As filed with the Securities and Exchange Commission on October 18, 2000
Registration No. 333-43054
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. 2)
AMBIENT CORPORATION
(Name of small business issuer in its charter)
Delaware 334413 98-0166007
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1033 Beacon Street
Brookline, Massachusetts, 02446
(617) 735-9395
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(Address and telephone number of principal executive offices)
Samuel F. Ottensoser, Esq.
Baer Marks & Upham LLP
805 Third Avenue
New York, NY 10022
(212) 702-5962
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(Name, address and telephone number of agent for service)
with copies to:
David Aboudi, Esq.
Aboudi & Brounstein
3 Gavish Street
Kfar Saba, 44641, Israel
972-9-764-4833
Approximate date of proposed sale to the public As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of each class of securities to Amount to Proposed maximum offering Proposed maximum aggregate Amount of
be registered be registered(2) price per share(3) offering price(3) registration fee
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<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share (the "Shares") 15,656,750(1)(2) $3.00(3)(4) $46,970,250 $12,348
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</TABLE>
(1) Represents (a) 110% of up to 4,200,000 shares of our common stock, par value
$.001, held by certain selling stockholders issuable upon conversion of $1.4
million in the aggregate principal amount (and $280,000 of accrued interest) of
our convertible debentures due February 28, 2002, at a conversion price of $.40
per share, plus up to 110% of 1,250,000 shares of common stock issuable upon
exercise of warrants, (b) up to 875,000 shares of common stock issuable upon
exercise of warrants, and (c) 8,786,750 shares of our common stock held by
certain selling stockholders.
(2) Pursuant to Rule 416 under the Securities Act of 1933, as amended, the
number of shares registered hereby shall include an indeterminate number of
additional shares which may be issued upon the occurrence of certain events in
accordance with the applicable anti-dilution provisions of the debentures and
warrants. If we issue more shares of our common stock than are hereby
registered, we will file a new registration statement or amend this registration
statement to cover such additional shares.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based upon
the average of the high and low sale price of the common stock on the OTC
Bulletin Board on October 16, 2000.
(4) $15,058 has been previously paid.
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
SELLING STOCKHOLDERS'
PROSPECTUS
AMBIENT CORPORATION
15,111,750 shares of common stock
OTC Bulletin Board
ABTG
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This investment involves a high degree of risk. You should purchase shares only
if you can afford a complete loss of your investment. See Risk Factors beginning
on page 3.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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o This is an offering of shares of our common stock by certain stockholders
of Ambient Corporation.
o The selling stockholders will receive all of the proceeds from the sale of
their shares, less any commissions or discounts paid to brokers or other
agents. We will not receive any of the proceeds from the sale of the
shares. We may, however, receive up to $1,258,750 in proceeds from the
exercise by certain selling stockholders of warrants to purchase up to an
aggregate of 2,125,000 shares of our common stock. The resale of the
common stock underlying these warrants is included in the registration
statement of which this prospectus forms a part.
o The selling stockholders may offer and sell the shares in one or more
transactions at prevailing market prices, or in privately negotiated
transactions at prices other than the market price. On November 1, 2000,
the average of the high and low price quotations for our common stock on
the OTC Bulletin Board was $2.66.
The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell their shares until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell shares and it is not soliciting an offer to buy shares
in any state where the offer or sale is not permitted.
The date of this prospectus is ________________ , 2000.
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Principal Executive Office:
1033 Beacon Street
Brookline, Massachusetts 02446
(617) 735-9395
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TABLE OF CONTENTS
Page
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PROSPECTUS SUMMARY.............................................................1
RISK FACTORS ..................................................................3
We may require additional financing if we expand operations................3
We have incurred losses in every quarter and year, and we expect these
losses to continue in the foreseeable future.........................3
"Going concern" statement in auditor's report may make it difficult to
raise new capital....................................................3
We have only been in business for a short period of time, so your basis
for evaluating us is limited.........................................4
The market for our proposed technologies is unproven.......................4
You should not rely on our quarterly or year-end operating results as
an indication of how we will do in the future........................5
There are many competitors in the power-line data telecommunications
and Internet access industries and we may not be able to compete
effectively against them.............................................6
New products and rapid technological change may render us vulnerable
to technological obsolescence........................................6
We have limited marketing experience and capabilities......................6
We have very few employees and are particularly dependent on
certain of our key personnel.........................................6
We may be subject to risks associated with operations in Israel............7
We need to establish and maintain licensing relationships with
companies in related fields..........................................7
Minority Holdings in our Subsidiaries......................................7
Anti-dilution protection accorded to certain of our Executive
Officers.............................................................7
Our efforts to protect our intellectual property rights may not be
adequate.............................................................8
Our stock price is volatile and could continue to be volatile..............8
It may be difficult for a third party to acquire us........................8
Penny Stock Regulation is applicable to investment in our shares...........8
Forward-Looking Statements.................................................9
USE OF PROCEEDS ..............................................................10
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......................11
PLAN OF OPERATIONS............................................................11
BUSINESS......................................................................14
MANAGEMENT ...................................................................24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................33
SELLING STOCKHOLDERS..........................................................34
i
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DESCRIPTION OF SECURITIES.....................................................38
PLAN OF DISTRIBUTION..........................................................40
LEGAL MATTERS ................................................................44
EXPERTS.......................................................................44
WHERE YOU CAN FIND MORE INFORMATION...........................................44
FINANCIAL STATEMENTS.........................................................F-1
ii
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PROSPECTUS SUMMARY
This prospectus summary highlights selected information contained
elsewhere in this prospectus. You should read the following summary together
with the more detailed information regarding our company and the shares of
common stock being sold in this offering, which information appears elsewhere in
this prospectus.
Our Company
We are engaged in the design and development of products and services in
the fields of electronic commerce, Internet access and advanced telephony
applications.
Our activities are currently centered in two distinct areas: (i) to market
and implement a unique solution, which includes company proprietory technology,
that is designed to facilitate the provision of rapid power line
telecommunication services to homes, business and power utilities initially in
North America and Japan and (ii) the establishment, initially in Israel, of a
nationwide screen phone network that is designed to enable e-commerce and
Internet browsing for consumers who do not have access to, or are unable or
unwilling to use, personal computers.
Since our founding as a Delaware company in June 1996, we have been
engaged primarily in the design and development of smart card based technologies
and products. Owing to a fundamental reassessment of general market developments
in the field of smart card based technologies, we elected to leverage our
experience and expertise acquired in the area of smart card based technologies
to the design, development and commercialization of our proprietary technologies
in the field of power-line-telecommunications (PLT) and screen phones. We have
ceased all research and design efforts in the smart card area.
We have established a subsidiary, PLT Solutions, Inc., in which we hold a
90.1% interest, to promote a unique technology designed to facilitate the use of
existing electricity power lines and grids in the United States and Japan for
rapid Internet, telephone and data transfer to ordinary business and personal
users. Existing electrical power grids are not currently in use for high speed
data transmission due to certain power utility infrastructure limitations. We
have designed and developed proprietary technology that overcome these
infrastructure limitations. We believe that our technology will be especially
attractive to power utilities.
We also have a 49% interest in a newly established Israeli company,
Kliks.com Ltd. ("Kliks"), which is engaged in attempting to establish a
nationwide screen phone network in Israel. Kliks is currently marketing a third
party's screen phone in Israel and also designing and establishing a services
delivery platform to which users of the screen phone will have access. Users may
log on to such platform to gain access to services such as e-mail, home shopping
and advanced telephony. The screen phone network will enable Internet access for
a wide segment of the population which is less familiar with the use of personal
computers (PCs), or belongs to the large segment of populace which does not have
a PC. Mr. Bernie Wolff, our former Vice-President and currently the Chief
Executive Officer of Kliks, holds a 41% interest in Kliks and the remaining 10%
interest is held by an unaffiliated third party.
The Offering
Certain stockholders may offer and sell up to 15,111,750 shares of our
common stock under this prospectus. We will not receive any of the proceeds from
the sale of these shares. We may, however, receive proceeds from the exercise of
warrants held by certain of the selling stockholders which are included in this
registration statement. See "Use of Proceeds" and "Selling Stockholders."
Risk Factors
Investing in our common stock involves significant risks. You should
consider the information under the caption "Risk Factors" beginning on page 3 of
this prospectus in deciding whether to purchase the common stock offered under
this prospectus.
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Summary Financial Data
This table summarizes our operating data and balance sheet data for and as
of the periods indicated. The data relates primarily to the periods in which we
were engaged in the design and development of smart card based technologies and
products. We do not currently engage in the smart card field. You should read
this summary financial data in conjunction with "Plan of Operations" and our
financial statements and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Six-month Six-month Cumulative
period period Year ended Year ended from inception
Ended June 30, Ended June 30, 31-Dec 31-Dec to June 30,
2000 1999 1999 1998 2000
(Unaudited) (Unaudited) (Unaudited)
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Research and development expenses $ 126,220 $ 227,900 $ 340,287 $ 726,479 $ 1,848,057
Less - participation by the Office of the
Chief Scientist of the State of Israel -- 148,387 231,767 230,452 558,195
------------ ------------ ------------ ------------ ------------
126,220 79,513 108,520 496,027 1,289,862
Operating, general and administrative
expenses 597,726 295,744 357,419 1,246,244 3,342,635
Stock based compensation 3,980,335 236,294 326,815 658,029 5,110,734
------------ ------------ ------------ ------------ ------------
Total expenses 4,578,061 532,038 684,234 1,904,273 8,453,369
------------ ------------ ------------ ------------ ------------
Operating loss (4,704,281) (611,551) (792,754) (2,400,300) (9,743,231)
Legal settlement (1,512,500) -- -- -- (1,512,500)
Financing expenses, net (1,142,135) (90,236) (332,546) (416,427) (2,172,022)
Other income (expenses), net 5,569 -- (6,104) (3,587) (4,122)
Company's share in net losses of affiliates (53,772) -- -- -- (53,722)
------------ ------------ ------------ ------------ ------------
Loss before minority interest and
extraordinary item (7,407,119) (701,787) (1,131,404) (2,820,314) (13,485,647)
Minority interest in subsidiary loss 18,405 -- -- -- 18,405
Loss before extradoardinary Item 7,388,714 701,787 1,131,404 2,820,314 13,467,242
Extraordinary item - loss on extinguishment
of debt (9,778,167) (9,778,167)
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Net loss $(17,166,881) $ (701,787) $ (1,131,404) $ (2,820,314) $(23,245,409)
============ ============ ============ ============ ============
Basic and diluted loss per share
Net loss before extraordinary item $ (0.97) $ (0.23) $ (0.36) $ (0.95)
Extraordinary loss from extinguishment
of debt (1.28) -- -- --
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Net loss (2.24) (0.23) (0.36) (0.95)
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Weighted average number of shares outstanding 7,655,329 3,104,333 3,121,429 2,979,541
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OTHER FINANCIAL DATA
Capital expenditures $ (21,732) $ -- $ (12,102) $ (112,317) $ (393,551)
Cash provided by (used in) operating activities (1,009,835) (40,533) (53,473) (1,523,235) (3,889,977)
Cash provided by (used in) investing activities (186,216) -- 76,437 (1,048,576) (1,435,755)
Cash provided by (used in) financing activities (1,300,849) 32,037 (31,031) 2,587,949 5,436,601
BALANCE SHEET DATA
Cash and cash equivalents $ 112,865 $ 7,642 $ 8,071 $ 16,138
Total assets 701,990 908,918 433,010 1,075,230
Long-term liabilities 555,850 89,729 625,292 75,499
Shareholder's deficiency 554,158 523,507 1,037,865 242,544
</TABLE>
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2
<PAGE>
RISK FACTORS
The securities offered by this prospectus are speculative and involve a
high degree of risk and should not be purchased by persons who cannot afford the
loss of their entire investment. Prospective investors should carefully consider
the following risk factors, as well as all other information set forth elsewhere
in this Prospectus.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
projected in the forward-looking statements discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in this section, as well as in the sections entitled "Plan of
Operations" and "Business".
We may require additional financing if we expand present operations.
We anticipate that our cash on hand, together with the additional
$11.6 million (before deducting approximately $1.4 million in commissions)
raised in July - September 2000, as well as the proceeds (net of approximately
$142,500 in fees and commissions) from the sale of an additional $1.0 million in
principal amount of our 10% convertible debentures due February 28, 2002 not
later than five days after the effective date of this prospectus (of which
$500,000, gross of fees and commissions has been pre-funded), will allow us to
maintain operations as presently conducted at least through the next twelve
months. If, however, we expand our current operations to include strategic
partnerships or mergers or acquisitions, then we will require additional
financing to maintain expanded operations. We have no commitments for any such
financing and there can be no assurance that we will obtain additional capital
when needed or any assurance that any additional financing can be obtained on
favorable terms, if at all. Any additional equity financing may result in
dilution to our stockholders.
We have incurred losses in every quarter and year, and we expect these losses to
continue in the foreseeable future.
Since we began our operations in 1996, we have lost money in every quarter
and year. As of June 30, 2000, we had an accumulated deficit of approximately
$23.2 million including $17.8 million in non-cash charges primarily related to
the issuance of warrants and the extinguishment of debt. We may not be able to
generate sufficient revenue to become profitable. Even if we do become
profitable, we may not be able to sustain or increase profitability on a
quarterly or annual basis in the future.
"Going concern" statement in auditor's report may make it difficult to raise new
capital.
We are a development stage company and we have not had any revenues to
date. The report of the independent auditors on our financial statements for the
year ended December 31, 1999 includes an explanatory paragraph relating to the
uncertainty of our ability to continue as a going concern, which may make it
more difficult for us to raise additional capital.
3
<PAGE>
We have only been in business for a short period of time, so your basis for
evaluating us is limited.
We are a development stage company with a limited history of operations
which is primarily in the design and development of smart card based
technologies and products, a business in which we no longer engage. As a result,
there is a limited history of operations for evaluating our business. You must
consider the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets, including the market for the
provision of rapid power-line telecommunication services in which our 90.1%
owned subsidiary, PLT Solutions, Inc. is engaged and Internet and e-commerce
access via screen phones in which our minority-owned subsidiary Kliks is
engaged. Some of these risks and uncertainties relate to our ability to:
o in the case of PLT Solutions, ensure that the insulated packaging of
our proprietary coupler pass the high voltage tests, necessitating
additional designing efforts and thereby increasing costs;
o in the case of PLT Solutions, establish and maintain relationships
with a leading modem and media access control processor chip
manufacturer and a data network equipment manufacturer, and
collaboration with a utility company;
o in the case of PLT Solutions, verify that at least one modem
technology available from suppliers is suitable for high speed data
transmission over medium voltage power lines;
o in the case of PLT Solutions, successfully complete a pilot project,
thereby establishing product feasibility in a realistic operating
environment;
o in the case of Kliks, failure to successfully execute an
implementation program with the Israeli national telephone company;
o respond effectively to actions taken by our competitors;
o build our organizational and technical infrastructures to manage our
growth effectively;
o design, develop and implement effective product offerings; and
o attract, retain and motivate qualified personnel.
If we are unsuccessful in addressing these risks and uncertainties, our
business, financial condition and results of operations will be materially and
adversely affected.
The market for our proposed technologies is unproven.
The market for rapid power-line data telecommunication, in the case of PLT
Solutions, and Internet access and e-commerce browsing via screen phones, in the
case of Kliks, is unproven. For us to be successful in entering power-line data
telecommunications services industry, network equipment manufacturers and media
access control processor chip manufacturers, as well as users, must accept the
concept of power-line data telecommunication generally and also adopt the
solution that we have developed. There can be no assurance that utilization of
electrical power grids as a medium of rapid data transmission will be
commercially accepted. For example, utilities may react negatively to the
attachment of our coupler to the power grids. In certain countries, such as
Japan, there may be regulations restricting the transmission of high frequency
over power-lines, necessitating governmental permission, which may be denied or
delayed. Moreover, the high frequency electrical characteristics of the power
grid in some
4
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countries or localities may prevent the efficient transmission of high frequency
signals, and thus not permit the implementation of our solution. Also, the
neighborhood grid may be so large or complicated that the network operation may
only be able to provide greatly reduced data speeds. Further, in the case of PLT
Solutions, our solution may not achieve or sustain market acceptance under
emerging industry standards or may not meet, or continue to meet, the changing
demands of the media access and network equipment manufacturers. If the market
for power-line based rapid transmission of data (in the case of PLT Solutions)
or Internet access and e-mail browsing via screen phones (in the case of Kliks)
fails to develop or develops more slowly than expected, or if either of our
PLT's or Kliks' solution does not achieve or sustain market acceptance, our
business, financial condition and results of operations would be materially
adversely affected.
You should not rely on our quarterly or year-end operating results as an
indication of how we will do in the future.
Our quarterly and year-end operating results may vary significantly in the
foreseeable future due to a number of factors that could affect our performance,
expenses or prospects during any particular quarter. These factors include:
o the demand for power-line based rapid telecommunication data
transmission and for screen phones;
o the degree of acceptance of our power-line telecommunication
solution by network equipment and media access equipment
manufacturers and screen phones by consumers;
o the regulatory climate in certain countries or localities relating
to the use of power-line based rapid data transmission and screen
phones
o the development and success of our marketing efforts;
o changes in fees paid for our services resulting from competition or
other factors;
o economic conditions specific to the telecommunications, Internet
access and e-commerce industries;
Due to all of the foregoing factors, and the other risks discussed in this
section, you should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. It is possible that in some
future periods our operating results will be below the expectations of public
market analysts and investors. In this event, the price of our common stock
would likely fall.
5
<PAGE>
There are many competitors in the power-line data telecommunications and
Internet access industries and we may not be able to compete effectively against
them.
The high frequency rapid data transmission industry and the Internet
access and e-commerce browsing industry, the fields of business in which we are
currently engaged, are extremely competitive. Our primary competitors include
companies with substantially greater financial, technological, marketing,
personnel and research and development resources than ours. There can be no
assurance that we will be able to compete successfully in this market.
Certain companies claim to provide high frequency rapid data transmission
and non PC based internet browsing and e-commerce. In particular, in the case of
PLT, internet service providers (ISPs) provide internet access over existing
networks and have nationwide marketing presences and strategic or commercial
licenses with telecom carriers and wireless and satellite service providers have
announced plans to expand fixed-wireless networks for high speed data customers.
In the case of Kliks, ISPs offer on-line portals and Web TV is expected to offer
similar services using television as the interface. Cellular operators are
establishing portals facilitating access to web and information services. There
can be no assurance that other companies will not enter the market in the
future. There can be no assurance that we will be able to continue developing
products with innovative features and functions, or that development by others
of similar or more effective products will not render our products or
technologies noncompetitive or obsolete.
New products and rapid technological change may render us vulnerable to
technological obsolescense.
The market for our proposed products is characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions.
Our success will depend in part on our ability to enhance our planned
technologies and products and to introduce new products and technologies to meet
changing customer requirements and evolving industry standards. We currently
devote, and intend to continue to devote, our resources toward the development
of high frequency rapid power-line based data transmission and Internet access
and e-commerce browsing via screen-phones. There can be no assurance that we
will successfully complete the development of these technologies and related
products in a timely fashion or that our current or future products, if any,
will satisfy the needs of the market. There can also be no assurance that
products and technologies developed by others will not adversely affect our
competitive position or render our products or technologies non-competitive or
obsolete. See "Competition."
We have limited marketing experience and capabilities.
We have limited marketing experience and limited financial, personnel and
other resources to undertake marketing and advertising activities. To date we
have generated no revenues. Demand for our proposed products will depend
principally upon competitive pricing and, in the case of high speed power-line
transmission, data rate and system reliability. As is typically the case with
newly-introduced products, the ultimate level of demand for our products is
subject to a high degree of uncertainty. Developing market acceptance for our
proposed product offerings will require substantial marketing efforts and the
expenditure of a significant amount of funds to inform network equipment
manufacturers of the perceived advantages of our products. There can be no
assurance that our marketing efforts will result in demand for, or market
acceptance of, our proposed product technologies. There can be no assurance that
we will be able to market these products successfully or that our efforts will
result in any significant revenues. We may seek a strategic alliance with a
partner with an international marketing capability. We are not currently engaged
in negotiations with any potential strategic partner and there can be no
assurance that we will be able to identify a suitable partner or that, if so, we
will be able to sign an agreement on acceptable terms.
We have very few employees and are particularly dependent on certain of our key
personnel.
We have a small number of employees. Although we believe we maintain a
core group sufficient for us to effectively conduct our operations, the loss of
certain of our key personnel could, to varying degrees, have an adverse effect
on our operations and product development. The loss of Mark S. Isaacson, our
Chief Executive Officer, may
6
<PAGE>
have a material adverse effect on our business. We have not obtained "key-man"
life insurance on the life of Mr. Isaacson.
We may be subject to risks associated with operations in Israel.
Certain of our subsidiaries currently operate out of Israel. Accordingly,
certain of our activities may subject us to a number of risks, including the
risk of political and economic instability, difficulty in managing foreign
operations, potentially adverse taxes, higher expenses and difficulty in
collection of account receivable. We do not cover known or anticipated operating
exposures through foreign currency exchange option or forward contracts.
We need to establish and maintain licensing relationships with companies in
related fields.
Our future success will depend in part upon our ability to establish and
maintain relationships with spread spectrum modem and MAC processor
manufacturers and network integrators, in the case of power-line
telecommunications, and CPS Europe Ltd., in the case of screen phones. We
believe that these current and future relationships can allow us greater access
to manufacturing, sales and distribution resources. However, the amount and
timing of resources to be devoted to these activities by these other companies
are not within our control. We may not be able to maintain our existing
relationships or enter into beneficial relationships in the future. Other
parties may not perform their obligations as expected. Our reliance on others
for the development, manufacturing and distribution of our technologies and
products may result in unforeseen problems.
Minority Holdings in our Subsidiaries.
We own 90.1% of the issued and outstanding capital stock of our subsidiary
PLT Solutions, Inc. and 49% of Kliks. The remaining 9.9% of PLT Solution's
issued and outstanding capital stock is held by Dr. Cern, the Chief Technology
Officer for ICC. Mr. Bernie Wolff, Kliks' Chief Executive Officer and our former
Vice President, holds 41% of Kliks.com; the remaining 10% are held by an
unaffiliated third party. Dr. Cern has certain anti-dilution protection until
such time as we shall have transferred an aggregate of $1 million to PLT
Solutions. Such anti-dilution protection could make future financing for us more
difficult to obtain, if at all.
Anti-dilution protection accorded to certain of our Executive Officers.
In connection with their employment agreements, we undertook to grant to
each of our Chief Executive Officer, Mark Isaacson and our Chief Financial
Officer, Wilfred Kopelowitz, stock options for, respectively, 1,350,000 and
240,000 shares of common stock. In connection with the undertaking for these
stock options, each of Messrs. Isaacson and Kopelowitz have been granted
anti-dilution protection with respect to any future stock issuances by us in an
amount necessary to maintain their respective percentage ownership of the
outstanding shares of our stock on a fully diluted basis on the date of grant
had their respective options been exercised on the date of grant. Mark
Isaacson's and Wilfred Kopelowitz's percentage ownership of the outstanding
shares of our stock (on a fully diluted basis) on the date of the grant of these
options are, respectively, approximately 4.2% and .075%. Such anti-dilution
protection could make future financing more difficult for us to obtain, if at
all, unless these provisions are waived by these executive officers.
7
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Our efforts to protect our intellectual property rights may not be adequate.
Our success depends in part on our proprietary technologies. We rely on a
combination of patent, trademark, copyright and trade secret laws, nondisclosure
and other contractual provisions, and technical measures to protect our
intellectual property rights. See "Business." Our patents, trademarks or
copyrights may be challenged and invalidated or circumvented. Any patents that
issue from our pending or future patent applications or the claims in pending
patent applications may not be of sufficient scope or strength or be issued in
all countries where our products can be sold or our technologies can be licensed
to provide meaningful protection or any commercial advantage to us. Others may
develop technologies that are similar or superior to our technologies, duplicate
our technologies or design around our patents. Effective intellectual property
protection may be unavailable or limited in certain foreign countries. Despite
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy or otherwise use aspects of processes and devices that we regard as
proprietary. Policing unauthorized use of our proprietary information is
difficult, and there can be no assurance that the steps we have taken will
prevent misappropriation of our technologies. In the event that our intellectual
property protection is insufficient to protect our intellectual property rights,
we could face increased competition in the market for our products and
technologies, which could have a material adverse effect on our business,
financial condition and results of operations.
Litigation may be necessary in the future to enforce any patents that may
be issued and other intellectual property rights, to protect our trade secrets
or to determine the validity and scope of the proprietary rights of others.
There can be no assurance that any litigation of these types will be successful.
Litigation could result in substantial costs, including indemnification of
customers, and diversion of resources and could have a material adverse effect
on our business, financial condition and results of operations, whether or not
this litigation is determined adversely to us. In the event of an adverse ruling
in any litigation, we might be required to pay substantial damages, discontinue
the use and sale of infringing products, and expend significant resources to
develop non-infringing technology or obtain licenses to infringed technology.
Our failure to develop or license a substitute technology could have a material
adverse effect on our business, financial condition and results of operations.
Our stock price is volatile and could continue to be volatile.
Investment interest in our common stock may not lead to the development of
an active or liquid trading market. The market price of our common stock has
fluctuated in the past and is likely to continue to be volatile and subject to
wide fluctuations. In addition, the stock market has experienced extreme price
and volume fluctuations. The stock prices and trading volumes for many hi-tech
companies fluctuate widely for reasons that may be unrelated to their business
or results of operations. The market price of our common stock may decline.
General economic, market and political conditions could also materially and
adversely affect the market price of our common stock and investors may be
unable to resell their shares of common stock at or above the offering price.
It may be difficult for a third party to acquire us.
Provisions of Delaware law could make it more difficult for a third party
to acquire us, even if it would be beneficial to our stockholders.
Penny Stock Regulation is applicable to investment in our shares.
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are
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equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current prices and volume information with respect to
transactions in such securities are provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock the broker-dealer make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules.
Forward-Looking Statements.
This prospectus (including statements incorporated by reference into this
prospectus) includes forward-looking statements. You can identify these
forward-looking statements when you see words such as "expect", "anticipate",
"estimate", "project", "plans", "intends", "management believes", "we believe"
and similar words or phrases.
We make forward-looking statements in this prospectus, regarding, among
other items:
o our ability to successfully develop our technologies;
o acceptance of our products and services in the marketplace;
o our marketing and sales plans;
o our expectations about the markets for our products and services;
o our future capital needs;
o our expectations about our future profitability, operating results
and financial condition; and
o the success of our protection of our proprietary technology.
We have based these forward-looking statements largely on our current
expectations. However, forward-looking statements are subject to a number of
risks and uncertainties, certain of which are beyond out control. Actual results
could differ materially from those anticipated as a result of the factors
described under "Risk Factors."
We do not undertake any obligation to publicly update or revise any
forward-looking statements we make in this prospectus or that are incorporated
by reference, whether as a result of new information, future events or
otherwise. Because of these risks and uncertainties, the forward-looking events
and circumstances discussed in this prospectus might not happen.
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USE OF PROCEEDS
The selling stockholders will receive all of the proceeds from the sale of
the shares of common stock offered by this prospectus. We will not receive any
proceeds from the sale of any shares offered by this prospectus. See "Selling
Stockholders" and "Plan of Distribution."
We may receive up to $1,258,750 in proceeds from the exercise by the
debenture holders and certain other selling stockholders of warrants to purchase
up to an aggregate of 2,125,000 shares of our common stock. The resale of the
common stock underlying these warrants is included in the registration statement
of which this prospectus forms a part.
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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock is quoted on OTCBB under the symbol "ABTG". The
following table sets forth, for the periods indicated the range of high and low
sales prices per share of the Company's common stock, as reported on OTCBB. The
closing price of our common stock on November 1, 2000 was $2.59 per share.
HIGH LOW
By Quarter End
First Quarter 2000 6.25 1.375
Second Quarter 2000 5.31 2.03
1999
First Quarter 1.375 2.625
Second Quarter 5.5 0.8125
Third Quarter 1.1875 0.625
Fourth Quarter 2.5 0.75
1998
First Quarter 10.75 3.25
Second Quarter 9.5 4
Third Quarter 10.5 4
Fourth Quarter 8 3.5
The foregoing represent inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
As of October 3, 2000, there were approximately 61 holders of record of
our common stock. We believe that a significant number of shares of our common
stock are held in either nominee name or street name brokerage accounts and,
consequently, we are unable to determine the number of beneficial owners of our
stock.
Dividend Policy
We have not declared or paid dividends on our common stock since our
formation, and we do not anticipate paying dividends in the foreseeable future.
Declaration or payment of dividends, if any, in the future, will be at the
discretion of the Board of Directors and will depend on our then current
financial condition, results of operations, capital requirements and other
factors deemed relevant by the Board of Directors.
PLAN OF OPERATIONS
The following discussion and expositions should be read in conjunction
with the Financial Statements and related Notes contained elsewhere in this
prospectus. Certain Statements made in this duscussion are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements can be identified by terminology such as
"may," "will," "should," "expects," "intends," "anticipates," believes,"
"estimates," "predicts," or "continue" or the negative of these terms or other
comparable terminology and include, without limitation, statements below
regarding: the Company's intended business plans; expectations as to product
performance; intentions to acquire or develop other technologies; and belief as
to the sufficiency of cash reserves. Because forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by these
forward-looking statements. These factors include, but are not limited to, the
competitive enviornment generally and in the Company's specific market areas;
changes in technology; the availability of and the terms of financing,
inflation, changes in costs and availability of goods and services, economic
conditions in general and in the Company's specific market areas, demographic
changes, changes in federal, state and/or local government law and regulations;
changes in operating strategy or development plans; the ability to attract and
retain qualified personnel; and changes in the Company's acquisitions and
capital expenditure plans. Although the Company believes that expectations
reflected in the forward-looking statements are reasonable, it cannot guarantee
future results, performance or achievments. Moreover, neither the Company nor
any other person assumes responsibility for the accuracy and completeness of
these forward-looking statements. The Compay is under no duty to update any
forward-looking statements after the date of this Quarterly Report to conform
such statements to actual results.
We are engaged in the design and development of products and services in
the fields of electronic commerce, Internet access and advanced telephony
applications.
Our activities are currently centered in two distinct areas: (i) to market
and implement a unique solution, which includes company proprietary technolgy,
designed to facilitate the provision of rapid power line telecommunication
services to homes, business and power utilities initially in North American and
Japan (ii) the establishment, initially in Israel, of a nationwide screen phone
network that is designed to enable e-commerce and Internet browsing for
consumers who do not have access to, or are unable or unwilling to use, personal
computers.
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Since our founding in June 1996, we have been engaged primarily in the
design and development of smart card based technologies and products. Owing to a
fundamental reassessment of general market developments in the field of smart
card based technologies, we elected to leverage our experience and expertise
acquired in the area of smart card based technologies to the design, development
and commercialization of our proprietary technologies in the field of
power-line- telecommunications (PLT) and screen phones. We have ceased all
research and design efforts in the smart card area.
We have established a subsidiary, PLT Solutions, Inc., in which we hold a
90.1% interest, to promote a unique technology designed to facilitate the use of
existing electricity power lines and grids in the United States and Japan for
rapid Internet, telephone and data transfer to ordinary business and personal
users. Existing electrical power grids are not currently in use for high speed
data transmission due to certain power utility infrastructure limitations. We
have designed and developed proprietary technology that overcome these
infrastructure limitations. We believe that our technology will be especially
attractive to power utilities.
We also have a 49% interest in a newly established Israeli company, Kliks
which is engaged in attempting to establish a nationwide screen phone network in
Israel. Mr. Bernie Wolff, the Chief Executive Officer of Kliks, holds a 41%
interest in Kliks and the remaining 10% interest is held by an unaffiliated
third party. The network will enable Internet access for a wide segment of the
population which is less familiar with the use of PCs, or belongs to the large
segment of populace which does not have a PC.
We have a limited operating history which primarily relates to the
duration when we were engaged in the smart card based business, an area we no
longer engage in. Accordingly, we have a limited operating history upon which an
evaluation of our prospects can be made. Our prospects must therefore be
evaluated in light of the problems, expenses, delays and complications
associated with a new business.
As of June 30, 2000, we have expended $1.29 million on our research and
development activities (net of $558,195 received by Ambient Ltd. as government
participation in its smart card development, from the Office of Chief Scientist
of the Israeli Ministry of Industry and Trade), the majority of which related to
smart-card based activities.
As of June 30, 2000, we have incurred net losses aggregating approximately
$23.2 million (including $17.8 million in non-cash charges primarily related to
the issuance of securities and extinguishment of debt), reflecting principally
net general and administrative expenses and net research and development
expenses. We expect to incur significant up-front expenditures in connection
with the new focus of our operations, and operating losses are expected to
continue for the foreseeable future. There can be no assurance that we can be
operated profitably in the future. Our continuation as a going-concern is
dependent upon, among other things, our ability to obtain additional financing
when and as needed, and to generate sufficient cash flow to meet our obligations
on a timely basis. We may also explore other business options including
strategic joint ventures and business combinations, including investments in
other companies, or mergers. The report of the independent auditors on our
financial statements for the year ended December 31, 1999 includes an
explanatory paragraph relating to the uncertainty of our ability to continue as
a going concern, which may make it more difficult for us to raise additional
capital.
A substantial portion of our operating expenses are attributable to
non-cash charges associated with the compensation of consultants and senior
company personnel through the issuance of stock options and stock grants. Such
stock based compensation resulted in non-cash charges of $3.9 million for the
six months ended June 30, 2000. We believe that these compensation levels were
necessary to retain the services of qualified individuals.
We issued to an independent consultant warrants, exercisable through
February 2002, to purchase up to 1.5 million shares of our common stock, at an
exercise price per share of $0.01. As a result of the issuance of these
warrants, we recognized a significant non-cash cost, and recorded approximately
$1.5 million as deferred financing expenses and charged approximately $88,000
to operations.
In February 2000, we issued $1,000,000 of our 10% convertible debentures
to private investors. The debentures were issued pursuant to the terms of an
agreement which further provides that, subject to certain conditions, certain of
these investors will purchase an additional $1,000,000 of debentures no later
than five days after the effective date of a registration statement covering the
common stock into which the debentures may be converted. In April 2000, certain
of these investors pre-funded $500,000 of this obligation. The debentures mature
on the second anniversary of issuance. The debentures are convertible into
shares of the Company's common stock at a conversion rate $0.40 per share,
subject to adjustment under certain conditions.
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In connection with the issuance of the 10% convertible debentures, we
issued to the debenture holders warrants to purchase, in the aggregate, 625,000
shares of our common stock at an exercise price per share of $1.00. In
connection with the pre-funding of $500,000 with respect to the obligation to
purchase an additional $1,000,000 of debentures, we issued warrants to purchase
in the aggregate an additional 312,500 shares of our common stock at a per share
exercise price of $1.00. The warrants expire on February 28, 2003. The
debentures and the warrants are currently convertible and exercisable, subject
to certain restrictions. Upon issuance of the remaining $500,000 of the
debentures, we will issue warrants to purchase in the aggregate an additional
312,500 shares of our common stock at an exercise price per share of $1.00.
In February 2000 we converted outstanding debt of approximately $700,000
in principal and accrued interest into 3,490,000 shares of our common stock. The
price of such shares on the date of issuance was $3.00 per share. We recorded a
non-cash extraordinary loss in the amount of approximately $9.8 million and a
corresponding increase of additional paid-in capital to reflect the fair value
of shares issued in connection with this transaction. The 1999 year-end
financial statements attached to this Registration Statement of which this
prospectus forms a part, have been revised to properly disclose these post
balance sheet events.
In July and August 2000 we received gross proceeds of $4,250,000 (before
deducting approximately $500,000 in commissions) from the private placement of
one million shares of our common stock and one million shares of our convertible
preferred stock. The resale of the common stock is included in the registration
statement of which this prospectus forms a part. As part of this private
placement, we issued warrants to purchase up to two million shares of our
convertible preferred stock at an exercise price equal to $3.50. The shares of
preferred stock issued or issuable pursuant to such warrants are automatically
convertible to shares of our common stock upon (and subject to) approval by our
stockholders, at the annual 2000 general stockholders meeting, of a proposal to
increase the authorized shares of common stock that we may issue from time to
time. Our Board of Directors adopted on July 19, 2000, a resolution to increase
the authorized common shares that we are authorized to issue from time to time
to 70 million common shares, which was subsequently increased to 100 million. We
granted to the purchasers of the preferred stock limited pre-emption rights,
exercisable under certain conditions, with respect to any future share issuances
by us. Forty-three and three quarters percent (43.75%) of the proceeds of this
private placement must be used solely to finance the activities relating to our
PLT subsidiary.
In August - September 2000, we raised gross proceeds of approximately
$7,350,000 (before deducting approximately $900,000 in commissions) from the
private placement of our 10% convertible debentures. The debentures are
automatically convertible into shares of our common stock upon (and subject to)
approval by our stockholders, at the annual 2000 general stockholders meeting,
of a proposal to increase the authorized shares of common stock at a conversion
price per share ranging between $2 and $3.00. At the time of the conversion of
each debentures, a warrant will be issued to the holder to purchase such number
of shares as shall equal the conversion shares into which the debenture was
converted, at an exercise price per share ranging between $3.50 and $4.00.
In connection with the private placements in July - September, we
undertook to issue, as a finders fee, warrants for an aggregate of 570,000
shares of our common stock, at per share exercise prices ranging between $2 and
$4.50.
We undertook to have registered for resale the common stock into which the
preferred stock and the convertible debentures purchased in August-September
2000 are convertible within 135 days following such conversion. If these
conversion shares are not so registered by such date, then we are obligated to
issue to the holders of these shares, for each 30 day period following such
date that such shares are not so registered, additional shares of our common
stock in an aggregate amount equal to 5% of the outstanding shares, up to a
total maximum of 15%.
We anticipate that cash on hand, as well as the remaining $500,000 to be
invested by the holders of the 10% convertible debentures placed in February -
April 2000 not later than five days after the effective date of this prospectus,
will allow us to maintain operations as presently conducted through at least the
next twelve months. If, however, we expand operations to include strategic
partnerships or mergers or acquisitions, then we will require additional
financing to maintain expanded operations. We are currently reviewing possible
private sales of equity or debt with equity features. We have no commitments for
any such financing and there can be no assurance that we will obtain additional
capital when needed or that any such additional capital will not have a dilutive
effect on current stockholders.
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BUSINESS
Introduction
We are engaged in the design and development of products and services in
the fields of electronic commerce, Internet access and advanced telephony
applications.
Our activities are currently centered in two distinct areas: (i) to market
a unique solution, including proprietary tehnology, that is designed to
facilitate the provision of rapid power line telecommunication services to
homes, business and power utilities, initially in North America and Japan and
(ii) the establishment, initially in Israel, of a nationwide screen phone
network that is designed to enable e-commerce and Internet browsing for
consumers who do not have access to, or are unable or unwilling to use, personal
computers.
Since our founding as a Delaware company in June 1996, we have been
engaged primarily in the design and development of smart card based technologies
and products. Owing to a fundamental reassessment of general market developments
in the field of smart card based technologies, we elected to leverage our
experience and expertise acquired in the area of smart card based technologies
to the design, development and commercialization of our proprietary technologies
in the field of power-line-telecommunications (PLT) and screen phones. We have
ceased all design and development efforts in the smart card area.
We have established a subsidiary, PLT Solutions, Inc., in which we hold a
90.1% interest, to promote a unique technology designed to facilitate the use of
existing electricity power lines and grids in the United States and Japan for
rapid Internet, telephone and data transfer to ordinary business and personal
users. Existing electrical power grids are not currently in use for high speed
data transmission due to certain power utility infrastructure limitations. We
have designed and developed proprietary technology that overcome these
infrastructure limitations. We believe that our technology will be especially
attractive to power utilities.
We also have established a wholly owned subsidiary in Israel, ICC, which
carries out research and development for PLT Solutions, Inc.
We also have a 49% interest in a newly established Israeli company, Kliks,
which is engaged in attempting to establish a nationwide screen phone network in
Israel. Kliks is currently marketing a third party's screen phone in Israel and
also designing and establishing a services delivery platform to which users of
the screen phone will have access. Users may log on to such platform to gain
access to services such as e-mail, home shopping and advanced telephony. The
network screen phone will enable Internet access for a wide segment of the
population which is less familiar with the use of personal computers (PC's), or
belongs to the large segment of populace which does not have a PC. Mr. Bernie
Wolff, the Chief Executive Officer of Kliks.com and our former Vice President,
holds a 41% interest in Kliks and the remaining 10% is held by an unaffiliated
third party.
A discussion of each of power line transmission and the screen phone
network follows:
Electrical Power-Line Transmission
General Background Relating To Internet Access
Worldwide Internet communications can be divided into the "backbone"
network and the "access" network. The backbone network is carried over optical
fibers between cities and continents, and we believe, provides essentially
unlimited capacity for sending relatively large amounts of data over long
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distances. However, the optical fiber technology used for the backbone network
is too expensive to extend to each individual user. Accordingly, distributing
the data from the backbone network to homes and business is done via an "access"
network, also referred to as the "last mile" network.
To date, traditional Access networks have included modems connected to
conventional telephone lines, higher speed digital subscriber telephone lines
(ADSL), cable TV with data modems in set-top boxes and, more recently, wireless
networks. However, we believe that the traditional access methods have certain
drawbacks. The ADSL method typically requires high implementation costs. Cable
TV modems are characterized by loss of rapidity of service when the number of
subscribers reaches a critical mass and wireless networks are unreliable, as is
generally the case in the use of cell phones.
One of the more rapid and affordable methods of access utilizes
conventional electrical power grids, also known as power-line communication, to
transmit data to individual users. The use of electrical power grids as an
access method is, in our view, an especially attractive proposition given the
widespread infrastructure "wiring" already in place. The same electrical wiring
that carries electrical power to individual homes and business can also transmit
high speed data. However, there are certain infra-structural limitations that
have, until recently, effectively precluded the use of conventional electrical
power grids as an affordable access method.
Electrical power is generated at a power station and furnished to an urban
or rural substation which services a neighborhood, typically extending over
several square miles. The electrical power generated at the power station is
sent over relatively high voltage lines and needs to be reduced to a lower
voltage for further distribution within the neighborhood. At the neighborhood
substation level, a "stepdown transformer" reduces the high voltage electrical
power generated to "medium" voltage for further distribution within the
neighborhood. The medium voltage needs to be further reduced to familiar 120
volts by "distribution transformers" located near the neighborhood homes and
businesses.
However, the distribution transformers were designed for 60 Hz power, and
completely fail to transmit the high frequency, data-carrying signals arriving
over the grid from the substation. Therefore, to ensure that data can get from
the neighborhood lines to the 120 volt outlets, a "bypass coupler" is needed as
a bridge around the distribution transformer. These couplers need to be
physically (and therefore electrically) connected directly to the high voltage
lines. To achieve the electrical connection the coupler needs to withstand high
voltage, and is therefore very expensive to manufacture.
Our proprietary technology enables coupling the data to and from the
neighborhood distribution lines without the need to establish an electrical
connection. Our proprietary coupler, a prototype of which is ready for
feasibility demonstration, either uses the existing insulation of underground
cables or is easily insulated to slip around overhead medium voltage
distribution wires. Accordingly, the manufacturing costs are significantly
reduced in comparison to the conventional bypass coupler.
Advantages of Utilizing Existing Power lines for High Speed Data Transmission
The use of electricity power lines to connect homes and businesses to the
Internet, for telephony or for any other form of data transmission provides both
consumers and suppliers with a range of compelling economic and practical
benefits.
The advantages in employing power line communication include:
o Coverage - the power grid is the most extensive "wire" network in
the world. More individuals and businesses have access to the
electrical grid than any other "wire" network,
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including telephone lines. The low voltage wiring extends to every
room in the business and home, and obviates expensive and disruptive
wiring.
o Modernity - the electric grid in most areas of the world is more
modern and better maintained than any other wired communication
network.
o Simplicity - power line communications are not burdened by
telephony's conventional technologies, including outdated routers,
bridges, gateways, legacy switches and software, which slow down
traditional communications.
Fueled by recognition of the overwhelming financial and practical
benefits, interest in high speed power-line telecommunication has expanded.
Technical conferences on the subject are frequent, and attended by power
companies, as well those from other relevant fields including telecommunications
and networking companies such as 3COM, Cisco, Cinergy and others. PLT chips and
modems for in-house networking are maturing, and a large number of companies are
vying for this market. Network speeds of data transmission are rapidly
increasing. To realize maximum benefit from the in-home network, users are
looking to connect it to a high speed Internet feed. So an initial group of
users who already use low voltage, in-premises PLT and trust the technology is
emerging, with a built-in demand for access connectivity to the Internet
backbone.
Europe's 230 volt line voltage allows a large number of customers to be
fed by each distribution transformer. Most of the trials of neighborhood PLT
have taken place in Europe, but have usually limited themselves to sending data
over the 230 volt feed lines, and have not attempted to establish
substation-to-home neighborhood Access networks.
Comparison of Power-Line Communication with other High Speed Access Solutions
o Digital Subscriber Line (DSL) - subscribers need to be within
approximately 5.5 km of the telephone company's central office. It
is a point-to-point connection, so the one time installation cost to
the end user is high. Users report that installation times are long,
and availability is sparse. Phone companies need to invest
considerably to beef up their networks, which were never designed
for high speed data and very long session times.
In contrast, our networks can be deployed in entire neighborhoods in a
matter of days, and their direct connection to the backbone means no bottlenecks
or heavy investments. Also, telephone outlets typically exist in only one to
three locations within a premise, while power outlets are already installed in
every room.
o T1 Trunks - T1 (1.544 Mbps) is a digital telephony trunk, typically used
by phone companies to provide telephone service to large organizations. It
provides high speed in both directions, the equivalent of 24 telephone
conversations. But, its $250 monthly tariff prices it out of the market for most
home and small business users.
o Satellite - Some satellites serve as data relay stations, and some of
these are connected to the Internet backbone to provide high speed data to
users. The user needs to buy, mount and aim a fairly large dish, he needs a
microwave transmitter/receiver, and a special modem. Since the ground-based
antennae cannot beam a strong signal back to the satellite, only low speeds of
56 kilobits per second can be sent from the user to the Web, the same data speed
as is available over dialup modems.
o Cable Modems - TV cable networks have been designed and constructed as
one-way feed systems, providing a large number of channels to a large user base.
Subscribers to cable companies share
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their cable lines with other subscribers, sometimes a very large number of them,
so even the high promised data speeds (up to 36Mbps) may not guarantee good
service during peak usage. Sending data back from the user to the network is
problematic over cable TV lines, due to the accumulation of noise generated by
the television sets and other devices, from all of the connected customers,
reaching the TV cable. Cable companies must invest substantially in upgrading
their equipment to be able to send data upstream, and in laying cables outside
of urban areas. Data service is available to only a small percentage of Internet
users.
In contrast, PLT exploits the natural segmentation of the neighborhood
power grid, to keep the number of users sharing the data stream within
reasonable limits. Typically, only 50 - 200 premises share a common phase line
in the US, and the number of users demanding simultaneous downloads of large
files is likely to be very small. PLT Solutions expects the typical user to
enjoy data rates from 1 - 10 megabits per second, usually enough to pass the
maximum data rate available from the Web site being accessed, for the
foreseeable future.
In addition, cable TV outlets typically exist in only one or two locations
within a premise, while power outlets are already installed in every room. This
saves expensive and disruptive rewiring, when data users include PCs, Internet
telephones, and eventually many intelligent appliances.
o Wireless Local Loop - Similar to cellular telephone network deployment,
microwave relay stations may be deployed in neighborhoods to provide last mile
Access for Internet data to homes and businesses. The same problems of
communications reliability that beset cellular telephones are likely to affect
wireless local loop systems. These include need for near line of sight between
hub and user, multiple reflections of signals in dense residential areas, the
blocking effects of the metal building materials, and seasonal variation of
foliage and effects of precipitation on radio transmission quality.
Another inherent limitation is the frequency bandwidth available in the
shared domain of radio frequencies, and the difficulty of providing significant
future upgrades in data speeds without regulatory permission and massive
retrofitting of equipment.
Our Solution
PLT Solutions proposes utilization of conventional electrical power lines
as its access channel. The data path is as follows: (i) high speed data arrives
over the optical fiber backbone cable, routed to the neighborhood utility
substation, (ii) the specific data intended for the subscribers of a particular
neighborhood is selected from the general data stream by a standard network
device called a router, (iii) the digital data is turned into a high frequency
signal using a modem, and (iv) the high frequency, data-carrying signal is
carried onto the neighborhood power distribution line using our proprietary
coupler.
At each distribution transformer, serving typically two to six premises,
the data is received, as follows: (i) the high frequency, data-carrying signal
is coupled from the neighborhood power distribution line onto the customers' 120
volt feed lines using our proprietary coupler, (ii) the high frequency signal is
converted back to data using a modem, and (iii) the PC or other user device
listens to the neighborhood data, and accepts that data which is addressed to
itself.
The process of sending data from the user device to its destination uses
the above pathway in the reverse direction.
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Integrating Our Coupler into a Complete Access Network
In order to provide a comprehensive power line access solution to the end
user, our coupler is required to be integrated with the following technologies:
o a spread spectrum modem
o a media access control processor
o a network control system
o user interface devices
The spread spectrum modem is the device which turns the digital data into
a high frequency signal, and its spread spectrum character both minimizes radio
interference and provides tolerance for the noise interference to be found on
power lines. The media access control processor is the "traffic cop" which
coordinates packaging of data into "packets," and who sends listens. The network
control system provides overall control of traffic. And the user interface
devices translate the high frequency signals coming over the power line into
useable data for their computers and other devices.
In order to provide a comprehensive solution in an expeditious manner, we
need to coordinate our efforts with companies experienced in the modem and
networking fields. We are currently examining options respecting alliances with
such companies. We cannot provide any assurance that we will be successful in
concluding such alliances.
Our solution seeks to provide an initial system data rate of 10 megabits
per second, and we believe that this can be upgraded to several times this
speed, with future developments in hardware and software. For example, current
modems use relatively simple "modulation" techniques that turn data bits into
high frequency energy. Future modems are expected to use more sophisticated
modulation techniques which allow the same frequency band to carry at least
three times more data.
Our Coupler Product
We believe that we have completed the design and development of a unique
coupling method with very low projected manufacturing costs and that does not
materially impact on power grid reliability. Our prototype product has passed
high voltage testing at a lab in the US and has been field tested for
communications between two transformers at a power company site.
Our coupler features:
o Low cost (25% cost of an existing solution)
o Capacity for very high data rates, exceeding 10 megabits per second, which
is 200 times faster than dialup modems can provide.
o Installation without interruption of service to customers
o No material impact on reliability of electrical grid
o Works even during power outage
o Installation without exposure to high voltages
o Virtually unlimited life of service
We are currently in the process of arranging for the pilot testing of our
proposed product with potential commercial partners. Further productization
steps will include Standards testing and certification, mechanical package
design and tooling for mass production.
18
<PAGE>
To provide a end to end data distribution network, we need to collaborate
with a modem and media access control processor chip manufacturer, and a data
network equipment manufacturer.
It will be necessary for us to obtain the cooperation of a utility company
in order to progress with full pilot testing and commercialization.
Production & Supplies
Our proprietary couplers utilize special magnetic materials and high
voltage weatherproof plastics, as well as standard components that are
obtainable from local sources. We have identified potential suppliers who can
supply the special magnetic materials and high voltage weatherproof plastics. We
have held meetings with these suppliers, and initial estimates have been made
for one time tooling costs. We do not regard any one supplier as essential to
our operations since equivalent replacements for the components are either
available from one or more sources at competitive prices. We believe that
approximate cost to the Company of the components for the couplers should not
exceed $20 per unit. The Company currently does not have a written contract with
any supplier for any of the components.
Subject to successful completion of pilot testing, we intend to initially
assemble the couplers at our facilities. We anticipate that we will need to
retain appropriate professionals to assemble and test the couplers. We estimate
that with 5 assemblers and 3 testers we can fill orders of up to eight thousand
units per month. As quantities grow, offshore assembly facilities may be
selected, to increase production capabilities and reduce cost.
We anticipate that all future suppliers and assemblers will be certified
to recognized international quality assurance standards.
Competition
The Internet Access market is highly competitive. We face competition from
many Internet access and service providers with significantly greater financial
resources, well-established brand names and large, existing customer bases.
Moreover, we expect the level of competition to intensify in the future. We
expect significant competition from:
I. (ISPs) Internet Service Providers.
ISPs provide Internet access to residential and business customers. These
companies provide Internet access over existing networks. They have nationwide
marketing presences and strategic or commercial alliances with telecom carriers.
Significant ISPs include Concentric Network Corporation, Mindspring Enterprises,
Inc., PSINet Inc. and Verio, Inc. Incumbent Local Exchange Carriers, ILECs, such
as SBC Communications, Inc., GTE Corp., Ameritech Corp. and US WEST, Inc.
II. Wireless and Satellite Service Providers.
We also face competition from other fixed-wireless services, such as
Teligent, Inc., NEXTLINK Communications, Inc. and Winstar Communications, Inc.
AT&T has also announced plans to expand its fixed-wireless network to compete
for voice and high-speed data customers in businesses and residences. We also
may face competition from satellite-based systems. Motorola Satellite Systems,
Inc., Hughes Communications, Inc. (a subsidiary of General Motors Corporation),
Teledesic LLC and others have filed applications with the FCC for global
satellite networks that can be used to provide ubiquitous two-way broadband
voice and data services to fixed locations. Many of these competitors are
offering, or may soon offer, technologies and services that will directly
compete with some or all of our service offerings.
19
<PAGE>
III. Other Telephony Services.
We also face intense competition from other providers of telephony
transmission services. Many of the existing providers of telephony services,
such as regional Bell operating companies and other local exchange carriers,
have significantly greater financial and other resources than us and better
established brand awareness in their service areas.
IV. Subscription Television Competition Hardwire Cable.
Our principal subscription television competitors are traditional hardwire
cable operators such as AT&T Broadband & Internet Services (formerly
TeleCommunications, Inc.), and Time Warner Entertainment. Hardwire cable
companies generally are well established and known to our potential customers
and have significantly greater financial and other resources than we have. In
addition, these competitors are also bundling additional services with their
cable TV services, such as high-speed Internet access, to enhance their
products. Direct Broadcast Satellite ("DBS") service is available from DirecTV,
Inc., which is a subsidiary of the Hughes Electronic unit of General Motors
Corporation and Echostar Communications Corporation. We compete with many retail
distributors of DirecTV and other DBS service.
Screen Phones
Through Kliks, an Israeli company, we intend to serve as the vehicle in
Israel to offer the screen phone as an effective tool for offering a full range
of Internet and e-commerce services to the business (B-to-B) and public
consumers. Kliks has developed a concept that offers all the elements essential
for capitalizing on current consumer interest in the Internet and e- commerce,
while overcoming most of the shortcomings of a PC-based market approach by the
on-line services industry.
The means to deliver services to the end-user will be through
screen-enhanced telephones supporting enhanced telephony services that are now
commercially available. The screen phones are Internet enabled with an
integrated alphanumeric keyboard, and a reader capable of handling smart cards
for electronic payments. The model relies on using Internet enhanced screen
phones instead of the personal computer (PC) as the conduit for electronic
commerce.
Kliks is proposing a staged approach for this opportunity by which
consumers will initially be offered standard applications (e-mail, advanced
telephony, and Internet browsing/access) through the screen phone with the
opportunity at a second stage to expand the services to include a full suite of
e-commerce activities. The user being able to order consumer items/services at
home via the screen phone in the comfort of the home creates a very attractive
and friendly environment for enhancing e-commerce activities.
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<PAGE>
Kliks success will be dependant on its ability to obtain the exclusive
distribution rights in Israel for a screen phone and its ability to design and
establish a services delivery platform. Kliks is currently negotiating such
rights for a screen phone which it believes to be a superior product. Kliks has
entered into an agreement with a software design company to develop and maintain
a services platform, pursuant to which users of the screen phone may log on to
gain access to services such as e-mail, home shopping and advanced telephony. In
addition, Kliks will need to enter into strategic relationships with
well-established providers, such as the national telecommunication carrier
(Bezeq), and a platform operator, who together will launch a portfolio of screen
telephony and electronic services to both business and the consumer.
Customer Profile
The screen phone which Kliks intends to offer in the Israeli market, is a
conventional telephone. For the implementation plan, the screen phone deployment
will start in upscale communities with a high percentage of families with
children, business seniors and professional people. Once the business is
established, deployment can proceed to the wider community, with a goal of
achieving high penetration in the minimum period of time.
In addition to revenues from home-based services, we believe that Kliks
will be able to generate revenues from large organizations whose business
depends on establishing and maintaining long-term account relationships with
customers. This will include banks and other financial service companies,
telephone and utility companies, consumer orientated services (supermarkets,
travel agencies, etc.) and leisure organizations (cable, pay per view, lottery
etc.). Within a community, sponsors will use this channel to deliver local
content services, thereby developing sustainable long-term relationships.
Community services organizations (schools, local authorities, libraries etc.)
will have a direct electronic link into the homes in their community, in order
to promote local services. This will be achieved through conventional e-mail
messaging through the server.
Competition
Kliks will face competition primarily from two different avenues.
Alternative screen phones - there are other Internet screen phones
available on the market, but so far none are being marketed in Israel. Kliks
believes that the screen phone for which it is currently negotiating the
exclusive Israeli distributions rights is a superior product in the market and
that it will provide a high entry barrier for potential competitors.
Other Communication Media - there are several media which do, or are
expected, to provide services which overlap with the Kliks portal:
ISPs (Internet Service Providers) - offer online portals. However, the
screen phone is well positioned against the PC, since it is a more user-friendly
device, always switched on and is more cost-effective. Moreover the US and UK
experience has shown widespread acceptance of screen phones in communities with
higher than average PC penetration.
Web TV is expected to enter the market with similar services using the TV
as interface. The TV is currently seen primarily as an entertainment device,
while the screen phone will be easier and quicker to access.
Cellular - operators in Israel are establishing portals that will enable
their subscribers to access the web and information services. Wireless Access
Protocol (WAP) services are under development
21
<PAGE>
which will be delivered to mobile phones. Although these services will also be
suited to screen phones, they are primarily for mobile use. They do not, in our
view, represent a threat to the screen phone in the home due to differences in
communication costs and size of the screen among other factors.
Online Banking Services - Existing commerce systems (telephone/home
banking services) are being offered by financial institutions. Most Israeli
banks offer this service to their customers, and the current number of
subscribers per bank is approaching 150,000. Apart from cash withdrawals and
cash deposits, all teller services can be activated. Similar services exist for
commercial banking, with additional services in wholesale banking such as L/C,
Foreign Exchange, etc. Citigroup has announced that within the next few months,
it will enter the local market, and concentrate on offering electronic banking
services to high net-worth customers.
Patents and Trade Secrets
Two provisional patent applications, with 1999 and 2000 priority dates,
and an assignment to PLT Solutions, Inc., have been submitted to the United
States Patent & Trademark Office. Our Israeli subsidiary, Ambient Ltd., has two
smart card 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 international Patent Cooperation
Treaty in 1997. There is currently one US patent pending in the field of
contactless smart cards. The smart card technology is not currently being
exploited nor do we foresee that it will be exploited in the near future.
There can be no assurance that any of our future patent applications will
be granted, that any current or future patent or patent application will provide
significant protection for our products or technology, be of commercial benefit
to us, or that the validity of such patents or patent applications will not be
challenged. Furthermore, there can be no assurance that any patent underlying
licensed technology will not be challenged. Moreover, there can be no assurance
that foreign patent, trade secret or copyright laws will protect our
technologies or that we will not be vulnerable to competitors who attempt to
copy or use our Smart Card products or processes.
Research & Development
A wholly owned subsidiary of the Company in Israel, Insulated Connection
Corporation, Ltd., provides research and development work for PLT Solutions Inc.
Neither the Company nor Ambient Ltd, its Israeli subsidiary engaged in smart
card based technologies, undertakes any research and development activities.
From the date of inception through June 30, 2000, we have expended
approximately $1.29 million on research and development (net of $558,195
received by Ambient Ltd. as government participation in its smart card
development from the Office of Chief Scientist of the Israeli Ministry of
Industry and Trade), including approximately $108,000 for the year ended
December 31, 1999 and approximately $126,000 for the six months ended June 30,
2000. Most of the amounts were expended in research and development activities
relating to smart cards.
Employees
As of October 16, 2000, our company employed nine employees. Mr. Mark
Isaacson, our Chief Executive Officer, also serves as Chief Executive Officer of
our subsidiary PLT Solutions, Inc., and our Chief Financial Officer, Mr. Wilfred
Kopelowitz, serves as Chief Financial Officer of PLT Solutions, Inc., ICC and
Ambient Ltd. Kliks.com, our 49% owned subsidiary, employs 3 employees. ICC
employs Dr. Yehuda Cern, who serves as the Chief Technical Officer of ICC.
22
<PAGE>
Our Property
Our corporate offices and those of PLT Solutions, Inc. are located at 1033
Beacon Street, Brookline, Massachusetts, 02446, and are comprised of
approximately 2,400 square feet leased at a monthly rental of approximately
$7,800 with a scheduled expiration date of July 1, 2003.
Kliks' corporate offices are located at 3 Gavish St., Kfar Saba, Israel,
and are comprised of approximately 60 square meters at a monthly rental of
approximately $750. Kliks has contracted for new office space at the same
premises comprised of approximately 190 square meters at a monthly rental of
$2,500 and a scheduled lease expiration date in December 2002.
Kliks anticipates moving into the new premises on or about December 1,
2000. Our Israeli subsidiary, ICC, leases 250 square meters of office space in
Jerusalem, Israel, at a monthly rental of approximately $2,500 with a scheduled
expiration date in May 2001. We are in the process of examining the prospect
of sub-leasing all or a part of such premises.
Legal Proceedings
We are not involved in any pending legal proceedings.
23
<PAGE>
MANAGEMENT
Directors, Executive Officers, Promoters And Control Persons
The names, ages and positions of our directors, executive officers and key
employees of certain of our subsidiaries are as follows:
Name Age Position
---- --- --------
Mark Isaacson 40 Chief Executive Officer and Director; Chief
Executive Officer and Director of PLT
Solutions, Inc.
Wilfred Kopelowitz 44 Chief Financial Officer and Secretary;
Chief Financial officer of PLT Solutions
Inc.; Chief Financial Officer of Insulated
Connection Corporation, Ltd.
Ram Rao 36 Chief Network Architect
Dr. Yehuda Cern 56 Chief Technology Officer of Insulated
Connection Corporation, Ltd.
Bernie Wolff 54 Chief Executive Officer and Director of
Kliks.com Ltd.
The business experience, principal occupations and employment, as well as
the periods of service, of each of our directors and executive officers during
at least the last five years are set forth below.
Mark Isaacson has been and a director and Chief Executive Officer of the
Company and Chief Executive Officer of PLT Solutions, Inc. since September 11,
2000 and has been the acting Chief Operating Officer of PLT Solutions, Inc.
since April 2000 until his appointment as Chief Executive Officer. From 1998
until April 2000, Mr. Isaacson served as an independent consultant to various
companies in the high technology industry. From 1995 to 1998, he held the post
of President of The Marlin Group, Inc., a marketing and business development
consultancy specializing in brand marketing. In this capacity he was responsible
for company operations and business development. From 1983 through 1994, as
President of Prestige International, a specialist company in implementing
consumer brand marketing and merchandising projects for Fortune 1000 companies,
he was responsible for company operations and worldwide business development.
Mr. Isaacson has over 16 years of senior management experience.
Mr. Kopelwitz has been Chief Financial Officer and Secretary of each of
our company and PLT Solutions, Inc. since September 11, 2000. From May 2000
through the time preceeding his appointment as Chief Financial Officer Mr.
Kopelowitz worked for a financial consulting agency. From January 1999 through
April 2000, Mr. Kopelowitz served as Corporate Controller at Amdocs, a
multi-national company specializing in software solutions for customer care and
billing to the telecommunictions industry whose securities are traded on NYSE.
From August 1993 through December 1998, he served as Corporate Controller at
Indigo N.V., a worldwide developer, manufacturer and distributor of innovative
digital color printing systems. Mr. Kopelowitz held other senior finance
positions with a major multi-national chemical company. Mr. Kopelowitz obtained
a BA in economics and accounting in 1983 from Bar-Ilan University in Israel and
is a certified public accountant.
24
<PAGE>
Our director holds office until the next annual meeting of stockholders
and the election and qualification of a successor. Directors currently do
not receive cash compensation for serving on the Board of Directors. Officers
are elected annually by the Board of Directors and serve at the discretion of
the Board. Roan Capital Partners, L.P., the underwriter of the Company's initial
public offering, is entitled to designate one director to the Board during the
three (3) year period ending February 12, 2001. Roan Capital Partners, L.P. has
not identified any director designee.
Key Employees
Below is certain information relating to a key employee of our company and
a key employee of our wholly-owned research and development subsidiary, ICC, and
our 49% owned subsidiary Kliks.com.
Mr. Ram Rao has been our Chief Network Officer since September 2000. From
March 2000 until the time immediately preceding his joining our company, Mr. Rao
was the Chief Information Officer at Mullen, one of the larger advertising
agencies in North America. From November 1995 through February 2000, he was the
President and Co-Founder of Gaialinks Inc., a company engaged in the development
of network management software tools and providing network analysis and
consulting services for large heterogeneous, multi-vendor, multi-protocol
networks and systems. From January 1990 through November 1995, he was affiliated
with Boston University where he was Associate Director (from January 1995
through November 1995) and a Network System Manager (from July 1990 through
December 1994). Mr. Rao received a B.S. degree in Computer Engineering (cum
laude) from Boston University College of Engineering in 1988.
Dr. Yehuda Cern has been Chief Technology Officer of Insulated Connection
Corporation, Ltd. since February 2000 and was the Chief Technology Officer of
our subsidiary Ambient Ltd. from September 1997 to January 2000. Dr. Cern worked
at AirOptics, Inc., an infrared communications company located in Lancaster,
Pennsylvania and a subsidiary of JOLT, Ltd. in Jerusalem, as Chief Operating
Officer and Senior Vice President from 1996 to 1997 and as Chief Technical
Officer from 1993 to 1996. From 1991 to 1993, Dr. Cern served as R&D Manager and
then Chief Operating Officer of News Datacom Research Ltd., a subsidiary of News
Corp. located in Israel. Dr. Cern received a B.S. degree and an M.Sc. degree in
electrical engineering from Wayne State University in Detroit and a Ph.D. in
medical electronics from the Weizmann Institute in Israel.
Bernie Wolff has been the Chief Executive Officer and Director of our
subsidiary Kliks.com Ltd. since January 2000. Mr. Bernie Wolff served as
Vice-President of our company from March 2000 until his resignation from that
position on September 4, 2000. From 1998 to 1999 he held the post of Executive
Vice President of Strategic Alliances and Business Development for PFS Ltd., a
software development company in Israel, specializing in wholesale banking Fx and
MM trading systems for financial institutions. From November 1997 until January
1998, Mr. Wolff served as a Vice President of Surecomp Ltd., a software
development company in Israel. From 1982 to October 1997, he held senior
international corporate positions in 5 countries for Philips Electronics in a
career spanning almost 25 years. Prior to moving to Israel in 1997, he served
for seven years as a Senior Vice President of Sales and Marketing for Philips
Home Services in the U.S. In this capacity, he was responsible for the
investigation of the on-line services industry in the U.S.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's executive officers, directors and persons
who beneficially own more than 10% of a registered class of the Company's equity
securities (collectively, the "Reporting Persons") to file certain reports
regarding ownership of, and transactions in, the Company's securities with the
Securities and Exchange Commission (the "SEC"). These officers, directors and
stockholders are also required by SEC rules to furnish the Company with copies
of all Section 16(a) reports that they file with the SEC.
25
<PAGE>
Executive Compensation
The following table sets forth all compensation awarded to, earned by, or
paid for all services rendered to the Company during the Company's fiscal years
ended December 31, 1999, 1998 and 1997 by the Company's former Chief Executive
Officer and other "named executive officers," as defined under the rules and
regulations of the Securities Act of 1933, as amended (the "Securities Act").
26
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and
Principal Position Year Annual Compensation Long-Term Compensation
--------------------- ---- ------------------- ----------------------
Other Annual
Salary Bonus Compensation Awards Pay-outs
------ ----- ------------ ------ --------
($) ($) ($) Restricted Securities
Stock Underlying All Other
Award(s) Options LTIP Compen-
($) (#) Pay-outs($) sation($)
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aryeh Weinberg, 1999 65,666 -- -- -- 51,000(2) -- --
Former Chief Financial Officer 1998 52,484 -- -- -- -- -- --
and Former Acting 1997 16,250 -- 80,000(3) -- -- -- --
Chief Executive Officer(1)
Yehuda Cern 1999 115,139 -- -- -- -- -- --
Former Chief Technology 1998 120,017 -- -- -- -- -- --
Officer(4) 1997 29,537 -- -- 336,000(5) -- -- --
Jacob Davidson, 1999 23,991 -- -- -- 119,000(7) -- --
Former Chief Executive 1998 83,244 -- -- -- -- -- --
Officer(6) 1997 61,085 -- -- -- -- -- --
</TABLE>
(1) Mr. Weinberg acted as our Chief Executive Officer from September 1999 to
March 2000. Mr. Weinberg resigned from his position as Chief Financial
Officer and from his directorship on September 4, 2000 and will continue
in the employment of the Company through September 30, 2000.
(2) Represents 51,000 vested options issued in May 1999 under the Company's
1998 Stock Option Plan at an exercise price per share of $0.81. See
"Certain Relationships and Related Transactions."
(3) Represents the value of 20,000 shares of our common stock issued in
February 1997 (based on August 1997 valuation).
(4) Dr. Cern resigned from the position of Chief Technology Officer of our
subsidiary Ambient Ltd., in January 2000. Dr. Cern has held the position
of Chief Technology Officer of our affiliate Insulated Connection
Corporation, Ltd. since March 2000.
(5) Represents the value of 84,167 restricted shares of our common stock
issued in August 1997. Such shares vested in August 1998.
(6) Jacob Davidson resigned from our employ in September 1999.
(7) Represents 119,000 vested options issued in May 1999 under the Company's
1998 Stock Option Plan at an exercise price per share of $0.81. See
"Certain Relationships and Related Transactions."
For information relating to the significant compensation of our recently hired
new Chief Executive Officer, Mark Isaacson, our new Chief Financial Officer,
Wilfred Kopelowitz, and other key employees, see "MANAGEMENT-Employment
Agreements; Key Employees" and "SECURITIY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT".
OPTIONS GRANTED IN 1999
The following table sets forth certain information concerning options
granted during 1999 to the executive officers named in the Summary Compensation
Table:
<TABLE>
<CAPTION>
Number of Percentage of
Securities Total Options Exercise
Underlying Granted to Price Expiration
Name Options Granted (#) Employees in 1999 ($/Share) Date
---- ------------------- ----------------- --------- ----------
<S> <C> <C> <C> <C>
Jacob Davidson 119,000 70% 0.81(1) 2009
Aryeh Weinberg 51,000 30% 0.81(1) 2009
</TABLE>
(1) Based on the closing price of the common stock ($0.81) on May 24, 1999, as
reported on the OTC Electronic Bulletin Board.
27
<PAGE>
AGGREGATED OPTION EXERCISES IN 1999 AND 1999 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Number of Options at in-the-Money Options
Shares December 31, 1999(#) at December 31, 1999($)
Acquired on Value -------------------- -------------------------------
Name Exercise (#) Realized ($) Exercisable / Unexercisable Exercisable(1) / Unexercisable
---- ------------ ------------ --------------------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Jacob Davidson 0 0 119,000 / 0 $134,470 / 0
Aryeh Weinberg 0 0 51,000 / 0 $ 57,630 / 0
</TABLE>
(1) Based on the difference between the exercise price of such options ($0.81)
and the closing price of the common stock on December 31, 1999 ($1.94), as
reported on the OTC Electronic Bulletin Board.
1998 Incentive Stock Option Plan
The Company has adopted the 1998 Incentive and Non-Qualified Stock Option
Plan (the "1998 Option Plan"). The 1998 Option Plan provides for the grant of
options to purchase shares of common stock to eligible employees, officers,
directors, consultants and service providers of the Company. A total of 250,000
shares of our common stock has been reserved for issuance under the 1998 Option
Plan.
The Company's current policy is that all full time key employees be
considered annually for the possible grant of stock options, depending upon
employee performance. The criteria for the awards are experience, uniqueness of
contribution and level of performance shown during the year. Stock options are
intended to improve loyalty to the company and help make each employee aware of
the importance of our business success.
The 1998 Option Plan is administered by the Board of Directors. The Board
has discretion to select the optionee and to establish the terms and conditions
of each option, subject to the provisions of the 1998 Option Plan. Options
granted under the 1998 Option Plan may be non-qualified stock options or
Incentive Stock Options (an option which is intended to meet the requirements of
Section 422 of the Internal Revenue Code) but in any case the exercise price of
options granted may not be less than 100% of the fair market value of the common
stock as of the date of grant (110% of the fair market value if the grant is to
an employee who owns more than 10% of the outstanding common stock.) Options may
not be exercised more than 10 years after the grant (five years if the grant is
an Incentive Stock Option to any employee who owns more than 10% of the
outstanding common stock). The Board may, in its discretion and subject to the
terms of the 1998 Option Plan (i) accelerate the date or dates on which all or
any particular option or options granted under the 1998 Option Plan may be
exercised, or (ii) extend the dates during which all, or any particular, option
or options granted under the 1998 Option Plan may be exercised, provided, that
no such extension will be permitted if it would cause the 1998 Option Plan, or
any option granted thereunder, to fail to comply with Rule 16b-3 of the
Securities and Exchange Act of 1934, as amended, or if it would cause any
incentive stock option granted under the 1998 Option Plan to fail to qualify as
an incentive stock option. Except as described below or as otherwise determined
by the Board at the date of the grant of the option, and subject to the
provisions of the 1998 Option Plan, an optionee may exercise an option at any
time within three months (or within such lesser period as may be specified in
the applicable option agreement) following termination of the optionee's
employment or other relationship with the Company (one year if such termination
was due to the death or Disability (as defined) of the optionee) but in no event
later than the expiration date of the Option. Except as otherwise determined by
the Board at the date of the grant of an Option, if the termination of the
optionee's employment or other relationship is for cause, the Option will expire
immediately upon such termination. Options granted under the 1998 Option Plan
are not
28
<PAGE>
transferable and may be exercised only by the respective grantees during their
lifetimes or by their heirs, executors or administrators in the event of death.
Under the 1998 Option Plan, shares subject to unexercised canceled or terminated
options are reserved for subsequently granted options. The number of shares of
our common stock reserved for issuance under the 1998 Option Plan, the number of
options outstanding and the exercise price thereof are subject to adjustment in
the case of certain transactions such as mergers, recapitalizations, stock
splits or stock dividends.
As of August 1, 2000, 210,000 options to purchase shares of common stock
were outstanding under the 1998 Option Plan, leaving a balance of 40,000 shares
of our common stock available for issuance.
2000 Equity Incentive Plan
On July 21, 2000, our Board of Directors adopted the 2000 Equity Incentive
Plan (the "2000 Incentive Plan"). A total of 5,000,000 shares of common stock
have been reserved for issuance under the 2000 Incentive Plan. The 2000
Incentive Plan will go into effect only upon approval by our stockholders at the
2000 annual general meeting of our stockholders which we anticipate holding this
year. Upon and (subject to) the adoption of the 2000 Incentive Plan, we intend
to discontinue use of the 1998 Option Plan.
The 2000 Incentive Plan is to be administered by our Board of Directors
or, at its discretion, by a committee. Persons eligible to participate in the
2000 Incentive Plan include all our key employees and consultants, as well as
those of our subsidiaries, as determined by the Committee. The 2000 Incentive
Plan provides for the grant of incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock, bonus stock, awards in
lieu of cash obligations, other stock-based awards and performance units. The
2000 Incentive Plan also permits cash payments either as a separate award or as
a supplement to a stock-based award, including cash payments for the income and
employment taxes imposed on a participant in respect of any award. The 2000
Incentive Plan is of indefinite duration; continuing until all shares reserved
therefore have been issued and performance units have been granted or until
terminated by the Board.
Options under the 2000 Incentive Plan may be incentive stock options and
nonqualified stock options. The 2000 Incentive Plan also provides for the grant
of stock appreciation rights entitling the participant to receive the excess of
the fair market value of a share of our common stock on the date of exercise
over the grant price of the stock appreciation right. The exercise price per
share of common stock subject to an option and the grant price of an stock
appreciation right are determined by the Board of Directors or a committee,
provided that the exercise price of an incentive stock option or stock
appreciation right may not be less than the fair market value (110% of the fair
market value in the case of an incentive stock option granted to a 10%
shareholder) of the common stock on the date of grant. However, the 2000
Incentive Plan also provides for the grant of an option, a stock appreciation
right or other award allowing the purchase of common stock at an exercise price
or grant price less than fair market value when it is granted in substitution
for some other award or retroactively in tandem with an outstanding award. In
those cases, the exercise or grant price may be the fair market value at that
date, at the date of the earlier award or at that date reduced by the fair
market value of the award required to be surrendered as a condition to the
receipt of the substitute award. Options or stock appreciation rights may not be
exercised more than 10 years after grant (five years if the grant is to an
employee who owns more than 10% of our outstanding common stock). The 2000
Incentive Plan also provides for the grant of restricted stock. Restricted stock
is an award of shares of common stock which may not be disposed of by
participants and which may be forfeited in the event of certain terminations of
employment or certain other events prior to the end of a restriction period
established under the grant. Such an award entitles the participant to all of
the rights of a stockholder, including the right to vote the shares and the
right to receive any dividends thereon, unless otherwise determined at the time
of grant. The number of shares of our common stock reserved for issuance, the
number of options outstanding are subject to an adjustment in the case of
certain transaction such as mergers, recapitalizations, stock splits or stock
dividends.
Under the 2000 Incentive Plan, an award may also be denominated or payable
in, or valued in whole or in part by reference to the value of, our common
stock. The terms and conditions of such awards, including consideration to be
paid to exercise awards in the nature of purchase rights, the period during
which awards will be outstanding and forfeiture conditions and restrictions on
awards, are determined at the time of grant. In addition, the Board of Directors
or a committee is authorized to grant shares as a bonus, free of restrictions,
or to grant shares or other awards in lieu of our obligations to pay cash or
deliver other property under other plans or compensatory arrangements, subject
to such terms as the Committee may specify. Grants may also consist of the right
to receive cash payments, whether as a separate award or as a supplement to any
stock-based awards. A grant under the 2000 Incentive Plan may also be comprised
of a performance unit, which is a right to receive a payment in cash equal to
the increase in our book value if specified performance goals during a specified
time period are met.
In the event of a change of control of, all awards granted under the 2000
Incentive Plan that are outstanding and not yet vested or exercisable or which
are subject to restrictions, will become immediately 100% vested in each
participant or will be free of any restrictions, and will be exercisable for the
remaining duration of the award. All awards that are exercisable as of the
effective date of the change of control will remain exercisable for the
remaining duration of the award.
Employment Agreements
Mark Isaacson has been acting Chief Operating Officer of PLT Solutions,
Inc. since April 2000 and a director and our Chief Executive Officer and Chief
Executive Officer of PLT Solutions, Inc. since September 12, 2000. Mr. Isaacson
entered into a 5 year employment agreement with our company as of September 1,
2000 pursuant to which he receives an annual salary of $275,000. Upon (and
subject to) the approval by our stockholders at the 2000 annual stockholders
meeting of a proposal to increase the number of authorized shares of our common
stock, we undertook to issue to Mr. Isaacson fully vested options for an
aggregate of 1,350,000 shares of our common stock, at an exercise price per
share of $1.00. In connection with any future stock issuances by us, Mr.
Isaacson is entitled to anti-dilution protection in an amount necessary to
maintain his percentage ownership of the outstanding shares of our stock on a
fully diluted basis on the date of grant had his option been exercised on the
date of grant. In case of a change in control (as defined in the agreement), all
such options will become exercisable at a price per share of $0.10. In case of
any such change in control where Mr. Isaacson does not continue as Chief
Executive Officer of our company on terms and conditions substantially similar
to those contained in his agreement, then he is eligible to receive one-time
payment equal to, on an after tax basis, to twice his then current annual
salary. Additionally, Mr. Isaacson is entitled to a bonus, payable in respect of
each 12 month period commencing on September 1, 2000 in stock or cash, at our
Board's option, equal to 2% of the increase in market capitalization for such 12
month period, based on the excess of the average closing bid of a share of our
common stock during the last 90 days of such 12 month period times the then
outstanding shares of common stock over the greater of (i) $105,000,000 or (ii)
the highest previous 90 day average against which a bonus was paid under this
plan. Mr. Isaacson is entitled to resign at any time on 30 days notice. If Mr.
Isaacson's employment is not renewed by us or is terminated by us for any reason
other than his death or disability or cause (as defined in the agreement) or Mr.
Isaacson elects to terminate the agreement upon certain pre-designated
conditions, then our obligations to Mr. Isaacson, including salary payment and
option issuances, continue in full force. Mr. Isaacson has agreed to certain
customary confidentiality and non-compete provisions continuing for one year
following the termination of his employment, except that upon Mr. Isaacson's
resignation upon certain pre-designated conditions, the non-compete provision do
not apply.
Wilfred Kopelowitz entered into an employment agreement with the Company
in September 2000 pursuant to which he is employed as our Chief Financial
Officer and Chief Financial Officer of PLT Solutions, Inc. Mr. Kopelowitz is
paid and annual salary of $135,000 (which salary is scheduled to be increased to
$155,000 upon the first anniversary of employment) and, upon (and subject to)
the adoption of the 2000 Equity Incentive Plan, we undertook to issue to him
240,000 options, 90,000 of which will be fully vested upon issuance and will be
exercisable at an exercise price per share of $1.00, 75,000 options scheduled to
vest in September 2001 and the remaining 75,000 options in September 2002, in
each case exercisable at an exercise price per share of $2.00, subject to his
continuing employment with the Company. In case of any future stock issuances by
us, Mr. Kopelowitz is entitled to anti-dilution protection in an amount
necessary to maintain his percentage ownership of our outstanding shares of
common stock on a fully diluted basis on the date of grant had the option been
exercised on the date of grant. In case of a change in control (as defined in
the agreement), all options will immediately vest at a per share exercise price
of $0.10. The employment agreement is for 2 years and is to renew automatically
unless either party gives the other notice 3 months prior to scheduled
expiration of its election to not renew. Mr. Kopelowitz has agreed to certain
customary confidentiality and non-compete provisions.
Michael Braunold served as our Chief Executive Officer and as the Chief
Executive Officer of PLT Solutions Inc. from March 2000 until his resignation
from such positions on September 12, 2000. At the time of his resignation, he
received a monthly salary of $3,000. Mr. Braunold has agreed to certain
customary confidentiality and non-compete provisions that prohibit him from
competing with the Company for one year, or soliciting employees for one year,
following the termination of his employment. In connection with his resignation,
we paid to Mr. Braunold a one-lump sum payment of $150,000 and undertook to
issue shares of our common stock. See "Certain Relationships and Related
Transactions."
The Company entered into an employment agreement in March 2000 with Aryeh
Weinberg pursuant to which Mr. Weinberg was employed as the Company's Chief
Financial Officer until his resignation from such position on September 4, 2000.
Mr. Weinberg will remain employed with the Company through September 30, 2000.
At the time of his resignation, Mr. Weinberg received an annual salary of
$72,000. Mr. Weinberg has agreed to certain customary confidentiality and
non-compete provisions that prohibit him from competing with the Company for one
year, or soliciting employees for one year, following the termination of his
employment. In connection with his impending resignation from our company, we
undertook to pay to Mr. Weinberg a one-lump sum payment equal to six-months'
salary as well as accelerate the vesting on certain stock options he received in
2000 and issue to him shares of our common stock. See "Certain Relations and
Related Transactions".
Key Employees
29
<PAGE>
We entered into an employment agreement with Ram Rao effective as of
September 2000 pursuant to which he is employed as our Chief network Architect.
Mr. Rao is paid an annual salary of approximately $130,000 and, upon (and
subject to) the adoption of the 2000 Equity Incentive Plan, we undertook to
issue to him 120,000 options exercisable at an exercise price per share to be
agreed upon, to vest in equal installments of 30,000 each over 4 years, with
the first 30,000 due to vest in September 2001, and each subsequent 30,000 to
vest in each of September 2002, 2003 and 2004, subject to his continuing
employment with the Company. The employment agreement is for a period of two
years and is to renew automatically unless either party gives notice to the
other prior to the scheduled expiration date of its election to not renew. Mr.
Rao has agreed to certain customary confidentiality and non-compete provisions.
Yehuda Cern is the Chief Technical Officer of Insulated Connection
Corporation, Ltd. Dr. Cern entered into an employment agreement with ICC in
February 2000. He receives a base salary of $5,785 per month, which may be
increased to up to $11,570 according to the number of hours he works per month.
In addition, he was issued shares of our common stock in an amount equal to 9.9%
of the issued and outstanding equity of our subsidiary, PLT Solutions, Inc. Upon
and subject to the 2000 Incentive Plan at our annual stockholders meeting to be
held in 2000, Dr. Cern will be granted by the Company 100,000 options to acquire
our common stock, at an exercise price per share of $2.50, of which 50,000 will
vest upon the first anniversary, and an additional 50,000 options which will
vest upon the second anniversary, of his employment with the Company. The
employment agreement is for a term of one year and will renew automatically for
additional one year terms unless terminated by either party upon three months
prior written notice. Dr. Cern has agreed to certain customary confidentiality
and non-compete provisions that prohibit him from competing with the Company or
soliciting employees of the Company for one year following the termination of
his employment.
Bernie Wolff is employed as the Chief Executive Officer of Kliks.com Ltd.
pursuant to an employment agreement entered into in February 2000. Mr. Wolff
receives $5,000 per month. Mr. Wolff served as the Vice-President of our
company from March 2000 until September 4, 2000, whereupon he resigned from such
position. We issued to Mr. Wolff 10,000 options from the 1998 Option Plan at an
exercise price per share of $1.94, half of which were scheduled to vest 12
months following the commencement of employment with Kliks.com and the remaining
half 24 months following the commencement of such employment. In connection with
his resignation from the Vice-Presidency of our company, the vesting of the
options granted under the 1998 Option Plan have been accelerated to vest in 4
quarterly installments and we undertook to issue to him additional options from
our new company plan. See "Certain Relationships and Related Transactions". Mr.
Wolff has agreed to certain customary confidentiality and non-compete provisions
that prohibit him from competing with our company for one year or soliciting
employees for one year, following the termination of his employment.
30
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 16, 2000, certain
information with respect to the beneficial ownership of common stock (and
convertable preferred stock convertible into common stock) by (i) each person
known by the Company to be the owner of more than 5% of the outstanding common
stock, (ii) each director, (iii) each executive officer named in the Summary
Compensation Table and (iv) all directors and executive officers as a group:
<TABLE>
<CAPTION>
Shares of common stock Percent of
Name and Address of Beneficial Owner Beneficially Owned Class (1)
------------------------------------ ------------------ ---------
<S> <C> <C>
Dimensional Partners, Ltd. (2) 2,000,000 13.25%
JDS Capital Management, Inc. (3) 2,000,000 13.25%
Dimensional Partners, L.P. (4) 2,000,000 13.25%
JDS Asset Management, LLC (5) 2,000,000 13.25%
Joseph D. Samberg (6) 2,000,000 13.25%
Seneca Capital International Ltd. (7) 2,250,000 14.79%
Seneca Capital LP (8) 2,250,000 14.79%
Grove Industries Ltd. (9) 700,000 5.0%
Aryeh Weinberg (10) 71,000(11) *
Mark S. Isaacson (12) 1,350,000(13) 8.7%
Wilfred Kopelowitz (12) 100,000(14) *
Directors and executive officers as a group (2 persons) 1,450,000(15) 9.3%
</TABLE>
----------
* Less than 1%
(1) Unless otherwise noted, the Company believes that all persons named
in the table have sole voting and investment power with respect to
all shares of common stock beneficially owned by them. A person is
deemed to be the beneficial owner of securities that can be acquired
by such person within 60 days from October 16, 2000 upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that
are held by such person (but not those held by any other person) and
which are exercisable within 60 days from October 16, 2000 have been
exercised.
The foregoing table does not reflect the placement by us to certain
unaffiliated private accredited investors of approximately
$7,350,000 in aggregate principal amount of convertible 10%
debentures. The debentures automatically convert into shares of our
common stock at a conversion price per share ranging from $2.00 to
$3.00 immediately following the approval by our stockholders at the
annual 2000 general meeting of stockholders scheduled to be held in
November 2000 of a proposal to increase the number of our authorized
shares of common stock. Following such stockholders meeting and
subject to the increase in authorized shares of common stock, we
anticipate that there will be approximately an additional 3,250,000
shares of our common stock outstanding upon such conversion, as well
as warrants to purchase approximately an additional 3,250,000 shares
of our common stock at an exercise price per share of between $3.50
and $4.50.
Upon conversion of the debentures and before exercise of the
warrants, these investors will each own approximately 5% of our
outstanding shares of common stock.
(2) Includes (i) 720,000 shares of common stock underlying the same
number of shares of convertible preferred stock issuable upon
exercise of warrants exercisable within 60 days from October 16,
2000 (the "Dimensional II Warrants"), and (ii) 280,000 shares of
common stock and 280,000 shares of common stock underlying the same
number of shares of convertible preferred stock issuable upon
exercise of warrants exercisable within 60 days from October 16,
2000 (the "Dimensional I Warrants") held by Dimensional Partners,
L.P. ("Dimensional I") (an affiliate of Dimensional Partners, Ltd.
("Dimensional II")), over which Dimensional II has shared voting and
dispositive power and as to which Dimensional II disclaims
beneficial ownership. The shares of convertible preferred stock
issuable upon the exercise of the Dimensional I Warrants and the
Dimensional II Warrants are automatically convertible upon, and are
subject to, an increase in the number of authorized shares of our
common stock, which proposal will be submitted to our stockholders
for approval at the next annual meeting of stockholders anticipated
to take place in November 2000. The business address of Dimensional
II is Corporate Center, West Bay Road, P.O. Box 31106 SMB, Grand
Cayman, Cayman Islands.
(3) Includes (i) 280,000 shares of common stock and 280,000 shares of
common stock underlying the same number of shares of convertible
preferred stock issuable upon exercise of the Dimensional I
Warrants, and (ii) 720,000 shares of common stock and 720,000 shares
of common stock underlying the same number of shares of convertible
preferred stock issuable upon exercise of the Dimensional II
Warrants, over which JDS Capital Management, Inc. ("JDSCM") has
shared voting and dispositive power and as to which JDSCM disclaims
beneficial ownership. JDSCM is the investment manager and subadvisor
of Dimensional II. The shares of convertible preferred stock
issuable upon the exercise of the Dimensional I Warrants and the
Dimensional II Warrants are automatically convertible upon, and are
subject to, an increase in the number of authorized shares of our
common stock, which proposal will be submitted to our stockholders
for approval at the next annual meeting of stockholders anticipated
to take place in November 2000. The business address of JDSCM is 780
Third Avenue, 45th Floor, New York, New York 10017.
(4) Includes (i) 280,000 shares of common stock underlying the same
number of shares of convertible preferred stock issuable upon
exercise of the Dimensional I Warrants, and (ii) 720,000 shares of
common stock and 720,000 shares of common stock underlying the same
number of shares of convertible preferred stock issuable upon
exercise of the Dimensional II Warrants held by Dimensional II (an
affiliate of Dimensional I), over which Dimensional I has shared
voting and dispositive power and as to which Dimensional I disclaims
beneficial ownership. The shares of convertible preferred stock
issuable upon the exercise of the Dimensional I Warrants and the
Dimensional II Warrants are automatically convertible upon, and are
subject to, an increase in the number of authorized shares of our
common stock, which proposal will be submitted to our stockholders
for approval at the next annual meeting of stockholders anticipated
to take place in November 2000. The business address of Dimensional
I is 780 Third Avenue, 45th Floor, New York, New York 10017.
(5) Includes (i) 280,000 shares of common stock and 280,000 shares of
common stock underlying the same number of shares of convertible
preferred stock issuable upon exercise of the Dimensional I
Warrants, and (ii) 720,000 shares of common stock and 720,000 shares
of common stock underlying the same number of shares of convertible
preferred stock issuable upon exercise of the Dimensional II
Warrants, over which JDS Asset Management, LLC ("JDSAM") has shared
voting and dispositive power and as to which JDSAM disclaims
beneficial ownership. JDSAM is the general partner of Dimensional I.
The shares of convertible preferred stock issuable upon the exercise
of the Dimensional I Warrants and the Dimensional II Warrants are
automatically convertible upon, and are subject to, an increase in
the number of authorized shares of our common stock, which proposal
will be submitted to our stockholders for approval at the next
annual meeting of stockholders anticipated to take place in November
2000. The business address of JDSAM is 780 Third Avenue, 45th Floor,
New York, New York 10017.
(6) Includes (i) 280,000 shares of common stock and 280,000 shares of
common stock underlying the same number of shares of convertible
preferred stock issuable upon exercise of the Dimensional I
Warrants, and (ii) 720,000 shares of common stock and 720,000 shares
of common stock underlying the same number of shares of convertible
preferred stock issuable upon exercise of the Dimensional II
Warrants, over which Joseph D. Samberg ("Samberg") has shared voting
and dispositive power and as to which Samberg disclaims beneficial
ownership. Samberg is the managing member of JDSAM and the president
of JDSCM. The shares of convertible preferred stock issuable upon
the exercise of the Dimensional I Warrants and the Dimensional II
Warrants are automatically convertible upon, and are subject to, an
increase in the number of authorized shares of our common stock,
which proposal will be submitted to our stockholders for approval at
the next annual meeting of stockholders anticipated to take place in
November 2000. The business address of Samberg is 780 Third Avenue,
45th Floor, New York, New York 10017.
31
<PAGE>
office of Mr. Samberg is 780 Third Avenue, 45th Floor, New York, New
York 10017.
(7) Includes (i) 728,500 shares of convertible preferred stock and
728,500 shares of convertible preferred stock or, in the event that
at the annual 2000 stockholders meeting the stockholders elect to
increase the authorized shares of common stock, 728,500 shares of
common stock, issuable upon exercise of warrants exercisable within
60 days from October 16, 2000 (the "Seneca Ltd. Warrants") and (ii)
396,500 shares of convertible preferred stock and 396,500 shares of
convertible preferred stock or, in the event that at the annual 2000
stockholders meeting the stockholders elect to increase the
authorized shares of common stock, 728,500 shares of common stock,
issuable upon exercise of warrants exercisable within 60 days from
October 3, 2000 (the "Seneca LP Warrants") held by Seneca Capital LP
( "Seneca LP"), an affiliate of Seneca Capital International Ltd.
("Seneca Ltd."), over which Seneca Ltd. has shared voting and
dispositive power and as to which Seneca Ltd. disclaims beneficial
ownership. The shares of convertible preferred stock have the same
rights as attach to the common stock and are automatically
convertible upon, and are subject to, an increase in the number of
authorized shares of our common stock , which proposed increase is
to be submitted to our stockholders for approval at the next annual
meeting of stockholders anticipated to take place in November 2000.
The business address of Seneca Ltd. is 527 Madison Avenue, New York,
New York 10022.
(8) Includes (i) 396,500 shares of convertible preferred stock and
396,500 shares of convertible preferred stock issuable upon exercise
of the Seneca LP Warrants and (ii) 728,500 shares of convertible
preferred stock and 728,500 shares of convertible preferred stock
issuable upon exercise of the Seneca Ltd. Warrants, over which
Seneca LP has shared voting and dispositive power and as to which
Seneca LP disclaims beneficial ownership. The shares of convertible
preferred stock have the same rights as attach to the common stock
and are automatically convertible upon, and are subject to, an
increase in the number of authorized shares of our common stock ,
which proposed increase is to be submitted to our stockholders for
approval at the next annual meeting of stockholders anticipated to
take place in November 2000. The business address of Seneca Ltd. is
527 Madison Avenue, New York, New York 10022.
(9) The business address of such beneficial owner is 11 The Shrubberies,
George Lane, South Woodford, London E181BD.
(10) The business address of such person is 11 Ma'alei Amos, North
Yehuda, Israel.
(11) Includes 51,000 fully vested options issued under our 1998 Option
Plan. Mr. Weinberg resigned from the employ of our company as of
October 1, 2000.
(12) The business address of each such person is c/o Ambient, 1033 Beacon
Street, Brookline, Massachusetts 02446.
(13) Represents an option to purchase such number of shares which is
subject to the approval by our stockholders at the 2000 annual
stockholders meeting, currently scheduled to be held in November
2000, to approve an increase in the number of authorized shares of
our common stock.
(14) Includes an option to purchase up to 90,000 of shares which is
subject to the approval by our stockholders at the 2000 annual
stockholders meeting, currently scheduled to be held in November
2000, to approve the 2000 Equity Incentive Plan.
(15) See footnotes 13 and 14.
32
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to his employment agreement as our Chief Executive Officer, we
undertook in September 2000 to issue to Mr. Isaacson, upon approval by our
stockholders at the 2000 annual stockholders meeting of the 2000 Equity
Incentive Plan, option to purchase up to 1,350,000 shares of our common stock,
at an exercise price per share of $1. Upon the occurence of a change in control
(as defined in the agreement), these options are immediately exercisable at a
per share price of $0.10.
In September 2000 we undertook to issue to our newly hired Chief Financial
Officer, Wilfred Kopelowitz, upon (and subject to) the adoption of the 2000
Equity Incentive Plan at our annual stockholders meeting to be held in 2000,
240,000 options, 90,000 of which will be fully vested upon issuance at an
exercise price of $1, 75,000 options scheduled to vest in September 2001 and the
remaining in September 2002, in each case at an exercise price of $2. Upon the
occurrence of a "change in control" (as defined in the agreement), these options
are immediately exercisable at a per share price of $0.10.
In connection with Mr. Braunold's resignation in September 2000 from the
position of our Chief Executive Officer and that of PLT Solutions Inc., we paid
to him a one-lump sum amount of $150,000 and issued a warrant to purchase up to
250,000 shares of our common stock, at an exercise price per share of $0.01,
such warrant exercisable commencing on (and subject to) the approval by our
stockholders at the annual 2000 stockholders meeting of an increase in the
number of authorized shares of our common stock and continuing through the third
anniversary thereof. Additionally, Mr. Braunold was irrevocably designated as
our designee on the Board of Directors of 49% owned subsidiary Kliks.com.
In June 1999, we granted to Aryeh Weinberg, our Chief Financial Officer,
51,000 vested options under our 1998 Option Plan with a per share exercise price
of $0.81. In April 2000, Mr. Weinberg was granted an additional 30,000 options
under our 1998 Option Plan at a nominal exercise price per share, which options
vest over 12 months. In connection with Mr. Weinberg's resignation on September
4, 2000 as our Chief Financial Officer and his impending resignation from our
Company, the 30,000 options were accelerated and we undertook to pay to him on
October 1, 2000, in one lump sum, six months salary and, subject to the adoption
by our stockholders, at our annual stockholders meeting to be held in 2000 of a
proposal to increase our authorized common stock, we undertook to issue to Mr.
Weinberg, 25,000 shares at a per share purchase price of $0.01.
Mr. Wolff resigned from the Vice-Presidency of our company on September 4,
2000 and, in connection with such resignation, the options previously granted
under the 1998 Option Plan have been amended to vest over 4 quarterly
installments, subject to his continued employment as Chief Executive Officer of
Kliks.com and we undertook, upon and subject to the adoption by our stockholders
at the stockholders meeting to be held in 2000 of the 2000 Equity Incentive
Plan, to issue 65,000 options, at an exercise price per share of $0.01, to vest
over 4 quarterly installments.
In March 2000 we undertook to issue to Dr. Yehuda Cern, Chief Technology
Officer of ICC, subject to (and upon) the adoption of the 2000 Incentive Plan at
our annual stockholders meeting to be held in 2000, (i) 50,000 options from such
any newly adopted plan, such options to vest following 12 months of continuous
employment with ICC and (ii) an additional 50,000 options vesting following 24
months of continuous employment with ICC, in each case at an exercise price per
share of $2.50.
Mr. Wolff, the Chief Exectutive Officer of Kliks and former our
Vice-President, currently owns 41% of the issued capital of our affiliate
Kliks.com Ltd. We and Mr. Wolff entered into a shareholders agreement dated
December 31, 1999 respecting the operations of Kliks. We exercise an option to
purchase up to an addition 10% of Kliks and in August 2000 exercised such option
to acquire an additional 9% of Kliks for $225,000.
In August 2000, we, pursuant to our shareholders agreement with Kliks.com,
advanced as a loan to Kliks $617,500. The Chief Executive Officer and a
director of Kliks served, until September 4, 2000, as our Vice-President. The
members of the board of Kliks are Mr. Wolff and Michael Braunold.
Mr. Jacob Davidson received 119,000 vested options in June 1999 under the
Company's 1998 Stock Option Plan, at an exercise price per share of $0.81. Mr.
Davidson, our former Chief Executive Officer resigned from the Company in June
1999.
In July 2000 we privately placed an aggregate of 1,000,000 shares of our
common stock with Dimensional Partners, Ltd. and Dimensional Partners, L.P. In
connection with the placement of these shares, we also issued to these entities
warrants to purchase, in the aggregate, 1,000,000 shares of our convertible
preferred stock at an exercise price per share of $3.50. In August 2000, we
privately placed an aggregate of 1,125,000 shares of our convertible preferred
stock with Seneca Capital International Ltd. and Seneca Capital LP. In
connection with the placement of these shares, we also issued to these entities
warrants to purchase, in the aggregate, 1,125,000 shares of our convertible
preferred stock at an exercise price per share of $3.50. Upon (and subject to)
the approval by our stockholders at the 2000 annual stockholders meeting of a
proposal to increase our authorized shares of common stock to 70,000,000, the
shares of convertible preferred stock will automatically convert into shares of
common stock. Forty three and three quarter percent (43.75%) of the proceeds of
this private placement must be used solely to finance the activities relating to
our PLT subsidiary.
In August-September 2000, we privately placed to certain unaffiliated
private accredited investors approximately $7,350,000 in aggregate principal
amount of convertible 10% debentures, which automatically convert into shares of
our common stock, at a conversion price per share ranging from $2.00 to $3.00
immediately following the approval by our stockholders at the annual 2000
general meeting of stockholders scheduled to be held in November 2000 of a
proposal to increase the number of our authorized shares of our common stock.
Accordingly, we anticipate the following such stockholders meeting there will be
approximately 3,250,000 shares of our common stock outstanding following such
conversion, as well as warrants to purchase approximately an additional
3,250,000 shares of our common stock. Upon conversion of the debentures and
before exercise of the warrants, these investors will each own approximately 5%
of the outstanding shares of common stock.
33
<PAGE>
SELLING STOCKHOLDERS
The following table provides certain information with respect to the
shares of our common stock beneficially owned by each selling stockholder as of
October 17, 2000.
<TABLE>
<CAPTION>
Common Stock to be
Benefically Owned if
all shares offered
hereunder are sold
(assumes that all
Number of Shares Offered shares are sold)
Shares Owned Pursuant to this --------------------
Selling Stockholder Before Offering Prospectus Shares Percent
------------------- --------------- ---------- ------ -------
<S> <C> <C> <C> <C>
Inglewood Holdings Inc.(1)* 1,700,000 1,700,000 0 0
Clearview International Investment(2)(4)* 1,581,250 1,581,250 0 0
Ashfield Investment(2)(4)* 1,581,250 1,581,250 0 0
Econor Investment Corporation(2)(4)* 1,581,250 1,581,250 0 0
Mantle International Investment(2)(4)* 1,581,250 1,581,250 0 0
Edelweiss Trading Limited(3)(4)* 312,500 312,500 0 0
Viscons Ltd.(3)(4)* 312,000 312,000 0 0
Dimensional Partners Ltd.(5)* 720,000 720,000 0 0
Grove Industries Ltd.(6) 700,000 700,000 0 0
Trax Investment Ltd.(6) 537,250 537,250 0 0
Abraham Stefansky(7) 400,000 400,000 0 0
Markham Holdings Ltd.(7) 350,000 350,000 0 0
Solomon Mayer(7) 300,000 300,000 0 0
Hamilton Trading Ltd.(6) 300,000 300,000 0 0
Lingfield Ltd(6) 296,250 296,250 0 0
Dimensional Partners L.P.(5)* 280,000 280,000 0 0
Zalman Fishman(7) 200,000 200,000 0 0
Aaron and Nina Fischman, joint(6) 230,000 230,000 0 0
Yaakov Bender(7) 200,000 200,000 0 0
Ronald Lowinger(7) 200,000 200,000 0 0
Limekiln Ltd.(6) 180,000 180,000 0 0
Cabus Ltd.(6) 130,000 130,000 0 0
Minow Financial Corp.(8) 125,000 125,000 0 0
Lubecka Financial SA(8) 125,000 125,000 0 0
Mylock Holdings Inc(9) 120,000 120,000 0 0
Yeshiva Darchei Torah Building Fund(7) 100,000 100,000 0 0
Ralph Cotton(7) 80,000 80,000 0 0
David Devore(7) 75,000 75,000 0 0
Seth Rosenblatt(10) 70,000 70,000 0 0
Cherson Ltd.(11) 67,500 67,500 0 0
Biscount Overseas Ltd.(9) 52,500 52,500 0 0
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Common Stock to be
Benefically Owned if
all shares offered
hereunder are sold
(assumes that all
Number of Shares Offered shares are sold)
Shares Owned Pursuant to this --------------------
Selling Stockholder Before Offering Prospectus Shares Percent
------------------- --------------- ---------- ------ -------
<S> <C> <C> <C> <C>
Buttress Holdings Ltd.(7) 50,000 50,000 0 0
Cygni SA(7) 50,000 50,000 0 0
Louis Wolcowitz(7) 50,000 50,000 0 0
Seymour Pinewski(7) 40,000 40,000 0 0
Sheldon Margules(12) 40,000 25,000 0 0
Mitchel Hirth(7) 35,000 35,000 0 0
Aryeh Weinberg(13) 30,000 30,000 0 0
David Neuberg(7) 25,000 25,000 0 0
Gershon Tokayer(6) 25,000 25,000 0 0
Mordechai Vogel(7) 25,000 25,000 0 0
Sam Baratz(10) 25,000 25,000 0 0
David Zahner(7) 20,000 20,000 0 0
Gary Glowgower(7) 20,000 20,000 0 0
Leonard Adams(7) 20,000 20,000 0 0
Keren Zichron Avos, Inc.(9) 20,000 20,000 0 0
Solomon Blisko(7) 20,000 20,000 0 0
Wayne Saker(7) 20,000 20,000 0 0
Ira Scharaga(7) 20,000 20,000 0 0
Larry Morris(10) 20,000 20,000 0 0
Jake Eis(7) 10,000 10,000 0 0
Jeffery Schondorf(7) 15,000 15,000 0 0
Manny Sklar(7) 10,000 10,000 0 0
Ron Detomaso(10) 7,750 7,750 0 0
Dave Sanders(9) 7,750 7,750 0 0
Mike Korff(7) 7,000 7,000 0 0
Bnos Bais Yaacov(10) 6,750 6,750 0 0
Michael Hoffman(6) 4,000 4,000 0 0
</TABLE>
----------
Each of the selling stockholders (except those identified above with an
asterisk) and any of their transferees will not, until 30 days following the
effective date of this registration statement, directly or indirectly, sell or
otherwise transfer any shares; thereafter, each such selling stockholder
(together with certain transferees) may sell or otherwise transfer the lesser of
(i) the number of shares registered in the name of such selling stockholder or
(ii) 20,000 shares, plus, for such selling stockholders who have more than
20,000 shares registered in its name, during the 30 day period following the
effectiveness of this registration statement and for each successive 30 day
period, not more than 20% of the amount in excess of such 20,000 shares.
Notwithstanding the above, the applicable selling stockholders may effect a
private transfer of all or part of their registered shares provided that the
transferee agrees in writing to be bound by all of the terms of such lock up.
(1) Includes 875,000 shares issuable upon exercise of warrants issued
on February 15, 2000 pursuant to a consulting agreement of such date
and are exercisable through February 28, 2003 at an exercise price
per share of $0.01. The additional 200,000 shares were acquired upon
conversion of an outstanding loan and all interest thereunder.
(2) Represents (i) 250,000 shares issued in September 2000 upon
conversion of $100,000 in aggregate principal amount of 10%
convertible debentures at a conversion price per share of $0.40 and
(ii) shares issuable upon conversion of the balance of $350,000 in
aggregate principal amount of 10% convertible debentures (issued or
to be issued) due on the
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<PAGE>
second anniversary of issuance, together with interest thereon
accrued through the maturity date thereof, based on a fixed
conversion price of $0.40, and (iii) 281,250 shares issuable upon
exercise of warrants (issued or to be issued), which warrants are
exercisable at an exercise price per share of $1.00. The convertible
debentures and warrants were or will be issued as part of our
private placement of $2,000,000 of our 10% convertible debentures.
See "Plan of Operations".
(3) Represents (i) 250,000 shares issued in September 2000 upon
conversion of $100,000 in aggregate principal amount of 10%
convertible debentures at a conversion price per share of $0.40 and
(ii) 62,500 shares issuable upon exercise of warrants, which
warrants are exercisable at an exercise price per share of $1.00.
The convertible debentures and warrants were issued as part of our
$2,000,000 private placement of our 10% convertible debentures.
(4) We are registering 110% of the total number of shares specified in
items (ii) and (iii) of footnotes (2) and item (ii) of footnote 3.
As required by SEC regulations, the number of shares shown as
beneficially owned includes shares which may be acquired within 60
days after the date of this prospectus. However, the terms of the
debentures and warrants restrict the beneficial owners from
converting the debentures or exercising their warrants to the extent
that such conversion or exercise would result in such owners and
their affiliates beneficially owing more than 4.99% of the then
outstanding stock. Thus, although some of the shares listed on the
table may not be fully vested within 60 days, they are nevertheless
included in the table.
(5) Represents the sale of 720,000 shares of our common stock in July
2000 to Dimensional Partners, Ltd. for aggregate consideration of
$1,440,000 (as part of this sale, we issued warrants to purchase
720,000 shares of our convertible preferred stock at an exercise
price per share equal to $3.50) and the sale of 280,000 shares of
our common stock to Dimensional Partners, L.P. for aggregate
consideration of $560,000 (as part of this sale we issued warrants
to purchase 280,000 shares of our convertible preferred stock at an
exercise price per share equal to $3.50). The shares of convertible
preferred stock issued or issuable pursuant to such warrants are
automatically convertible to shares of common stock upon (and
subject to) the approval of our stockholders, at the 2000 general
stockholders meeting, to approve the increase in the shares of
common stock that we are authorized to issue from time to time. Our
Board of Directors adopted a resolution to increase the authorized
common stock that we are authorized to issue from time to time to 70
million common shares.
(6) Represents shares acquired under consulting agreement.
(7) Represents shares acquired upon conversion of an outstanding loan,
and all interest thereon.
(8) Represents shares acquired under a settlement agreement entered into
in April 2000 settling certain third party claims. Certain parties
contended that the Company guaranteed, in a prior year, the
repayment of an outstanding third-party loan obligation, which
contention the Company denies. In settlement of the dispute, the
Company, on April 14, 2000, entered into a settlement agreement with
such parties pursuant to which
36
<PAGE>
it undertook to pay to said claimants, in the aggregate, $200,000
and issued to them an aggregate of 250,000 shares of the Company's
common stock. Accordingly, the Company has recorded to its operating
expenses for the three-month period ended March 31, 2000, an expense
in the amount of $1,512,500, representing the market value of the
shares that were issued and the cash payment which it undertook to
pay.
(9) Represents shares that, we have been advised, were acquired from
third parties to whom such shares were issued by us under consulting
agreements.
(10) Represents shares issued by us in respect of services rendered to
the Company.
(11) Represents 62,500 shares acquired under a consulting agreement and
5,000 shares that, to the best of our knowledge, were acquired from
a third party to whom such shares were issued by us under a
consulting agreement.
(12) Represents 25,000 shares acquired upon conversion of a loan, and all
interest thereunder, and 15,000 shares issued by us in respect of
services rendered to the Company.
(13) Represents shares issued under the Company's 1998 Option Plan.
37
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 20,000,000 shares of common stock, $.001 par
value per share, of which 12,839,083 shares were outstanding and held of record
as of October 3, 2000, by approximately 61 shareholders of record. A significant
portion of our common stock is held in either nominee name or street name
brokerage accounts. On July 19, 2000, our Board of Directors adopted a
resolution to increase the authorized common stock of the Company to 70 million
shares which was subsequently increased to 100 million shares, which resolution
will become effective only upon (and subject to) approval by our stockholders at
the 2000 annual general stockholders meeting. Holders of shares of common stock
are entitled to one vote for each share held of record on all matters to be
voted on by stockholders. Holders of shares of common stock are entitled to
receive dividends when, as and if declared by the Board of Directors from funds
legally available therefor and to share ratably in our assets available upon
liquidation, dissolution or winding up. The holders of shares of common stock do
not have cumulative voting rights for the election of directors and,
accordingly, the holders of more than 50% of the shares of common stock are able
to elect all directors.
We issued to private accredited investors approximately $7,350,000 in
aggregate principal of convertible debentures which will automatically, without
further action, convert into approximately 3,250,000 shares of our common stock
following the adoption by our stockholders at the 2000 annual stockholders
meeting of a proposal to increase our authorized shares of common stock. Except
for such convertible debentures, the limited pre-emption rights granted to the
convertible preferred stockholders and our undertaking to issue additional
shares of our common stock to holders of these convertible debentures and
convertible preferred stockholders of the common stock into which their
securities are convertible are not registered for resale within 135 days
following such conversion, there are no preemptive, subscription, conversion or
redemption rights pertaining to the common stock.
Preferred Stock
We are authorized to issue 5,000,000 shares of preferred stock, $.001 par
value per share, all of which have been designated as Convertible Preferred
Stock, par value $0.001, with the same rights as our common stock. Of these
Convertible Preferred Stock, 1,125,000 convertible preferred shares have been
issued and an additional 2,125,000 are reserved for issuance under warrants
currently outstanding.
Upon (and subject to) the adoption by our stockholders at the 2000 annual
stockholders meeting of a proposal to increase the authorized shares of common
stock that we may issue, the convertible preferred shares, whether issued or
issuable, will automatically, withour further vote or action by our
stockholders, convert into shares of common stock.
Effect of Delaware Anti-takeover Statute
We are subject to Section 203 of the DGCL (the anti-takeover law), which
regulates corporate acquisitions. The anti-takeover law prevents certain
Delaware corporations, including those whose securities are authorized for
quotation on the NASDAQ Stock Market, from engaging, under certain circumstances
in a "business combination" with any "interested stockholder" for three years
following the date that such stockholder became an interested stockholder. For
purposes of the anti-takeover law, a "business combination" includes, among
other things, a merger or consolidation involving us and the interested
shareholder and the sale of more than 10% of our assets. In general, the
anti-takeover law defines an "interested stockholder" as any entity or person
beneficially owning 15% or more our outstanding voting stock and any entity or
person affiliated with or controlling or controlled by such entity or person. A
Delaware corporation may "opt out" of the anti-takeover law with an express
provision in its original articles of incorporation or an express provision in
its certificate of incorporation or bylaws resulting from amendments approved by
the holders of at least a majority of our outstanding voting shares. We have not
"opted out" of the provisions of the anti-takeover law.
38
<PAGE>
Anti-takeover Effects of By-laws
Under Delaware law, all stockholder actions must be effected at a duly
called annual or special meeting or by written consent. Our by-laws provide
that, except as otherwise required by law, special meetings of the stockholders
can only be called by the president, the board of directors, the Chairman of the
Board, the President or the holders of a majority of all shares entitled to vote
at the meeting.
Transfer Agent
American Stock Transfer and Trust Company is the transfer agent for our
common stock.
Certain Limited Liability and Indemnification Provisions
Pursuant to our Certificate of Incorporation and By-laws, as amended, our
officers and directors shall be indemnified by us to the fullest extent allowed
under Delaware law for claims brought against them in their capacities as
officers and directors. Indemnification is not allowed if the officer or
director does not act in good faith and in a manner reasonably believed to be in
our best interest, or if the officer or director had no reasonable cause to
believe his conduct was lawful. Accordingly, indemnification may occur for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Insofar as indemnification for liabilities arising under the
Securities Act may be permitted for our directors, officers and controlling
persons pursuant to the foregoing provisions or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
39
<PAGE>
PLAN OF DISTRIBUTION
Our Obligations to Debenture Holders
We are registering the shares offered hereby in order to satisfy our
obligations to the holders of our 10% convertible debentures due the second
anniversary of issuance. Under a Securities Purchase Agreement and a related
Registration Rights Agreement dated February 15, 2000, as amended between us and
the holders of the debentures, we are obligated to register with the SEC 110% of
the number of shares issuable on conversion of $2 million in aggregate principal
amount of the debentures plus interest thereon accrued through the maturity date
thereof and 110% of the number of shares of common stock issuable upon exercise
of the warrants issued at the time of the issuance of the debentures. We are
also obligated to keep the Registration Statement of which this prospectus forms
a part effective until the earliest of approximately two years after the first
effective date of this prospectus, the date on which the debenture holders may
sell all shares registered on their behalf under this prospectus under Rule 144
of the Securities Act, or the date on which the debenture holders no longer own
any of those shares. The debentures are convertible into shares of our common
stock at a rate equal to $0.40 per share. We have the right to pay accrued
interest in shares of our common stock at the same conversion price instead of
cash. In connection with the issuance of the debentures, we issued or will issue
to the debenture holders warrants to purchase up to 62,500 additional shares of
common stock for each aggregate principal amount of $100,000 of debentures
issued, exercisable at a price per share equal to $1. The warrants expire on
approximately the third anniversary of issuance. The terms of the debentures and
warrants specify that the beneficial owner cannot convert the debentures or
exercise its warrant to the extent that such conversion or exercise would result
in such owner and its affiliates beneficially owning more than 4.99% of our then
outstanding stock. We are also registering 8,161,750 shares held by certain
other selling stockholders and shares issuable upon exercise of certain other
warrants and options held by certain selling stockholders.
The Securities Purchase Agreement between us and the debenture holders
provides as follows:
We have agreed that we will not, without the prior consent of the
debenture holders, enter into any offer or sale of our common stock (or
securities convertible into common stock) with any third party pursuant to a
transaction which permits the sale of such common stock or convertible
securities on any date which is earlier than 180 days after the effective date
of this prospectus, provided that this restriction will not apply to (a) the
issuance of securities (other than for cash) in connection with an acquisition,
merger, consolidation, or a sale or disposition of assets, (b) the exchange of
capital stock for assets, stock or other joint venture interests so long as any
registration rights granted in connection with such action do not require the
filing of a registration statement in respect of such stock or convertible
securities prior to 180 days after the effective date of this prospectus, (c)
the issuance of securities to a Strategic Partner (as defined) or (d) the
issuance of securities under our 1998 Stock Option Plan.
Each of our directors and principal officers and their respective family
members has signed a Principal's Agreement which provides that, without the
prior consent of the debenture holders in each instance, he will not sell or
otherwise transfer or offer to sell or otherwise transfer (except in a private
transaction in which the transferee agrees to be bound by the Principal's
Agreement) any shares of common stock directly or indirectly held by him prior
to 180 days after the date of this prospectus.
40
<PAGE>
If we breach our obligations relating to any such third party transactions
or the Principal's Agreements, the Conversion Rate (as defined in the
debentures) will be amended to be equal to (x) 90% of (y) the amount otherwise
determined in accordance with the debentures and the debenture holders will be
entitled to require us to immediately redeem all outstanding debentures.
If we are limited in the number of shares of common stock we may issue by
virtue of (i) the number of authorized shares or (ii) the applicable rules and
regulations of the principal securities market on which the common stock is
listed or traded, including, but not limited to, NASDAQ, (a) we must take all
steps reasonably necessary to be in a position to issue shares of common stock
on conversion of the debentures without violating such rules and regulations and
(b) if, despite taking such steps, we still cannot issue such shares of common
stock without violating such rules and regulations, the holder of a debenture
which can not be converted as result of such rules and regulations shall have
the option, (x) if permitted by the regulations, require us to issue shares of
common stock at a conversion purchase price equal to the average of the closing
price per share of common stock for any five consecutive trading days (subject
to certain equitable adjustments for certain events occurring during such
period) during the 60 trading days immediately preceding the date of notice of
conversion or (y) require us to redeem each unconverted debenture for an amount,
payable in cash, determined pursuant to a formula provided in the debentures.
We have agreed that if, during the 270 day period after the date of this
prospectus, we elect to enter into any transaction other than with a Strategic
Partner for the sale of new common stock or securities convertible into common
stock, we must offer the debenture holders the right, pro rata to their
respective holdings, to participate in all or any part of the proposed
transaction on the same terms thereof.
If we consummate such a transaction at any time prior to the 90th day
after the effective date of this prospectus on terms providing for (x) either a
sale price equal to or computed or based on, or a determination of a conversion
price based on, a lower percentage of the then current market price than
provided in the debentures for determining the Conversion Rate through or a
lower Base Price (however defined or computed) and/or (y) the issuance of
warrants at an exercise price lower than that provided in the warrants issuable
upon issuance of the debentures, the terms of any unissued or unconverted
debentures or any unissued or unexercised warrants shall be modified to reduce
the relevant Conversion Rate, or warrant exercise price (as defined in the
Securities Purchase Agreement) to be equal to that provided in the transaction
as so consummated.
Under the Registration Rights Agreement, we were obligated to pay late
fees as liquidated damages to the debenture holders because both the initial
filing date and the effective date of the Registration Statement of which this
prospectus forms a part occurred after certain prescribed deadlines. However,
the debenture holders have waived their right to payment of these fees, so long
as this Registration Statement of which this prospectus forms a part, is
declared effective within 60 days of its filing. We will be obligated to pay
liquidated damages if the debenture holders are restricted from making sales of
the shares offered hereby covered by a previously effective Registration
Statement at any time (the date such restriction commences, a "Restricted Sale
Date") after the date of the prospectus other than during a Permitted Suspension
Period (as defined). The amount that we must pay to the debenture holders in
respect of the fees associated with the Restricted Sale Date will be determined
as of each Computation Date (as defined) and will be equal to the Periodic
Amount Percentage of the aggregate principal amount of all debentures for the
period from the date following the relevant Restricted Sale Date to the first
relevant Computation Date, and thereafter to each subsequent Computation Date.
The Periodic Amount Percentage means (A) 2% of the principal amount of all the
debentures for the period from the date following the relevant Restricted Sale
Date, as the case may be, to the first relevant Computation Date, and (B) 3% of
the Purchase Price of all debentures to each Computation Date thereafter. The
Purchase Price means the sum of (X) the principal
41
<PAGE>
amount of all debentures not yet converted and (Y) the Held Shares Value. The
Held Shares Value means, with certain exceptions, for shares acquired upon a
conversion of a debenture within the 30 day preceding the Restricted Sale Date,
but not yet sold, the principal amount of the debentures converted into such
shares.
Our Obligations to all Selling Stockholders; Sales of Registered Shares.
As used in this prospectus, stockholders selling our shares pursuant to
this prospectus includes donees and pledgees selling shares received after the
date of this prospectus from a selling stockholder named in this prospectus.
We have agreed to bear all costs, expenses and fees of registration of the
shares of common stock offered by the selling stockholders for resale other than
the legal fees and expenses of counsel or other advisors to the selling
stockholders. Any brokerage commissions, discounts, concessions or other fees,
if any, payable to broker-dealers in connection with any sale of the shares of
common stock will be borne by the selling stockholders selling those shares or
by the purchasers of such shares.
Upon our being notified by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing:
o The name of each such selling stockholder and of the participating
broker-dealer(s);
o The number of securities involved;
o The price at which such securities were sold;
o The commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
o That such broker-dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in this
prospectus; and
o Other facts material to the transaction.
We have agreed to indemnify certain selling stockholders or their
transferees or assignees against certain liabilities, including liabilities
under the Securities Act of 1933, or to contribute to payments to which such
selling stockholders or their respective pledgees, donees, transferees or other
successors in interest may be required to make in respect thereof.
Pursuant to the Registration Rights Agreement, each of the selling
stockholders (other than the debenture holders, Inglewood Holdings Inc., which
is offering 1,700,000 shares, Dimensional Partners Ltd., which is offering
720,000 shares and Dimensional Partners L.P., which is offering 280,000 shares)
has agreed with the debenture holders not to sell any shares for 30 days after
the effective date of this registration statement; thereafter, each of these
selling shareholders (together with certain transferees) can sell the lesser of
(i) the number of shares registered in the name of such selling shareholder or
(ii) 20,000 shares, plus, for such selling stockholders who have more than
20,000 shares registered in its name, during the 30 day period following the
effectiveness of this
42
<PAGE>
registration statement and each successive 30 day period, not more than 20% of
the amount in excess of such 20,000 shares.
The selling stockholders may sell their shares of common stock directly to
purchasers as principals, or through one or more underwriters, brokers, dealers
or agents from time to time in one or more transactions (which may involve block
transactions). Any sales of the shares may be effected through the OTC Bulletin
Board, in private transactions or otherwise, and the shares may be sold at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. If the selling stockholders
effect sales through underwriters, brokers, dealers or agents, such firms may
receive compensation in the form of discounts, concessions or commissions from
the selling stockholders or the purchasers of the shares for whom they may act
as agent, principal or both. Those persons who act as broker-dealers or
underwriters in connection with the sale of the shares may be selected by the
selling stockholders and may have other business relationships with, and perform
services for, us. Any selling shareholder, underwriter or broker-dealer who
participates in the sale of the shares may be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act. Any commissions
received by any underwriter or broker-dealer and any profit on any sale of the
shares as principal may be deemed to be underwriting discounts and commissions
under the Securities Act.
The anti-manipulation provisions of Rules 101 through 104 under the
Exchange Act may apply to purchases and sales of shares of common stock by the
selling stockholders. In addition, there are restrictions on market-making
activities by persons engaged in the distribution of the common stock.
Under the securities laws of certain states, the shares may be sold in
such states only through registered or licensed brokers or dealers. In addition,
in certain states the shares may not be able to be sold unless the common stock
has been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
We are required to pay expenses incident to the registration, offering and
sale of the shares pursuant to this offering. We estimate that our expenses will
be $133,058 in the aggregate. We have agreed to indemnify the selling
stockholders and certain other persons against certain liabilities, including
liabilities under the Securities Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
controlling persons, we have been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
We have advised the selling stockholders that if a particular offer of
shares is to be made on terms constituting a material change from the
information set forth above, then to the extent required, a prospectus
supplement should be distributed setting forth such terms and related
information and should be used.
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<PAGE>
LEGAL MATTERS
The legality of the shares of common stock offered hereby will be passed
upon for us by our special counsel Baer Marks & Upham LLP, 805 Third Avenue, New
York, New York 10022. Certain other matters will be passed upon by our general
counsel Aboudi & Brounstein, 3 Gavish Street, Kfar Saba, 44641, Israel.
EXPERTS
The financial statements as of December 31, 1999 and 1998 included in this
prospectus and elsewhere in the registration statement have been audited by
Brightman Almagor & Co. (a member of Deloitte Touche Tohmatsu), independent
auditors, as stated in their reports appearing herein and elsewhere in the
registration statement (which reports express an unqualified opinion and include
an explanatory paragraph referring to the Company's continued existence as a
going concern), and have been so included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC under the Securities Act a Registration
Statement on Form SB-2 (the "Registration Statement"), of which this prospectus
is a part, with respect to the shares offered hereby. This prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in exhibits and schedules as permitted by the rules and regulations of
the Securities and Exchange Commission. Statements made in this prospectus as to
the contents of any contract, agreement or other document referred to herein are
not necessarily complete. With respect to each contract, agreement or other
document filed as an exhibit to the Registration Statement or in a filing
incorporated by reference herein or otherwise, reference is made to the exhibit
for a more complete description of the matters involved, and each statement
shall be deemed qualified in its entirety by this reference.
We are subject to the informational requirements of the Exchange Act and
file periodic reports, proxy statements and other information with the SEC.
Reports and other information filed by us may be inspected and copied at the
public reference facilities maintained by the SEC at:
Judiciary Plaza
450 Fifth Street, N. W.
Room 1024
Washington, D.C. 20549
Seven World Trade Center
13th Floor
New York, New York 10048
500 West Madison Street
Suite 1400
Chicago, Illinois 60601
Copies of such material may be obtained by mail from the Public Reference
Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the SEC maintains a Web site at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC, including us. The
SEC's telephone number is 1-800-SEC-0330.
44
<PAGE>
AMBIENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
F-1
<PAGE>
AMBIENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INDEX TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
Page
----
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet F-3
Consolidated Statement of Operations F-4
Consolidated Statement of Changes in Shareholders' Deficiency F-5 - F-6
Consolidated Statement of Cash Flows F-7
Notes to the Consolidated Financial Statements F-8
F-2
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 112,869 $ 8,071
Restricted cash 93,504 84,820
Receivables and prepaid expenses 45,126 34,628
------------ ------------
Total current assets 251,499 127,519
Property and equipment, net 120,963 135,298
Loans receivable, affilliate 57,500 --
Long- term investments 266,228 170,000
Other asset - security deposit 5,800 --
Deposits for severance pay -- 193
------------ ------------
Total assets $ 701,990 $ 433,010
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Short term borrowings $ 214,036 $ 140,903
Accounts payables 126,114 212,967
Accrued expenses and other current liabilities 353,553 491,713
------------ ------------
Total current liabilities 693,703 845,583
------------ ------------
LONG TERM LIABILITIES
Long-term bank credit 6,453 9,958
10% Convertible debentures, net 542,097 --
Accrued severance pay 7,300 15,334
------------ ------------
Total long-term liabilities 555,850 25,292
------------ ------------
Total liabilities 1,249,553 870,875
------------ ------------
MINORITY INTEREST 6,595 --
------------ ------------
COMMITMENTS AND CONTINGENCIES
NOTES PAYABLE -- 600,000
------------ ------------
STOCKHOLDERS' DEFICIT
Preferred Stock, $.001 par value;
5,000,000 shares authorized; none issued and outstanding -- --
Common stock, $.001 par value;
20,000,000 shares authorized; 9,449,083 and 3,130,833
issued and outstanding, respectively 9,449 3,131
Additional paid-in capital 31,839,802 5,041,595
Deficit accumulated during the development stage (23,245,409) (6,078,528)
Less: deferred compensation (9,158,000) (4,063)
------------ ------------
Total stockholders' deficit (554,158) (1,037,865)
------------ ------------
Total liabilities and stockholders' deficit $ 701,990 $ 433,010
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
Six Months From Inception Three Months
Ended to Ended
June 30, June 30, June 30,
2000 1999 2000 2000 1999
<S> <C> <C> <C> <C> <C>
Expenses
Research and Development $ 126,220 $ 227,900 $ 1,848,057 $ 57,190 $ 123,665
Less - Participation by the Office of the
Chief Scientist of the State of Israel -- 148,387 558,195 -- 138,000
------------ ------------ ------------ ------------ ------------
126,220 79,513 1,289,862 57,190 (14,335)
Operating, general and administrative
expenses 597,726 295,744 3,342,635 488,613 184,475
Stock based compensation 3,980,335 236,294 5,110,734 2,949,108 96,644
------------ ------------ ------------ ------------ ------------
Total expenses 4,578,061 532,038 8,453,369 3,437,721 281,119
------------ ------------ ------------ ------------ ------------
Operating loss (4,704,281) (611,551) (9,743,231) (3,494,911) (266,784)
Legal settlement (1,512,500) -- (1,512,500) -- --
Financing expenses, net (1,142,135) (90,236) (2,172,022) (702,701) (29,873)
Other income (expenses), net 5,569 -- (4,122) (12,491) --
Company's share in net losses of affiliate (53,772) -- (53,772) (38,394) --
------------ ------------ ------------ ------------ ------------
Loss before minority interest and extraordinary item (7,407,119) (701,787) (13,485,647) (4,248,497) (296,657)
Minority interest in subsidiary loss 18,405 -- 18,405 18,405 --
------------ ------------ ------------ ------------ ------------
Loss before extraordinary item (7,388,714) (701,787) (13,467,242) (4,230,092) (296,657)
Extraordinary item - loss on extinguishment of debt (9,778,167) -- (9,778,167) -- --
------------ ------------ ------------ ------------ ------------
Net loss $(17,166,881) $ (701,787) $(23,245,409) $ (4,230,092) $ (296,657)
============ ============ ============ ============ ============
Basic and diluted loss per share:
Net loss before extraordinary item $ (0.97) $ (0.23) $ (0.45) $ (0.10)
Extraordinary loss from extinguishment
of debt (1.28) -- -- --
------------ ------------ ------------ ------------
Net loss $ (2.24) $ (0.23) $ (0.45) $ (0.10)
============ ============ ============ ============
Weighted average number of shares outstanding 7,655,329 3,104,333 9,404,003 3,104,333
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Common Stock Paid-in Deferred Development
Shares Amount Capital Compensation Stage Total
------------ ------------ ------------ ------------ ------------ ------------
Six-month period ended June 30, 2000
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1999 3,130,833 $ 3,131 $ 5,041,595 $ (4,063) $ (6,078,528) $ (1,037,865)
Waiver of liability due
to related party -
January 2000 75,328 75,328
Stock issued in respect of
extinguishment of debt -
February 2000 3,490,000 3,490 10,466,510 10,470,000
Stock issued pursuant to
consulting agreement -
February 2000 700,000 700 2,099,300 (2,100,000) --
Stock issued pursuant to
consulting agreement -
February 2000 180,000 180 539,820 (540,000) --
Stock issued pursuant to
consulting agreement -
February 2000 70,000 70 192,430 (192,500) --
Stock issued pursuant to
consulting agreement -
February 2000 25,000 25 68,725 (68,750) --
Warrants issued pursuant
to consulting agreement -
February 2000 1,500,000 (1,500,000) --
Warrants issued to convertible
debenture holders -
February and April 2000 859,222 859,222
Beneficial conversion feature
of debentures issued
February and April 2000 429,498 429,498
Stock issued pursuant to
consulting agreement -
February 2000 589,750 590 1,768,660 (1,769,250) --
Stock issued pursuant to
consulting agreement -
February 2000 300,000 300 1,246,560 (1,246,860) --
Stock issued pursuant to
consulting agreement -
March 2000 250,000 250 1,499,750 (1,500,000) --
Stock issued pursuant to
consulting agreement -
March 2000 100,000 100 587,400 (587,500) --
Stock issued pursuant to
consulting agreement -
March 2000 346,250 346 2,033,873 (2,034,219) --
Stock issued pursuant to
consulting agreement -
March 2000 200,000 200 1,149,800 (1,150,000) --
Stock issued for services -
May 2000 67,250 67 130,196 130,263
Options issued to employees 838,635 (838,635) --
Stock to be issued pursuant
to settlement agreement 1,312,500 1,312,500
Amortization of deferred stock -
based compensation 4,373,777 4,373,777
Net loss (17,166,881) (17,166,881)
------------ ------------ ------------ ------------ ------------ ------------
Balance - June 30, 2000 9,449,083 9,449 31,839,802 (9,158,000) (23,245,409) (554,158)
============ ============ ============ ============ ============ ============
Year ended December 31, 1999
Balance - December 31, 1998 3,074,333 3,074 4,941,189 (239,683) (4,947,124) (242,544)
Stock issued pursuant to
consulting agreement -
January 1999 4,000 4 7,996 (8,000) --
Stock issued pursuant to
consulting agreement -
February 1999 15,000 15 15
Stock issued pursuant to
consulting agreement -
February 1999 22,500 23 69,977 (70,000) --
Stock issued pursuant to
consulting agreement -
April 1999 15,000 15 12,173 (12,188) --
Warrants issued pursuant
to consulting agreement -
April 1999 10,260 10,260
Amortization of deferred
stock - based compensation 325,808 325,808
Net loss (1,131,404) (1,131,404)
------------ ------------ ------------ ------------ ------------ ------------
Balance - December 31, 1999 3,130,833 3,131 5,041,595 (4,063) (6,078,528) (1,037,865)
============ ============ ============ ============ ============ ============
Year ended December 31, 1998
Balance - December 31, 1997 2,419,333 2,419 730,582 (241,112) (2,126,810) (1,634,921)
Stock issued pursuant to
consulting agreement 75,000 75 654,925 (655,000) --
Initial public offering
in February 1998 525,000 525 3,432,502 3,433,027
Stock issued in connection
with short-term debt financing 20,000 20 99,980 100,000
Additional stock pursuant to
founders agreement for
nominal consideration 35,000 35 35
Warrants issued pursuant to
private placement of units 21,600 21,600
Options granted pursuant to
consulting agreement 1,600 (1,600) --
Amortization of deferred
stock - based compensation 658,029 658,029
Net loss (2,820,314) (2,820,314)
------------ ------------ ------------ ------------ ------------ ------------
Balance - December 31, 1998 3,074,333 $ 3,074 $ 4,941,189 $ (239,683) $ (4,947,124) $ (242,544)
============ ============ ============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Common Stock Paid-in Deferred Development
Shares Amount Capital Compensation Stage Total
------------ ----------- ----------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Balance - December 31, 1996 2,229,166 $ 2,229 $ -- $ -- $ (693,995) $ (691,766)
Issuance of common stock to employees
for services - March 1997 20,000 20 50,000 (50,000) 20
Issuance of common stock to employees
for services - August 1997 84,167 84 336,668 (336,668) 84
Stock issued in connection with private
placement of notes - September 1997 60,000 60 239,940 240,000
Issuance of common stock to advisor
for services - September 1997 6,000 6 23,994 24,000
Stock issued in connection with private
placement of notes - October 1997 20,000 20 79,980 80,000
Amortization of deferred
stock - based compensation 145,556 145,556
Net loss (1,432,815) (1,432,815)
--------- ----------- ----------- ----------- ------------- -----------
Balance - December 31, 1998 2,419,333 2,419 730,582 (241,112) (2,126,810) (1,634,921)
========= =========== =========== =========== ============= ===========
Period ended December 31, 1996
Issuance of common stock to founders
for nominal consideration - July 1996 2,028,833 2,029 2,029
Issuance of common stock to employees
for services - September 1996 5,000 5 5
Issuance of common stock to employees
for services - October 1996 195,333 195 195
Net loss (693,995) (693,995)
--------- ----------- ----------- ----------- ------------- -----------
Balance - December 31, 1996 2,229,166 $ 2,229 $ -- $ -- $ (693,995) $ (691,766)
========= =========== =========== =========== ============= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
Six Months From Inception
Ended to
June 30, June 30,
2000 1999 2000
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $(17,166,881) $ (701,787) $(23,245,409)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 23,965 28,575 184,987
Amortization of note discount 112,599 -- 130,599
Loss on sale of fixed assets -- -- 13,817
Beneficial conversion feature of convertible debt 429,498 -- 429,498
Financing, consulting and other expenses paid via the
issuance of common stock and warrants 15,619,708 429,987 17,435,633
Increase (decrease) in net liability for severance pay (7,841) 21,130 7,300
Accrued interest on loans and notes payable -- -- 210,016
Company's share in net losses of affiliates 53,772 -- 53,772
Minority interest in subsidiary loss (18,405) (18,405)
Write-down of long term investment -- -- 665,000
Write-off of leasehold improvements 12,102 -- 32,555
Increase (decrease) in cash attributable
to changes in assets and liabilities
Receivables and prepaid expenses 54,729 131,678 46,863
Accounts payable (43,557) 150,966 (59,837)
Other current liabilities (79,524) (101,082) 223,634
------------ ------------ ------------
Net cash used by operating activities (1,009,835) (40,533) (3,889,977)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan provided to another company -- -- (835,000)
Investment in affiliated company (150,000) -- (150,000)
Additions to property and equipment (21,732) -- (393,551)
Proceeds from disposal of fixed assets -- -- 42,100
Payment for security deposits (5,800) -- (5,800)
Decrease (increase) in restricted cash (8,684) -- (93,504)
------------ ------------ ------------
Net cash used in investing activities (186,216) -- (1,435,755)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of share capital -- -- 2,264
Proceeds from issuance of notes payable -- -- 1,000,000
Proceeds from issuance of convertible debentures 1,288,720 1,288,720
Repayment of notes payable -- -- (400,000)
Proceeds of loans from shareholders, net -- -- 919,600
Repayment of loans from shareholders -- -- (968,000)
Proceeds from long-term bank credit -- -- 95,969
Repayment of long-term bank credit (3,505) (9,500) (81,550)
Increase (decrease) in short term bank credit (26,866) 41,537 82,033
Public offering of common stock -- -- 3,433,027
Repayment of short-term debt (250,000) -- (250,000)
Proceeds from short-term debt 350,000 -- 374,038
Loans to affiliate (57,500) -- (57,500)
------------ ------------ ------------
Net cash provided by financing activities 1,300,849 32,037 5,438,601
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 104,798 (8,496) 112,869
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 8,071 16,138 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 112,869 $ 7,642 $ 112,869
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
</TABLE>
Noncash financing activities for the six months ended June 30, 2000
(a) Issuance of common stock with fair value of $10,470,000 in respect
of extinguishment of outstanding note payable resulting in an
extraordinary charge of $9,778,167 (see Note 7).
(b) Waiver of liability due to related party in the amount of $75,328.
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
3
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of Ambient
Corporation, and its Subsidiaries (collectively "the Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with Item 310(b) of Regulation SB.
Accordingly, they do not include all of the information and footnotes
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 six months
ended June 30, 2000, are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000. For further
information, refer to the audited consolidated financial statements of the
Company as of December 31, 1999 and for the year then ended, and footnotes
thereto.
Basis of consolidation
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries, Ambient Ltd. and Insulated Connections
Corporation Limited ("ICC"), and it's 90.1% owned subsidiary PLT
Solutions, Inc. ("PLT"). All inter-company balances and transactions are
eliminated in consolidation. The minority interest in the Company's
subsidiary, PLT, is held by an employee and represents 9.9% of total PLT
equity
Going concern assumption
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business. The Company has a limited operating history, has
sustained losses since its inception and has an accumulated deficit at
June 30, 2000 of $23.2 million (including $ 17.8 million in non-cash
charges primarily related to the issuance of securities and the
extinguishment of debt). The Company faces a number of risks and
uncertainties regarding its business, including among other factors, the
successful design, development and implement effective products, demand
and market acceptance of its products, the effects of technological
change, and the development of new products. The Company anticipates that
it will continue to incur significant operating costs and losses in
connection with the development of its products and increased marketing
efforts which raises substantial doubt about its ability to continue as a
going concern.
Management's plans to continue operations in the normal course of business
include the following: (i) continuing to seek out potential sources of
equity capital and other financing; (ii) seeking out strategic
partnerships; (iii) negotiating with a number of companies to install
pilot projects; and (iv) diversification in the fields of internet
technology and communications.
In February 2000, the Company entered into an agreement for the sale of up
to $2,000,000 of 10% convertible debentures. To date the Company has
issued $1.5 million and expects to issue an additional $500,000 in the
near term. In July and August 2000, the Company realized gross proceeds of
approximately $4,625,000 (before deducting approximately $462,500 in fees
and commissions) from various private placements
The ability of the Company to continue as a going concern is dependent
upon the success of the Company's products and its access to sufficient
funding to enable it to continue operations. There is no assurance that
sufficient revenues will be generated or that adequate financing will be
available to the Company. Insufficient funds from operations or the
inability to obtain adequate financing would have a material adverse
effect on the Company.
Reclassification
Certain prior period amounts have been reclassified to conform with
current period presentation.
<PAGE>
4
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 2 - Long-term Investments
Included in long-term investments is the Company's 40% interest in a newly
established Israeli company, Kliks.com Ltd.("Kliks"). During the six
months ended June 30, 2000, the Company acquired its interest in Kliks,
which is engaged in designing and establishing a nationwide internet
screen phone network in Israel. To date the Company has invested (by way
of equity investment) a total of $150,000. The Company is entitled, but
not obligated, to purchase up to an additional 10% interest in Kliks' for
$250,000.
The Company is obligated to lend up to $850,000 to meet the financing
needs of Kliks. The loans bear interest at the rate of 7% per annum and
are due together with accrued interest at the end of seventh year from the
date of funding. At June 30, 2000, the Company had loans outstanding in
the amount of $57,500.
The Company applies the equity method of accounting for its investment in
Kliks and has recorded a charge to operations in the amount of $53,772,
which represents its interest in the loss for the six months ended June
30, 2000.
Note 3 - 10% Convertible Debentures
In February 2000, the Company issued $1,000,000 of 10% convertible
debentures to private investors. Net proceeds of the issuance amounted to
$857,500. The debentures were issued pursuant to the terms of an
agreement, which further provides that, subject to certain conditions, the
investors will purchase an additional $1,000,000 of debentures no later
than five days after the effective date of a registration statement
covering the common stock into which the debentures may be converted. In
April 2000, the debenture holders pre-funded $500,000 of this commitment
and, in consequence thereof, the Company issued an additional $500,000 of
its 10% convertible debentures.
The debentures are convertible into shares of the Company's common stock
at a conversion rate of $0.40 per share, subject to adjustments under
certain conditions. The debentures are exercisable only to the extent that
after exercise, the beneficial ownership of the debenture holder in the
Company's outstanding shares of common stock does not exceed 4.99%. The
debentures mature two years after issuance. In accordance with EITF 98-5,
the Company has recorded financing expense in the amount of $429,498
representing the beneficial conversion feature of this convertible
debenture issuance.
In connection with the issuance of the 10% convertible debentures, the
Company issued to debenture holders warrants to purchase, in the
aggregate, 937,500 of the Company's common shares at an exercise price per
share of $1 per share. The warrants are exercisable only to the extent
that after exercise, the beneficial ownership of the debenture holder in
the Company's outstanding shares of common stock does not exceed 4.99%.
The warrants expire approximately three years after issuance. For
financial reporting purposes, the Company recorded a total discount of
$859,222, to reflect the value of the Warrants. The discount is being
amortized on a straight-line basis over the terms of the respective notes.
Under its agreements with the debenture holders, the Company is obligated
to pay late fees as liquidated damages to the debenture holders because it
has not filed by a prescribed date a registration statement in respect of
the resale of shares issuable upon the conversion of the debentures and
the shares issuable upon exercise of the warrants issued in conjunction
with the debentures and due to the non-effectiveness of a registration
statement by a prescribed date. However, these amounts are not payable in
the event that such registration statement is declared effective within
sixty days after filing. If the Company is obligated to pay these
liquidated damages, the amount that it must pay to the debenture holders
will be equal to (A) 2% of the principal amount of all the debentures for
the period from May 17, 2000 through the 30 day thereafter, and (B) 3% of
the principal amount thereof for each subsequent 30-day period.
Note 4 - Legal Settlement
Certain parties contended that the Company guaranteed, in a prior year,
the repayment of an outstanding third-party loan obligation, which
contention the Company denies. In settlement of the dispute, the Company,
on April 14, 2000, entered into a settlement agreement with such parties
pursuant to which it undertook to pay, in the aggregate, $200,000 and
issue to them an aggregate of 250,000 shares of the Company's common
stock. Accordingly, the Company has recorded a charge to operations in the
period in the amount of $1,512,500, representing the market value of the
shares that were issued and the cash payment it undertook to pay.
<PAGE>
5
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 5 - Marketing and financial consulting agreements
The Company entered into various marketing and financial consulting
agreements in February and March 2000. Accordingly, the Company issued
2,761,000 shares of common stock, 1,500,000 warrants exercisable at $.01
and agreed to pay $8,000 per month as compensation. The agreements
terminate in or before June 2001. The warrants are exercisable until
February 2002 and, only to the extent that after exercise, the beneficial
ownership of the consultant in the Company's outstanding shares of common
stock does not exceed 4.99% of the Company's outstanding common shares.
The Company recorded deferred compensation in the amount of $12.6 million
relating to the issuance of the shares and warrants, and is amortizing
this amount over the terms of the related agreements.
Note 6 - Employee Stock Option Grants
Pursuant to various employment agreements executed in February through
April 2000, the Company granted a total of 250,000 stock options. Of this
amount, 100,000 options with an exercise price of $2.50 vest 50% after one
year and 50% after two years; 100,000 options with an exercise price of
$.01 vest in equal monthly installments over three years; and 50,000
options with an exercise price of $.01 vest in equal monthly installments
over eighteen months. The Company recorded deferred compensation in the
amount of $818,600 relating to the issuance of these options, and is
amortizing this amount over the related vesting periods.
Note 7 - Extraordinary Item
In the first quarter of 2000, the Company issued 3,490,000 shares to the
holder of an outstanding note payable in an approximate amount (principal
plus accrued interest) of $700,000. The share price at the date of
issuance was $3. The Company recorded an extraordinary charge in the
amount of $9,778,167 with respect to this issuance.
Note 8 - Subsequent events
Private Placements
In July and August 2000, the Company sold one million shares of its common
stock and one million shares of its convertible preferred stock in two
private placements, for an aggregate purchase price of $4,000,000. As part
of these private placements, the Company issued warrants to purchase up to
two million shares of the Company's convertible preferred stock at an
exercise price equal to $3.50. The shares of convertible preferred stock
issued and the convertible preferred stock issued or issuable pursuant to
the warrants will be automatically converted to shares of the Company's
common stock upon (and subject to) the approval by the Company's
stockholders, at the annual 2000 general stockholders meeting, of a
proposal to increase the authorized shares of common stock that the
Company may issue from time to time. A total of 43.75% of the proceeds of
this private placement must be used solely to finance the activities
relating to PLT . Certain of the investors were granted limited
pre-emption rights exercisable under certain circumstances.
Convertible debt
In July 2000, the Company received gross proceeds of $625,000 from the
issuance of convertible notes payable. The notes will be automatically
converted into Units, each Unit consisting of one share of the Company's
common stock and one common stock warrant, together at the rate of $2.00
per unit. Conversion is subject to the approval by the Company's
stockholders, at the annual 2000 general stockholders meeting, of a
proposal to increase the authorized shares of common stock that the
Company may issue. The warrant is exercisable at $3.50 per share.
Authorized Shares
In July 2000, the Company's Board of Directors adopted a resolution to
increase the authorized common stock to 50 million shares which resolution
will become effective upon (and subject to) its approval by the Company's
stockholders at the 2000 annual general stockholders meeting.
<PAGE>
6
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Stock Option Plan
In July 2000, the Company's Board of Directors adopted the 2000 Equity
Incentive Plan (the "2000 Incentive Plan"). A total of 2,000,000 shares of
common stock have been reserved for issuance under the 2000 Incentive
Plan. The 2000 Incentive Plan will go into effect upon approval of the
Company's stockholders at the 2000 annual general stockholders meeting.
The 2000 Incentive Plan provides for the grant of incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock,
bonus stock, awards in lieu of cash obligations, other stock-based awards
and performance units. The 2000 Incentive Plan also permits cash payments
under certain conditions.
<PAGE>
AMBIENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
F-18
<PAGE>
AMBIENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
INDEPENDENT AUDITORS' REPORT OF BRIGHTMAN ALMAGOR & CO. F-20
INDEPENDENT AUDITORS' REPORT OF LUBOSHITZ, KASIERER & CO. F-22
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets F-23
Statements of Operations F-24
Statement of Changes in Shareholders Deficiency F-25
Statements of Cash Flows F-26
Notes to Financial Statements F-27
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Ambient Corporation
We have audited the accompanying consolidated balance sheets of Ambient
Corporation (a development stage company) and subsidiary (collectively, "the
Company") as of December 31, 1999 and 1998, and the related consolidated
statements of operations, changes in shareholders' deficiency and cash flows for
the years then ended and for the period from inception (June 1996) to December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We did not audit the financial statements of the Company for the period from
June 1996 (date of inception) through December 31, 1997, which statements
reflect a net loss of $ 2,126,810, representing 35% of the total deficit
accumulated during the development stage from inception to December 31, 1999.
Those statements were audited by other auditors whose report (which expressed an
unqualified opinion and included an explanatory paragraph with respect to the
Company's continuing existence as a going concern) has been furnished to us, and
our opinion, insofar as it relates to the amounts included for such prior
period, is based solely on the report of such other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based, on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Ambient Corporation
and subsidiary as of December 31, 1999 and 1998, and the results of their
operations, changes in shareholders' deficiency and cash flows for the years
then ended and for the period from inception (June 1996) to December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company incurred a net loss in 1999 of
approximately $1.1 million (and approximately $6.1 million since inception) and
anticipates that it will continue to incur losses for some time. In addition,
the Company had a working capital deficit of approximately $0.7 million and a
shareholders' deficiency of approximately $ 1million as of December 31, 1999.
Although the Company raised net proceeds of approximately $ 3.4 million from an
initial public offering in February 1998, it has substantially utilized all of
such proceeds, primarily for product development. The Company's continued
existence as a going concern is dependent on obtaining additional financing for
product development and commercialization. After the balance sheet date, the
Company raised debt financing, through convertible debentures in the amount of
$1 million.
F-20
<PAGE>
The Company continues to seek out other potential sources of equity capital, but
there can be no assurance that it will be able to do so in the foreseeable
future. These matters raise substantial doubt about the Company's ability to
continue as a going concern. Management plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Brightman Almagor & Co.
Certified Public Accountants (Israel)
A member of Deloitte Touche Tohmatsu
Tel Aviv, Israel
April 13, 2000
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Shareholders of AMBIENT CORPORATION
We have audited the accompanying consolidated balance sheets of Ambient
Corporation (a development stage company) and subsidiary as of December 31, 1996
and 1997, and the related consolidated statements of operations, changes in
shareholders' deficiency and cash flows for the two years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ambient
Corporation and subsidiary as of December 31, 1996 and 1997, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1997, in conformity with accounting principles generally
accepted in the United States.
As discussed in Note 1 to the consolidated finical statements, the Company is in
the development stage and its continued existence is dependent on obtaining
additional financing for product development and commercialization. The Company
incurred a net loss in 1996 and 1997 and anticipates that it will continue to
incur losses for some time. These matters raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
Luboshitz, Kasierer & Co.
Member Firm of Arthur Andersen
Tel-Aviv, May 19, 1998
F-22
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(in U.S. dollars, except share data)
<TABLE>
<CAPTION>
As of December 31,
------------------
Note 1 9 9 9 1 9 9 8
---- ------- -------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 8,071 16,138
Restricted cash 3 84,820 131,259
Receivables and prepaid expenses 34,628 334,983
---------- ----------
Total current assets 127,519 482,380
---------- ----------
LONG TERM INVESTMENT 4 170,000 350,000
---------- ----------
PROPERTY AND EQUIPMENT 5
Cost 264,928 328,320
Less - accumulated depreciation 129,630 92,057
---------- ----------
Property and equipment, net 135,298 236,263
---------- ----------
DEPOSITS FOR SEVERANCE PAY 9 193 6,587
---------- ----------
Total assets 433,010 1,075,230
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Bank loan 6A 140,903 144,006
Accounts payable 212,967 337,105
Notes payable 7 -- 585,900
Other current liabilities 8 491,713 175,264
---------- ----------
Total current liabilities 845,583 1,242,275
---------- ----------
LONG-TERM LIABILITIES
Long-term bank loan 6B 9,958 37,886
Liability for severance pay 9 15,334 37,613
---------- ----------
Total long-term liabilities 25,292 75,499
---------- ----------
Total liabilities 870,875 1,317,774
---------- ----------
CONTINGENT LIABILITIES AND COMMITMENTS 10
NOTES PAYABLE 7 600,000 --
---------- ----------
SHAREHOLDERS' DEFICIENCY 11
Common stock $0.001 par value; authorized - 20,000,000 shares;
issued and outstanding - 3,130,833 and 3,074,333 shares, respectively 3,131 3,074
Additional paid-in capital 5,041,595 4,941,189
Deferred stock-based compensation (4,063) (239,683)
Deficit accumulated during the development stage (6,078,528) (4,947,124)
---------- ----------
Total shareholders' deficiency (1,037,865) (242,544)
---------- ----------
Total liabilities and shareholders' deficiency 433,010 1,075,230
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in U.S. dollars, except share data)
<TABLE>
<CAPTION>
Cumulative from
Year ended inception to
December 31, December 31,
------------------------ ---------------
Note 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Research and development expenses 340,287 726,479 1,721,837
Less - participation by the Office of
the Chief Scientist of the State of Israel 10A 231,767 230,452 558,195
---------- ---------- ----------
108,520 496,027 1,163,642
Operating, general and administrative expenses 13 684,234 1,904,273 3,635,625
---------- ---------- ----------
Operating loss (792,754) (2,400,300) (4,799,267)
Financing expenses, net 332,546 416,427 1,269,570
Other expenses, net 6,104 3,587 9,691
---------- ---------- ----------
Net loss (1,131,404) (2,820,314) (6,078,528)
========== ========== ==========
Basic and diluted loss per share (0.36) (0.95)
========== ==========
Weighted average number of shares outstanding 3,121,479 2,979,541
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
(in U.S. dollars, except share data)
<TABLE>
<CAPTION>
Deficit
accumulated
Additional Deferred stock - during the
Number of Share paid-in based development
shares capital capital Compensation stage Total
------ ------- ------- ------------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1997 2,419,333 2,419 730,582 (241,112) (2,126,810) (1,634,921)
Stock issued pursuant to consulting
agreement 75,000 75 654,925 (655,000) -- --
Initial public offering in February
1998 525,000 525 3,432,502 -- -- 3,433,027
Stock issued in connection with
short-term debt financing 20,000 20 99,980 -- -- 100,000
Additional stock pursuant to founders
agreement for nominal consideration 35,000 35 -- -- -- 35
Warrants issued pursuant to private
placement of units -- -- 21,600 -- -- 21,600
Options granted pursuant to
consulting agreement -- -- 1,600 (1,600) -- --
Amortization of unearned compensation -- -- -- 658,029 -- 658,029
Net loss -- -- -- -- (2,820,314) (2,820,314)
--------- ----- --------- ------ ---------- ----------
Balance - December 31, 1998 3,074,333 3,074 4,941,189 (239,683) (4,947,124) (242,544)
Stock issued pursuant to consulting
agreement - January 1999 4,000 4 7,996 (8,000) -- --
Stock issued pursuant to consulting
agreement - February 1999 15,000 15 -- -- -- 15
Stock issued pursuant to consulting
agreement - February 1999 22,500 23 69,977 (70,000) -- --
Stock issued pursuant to consulting
agreement - April 1999 15,000 15 12,173 (12,188) -- --
Warrants issued pursuant to
consulting agreement - April 1999 -- -- 10,260 -- -- 10,260
Amortization of deferred stock -
based compensation -- -- -- 325,808 -- 325,808
Net loss -- -- -- -- (1,131,404) (1,131,404)
--------- ----- --------- ------ ---------- ----------
Balance - December 31, 1999 3,130,833 3,131 5,041,595 (4,063) (6,078,528) (1,037,865)
========= ===== ========= ====== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in U.S. dollars)
<TABLE>
<CAPTION>
Cumulative from
Year ended inception to
December 31, December 31,
------------------------ ---------------
CASH FLOWS - OPERATING ACTIVITIES 1999 1998 1999
---------- ---------- ---------------
<S> <C> <C> <C>
Net loss (1,131,404) (2,820,314) (6,078,528)
Adjustments to reconcile net loss to net cash used in operating
activities -
Items not involving cash flows:
Depreciation and amortization 397,058 950,009 1,884,672
Loss on sale of fixed assets 13,817 -- 13,817
Financing expenses paid via the issuance of common stock -- 100,000 100,000
Consulting expenses paid via the issuance of common stock
and warrants 10,275 -- 10,275
Increase (decrease) in net liability for severance pay (15,885) 11,026 15,141
Accrued interest on loans and notes payable -- -- 210,016
Write-down of long term investment 180,000 485,000 665,000
Write-off of leasehold improvements -- 20,453 20,453
Changes in operating assets and liabilities:
Decrease (increase) in receivables and prepaid expenses 300,355 (295,061) (7,866)
Increase (decrease) in accounts payable (124,138) 90,343 (16,280)
Increase (decrease) in other current liabilities 316,449 (64,691) 303,158
---------- ---------- ----------
Net cash used in operating activities (53,473) (1,523,235) (2,880,142)
---------- ---------- ----------
CASH FLOWS - INVESTING ACTIVITIES
Loan provided to another company -- (835,000) (835,000)
Additions to property and equipment (12,102) (112,317) (371,819)
Proceeds from disposal of fixed assets 42,100 -- 42,100
Decrease (increase) in restricted cash 46,439 (101,259) (84,820)
---------- ---------- ----------
Net cash provided by (used in) investing activities 76,437 (1,048,576) (1,249,539)
---------- ---------- ----------
CASH FLOWS - FINANCING ACTIVITIES
Proceeds from issuance of share capital -- 35 2,264
Proceeds from issuance of notes payable -- 600,000 1,000,000
Repayment of notes payable -- (400,000) (400,000)
Proceeds of loans from shareholders -- -- 919,600
Repayment of loans from shareholders -- (968,000) (968,000)
Repayment of loan from related party -- (13,947) --
Repayment of long-term loan -- (120,000) --
Proceeds from long-term bank credit -- 58,859 95,969
Repayment of long-term bank credit (40,935) (37,110) (78,045)
Increase in bank short term credit 9,904 11,047 108,899
Public offering of common stock -- 3,433,027 3,433,027
Proceeds from short-term bank loan -- 24,038 24,038
---------- ---------- ----------
Net cash provided by (used in) financing activities (31,031) 2,587,949 4,137,752
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (8,067) 16,138 8,071
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 16,138 -- --
---------- ---------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD 8,071 16,138 8,071
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-26
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 1 - DESCRIPTION OF BUSINESS AND GENERAL
A. Description of business
Ambient Corporation ("Ambient"), a development stage company, was
founded in June 1996 to design and develop advanced smart card
interface technology. A smart card is a credit card-sized plastic
card equipped with an integrated circuit that can store and transfer
information in electronic form.
In August 1996, Ambient purchased substantially all of the assets
and assumed substantially all of the liabilities of Gen
Technologies, Inc., a smart card research and development company,
at their approximate book value, including the capital stock of its
subsidiary, Gen Tec Ltd. (which subsequently changed its name to
Ambient Ltd.). The results of operations of Gen Technologies, Inc.
prior to the acquisition were not material. Ambient and its
subsidiary are collectively referred to herein as "the Company." The
Company has ceased its research and design efforts in the smart card
interface technology area.
The Company has recently commenced the design and development of
products and services in the field of electronics commerce, internet
and telephony activities.
The Company's activities are currently centered in two distinct
areas; the completion of the design and development of a unique
technology designed to facilitate the provision of rapid power line
telecommunication (PLT) services to ordinary business and personal
consumers and the establishment, initially in Israel, of a
nationwide screen phone network designed to enable internet access
for consumers who do not have access to, or are unable, or unwilling
to use personal computers.
The Company has not generated any revenues since inception.
B. Going concern assumption
The Company incurred a net loss in 1999 of approximately $1.1
million (and approximately $6.1 million since inception) and
anticipates that it will continue to incur losses for some time. In
addition, the Company had a working capital deficit of approximately
$0.7 million and a shareholders' deficiency of approximately $1.1
million as of December 31, 1999. Although the Company raised net
proceeds of approximately $3.4 million from an initial public
offering in February 1998, it has substantially utilized all of such
proceeds, primarily for product development. The Company's continued
existence is dependent on obtaining additional financing for product
development and commercialization.
In February 2000, the Company issued $1,000,000, 10% convertible
debentures to private investors (net proceeds were $857,500). The
debentures mature on February 28, 2002 (see Note 15).
F-27
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 1 - DESCRIPTION OF BUSINESS AND GENERAL (cont.)
B. Going concern assumption (cont.)
Management's plans to continue operations in the normal course of
business include the following: (i) continuing to seek out potential
sources of equity capital; (ii) seeking out strategic partnerships;
(iii) negotiating with a number of companies to install pilot
projects; and (iv) diversification through establishment of new
subsidiaries in the fields of internet technology and
communications. In management's estimation, the above measures, if
substantially realized, should enable the Company to continue
operating through at least December 31, 2000, although there can be
no assurance of this.
In order to reduce its fixed costs until the above measures are
partially or fully realized, during 1999, the Company terminated the
employment of most of its employees. The Company has also undertaken
other cost-cutting measures, such as reducing its lease space. In
addition, due to the Company's adverse liquidity position, the
Company did not pay salaries and salary related amounts to its
remaining employees and to related institutions for several months.
The above matters raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do
not include any adjustments that might be necessary should the
Company be unable to continue as a going concern.
C. Use of estimates in preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as
of the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
D. Nature of industry
The industries in which Company conducts business is characterized
by rapid changes. Internet and internet related products quickly
become out of date because of technological and other advances.
Accordingly, the industry is typified by the constant need to
develop and introduce new and enhanced products, which may result in
substantial costs without any guarantee that such new products or
enhancements will produce significant revenues.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States. The significant accounting policies followed in the
preparation of the financial statements, on a basis consistent with
prior years, are as follows:
F-28
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
A. Cash and cash equivalents
Cash and cash equivalents consist of cash and demand deposits in
banks and other financial institutions, and other short-term, highly
liquid investments (primarily interest-bearing time deposits) with
maturity dates not exceeding three months from the date of deposit.
B. Functional currency and foreign currency translation
The currency of the primary economic environment in which the
operations of the Company are conducted is the U.S. dollar
("dollar"). Therefore, the Company uses the dollar as its functional
and reporting currency. Certain of the dollar amounts in the
financial statements may represent the dollar equivalent of other
currencies, and may not necessarily be exchangeable for dollars.
Transactions and balances denominated in dollars are presented at
their dollar amounts. Non-dollar transactions and balances are
remeasured into dollars in accordance with the principles set forth
in Statement No. 52, "Foreign Currency Translation," of the
Financial Accounting Standards Board of the United States ("FASB").
Transaction gains and losses are reflected in net financing
expenses.
C. Consolidation
The consolidated financial statements include those of Ambient and
its 95%-owned subsidiary. Material intercompany transactions and
balances have been eliminated in consolidation. The Company has
recorded 100% of the subsidiary's losses since acquisition. No
minority interest has been recorded in the financial statements.
D. Property and equipment
Property and equipment are presented at cost, less accumulated
depreciation. Depreciation is calculated based on the straight-line
method over the estimated useful lives of the assets, as follows:
Years
-----
Computers 4 (primarily)
Motor vehicles 7
Machinery and equipment 7
Furniture and office equipment 14 (primarily)
Management reviews property and equipment and other long-lived
assets on a periodic basis to determine whether events or changes in
circumstances indicate that the carrying amount of such assets may
not be recoverable.
F-29
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
E. Research and development
Research and development costs, net of participation by the
Government of Israel through the Ministry of Industry and Trade's
Office of the Chief Scientist ( "Office of the Chief Scientist"),
are charged to operations as incurred.
F. Stock-based compensation
The Company accounts for employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Pursuant to this
accounting standard, the Company records compensation for stock and
stock options granted to employees at the date of grant based on the
difference, if any, between the cost to the employee of the stock or
options (including exercise price) and the market value of the
Company's stock at that date. Deferred compensation is amortized to
compensation expense over the vesting period of the stock or
options. Grants to non-employees are accounted for at fair value as
of the date of grant in accordance with Statement No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") of the FASB.
The pro forma effects of the application of SFAS 123 with respect to
grants to employees are presented in Note 16.
G. Loss per share
Loss per share is presented in accordance with Statement No. 128
("SFAS 128") of the FASB, "Earnings per Share." Pursuant to this
standard, basic earnings (loss) per share exclude the dilutive
effects of convertible securities and are computed by dividing
income (loss) available to common shareholders by the
weighted-average number of common shares outstanding for the period.
Diluted earnings (loss) per share reflect the potential dilutive
effect of all convertible securities and are presented in the
financial statements with the same prominence as basic earnings per
share. Due to the anti-dilutive effect, basic loss per share was
equal to diluted loss per share for each of the years presented. The
number of potentially dilutive securities excluded from diluted
earnings per share due to the anti-dilutive effect amounted to
308,000, 200,000 and 0, in 1999, 1998 and 1997, respectively.
Retroactive recognition has been given in the calculation of basic
loss per share to shares issued for nominal consideration prior to
the Company's initial public offering.
H. Fair value of financial instruments
The Company's financial instruments are principally non-derivative
assets and non-derivative liabilities, such as cash and cash
equivalents, deposits in banks, receivables, loan receivable,
short-term and long-term credit, accounts payable and other current
and non-current liabilities. Because of the nature of these
financial instruments, fair value generally equals or approximates
the amounts presented in these financial statements.
F-30
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
I. Recently issued standards
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS 133 is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000 (as amended by
SFAS No. 137). SFAS No. 133 requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a
derivative is designed as part of a hedge transaction, and if it is,
the type of hedge transaction. The Company does not expect the
adoption of SFAS No. 133 to have material impact on its consolidated
financial statements.
NOTE 3 - RESTRICTED CASH
In connection with a line of credit and short-term loan from a bank
(see Note 6), the Company is required to maintain a compensating
balance which is restricted for a period of up to one year. The
restricted balance amounted to $ 84,820 as of December 31, 1999
(December 31, 1998 - $131,259).
NOTE 4 - LONG TERM INVESTMENT
On May 20, 1998, a letter of intent was signed between the Company
and Ordacard Hi-Tech Industries (1995) Ltd. ("Ordacard"), an Israeli
manufacturer of plastic ID and bank cards, relating to a proposed
merger with Ordacard, which was to be consummated by December 31,
1998.
Pursuant to the letter of intent, the Company was to provide
$1,000,000 of loans to Ordacard - $350,000 upon execution of the
letter of intent and $650,000 by July 1, 1998. The loans were to be
evidenced by two convertible promissory notes, secured by Ordacard's
assets and subordinated to Ordacard's secured bank loans in
existence as of the date of payment. The notes were to bear interest
at an annual rate of 6%. In addition, the Company was to carry out a
private or public offering of equity securities with minimum net
proceeds (after commissions and expenses) of $7.5 million by
December 31, 1998. Since the merger and the equity financing were
not consummated by December 31, 1998, the Company had the option to
demand full payment of the aggregate outstanding principal and
accrued interest on the notes through the date of payment, or
convert, at its sole option, the aggregate outstanding principal and
interest into 50,000 shares of Ordacard.
The Company provided the $350,000 loan upon execution of the letter
of intent and provided additional cash advances during the third
quarter of 1998 in the total amount of $485,000, such that the
amounts provided to Ordacard by the Company aggregated $835,000.
During 1999 the Company elected to convert the loan into 36,490
shares of Ordacard common stock, and has written down the investment
to its estimated fair value of $170,000 (1998, Long Term Receivable
- $350,000). The expense recorded in 1999 and 1998 with respect to
this impairment amounted to $180,000 and $485,000, respectively.
F-31
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 5 - PROPERTY AND EQUIPMENT
December 31
-----------------------
1999 1998
------- -------
Computers 104,437 104,437
Machinery and equipment 63,164 63,164
Furniture and office equipment 40,346 40,346
Leasehold improvements 12,102 --
Motor vehicles (*) 44,879 120,373
------- -------
264,928 328,320
Less - accumulated depreciation 129,630 92,057
------- -------
135,298 236,263
======= =======
(*) The motor vehicles are pledged as collateral for a long-term
bank loan.
NOTE 6 - BANK LOANS
A. Short-term credit
<TABLE>
<CAPTION>
Interest rate December 31
------------- -----------------
At 1999 1998
-- ------- -------
December
--------
31, 1999
--------
<S> <C> <C> <C>
Current maturities of long-term bank credit 14%-16% 7,966 20,973
Bank overdraft line of credit 18% 132,937 98,995
Short-term bank loan 14% -- 24,038
------- -------
140,903 144,006
======= =======
</TABLE>
B. Long-term bank credit
Consists of vehicle financing loans in the aggregate amount of
$17,924, payable in monthly installments through 2002, including
interest at various market rates. Current maturities in 2000 amount
to $7,966. Payments due in future years (excluding the current
portion) are as follows:
2001 $7,966
2002 1,992
------
9,958
======
F-32
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 7 - NOTES PAYABLE
In June 1998, the Company conducted a private placement of units.
Each unit consisted of: (i) a promissory note in the principal
amount of $50,000 and (ii) warrants to purchase 10,000 shares of the
Company's common stock. The Company sold 12 units in the private
placement for aggregate consideration of $600,000. The relative fair
value of the consideration allocated to the warrants was $21,600
using the Black-Scholes option pricing model, which was credited to
additional paid-in capital.
The notes bear interest at an annual rate of 10% and are repayable
at the earlier of: (i) 12 months from the date of issuance or (ii)
consummation by the Company of any public or private equity or debt
financing in excess of $1,500,000 (as well as certain other
conditions).
The purchase price for each share pursuant to the warrants is equal
to the lower of: (i) $8.00 and (ii) the offering price of the
Company's common stock in a subsequent public offering with
aggregate proceeds to the Company of at least $1,500,000. The
warrants are exercisable for a period of four years from the date of
issuance.
In February 2000 the Company entered into an agreement to convert
these notes to equity. Principal and interest of approximately
$700,000 were converted into 3,490,000 shares of the Company's
common stock.
NOTE 8 - OTHER CURRENT LIABILITIES
As of December 31
-----------------
1999 1998
---- ----
Accrued vacation 23,560 27,125
Employees and officers 99,797 1,472
Accrued liabilities 190,930 72,312
Related parties 177,426 74,355
------- -------
491,713 175,264
======= =======
F-33
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 9 - LIABILITY FOR SEVERANCE PAY
Israeli law and labor agreements determine the obligations of the
Company to make severance payments to dismissed employees and to
employees leaving employment under certain other circumstances. The
obligation for severance pay benefits, as determined by Israeli Law,
is based upon length of service and the employee's most recent
salary. This obligation is partially funded by the purchase from
outside insurance companies of managers' insurance policies, which
are controlled by the insurance companies and are not under the
control and management of the Company.
Expenses relating to severance pay benefits were $22,560 and $23,564
in 1999 and 1998, respectively.
NOTE 10 - CONTINGENT LIABILITIES AND COMMITMENTS
A. In connection with its research and development, the Company
received participation payments from the Office of the Chief
Scientist of $231,767, $230,452 and $0 for the years 1999, 1998 and
1997, respectively. In return for such participation, the Company is
committed to pay royalties at a rate of 3%-5% of sales of the
product, up to 100% of the amount of grants received (In 1999 the
entire amount was received and in 1998 $220,364 was included in
receivables and prepaid expenses).
B. The Company is committed to pay royalties to a shareholder of its
subsidiary, in connection with technology transferred by him to the
Company, at rates of between 15% and 20% of the net proceeds from
all sales, less the cost of components, as defined in an agreement
with the shareholder.
C. The Company is obligated to pay to an affiliated company up to
$1,000,000 to meet its financing needs (see Note 15).
D. The Company's Israeli subsidiary is party to various litigation
matters, in most cases involving ordinary and routine claims
incidental to Company's business. The Company's management cannot
estimate with certainty its ultimate legal and financial liability
with respect to such pending litigation matters. However, the
Company believes, based on its examination of such matters, that the
Company's ultimate liability will not have a material adverse effect
on its financial position, results of operations or cash flows.
F-34
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 11 - SHAREHOLDERS' DEFICIENCY
A. General
As of December 31, 1999 and 1998, Ambient's authorized share capital
consisted of 20,000,000 shares of common stock and 5,000,000 shares
of preferred stock of $0.001 par value per share. 3,130,833 and
3,074,333 shares of common stock were issued and outstanding as of
December 31, 1999 and 1998, respectively. Holders of common stock
are entitled to participate equally in the payment of cash dividends
and in stock dividend distributions and, in the event of the
liquidation of the Company, in the distribution of assets after
satisfaction of liabilities to creditors. Each share of common stock
is entitled to one vote on all matters to be voted on by
shareholders. As of December 31, 1999 no preferred shares were
issued.
B. Stock option plan
In February 1998, the Company's shareholders approved a stock option
plan for the issuance of stock options to employees and consultants
of the Company. Pursuant to the plan, 250,000 common shares were
reserved for issuance. Options under the plan may be either
incentive stock options under the Internal Revenue Code or
non-qualified options. For incentive stock options, the exercise
price may not be less than 110% of the fair market value of the
Company's common stock at the date of grant and are exercisable for
a period not exceeding five years from the date of grant (110% of
the fair market value if the grant is an Incentive Stock Option to
an employee who owns more than 10% of the outstanding common stock).
For non-qualified options, the exercise may not be less than 100% of
the fair market value of the Company's common stock at the date of
grant and are exercisable for a period not exceeding ten years from
the date of grant.
During 1998, 80,000 stock options were granted under the plan to a
consultant of the Company. The exercise price of the options was $6
and the options were exercisable until August 1, 1999. Compensation
expense of $1,600 was recorded in respect of this grant. The stock
options expired on August 1, 1999.
During 1999, 170,000 stock options were granted to the Chief
Financial Officer (51,000 stock options) and to the former Chief
Executive Officer (119,000 stock options) under the "1998 Stock
Option Plan". In addition, 50,000 stock options were granted to a
consultant and exercised.
Since the Company accounts for employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and since the terms were
fixed and the exercise prices were set at no less than 100% of the
share's price, no compensation expenses were recorded in respect of
these grants. For pro - forma effect see Note 16.
F-35
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 11 -SHAREHOLDERS' DEFICIENCY (cont.)
B. Stock option plan (cont.)
The total number of stock options outstanding as of December 31,
1999 is 170,000.
A summary of the status of the Company's share option plans as
of December 31, 1999 and 1998, as well as changes during each
of the years then ended, is presented below:
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------
Weighted Weighted
average average
Share options exercise price Share options exercise price
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Outstanding as of beginning of
year (1) 80,000 6.00 -- --
Granted 170,000 0.81 80,000 6.00
Exercised -- -- -- --
Forfeited (80,000) -- -- --
------- ---- ------ ----
Outstanding as of end of year 170,000 0.81 80,000 6.00
======= ==== ====== ====
Options exercisable as of year
end 170,000 0.81 80,000 6.00
======= ==== ====== ====
</TABLE>
The following table summarizes information about share options
outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
Exercisable as of
Outstanding as of December 31, 1999 December 31, 1999
------------------------------------------------------------------- ------------------------------
Weighted
Range of average Weighted Weighted
exercise Number remaining average Number average
prices outstanding contractual life exercise price exercisable exercise price
------ ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.81 170,000 9.4 years $0.81 170,000 $0.81
======= =======
</TABLE>
F-36
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 11 - SHAREHOLDERS' DEFICIENCY (cont.)
C. Stock issuances to consultants
During 1999, the Company issued to certain consultants 56,500 shares
of common stock for their services. The Company recorded deferred
compensation of $90,188 in respect of these issuances, based on the
market value of the shares at the date of issuance of $1.6 per
share. The deferred compensation was amortized over the period of
the service.
D. Warrants issuance to consultant
During 1999, the Company issued to a certain consultant 18,000
warrants for past services. The exercise price of the warrants was
$1.88 and the warrants are exercisable until April 2006. The Company
recorded an expense of $10,260 in respect of this issuance, based on
the fair value of the warrants at the date of issuance, based on the
Black-Scholes model using the following assumptions: expected
volatility - 50%; expected risk-free rate - 5%; expected dividend
yield - none, expected life of the warrants - 7 years and share
price and exercise price of $1.88.
The total number of warrants outstanding as of December 31, 1999 is
138,000.With respect to 120,000 of these warrants see Note 7.
The fair value (in dollars) of the warrants granted during 1999
amounted to $1.082 per warrant. The Company utilized the
Black-Scholes option pricing model to estimate fair value, utilizing
the following assumptions (all in weighted averages):
1999
----
Risk-free interest rate 5%
Expected life of warrants 7 years
Expected annual volatility 50%
Expected dividend yield None
F-37
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 11 - SHAREHOLDERS DEFICIENCY (cont.)
E. Commitments for stock options issuance
(1) In March 2000 the Company undertook to issue to the Company's
C.F.O. additional stock options (see Note 14A).
(2) Pursuant to the letter appointment, dated March 2000, of the
Vice President, the Company undertook to issue to him upon and
subject to the adoption of a new Company stock option plan (i)
options for 5,000 shares of common stock of the Company following 12
months of employment with the Company as Vice President, and (ii) an
additional 5,000 options to vest following 24 months of employment
with the Company as Vice President.
(3) In March 2000 The Company undertook to issue to the chief
technology officer of a Company subsidiary, subject to (and upon)
the adoption of a new Company employee stock option plan at the
Company's Annual stockholders meeting to be held in 2000, (i) 50,000
options from such any newly adopted plan, such options to vest
following 12 months of continuous employment with PLT Solutions Inc.
and (ii) an additional 50,000 options vesting following 24 months of
continuous employment with PLT Solutions Inc., (See Notes 15A and
17) in each case at an exercise price per share to be agreed upon at
a future date.
NOTE 12 - INCOME TAXES
A. Tax loss carryforwards
Due to the uncertainty of realizing the benefit of the Company's tax
loss carryforwards of approximately $6 million, a valuation
allowance for the entire amount of related deferred tax asset has
been recorded.
B. Inflation adjustment for tax purposes
The Company's Israeli subsidiary is subject to the Income Tax Law
(Inflationary Adjustments) - 1985, pursuant to which taxable income
is measured on the basis of changes in the Israeli Consumer Price
Index.
C. Approved investment program
The Company's Israeli subsidiary received "approved enterprise"
status for an investment plan of $180,000 under the Israeli Law for
the Encouragement of Capital Investments - 1959. The Company has
elected to receive benefits through the "alternative benefits"
program. The benefits under this program include a tax exemption on
income derived from the approved enterprise for a period of six
years and a reduced tax rate for a period of up to four years
commencing with the date on which taxable income is first earned.
The benefits are subjected to certain conditions, that some of them
have not been fulfilled as of the balance sheet date.
F-38
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 13 - OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating, general and administrative expenses in 1999 include
approximately $96,000 of marketing advisory and other consulting
fees (1998 - approximately $518,000), which were primarily paid via
the issuance of common shares.
NOTE 14 - TRANSACTIONS WITH RELATED PARTIES
Year ended December 31
----------------------
1999 1998
------- --------
Rent -- $ 62,400
======== ========
Salary $ 89,657 *$135,728
======== ========
Proceeds from disposal of vehicles $ 42,100 --
======== ========
Restricted stock awards 170,000 --
======== ========
* Including $52,484 salary to the Chief Finance Officer, who serves as
a Director since 1999.
A. The Company entered into an employment agreement in March 2000 with
the Chief Financial Officer ("C.F.O") pursuant to which he is
employed as the Company's Chief Financial Officer for a one year
term which is automatically renewable from year to year unless
either party gives notice of termination at least 90 days prior to
the expiration date. The C.F.O. currently receives an annual salary
of $72,000. Subject to the adoption of a new stock option plan, the
C.F.O. will receive from the Company 50,000 options upon the first
anniversary of his employment and an additional 50,000 option upon
the second anniversary of his employment, to purchase shares of
common stock of the Company at an exercise price of $0.01 per share.
The C.F.O. has agreed to certain customary confidentiality and
non-compete provisions that prohibit him from competing with the
Company for one year, or soliciting employees for one year,
following the termination of his employment.
F-39
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 14 - TRANSACTIONS WITH RELATED PARTIES (cont.)
B. During March 2000 the Chairman of the Board of directors of the
Company ("Chairman") entered into an employment contract with the
Company's subsidiary, PLT Solutions Inc. (See Note 15A) He receives
$3,000 per month in salary and $7,500 annually for serving on the
Company's Board, and subject to the adoption of a new stock option
plan, the Chairman was granted 100,000 options to purchase, at a
nominal price, shares of common stock of the Company at an exercise
price of $0.01 per share. Such options will vest over three years
except that if all or substantially all of the assets of PLT are
sold then all of the options immediately vest. The employment
agreement is for one year beginning March 2000 and will renew
automatically for additional one year terms unless terminated by
either party upon three months prior written notice. The Chairman
has agreed to certain customary confidentiality and non-compete
provisions that prohibit him from competing with the Company for one
year, or soliciting employees for one year, following the
termination of his employment.
C. In February 12, 1998, the Company entered into a two-year employment
agreement with the former President and Chief Executive Officer of
the Company. Under the agreement, the former President received an
annual salary of $60,000. As of December 31, 1998, former President
loaned the Company $53,367, bearing 10% interest. The Company used
$30,000 from such loans for general working capital purposes. The
remaining $23,367 was loaned in the form of unpaid accrued salaries.
The former President resigned from his position with the Company in
September 1999. In connection with his resignation, the Company
agreed to (i) remit to the former President, upon the completion of
public offering of the Company's stock, $20,000, plus interest at a
per annum rate of 10%, as reimbursement for amounts owed him (ii)
maintain on the Company's records unpaid salary owed to the former
President in the amount of $75,329 until such time as the per share
closing price of the Company's common stock is at least $2.00, for a
consecutive 10 day period. The former President received 119,000
vested options in May 1999 under the Company's 1998 Stock Option
Plan.
NOTE 15 - POST - BALANCE SHEET EVENTS
A. The Company has established subsidiaries, PLT Solutions Inc.
("PLT"), incorporated in the United States, and Insulated
Connections Corporation Limited ("ICC"), registered in Israel, to
promote and develop a technology designed to facilitate the take-off
of Power Line Telecommunication in the United States and Japan.
Power Line Telecommunication enables existing electricity power
lines to be used for Internet, telephone and data transfer to all
homes and offices. In practice Power Line Telecommunication is not
currently in use due to power utility infrastructure limitations.
F-40
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 15 - POST - BALANCE SHEET EVENTS (cont.)
B. The Company acquired a 40% interest in a newly established Israeli
company, Kliks.com Ltd. ("Kliks"), which is engaged in designing and
establishing a nationwide Screen Phone network in Israel. The
network will enable Internet access for a wide spread of the
population who are less familiar with the use of personal computers
(PC's).
Top management has been recruited.
The Company shall be entitled, but not obligated, to purchase up to
10% of Kliks' share capital upon the payment of $250,000 to Kliks.
The Company shall pay (by way of equity investment) to Kliks up to
$1,000,000 to meet the financing needs of Kliks. The Company shall
not be issued any additional shares or securities of any kind for
such payments.
From the period January 2000 to April 2000, the Company paid
$150,000 as part of this commitment.
C. In February 2000, the Company issued $1,000,000 10% convertible
debentures to private investors. The debentures were issued pursuant
to the terms of an agreement which further provides that, subject to
certain conditions, the investors will purchase an additional
$1,000,000 of debentures no later than five days after the effective
date of a registration statement covering the common stock into
which the debentures may be converted. In January 2000, the
investors pre-funded $250,000 of this obligation. The debentures
mature on February 28, 2002. In accordance with EITF 98-5, financing
expense in the amount of $285,417, representing the beneficial
conversion feature of this convertible debenture issuance, will be
reflected in the first quarter of 2000.
The debentures are convertible into shares of the Company's common
stock at a conversion rate $0.40 per share, subject to adjustments
under certain conditions.
In connection with the issuance of the 10% convertible debentures,
the Company issued to debenture holders warrants to purchase, in the
aggregate, 625,000 of the Company's common shares at an exercise
price per share of $1. The warrants expire in April 2003.
Under its agreements with the debenture holders, the Company is
obligated to pay late fees as liquidated damages to the debenture
holders because it has not filed by a prescribed date a registration
statement in respect of the resale of shares issuable upon the
conversion of the debentures and the shares issuable upon exercise
of the warrants issued in conjunction with the debentures and due to
the non-effectiveness of a registration statement by a prescribed
date. However, these amounts are not payable in the event that such
registration statement is declared effective within sixty days after
filing. If the Company is obligated to pay these liquidated damages,
the amount that it must pay to the debenture holders will be equal
to (A) 2% of the principal amount of all the debentures for the
period from May 17, 2000 through the 30 day thereafter, and (B) 3%
of the principal amount thereof for each subsequent 30 day period.
The Company also issued to a consultant, warrants to purchase 1.5
million shares of common stock. The warrants are exercisable at a
price of $0.01 per share and expire in February 2002.
The related deferred compensation costs of $1.5 million are to be
amortized over the service period, and was determined based on fair
value of the service.
F-41
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 15 - POST - BALANCE SHEET EVENTS (cont.)
D. In February 2000 the Company entered into an agreement with a
certain lender to extinguish a loan to equity. Principle and
interest of approximately $700,000 were extinguished in
consideration of 3,490,000 shares of the Company's common stock. The
share price at the date of issuance was $3. The warrants that had
been granted with the issuance of the note payable were cancelled
concurrently with the February 2000 extinguishment, An extraordinary
charge of $9,778,167 for the extinguishment of the debt will be
reflected in the first quarter of 2000.
E. The Company entered into various marketing and financial consulting
agreements in February and March 2000. Accordingly, the Company
issued 2,761,000 shares of common stock and agreed to pay $8,000 per
month as compensation. The agreements terminate in or before March
2001.
Compensation costs were determined based on market value of shares,
market value of the service provided and fair value of the options,
as appropriate. For options, the Black-Scholes model was used with
the following assumptions:
Risk-free interest rate 5%
Expected life of options 3 years
Expected annual volatility 50%
Expected dividend yield None
Expected exercise price $0.812
The related compensation costs of $12.6 million will, in future
periods, be charged to the statement of operations over the period
of the service.
F. Certain parties contended that the Company guaranteed, in a prior
year, the repayment of an outstanding third-party loan obligation,
which contention the Company denies. In settlement of the dispute,
the Company, on April 14, 2000, entered into a settlement agreement
with such parties pursuant to which it undertook to pay to said
claimants, in the aggregate, $200,000 and issued to them an
aggregate of 250,000 shares of the Company's common stock.
Accordingly, the Company will reflect in its operating expenses for
the three month period ended March 31, 2000, an expense in the
amount of $1,512,500, representing the market value of the shares
that were issued and the cash payment which it undertook to pay.
F-42
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 16 - PRO FORMA EFFECT OF SFAS 123
For purposes of estimating fair value at the grant date of employee
stock options in accordance with SFAS 123, the Company utilized the
Black-Scholes option pricing model, utilizing the following
assumptions:
Risk-free interest rate 5%
Expected life of options 10 years
Expected annual volatility 50%
Expected dividend yield None
Expected exercise price $0.81
Had compensation cost for the Company's stock compensation plan been
determined based on fair value as of the date of grants for awards
made in 1999 under such plan in accordance with SFAS No. 123,
instead of APB No. 25, the Company's pro forma net loss and loss per
share for the year ended December 31, 1999, would have been as
follows:
Pro forma net loss (1,223,594)
==========
Pro forma loss per share (0.392)
==========
The pro forma effect of the application of SFAS 123 with respect to
grants to employees for the years ended December 31,1998 and
December 31, 1997 were not material.
NOTE 17 - EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (Unaudited)
A. In July 2000 the Company received $2,000,000 from the private
placement of one million shares of its common stock. As part of this
private placement, the Company issued warrants to purchase up to one
million shares of the Company's convertible preferred stock at an
exercise price equal to $3.50. The shares of preferred stock issued
or issuable pursuant to such warrants are automatically convertible
to shares of the Company's common stock upon (and subject to) the
approval by the Company's stockholders, at the annual 2000 general
stockholders meeting, of a proposal to increase the authorized
shares of common stock that the Company may issue from time to time.
According to the terms of the agreement 87.5% of the proceeds of
this private placement must be used solely to finance the activities
relating to a subsidiary.
F-43
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
NOTE 17 - EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (Unaudited) (cont.)
B. On July 19, 2000, the Company's Board of Directors adopted a
resolution to increase the authorized common stock to 50 million
shares, which resolution will become effective only upon (and
subject to) its approval by the Company's stockholders at the 2000
annual general stockholders meeting.
On July 21, 2000, the Company's Board of Directors adopted the 2000
Equity Incentive Plan (the "2000 Incentive Plan"). A total of
2,000,000 shares of common stock have been reserved for issuance
under the 2000 Incentive Plan. The 2000 Incentive Plan will go into
effect only upon approval of the Company's stockholders at the 2000
annual general stockholders meeting. The 2000 Incentive Plan
provides for the grant of incentive stock options, nonqualified
stock options, stock appreciation rights, restricted stock, bonus
stock, awards in lieu of cash obligations, other stock-based awards
and performance units. The 2000 Incentive Plan also permits cash
payments under certain conditions.
C. The Chief Operating Officer of PLT Solutions, Inc. (" PLT "),
appointed in April 2000, receives $15,000 in salary per month. The
terms of his employment agreement are currently being finalized. The
Company expects the changes in compensation to include an increase
in monthly salary to $17,500 and options to acquire shares of the
Company, exercisable at a nominal price. The Company anticipates
that the C.O.O. will receive fully vested options for 100,000 shares
of common stock on signing of the employment agreement, 50,000
options vesting twelve months thereafter and 200,000 options to vest
upon achieving certain milestones. The employment agreement will
contain customer confidentiality and non competition provisions.
D. After the balance sheet date the Company issued to the chief
technology officer of PLT shares equaling 9.9% of the issued and
outstanding equity of PLT.
E. In connection with a planned offering of the Company's stock held by
certain stockholders, the Company took upon itself a number of
undertakings.
The Company has agreed to bear all costs, expenses and fees of
registration of the shares of common stock offered by the selling
stockholders for resale other than the legal fees and expenses of
counsel or other advisors to the selling stockholders. Any brokerage
commissions, discounts, concessions or other fees, if any, payable
to broker-dealers in connection with any sale of the shares of
common stock will be borne by the selling stockholders selling those
shares or by the purchasers of such shares. In addition the Company
has agreed to indemnify each debenture holder against certain
liabilities, including liabilities arising under the Securities Act
of 1933.
The Company has also agreed to indemnify certain selling
stockholders, or their transferees, or assignees against certain
liabilities, including liabilities under the Securities Act of 1933,
or to contribute to payments to which such selling stockholders, or
their respective pledges, donees, transferees or other successors in
interest, may be required to make in respect thereof.
F-44
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law, the Issuer
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Issuer's Bylaws provide that
the Issuer will indemnify its directors, executive officers, other officers,
employees and agents to the fullest extent permitted by Delaware law.
The Issuer's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Issuer and its stockholders. These provisions do not eliminate the
directors' duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Issuer, for acts
or omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provision
does not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
broker commissions, payable by the Issuer in connection with the sale of the
shares offered hereby. All amounts shown are estimates (except for the SEC
filing fees).
SEC filing fee............................................... $15,058
Legal fees and expenses ..................................... $55,000
Blue sky filing fees and expenses (including counsel fees)... $1,000
Accounting fees and expenses ................................ $60,000
Printing and engraving expenses ............................. $1,000
Miscellaneous expenses....................................... $1,000
Total............................................... $133,058
Item 26. Recent Sales of Unregistered Securities
1(a) In September and October 1997, we completed a private placement of
7% promissory notes for an aggregate amount of $400,000. In connection therewith
we issued to private investors an aggregate of 80,000 shares of common stock.
The proceeds of our initial public offering that we completed in February 1998
were used in part to repay the outstanding principal and accrued interest on
these loans.
(b) We paid commissions to the placement agents of approximately
$52,000.
(c) The Company believes that the promissory notes and shares were
issued in a transaction not involving a public offering in reliance upon an
exemption from registration provided by Section 4(2) of the Securities Act.
II-1
<PAGE>
2(a) In August 1997, we issued to Yehuda Cern, an officer of the
Company, 84,167 shares of common stock.
(b) There were no underwriters with respect to this issuance.
(c) The shares were issued in consideration of services performed.
(d) The Company believes that the shares of common stock were issued
in a transaction not involving a public offering in reliance upon an exemption
from registration provided by Section 4(2) of the Securities Act of 1933, as
amended.
3(a) In October 1997, we issued to a consultant 6,000 shares of common
stock.
(b) There were no underwriters with respect to this issuance.
(c) The shares were issued in consideration of services performed.
(d) The Company believes that the shares of common stock were issued in
a transaction not involving a public offering in reliance upon an exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
4(a) In November 1997, we issued to a consultant 40,000 shares of
common stock.
(b) There were no underwriters with respect to this issuance.
(c) The shares were issued in consideration of services performed.
(d) The Company believes that the shares of common stock were issued in
a transaction not involving a public offering in reliance upon an exemption from
registration provided by section 4(2) of the Securities Act of 1933, as amended.
5(a) In February 2000, and April 2000, we issued to private investors,
respectively, $1,000,000 and $500,000 of our 10% convertible debentures. The
debentures were issued pursuant to the terms of an agreement which further
provides that, subject to certain conditions, the investors will purchase an
additional $1,000,000 of debentures no later than five days after the effective
date of a registration statement covering the common stock into which the
debentures may be converted (of which obligation $500,000 was pre-funded in
April 2000). The debentures mature on February 28, 2002. The debentures are
convertible into shares of the Company's common stock at a conversion rate $0.40
per share, subject to adjustment under certain conditions. In connection with
the issuance of the debentures we issued to these investors warrants to purchase
up to an aggregate of 625,000 shares of our common stock, at a per share
exercise price of $1.00. The warrants expire in February 2003. In September
2000, an aggregate of $600,000 in principal amount of debentures were converted
into 1,500,000 shares of our common stock.
(b) We paid commissions to the placement agents of approximately
$195,000.
(c) The Company believes that the debentures and warrants were issued
in a transaction not involving a public offering in reliance upon an exemption
from registration provided by Section 4(2) of the Securities Act.
6(a) In February 2000, we issued to a consultant warrants to purchase
up to 1,500,000 shares of our common stock at an exercise price per share of
$0.01. In September 2000, warrants for an aggregate of 625,000 shares of common
stock were exercised.
II-2
<PAGE>
(b) There were no underwriters with respect to this issuance.
(c) The shares were issued in consideration of services performed.
(d) The Company believes that the shares of common stock were issued in
a transaction not involving a public offering in reliance upon an exemption from
registration provided by section 4(2) of the Securities Act of 1933, as amended.
7(a) In February 2000, we issued a total of 3,490,000 shares in
conversion of an outstanding loan owed by us in an approximate amount (principal
plus accrued interest) of $700,000.
(b) There were no underwriters with respect to this issuance.
(c) The Company believes that the shares of common stock were issued in
a transaction not involving a public offering in reliance upon an exemption from
registration provided by section 4(2) of the Securities Act of 1933, as amended.
8(a) In February 2000, we issued to a total of six consultants,
180,000, 70,000, 25,000, 589,750, 700,000 and 300,000 shares, respectively.
(b) There were no underwriters with respect to this issuance.
(c) The shares were issued in consideration of services performed.
(d) The Company believes that the shares of common stock were issued in
a transaction not involving a public offering in reliance upon an exemption from
registration provided by section 4(2) of the Securities Act of 1933, as amended.
9(a) In March 2000, we issued to a total of four consultants 250,000,
200,000, 346,250 and 100,000 shares, respectively.
(b) There were no underwriters with respect to this issuance.
(c) The shares were issued in consideration of services performed.
(d) The Company believes that the shares of common stock were issued in
a transaction not involving a public offering in reliance upon an exemption from
registration provided by section 4(2) of the Securities Act of 1933, as amended.
10(a) In April 2000, we issued a total of 250,000 shares, as part of a
settlement agreement.
(b) There were no underwriters with respect to this issuance.
(c) The Company believes that the shares of common stock were issued in
a transaction not involving a public offering in reliance upon an exemption from
registration provided by section 4(2) of the Securities Act of 1933, as amended.
II-3
<PAGE>
11(a) On May 30, 2000, we issued a total of 82,250 shares to (and
among) five consultants for services rendered to the Company.
(b) There were no underwriters with respect to this issuance.
(c) The shares were issued in consideration of services performed.
(d) The Company believes that the shares of common stock were issued in
a transaction not involving a public offering in reliance upon an exemption from
registration provided by section 4(2) of the Securities Act of 1933, as amended.
12(a) We issued, pursuant to our 1998 Option Plan, the following stock
options:
(i) In August 1998, we issued 80,000 options to a consultant at a per
share exercise price of $0.01. These options were exercised in their entirety
between August 1998 and February 1999.
(ii) In June 1999, we issued to our then Chief Executive Officer and
then Chief Financial Officer, 51,000 vested options with a per share exercise
price of $0.81. The options are exercisable through June 2008.
(iii) In May 1999, we issued to our former Chief Executive Officer
119,000 vested options at a per share exercise price of $0.81.
13(a) In July - August 2000, we completed a private placement of our
securities for an aggregate gross amount of $4,250,000. In connection therewith
we issued to two entities an aggregate of 1,000,000 shares of common stock and
to an additional two entities an aggregate of 1,125,000 shares of our
convertible preferred stock and warrants to purchase, in the aggregate, up to
2,125,000 shares of our convertible preferred stock.
(b) We paid commissions to the placement agents of approximately
$400,000.
(c) The Company believes that the shares and warrants were issued in a
transaction not involving a public offering in reliance upon an exemption from
registration provided by Section 4(2) of the Securities Act.
14 (a) In August - September 2000 we completed a private placement of
$7.35 million of our 10% convertible debentures. The debentures were issued to
private accredited investors pursuant to agreements which provide that they will
automatically convert into shares of our common stock at a conversion price per
share of common stock ranging between $2 and $4 upon (and subject to) the
adoption by our stockholders at our annual stockholders 2000 meeting of a
resolution to increase our authorized shares of common stock. Upon the issuance
of the conversion shares, the agreements further provide that warrants for such
number of shares of our common stock as is equal to the number of conversion
shares will be issued to these investors.
(b) We paid commissions and fees of approximately $900,000.
(c) The Company believes that the securities were issued in a
transaction not involving a public offering in reliance upon an exemption from
registration provided by Section 4(2) of the Securities Act.
15(a) In September 2000, in connection with certain of the private
placements referred to in paragraphs 13 and 14, we undertook to issue, as a
finders fee, warrants to purchase up to an aggregate of 570,000 shares of common
stock, at exercise prices per share ranging between $2 and $4.50. The shares
are to be issued upon (and subject to) the adoption by our stockholders at our
annual 2000 Stockholders Meeting of a resolution to increase our authorized
shares of common stock.
(b) There are no underwriters with respect to this issuance.
(c) The Company believes that the securities were issued in a
transaction not involving a public offering in reliance upon an exemption from
registration provided by Section 4(2) of the Securities Act.
Item 27. Exhibits
<TABLE>
<CAPTION>
<C> <S>
3.1 Certificate of Incorporation of the Company, as amended (1)
3.2 By-Laws of the Company, as amended (1)
3.3 Memorandum of Association of Ambient Israel (1)
3.4 Articles of Association of Ambient Ltd. (1)
3.5 Certificate of Incorporation of PLT Solutions, Inc. (2)
3.6 By-Laws of PLT Solutions, Inc. (2)
3.7 Memorandum of Kliks.com Ltd. (2)
3.8 Articles of Association of Kliks.com Ltd. (2)
3.9 Memorandum of Insulated Connection Corporation, Ltd. (2)
3.10 Articles of Association of Insulated Connection Corporation, Ltd. (2)
4.1 Specimen Stock Certificate (1)
4.2 Form of 10% Promissory Note due January 30, 2000 (2)
4.2.1 Form of 10% Convertible Debenture due February 28, 2002 (2)
4.2.2 Form of Common Stock Purchase Warrant (2)
4.2.3 Warrant Agreement dated as of February 17, 2000 between Ambient and Inglewood Holdings Inc. (2)
*4.2.4 Form of Convertible Preferred Stock Warrant
*4.2.5 Form of 10% Convertible Debenture due August 2001
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
*5.1 Opinion of Baer Marks & Upham LLP
10.1 Form of the Company's 1998 Stock Option Plan. (1)
10.2 Form of Employment Agreement between the Company and Jacob Davidson(1)
10.3 Employment Agreement between Ambient Ltd. and Dr. Yehuda Cern (1)
10.4 Summary (in English) of principal terms of lease between Ambient Ltd. and Jerusalem Technological Park (1)
10.5 Employment Agreement dated March 27, 2000 between PLT Solutions, Inc. and Michael Braunold (2)
10.6 Employment Agreement dated April 10, 2000 between Ambient Corporation and Aryeh Weinberg (2)
10.7 Employment Agreement dated December 31, 1999 between Kliks.com Ltd. and Bernie Wolff (2)
10.8 Marketing Agreement dated as of February 25, 2000 between Ambient Corporation and Hamilton Trading Ltd. (2)
10.9 Consulting Agreement dated as of March 29, 2000 between Ambient Corporation and Cabus Ltd. (2)
10.10 Consulting Agreement dated as of March 27, 2000 between Ambient Corporation and Rivermill Ltd. (2)
10.11 Consulting Agreement dated as of February 15, 2000 between Ambient Corporation and Limekiln Ltd. (2)
10.12 Consulting Agreement dated as of February 17, 2000 between Ambient Corporation and Gershon Tokayer (2)
10.13 Consulting Agreement dated as of February 14, 2000 between Ambient Corporation and Grove Industries Ltd. (2)
10.14 Amendment Agreement dated as of March 19, 2000 between Grove Industries Ltd. and Ambient Corporation. (2)
10.15 Consulting Agreement dated as of March 27, 2000 between Lingfield Ltd. and Ambient Corporation. (2)
10.16 Consulting Agreement dated as of February 19, 2000 between Trax Investments Ltd. and Ambient Corporation. (2)
10.17 Consulting Agreement dated as of March 20, 2000 between Nina Fischman and Ambient Corporation. (2)
10.18 Shareholders Agreement dated as of December 31, 1999 between Bernie Wolff and Ambient Corporation concerning Kliks.com
Ltd. (2)
10.19 Form of Securities Purchase Agreement between Ambient and certain securityholders dated as of February 15, 2000 (2)
10.20 Form of Registration Rights Agreement dated as of February 15, 2000 between Ambient and Certain Investors (2)
*10.21 Amendment, dated as of June 2, 2000, to Shareholders Agreement, dated as of December 31, 1999, between Bernie Wolff
and Ambient Corporation concerning Kliks.com Ltd.
*10.22 Form of Amendment, dated June 30, 2000, to Securities Purchase Agreement between Ambient and certain security holders
dated as of February 15, 2000.
*10.23 Form of Subscription Agreement dated July 2000 between Ambient Corporation and certain investors.
*10.24 Form of Subscription Agreement dated July-August 2000 between Ambient Corporation and Certain Investors.
*10.25 Form of the Company's Proposed 2000 Equity Incentive Plan.
*10.26 Termination Agreement between Ambient Corporation and Aryeh Weinberg dated as of September 4, 2000.
*10.27 Agreement between Ambient Corporation and Bernie Wolff dated as of September 4, 2000.
*10.28 Amendment dated as of September 1, 2000 to Consulting Agreement between Ambient Corporation and Rivermill Ltd.
*10.29 Amendment No. 2 dated August 10, 2000 to Shareholders Agreement among Ambient Corporation, Bernie Wolff and Kliks.com
Ltd.
*10.30 Termination Agreement between Ambient Corporation and Michael Braunold dated as of September 12, 2000.
*10.31 Employment Agreement between Ambient Corporation and Mark Isaacson dated as of September 18, 2000.
*10.32 Employment Agreement between Ambient Corporation and Wilfred Kopelowitz dated as of September 29, 2000.
*10.33 Employment Agreement between Ambient Corporation and Ram Rao dated as of September 29, 2000.
21.1 Subsidiaries of the Company (2)
*23.1 Consent of Baer Marks & Upham LLP (included in Exhibit 5.1).
*23.2 Consent of Brightman Almagor & Co., a member of Deloitte Touche Tohmatsu, certified public accountants.
*23.3 Consent of Luboshitz Kasierer, a member of Arthur Andersen.
27.1 Financial Data Schedule (2)(3)
* Filed Herewith
</TABLE>
II-5
<PAGE>
(1) Filed as an Exhibit to Ambient's Registration Statement on Form SB-2, No.
33-40045, and incorporated herein by reference.
(2) Filed as an Exhibit to Ambient's Annual Report on Form 10-KSB for the year
ended December 31, 1999 and incorporated herein by reference.
(3) Filed as an Exhibit to Ambient's Quarterly Report on Form 10-QSB-A for the
quarter ended March 31, 2000 and incorporated herein by reference.
(b) Reports on Form 8-K
(i) Report on Form 8-K filed on November 15, 1999
Item 28. Undertakings
Ambient Corporation hereby undertakes the following:
(a)(1) To file, during any period in which it offers or sells
securities, post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
(e) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE>
(f)(1) For determining any liability under the Act, to treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-7
<PAGE>
Signatures
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned in Boston,
Massachusetts, on the 18th day of October, 2000.
AMBIENT CORPORATION
By: /s/ Mark Isaacson
--------------------------------------------
Mark Isaacson,
Chief Executive Officer and Director
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement was signed by the following persons in the
capacities and on the dates stated:
Signature Title Date
/s/ Mark Isaacson
------------------ Chief Executive Officer and Director October 18, 2000
Mark Isaacson (Principal Executive Officer)
/s/ Wilfred Kopelowitz Chief Financial Officer October 18, 2000
----------------------
Wilfred Kopelowitz
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
Number Description
<C> <S>
3.1 Certificate of Incorporation of the Company, as amended (1)
3.2 By-Laws of the Company, as amended (1)
3.3 Memorandum of Association of Ambient Israel (1)
3.4 Articles of Association of Ambient Ltd. (1)
3.5 Certificate of Incorporation of PLT Solutions, Inc. (2)
3.6 By-Laws of PLT Solutions, Inc. (2)
3.7 Memorandum of Kliks.com Ltd. (2)
3.8 Articles of Association of Kliks.com Ltd. (2)
3.9 Memorandum of Insulated Connection Corporation, Ltd. (2)
3.10 Articles of Association of Insulated Connection Corporation, Ltd. (2)
4.1 Specimen Stock Certificate (1)
4.2 Form of 10% Promissory Note due January __, 2000 (2)
4.2.1 Form of 10% Convertible Debenture due February 28, 2002 (2)
4.2.2 Form of Common Stock Purchase Warrant (2)
4.2.3 Warrant Agreement dated as of February 17, 2000 between Ambient and Inglewood Holdings Inc. (2)
*4.2.4 Form of Convertible Preferred Stock Warrant
*4.2.5 Form of 10% Convertible Debenture due August 2001
*5.1 Opinion of Baer Marks & Upham LLP
10.1 Form of the Company's 1998 Stock Option Plan. (1)
10.2 Form of Employment Agreement between the Company and Jacob Davidson(1)
10.3 Employment Agreement between Ambient Ltd. and Dr. Yehuda Cern (1)
10.4 Summary (in English) of principal terms of lease between Ambient Ltd. and Jerusalem Technological Park (1)
10.5 Employment Agreement dated March 27, 2000 between PLT Solutions, Inc. and Michael Braunold (2)
10.6 Employment Agreement dated April 10, 2000 between Ambient Corporation and Aryeh Weinberg (2)
10.7 Employment Agreement dated December 31, 1999 between Kliks.com Ltd. and Bernie Wolff (2)
10.8 Marketing Agreement dated as of February 25, 2000 between Ambient Corporation and Hamilton Trading Ltd. (2)
10.9 Consulting Agreement dated as of March 29, 2000 between Ambient Corporation and Cabus Ltd. (2)
10.10 Consulting Agreement dated as of March 27, 2000 between Ambient Corporation and Rivermill Ltd. (2)
10.11 Consulting Agreement dated as of February 15, 2000 between Ambient Corporation and Limekiln Ltd. (2)
10.12 Consulting Agreement dated as of February 17, 2000 between Ambient Corporation and Gershon Tokayer (2)
10.13 Consulting Agreement dated as of February 14, 2000 between Ambient Corporation and Grove Industries Ltd. (2)
10.14 Amendment Agreement dated as of March 19, 2000 between Grove Industries Ltd. and Ambient Corporation. (2)
10.15 Consulting Agreement dated as of March 27, 2000 between Lingfield Ltd. and Ambient Corporation. (2)
10.16 Consulting Agreement dated as of February 19, 2000 between Trax Investments Ltd. and Ambient Corporation. (2)
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.17 Consulting Agreement dated as of March 20, 2000 between Nina Fischman and Ambient Corporation. (2)
10.18 Shareholders Agreement dated as of December 31, 1999 between Bernie Wolff and Ambient Corporation
concerning Kliks.com Ltd. (2)
10.19 Form of Securities Purchase Agreement between Ambient and certain securityholders dated as of February 15, 2000 (2)
10.20 Form of Registration Rights Agreement dated as of February 15, 2000 between Ambient and certain investors (2)
*10.21 Amendment, dated as of June 2, 2000, to Shareholders Agreement, dated as of December 31, 1999, between Bernie Wolff
and Ambient Corporation concerning Kliks.com Ltd.
*10.22 Form of Amendment, dated June 30, 2000, to Securities Purchase Agreement between Ambient and certain security holders
dated as of February 15, 2000.
*10.23 Form of Subscription Agreement dated July 2000 between Ambient Corporation and certain investors.
*10.24 Form of Subscription Agreement dated July-August 2000 between Ambient Corporation and Certain Investors.
*10.25 Form of the Company's Proposed 2000 Equity Incentive Plan.
*10.26 Termination Agreement between Ambient Corporation and Aryeh Weinberg dated as of September 4, 2000.
*10.27 Agreement between Ambient Corporation and Bernie Wolff dated as of September 4, 2000.
*10.28 Amendment dated as of September 1, 2000 to Consulting Agreement between Ambient Corporation and Rivermill Ltd.
*10.29 Amendment No. 2 dated August 10, 2000 to Shareholders Agreement among Ambient Corporation, Bernie Wolff and Kliks.com
Ltd.
*10.30 Termination Agreement between Ambient Corporation and Michael Braunold dated as of September 12, 2000.
*10.31 Employment Agreement between Ambient Corporation and Mark Isaacson dated as of September 18, 2000.
*10.32 Employment Agreement between Ambient Corporation and Wilfred Kopelowitz dated as of September 29, 2000.
*10.33 Employment Agreement between Ambient Corporation and Ram Rao dated as of September 29, 2000.
21.1 Subsidiaries of the Company (2)
*23.1 Consent of Baer Marks & Upham LLP (included in Exhibit 5.1)
*23.2 Consent of Brightman Almagor & Co., a member of Deloitte Touche Tohmatsu, certified public accountants.
*23.3 Consent of Luboshitz Kasierer, a member of Arthur Anderson.
27.1 Financial Data Schedule (2)(3)
</TABLE>
----------------------------
* Filed Herewith
(1) Filed as an Exhibit to Ambient's Registration Statement on Form SB-2, No.
33-40045, and incorporated herein by reference.
(2) Filed as an Exhibit to Ambient's Annual Report on Form 10-KSB for the year
ended December 31, 1999.
(3) Filed as an Exhibit to Ambient's Quarterly Report on Form 10-QSB-A for the
Quarter ended March 31, 2000.
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