<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for Quarterly Period Ended June 30, 1998
OR
[ ] Transaction Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transaction period from _________ to _________
COMMISSION FILE NUMBER: 0-23723
--------------------
AMBIENT CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 98-0166007
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
270 MADISON AVENUE, NEW YORK, NEW YORK 10016
(Address of principal executive offices, including zip code)
(888) 861-0205
(Registrant's telephone number, including area code)
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. Yes X No
____ _____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
At August 13, 1998, Ambient Corporation had outstanding 2,984,333
shares of Common Stock, par value $.001 per share.
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AMBIENT CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
In U.S. dollars
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ -- $ 151,627
Restricted cash 30,000 130,000
Accounts receivable -- 27,939
Note receivable -- 350,000
Other receivables and prepaids 39,922 226,106
----------- -----------
Total current assets 69,922 885,672
PROPERTY AND EQUIPMENT
Cost 248,421 344,070
Less accumulated depreciation (51,478) (82,609)
----------- -----------
196,943 261,461
DEBT ISSUANCE COSTS 231,936 --
DEPOSITS FOR SEVERANCE PAY 7,725 --
----------- -----------
Total assets 506,526 1,147,133
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term credit -- 33,600
Accounts payable 246,762 213,719
Other current liabilities 239,955 640
----------- -----------
Total current liabilities 486,717 247,959
LONG-TERM LIABILITIES
Accrued severance pay 27,725 37,896
Loans payable 1,627,005 58,649
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock, $0.001 par value; authorized 20,000,000
shares; issued and outstanding 2,984,333 shares 2,419 2,984
Additional paid in capital 730,582 4,363,044
Deferred compensation (241,112) (112,222)
Accumulated deficit (2,126,810) (3,451,178)
----------- -----------
Total stockholders' equity (deficiency) (1,634,921) 802,628
Total liabilities and stockholders' equity $ 506,526 $ 1,147,133
=========== ===========
</TABLE>
See accompanying notes to financial statements.
2
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<PAGE>
AMBIENT CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
In U.S. dollars
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from
inception
Three months ended June 30, Six months ended June 30, to
1997 1998 1997 1998 June 30, 1998
------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C>
Research and development
expenses $ 86,611 $ 236,377 $ 164,153 $ 463,098 $ 1,118,169
Less - Chief Scientist of Israel
participation -- -- -- -- 95,976
----------- ----------- ----------- ----------- -----------
86,611 236,377 164,153 463,098 1,022,193
Selling, general and
administrative expenses 111,648 276,459 166,979 556,478 1,603,596
----------- ----------- ----------- ----------- -----------
Operating loss (198,259) (512,836) (331,132) (1,019,576) (2,625,789)
Other expenses -- 21,507 -- 21,507 21,507
Financing expenses, net 27,847 41,184 50,400 283,285 803,882
----------- ----------- ----------- ----------- -----------
Net loss $ (226,106) $ (575,527) $ (381,532) $(1,324,368) $(3,451,178)
=========== =========== =========== =========== ===========
Basic and fully diluted loss per
share $ (0.10) $ (0.20) $ (0.17) $ (0.46)
----------- ----------- ----------- -----------
Weighted average number of
shares outstanding 2,249,166 2,896,833 2,249,166 2,896,833
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
3
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<PAGE>
AMBIENT CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT STOCKHOLDERS EQUITY (DEFICIENCY)
In U.S. dollars
(Unaudited)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
NUMBER OF COMMON PAID IN DEFERRED DEVELOPMENT
SHARES STOCK CAPITAL COMPENSATION STAGE TOTAL
------ ----- ------- ------------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Issuance July 1996 2,028,833 $ 2,029 $ -- $ -- $ -- $ 2,029
Issuance September 1996 5,000 5 -- -- -- 5
Issuance October 1996 195,333 195 -- -- -- 195
Net Loss -- -- -- -- (693,995) (693,995)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of December
31, 1996 2,229,166 2,229 -- -- (693,995) (691,766)
Issuance March 1997 20,000 20 50,000 -- -- 50,020
Issuance August 1997 84,167 84 336,668 -- -- 336,752
Issuance September 1997 60,000 60 239,940 -- -- 240,000
Issuance September 1997 6,000 6 23,994 -- -- 24,000
Issuance October 1997 20,000 20 79,980 -- -- 80,000
Deferred Compensation -- -- -- (386,668) -- (386,668)
Amortization of deferred
compensation -- -- -- 145,556 -- 145,556
Net loss -- -- -- -- (1,432,815) (1,432,815)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of December
31, 1997 2,419,333 2,419 730,582 (241,112) (2,126,810) (1,634,921)
Issuance January 1998 40,000 40 199,960 -- -- 200,000
Public offering February
1998 525,000 525 3,432,502 -- -- 3,433,027
Amortization of deferred
compensation -- -- -- 128,890 -- 128,890
Net loss -- -- -- -- (1,324,368) (1,324,368)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of June 30,
1998 2,984,333 $ 2,984 $ 4,363,044 $ (112,222) $(3,451,178) $ 802,628
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<PAGE>
AMBIENT CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
In U.S. dollars
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1998 CUMULATIVE FROM
-------- -------- INCEPTION TO
JUNE 30, 1998
-------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (381,532) $(1,324,368) (3,451,178)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 17,669 390,835 928,440
Severance pay, net 6,841 17,896 37,896
Write off of leasehold
improvements -- 21,507 21,507
Accrued interest on long-term
loan and notes -- -- 210,016
Changes in operating assets and
liabilities
Accounts receivable -- (27,939) (41,099)
Other receivables and prepaid
expenses 3,111 (186,184) (186,184)
Accounts payable 244,498 (33,043) (15,528)
Other current liabilities (50,364) (239,315) (187,915)
----------- ----------- -----------
Net cash used in operating
activities (159,779) (1,380,611) (2,684,045)
CASH FLOWS FROM INVESTING ACTIVITIES
Restricted cash -- (100,000) (130,000)
Note receivable -- (350,000) (350,000)
Purchase of equipment (25,886) (116,034) (363,434)
----------- ----------- -----------
Net cash used in investing activities (25,886) (566,034) (843,434)
CASH FLOWS FROM FINANCING
ACTIVITIES
Issuance of share capital -- 200,000 202,229
Issuance of long-term notes -- -- 400,000
Receipt of loans from -- -- 919,600
shareholders, net
Receipt of long-term loan -- -- 120,000
See accompanying notes to financial statements
</TABLE>
5
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<PAGE>
AMBIENT CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS CONT'D)
In U.S. Dollars
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, CUMULATIVE FROM
INCEPTION TO
1997 1998 JUNE 30, 1998
-------- -------- -------------
<S> <C> <C> <C>
Increase in bank overdraft - - 87,948
Receipt of loan from bank - - 37,110
Receipt of short-term loans - - 13,947
Decrease in short-term credits 570 33,600 33,600
Proceeds (repayments) of long-term
loans 153,013 (1,568,356) (1,568,356)
Public offering of common stock - 3,433,027 3,433,027
--------- ---------- ---------
Net cash provided by financing
activities 153,583 2,098,271 3,679,105
NET INCREASE (DECREASE) IN CASH (32,082) 151,627 151,627
CASH, BEGINNING OF PERIOD 104,322 - -
-------- --------- ---------
CASH, END OF PERIOD $ 72,240 $ 151,627 $ 151,627
======== ========= =========
</TABLE>
See accompanying notes to financial statements.
6
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AMBIENT CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 GENERAL
The accompanying condensed interim financial statements have been
prepared in accordance with generally accepted accounting
principles relating to interim financial information. Accordingly,
they do not include all of the information and notes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the
three month and six month periods ended June 30, 1998, are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1998.
NOTE 2 INITIAL PUBLIC OFFERING
In February 1998 the Company completed an initial public offering
of 525,000 shares of common stock for gross proceeds of $4,200,000
before issuance expenses of approximately $943,000.
NOTE 3 PLANNED MERGER
On May 20, 1998, the Company entered into a letter of intent with
Ordacard Hi-Tech Industries (1995) Ltd. an Israeli manufacturer
of plastic ID and bank cards ("Ordacard") relating to the proposed
merger of Ordacard with and into the Company to be consummated on
December 31, 1998.
The letter of intent provides for a $1,000,000 loan from the
Company to Ordacard, $350,000 of which was paid upon the execution
of the letter of intent. The balance of the loan is to be paid by
the end of 1998. The loan is evidenced by promissory notes secured
by Ordacard's assets and subordinated to existing bank loans. The
notes bear interest at an annual rate of 6%. If the merger is not
consummated by December 31, 1998, the Company will be entitled to
demand full payment of the notes, including interest, or to
convert the balance into 50,000 shares of Ordacard stock.
7
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NOTE 4 GOING CONCERN
The Company incurred a net loss in 1996 and 1997 and anticipates
that it will continue to incur losses for some time. The Company's
continued existence is dependent on obtaining additional financing
for product development and commercialization from its
shareholders and outside sources. These matters raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans in this regard include raising additional
capital through equity financing. The financial statements do not
include any adjustments that might be necessary should the Company
be unable to continue as a going concern.
8
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<PAGE>
Item 2 -- Plan of Operation
The Company was organized in June 1996 and is a development stage
company. In August 1996, Ambient Corporation purchased substantially all of the
assets, properties, business and goodwill and assumed the liabilities of Gen
Technologies, Inc., a Delaware company organized in September 1995 ("GTI"),
including the capital stock of GTI's subsidiary, GenTec, Ltd., a corporation
organized under the laws of the State of Israel in November 1995. In November
1996, the Company changed the name of its subsidiary from GenTec, Ltd. to
Ambient, Ltd. ("Ambient Israel"). The Company owns 95% of Ambient Israel's
outstanding capital stock. Since GTI's inception in September 1995, the
Company's activities have been principally limited to organizational and initial
capitalization activities, designing and developing smart card technology and
recruitment of executive personnel. As a development stage company, the Company
has a limited relevant operating history upon which an evaluation of the
Company's prospects can be made. The Company's prospects must therefore be
evaluated in light of the problems, expenses, delays and complications
associated with a new business.
The Company has not generated any revenues from its smart card
technology since its inception. For the fiscal years ended December 31, 1996 and
1997, and the six months ended June 30, 1998, the Company has incurred net
losses aggregating $3,451,178, reflecting principally research and development
expenses and general and administrative expenses. The Company expects to incur
significant up-front expenditures in connection with the planned expansion of
its operations, including the implementation of marketing and sales efforts and
the commercialization of the Company's technology, and operating losses are
expected to continue for the foreseeable future. There can be no assurance that
the Company can be operated profitably in the future. The Company's continuation
as a going-concern is dependent upon, among other things, its ability to obtain
additional financing when and as needed, and to generate sufficient cash flow to
meet its obligations on a timely basis. The Company may also explore other
business options including strategic joint ventures, business combinations,
including investments in other companies, or mergers.
In February 1998, the Company completed an initial public offering of
525,000 shares of Common Stock (the "IPO"). The Company received net proceeds
from the IPO in the amount of $3,256,290, a substantial portion of which has
been used as of June 30, 1998. See "Part II -- Changes in Securities and Use of
Proceeds." The Company will be required to raise additional funds to satisfy the
Company's contemplated cash requirements for the next 12 months, based upon the
Company's present plans and certain assumptions relating to general economic and
industry conditions, market factors, and the Company's future revenues and
expenditures. The Company is seeking additional financing. The Company has no
present agreement, understanding or commitment with respect to any such
financing. Any inability to obtain additional financing when needed would have a
material adverse effect on the Company, requiring it to curtail or possibly
cease operations.
9
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<PAGE>
On May 20, 1998, the Company entered into a letter of intent with
Ordacard Hi-Tech Industries (1995) Ltd., an Israeli manufacturer of plastic ID
and bank cards ("Ordacard") relating to the proposed merger of Ordacard with and
into the Company or a wholly-owned subsidiary of the Company to be formed under
the laws of Israel. In connection therewith, the Company agreed to loan to
Ordacard the principal amount of $1,000,000, of which $350,000 was funded upon
execution of the letter of intent. See "Part II -- Changes in Securities and Use
of Proceeds." The Company's Current Report on Fom 8-K dated June 3, 1998 and
filed with the Securities and Exchange Commission on June 4, 1998, relating to
the Ordacard merger is incorporated herein by reference and is filed as an
exhibit hereto.
As of June 30, 1998, the Company has expended $1,118,169 on its
research and development activities (including $95,976 received from the Office
of Chief Scientist of the Israeli Ministry of Industry and Trade). Ambient
Israel has two patent applications pending in Israel which were filed in 1996,
for one of which a corresponding application was filed in the United States in
1997. The United States Patent and Trademark Office ("PTO") has allowed one
patent application, which was filed in the United States in 1996, for which a
corresponding application was filed under the PCT in 1997. The Company expects
that the patent application that has been allowed by the PTO will be issued
within the next several months. During the next 12 months, the Company's
research and development plans include, although there can be no assurance,
filing one or more additional patent applications in the United States and
Israel, developing a reader based on certain chip technology, implementing pilot
production of smart cards and demonstrating compatibility for the use of Ambient
technology in large memory data storage media such as cameras, telephones and
computers. The Company may need to raise additional funding to carry out all or
a portion of its research and development plans. The Company does not have any
commitments for any future financings and there can be no assurance such
financing will be available to the Company when needed. The Company anticipates
that its first Ambient product will be completed and ready for introduction into
the market by the fourth quarter of 1998. Product introduction will depend on
several factors, including the availability of funding, research and development
and marketing efforts, and there can be no assurance that the Company will be
successful in introducing a product by the end of 1998.
The Company's marketing activity to date has consisted primarily of
formulating a marketing strategy. The Company's strategy focuses initially on
approaching and establishing relationships with large and mid-sized system
integrators already established in the smart card market, such as Ordacard, as
well as those integrators involved in ancillary markets, such as health care,
access control, and transport ticketing. The Company also intends to target
potential volume customers. In an effort to promote recognition of the Ambient
name within the industry, the Company plans to exhibit its technology at
selected industry trade shows, and design and distribute marketing materials.
The Company also plans to implement and publicize pilot projects to demonstrate
the benefits of the Ambient system.
Depending on several factors, including the success of the Company's
marketing efforts, market acceptance of the Ambient technology, competition and
the Company's progress in its
10
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<PAGE>
research and development efforts and developing relationships with systems
integrators, the Company believes it will begin to generate sales and revenues
during the fourth quarter of 1998. There can be no assurance, however, that the
Company will generate significant revenues by this date, or at all.
The Company currently has 15 full-time employees (including those hired
from the Jerusalem College of Technology) and one part-time employee.
The Company's product development is carried out at Ambient Israel's
facilities in Israel. In May 1998, the Company purchased from the Jerusalem
College of Technology (the "College") certain equipment used for the manufacture
of smart cards for a purchase price of $40,000, which is payable in quarterly
installments over three years. The Company paid the first installment of
approximately $5,000 in May 1998. In connection with such purchase, the Company
agreed to hire three full-time employees from the College, assumed certain
liabilities in the aggregate amount of approximately $15,000, entered into a
sublease agreement with the College with respect to the facilities housing the
purchased equipment and assumed certain other contractual obligations. The
Company anticipates that revenues from these operations will offset all or a
portion of the expenses associated with purchasing and operating such equipment.
Since inception, the Company has relied for its capital requirements on
certain debt financings, government funding from the OCS, bank financing, loans
from third parties, stockholder loans, a $400,000 private placement of
promissory notes and Common Stock of the Company in 1997, and the IPO. The
Company used $1,828,261 of the net proceeds from the IPO to satisfy the
principal and accrued interest due on the loans (excluding the stockholder
loans) and the promissory notes issued in the 1997 private placement. See
"Changes in Securities and Use of Proceeds."
On March 25, 1998, the Israeli Investment Center granted "Approved
Enterprise" status to Ambient Israel, pursuant to The Law for the Encouragement
of Capital Investments, 1959 (the "Investment Law"), with respect to its planned
investment in certain fixed assets for establishing a smart card production
facility. The Investment Law provides that certain capital investments may, upon
application to the Israeli Investment Center, be designated as an Approved
Enterprise. Ambient Israel participates under the "Alternative Benefits Program"
under the Investment Law. Accordingly, taxable profits attributable to the
Approved Enterprise will be exempt from tax for a period of 10 years, commencing
in the first year in which the Approved Enterprise first generates taxable
income. However, such benefits period will terminate upon the earlier of (i) 12
years from the commencement of production or (ii) 14 years from the date of
approval of the Approved Enterprise. Under the Alternative Benefits Program,
dividend distributions from Ambient Israel during the benefits period will be
subject to reduced withholding tax of 15%, but will render Ambient Israel liable
for corporate tax (generally 25%, subject to reduction depending upon the
percentage of foreign investment in Ambient Israel) on the amount distributed
and the corporate tax thereon.
11
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The benefits available as an Approved Enterprise are conditioned upon
the fulfillment of certain conditions stipulated in the Investment Law, and the
regulation thereunder, and the criteria set forth in the certificate of
approval. In the event any of these conditions are not fulfilled, in whole or in
part, the benefits could be canceled and the Company could be required to refund
the amount of the canceled benefits, plus interest and inflation adjustments.
There can be no assurance that the Company will be able to continue to comply
with such requirements in the future.
Certain statements made in this Quarterly Report on Form 10-QSB
including statements contained in the preceding Plan of Operation are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations and projections of revenues, earnings and capital
expenditures. Such statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. The Company's plans, objectives
and expectations are based, in part, on assumptions involving the growth of the
Company's business. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives, plans or
expectations of the Company will be achieved.
12
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company's Registration Statement on Form SB-2, file no. 333-40045,
was declared effective by the Securities and Exchange Commission on
February 12, 1998. The initial public offering of the Company's Common
Stock covered by such Registration Statement commenced on February 13,
1998. Roan Capital Partners, L.P. acted as the managing underwriter
(the "Representative") for the offering. A total of 656,250 shares of
Common Stock were registered, including 78,750 shares issuable upon
exercise of the Representative's 45-day over-allotment option and
52,500 shares issuable upon exercise of warrants issued to the
Representative (the "Representative's Warrants"). The Representative's
Warrants to purchase 52,500 shares of Common Stock issued to the
Representative were also registered. The aggregate offering price of
the registered Common Stock (including the over-allotment option), the
Representative's Warrants and the shares issuable upon exercise of
Representative's Warrants, was $5,523,052.50. Of this amount,
$4,200,000 representing 525,000 shares of Common Stock have been sold
(and the Representative's Warrants were sold for $52.50). The
Representative's Warrants have not yet been exercised and consequently
the offering has not yet terminated.
The amount of expenses incurred for the Company's account in connection
with the issuance and distribution of the securities registered are as
follows:
<TABLE>
<S> <C>
Underwriting discounts and commissions: $ 420,000
Finder's fees: 0
Expenses paid to or for the underwriters: 126,000
Other expenses: 397,710
---------
Total expenses: $ 943,710
</TABLE>
All such expenses were paid directly or indirectly to others.
The net offering proceeds to the Company after deducting the above
expenses were $3,256,290.
13
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<PAGE>
As of June 30, 1998, the amount of net offering proceeds to the Company
has been used for the following purposes as follows:
<TABLE>
<S> <C>
Marketing...............................................$ 104,118
Additional Facilities................................... 0
Research and Product Development........................ 399,796
Repayment of indebtedness............................... 1,828,261
Capital Equipment....................................... 11,080
Working Capital and General Corporate................... 396,340
Temporary Investments................................... 119,405
Convertible Note Receivable from Ordacard 350,000
==========
Total.............................................$3,209,000
</TABLE>
All such payments were made directly or indirectly to others.
The use of proceeds contained herein does not represent a material
change in the use of proceeds described in the prospectus, except that
repayment of indebtedness increased by $178,261 from the estimated
$1,650,000 in the prospectus to $1,828,261 due to adjustments in the
calculations of interest on the indebtedness through the date of
payment and the repayment of accrued interest on certain indebtedness
in the principal amount of $968,000. In addition, the Company reserved
the right in the prospectus to use all or a portion of the net proceeds
allocated for working capital to acquire other companies. The Company
used $350,000 to fund a loan to Ordacard in connection with the
proposed merger of Ordacard with and into the Company (or a subsidiary
thereof). The Company's Current Report on Form 8-K dated June 3, 1998
and filed with the Securities and Exchange Commission June 4, 1998,
relating to the Ordacard merger is incorporated herein by reference and
is filed as an exhibit hereto.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None.
14
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ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
*3.1 Certificate of Incorporation of the Company, as amended.
*3.2 By-Laws of the Company, as amended.
*3.3 Memorandum of Association of Ambient Israel.
*3.4 Articles of Association of Ambient Israel.
*4.1 Specimen Stock Certificate
*10.1 Form of the Company's 1998 Stock Option Plan.
*10.2 Form of Employment Agreement between the Company and Jacob Davidson.
*10.3 Employment Agreement between Ambient Israel and Dr. Yehuda Cern.
*10.4 Employment Agreement between Ambient Israel and Dr. George Kaplun.
10.5 Reserved.
*10.6 Agreement dated August 1, 1996, between GenTechnologies, Inc. and Ambient
Corporation.
*10.7 Agreement between GenTechnologies, Inc. and Alexander Rozin dated
December 5, 1995.
*10.8 Consulting Agreement with Tekol, Ltd.
*10.9 Form of Cooperation Agreement dated January 1, 1998, between Delta Three
Inc. and Ambient Israel.
27 Financial Data Schedule
**99.1 Letter of Intent dated May 20, 1998 between Ordacard Hi-Tec
Industries (1995) Ltd. and Ambient Corporation
99.2 The Company's Current Report on Form 8-K dated June 3, 1998 and filed with
the Securities and Exchange Commission June 4, 1998.
</TABLE>
- ----------
*Incorporated by reference to the Company's Registration Statement on
Form SB-2 (File No. 333-40045) filed with the Securities and Exchange
Commission on November 12, 1997, as amended January 23, 1998.
**Incorporated by reference to the Company's Current Report on Form 8-K
dated June 3, 1998 filed with the Securities and Exchange Commission
June 4, 1998.
(b) Reports on Form 8-K
On June 4, 1998, the Company filed a Current Report on Form
8-K dated June 3, 1998 to report the execution of a letter of
intent with, and loan to, Ordacard Hi-Tech Industries (1995)
Ltd., an Israeli manufacturer of plastic ID and bank cards,
relating to a proposed merger of the two companies.
15
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report on Form 10-QSB to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: August 13, 1998
AMBIENT CORPORATION
_______________________________________________
(Registrant)
/s/ Jacob Davidson
_______________________________________________
President, Chairman and Chief Executive Officer
/s/ Aryeh Weinberg
_______________________________________________
Chief Financial Officer
16
<PAGE>
<PAGE>
EXHIBIT INDEX
27 Financial Data Schedule
99.2 The Company's Current Report on Form 8-K dated June 3, 1998
and filed with the Securities and Exchange Commission June 4,
1998.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<PERIOD-END> JUN-30-1998
<FISCAL-YEAR-END> DEC-31-1997
<CASH> 281,627
<SECURITIES> 0
<RECEIVABLES> 27,939
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 885,672
<PP&E> 344,070
<DEPRECIATION> (82,609)
<TOTAL-ASSETS> 1,147,133
<CURRENT-LIABILITIES> 247,959
<BONDS> 0
0
0
<COMMON> 2,984
<OTHER-SE> 1,375,128
<TOTAL-LIABILITY-AND-EQUITY> 1,147,133
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,324,368
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,324,368)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,324,368)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,324,366)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
-------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) May 20, 1998
AMBIENT CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-23723 98-0166007
- ----------------------------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
</TABLE>
270 Madison Avenue, New York, New York 10016
------------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (888) 861-0205
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Page 1 of 5 total pages
(Exhibit index is found on page 5)
<PAGE>
<PAGE>
ITEM 5. Other Events.
On May 20, 1998, Ambient Corporation (the "Company") entered into a
letter of intent with Ordacard Hi-Tec Industries (1995) Ltd., an Israeli
manufacturer of plastic ID and bank cards ("Ordacard"), relating to the proposed
merger of Ordacard with and into a wholly-owned subsidiary of the Company to be
formed under the laws of the state of Israel (the "Proposed Merger"). The
Proposed Merger is expected to close on December 31, 1998 and is subject to
certain closing conditions, including but not limited to the receipt of various
government approvals required under Israeli law and the consummation by the
Company of a private or public offering of equity securities in the net amount
of $7.5 million. In consideration for the Proposed Merger, the Company will
issue to Ordacard's shareholders, in proportion to their holdings therein,
shares of common stock of the Company equal to 50% of the Company's outstanding
common stock after giving effect to the proposed equity offering. Upon the
closing of the Proposed Merger, Jacob Davidson, the Company's current Chairman
of the Board, Chief Executive Officer and President, will resign as Chief
Executive Officer and President, but will retain his position as Chairman of the
Board, and Elie Garber, the current President of Ordacard, will assume the
position of President of the combined companies. On the closing date of the
Proposed Merger, the Board of Directors of the combined companies will consist
of 10 members, five of whom shall be designees of the current Ordacard
shareholders.
In connection with the Proposed Merger, the Company agreed to loan to
Ordacard the principal amount of $1,000,000. Of this amount, the Company
delivered to Ordacard $350,000 on the date of the execution of the letter of
intent in return for Ordacard's subordinated, convertible promissory note in the
principal sum of $350,000, bearing interest at 6% per annum (the "First Note").
The Company agreed to deliver the remaining $650,000 by July 1, 1998 in return
for a substantially similar Ordacard note. Each of the notes will be due on
March 31, 1999 (the "Maturity Date"), provided however, that if the Company does
not deliver to Ordacard $650,000 by July 1, 1998, Ordacard may, at its option,
convert the outstanding balance of the First Note into 14,510 common shares (or
approximately 3.6%) of Ordacard. If the Proposed Merger shall not have occurred
by December 31, 1998, the Company may, at its option, either accelerate payment
on the notes or convert the principal and accrued interest on the notes into
50,000 common shares (or 12.5%) of Ordacard, subject to adjustment pursuant to
certain provisions set forth in the notes. In the event that the Proposed Merger
is consummated, the newly formed Israeli subsidiary of the Company will assume
all of the obligations of Ordacard, including the notes.
Ordacard is a manufacturer of plastic ID and bank cards and provides
card services, including card personalization, mail distribution and point of
sale integration that supports magnetic stripe and smart card transactions, as
well as medical records retrieval for ID cards. Ordacard's technology is
supported by strategic relationships with its 25% parent, American Banknote
Corporation (NYSE:ABN), and with Indigo, Ltd. (NASDAQ:INDGF). Ordacard has 60
employees, including 10 engineers and programmers, and operates sales offices in
New York and Tel Aviv and has one sales agent in Jordan.
-2-
<PAGE>
<PAGE>
ITEM 7. Financial Statements and Exhibits.
(c) The following documents are filed herewith as exhibits to
this Form 8-K:
99.1 Letter of Intent dated May 20, 1998 between Ordacard
Hi-Tec Industries (1995) Ltd. and Ambient Corporation.
-3-
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Current Report on Form 8-K to be signed on
its behalf by the undersigned hereunto duly authorized.
Dated: June 3, 1998 AMBIENT CORPORATION
By: /s/ Jacob Davidson
---------------------------------
Jacob Davidson
President and
Chief Executive Officer
-4-
<PAGE>
<PAGE>
Exhibit Index
99.1 Letter of Intent dated May 20, 1998 between Ordacard
Hi-Tec Industries (1995) Ltd. and Ambient Corporation.
-5-
<PAGE>
<PAGE>
EXHIBIT 99.1 TO FORM 8-K
May 20, 1998
To Ordacard Hi-Tec Industries (1995) Ltd. and the Ordacard Shareholders
Listed on Exhibit A Attached Hereto
2 Alon Hatavor St. Industrial Park
P.O. Box 3005
Caesarea, Israel 38900
Dear Sirs:
This letter, when signed by Ordacard Hi-Tec Industries (1995)
Ltd., an Israeli corporation ("Ordacard"), and those persons set forth on
Exhibit A hereto (the "Ordacard Shareholders"), will confirm the recent
discussions between Ordacard and Ambient Corporation, a Delaware company
("Ambient"), relating to the proposed merger (the "Merger") of Ordacard into a
wholly-owned subsidiary of Ambient (the "Ambient Sub") to be formed in Israel
prior to the Final Closing (as defined herein). This letter embodies our
proposal for such Merger and outlines certain of the terms and conditions upon
which such transaction would be effected.
1. METHOD OF MERGER. The Merger will be structured as a statutory
merger, pursuant to Section 234 of the Israeli Companies Ordinance (New Version)
- - 1983 (the "ICO") and Sections 103 and 104 of the Israel Income Tax Ordinance
(the "Tax Law"), of Ordacard with and into Ambient Sub, such that Ambient Sub
will be the surviving corporation after the consummation of the Merger and
pursuant to which all of the assets and liabilities of Ordacard will be
transferred to Ambient Sub and Ordacard will be liquidated, subject to and in
accordance with all of the terms and conditions set forth herein.
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Ordacard Hi-Tec Industries, LOI
Page 2
2. CONSIDERATION. The issued and outstanding capital stock of
Ordacard, on a fully diluted basis as of the date hereof, consists of 400,000
ordinary shares, NIS 1 par value per share (the "Ordacard Stock"). The Ordacard
Stock is owned by the Ordacard Shareholders in the amounts set forth opposite
the name of each Ordacard Shareholder. On the Final Closing Date, as
consideration therefor, Ambient will issue to the Ordacard Shareholders, in
proportion to their holdings in Ordacard, that number of shares of Ambient's
common stock, par value $.001 per share (the "Common Stock") equal to 50% of
Ambient's issued and outstanding Common Stock, on a fully diluted basis, after
giving effect to the proposed Equity Financing (as hereinafter defined), but
without giving effect to the outstanding Ambient warrants for 52,500 shares as
of the date hereof and as disclosed in the Ambient prospectus dated February 12,
1998 (the "Ambient Acquired Shares") free and clear of any and all liens,
claims, charges and encumbrances whatsoever.
The Ambient Acquired Shares will be unregistered and the
certificates evidencing the same will each bear a legend to that effect. On the
Final Closing Date (as defined herein), the Company will enter into a
registration rights agreement with each Ordacard Shareholder granting one demand
and certain piggy-back registration rights to each such holder, subject, in all
cases, to reduction in the reasonable determination of the managing underwriter
of the underlying offering, provided any Ambient shareholders also exercising
registration rights shall be reduced on a pro-rata basis.
3. CERTAIN EMPLOYMENT ARRANGEMENTS; MANAGEMENT. (a) Upon the
Final Closing Date, Jacob Davidson will resign as President and Chief Executive
Officer (but will remain Chairman of the Board of Directors) and Elie Garber
("Garber") will be appointed either the President and Chief Executive Officer or
only the President of Ambient and its subsidiaries (which will then consist of
Ambient Ltd. (95% subsidiary) and Ambient Sub (with Ordacard merged with and
into it) pursuant to the terms of a two-year employment agreement to be
negotiated.
(b) Upon the Final Closing, the Ordacard Shareholders, Jacob
Davidson and Elie Wurtman and Ambient will enter into a shareholders' agreement
providing for certain customary rights and obligations, including the
determination of the Board of Directors, mutual agreements to vote for director
nominees and rights to examine the books and records of Ambient.
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Ordacard Hi-Tec Industries, LOI
Page 3
4. BOARD OF DIRECTORS. Ambient currently has two directors: Jacob
Davidson and Elie Wurtman. Ambient's bylaws provide for an initial Board of
three directors and that the number of directors shall be set from time to time
by the Board. Vacancies may be filled by a majority of existing directors. A
vacancy exists if the authorized number of directors is increased. On the Final
Closing Date, Ambient shall cause its directors to increase the authorized
number of directors to ten (10) and then fill five of the resulting vacancies
with five designees of certain of the Ordacard Shareholders as determined below,
effective on the Final Closing Date. Garber shall be entitled to designate two
directors and each of Messrs. Galil and Silver and USBC Capital Corporation
shall be entitled to designate one director. The designee of any of the above
Ordacard Shareholders who are individuals may be himself.
5. LOAN. (a) Subject to the provisions of this Section 5, Ambient
shall loan to Ordacard the principal sum of $1,000,000 (the "Loan"), $350,000 of
which shall be paid on the execution of this letter of intent and the remaining
$650,000 of which shall be paid on or before July 1, 1998. Payment shall be made
in readily available funds. The Loan will be evidenced by two convertible
promissory notes (the "Notes", and each individually shall be called a "Note")
secured by Ordacard's assets (including all real and personal property, cash,
cash equivalents and accounts receivable of Ordacard) (the "Collateral") and
subordinated to Ordacard's secured bank loans in existence on the date of the
Loan (the "Senior Bank Loans") in accordance with applicable law and the
provisions of any documents governing such Senior Bank Loans regarding
Ordacard's incurrence of additional junior debt. The Notes shall be
substantially identical, and in the form attached hereto as Exhibit B, except
that the first Note will be in the principal amount of $350,000 (the "First
Note") and the second Note will be in the principal amount of $650,000 (the
"Second Note"). The Notes shall bear interest at 6% per annum. If the Merger and
Equity Financing have not been consummated by December 31, 1998, then, on such
date, Ambient shall be entitled, at its option, to demand full payment of the
aggregate outstanding principal and accrued interest on the Notes through the
date of payment (which amount shall be due and payable within 90 days of such
demand), or convert at its sole option the aggregate outstanding principal and
interest into 50,000 shares of Ordacard. In the event of a material breach of
any representation, covenant or agreement set forth in this letter or a
Definitive Agreement (as defined below), as the case may be, Ambient shall be
entitled to demand, on five days notice, full payment of the aggregate
outstanding principal and accrued interest on each of the Notes through the date
of payment.
<PAGE>
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Ordacard Hi-Tec Industries, LOI
Page 4
If Ambient shall not have delivered the payment of $650,000 by
July 1, 1998, Ordacard shall be entitled within five days from such date, at its
option and on written notice to Ambient, to either (i) convert the outstanding
principal amount and accrued interest of the First Note into 14,510 shares of
Ordacard's capital stock, or (ii) pay to Ambient in readily available funds the
principal amount of $350,000 plus accrued interest through the date of payment.
(b) Ordacard and Elie Garber hereby represent and warrant
to Ambient that Ordacard has obtained from its lenders any and all consents or
other approvals, copies of which are attached hereto as Exhibit C, required
under the Senior Bank Loans in connection with the Loan and the execution and
delivery by Ordacard of the Notes.
(c) Ordacard and Elie Garber further represent and
warrant to Ambient that (i) the execution and delivery of each of the Notes will
not constitute a default under or conflict with any agreement or arrangement or
other instrument to which Ordacard or its Affiliates (as defined in Rule 12b-2
under the Securities Exchange Act of 1934) are bound; (ii) subject to subsection
(b) above, do not require the consent of any other individual or entity; and
(iii) will not violate any law, rule or regulation by which Ordacard or any of
its Affiliates is bound.
(d) Ambient and Jacob Davidson hereby represent and
warrant to Ordacard that Ambient has obtained from its lenders any and all
consents or other approvals, if any, required in connection with the Loan and
the receipt of the Notes.
(e) Ambient and Jacob Davidson further represent and
warrant to Ordacard that (i) the making of the Loan and the receipt of each of
the Notes will not constitute a default under or conflict with any agreement or
arrangement or other instrument to which Ambient or its Affiliates (as defined
in Rule 12b-2 under the Securities Exchange Act of 1934) are bound; (ii) subject
to subsection (c) above, do not require the consent of any other individual or
entity; and (iii) will not violate any law, rule or regulation by which Ambient
or any of its Affiliates is bound.
(f) Upon delivery of the payment of the principal amount
of each of the Notes to Ordacard, Ordacard shall deliver to Ambient an executed
Note and shall execute all such further documents and shall promptly take or
cause to be taken all such further actions necessary to perfect Ambient's
security interest in the Collateral, including filing all forms required
therefor by the State of Israel.
<PAGE>
<PAGE>
Ordacard Hi-Tec Industries, LOI
Page 5
(g) From the date hereof through January 16, 1999,
Ordacard hereby agrees not to issue any additional shares of Ordacard, whether
by exercise of an option or otherwise, or any securities convertible into
Ordacard Stock, or subdivide or split or effect any recapitalization of Ordacard
Stock; Provided, however, that Ordacard shall be permitted to issue and sell to
any third party an aggregate of 50,000 shares of Ordacard stock for an aggregate
purchase price of not less than $1,000,000. Such sale shall not effect the
number of shares payable to Ambient pursuant to Section 5(a) above with respect
to the Note.
(h) The Notes shall contain regular and customary
anti-dilution provisions.
6. REPRESENTATIONS AND WARRANTIES. The definitive Merger
agreement(s) (the "Definitive Agreements") will contain customary (a)
representations and warranties which shall be true and correct as of the date
thereof and as of the date of the Initial Closing (as defined herein) and Final
Closing and (b) covenants which shall be performed by the appropriate parties as
a condition to each of the Initial Closing and Final Closing of the Merger
including, without limitation, those referred to in this letter.
7. CONDUCT OF BUSINESS PENDING CLOSING. Between the date hereof
and the date of Final Closing or the earlier termination of this letter, each of
Ordacard and Ambient (including Ambient Ltd.) shall conduct its operations
according to its ordinary and usual course of business consistent with past
practice, shall not engage in any extraordinary transactions and shall use its
best efforts to preserve intact its business organization, to keep available the
services of its current officers and employees and to maintain satisfactory
relationships with customers and others having business relationships with it.
8. MUTUAL DUE DILIGENCE; CONFIDENTIALITY. (a) The Initial Closing
and Final Closing of the Merger are subject to the completion, on or prior to
the date of execution of the Definitive Agreements, of and Ambient's
satisfaction with a due diligence review of Ordacard's business, including its
financial condition and operations. Immediately after the execution and delivery
of this letter, Ordacard agrees to arrange for Ambient and its representatives
to have access to Ordacard's books and records (including copies of all material
contracts, budgets, projections, customer order books and supplier data)
employees, professional representatives (including counsel and accountants),
major creditors (including its existing lenders), customers and suppliers as
well as to such other information and other persons relating to Ordacard's
business as Ambient may reasonably request.
<PAGE>
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Ordacard Hi-Tec Industries, LOI
Page 6
(b) Any information about Ordacard which Ambient obtains
or has obtained during its due diligence review other than information which is
generally available to the public or becomes generally available to the public
other than as a result of a breach of this subparagraph (b) is referred to
herein as the "Ordacard Information." Ambient agrees to use reasonable efforts
to keep confidential the Ordacard Information, except that Ambient can disclose
the Ordacard Information to its employees, agents, representatives, investment
bankers and professional advisors (including accountants and attorneys).
(c) The Initial Closing and Final Closing of the Merger
is also subject to the completion, on or prior to the date of execution of the
Definitive Agreements, of and Ordacard's satisfaction with a due diligence
review of Ambient's business, including its financial condition and operations.
Immediately after the execution and delivery of this letter, Ambient agrees to
arrange for Ordacard and its representatives to have access to Ambient's books
and records (including copies of all material contracts, budgets, projections,
customer order books and supplier data) employees, professional representatives
(including counsel and accountants), major creditors (including its existing
lenders) as well as such other information and other persons relating to
Ambient's business as Ordacard may reasonably request.
(d) Any information about Ambient which Ordacard obtains
or has obtained during its due diligence review other than information generally
available to the public or becomes generally available to the public other than
as a result of a breach of this subparagraph (d) is referred to herein as the
"Ambient Information." Ordacard agrees to use reasonable efforts to keep
confidential the Ambient Information, except that Ordacard can disclose the
Ambient Information to its employees, agents, representatives, and professional
advisors (including accountants and attorneys).
(e) In the event either Ambient or Ordacard or their
respective representatives is required by law to disclose any of the Ordacard
Information or the Ambient Information as applicable, it shall give prompt
written notice thereof to the other party and shall fully cooperate with the
other party should the other party wish to seek a protective order.
(f) If this letter is terminated or the Definitive
Agreements are terminated, each party agrees, upon written request from the
other, to return or destroy any information it may have received pursuant to the
provisions hereof as identified in the request.
(g) The parties acknowledge that neither would have an
adequate remedy at law in the event of a breach of the provisions of this
paragraph 8 and accordingly agree that each shall be entitled to an injunction
and specific performance without the necessity of posting and/or pricing special
damages or irreparable injury.
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Ordacard Hi-Tec Industries, LOI
Page 7
Upon the execution of this Letter, the parties agree to enter
into confidentiality agreements.
9. CONDITIONS TO TRANSACTION.
(a) INITIAL CLOSING CONDITIONS. The consummation of the
Initial Closing of the Merger is subject to the following additional terms and
conditions:
(i) The receipt of any necessary consents, waivers or
clearances from any governmental authorities, banks or any other third parties
to the contemplated transactions;
(ii) The approval of the Board of Directors of Ambient
and Ambient Sub and the approval of the shareholders of Ambient Sub;
(iii) The approval of the Board of Directors of
Ordacard and the shareholders of Ordacard;
(iv) There being no material adverse change in the
condition (financial or otherwise) of the business, assets, properties,
liabilities, prospects or results of operations of Ordacard or Ambient from that
reflected in their respective December 31, 1997 financial statements;
(v) The respective deliveries of audited financial
statements of Ordacard and Ambient, certified by an accounting firm satisfactory
to Ambient and Ordacard, respectively, covering the period required by
applicable rules adopted by the Securities and Exchange Commission;
(vi) The receipt by Ambient from each of the Ordacard
Shareholders of lock-up agreements with respect to the Ambient Acquired Shares
containing such terms as shall be required by the managing underwriter of the
Equity Financing; provided the Ordacard Shareholder's lock-up shall not be more
restrictive than the lock-up applicable to any Ambient shareholder who had not
acquired their shares in the initial public offering of Ambient. The lock-up
agreements will be effective as of the date of Final Closing;
(vii) The delivery of customary opinions of counsel
(which shall include, but not be limited to, an opinion from Israeli counsel
that the Israeli law and Tax Law permit Ordacard, an Israeli corporation, to
merge with and into Ambient Sub, an Israeli corporation, pursuant to Section 234
of the ICO);
(viii) Execution and delivery of mutually satisfactory
Definitive Agreements and related agreements;
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Ordacard Hi-Tec Industries, LOI
Page 8
(ix) The receipt by the Ambient, Ordacard and the
Ordacard Shareholders of a written opinion, to their satisfaction, that the
consummation of the Merger and the transactions contemplated herein, will not
result in adverse tax consequences to the Ordacard, Ambient, or Ambient Sub or
to any of their respective shareholders under applicable tax law;
(x) The receipt by Ordacard and Ambient of a
pre-ruling from the Israeli Income Tax Commission;
(xi) The receipt by Ordacard and Ambient Sub of a
court order from an Israeli court of competent jurisdiction required to
consummate the Merger; and
(xii) The receipt by Ambient and Ordacard of the
approval of the Restrictive Trade Practices Commission, pursuant to the
Restrictive Trade Practices Law (1988), to the extent applicable; and
(xiii) The Initial Closing shall occur not later than
November 1, 1998.
The date on which all of the above Initial Closing conditions have been
satisfied (or waived) is referred to herein as the "Initial Closing Date" or the
"Initial Closing."
(b) FINAL CLOSING CONDITIONS. The consummation of the Final
Closing of the Merger is further subject to the satisfaction or waiver of the
following additional terms and conditions:
(i) The consummation by Ambient of a private or public
offering of equity securities of Ambient resulting in minimum net proceeds,
after commissions and expenses, of $7.5 million (the "Equity Financing"), free
and clear of any lien, attachment, debt or encumbrance. For the removal of doubt
, it is hereby clarified that upon completion of the Merger, the Notes shall
become the liability of Ambient Sub and not of Ordacard. Ambient and Ordacard
shall discuss and incorporate in the Definitive Agreements the effect, if any,
an Equity Financing of more or less than $7.5 million net proceeds should have
upon the Merger and the Notes. Ordacard acknowledges and agrees that the
offering documents with respect to the Equity Financing (the "Offering
Documents") will disclose financial and other business information of Ambient on
a pro forma basis giving effect to the Merger. Ordacard agrees to provide
Ambient, at its own expense, with all financial information, contracts,
employee, customer, supplier and research and development data, and such other
information relating to Ordacard's business as Ambient or its counsel shall deem
relevant to the Offering Documents. Ordacard further acknowledges that the Final
Closing of the Merger will be a condition to the closing of the Equity
Financing.
<PAGE>
<PAGE>
Ordacard Hi-Tec Industries, LOI
Page 9
(ii) There being no material adverse change in the
condition (financial or otherwise) of the business, assets, properties,
liabilities, prospects or results of operations of Ordacard or Ambient from that
reflected in their respective December 31, 1997 financial statements;
(iii) The delivery of audited financial statements of
Ordacard, certified by an accounting firm satisfactory to Ambient, covering the
period required by applicable rules adopted by the Securities and Exchange
Commission; and
(iv) The agreement of the Ordacard Shareholders, if
required by the Israeli Tax Commissioner or other appropriate taxing authority
in Israel, to deposit the Ambient Acquired Shares with a trustee appointed by
the Commissioner until certain taxes are paid.
The date on which all of the above Final Closing conditions have been satisfied
(or waived), which shall occur on December 31, 1998 and the closing of the
transactions contemplated in the Definitive Agreements, is referred to herein as
the "Final Closing Date" or the "Final Closing."
10. PUBLIC COMMUNICATIONS. Between the date hereof and the Final
Closing Date or the earlier termination of this letter, neither party nor their
respective agents, without the prior consent of the other, shall make any public
statement or announcement or any release to trade publications or through the
press or otherwise with respect to the proposed Merger, except as may be
necessary to comply with the requirements of any law, governmental order or
regulation, in which case, the provisions of paragraph 8(e) hereto shall apply.
The parties acknowledge that Ambient may make such public announcements and
filings with the U.S. Securities and Exchange Commission and other governmental
agencies as are required by law to reveal the existence of this letter, provided
that any such disclosure is first approved by Ordacard or its representatives.
The parties agree that in any such release or disclosure, the parties shall not
name or reference any Ordacard Shareholder without the written consent as to
such release and disclosure by such person or entity.
11. EXPENSES; FEES. All costs and expenses incurred in connection
with the transactions contemplated herein (including but not limited to expenses
and fees incurred by a party in the preparation of its audited financial
statements) shall be paid by the party incurring such costs and expenses.
12. EXCLUSIVITY. From the date hereof until August 1, 1998 or the
earlier termination of this letter, neither Ordacard nor any of the Ordacard
Shareholders, nor Ambient shall solicit or engage in any discussions with, or
enter into any agreement or understanding with any other person or entity (other
than Ambient) relating to the acquisition of the Ordacard Stock, or the
acquisition of Ordacard's business, the Ambient stock, the acquisition of the
Ambient business, or any business
<PAGE>
<PAGE>
Ordacard Hi-Tec Industries, LOI
Page 10
combination or merger involving Ordacard or Ambient, other than as expressly
contemplated herein. If Ordacard or Ambient receive any proposal with respect to
same, it shall immediately upon the receipt thereof provide all relevant
particulars of such proposal to the other party.
13. TERMINATION. Subject to Section 15, this letter shall
terminate:
(a) by mutual written agreement;
(b) if mutually agreeable Definitive Agreements with respect
to the Merger shall not have been executed and delivered on or before August 1,
1998;
(c) on not less than five business days (the "Advance Notice
Period") prior written notice by either party at any time prior to the execution
of the Definitive Agreements if its ongoing due diligence investigation
discloses material adverse information concerning the other, or if it reasonably
determines that any of the conditions precedent outlined briefly above cannot be
met, as set forth in said notice, it being understood that during said Advance
Notice Period, the other party may meet the condition precedent or correct the
adverse changes described in the notice in which event the termination notice
shall be null and void;
(d) By either party as a result of a breach by the other of
paragraph 5, 8, 10 or 12 hereof; or
(e) Automatically upon the execution and delivery of
Definitive Agreements; or
(f) If the Equity Financing shall not close on or before
December 31, 1998.
14. GOVERNING LAW. This letter shall be governed by and construed
in accordance with the laws of the State of New York (without regard to the
conflict of laws provisions thereof). Any action or proceeding of whatsoever
kind or nature with respect to or arising out of this Note shall be instituted
and tried only in the federal or state courts located within the County and
State of New York, and each party hereto waives a jury trial and any right to
cause such action or proceeding to be instituted or tried elsewhere.
15. SCOPE OF LETTER. This letter constitutes a statement of the
mutual intentions of the parties with respect to the transactions described
herein, does not contain all matters upon which agreement must be reached in
order for such transactions to be consummated, and does not constitute a binding
commitment with respect to the proposed transactions. Notwithstanding the
foregoing, the provisions of paragraphs 5 and 8 through 14 are agreed to be
fully binding upon the parties upon the execution of this letter.
<PAGE>
<PAGE>
Ordacard Hi-Tec Industries, LOI
Page 11
Upon termination of this letter as provided in paragraph 13 above, neither party
will have any obligation to the other relating to such termination unless the
termination arises from a breach of paragraphs 5 or 8 through 14 of this letter,
or the bad faith, willful misconduct or gross negligence of a party. The
provisions of Sections 5, 8(b), 8(d) through (g), 10, 11, and 14 shall survive
the expiration or termination of this Letter.
Please indicate your agreement and acceptance of the terms and
conditions of this letter by executing this letter in the space designated below
whereupon this letter shall constitute a letter of intent between the parties in
accordance with the terms and provisions set forth above.
Very truly yours,
AMBIENT CORPORATION
By: /s/ Jacob Davidson
-----------------------------
Jacob Davidson, President
AGREED AND ACCEPTED:
USBC Capital Corporation
Ordacard Hi-Tec Industries (1995) Ltd.
By: By:_______________________________
Name: E. Garber D. Naveh Name:
-----------------------------
Title: Title:
---------------------------- -----------------------
/s/ Elie Garber
- ------------------------ ----------------------------------
Elie Garber Lily Silver
- ------------------------ ----------------------------------
Amir Galil Paul Kittay
<PAGE>
<PAGE>
Ordacard Hi-Tec Industries, LOI
Page 12
EXHIBIT A
ORDACARD SHAREHOLDERS
<TABLE>
<CAPTION>
Name of Shareholder No. of Shares of % of Outstanding
- ------------------- Capital Capital Stock
Stock Held by ----------------
-------------
Shareholder
-----------
<S> <C> <C>
Elie Garber 145,000 36.25%
Amir Galil 72,500 18.125
Lily Silver 72,500 18.125
Paul Kittay 10,000 2.5
American Banknote Corporation 100,000 25%
======= =======
Total 400,000 100%
</TABLE>
