SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended March 31, 2000
OR
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to _________
Commission File Number: 0-23723
Ambient Corporation
(Exact name of small business issuer as specified in its charter)
Delaware 98-0166007
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
(Address of principal executive offices, including zip code)
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
As of August 3, 2000, Ambient Corporation had outstanding 10,714,083
shares of common stock, par value $.001 per share.
Transitional Small Business Disclosure Format (Check one) Yes |X| No |_|
AMENDMENT FOR NON-CASH CHARGES
We are amending this quarterly report on Form 10QSB-A for the quarter ended
March 31, 2000 and such quarter-end financial statements. We determined that the
Company should have recorded a non-cash extraordinary loss in the amount of
approximately $9.8 million and a corresponding credit to additional paid-in
capital to reflect the fair value of shares issued to a note holder in exchange
for outstanding debt. Previously no loss was recorded. In addition, we also
determined that The Company should have recorded $285,417 in interest expenses
and corresponding credit to additional paid-in capital to reflect the beneficial
conversion feature of certain debentures issued in February 2000. As a result,
the condensed interim consolidated financial statement as of and for the
three-months ended March 31, 2000 have been restated to appropriately account
for these transactions.
1
<PAGE>
Index
PART I -- FINANCIAL INFORMATION
Item 1 -- Financial Statements*
Independent accountant's review report
Consolidated Balance Sheet at December 31, 1999 and March 31, 2000
Consolidated Statement of Operations for the Three Months Ended March 31,
2000 and 1999
Consolidated Statement of changes in shareholders' deficiency for the
Three Months Ended March 31, 2000 and 1999
Consolidated Statement of Cash Flows for the Three Months Ended March 31,
2000 and 1999
Notes to Consolidated Statements
Item 2--Plan of Operations
PART II--OTHER INFORMATION
Item 1-- Legal Proceedings
Item 2-- Changes in Securities
Item 3-- Defaults upon Senior Securities
Item 4-- Submission of Matters to a vote of Security Holders
Item 5-- Other Information
Item 6-- Exhibits and Reports on Form 8-K
Signatures
*The Balance Sheet at December 31, 1999 has been taken from audited
financial statements at that date. All other financial statements are unaudited.
In connection with the amendment of our quarterly report for the quarter ended
March 31, 2000, we intend to file an amended annual report on Form 10KSB-A for
the year ended December 31, 1999, to, among other things, properly disclose
these post balance sheet events.
2
<PAGE>
INDEPENDENT ACCOUNTANT'S REVIEW REPORT
To the Board of Directors of
Ambient Corporation
We have reviewed the accompanying condensed interim consolidated balance sheet
of Ambient Corporation (a development stage company) and subsidiaries
(collectively, "the Company") as of March 31, 2000, and the related condensed
consolidated statements of operations, changes in shareholders' deficiency and
cash flows for the three-month period then ended. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
We have not audited or reviewed the comparative amounts for the three-month
period ended March 31, 1999. Accordingly, we do not express an opinion or any
other form of assurance thereon.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements as of March 31, 2000
for them to be in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in design and development of products and services in the
field of electronic commerce, internet and telephony activities. As discussed in
Note 1 to the condensed consolidated financial statements, the Company incurred
a net loss in the three-month period ended March 31, 2000 of approximately $12.9
million (and approximately $19.0 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 $0.3 million and a shareholders'
deficiency of approximately $0.2 million as of March 31, 2000. Although the
Company raised net proceeds of approximately $3.4 million from an initial public
offering in February 1998 and raised debt financing, through convertible
debentures in the amount of $1 million (before expenses) in February 2000, and
an additional $0.5 million (before expenses) in April 2000, it has substantially
utilized all of such proceeds. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1.
3
<PAGE>
As discussed in Note 2, the accompanying condensed interim consolidated
financial statements for the period ended March 31, 2000 have been restated.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated statements of
financial position of the Company as of December 31, 1999, and the related
consolidated statements of operations, shareholders' deficiency, and cash flows
(not presented herein) for the year then ended and in our report dated April 13,
2000, we expressed an unqualified opinion on those consolidated financial
statements, with an explanatory paragraph describing the substantial doubt
regarding the Company's continued existence as a going concern. In our opinion,
the information set forth in the accompanying consolidated financial statements
as of December 31, 1999, is fairly stated, in all material respects, in relation
to the consolidated financial statements from which they have been derived.
Brightman Almagor & Co.
Certified Public Accountants (Israel)
A member of Deloitte Touche Tohmatsu
Tel Aviv, Israel
June 4, 2000 (July 21, 2000 as to Notes 2 and 7)
4
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONDENSED INTERIM CONSOLIDATED BALANCE SHEET
(in U.S. dollars, except share data)
<TABLE>
<CAPTION>
As of March 31, As of December 31,
--------------- ------------------
2 0 0 0 1 9 9 9
------- -------
(Unaudited)
-----------
(As restated -
--------------
See Note 2)
-----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 118,942 8,071
Restricted cash 87,567 84,820
Receivables and prepaid expenses 74,967 34,821
----------- -----------
Total current assets 281,476 127,712
-----------
LONG TERM INVESTMENTS 304,622 170,000
-----------
PROPERTY AND EQUIPMENT
Cost 266,448 264,928
Less - accumulated depreciation (141,888) (129,630)
----------- -----------
Property and equipment, net 124,560 135,298
-----------
Total assets 710,658 433,010
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Short-term credit 67,730 140,903
Accounts payable 172,729 212,967
Other current liabilities 384,851 406,713
----------- -----------
Total current liabilities 625,310 760,583
-----------
LONG-TERM LIABILITIES
Long-term bank credit 8,409 9,958
Notes payable -- 685,000
Convertible debentures 302,038 --
Liability for severance pay -- 15,334
----------- -----------
Total long-term liabilities 310,447 710,292
----------- -----------
Total liabilities 935,757 1,470,875
----------- -----------
SHAREHOLDERS' DEFICIENCY
Common stock $0.001 par value; authorized -
20,000,000 shares; issued and outstanding -
9,381,833 and 3,130,833 shares, respectively 9,382 3,131
Additional paid-in capital 30,439,751 5,041,595
Deferred stock-based compensation (11,658,915) (4,063)
Deficit accumulated during the development stage (19,015,317) (6,078,528)
----------- -----------
Total shareholders' deficiency (225,099) (1,037,865)
----------- -----------
Total liabilities and shareholders' deficiency 710,658 433,010
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONDENSED INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
(in U.S. dollars, except share and per share data)
<TABLE>
<CAPTION>
Cumulative from
Three-month period inception to
Ended March 31, March 31,
--------------- ---------------
2 0 0 0 1 9 9 9 2 0 0 0
------- ------- -------
Note (Unaudited) (Unaudited)
---- ----------- -----------
(As restated - (As restated -
--------------- See Note 2)
See Note 2) -----------
-----------
<S> <C> <C> <C> <C>
Research and development expenses 69,030 104,235 1,790,867
Less - participation by the Office of the
Chief Scientist of the State of Israel -- 10,387 558,195
----------- ----------- -----------
69,030 93,848 1,232,672
Operating, general and administrative
Expenses 3 1,140,340 111,269 4,775,965
Other expenses 4 1,512,500 -- 1,512,500
----------- ----------- -----------
2,652,840 111,269 6,288,465
----------- ----------- -----------
Operating loss (2,721,870) (205,117) (7,521,137)
Financing expenses, net 5 (439,434) (200,013) (1,709,004)
Other income (expenses), net 18,060 -- 8,369
Company's share in net losses of affiliates (15,378) -- (15,378)
----------- ----------- -----------
Loss before extraordinary item (3,158,622) (405,130) (9,237,150)
Extraordinary item - loss on
extinguishment of debt (9,778,167) -- (9,778,167)
----------- ----------- -----------
Net loss (12,936,789) (405,130) (19,015,317)
=========== =========== ===========
Basic and diluted loss per share:
Net loss before extraordinary item (0.53) (0.13)
Extraordinary loss from
extinguishment of debt (1.66) --
----------- -----------
Net loss (2.19) (0.13)
=========== ===========
Weighted average number of shares
Outstanding 5,892,386 3,074,333
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONDENSED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' DEFICIENCY
(in U.S. dollars, except share data)
<TABLE>
<CAPTION>
Deficit
accumulated
Additional Deferred during the
Number Share paid-in stock - based development
of shares capital capital Compensation stage Total
--------- ------- ------- ------------ ----- -----
Three-month period ended March 31,
2000 (As restated - See Note 2)
(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 2000 -- -- 572,083 -- -- 572,083
Beneficial conversion feature of debentures
issued - February 2000 -- -- 285,417 -- -- 285,417
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 to be issued pursuant to settlement
agreement -- -- 1,312,500 -- -- 1,312,500
Amortization of deferred stock - based
compensation -- -- -- 1,034,227 -- 1,034,227
Net loss -- -- -- -- (12,936,789) (12,936,789)
--------- ----- ---------- ----------- ----------- -----------
Balance - March 31, 2000 9,381,833 9,382 30,439,751 (11,658,915) (19,015,317) (225,099)
========= ===== ========== =========== =========== ===========
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)
========= ===== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
7
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONDENSED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' DEFICIENCY (cont.)
(in U.S. dollars, except share data)
<TABLE>
<CAPTION>
Deficit
accumulated
Additional Deferred during the
Number Share paid-in stock - based development
of shares capital capital Compensation stage Total
--------- ------- ------- ------------ ----- -----
Year ended December 31, 1998
<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)
========== ======= ========== ========== ========== ==========
Year ended December 31, 1997
Issuance of common stock in March 1997 to
employees for services 20,000 20 50,000 (50,000) -- 20
Issuance of common stock in August 1997
to employees for services 84,167 84 336,668 (336,668) 84
Issuance of common stock in September 1997
in connection with private placement of notes 60,000 60 239,940 -- -- 240,000
Issuance of common stock in September 1997
to advisor for services 6,000 6 23,994 -- -- 24,000
Issuance of common stock in October 1997
in connection with private placement of notes 20,000 20 79,980 -- -- 80,000
Amortization of unearned compensation -- -- -- 145,556 -- 145,556
Net loss -- -- -- (1,432,815) (1,432,815)
---------- ------- ---------- ---------- ---------- ----------
Balance - December 31, 1997 2,419,333 2,419 730,582 (241,112) (2,126,810) (1,634,921)
========== ======= ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
8
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONDENSED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' DEFICIENCY (cont.)
(in U.S. dollars, except share data)
<TABLE>
<CAPTION>
Deficit
accumulated
Additional Deferred during the
Number Share paid-in stock - based development
of shares capital capital Compensation stage Total
--------- ------- ------- ------------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Period ended December 31, 1996
Issuance of common stock in July 1996
to founders for nominal consideration 2,028,833 2,029 -- -- -- 2,029
Issuance of common stock in September 1996
to employees for services 5,000 5 -- -- -- 5
Issuance of common stock in October 1996
to employees for services 195,333 195 -- -- -- 195
Net loss -- -- -- -- (693,995) (693,995)
--------- ----- -------- -------- -------- --------
Balance - December 31, 1996 2,229,166 2,229 -- -- (693,995) (691,766)
========= ===== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
9
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONDENSED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(in U.S. dollars)
<TABLE>
<CAPTION>
Cumulative from
Three-month period inception to
CASH FLOWS - OPERATING ACTIVITIES Ended March 31, March 31,
---------------------------------- ----------------
2 0 0 0 1 9 9 9 2 0 0 0
------- ------- -------
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
(As restated - (As restated -
-------------- --------------
See Note 2) See Note 2)
----------- -----------
<S> <C> <C> <C>
Net loss (12,936,789) (405,130) (19,015,317)
Adjustments to reconcile net loss to net cash
used in operating activities -
Items not involving cash flows:
Depreciation and amortization 35,712 133,019 1,594,576
Loss on sale of fixed assets -- -- 13,817
Financing expenses due to conversion feature of
convertible debentures 285,417 -- 285,417
Financing, consulting and other expenses paid via
the issuance of common stock and warrants,
including amortization of deferred expenses 2,346,727 70,001 2,782,810
Loss on extinguishment of debt 9,778,167 -- 9,778,167
Increase (decrease) in net liability for severance pay (15,334) 16,570 (199)
Accrued interest on loans and notes payable -- -- 210,016
Company's share in net losses of affiliates 15,378 -- 15,378
Write-down of long term investment -- -- 665,000
Write-off of leasehold improvements -- -- 20,453
Changes in operating assets and liabilities:
Decrease (increase) in receivables and prepaid
expenses (40,146) 231,828 (48,006)
Increase (decrease) in accounts payable (40,238) 114,250 (56,518)
Increase (decrease) in other current liabilities 53,466 (115,807) 356,624
----------- ----------- -----------
Net cash provided by (used in) operating activities (517,640) 44,731 (3,397,782)
----------- -----------
CASH FLOWS - INVESTING ACTIVITIES
Loan provided to another company -- -- (835,000)
Investment in affiliated company (150,000) -- (150,000)
Additions to property and equipment (1,520) -- (373,339)
Proceeds from disposal of fixed assets -- -- 42,100
Increase in restricted cash (2,747) -- (87,567)
----------- ----------- -----------
Net cash used in investing activities (154,267) -- (1,403,806)
----------- -----------
CASH FLOWS - 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 857,500 -- 857,500
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 (1,549) (3,579) (79,594)
Increase (decrease) in short term bank credit (73,173) (53,190) 35,726
Public offering of common stock -- -- 3,433,027
Repayment of short-term bank loan (250,000) -- (250,000)
Proceeds from short-term bank loan 250,000 -- 274,038
----------- ----------- -----------
Net cash provided by (used in) financing activities 782,778 (56,769) 4,920,530
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 110,871 (12,038) 118,942
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 8,071 16,138 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - END OF
PERIOD 118,942 4,100 118,942
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
10
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONDENSED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (cont.)
(in U.S. dollars)
Non - cash transactions for the three-month period ended March 31, 2000:
A. Issuance of shares 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 6).
B. Waiver of liability due to related party in the amount of $75,328.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
11
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in U.S. dollars)
NOTE 1 - BASIS OF PRESENTATION AND GENERAL
A. The unaudited condensed interim consolidated financial statements as
of March 31, 2000 and for the three-month period then ended
("interim financial statements") of Ambient Corporation and
subsidiaries (collectively "the Company") should be read in
conjunction with the audited consolidated financial statements of
the Company as of December 31, 1999 and for the year then ended,
including the notes thereto. The results of operations for the
interim periods are not necessarily indicative of the results to be
expected on a full-year basis.
B. The interim financial statements have been prepared in accordance
with accounting principles generally accepted in the United States.
The accounting principles applied in the preparation of these
interim financial statements are consistent with those principles
applied in the preparation of the most recent annual audited
financial statements.
C. Description of business
Ambient Corporation ("Ambient"), a development stage company, was
founded in June 1996 to design and develop advanced smart card
interface technology.
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.
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 electronic 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.
12
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in U.S. dollars)
NOTE 1 - BASIS OF PRESENTATION AND GENERAL (cont.)
D. Going concern assumption
The Company incurred a net loss in the three-month period ended
March 31, 2000 of approximately $12.9 million, including $ 12.4
million in non-cash charges, primarily related to the issuance of
securities and the extinguishment of debt, (and approximately $19.0
million since inception, including $ 12.8 million in non-cash
charges primarily related to the issuance of securities and the
extinguishment of debt) and anticipates that it will continue to
incur losses for some time. In addition, the Company had a working
capital deficit of approximately $0.3 million and a shareholders'
deficiency of approximately $0.2 million as of March 31, 2000.
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 management estimates that the existing
funds will enable the Company to operate through August 2000. 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, and additional $500,000 in April
2000 (See Note 7A). The Company utilized all such proceeds.
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. Although there can be no
assurances the Company's management estimates, that the above
measures, if substantially realized, should enable the Company to
continue operating through at least March 31, 2001.
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.
E. Reclassification
Certain prior period amounts have been reclassified to conform with
current period presentation.
13
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in U.S. dollars)
NOTE 2 - RESTATEMENT
Subsequent to the issuance of the Company's condensed interim
financial statements as of and for the three-months ended March 31,
2000, management determined that it should have recorded an
extraordinary loss in the amount of $ 9.8 million and a
corresponding credit to additional paid-in capital to reflect the
fair value of shares issued to a note holder in exchange for
outstanding debt. Previously no loss was recorded. In addition,
management also determined that it should have recorded $285,417 in
interest expenses and a corresponding credit to additional paid-in
capital to reflect the beneficial conversion feature of notes
payable issued in February 2000. As a result, the condensed interim
consolidated financial statements as of and for the three-months
ended March 31, 2000 have been restated to appropriately account for
these transactions. A summary of the significant effects of the
restatement is as follows:
<TABLE>
<CAPTION>
As of March 31, 2000
--------------------
As previously
-------------
reported As restated
-------- -----------
Unaudited
---------
<S> <C> <C>
Convertible debentures 708,330 302,038
Additional paid in capital 19,965,460 30,439,751
Deficit accumulated during the development stage (8,947,318) (19,015,713)
Total shareholders' deficiency (631,391) (225,099)
</TABLE>
<TABLE>
<CAPTION>
For the three-month period
Ended March 31, 2000
--------------------
Unaudited
---------
<S> <C> <C>
Financing expenses, net 149,602 439,434
Extraordinary item - loss on extinguishment of debt -- 9,778,167
Net loss (2,868,790) (12,936,789)
Net loss per share - Basic and Diluted (0.49) (2.19)
</TABLE>
14
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in U.S. dollars)
NOTE 3 - OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
These expenses include $946,000 in stock-based compensation
(three-month period ended March 31, 1999 - $318,000, year ended
December 31, 1999 - $180,000).
NOTE 4 - OTHER EXPENSES
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 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.
NOTE 5 - FINANCING EXPENSES
Financing expenses include $285,000 representing the beneficial
convertible feature of convertible debentures in accordance with
EITF 98-5.
NOTE 6 - EXTRAORDINARY ITEM
During the period 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 7 - SIGNIFICANT EVENTS
15
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in U.S. dollars)
NOTE 7 - SIGNIFICANT EVENTS
A. In February 2000, the Company issued $1,000,000 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 $285,417 representing the
beneficial conversion feature of this convertible debenture issuance
(See Notes 1E and 2).
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 three years after
issuance.
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.
16
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in U.S. dollars)
NOTE 7 - SIGNIFICANT EVENTS (Cont.)
B. In February 2000, the Company entered into a one year agreement with
a consultant ("consultant") for the provision of financial and
investment services to the Company. In consideration for such
services, the Company issued the consultant warrants to purchase
1,500,000 shares of the Company's common stock for $0.01 per share,
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.
Such warrants are exercisable until February 2002. The compensation
expense for the period ended March 31, 2000 with respect to this
agreement amounted to $88,356.
C. 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.
D. In June and July 2000 the Company received $ 225,000 on account of
shares.
17
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in U.S. dollars)
NOTE 7 - SIGNIFICANT EVENTS (Cont.)
E. 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.
The Company's Board of Directors adopted on July 19, 2000, a
resolution to increase the authorized common shares that the Company
is authorized to issue from time to time to 50 million common
shares. 87.5% of the proceeds of this private placement must be used
solely to finance the activities relating to a subsidiary.
F. A Chief Operating Offer of PLT Solutions, Inc., appointed on 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.
G. The Chief Technology Officer of a subsidiary, PLT Solutions Inc.
received shares equaling 9.9% of the issued and outstanding equity
of PLT Solutions Inc.
H. 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.
18
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in U.S. dollars)
NOTE 7 - SIGNIFICANT EVENTS (Cont.)
I. 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.
19
<PAGE>
Item 2 PLAN OF OPERATIONS
We are engaged in the design and development of products and services in
the fields of electronic commerce, Internet access and advanced telephony
applications. All of our design and development activities are conducted within
the State of Israel.
Our activities are currently centered in two distinct areas: (i) the
completion of the design and development of a unique technology designed to
facilitate the provision of rapid power line telecommunication services to
ordinary business and personal consumers 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 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 effectively
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 Internet providers/integrators.
We also have a 40% interest in a newly established Israeli company, Kliks
which is engaged in attempting to establish a nationwide screen phone network in
Israel. The remaining 60% interest in Kliks is held by our Vice-President, Mr.
Bernie Wolff. The network 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.
As a development stage company, 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 March 31, 2000, we have incurred net losses aggregating $19,015,317,
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 its
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.
As of March 31, 2000, we have expended $1,232,672 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).
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, 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
investors pre-funded $500,000 of this obligation. The debentures mature on the
second anniversary of
20
<PAGE>
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.
In connection with the issuance of the 10% convertible debentures, we
issued to Debenture holders warrants to purchase, in the aggregate, 625,000 of
our Common Shares 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, 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 approximately on the third anniversary of issuance.
The debentures and the warrants are currently convertible and exercisable
subject to certain restrictions. Upon issuance of the remaining $500,000 of
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.
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 financing costs, and recorded
approximately $1.5 million as deferred consulting expenses and charged
approximately $88,000 to operations.
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.
In July 2000 we received $2,000,000 from the private placement of one
million shares of our common stock. As part of this private placement, we issued
warrants to purchase up to one million shares of our convertible preferred stock
at an exercise price equal to $3.50. The shares of convertible preferred stock
issued or issuable pursuant to such warrants are automatically convertible to
shares of our 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. 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 50 million common shares. Eighty seven and one-half percent (87.5%)
of the proceeds of this private placement may be used solely to finance the
activities relating to our PLT subsidiary.
We plan to supplement our annual report on Form 10-KSB-A for the
year ended December 31, 1999, to reflect properly, among other things, the post
balance sheet events.
We anticipate that cash on hand, as well as the $1.0 million (before
deducting approximately $142,500 in fees and commissions) due to be invested
upon purchase of the additional convertible debentures (of which $500,000 has
been pre-funded), will allow us to maintain operations through December 31,
2000. Thereafter, we will need additional financing to maintain 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.
21
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities and Use of Proceeds
Sale of Unregistered Securities
Set forth below is certain information concerning sales by the Company of
unregistered securities during the first quarter of 2000. The issuances by the
Company of the securities sold in the transactions referenced below were not
registered under the Securities Act of 1933, pursuant to the exemption
contemplated by Section 4(2) thereof for transactions not involving a public
offering.
1. On February 16, 2000, we issued to private investors $1,000,000 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. 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.
2. In February, 2000, we issued to a consultant warrants to purchase up to
1,500,000 shares of common stock at an exercise price per share of $0.01.
3. On February 13, 2000, we issued 3,490,000 shares in conversion of an
outstanding loan owed by us in an approximate amount (principal plus accrued
interest) of $700,000.
4. In February 2000, we issued to a total of six consultants, 180,000, 70,000,
25,000, 589,750, 700,000 and 300,000 respectively, shares of common stock, for
services rendered.
5. In March 2000, we issued to a total of four consultants 250,000, 200,000,
346,250 and 100,000, respectively, shares of common stock, for services
performed.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Securities Holders.
II-1
<PAGE>
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Reports on Form 8-K for the three months ended March 31, 2000
None
(b) Exhibit
27.1 Financial Data Schedule
SIGNATURES
In accordance with the requirements of the Exchange Act the registrant
caused this report to be signed by the undersigned thereunto duly authorized.
Date: August 4, 2000 AMBIENT CORPORATION
/s/ Aryeh Weinberg
----------------------------------------
Chief Financial Officer
II-2
