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<SEC-DOCUMENT>0001193125-10-021904.txt : 20100409
<SEC-HEADER>0001193125-10-021904.hdr.sgml : 20100409
<ACCEPTANCE-DATETIME>20100204132844
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001193125-10-021904
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20100204

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:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		15378 AVENUE OF SCIENCE, SUITE 100
		CITY:			SAN DIEGO
		STATE:			CA
		ZIP:			92128
		BUSINESS PHONE:		858-676-1112

	MAIL ADDRESS:	
		STREET 1:		15378 AVENUE OF SCIENCE, SUITE 100
		CITY:			SAN DIEGO
		STATE:			CA
		ZIP:			92128

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	AMERICAN TECHNOLOGY CORP /DE/
		DATE OF NAME CHANGE:	19940602
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
<TEXT>
<HTML><HEAD>
<TITLE>Correspondence Letter</TITLE>
</HEAD>
 <BODY BGCOLOR="WHITE">

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">VIA EDGAR </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman"
SIZE="2">February&nbsp;4, 2010 </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Larry Spirgel </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Assistant Director </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">U<SMALL>NITED</SMALL> S<SMALL>TATES</SMALL> S<SMALL>ECURITIES</SMALL>
<SMALL>AND</SMALL> E<SMALL>XCHANGE</SMALL> C<SMALL>OMMISSION</SMALL> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">100 F St., NE </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Washington, D.C. 20549 </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Re:</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">American Technology Corporation </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman"
SIZE="2">Form 10-K for the Fiscal Year Ended September&nbsp;30, 2009 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Filed December&nbsp;1, 2009 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Form 10-Q for the Fiscal Quarters Ended March&nbsp;31 and June&nbsp;30, 2009 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">File No. 0-24248 </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Dear
Mr.&nbsp;Spirgel: </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">We are in receipt of the Staff&#146;s letter dated January&nbsp;22, 2010 with respect to the
above-referenced SEC filings. We are responding herein to the Staff&#146;s comments as set forth below. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">As requested by the
Staff&#146;s letter, management acknowledges that: American Technology Corporation (&#147;the Company&#148;) is responsible for the adequacy and accuracy of the disclosure in its filings; Staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the Commission from taking any action with respect to the filing; and the Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person
under the federal securities laws of the United States. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Management&#146;s responses to the Staff&#146;s specific comments are
numbered below to correspond to the numbered comments in the Staff&#146;s letter. All capitalized terms used but not defined herein have the meanings assigned to such terms in the Forms referenced above. For ease of reference, we have set forth the
Staff&#146;s comments and the Company&#146;s response for each item below. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>Revenue Recognition, page F-9. </U></FONT></P> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">1.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Tell us and disclose the: </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Terms of your distributors&#146; rights of return. In this regard, we note that you attributed the increase in fiscal 2009 revenues in part to an
&#147;expanded sales distribution.&#148; Refer to pages 4 and 26 in your filing. Explain your revenue recognition policy for sales to independent resellers and system integrators and refer to your basis in the accounting literature.
</FONT></P></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>Company Response</U>: The Company does not use distributors in selling its products. As described further
below, the Company sells its products through the following three channels of distribution; (1)&nbsp;Independent Resellers, (2)&nbsp;System Integrators, and (3)&nbsp;Direct Sales. None of its customers, resellers or sales agents warehouse inventory
or serve as stocking distributors. In each sale of the Company&#146;s products to either independent resellers or systems integrators, the end user has been identified at the time of the sale and the product is proposed based on the specific
application intended by the end user. Most of the Company&#146;s shipments are made directly to the end user. The Company does not offer a right of return to any of its customers. The only returns that are accepted are in accordance with the
Company&#146;s policy for product warranty. </FONT></P>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Generally, the Company recognizes revenues in accordance with Staff
Accounting Bulletin No.&nbsp;104, Revenue Recognition (&#147;SAB 104&#148;), which requires that four basic criteria must be met before revenue can be recognized: (1)&nbsp;Persuasive evidence of an arrangement exists; (2)&nbsp;delivery has occurred
or services have been rendered; (3)&nbsp;the selling price is fixed or determinable; and (4)&nbsp;collectability is reasonably assured. Each of the Company&#146;s sales channels and the respective revenue recognition policy is described in more
detail below: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">1.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Independent Resellers &#150; The Company has a network of resellers, each targeting a specific market or geographic territory. The resellers identify potential
customers through their networks, provide product demonstrations and conduct sales to end users. The reseller is involved in the determination of product or service specifications, determines pricing, has credit risk on the transaction and has
inventory risk for the product, at least for a short period of time. The reseller only orders for specifically identified customers, and does not place stocking orders. Revenue related to sales to independent resellers is recognized in accordance
with SAB 104. The Company does not offer any inducements to resellers requiring accounting under ASC 605-50-25. No right of return is offered by the Company and accordingly the revenue recognition considerations included in ASC 605-15-25-1 are not
applicable. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">2.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">System Integrators &#150; The Company has a number of system integrators that function similar to resellers, except that they generally integrate the Company&#146;s
product with other products to provide a solution to an end-user. The system integrator is involved in the determination of product or service specifications, determines pricing, has credit risk on the transaction and has inventory risk for the
product. The Company&#146;s system integrators do not place stocking orders. Any product delivered to them is generally inventoried only for the time required to integrate for a specific end user customer. Revenue related to sales to system
integrators is recognized in accordance with SAB 104. The Company does not offer any inducements to system integrators requiring accounting under ASC 605-50-25. No right of return is offered by the Company and accordingly the revenue recognition
considerations included in ASC 605-15-25-1 are not applicable. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">3.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Direct sales to end users and defense-related companies &#150; The Company uses an inside sales force and third party sales representatives to identify opportunities
for its product and generate sales directly to end users. For direct sales, the Company determines the product or service specifications, determines pricing of the product, has the credit risk on the transaction and has inventory risk for the
product until title passes to the customer. All products sold either by our inside sales force or third party sales representatives are shipped directly to the customer. A commission payment is made to the representatives, generally reflected as a
percentage of sales. Revenue related to sales by our inside sales force or third party sales representatives is recognized in accordance with SAB 104. The Company does not offer any inducements to customers purchasing products through our inside
sales force or third party sales representatives requiring accounting under ASC 605-50-25. No right of return is offered by the Company, and accordingly, the revenue recognition considerations included in ASC 605-15-25-1 are not applicable.
</FONT></TD></TR></TABLE>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The statement that the Company&#146;s sales increased due to &#147;expanded
sales distribution&#148; is in reference to an expanded channel of distribution through an increased number of representatives and resellers during the year, as well as new customers identified by the inside sale force. As the Company adds resellers
and representatives to assist in sales efforts, it increases the markets and geographic territory it is able to cover and this has resulted in increased revenue. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In response to the Staff&#146;s comments, the Company has expanded its revenue recognition accounting policy disclosure to
clarify the treatment for sales to resellers and system integrators and the Company&#146;s right-of-return policy. The following policy was included in the Company&#146;s Form 10-Q for the period ended December&nbsp;31, 2009 filed on
February&nbsp;2, 2010 and will be included in future filings as applicable: </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>Revenue Recognition</U>
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Company derives its revenue primarily from two sources: (i)&nbsp;product sales, and (ii)&nbsp;contract
and license fees. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Product sales to customers, including resellers and system integrators, are recognized in
the periods that products are shipped to customers (FOB shipping point) or received by customers (FOB destination), when the fee is fixed or determinable, when collection of resulting receivables is probable and there are no remaining obligations on
the part of the Company. Most sales to resellers and system integrators are based on firm commitments from the end user; as a result resellers and system integrators carry little or no inventory. Revenues from associated engineering and installation
contracts are recognized based on milestones or completion of the contracted services. The Company&#146;s customers do not have the right to return product unless the product is found to be defective. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In limited circumstances, product sales may be recognized prior to shipment when, based on the Company&#146;s evaluation,
the criteria specified in ASC 605-10-S99-1 for recognizing revenue under bill and hold arrangements have been met. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%; text-indent:4%"><FONT STYLE="font-family:Times New Roman"
SIZE="2">The Company provides research and development services and licenses its technology to third parties. Revenues from up-front license and other fees and annual license fees are evaluated for multiple elements but are generally recognized
ratably over the specified term of the particular license or agreement. Revenues from ongoing per unit license fees are earned based on units shipped and are recognized in the period when the ultimate customer accepts the product and collection is
reasonably assured. </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Nature of a &#147;qualifying bill and hold arrangement.&#148; Please provide us your analysis of how revenue recognition pursuant to such an
arrangement complies with the conditions set forth in ASC 605-10-S99-1 regarding bill and hold arrangements under 3. Delivery and performance. </FONT></P></TD></TR></TABLE>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>Company Response</U>: The Company recorded one transaction in the Company&#146;s history
on a &#147;Bill and Hold&#148; arrangement in the quarter ended September&nbsp;30, 2008. Revenue was recognized on this transaction based on meeting the requirements of ASC 605-10-S99-1. Below are the criteria outlined in ASC 605-10-S99-1 (SAB Topic
13) for revenue recognition under a bill and hold arrangement, followed by the Company&#146;s basis for meeting that criteria: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">1.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">The risks of ownership must have passed to the buyer </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><U>Company&#146;s Basis</U>: The Company received a letter signed by the customer&#146;s Chief Executive Officer stating that the customer has purchased the product from the Company, acknowledging that it
takes ownership of the units, and asking the Company to hold the product for the customer until it is ready to take this product for its intended project. The Company&#146;s product was one component of a large integration project and other portions
of the project were behind schedule. </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">2.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">The customer must have made a fixed commitment to purchase the goods, preferably in written documentation </FONT></TD></TR></TABLE> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>Company&#146;s Basis</U>: The Company received a written purchase order from the customer that represented a fixed commitment for the
purchase of the product at the specified price. </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">3.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">The buyer, not the seller, must request that the transaction be on a bill and hold basis. Such requests typically should be set forth in writing by the buyer. The buyer
must have a substantial business purpose for ordering the goods on a bill and hold basis. </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>Company&#146;s
Basis</U>: See the response to #1 above. </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">4.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">There must be a fixed schedule for delivery of the goods. The date for delivery must be reasonable and must be consistent with the buyer&#146;s business purpose (e.g.,
storage periods are customary in the industry) </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>Company&#146;s Basis</U>: The customer provided an estimate
of when the units would be required for its project. </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">5.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">The seller must not have retained any specific performance obligations such that the earning process is not complete </FONT></TD></TR></TABLE> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>Company&#146;s Basis</U>: The product sold to the customer was standard off the shelf product, and the purchase agreement did not include
any specific post-sale performance obligations for the Company. </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">6.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">The ordered goods must have been segregated from the seller&#146;s inventory and not be subject to being used to fill other orders </FONT></TD></TR></TABLE> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>Company&#146;s Basis</U>: The units purchased by the customer pursuant to this arrangement were physically segregated from the
Company&#146;s inventory and removed from the Company&#146;s accounting system at the time the revenue was recognized so that it was not recognized as the Company&#146;s inventory or used to fill any other sales orders. </FONT></P> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">7.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">The equipment [product] must be complete and ready for shipment </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><U>Company&#146;s Basis</U>: The product was complete when the sale was recorded. The customer sent an engineer to the Company for inspection of the units and training on the product, prior to recognizing
the revenue. </FONT></P>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In addition to our analysis outlined above, we considered the fact that the
product was paid for in full as additional compelling support for this transaction meeting the criteria necessary to record revenue prior to shipment. 50% of the selling price was paid when the order was placed and the balance was paid following
inspection and training on the units. Shortly after final payment, the Company received the letter from the customer&#146;s Chief Executive Officer as referenced in item 1 above acknowledging that they were taking ownership of the units and asking
us to hold the product for them until the project was ready. Based on such letter, management understood that the customer had assumed the risk of loss in the event of a decline in the market value of the Company&#146;s product. At that point, we
evaluated and concluded that the bill and hold criteria outlined in ASC 605-10-S99-1 had been met, and the revenue was recorded. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">There were no such transactions in the year ended September&nbsp;30, 2009, but in the event that future transactions occur for which the Company determines that recognition of revenue prior to shipment is
appropriate based on the bill and hold criteria set forth in ASC 605-10-S99-1, expanded disclosures outlining the applicable criteria will be included in future filings, as applicable. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Please direct any questions regarding the foregoing information to the undersigned at 858-676-0515. Thank you in advance for your
cooperation in connection with this matter. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Sincerely,</FONT></TD></TR>
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<TD HEIGHT="16"></TD></TR>
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<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">/s/ Katherine H. McDermott</FONT></P></TD></TR>
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Katherine H. McDermott</FONT></TD></TR>
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Chief Financial Officer</FONT></TD></TR>
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">American Technology Corporation</FONT></TD></TR></TABLE></DIV> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">c:</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Thomas R. Brown </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Laura M. Clague
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Joshua E. Little </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Michael H. Lorber </FONT></P>
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