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Douglas J. Paschall<br>
    </font></td>
    <td>&nbsp;</td>
    <td><font size="2" face="Times New Roman, Times, serif">San Diego, CA&nbsp;92130-3051 </font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">223 W. Date Street<br>
    </font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Date:&nbsp;April <u>&nbsp;26</u>, 2005</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">San Diego, California 92101-3571<br>
    </font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Date:&nbsp;April <u>&nbsp;&nbsp;26&nbsp;</u>, 2005</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">PROCOPIO, CORY, HARGREAVES&nbsp;&amp; SAVITCH LLP</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">By:</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><u>/s/ Paul A. Tyrell&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Paul A. Tyrell</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Counsel for American Technology <br>
    Corporation</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">530 B Street, 21st Floor</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">San Diego, CA 92101</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr align="left" valign="bottom">
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Date:&nbsp;April <u>&nbsp;26</u>, 2005</font></td>
    <td colspan="2"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>

<P align=center><FONT face="Times New Roman, Times, serif" size=2>-14-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><U>EXHIBIT A</U></FONT></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>DESCRIPTION OF COMMON STOCK</B></FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>The following summary of ATC&#146;s common stock does not purport to be complete and is subject in
all respects to applicable Delaware law and to the provisions of ATC&#146;s Certificate of Incorporation
as amended, and its Restated Bylaws, copies of which have been filed with the SEC and are available
upon request from ATC.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>The authorized common stock consists of 50,000,000 shares of common stock, par value $0.00001 per share.
As of April 15, 2005, 21,317,239&nbsp;shares of common stock were issued and outstanding. All outstanding
shares of common stock are fully paid and non-assessable. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>Holders of the common stock are entitled to receive such dividends as may be declared from time to
time by ATC&#146;s board of directors out of funds legally available therefor, after payment of dividends
required to be paid on outstanding preferred stock, if any. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>Holders of the common stock are entitled to one vote per share on all matters to be voted upon by ATC&#146;s
stockholders, including the election of directors. The Certificate of Incorporation does not provide
for cumulative voting in the election of directors; however, under some circumstances, cumulative
voting may be required under provisions of the California Corporations Code. The issuance of any
shares of preferred stock in the future may result in dilution of voting power. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>In the event of the liquidation, dissolution or winding up of ATC, holders of the common stock are
entitled to share ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock then outstanding. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>The common stock has no preemptive, conversion or redemption rights. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>The transfer agent and registrar for ATC&#146;s common stock is Interwest Transfer Company, Salt&nbsp;Lake&nbsp;City,
Utah. </FONT></P><U></U>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-15-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><U>EXHIBIT B</U></FONT></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>PRODUCT CATEGORIES</B></FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>The &#147;Product Categories&#148; include the following:</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>1. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;HSS Products specifically
targeted for use in North America in <B>the Point of Sale/Purchase, Kiosk, and Display </B>markets, which markets are defined to be those applications where the HSS Products are intended to
be installed or used in North America at a point of sale or purchase or at a kiosk or display located
in a retail sales establishment or environment, with the carried audio content directed to advertising,
informing and/or promoting the sale of goods and services at the location of the installation, including
without limitation in-store networks operated by, or in-store networks substantially similar to those
operated by, Premiere Retail Networks (PRN). Some examples of retail sales establishments and environments
include without limitation:</FONT></P>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">

<TR>
<TD vAlign=top width=51></TD>
<TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>&#149;</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Shopping Malls</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48></TD>
<TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>&#149;</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Stand Alone Retail Stores</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48></TD>
<TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>&#149;</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Power Retail Centers </FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48></TD>
<TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>&#149;</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Convenience Stores</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48></TD>
<TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>&#149;</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Grocery Stores</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48></TD>
<TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>&#149;</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Theme Parks</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48></TD>
<TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>&#149;</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Fast Food &amp; Restaurants, including Drive-Thrus</FONT></TD></TR>
<TR>
<TD vAlign=top></TD>
<TD vAlign=top></TD>
<TD vAlign=top>&nbsp;</TD></TR>
<TR>
<TD vAlign=top width=48></TD>
<TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>&#149;</FONT></TD>
<TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2>Gas Stations</FONT></TD></TR></TABLE>
<P><FONT face="Times New Roman, Times, Serif" size=2>2. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;HSS Products specifically
targeted for use in North America in <B>the Event, Trade Show and Exhibit </B>markets, which markets are defined to be those applications where the HSS products are intended to
be installed or used in North America in museums or at commercial, promotional or networking events.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>Notwithstanding anything to the contrary contained in paragraph 1 or 2 above, the Product Categories
shall not include those applications where HSS Products are to be installed or used primarily for
informational, utilitarian, educational, artistic or entertainment purposes, such as public address
or general announcing systems (e.g., paging systems or informational announcements such as store
closings or registers opening), background or foreground music (e.g., Muzak, dance floors, concert
halls),&nbsp;television programming primarily for the entertainment of viewers (regardless of whether
the regular programming includes commercials), two-way communication systems other than those to
facilitate a point of purchase sale (e.g., intercom systems for communication among employees), or
long range hailing and warning, in all cases regardless of location of installation or identity of
the customer. The foregoing list of applications not included in the Product Categories is intended
to clarify the scope of the Product Categories, and is not intended to be and shall not be construed
as an exhaustive list of applications that are not within the Product Categories. Applications which
are not within the Product Categories are not subject to Commissions.</FONT></P><U></U>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2>EXHIBIT B</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">

<P style="PAGE-BREAK-BEFORE: always">

</BODY></HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>8
<FILENAME>ex_10-15.htm
<DESCRIPTION>REGISTRATION RIGHTS AGREEMENT
<TEXT>
<HTML>
<HEAD>
<TITLE></TITLE>
</HEAD>
<BODY>
<P align=right><FONT face="Times New Roman, Times, Serif" size=2><B>EXHIBIT 10.15</B></FONT></P>
<P align=right><FONT face="Times New Roman, Times, Serif" size=2><B>FINAL</B></FONT></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><U><B>REGISTRATION RIGHTS AGREEMENT</B></U></FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>This REGISTRATION RIGHTS AGREEMENT (the &#147;Agreement&#148;), made as of the
27th of April, 2005 (the
&#147;Effective Date&#148;), by and between American Technology Corporation, a Delaware Corporation
(&#147;ATC&#148; or the &#147;Company&#148;) on the one hand, and Greg O. Endsley, an individual
(&#147;Endsley&#148;), Douglas J. Paschall, an individual (&#147;Paschall&#148;) and Gordon &amp;
Holmes LLP, a California limited liability partnership (&#147;Gordon &amp; Holmes&#148;), on the
other hand, is made with reference to the following facts. Endsley, Paschall and Gordon &amp; Holmes
are referred to collectively as the &#147;Investors.&#148;</FONT></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><U><B>R E C I T A L S</B></U></FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ATC, Endsley, Paschall and certain
other parties entered into an Agreement of Settlement and Mutual Release on the Effective Date (the
&#147;Settlement Agreement&#148;), pursuant to which ATC agreed to issue the aggregate of Seventeen
Thousand Five Hundred (17,500) shares (the &#147;Shares&#148;) of ATC common stock, $0.00001 par
value (&#147;Common Stock&#148;), to be divided as follows: 8,750 shares to Endsley and 8,750 shares
to Paschall; provided that each of Endsley and Paschall instructed ATC to cause 3,500 shares of his
shares (for a total of 7,000 share) to be issued in the name of Gordon &amp; Holmes as compensation
for legal fees incurred by the ESI Parties in the defense and prosecution of the claims described
in the Settlement Agreement&nbsp;The share certificates issued by ATC were therefore to be in the
following denominations:</FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="35%"><font size="2" face="Times New Roman, Times, serif">Endsley</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">5,250 shares</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">Paschall</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">5,250 shares</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">Gordon &amp; Holmes</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">7,000 shares</font></td>
  </tr>
</table>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ATC desires to grant the Investors
certain rights with respect to the registration of the Shares, subject to the conditions as set forth
herein.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><U><B>A G R E E M E N T</B></U></FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>In consideration of the foregoing and the promises and covenants contained herein and other good and
valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows:</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>1.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Definitions</U>. &nbsp;For the purposes of this Agreement:</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>1.1<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT>&#147;Registrable Securities&#148; shall mean (i) the Shares and (ii) shares of Common Stock which
may be issued hereafter to the Investors with respect to the Shares in consequence of any additional
issuance, exchange or reclassification of the Common Stock, corporate reorganization or any other
form of recapitalization, consolidation or merger; provided, however, that Registrable Securities
shall not include any such securities sold by the Investors to the public either pursuant to a registration
statement or Rule 144 or sold in a private transaction.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-1-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>1.2<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT>&#147;Rule 144&#148; shall mean Rule 144 promulgated under the Securities Act.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>1.3<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT>&#147;Securities Act&#148; shall mean the Securities Act of 1933, as amended.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>1.4<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT>&#147;SEC&#148; shall mean the Securities and Exchange Commission.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>1.5<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT>&#147;Securities Exchange Act&#148; shall mean the Securities Exchange Act of 1934, as amended.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>2.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Piggyback Registration</U>. &nbsp;If the Company shall at any time or times determine to file a registration statement under the Securities
Act for any shares of its Common Stock other than (i) registration statements on Forms S-4, S-8 or
any successor to such forms, (ii) another form not available for registering the Registrable Securities
for sale to the public or any registration statement including only securities issued pursuant to
a dividend reinvestment plan, or (iii) a registration statement in which the only securities to be
registered are securities issuable upon conversion of debt securities or other convertible securities
which are also being registered, the Company will notify the Investors in each case of such determination
at least ten (10) days prior to filing the registration statement and, upon the receipt of the Investors&#146;
written request given within five (5) days after the Investors&#146; receipt of such notification,
the Company will use its best efforts to cause any of the Registrable Securities, as specified in
such request, to be registered under the Securities Act pursuant to such registration statement,
to the extent and under the condition that such registration is permissible under the Securities
Act and the rules and regulations thereunder. The Company shall have the right to terminate or withdraw
any registration initiated by it prior to the effectiveness of such registration whether or not any
of the Investors has elected to include securities in such registration. The Registration Expenses
of such withdrawn registration shall be borne by the Company in accordance with Section&nbsp;4 hereof.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>3.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U></U><U>Underwriting</U>. &nbsp;In connection with any offering involving an underwriting of shares of the Company&#146;s capital
stock, the Company shall not be required under Section 2 to include any of the Registrable Securities
of the Investors in such underwriting unless they accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it, and then only in such quantity as the
underwriters determine in their sole discretion will not jeopardize the success of the offering by
the Company. </FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>4.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U></U><U>Expenses</U>. &nbsp;The Company shall pay all expenses incurred in connection with any registration pursuant to this
Agreement; provided, that the Investors shall pay for (i) any brokerage or underwriting commissions
or discounts relating to Common Stock sold by the Investors, and (ii) fees of counsel to the Investors.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>5.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U></U><U>Information Supplied by the Investors</U>. &nbsp;In connection with any registration pursuant to this Agreement, the Investors shall furnish the Company
with such information or documents as the Company may reasonably request and as shall be required
by all applicable provisions of the Securities Act and the rules and regulations thereunder.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-2-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>6.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Indemnification</U>. &nbsp;In the event any Registrable Securities are included in a registration statement under this Agreement:</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>6.1<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> To the extent permitted by law, the Company will indemnify and hold harmless the Investors, any underwriter
(as defined in the Securities Act) for the Investors and each person, if any, who controls the Investors
or underwriter within the meaning of the Securities Act or the Securities Exchange Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may become subject under
the Securities Act, or the Securities Exchange Act, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of the following statements, omissions
or violations (collectively a &#147;Violation&#148;): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) the
omission or alleged omission to state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading; or (iii) any violation or alleged violation by the
Company of the Securities Act, the Securities Exchange Act or any rule or regulation promulgated
under the Securities Act or the Securities Exchange Act; and the Company will pay to the Investors,
such underwriter or controlling person any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this Section 6.1 shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably withheld), nor shall
the Company be liable in any such case for any such loss, claim, damage, liability, or action to
the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection with such registration
by the Investors, or any such underwriter or controlling person of the Investors.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>6.2<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> To the extent permitted by law, the Investors will indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any underwriter, any other person
or entity selling securities in such registration statement and any controlling person of any such
underwriter or other holder, against any losses, claims, damages, or liabilities (joint or several)
to which any of the foregoing persons may become subject, under the Securities Act or the Securities
Exchange Act, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written information furnished
by the Investors expressly for use in connection with such registration; and the Investors will pay
any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant
to this Section 6.2, in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained in this Section 6.2
shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Investors, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this Section 6.2 exceed the gross
proceeds from the offering received by the Investors.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-3-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>6.3<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement
of any action (including any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party shall have the right
to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and any other party represented
by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to the indemnified party
under this Section 6, but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 6.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>6.4<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> If the indemnification provided for in this Section 6 is held by a court of competent jurisdiction
to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result
of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect
the relative fault of the indemnifying party on the one hand and of the indemnified party on the
other in connection with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The relative fault of
the indemnifying party and of the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the omission to state
a material fact relates to information supplied by the indemnifying party or by the indemnified party
and the parties&#146; relative intent, knowledge, access to information, and opportunity to correct
or prevent such statement or omission.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>6.5<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution
contained in the underwriting agreement entered into by a party to this Agreement in connection with
the underwritten public offering are in conflict with the foregoing provisions, the provisions in
the underwriting agreement shall control.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>6.6<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> The obligations of the Company and the Investors under this Section 6 shall survive the completion
of any offering of Registrable Securities in a registration statement under this Agreement, and otherwise.
No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent
of each indemnified party, consent to the entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from a liability in respect to such claim or litigation.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-4-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>7.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Termination of Registration Rights</U>. &nbsp;An Investor shall not be entitled to exercise any right provided for in this Agreement after the
first date on which all Registrable Securities then held by such Investor may immediately be sold
under Rule 144 during any 90-day period taking into consideration the volume restrictions specified
in Rule 144.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>8.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Non-Assignability</U>. &nbsp;This Agreement is personal to the Investors, and neither the Agreement nor any of the Investors&#146;
rights or obligations hereunder may be assigned, pledged or&nbsp;encumbered by the Investors without
the prior written consent of ATC, which may be withheld in ATC&#146;s sole discretion.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>9.<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Miscellaneous</U>.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>9.1<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Successors and Assigns</U>. &nbsp;Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; &nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>9.2<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Governing Law</U>. &nbsp;This Agreement shall be governed by and construed under the laws of the State of California as applied
to agreements among California residents entered into and to be performed entirely within California.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>9.3<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Counterparts</U>. &nbsp;This Agreement may be executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>9.4<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Titles and Subtitles</U>. &nbsp;The titles and subtitles used in this Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  &nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>9.5<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Notices</U>. &nbsp;Unless otherwise provided, any notice required or permitted under this Agreement shall be given in
writing and shall be deemed effectively given upon personal delivery to the party to be notified,
upon transmission by facsimile at the facsimile number indicated for such parties on the signature
page hereof, with confirmation of receipt, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof. Any party may change its address or facsimile
number by ten (10) days&#146; advance written notice to the other parties given in accordance herewith.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  </FONT><FONT face="Times New Roman, Times, Serif" size=2>9.6<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Expenses</U>. &nbsp;If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to reasonable attorneys&#146; fees, costs and necessary disbursements
in addition to any other relief to which such party may be entitled.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-5-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2>9.7<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Amendments and Waivers</U>. &nbsp;Any term of this Agreement may be amended and the observance of any term of this Agreement may be
waived (either generally, in a particular instance or prospectively), only with the written consent
of the Company and the Investors.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>9.8<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Severability</U>. &nbsp;If one or more provisions of this Agreement are held to be unenforceable under applicable law, such
provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted
as if such provision were so excluded and shall be enforceable in accordance with its terms.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>9.9<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>No Delay of Registration</U>. &nbsp;No Investor shall have any right to obtain or seek an injunction restraining or otherwise delaying
any registration by the Company as the result of any controversy that might arise with respect to
the interpretation or implementation of this Agreement.</FONT></P>
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT><FONT face="Times New Roman, Times, Serif" size=2>9.10<FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <U>Entire Agreement</U>. &nbsp;This Agreement and the Settlement Agreement constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.</FONT></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2>[Signature Pages Follow]</FONT></P>
<P align=center><FONT face="Times New Roman, Times, serif" size=2>-6-</FONT></P>
<HR noShade SIZE=5>

<P style="PAGE-BREAK-BEFORE: always">
<P><FONT face="Times New Roman, Times, Serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT face="Times New Roman, Times, Serif" size=2><B>IN WITNESS WHEREOF</B>, the parties have executed this Agreement as of the date first written above.</FONT></P>
<table width="700" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="50%"><font size="2" face="Times New Roman, Times, serif">THE COMPANY:</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">THE INVESTORS:</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif"><B>American Technology Corporation, a </B></font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><B>Gordon &amp; Holmes LLP, a California</B></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif"><B>Delaware corporation</B></font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><B>limited liability company </B></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">By:&nbsp; <U>/s/&nbsp;&nbsp;Bruce A. Gray&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
    <td><font size="2" face="Times New Roman, Times, serif">By:&nbsp; <U>/s/&nbsp;&nbsp;Frederic L. Gordon&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">Name:&nbsp; <U>Bruce A. Gray&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Name:&nbsp; <U>Frederic L. Gordon&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">Title:&nbsp; <U>Vice President, Government Group&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Title:&nbsp; <U>Partner&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">Address:</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Address:</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">13114 Evening Creek Drive South</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">223 W. Date Street</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">San Diego, California&nbsp;92128</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">San Diego, California 92101-3571</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">Facsimile:&nbsp;858.679.0545</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><B>Greg O. Endsley, an Individual</B></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><U>/s/&nbsp;&nbsp;Greg O. Endsley&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Greg O. Endsley</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Address:</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><U>25022 Footpath Ln. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><U>Laguna Niguel, CA 92677&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Facsimile:&nbsp; <U>949.585.9866&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><B>Douglas J. Paschall, an Individual</B></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><U>/s/&nbsp;&nbsp;Douglas J. Paschall&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </U></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Douglas J. Paschall</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Address:</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><U>5 Las Posadas&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif"><U>Rancho Santa Margarita, CA&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Facsimile:&nbsp; <U>949.959.1252&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></font></td>
  </tr>
</table>
<br>
<p align="center"><font size="2" face="Times New Roman, Times, serif">[REGISTRATION RIGHTS AGREEMENT <br>
SIGNATURE PAGE]</font></p>

<HR noShade SIZE=5>
<P style="PAGE-BREAK-BEFORE: always">
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>9
<FILENAME>ex_31-1.htm
<DESCRIPTION>CERTIFICATION
<TEXT>
<html>
<head>

<title></title>
</head>

<body>
<P align=right><b><FONT face="Times New Roman, Times, Serif" size=2>EXHIBIT 31.1 </FONT></b></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><U><B>CERTIFICATIONS</B></U></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>I, Elwood G. Norris, certify that:</FONT></P>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">
  <TR>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>1.<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>I have reviewed this quarterly report on Form 10-Q of American Technology Corporation;</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>2.<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the&nbsp;statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>3.<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>4.<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>The registrant&#146;s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
</TABLE>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>a)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>b)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>[paragraph omitted pursuant to SEC Release Nos. 33-2838 and 34-47986];</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>c)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>d)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Disclosed in this report any change in the registrant&#146;s internal control over financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant&#146;s internal control over financial reporting; and</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
</TABLE>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">
  <TR>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>5.<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>The registrant&#146;s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant&#146;s independent registered public accounting firm and the audit committee of registrant&#146;s board of directors (or persons performing the equivalent functions):</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
</TABLE>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>a)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant&#146;s ability to record, process, summarize and report financial information; and</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>b)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant&#146;s internal controls over financial reporting.</FONT></TD>
  </TR>
</TABLE>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><FONT face="Times New Roman, Times, Serif" size=2>Date:&nbsp; August 9, 2005</FONT></td>
  </tr>
  <tr>
    <td><FONT size="2" face="Times New Roman, Times, serif">&nbsp;&nbsp;</FONT></td>
  </tr>
  <tr>
    <td><FONT face="Times New Roman, Times, Serif" size=2>/S/ ELWOOD G. NORRIS</FONT></td>
  </tr>
  <tr>
    <td>___________________________</td>
  </tr>
  <tr valign="top">
    <td><FONT face="Times New Roman, Times, Serif" size=2>Elwood G. Norris, Chairman of the Board<br>
    (Co-Principal Executive Officer)    </FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
  </tr>
</table>
<HR noShade SIZE=5>
<P style="PAGE-BREAK-BEFORE: always">
</body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>10
<FILENAME>ex_31-2.htm
<DESCRIPTION>CERTIFICATION
<TEXT>
<html>
<head>

<title></title>
</head>

<body>
<P align=right><b><FONT face="Times New Roman, Times, Serif" size=2>EXHIBIT 31.2</FONT></b></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><U><B>CERTIFICATIONS</B></U></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>I, Kalani Jones, certify that:</FONT></P>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">
  <TR>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>1.<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>I have reviewed this quarterly report on Form 10-Q of American Technology Corporation;</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>2.<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>3.<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>4.<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>The registrant&#146;s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
</TABLE>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>a)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>b)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>[paragraph omitted pursuant to SEC Release Nos. 33-2838 and 34-47986];</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>c)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>d)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Disclosed in this report any change in the registrant&#146;s internal control over financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant&#146;s internal control over financial reporting; and</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
</TABLE>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">
  <TR>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>5.<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>The registrant&#146;s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant&#146;s independent registered public accounting firm and the audit committee of registrant&#146;s board of directors (or persons performing the equivalent functions):</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
</TABLE>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>a)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant&#146;s ability to record, process, summarize and report financial information; and</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>b)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant&#146;s internal controls over financial reporting.</FONT></TD>
  </TR>
</TABLE>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><FONT face="Times New Roman, Times, Serif" size=2>Date:&nbsp; August 9, 2005</FONT></td>
  </tr>
  <tr>
    <td><FONT size="2" face="Times New Roman, Times, serif">&nbsp;&nbsp;</FONT></td>
  </tr>
  <tr>
    <td><FONT face="Times New Roman, Times, Serif" size=2>/S/ KALANI JONES</FONT></td>
  </tr>
  <tr>
    <td>___________________________________
    </td>
  </tr>
  <tr valign="top">
    <td><FONT face="Times New Roman, Times, Serif" size=2>Kalani Jones, President and Chief Operating Officer<br>
    (Co-Principal Executive Officer)    </FONT></td>
  </tr>
</table>
<P align=center>&nbsp;</P>
<HR noShade SIZE=5>
<P style="PAGE-BREAK-BEFORE: always">
</body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.3
<SEQUENCE>11
<FILENAME>ex_31-3.htm
<DESCRIPTION>CERTIFICATION
<TEXT>
<html>
<head>

<title></title>
</head>

<body>
<P align=right><FONT face="Times New Roman, Times, Serif" size=2><B>EXHIBIT 31.3</B></FONT></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><U><B>CERTIFICATIONS</B></U></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>I, Michael A. Russell, certify that:</FONT></P>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">
  <TR>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>6.<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>I have reviewed this quarterly report on Form 10-Q of American Technology Corporation;</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>7.<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>8.<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>9.<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>The registrant&#146;s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
</TABLE>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>a)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>b)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>[paragraph omitted pursuant to SEC Release Nos. 33-2838 and 34-47986];</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>c)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>d)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Disclosed in this report any change in the registrant&#146;s internal control over financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant&#146;s internal control over financial reporting; and</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
</TABLE>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">
  <TR>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>10.<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>The registrant&#146;s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant&#146;s independent registered public accounting firm and the audit committee of registrant&#146;s board of directors (or persons performing the equivalent functions):</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
</TABLE>
<TABLE cellSpacing="0" cellPadding="0" width="100%" border="0">
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>a)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant&#146;s ability to record, process, summarize and report financial information; and</FONT></TD>
  </TR>
  <TR>
    <TD vAlign=top></TD>
    <TD vAlign=top></TD>
    <TD vAlign=top>&nbsp;</TD>
  </TR>
  <TR>
    <TD vAlign=top width=48></TD>
    <TD vAlign=top width=48><FONT face="Times New Roman, Times, Serif" size=2>b)<FONT face="Times New Roman, Times, Serif" size=2></FONT></FONT></TD>
    <TD vAlign=top><FONT face="Times New Roman, Times, Serif" size=2><FONT face="Times New Roman, Times, Serif" size=2></FONT>Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant&#146;s internal controls over financial reporting.</FONT></TD>
  </TR>
</TABLE>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><FONT face="Times New Roman, Times, Serif" size=2>Date:&nbsp; August 9, 2005</FONT></td>
  </tr>
  <tr>
    <td><FONT size="2" face="Times New Roman, Times, serif">&nbsp;&nbsp;</FONT></td>
  </tr>
  <tr>
    <td><FONT face="Times New Roman, Times, Serif" size=2>/S/ MICHAEL A. RUSSELL</FONT></td>
  </tr>
  <tr>
    <td>_____________________________ </td>
  </tr>
  <tr valign="top">
    <td><FONT face="Times New Roman, Times, Serif" size=2>Michael A. Russell, Chief Financial Officer<BR>
(Principal Financial Officer)</FONT></td>
  </tr>
</table>
<P align=center>&nbsp;</P>
<HR noShade SIZE=5>
<P style="PAGE-BREAK-BEFORE: always">
</body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>12
<FILENAME>ex_32.htm
<DESCRIPTION>CERTIFICATION
<TEXT>
<html>
<head>

<title></title>
</head>

<body>
<P align=right><b><FONT face="Times New Roman, Times, Serif" size=2>EXHIBIT 32.1</FONT></b></P>
<P align=center><FONT face="Times New Roman, Times, Serif" size=2><B>CERTIFICATION OF CO-PRINCIPAL EXECUTIVE OFFICERS AND <br>
</B></FONT><FONT face="Times New Roman, Times, Serif" size=2><B>PRINCIPAL FINANCIAL OFFICER <BR>
  PURSUANT TO<BR>
  18 U.S.C. SECTION 1350,<BR>
  AS ADOPTED PURSUANT TO<BR>
  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</B></FONT></P>
<P align=left><FONT face="Times New Roman, Times, Serif" size=2>Each of the undersigned hereby certifies, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of American Technology Corporation (the &#147;Company&#148;), that, to his knowledge, the quarterly report of the Company on Form 10-Q for the quarter ended June&nbsp;30, 2005 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company as of the dates and for the periods presented in the financial statements included in such report. </FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td><FONT face="Times New Roman, Times, Serif" size=2>Dated:&nbsp; August 9, 2005</FONT></td>
  </tr>
  <tr>
    <td height="28">&nbsp;</td>
  </tr>
  <tr>
    <td><FONT face="Times New Roman, Times, Serif" size=2>/S/ ELWOOD G. NORRIS</FONT></td>
  </tr>
  <tr>
    <td height="23">____________________________</td>
  </tr>
  <tr>
    <td><FONT face="Times New Roman, Times, Serif" size=2>Elwood G. Norris, Chairman of the Board<br>
    (Co-Principal Executive Officer)    </FONT></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><FONT face="Times New Roman, Times, Serif" size=2>/S/ KALANI JONES</FONT></td>
  </tr>
  <tr>
    <td height="23">___________________________________</td>
  </tr>
  <tr>
    <td><FONT face="Times New Roman, Times, Serif" size=2>Kalani Jones, President and Chief Operating Officer<br>
    (Co-Principal Executive Officer)    </FONT></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><FONT face="Times New Roman, Times, Serif" size=2>/S/ MICHAEL A. RUSSELL</FONT></td>
  </tr>
  <tr>
    <td height="23">_____________________________</td>
  </tr>
  <tr>
    <td><FONT face="Times New Roman, Times, Serif" size=2>Michael A. Russell, Chief Financial Officer<br>
    (Principal Financial Officer)    </FONT></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
  </tr>
</table>
<HR noShade SIZE=5>
<P style="PAGE-BREAK-BEFORE: always">
</body>
</html>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
