SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended September 30, 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
incorporation or organization) Identification No.)
1033 Beacon Street, Brookline, Massachusetts, 02446
(Address of principal executive offices, including zip code)
617-735-9395
(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 November 14, 2000, Ambient Corporation had outstanding 15,089,083
shares of common stock, par value $.001 per share.
Transitional Small Business Disclosure Format (Check one) Yes |X| No |_|
<PAGE>
2
Index
PART I -- FINANCIAL INFORMATION
Item 1 -- Financial Statements*
Consolidated Balance Sheet
September 30, 2000 and December 31, 1999
Consolidated Statement of Operations
For the nine and three months ended September 30, 2000 and 1999
Consolidated Statement of Changes in Stockholders' Deficiency
For the Period from Inception to September 30, 2000
Consolidated Statement of Cash Flows
For the nine months ended September 30, 2000 and 1999
Notes to Consolidated Financial 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.
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,599,157 $ 8,071
Restricted cash -- 84,820
Convertible note receivable 250,000 --
Receivables and prepaid expenses 212,318 34,821
------------ -----------
Total current assets 8,061,475 127,712
Property and equipment, net 128,208 135,298
Investment in affilliate 1,261,905 --
Long-term investments 170,000 170,000
------------ -----------
Total assets $ 9,621,588 $ 433,010
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Short term borrowings $ 12,601 $ 140,903
Convertible debentures, net of discount of $4,633,604 3,711,895 --
Accounts payables 553,460 212,967
Accrued expenses and other current liabilities 237,520 491,713
------------ -----------
Total current liabilities 4,515,476 845,583
------------ -----------
LONG TERM LIABILITIES
Long-term bank credit -- 9,958
Convertible debentures, net of discount of $526,111 373,889 --
Accrued severance pay -- 15,334
------------ -----------
Total long-term liabilities 373,889 25,292
------------ -----------
Total liabilities 4,889,365 870,875
------------ -----------
COMMITMENTS AND CONTINGENCIES
NOTES PAYABLE -- 600,000
------------ -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible Preferred Stock, $.001 par value;
5,000,000 shares authorized; 1,125,000 issued and outstanding 1,125 --
Common stock, $.001 par value;
20,000,000 shares authorized; 12,839,083 and 3,130,833
issued and outstanding, respectively 12,839 3,131
Additional paid-in capital 46,801,194 5,041,595
Deficit accumulated during the development stage (36,635,154) (6,078,528)
Less: deferred compensation (5,447,781) (4,063)
------------ -----------
Total stockholders' equity (deficit) 4,732,223 (1,037,865)
------------ -----------
Total liabilities and stockholders' equity (deficit) $ 9,621,588 $ 433,010
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-2-
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
Nine Months From Inception Three Months
Ended to Ended
September 30, September 30, September 30,
2000 1999 2000 2000 1999
Expenses
<S> <C> <C> <C> <C> <C>
Research and Development $ 229,344 $ 296,041 $ 1,951,181 $ 103,124 $ 68,141
Less - Participation by the Office of the
Chief Scientist of the State of Israel -- 231,767 558,195 -- 83,380
------------ ----------- ------------ ------------ -----------
229,344 64,274 1,392,986 103,124 (15,239)
Operating, general and administrative
expenses 2,622,890 373,257 5,367,799 2,025,164 77,513
Stock based compensation 11,406,464 306,270 12,536,863 7,426,129 69,976
------------ ----------- ------------ ------------ -----------
Total expenses 14,029,354 679,527 17,904,662 9,451,293 147,489
------------ ----------- ------------ ------------ -----------
Operating loss (14,258,698) (743,801) (19,297,648) (9,554,417) (132,250)
Legal settlement (1,512,500) -- (1,512,500) -- --
Financing expenses, net (4,172,975) (76,847) (5,202,862) (3,030,840) 13,389
Other income (expenses), net 46,742 -- 37,051 41,173 --
Company's share in net losses of affiliate (147,365) -- (147,365) (93,593) --
------------ ----------- ------------ ------------ -----------
Loss before minority interest and extraordinary item (20,044,796) (820,648) (26,123,324) (12,637,677) (118,861)
Minority interest in subsidiary loss 25,000 -- 25,000 6,595 --
------------ ----------- ------------ ------------ -----------
Loss before extraordinary item (20,019,796) (820,648) (26,098,324) (12,631,082) (118,861)
Extraordinary item - loss on extinguishment of debt (9,778,167) -- (9,778,167) -- --
------------ ----------- ------------ ------------ -----------
Net loss (29,797,963) (820,648) $(35,876,491) $(12,631,082) $ (118,861)
Deemed dividends on convertible preferred stock (758,663) -- (758,663) (758,663)
------------ ----------- ------------ ------------ -----------
Net loss attributable to common stockholders $(30,556,626) $ (820,648) (36,635,154) (13,389,745) (118,861)
============ =========== ============ ============ ===========
Basic and diluted loss per share:
Net loss before extraordinary item $ (2.31) $ (0.26) $ (1.19) $ (0.04)
Extraordinary loss from extinguishment of debt (1.13) -- -- --
------------ ----------- ------------ -----------
Net loss $ (3.43) $ (0.26) $ (1.19) $ (0.04)
============ =========== ============ ===========
Weighted average number of shares outstanding 8,682,969 3,117,666 10,606,692 3,117,666
============ =========== ============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
Shares Amount Shares Amount
---------- ---------- ---------- ----------
Nine-month period ended September 30, 2000
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance - December 31, 1999 -- $ -- 3,130,833 $ 3,131
Waiver of liability due to related party - January 2000
Stock issued in respect of extinguishment of debt - February 2000 3,490,000 3,490
Stock issued pursuant to consulting agreement - February 2000 700,000 700
Stock issued pursuant to consulting agreement - February 2000 180,000 180
Stock issued pursuant to consulting agreement - February 2000 70,000 70
Stock issued pursuant to consulting agreement - February 2000 25,000 25
Warrants issued pursuant to consulting agreement - February 2000
Warrants issued to convertible debenture holders - February and April 2000
Beneficial conversion feature of debentures issued February and April 2000
Stock issued pursuant to consulting agreement - February 2000 589,750 590
Stock issued pursuant to consulting agreement - February 2000 300,000 300
Stock issued pursuant to consulting agreement - March 2000 250,000 250
Stock issued pursuant to consulting agreement - March 2000 100,000 100
Stock issued pursuant to consulting agreement - March 2000 346,250 346
Stock issued pursuant to consulting agreement - March 2000 200,000 200
Stock issued for services - May 2000 67,250 67
Common stock issued in private placement, net of offering costs 1,000,000 1,000
Preferred stock issued in private placement, net of offering costs 1,125,000 1,125
Deemed dividend on convertible preferred stock
Warrants issued to convertible debenture holders - July through September 2000
Beneficial conversion feature of debentures issued July through September 2000
Warrants to be issued in connection with private placements - September 2000
Warrants to be issued pursuant to consulting agreement - September 2000
Stock and stock options to be issued pursuant to severance
agreement - September 2000
Stock options and warrants exercised 640,000 640
Stock issued upon conversion of debentures 1,500,000 1,500
Options to be issued to employees - September 2000
Stock issued pursuant to settlement agreement 250,000 250
Amortization of deferred stock - based compensation
Net loss
---------- ---------- ---------- ----------
Balance - September 30, 2000 1,125,000 $ 1,125 12,839,083 $ 12,839
========== ========== ========== ==========
Year ended December 31, 1999
Balance - December 31, 1998 -- -- 3,074,333 3,074
Stock issued pursuant to consulting agreement - January 1999 4,000 4
Stock issued pursuant to consulting agreement - February 1999 15,000 15
Stock issued pursuant to consulting agreement - February 1999 22,500 23
Stock issued pursuant to consulting agreement - April 1999 15,000 15
Warrants issued pursuant to consulting agreement - April 1999
Amortization of deferred stock - based compensation
Net loss
---------- ---------- ---------- ----------
Balance - December 31, 1999 -- $ -- 3,130,833 3,131
========== ========== ========== ==========
Year ended December 31, 1998
Balance - December 31, 1997 2,419,333 2,419
Stock issued pursuant to consulting agreement 75,000 75
Initial public offering in February 1998 525,000 525
Stock issued in connection with short-term debt financing 20,000 20
Additional stock pursuant to founders agreement for nominal consideration 35,000 35
Warrants issued pursuant to private placement of units
Options granted pursuant to consulting agreement
Amortization of deferred stock - based compensation
Net loss
---------- ---------- ---------- ----------
Balance - December 31, 1998 -- $ -- 3,074,333 $ 3,074
========== ========== ========== ==========
<CAPTION>
Deficit
Accumulated
Additional During
Paid-in Deferred Development
Capital Compensation Stage Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance - December 31, 1999 $ 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 10,466,510 10,470,000
Stock issued pursuant to consulting agreement - February 2000 2,099,300 (2,100,000) --
Stock issued pursuant to consulting agreement - February 2000 539,820 (540,000) --
Stock issued pursuant to consulting agreement - February 2000 192,430 (192,500) --
Stock issued pursuant to consulting agreement - February 2000 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 1,768,660 (1,769,250) --
Stock issued pursuant to consulting agreement - February 2000 1,246,560 (1,246,860) --
Stock issued pursuant to consulting agreement - March 2000 1,499,750 (1,500,000) --
Stock issued pursuant to consulting agreement - March 2000 587,400 (587,500) --
Stock issued pursuant to consulting agreement - March 2000 2,033,873 (2,034,219) --
Stock issued pursuant to consulting agreement - March 2000 1,149,800 (1,150,000) --
Stock issued for services - May 2000 130,196 130,263
Common stock issued in private placement, net of offering costs 1,799,000 1,800,000
Preferred stock issued in private placement, net of offering costs 1,718,511 1,718,511
Deemed dividend on convertible preferred stock 758,663 758,663
Warrants issued to convertible debenture holders - July
through September 2000 3,346,599 3,346,599
Beneficial conversion feature of debentures issued July
through September 2000 1,923,979 1,923,979
Warrants to be issued in connection with private
placements - September 1,065,941 1,065,941
Warrants to be issued pursuant to consulting agreement - September 1,078,877 (1,078,877) --
Stock and stock options to be issued pursuant to severance
agreement - September 2000 625,000 (625,000) --
Stock options and warrants exercised 640
Stock issued upon conversion of debentures 254,957 256,457
Options to be issued to employees - September 3,228,750 (3,228,750) --
Stock issued pursuant to settlement agreement 1,312,250 1,312,500
Amortization of deferred stock - based compensation 12,177,988 12,177,988
Net loss (30,556,626) (30,556,626)
------------- ------------- ------------- -------------
Balance - September 30, 2000 $ 46,801,194 $ (5,447,781) $ (36,635,154) $ 4,731,098
============= ============= ============= =============
Year ended December 31, 1999
Balance - December 31, 1998 4,941,189 (239,683) (4,947,124) (242,544)
Stock issued pursuant to consulting agreement - January 1999 7,996 (8,000) --
Stock issued pursuant to consulting agreement - February 1999 15
Stock issued pursuant to consulting agreement - February 1999 69,977 (70,000) --
Stock issued pursuant to consulting agreement - April 1999 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 5,041,595 (4,063) (6,078,528) (1,037,865)
============= ============= ============= =============
Year ended December 31, 1998
Balance - December 31, 1997 730,582 (241,112) (2,126,810) (1,634,921)
Stock issued pursuant to consulting agreement 654,925 (655,000) --
Initial public offering in February 1998 3,432,502 3,433,027
Stock issued in connection with short-term debt financing 99,980 100,000
Additional stock pursuant to founders agreement for
nominal consideration 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 $ 4,941,189 $ (239,683) $ (4,947,124) $ (242,544)
============= ============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
-4-
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
Shares Amount Shares Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Balance - December 31, 1996 -- -- 2,229,166 $ 2,229
Issuance of common stock to employees for services - March 1997 20,000 20
Issuance of common stock to employees for services - August 1997 84,167 84
Stock issued in connection with private placement of notes - September 1997 60,000 60
Issuance of common stock to advisor for services - September 1997 6,000 6
Stock issued in connection with private placement of notes - October 1997 20,000 20
Amortization of deferred stock - based compensation
Net loss
----------- ----------- ----------- -----------
Balance - December 31, 1998 -- $ -- 2,419,333 2,419
=========== =========== =========== ===========
Period ended December 31, 1996
Issuance of common stock to founders for nominal consideration - July 1996 2,028,833 2,029
Issuance of common stock to employees for services - September 1996 5,000 5
Issuance of common stock to employees for services - October 1996 195,333 195
Net loss
----------- ----------- ----------- -----------
Balance - December 31, 1996 -- $ -- 2,229,166 $ 2,229
=========== =========== =========== ===========
<CAPTION>
Deficit
Accumulated
Additional During
Paid-in Deferred Development
Capital Compensation Stage Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Balance - December 31, 1996 $ -- $ -- $ (693,995) $ (691,766)
Issuance of common stock to employees for services - March 1997 50,000 (50,000) 20
Issuance of common stock to employees for services - August 1997 336,668 (336,668) 84
Stock issued in connection with private placement of notes - September 1997 239,940 240,000
Issuance of common stock to advisor for services - September 1997 23,994 24,000
Stock issued in connection with private placement of notes - October 1997 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 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 2,029
Issuance of common stock to employees for services - September 1996 5
Issuance of common stock to employees for services - October 1996 195
Net loss (693,995) (693,995)
----------- ----------- ----------- -----------
Balance - December 31, 1996 $ -- $ -- $ (693,995) $ (691,766)
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
Nine Months From Inception
Ended to
September 30, September 30,
2000 1999 2000
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(30,556,626) $ (820,648) $(36,635,154)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 33,886 85,725 194,908
Amortization of note discount 881,020 -- 899,020
Loss on sale of fixed assets -- -- 13,817
Beneficial conversion feature of convertible debt 2,353,477 -- 2,353,477
Deemed dividends on convertible preferred stock 758,663 -- 758,663
Financing, consulting and other expenses paid via the
issuance of common stock and warrants 24,489,859 441,528 26,305,784
Increase (decrease) in net liability for severance pay -- 7,051 15,141
Accrued interest on loans and notes payable -- -- 210,016
Company's share in net losses of affiliates 147,365 -- 147,365
Minority interest in subsidiary loss (25,000) (25,000)
Write-down of long term investment -- -- 665,000
Write-off of fixed assets 64,227 -- 84,680
Increase (decrease) in cash attributable
to changes in assets and liabilities
Receivables and prepaid expenses (103,437) 291,854 (111,303)
Accounts payable 476,495 104,999 460,215
Other current liabilities (312,433) (96,193) (9,275)
------------ ----------- ------------
Net cash (used) provided by operating activities (1,792,504) 14,316 (4,672,646)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan provided to another company -- -- (835,000)
Purchase of convertible promissory note (250,000) (250,000)
Investment in affiliated company (375,000) -- (375,000)
Additions to property and equipment (91,026) (11,332) (462,845)
Proceeds from disposal of fixed assets -- -- 42,100
Payment for security deposits -- -- 0
Decrease (increase) in restricted cash 84,820 48,137 0
------------ ----------- ------------
Net cash (used) provided in investing activities (631,206) 36,805 (1,880,745)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of share capital 3,520,276 -- 3,522,540
Proceeds from issuance of notes payable -- -- 1,000,000
Proceeds from issuance of convertible debentures 7,667,042 7,667,042
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 (9,950) (27,385) (87,995)
Increase (decrease) in short term bank credit (128,302) (27,160) (19,403)
Public offering of common stock -- -- 3,433,027
Repayment of short-term debt (250,000) -- (250,000)
Proceeds from short-term debt 250,000 -- 274,038
Loans to affiliate (1,034,270) -- (1,034,270)
------------ ----------- ------------
Net cash provided by financing activities 10,014,796 (54,545) 14,152,548
------------ ----------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,591,086 (3,424) 7,599,157
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 8,071 16,138 --
------------ ----------- ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 7,599,157 $ 12,714 $ 7,599,157
============ =========== ============
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Noncash financing andinvesting activities for the nine months ended September
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 8).
(b) Waiver of liability due to related party in the amount of $75,328.
(c) Conversion of debt in the amount of $600,000 into 1,500,000 shares
of common stock.
See Notes to Consolidated Financial Statements.
-6-
<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 nine months
ended September 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 and
footnotes thereto included in the Company's Form 10KSB/A for the year
ended December 31, 1999, as filed with the Securities and Exchange
Commission.
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.
Reclassification
Certain prior period amounts have been reclassified to conform with
current period presentation.
Note 2 - Convertible Note Receivable
In July 2000, the Company invested in a $250,000 convertible promissory
note of Adaptive Networks, Inc. (ANI), a privately held Company. The note
becomes due in July 2001 and bears interest at the rate of 6% per annum.
Upon the agreement upon refinancing of ANI, as defined, the note is
convertible into ANI common stock at a rate to be determined.
Additionally, the Company received warrants to purchase ANI common stock
in connection with this investment.
Note 3 - Investment in Affiliate
This amount represents the Company's 49% interest in a newly established
Israeli company, Kliks.com Ltd.("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
$375,000.
The Company loaned to Kliks a total of $1,034,270 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.
The Company applies the equity method of accounting for its investment in
Kliks and has recorded a charge to operations in the amount of $147,365,
which represents its interest in the loss for the nine months ended
September 30, 2000.
<PAGE>
4
Note 4 - Debt Financings
10% Convertible Debentures
In February and April 2000, the Company issued $1,500,000 of two-year 10%
convertible debentures to private investors. Net proceeds of the issuance
amounted to $1.3 million. The debentures were issued pursuant to the terms
of an agreement, which further provides that the investors will purchase
an additional $500,000 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. Such registration statement has
been declared effective and, in November 2000, the investors notified the
Company that they intend to shortly complete the purchase of such
additional debentures.
The debentures are convertible into shares of the Company's common stock
at a conversion rate of $0.40 per share. 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%. 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 warrants to purchase, in the aggregate, 937,500 of the
Company's common shares at an exercise price per share of $1. 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. 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. Upon the purchase of the additional $500,000 of
debentures, the Company will issue to the investors warrants to purchase
an additional 312,500 shares of common shares at an exercise price per
share of $1.
In September through November 2000, pursuant to the terms of the
debentures, the investors converted $1.5 million of 10% convertible
debentures purchased into 3,750,000 shares of Common Stock. In November
2000, the investors gave notice to the Company in accordance with the
terms of the warrant of their election to exercise the warrants to
purchase 937,500 shares of the Company.
Convertible Debentures
In July through September 2000, the Company issued $8,345,500 of one-year
convertible debentures to private investors. The notes are automatically
convertible into Units, each Unit consisting of one share of the Company's
common stock and one common stock warrant together convertible at the
rates ranging from $2.00 to $3.50 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. Interest accrues at the rate of
10% per annum and becomes payable upon maturity unless converted. The
warrants are exercisable at rates ranging from $3.50 to $8.00 per share.
For financial reporting purposes, the Company recorded a total discount of
$3.3 million to reflect the value of the Warrants. The discount is being
amortized on a straight-line basis over the terms of the respective notes.
In accordance with EITF 98-5, the Company has recorded financing expense
in the amount of $1.9 million representing the amortization of the
beneficial conversion feature of this convertible debenture issuance. The
total beneficial conversion feature is approximately $3 million.
In connection with the sale of Debentures, the Company undertook to issue
warrants to placement agents to purchase up to 570,000 shares of Common
Stock with exercise prices ranging from $2.00 to $3.50 per share.
<PAGE>
5
Note 5 - Equity Financings
In July and August 2000, the Company sold one million shares of its common
stock and one million one hundred twenty five shares of its convertible
preferred stock in two private placements, for an aggregate purchase price
of $4,250,000. As part of these private placements, the Company issued
warrants to purchase, in the aggregate, up to two million and one-hundred
twenty five thousand 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 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. 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.
In accordance with EITF 98-5, the Company has recorded a deemed preferred
stock dividend and an offsetting increase in additional paid-in capital of
approximately $759,000 representing the amortization of the beneficial
conversion feature of the convertible preferred stock issuance. The total
beneficial conversion feature is approximately $1.7 million.
Note 6 - 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.
Note 7 - Marketing and financial consulting agreements
The Company entered into various marketing and financial consulting
agreements in February , March and May 2000. Accordingly, the Company
issued 2,838,250 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 $12.8 million
relating to the issuance of the shares and warrants, and is amortizing
this amount over the terms of the related agreements.
Note 8 - 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 9 - Employment Agreements
In September 2000, the Company entered into a 5-year employment agreement
with its new Chief Executive Officer. Pursuant to the agreement the CEO
will receive an annual salary of $275,000 and upon (and subject to) the
approval by the Company's stockholders to increase the authorized shares
of common stock that the Company may issue, the Company will issue
1,350,000 fully vested options exercisable at $1.00 per share. The
<PAGE>
6
grant includes an anti-dilution provision. In case of a change in control
(as defined in the agreement), the exercise price of the options will be
reduced to $0.10 per share. In case of any such change in control where
the CEO does not continue as Chief Executive Officer of the Company on
terms and conditions substantially similar to those contained in his
agreement, then he is eligible to receive one-time payment equal to two
times his current salary. Additionally, the CEO is entitled to a bonus,
payable in respect of each 12 month period commencing on September 1, 2000
in stock or cash, at the 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.
In September 2000, the Company entered into a 2-year employment agreement
with its new Chief Financial Officer (CFO). Pursuant to the agreement the
CFO will receive an annual salary of $135,000, to be increased to $155,000
after the first anniversary, and, upon (and subject to) the adoption of
the 2000 Equity Incentive Plan, the Company will issue to him 240,000
options, 90,000 of which will be fully vested upon issuance and will be
exercisable $1.00 per share, 75,000 options to vest in September 2001 and
the remaining 75,000 options in September 2002, at an exercise price of
$2.00 per share. The grant includes an anti-dilution provision. In case of
a change in control (as defined in the agreement), all the options will
vest immediately and the exercise price will be reduced to $0.10 per
share.
In September 2000, the Company entered into a 2-year employment agreement
with its new Chief Network Architect (CNA). Pursuant to the agreement the
CNA will receive an annual salary of $130,000, and, upon (and subject to)
the adoption of the 2000 Equity Incentive Plan, the Company will issue to
him 120,000 options to vest equally over four years with an exercise price
to be agreed upon.
Note 10 - Separation Agreements
Pursuant to various separation agreements executed in September 2000 with
former officers and consultants, the Company undertook to issue, upon (and
subject to) the approval by the Company's stockholders to increase the
authorized shares of common stock that the Company may issue, a total of
200,000 shares of common stock and 350,000 stock options. Of this amount,
275,000 options with an exercise price of $.01 vest immediately. Another
65,000 options with an exercise price of $.01 and 10,000 options with an
exercise price of $1.97 will vest in four quarterly installments. The
Company recorded a charge to stock -based compensation in the amount of
$1.5 million relating to the shares and options that vested immediately,
and is amortizing approximately $220,000 over the related vesting periods.
In addition, to the stock and option grants, the Company has agreed to pay
a total of $192,000 in severance payments.
Note 11 -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 was
subsequently increased to 100 million, which resolution will become
effective only upon (and subject to) its approval by the Company's
stockholders at the 2000 annual general stockholders meeting.
Note 12 - 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 million shares,
which was subsequently increased to 5 million 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,
<PAGE>
7
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>
8
Item 2. Plan of Operation
The following discussion and expositions should be read in conjunction
with the Financial Statements and related Notes contained elsewhere in this Form
10-QSB. Certain Statements made in this discussion 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 environment 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 achievements. Moreover, neither the Company nor
any other person assumes responsibility for the accuracy and completeness of
these forward-looking statements. The Company is under no duty to update any
forward-looking statements after the date of this Quarterly Report to conform
such statements to actual results.
The Company is engaged in the design, development, implementation and
marketing of products and services in the fields of advanced telecommunication
applications.
The Company's activities are currently centered on the marketing and
implementation of a unique solution, which includes company propriety
technology, designed to facilitate the provision of rapid power line
telecommunication services to homes, business and power utilities initially in
North America and Japan. The Company also holds a 49% interest in Kliks.com.
Ltd, a separate corporation that intends to implement a screen phone networking
Israel designed to enable e-commerce and Internet browsing for business and home
consumers who do not have access to personal computers.
Since its founding in June 1996, the Company has 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, the Company elected to redirect its business
focus to the field of power-line-telecommunications. The Company has ceased all
research and design efforts in the smart card area.
During the first quarter of 2000, the Company has established a
subsidiary, PLT Solutions, Inc (PLT). in which it hold a 90.1% interest, to
promote a unique technology designed to facilitate the use of existing
electricity power lines and grids in North America and Japan for rapid Internet,
telephone and data transfer to homes, business and power utilities. . Existing
electrical power grids are not currently in use for high speed data transmission
due to certain power utility infrastructure limitations. The Company has
designed and developed proprietary technology that overcomes these
infrastructure limitations. The Company believes that its technology will be
especially attractive to power utilities. .
Pursuant to the terms of a memorandum of understanding entered into in
June 2000 with Consolidated Edison Company of New York ("Con Ed"), the Company's
technology is undergoing feasability testing on Con Ed's system. Based on the
results of such testing, the Company and Con Ed will consider whether to
commence an initial pilot program.
<PAGE>
9
As a development stage company, the Company has a limited operating
history upon which an evaluation of its prospects can be made. The Company's
prospects must therefore be evaluated in light of the problems, expenses, delays
and complications associated with a new business.
As of September 30, 2000, the Company expended $1.4 million on 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).
As of September 30, 2000, the Company incurred net losses aggregating
$36.6 million (including $ 30.3 million in non-cash charges primarily related to
the issuance of securities, charges for beneficial conversion features, and the
extinguishment of debt), reflecting principally net general and administrative
expenses and net research and development expenses. The Company expects to incur
significant up-front expenditures in connection with the new focus of its
operations, and operating losses are expected to continue for the foreseeable
future. There can be no assurance that the Company can be operated profitably in
the future. The Company's continuation as a going-concern is dependent upon,
among other things, its ability to obtain additional financing when and as
needed, and to generate sufficient cash flow to meet its obligations on a timely
basis. The Company may also explore other business options including strategic
joint ventures and business combinations, including investments in other
companies, or mergers.
In September 2000, the Company's management was reorganized, with the then
existing Chief Executive Officer and Chief Financial Officer resigning from all
positions held with the Company and their replacement by a newly hired Chief
Executive Officer (formerly the acting Chief Executive Officer of PLT Solutions,
Inc.) and Chief Financial Officer, as well as technical and other supporting
personnel. The newly hired Chief Executive Officer, Mr. Mark S. Isaacson,
currently serves as the Company's sole director.
A substantial portion of the Company's 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 $11.4 million for the
nine months ended September 30, 2000. The Company believes that these
compensation levels were necessary to retain the services of qualified
individuals.
The Company issued to an independent financial consultant warrants,
exercisable through February 2002, to purchase up to 1.5 million shares of its
common stock, at an exercise price per share of $0.01. As a result of the
issuance of these warrants, the Company recorded deferred compensation in the
amount of $1.5 million and is amortizing this amount as financing expenses over
the one-year term of the agreement. The amortization for the nine months ended
September 30, 2000 was approximately $929,000
In February and April 2000, the Company issued $1,500,000 of 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 $500,000 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.
Such registration statement has been declared effective and the investors have
notified the Company that they intend to complete the purchase of the remaining
$500,000 in debentures. 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. In September-November 2000, the investors converted the $1.5 million
outstanding principal amount of the debentures into 3,750,000 shares of common
stock.
In connection with the issuance of the 10% convertible debentures, the
Company issued to the debenture holders warrants to purchase, in the aggregate,
937,500 shares of common stock at an exercise price per share of $1.00. Upon the
purchase of the additional $500,000 in debentures, the Company will issue to the
investors warrants to purchase, in the aggregate, an additional 312,500 shares
of the common stock at an exercise price per share of $1. In November 2000, the
investors gave notice to the Company in accordance with the terms of the warrant
of their election to exercise warrants to purchase 937,500 shares of common
stock.
In February 2000 the Company converted outstanding debt of approximately
$700,000 in principal and accrued interest into 3,490,000 shares of its common
stock. The price of such shares on the date of issuance was $3.00 per share. The
Company recorded a non-cash extraordinary loss in the amount of approximately
$9.8 million and a
<PAGE>
10
corresponding increase of additional paid-in capital to reflect the fair value
of shares issued in connection with this transaction.
In July and August 2000 the Company received gross proceeds of $4.25
million (before deducting approximately $425,000 in commissions) from the
private placement of 1 million shares of its common stock and 1.25 million
shares of its convertible preferred stock. As part of this private placement,
the Company issued warrants to purchase up to 2.125 million shares of its
convertible preferred stock at an exercise price equal to $3.50. The shares of
convertible preferred stock issued and the shares of convertible preferred stock
issued or issuable pursuant to the warrants will be automatically converted into
shares of the Company's common stock upon (and subject to) 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 purchasers of the preferred stock were granted
limited pre-emption rights, exercisable under certain conditions, respecting
certain future share issuances. In connection with the issuance of the
convertible preferred stock, the Company recorded a deemed preferred stock
dividend of approximately $759,000 representing the amortization of the
beneficial conversion feature of the convertible preferred stock issuance. The
total beneficial conversion feature is approximately $1.7 million.
In August-September 2000, the Company privately placed to certain
unaffiliated private accredited investors approximately $8.345 million (before
deducting approximately $1.4 million in commissions) in aggregate principal
amount of convertible 10% debentures, which automatically convert into shares of
the Company's common stock, at a conversion price per share ranging from $2.00
to $3.50 immediately following the adoption by the Company's stockholders of a
proposal to increase the Company's authorized shares of common stock. Upon
conversion of the debentures, warrants will be issued to purchase, in the
aggregate, an additional number of shares of common stock as shall equal the
conversion shares, at exercise prices per share ranging between $3.50 and $8.00.
The Company recorded a total discount of $3.3 million to reflect the value of
the Warrants which is being amortized on a straight-line basis over the terms of
the respective notes. The Company has also recorded financing expense in the
amount of $1.9 million representing the amortization of the beneficial
conversion feature of this convertible debenture issuance. The total beneficial
conversion feature is approximately $3 million.
In connection with certain of the private placements in July-September,
the Company undertook to issue, as a finders fee, warrants to purchase, in the
aggregate, 570,000 shares of common stock, at per share exercise prices ranging
between $2 and $4.50.
The Company anticipates that cash on hand as at September 30, 2000 will
allow the Company to maintain operations as presently conducted at least through
the next twelve months. If however the Company expands its current operations
including strategic partnerships or mergers or acquisitions, then the Company
will require additional financing to maintain expanded operations. The Company
is currently reviewing possible further private sales of equity or debt with
equity features. The Company has no commitments for any such financing and there
can be no assurance that the Company will be able to obtain additional financing
when needed or that any such additional financing will not have a dilutive
effect on current stockholders.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
N/A
Item 2. Changes in Securities and Use of Proceeds
Sale of Unregistered Securities
<PAGE>
11
Set forth below is certain information concerning sales and issuances by
the Company of unregistered securities during the three months ended on
September 30, 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. In July 2000, the Company issued 1,000,000 shares of its common stock and
warrants to purchase up to 1,000,000 shares of convertible preferred stock, at
an exercise price per share of $3.50, for aggregate consideration of $2 million.
Each share of convertible preferred stock will convert into a share of
Common Stock following (and subject to) ratification by the Company's
stockholders at the annual 2000 general stockholders meeting of a proposal to
increase the number of authorized shares of common stock that the Company may
issue from time to time.
2. In August 2000, the Company issued 1,125,000 shares of its convertible
Preferred Stock and warrants to purchase an additional 1,125,000 shares of
convertible preferred stock, at an exercise price per share of $3.50, for
aggregate consideration of $2.25 million.
Each share of convertible preferred stock will convert into a share of
Common Stock following (and subject to) ratification by the Company's
stockholders at the annual 2000 general stockholders meeting of a proposal to
increase the number of authorized shares of common stock that the Company may
issue from time to time.
3. In August- September 2000, the Company issued approximately $8.4 million of
its principal amount 10% one year convertible debentures, which are to convert
into shares of the Company's common stock, at a conversion price per share
ranging between $2 and $4, following (and subject to) ratification by the
Company's stockholders at the annual 2000 general stockholders meeting of a
proposal to increase the number of authorized shares of common stock that the
Company may issue from time to time. Upon issuance of the conversion shares, the
Company undertook to issue to these holders warrants for an identical number of
shares of common stock, at exercise price per share ranging between $3.50 and
$8.
4. In August- September 2000, the Company issued 1,500,000 shares of common
stock upon conversion of $600,000 of its 10% convertible debentures due February
2002.
5. In September 2000, the Company issued 625,000 shares of its common stock upon
exercise of warrants issued to a consultant in February 2000.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Securities Holders.
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 June 30, 2000
None
(b) Exhibit
4.1 Form of Convertible Preferred Stock Warrant (1)
4.2 Form of 10% (one year) Convertible Debenture due August-September
2001. (1)
10.1 Form of Subscription dated July 2000 between Ambient Corporation and
certain investors. (1)
10.2 Form of Subscription dated July-August 2000 between Ambient
Corporation and certain investors. (1)
10.3 Termination Agreement between Ambient Corporation and Aryeh Weinberg
dated as of September 4, 2000. (1)
10.4 Termination Agreement between Ambient Corporation and Michael
Braunold dated as of September 12, 2000. (1)
10.5 Agreement between Ambient Corporation and Bernie Wolff dated as of
September 4, 2000. (1)
10.6 Amendment dated as of September 1, 2000 to Consulting Agreement
between Ambient Corporation and Rivermill Ltd. (1)
10.7 Amendment No. 2 dated as of August 10, 2000 to Shareholders Agreement
among Ambient Corporation, Bernie Wolff and Kliks.com Ltd. (1)
10.8 Employment Agreement between Ambient Corporation and Mark Isaacson
dated as of September 18, 2000. (1)
10.9 Employment Agreement between Ambient Corporation and Wilfred
Kopelowitz dated as of September 29, 2000. (1)
10.10 Employment Agreement between Ambient Corporation and Ram Rao dated
as of September 29, 2000. (1)
10.11 Form of the Company's Proposed 2000 Equity Incentive Plan. (1)
*27.1 Financial Data Schedule
----------
* Filed herewith.
(1) Filed as an Exhibit to Ambient's Registration Statement on Form
SB-2, No. 333-43054, and incorporated herein by reference.
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: November 14, 2000 AMBIENT CORPORATION
/s/ Wilfred Kopelowitz
------------------------
Chief Financial Officer
