AMBIENT CORPORATION
24,384,234 shares of common stock
OTC Bulletin Board
ABTG
This investment involves a high degree of risk. You should purchase shares
only if you can afford a complete loss of your investment. See Risk Factors
beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
* This is an offering of shares of our common stock by certain
stockholders of Ambient Corporation.
* The selling stockholders will receive all of the proceeds from the sale
of their shares, less any commissions or discounts paid to brokers or
other agents. We will not receive any of the proceeds from the sale of the
shares. We may, however, receive up to approximately $26.4 million in
proceeds from the exercise by certain selling stockholders of warrants to
purchase up to an aggregate of approximately 8.7 million shares of our
common stock. The resale of the common stock underlying these warrants is
included in the registration statement of which this prospectus forms a
part.
* The selling stockholders may offer and sell the shares in one or more
transactions at prevailing market prices, or in privately negotiated
transactions at prices other than the market price. On May 7, 2001, the
average of the high and low price quotations for our common stock on the
OTC Bulletin Board was $1.41.
The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell their shares until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell shares and it is not soliciting an offer to buy shares
in any state where the offer or sale is not permitted.
The date of this prospectus is May 11, 2001.
Principal Executive Office:
1033 Beacon Street
Brookline, Massachusetts 02446
(617) 735-9395
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY ......................................................... 1
RISK FACTORS ............................................................... 4
USE OF PROCEEDS ............................................................ 16
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ................... 17
PLAN OF OPERATIONS ......................................................... 18
BUSINESS ................................................................... 23
MANAGEMENT ................................................................. 36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ............. 48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ............................. 51
SELLING STOCKHOLDERS ....................................................... 55
DESCRIPTION OF SECURITIES .................................................. 63
PLAN OF DISTRIBUTION ....................................................... 65
LEGAL MATTERS .............................................................. 70
EXPERTS .................................................................... 70
WHERE YOU CAN FIND MORE INFORMATION ........................................ 70
FINANCIAL STATEMENTS ....................................................... F-1
PROSPECTUS SUMMARY
This prospectus summary highlights selected information contained
elsewhere in this prospectus. You should read the following summary together
with the more detailed information regarding our company and the shares of
common stock being sold in this offering, which information appears elsewhere in
this prospectus.
Our Company
We are engaged in the architecture, design, development, implementation
and marketing of a proposed comprehensive communication infrastructure which
uses the electrical power distribution grid as a high-speed telecommunication
medium. The use of conventional electrical power grids for high speed data
transmission is referred to as "powerline telecommunication technology". Our
proposed powerline telecommunication solution is based on our establishing and
maintaining partnership relationships with utilities and electrical power
distribution companies, as well as developing and maintaining business relations
with telecommunication service and technology companies.
Although historically used for low speed data communication, existing
electrical power grids have not been used for high-speed data transmission due
to certain technological and infrastructure limitations. Our current activities
are focused on the implementation and marketing of our proposed powerline
telecommunications technology solutions and system architectures for use on low
and medium voltage systems. With carriage on low and medium voltage, we believe
that powerline telecommunication technology should be available worldwide. The
proposed solution includes our proprietary technology and is designed to
facilitate the provision of powerline telecommunication technology solutions to
virtually any building and premise, overcoming existing infrastructure
limitations.
The proposed powerline telecommunications technology solution contemplates
the design and development of certain integral components by third party
telecommunication service and technology companies. We entered into an agreement
in January 2001 with Cisco Systems, Inc. to collaborate in the development of a
Head-end Router and a Customer Premise Equipment (CPE) unit, as well as
ancillary products, designed to be used for the low voltage system. The Router
is intended to be placed at the pole-top or pad-mounted and is designed to
facilitate the transfer of high speed data-carrying signals to CPE unit which is
intended to be connected to the standard electrical outlets in the home or
business. The CPE unit will be designed to enable the transport of data and
voice between the Router and the home or business user. Cisco is a leading
developer, manufacturer and marketer of hardware and software products for use
in computer and communications networks. Our agreement with Cisco contemplates
that we be granted an initial limited period of exclusivity with respect to the
design, development and marketing of the products under development. Beyond such
period, the agreement contemplates that we will negotiate the terms of the
license and manufacturing rights, as well as other matters, relating to
1
the products under development. To date we have invested $2,000,000 in the joint
development project with Cisco and we expect to expend, upon achievement of
certain specified development and testing milestones, an additional $4,500,000
over the next eighteen months.
We believe that utilities and electric power distributors to be our
natural prospective partners. We believe that powerline telecommunications
technology affords not only an advantage to the consumer but should allow our
prospective utility partners to significantly enhance their service offerings to
their industrial, commercial and residential customers. We envision the utility
basket of services to include features such as automatic meter reading (AMR),
real time outage reporting and load balancing/switching. We envision that the
consumer basket of services will include, initially, internet access and
telephony, with such features as streaming video alarm monitoring and others to
follow. We believe that these and other features should render the proposed
powerline telecommunications solution an attractive proposition to utilities.
To date, most of the concepts underlying our technology have been
validated in first phase alpha demonstration in joint testing and field trials
with Consolidated Edison Company of New York, one of the larger investor owned
utility companies in the United States and certain other utilities and Sumitomo
Electric Industries, Ltd., one of Japan's larger manufacturer of electric wire
and cable. In these field trials, our proposed solution successfully carried
streaming video, video conferencing and internet connectivity over standard
electrical power lines in point-to-point, limited distance demonstrations. In
January 2001, the first alpha testing of our solution in a residential setting
in Hong Kong was successfully concluded. These tests represent the first stage
alpha tests of our proposed solution and additional alpha testing and
demonstrations will be conducted.
The Offering
Certain stockholders may offer and sell up to 24,784,234 shares of our
common stock under this prospectus. We will not receive any of the proceeds from
the sale of these shares. We may, however, receive proceeds from the exercise of
warrants held by certain of the selling stockholders that are included in this
registration statement. See "Use of Proceeds" and "Selling Stockholders."
Risk Factors
Investing in our common stock involves significant risks. You should
consider the information under the caption "Risk Factors" beginning on page 4
of this prospectus in deciding whether to purchase the common stock offered
under this prospectus.
2
Summary Financial Data
This table summarizes our operating data and balance sheet data for and as
of the periods indicated. You should read this summary financial data in
conjunction with "Plan of Operations" and our financial statements and notes
thereto included elsewhere in this prospectus.
Cumulative
From
Year Inception
Ended To
December 31, December 31,
2000 1999 2000
---- ---- ----
Expenses
Research and Development $ 463,038 $ 340,287 $ 2,184,875
Less - Participation by the Office of the
Chief Scientist of the State of Israel -- 231,767 558,195
------------ ------------ ------------
463,038 108,520 1,626,680
Operating general and administrative expenses 3,391,571 357,419 6,206,145
Stock based compensation 14,724,328 326,815 15,785,062
------------ ------------ ------------
Total expenses 18,115,899 684,234 21,991,207
------------ ------------ ------------
Operating loss (18,578,937) (792,754) (23,617,887)
Legal settlement (1,512,500) -- (1,512,500)
Interest expense (397,921) (66,104) (674,628)
Non-cash financing expense (1,500,000) -- (1,600,000)
Beneficial conversion feature of convertible debt (3,878,260) -- (3,878,260)
Amortization of deferred financing costs (5,089,144) (272,546) (5,752,015)
Other income (expenses), net 225,267 -- 225,267
Company's share in net losses of affiliate (335,365) -- (335,365)
------------ ------------ ------------
Loss before minority interest
and extraordinary item (31,066,860) (1,131,404) (37,145,388)
Minority interest in subsidiary loss 25,000 -- 25,000
------------ ------------ ------------
Loss before extraordinary item (31,041,860) (1,131,404) (37,120,388)
Extraordinary item - loss on extinguishment of debt (9,778,167) -- (9,778,167)
------------ ------------ ------------
Net loss (40,820,027) (1,131,404) (46,898,555)
Deemed dividends on convertible preferred stock (1,820,859) -- (1,820,859)
------------ ------------ ------------
Net loss attributable to common
stockholders $(42,640,886) $ (1,131,404) $(48,719,414)
============ ============ ============
Basic and diluted loss per share:
Net loss before extraordinary item $ (3.06) $ (0.36)
Extraordinary loss from extinguishment
of debt (0.91) --
------------ ------------
Net loss $ (3.98) $ (0.36)
============ ============
Weighted average number of shares outstanding 10,725,464 3,121,479
============ ============
OTHER FINANCIAL DATA
Capital expenditures $ (170,526) $ (12,102) $ (542,345)
Cash provided used in operating activities (3,651,923) (53,473) (6,532,065)
Cash provided by (used in) investing activities (710,706) 76,437 (1,960,245)
Cash provided by (used in) financing activities $ 11,407,487 $ (31,031) $ 15,545,239
BALANCE SHEET DATA
Cash and cash equivalents $ 7,052,929 $ 8,071
Total assets 8,864,457 433,010
Long-term liabilities -- 625,292
Shareholders' equity (deficit) $ 7,994,427 $ (1,037,865)
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RISK FACTORS
The securities offered by this prospectus are speculative and involve a
high degree of risk and should not be purchased by persons who cannot afford the
loss of their entire investment. Prospective investors should carefully consider
the following risk factors, as well as all other information set forth elsewhere
in this Prospectus, before deciding to invest in shares of our common stock.
Except for historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. If any
of the following risks actually occur, our business, financial condition and
results of operations would likely suffer. In such case, the market price of our
common stock would decline, and you may lose all or a part of the money you pay
to buy our common stock.
The comprehensive communications infrastructure underlying our proposed
powerline solution is in the design and development stage and we cannot assure
you that it will be successfully developed or technologically viable and, even
if developed or viable, successfully marketed.
We are engaged in the architecture, design, development, implementation
and marketing of a proposed comprehensive communication infrastructure which
uses the electrical power distribution grid as a high-speed telecommunication
medium. Our current activities are focused on the implementation and marketing
of our proposed powerline telecommunications technology solution and system
architectures for use on low and medium voltage systems. Our proposed solution
is designed to enable, initially, high speed internet access and telephony
services. The proposed powerline telecommunication solution is based on our
establishing and maintaining partnership relationships with utilities and
electrical power distribution companies and telecommunication service and
technology companies. Existing electrical power grids have, to date, not been
widely used commercially for high-speed data transmission due to certain
technological and infrastructure limitations. Our proposed solution is, we
believe, designed to overcome these limitations. In order for our proposed
communications infrastructure to be technologically feasible and viable, we
believe that we will need to develop and integrate several components and
technologies. We are in the process of integrating our solution concept with
various other complementary and necessary technologies. We anticipate and
propose to have these complementary components and technologies produced by
prospective third party partners in the telecommunications and related
industries. While first phase alpha testing and field trials have validated most
of the concepts underlying our powerline telecommunication technology solution,
we can provide no assurance that these complementary components or technologies
will be successfully developed or technologically feasible or integrated into
our proposed communications infrastructure or, even if they can be successfully
developed and integrated and technologically feasible, that they can be so
developed and integrated on commercially acceptable terms and conditions. Once
we complete the successful
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design and development of our proposed solution, if ever, our current business
model contemplates that, in order to adequately deliver our proposed solution to
end-users, we will need to enter into collaborative arrangements with third
party utilities or other providers of electric power. No assurance can be
provided that we will be successful in establishing and maintaining these
collaborative arrangement on commercially acceptable terms or that we will be
successful in marketing.
Success of our proposed comprehensive communications infrastructure is
contingent upon its adoption by utilities and other distributors of electric
power.
Our proposed powerline telecommunication solution is based on our
establishing and maintaining partnership relationships with utilities and
electrical power distribution companies as well as telecommunication service and
technology companies. Our current business and revenue model contemplate, at
least initially, that the proposed communication solution will be made available
to residential customers and other end-users through the existing infrastructure
of utilities or other distributors of electric power. Accordingly, we believe
that our success is contingent upon the technological feasibility and commercial
and fiscal viability of our proposed communications solution and its acceptance
and adoption by utilities and other distributors of electric power. While we
believe that our proposed powerline telecommunications solution, once
successfully developed and integrated and fully implemented, will prove to be an
attractive proposition to utilities and other electric power distributors, we
cannot provide any assurance that the utilities or the other distributors of
electric power will in fact so adopt or ratify our proposed powerline
telecommunications solution. Additionally, we believe that the success of
wire-less based solution providers overcoming technical challenges and
furnishing a reliable, technologically feasible and commercially viable solution
for high speed data transfer may adversely influence the utilities' decision to
adopt our proposed solution.
Governmental regulations may delay or preclude the adoption of our proposed
solution.
Utilities and other providers of electric power are ordinarily subject to
significant governmental oversight and regulations, on both the state and
federal level. Foreign utilities and other providers of electric power are also
subject to significant governmental oversight and regulations in their
respective home countries. In certain countries, such as Japan, there may be
regulations restricting the transmission of high frequency over power-lines,
necessitating governmental permission. These regulations may be interpreted in
such a manner as to inhibit, delay or preclude the provision of our proposed
communications solutions or to require costly modifications to the proposed
solution. In addition, regulations in the telecommunications field may also
adversely affect the provision of our proposed solution. We are attempting to
address these regulatory challenges in part by by the establishment of our
advisory board, which is staffed with non-employee individuals who have
extensive experience in a broad array of professional areas, including in
regulatory areas that we believe may be relevant to the industries we are or may
become engaged in. See "Management-Advisory Board".
5
We will require additional financing.
We anticipate that our cash on hand will allow us to maintain operations
as presently conducted at least through the next twelve months. However, we will
require additional financing to fully execute our design, development and
commercialization plans, including the completion of the design, development and
testing of the products under joint development with Cisco Systems, Inc., as
well as to maintain necessary levels of liquidity. See "Plan of Operations" and
"Certain Relationships and Related Transactions". Additionally, if we expand our
current operations to include strategic partnerships or mergers or acquisitions,
then we will also require additional financing to realize such mergers or
acquisitions. We have no commitments for any such financing and there can be no
assurance that we will obtain additional capital when needed or any assurance
that any additional financing can be obtained on favorable terms, if at all. Any
additional financing is likely to result in dilution to our stockholders. See
"Business".
We will need to negotiate commercial agreements with our prospective partners
relating to the commercialization of our communications infrastructure and the
sharing of revenues and cost savings generated by the adoption of our solution.
Our business revenue model contemplates that our proposed communications
solution, once the infrastructure is fully commercialized, will be primarily
generated by the consumer basket of services that will be made available to the
end-user or the enhanced utility services that we believe will result in
significant cost savings to the utilities or the other providers of electric
power. Additionally, we also anticipate that we will be able to generate fees
during the development phase of the communication infrastructure, prior to the
commercialization of our solution, if we are able to successfully conclude
agreements with utilities or other providers of electrical power whereby such
parties agree to participate in the outlays associated with developing our
solution. Our business model also contemplates that we will assume a significant
portion of start-up costs associated with the commercialization of our proposed
solution as well as training and maintenance costs. Additionally, our agreement
with Cisco Systems, Inc. contemplates that beyond an initial period of
exclusivity with respect to the development and marketing of products under
joint development, we and Cisco will negotiate the terms of the license and
manufacturing rights, as well as other matters, relating to the products under
development. Accordingly, we will need to negotiate with our prospective utility
and other providers of electric power partners, as well as prospective partners
in the telecommunications and technology service areas, the terms of the
marketing, license and other agreements relating to the implementation of the
proposed solution, including, without limitation, terms relating to the sharing
of any up-front capital expenditures required to commercialize the proposed
communications structure, and the sharing of revenues and cost savings generated
by the proposed solution. No assurance can be provided that we will be able to
successfully negotiate these arrangements on commercially acceptable terms.
We have incurred losses in every quarter and year, and we expect these losses to
continue in the foreseeable future.
Since we began our operations in 1996, we have lost money in every quarter
and year. Prior to March 2000, when we actively began to engage in our current
business, the design, development
6
and commercialization of powerline telecommunication technology, we designed,
developed and marketed smart-card application, a business in which we are no
longer engaged. As of December 31, 2000, we had an accumulated deficit of
approximately $48.7 million, which includes $40 million in non-cash charges
primarily related to the issuance of warrants and the extinguishment of debt. We
may not be able to generate sufficient revenue to become profitable. Even if we
do become profitable, we may not be able to sustain or increase profitability on
a quarterly or annual basis in the future.
We have only been in business in the powerline telecommunication field for a
short period of time, so your basis for evaluating us is limited.
We are a development stage company with a limited history of operations
which is primarily in the design and development of smart card based
technologies and products, a business in which we no longer engage. We have been
engaged in the design, development and commercialization of our proposed
powerline communication infrastructure since March 2000. As a result, there is a
limited history of operations for evaluating our power-line telecommunication
technology business. You must consider the risks and difficulties frequently
encountered by early stage companies in new and rapidly evolving markets,
including the market for the provision of rapid power-line telecommunication
services. Some of these risks and uncertainties include:
*The technological feasibility of our proposed communications solution;
*The successful implementation of the communications infrastructure which
is required to properly deliver to the end-user our proposed communications
solution;
* Our ability to establish and maintain relationships with appropriate
parties in the electric power distributions and telecommunications industries;
* The adoption by the electric power distribution of our proposed
communications solution;
* Competition of wire-less based solutions;
* Our ability to respond effectively to actions taken by our competitors;
7
* Our ability to respond effectively to pertinent governmental regulatory
concerns and demands;
* Our ability to build our organizational and technical infrastructures to
manage our growth effectively;
* Our ability to design, develop and implement effective product
offerings; and
* Our ability to attract, retain and motivate qualified personnel.
If we are unsuccessful in addressing these risks and uncertainties, our
business, financial condition and results of operations will be materially and
adversely affected.
Our ability to manage growth is limited.
If we expand our management, design and development, testing,
quality control, marketing, sales and service and support operations, as well as
financial and accounting controls, such expansion could place a significant
strain on our company. If our management is unable to manage growth effectively,
our business and financial conditions could be materially adversely affected.
Failure to integrate new personnel on a timely basis could have an adverse
effect on our operations. Furthermore, the expenses associated with expanding
our management team and hiring new employees will likely be incurred prior to
the generation of any associated revenues. Our inability to manage growth
effectively could have a material adverse effect on our business, financial
conditions or results of operation.
The market for our proposed technologies is unproven.
The market for rapid power-line data telecommunication is unproven. The
use of electrical power-lines for high speed telecommunication is in an
embryonic stage. For us to be successful, utilities other providers of
electrical power and telecommunication and technology service companies, as well
as end-users, must accept the concept of power-line data telecommunication
generally and also adopt the solution that we have developed. There can be no
assurance that utilization of electrical power grids as a medium of rapid data
transmission will be commercially accepted. Moreover, the high frequency
electrical characteristics of the power grid in some countries or localities may
prevent the efficient transmission of high frequency signals, and thus not
permit the implementation of our solution. Further our solution may not achieve
or sustain market acceptance under
8
emerging industry standards or may not meet, or continue to meet, the changing
demands of the media access and technology service companies. If the market
for power-line based rapid transmission of data does not develop or expand, our
business, financial condition and results of operations would be materially
adversely affected.
You should not rely on our quarterly or year-end operating results as an
indication of how we will do in the future.
Our quarterly and year-end operating results may vary significantly in the
foreseeable future due to a number of factors that could affect our performance,
expenses or prospects during any particular quarter. Due to all of the risks
discussed in this section, you should not rely on quarter-to-quarter comparisons
of our results of operations as an indication of future performance. It is
possible that in some future periods our operating results will be below the
expectations of public market analysts and investors. In this event, the price
of our common stock would likely fall.
We are engaged in a highly competitive field.
The high-speed data transmission industry and internet access, the fields
of business in which we are currently engaged, are extremely competitive. We
believe that there are companies, with substantially greater financial,
technological, marketing, personnel and research and development resources than
our company, which are engaged in developing a high speed data transmission
solution. Additionally, efforts in the past to utilize electrical power lines as
a high-speed data communications medium have not been successful due to
technological impediments or economic and fiscal considerations. Certain
companies, including those with significantly greater resources than our
company, such as Siemens and Nortell, have undertaken efforts to implement a
comprehensive powerline telecommunication based solutions. However, to date,
none have, to our knowledge, implemented and commercialized any such solution.
Certain other companies, including those with significantly greater resources
than our company, provide, we believe, partial powerline based solutions. We
believe that our core strategy, which attempts principally to partner our
proposed powerline based solution with appropriate parties in the
telecommunication and service technology areas as well as utilities and other
providers of electric power, provides the most viable prospect of a powerline
telecommunication based high-speed solution. There can be no assurance that we
will be able to compete successfully in this market.
Certain companies claim to provide non-powerline based high-speed data
transmission. In particular, internet service providers (ISPs) provide internet
access over existing networks and have nationwide marketing presence and
strategic or commercial licenses with
9
telecom carriers and wireless and satellite service providers have announced
plans to expand fixed-wireless networks for high speed data customers. Cellular
operators are establishing portals facilitating access to web and information
services. There can be no assurance that other companies will not enter the
market in the future. There can be no assurance that development by others of
similar or more effective technologies or solutions will not render our Proposed
solution non-competitive or obsolete. See "Business-Competing Technologies".
New products and rapid technological change may render us vulnerable to
technological obsolescence.
The high speed data communications industry is characterized by rapidly
changing technology, evolving industry standards and frequent new product
introductions. Our success will depend in part on our ability to meet changing
customer requirements and evolving industry standards. We currently devote, and
intend to continue to devote, our resources toward the development of high-speed
power-line based data transmission and internet access. There can be no
assurance that we will successfully complete the development of these
technologies and related products in a timely fashion or that our prospective
technologies or future products, if any, will satisfy the needs of the market.
There can also be no assurance that products and technologies developed by
others will not adversely affect our competitive position or render our
prospective technologies non-competitive or obsolete. See "Business-Competing
Technologies."
We have limited marketing experience and capabilities.
We have limited marketing experience and limited financial, personnel and
other resources to undertake marketing and advertising activities. To date we
have generated no revenues. As is typically the case with newly-introduced
products or technologies in the design and development stage, the ultimate level
of demand is subject to a high degree of uncertainty. Developing market
acceptance for our proposed high-speed telecommunication medium will require
substantial marketing efforts and the expenditure of a significant amount of
funds to inform utilities, electrical power distributors as well as
telecommunication service technology companies of the perceived advantages of
our proposed solution. There can be no assurance that our marketing efforts will
result in demand for, or market acceptance of, our proposed technologies or
solution. There can be no assurance that we will be able to market these
proposed technologies successfully or that our efforts will result in any
significant revenues. Our business model contemplates that we will need to
establish and maintain commercial relationships with
10
utilities and other providers of electrical power as well as telecommunications
service technologies in order to commercialize our proposed solution. There can
be no assurance that we will be able to identify suitable partners or that, if
suitable partners are identified, we will be able to sign appropriate agreements
on acceptable terms.
We have very few employees and are particularly dependent on certain of our key
personnel.
We currently employ 15 full-time employees. Although we believe we
maintain a core group sufficient for us to effectively conduct our operations,
the loss of certain of our key personnel could, to varying degrees, have an
adverse effect on our operations and product development. There can be no
assurance that we will be successful in identifying and retaining such personnel
on commercially acceptable terms.
Our future success is also dependent upon our continuing ability to
attract and retain highly qualified technical personnel to perform research,
design and development activities as well commercialization activities. There is
a high demand in our market for qualified technical personnel and competition
for such personnel is generally intense.
Anti-dilution protection accorded to certain of our Executive Officers.
In connection with their employment agreements, we granted to each of our
Chief Executive Officer, Mark Isaacson and, our Chief Financial Officer, Wilfred
Kopelowitz, stock options for, respectively, 1,350,000 and 240,000 shares of
common stock. In connection with these stock options, each of Messrs. Isaacson
and Kopelowitz have been granted anti-dilution protection with respect to any
future stock issuances by us in an amount necessary to maintain their respective
percentage ownership of the outstanding shares of our stock on a fully diluted
basis on the date of grant had their respective options been exercised on the
date of grant. Mark Isaacson's and Wilfred Kopelowitz's percentage ownership of
the outstanding shares of our stock (on a fully diluted basis) on the date of
the grant of these options are, respectively, approximately 4.2% and .075%.
While we have successfully raised funds in the past notwithstanding these
provisions, such anti-dilution protection could make future financing more
difficult for us to obtain, if at all, unless these provisions are waived by
these executive officers. See "Business--Management".
11
Our efforts to protect our intellectual property rights may not be adequate.
Our success depends in part on our proprietary technologies. We filed with
the United States Patent and Trademark Office patent applications for the
inductive coupling of a data signal to a power transmission cable. We anticipate
filing shortly a patent application for the coupling of broadband modems to
powerlines. No patents have yet been issued. Additionally, we have certain
patents and patent applications pending in the smart-card applications area, a
business in which we are no longer engaged. Currently we are in the process of
establishing two trademarks, "PLT Systems" and "PLT Solutions", though no
assurance can be provided we will establish such recognized trademark.
Accordingly, we rely on a combination of trademark, copyright and trade secret
laws, nondisclosure and other contractual provisions, and technical measures to
protect our intellectual property rights. See "Business-Patents and Trade
Secrets." Our patent, trademarks or copyrights in the powerline
telecommunication technology and may be challenged and invalidated or
circumvented. Others may develop technologies that are similar or superior to
our technologies or duplicate our technologies. Effective intellectual property
protection may be unavailable or limited in certain foreign countries. Despite
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy or otherwise use aspects of processes and devices that we regard as
proprietary. Policing unauthorized use of our proprietary information is
difficult, and there can be no assurance that the steps we have taken will
prevent misappropriation of our technologies. In the event that our intellectual
property protection is insufficient to protect our intellectual property rights,
we could face increased competition in the market for our products and
technologies, which could have a material adverse effect on our business,
financial condition and results of operations.
Litigation may be necessary in the future to enforce any patents that may
be issued and other intellectual property rights, to protect our trade secrets
or to determine the validity and scope of the proprietary rights of others.
There can be no assurance that any litigation of these types will be successful.
Litigation could result in substantial costs, including indemnification of
customers, and diversion of resources and could have a material adverse effect
on our business, financial condition and results of operations, whether or not
this litigation is determined adversely to us. In the event of an adverse ruling
in any litigation, we might be required to pay substantial damages, discontinue
the use and sale of infringing products, and expend significant resources to
develop non-infringing technology or obtain licenses to infringed technology.
Our failure to develop or license a substitute technology could have a material
adverse effect on our business, financial condition and results of operations.
12
Future Sales of our common stock by our stockholders could have an adverse
effect on the market price of our common stock
We have 23,125,794 shares of our common stock presently issued and
outstanding of which 11,179,342 are being registered in the registration
statement which forms a part of this Prospectus. We anticipate that some or all
of the selling stockholders may from time to time sell all or a part of the
shares offered hereby, subject to any lock-ups or similar restrictions. In
addition, there are currently outstanding options or warrants to purchase
approximately 15,500,000 shares of our common stock, of which 13,716,711 held by
selling stockholders with exercise prices ranging from a nominal price to 8.00
per share which are being registered in the registration statement which forms a
part of this prospectus. Additionally, there are approximately 3,181,000 shares
currently transferable under Rule 144 promulgated under the Securities Act of
1933, as amended, subject to the volume limitations and other conditions of such
Rule. The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of common stock in the
market after this offering, or the perception that such sales may occur. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and a price that we deem appropriate.
Our stock price is volatile and could continue to be volatile.
Investment interest in our common stock may not lead to the development of
an active or liquid trading market. The market price of our common stock has
fluctuated in the past and is likely to continue to be volatile and subject to
wide fluctuations. In addition, the stock market has experienced extreme price
and volume fluctuations. The stock prices and trading volumes for many hi-tech
companies fluctuate widely for reasons that may be unrelated to their business
or results of operations. The market price of our common stock may decline.
General economic, market and political conditions could also materially and
adversely affect the market price of our common stock and investors may be
unable to resell their shares of common stock at or above the offering price.
It may be difficult for a third party to acquire us.
Provisions of Delaware law could make it more difficult for a third party
to acquire us, even if it would be beneficial to our stockholders. See
"Description of Securities - Effect of Delaware Anti-Takeover Statute".
13
Penny Stock Regulation is applicable to investment in our shares.
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ system, provided that current
prices and volume information with respect to transactions in such securities
are provided by the exchange or system). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules generally require that prior to a transaction in a penny
stock the broker-dealer make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules.
Forward-Looking Statements.
This prospectus (including statements incorporated by reference into this
prospectus) includes forward-looking statements. You can identify these
forward-looking statements when you see words such as "expect", "anticipate",
"estimate", "project", "plans", "intends", "management believes", "we believe"
and similar words or phrases.
We make forward-looking statements in this prospectus, regarding, among
other items:
* our ability to successfully develop and integrate our proposed
comprehensive high speed communications solution with necessary accompanying
technologies;
* acceptance of our proposed comprehensive communications solutions by
utilities and electric power distributors and telecommunications industry
players as well as in the marketplace;
14
* governmental regulations and oversight applicable to the fields in which
we are engaged;
* our proposed revenue generation plans;
* our expectations about the market prospects for our proposed
communications solution;
* our future capital needs;
* our expectations about our future profitability, operating results and
financial condition; and
* the success of our protection of our proprietary technology.
We have based these forward-looking statements largely on our current
expectations. However, forward-looking statements are subject to a number of
risks and uncertainties, certain of which are beyond out control. Actual results
could differ materially from those anticipated as a result of the factors
described under "Risk Factors."
We do not undertake any obligation to publicly update or revise any
forward-looking statements we make in this prospectus or that are incorporated
by reference, whether as a result of new information, future events or
otherwise. Because of these risks and uncertainties, the forward-looking events
and circumstances discussed in this prospectus might not happen.
15
USE OF PROCEEDS
The selling stockholders will receive all of the proceeds from the sale of
the shares of common stock offered by this prospectus. We will not receive any
proceeds from the sale of any shares offered by this prospectus. See "Selling
Stockholders" and "Plan of Distribution."
We may receive up to approximately $26.4 million in proceeds from the
exercise by certain selling stockholders of warrants to purchase up to an
aggregate of approximately 8.7 million shares of our common stock, at per share
exercise prices ranging between $2 and $8.00. The resale of the common stock
underlying these warrants is included in the registration statement of which
this prospectus forms a part.
16
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock is quoted on OTCBB under the symbol "ABTG". The
following table sets forth, for the periods indicated the range of high and low
sales prices per share of the Company's common stock, as reported on OTCBB. The
closing price of our common stock on May 7, 2001 was $1.42 per share.
HIGH LOW
2001
First Quarter $ 2.59 $ 1.25
Second Quarter (for the period ending May 7, 2001) $ 1.80 $ 1.10
2000
First Quarter $ 6.25 $ 1.375
Second Quarter $ 5.31 $ 2.03
Third Quarter $ 4.97 $ 3.03
Fourth Quarter $ 3.28 $ 1.781
1999
First Quarter 1.375 2.625
Second Quarter 5.5 0.8125
Third Quarter 1.1875 0.625
Fourth Quarter 2.5 0.75
The foregoing represent inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
As of May 7, 2001, there were approximately 150 holders of record of
our common stock. We believe that a significant number of shares of our common
stock are held in either nominee name or street name brokerage accounts and,
consequently, we are unable to determine the number of beneficial owners of our
stock.
Dividend Policy
We have not declared or paid dividends on our common stock since our
formation, and we do not anticipate paying dividends in the foreseeable future.
Declaration or payment of dividends, if any, in the future, will be at the
discretion of the Board of Directors and will depend on our then current
financial condition, results of operations, capital requirements and other
factors deemed relevant by the Board of Directors.
17
PLAN OF OPERATIONS
The following discussion and expositions should be read in conjunction
with the Financial Statements and related Notes contained elsewhere in this
Prospectus. Certain Statements made in this 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: our intended business plans; expectations as to the performance of
our proposed communication solution; 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 our
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 our 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 our acquisitions and
capital expenditure plans. Although we believe that expectations reflected in
the forward-looking statements are reasonable, we cannot guarantee future
results, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these
forward-looking statements. We are under no duty to update any forward-looking
statements after the date of this Prospectus to conform such statements to
actual results.
We are engaged in the architecture, design, development, implementation
and marketing of a proposed comprehensive communication infrastructure which
uses the electrical power distribution grid as a high-speed telecommunication
medium. The use of conventional electrical power grids for high speed data
transmission is referred to as "powerline telecommunication technology". Our
proposed powerline telecommunication solution is based on our establishing and
maintaining partnership relationships with utilities and electrical power
distribution companies, as well as developing and maintaining business relations
with telecommunication service and technology companies.
Although historically used for low speed data communication, existing
electrical power grids have not been used for high-speed data transmission due
to certain technological and infrastructure limitations. Our current activities
are focused on the implementation and marketing of our proposed powerline
telecommunications technology solutions and system architectures for use on low
and medium voltage systems. With carriage on low and medium voltage, we believe
that powerline telecommunication technology should be available worldwide. The
proposed solution is designed to facilitate the provision of powerline
telecommunication technology solutions to virtually any building and premise,
overcoming existing infrastructure limitations.
18
The proposed powerline telecommunications technology solution utilizes our
proprietary technology and contemplates the design and development of certain
integral components by our existing and prospective technology partners. We
entered into an agreement with Cisco Systems, Inc. to collaborate in the
development of a dead-end Router and a Customer Premise Equipment (CPE) unit, as
well as ancillary products, designed to be used for the low voltage system. The
Router is intended to be placed at the pole-top or pad-mounted and is designed
to facilitate the transfer of high speed data-carrying signals to the CPE Unit
which is intended to be connected to the standard electrical outlets in the home
or business. The CPE unit is intended to enable the transport of data and voice
between the Router and the home or business user. Cisco is a leading developer,
manufacturer and marketer of hardware and software products for use in computer
and communications networks. Our agreement with Cisco contemplates that we be
granted an initial limited period of exclusivity with respect to the design,
development and marketing of the products under development. Beyond such period,
the agreement contemplates that we will negotiate the terms of the license and
manufacturing rights, as well as other matters, relating to the products under
development.
We believe that electric utilities and power companies to be our natural
partners. We believe that powerline telecommunications technology affords not
only an advantage to the consumer but should allow our prospective utility
partners to significantly enhance their service offerings to their industrial,
commercial and residential customers. We envision the utility basket of services
to include features such as automatic meter reading (AMR), real time outage
reporting and load balancing/switching. We envision that the consumer basket of
services will include, initially, internet access and telephony, with such
features as streaming video alarm monitoring and others to follow. We believe
that these and other features should render the proposed powerline
telecommunications solution an attractive proposition to utilities.
To date, most of the concepts underlying our technology have been
validated in first phase alpha demonstration in joint testing and field trials
with Consolidated Edison Company of New York, one of the larger investor owned
utility companies in the United States and certain other utilities and Sumitomo
Electric Industries, Ltd., one of Japan's larger manufacturer of electric wire
and cable. In these demonstrations, our proposed solution successfully carried
streaming video, video conferencing and internet connectivity over standard
electrical power lines in point-to-point, limited distance demonstrations. In
January 2001, the first alpha testing of our solution in a residential setting
in Hong Kong was successfully concluded. These tests represent the first stage
alpha tests of our proposed solution and additional alpha testing and
demonstrations are expected.
Since our founding as a Delaware company in June 1996, we had been engaged
in the design and development of technologies and products, initially focused on
the enhancement of smart card applications. Owing to a fundamental reassessment
of general market developments in the field of powerline telecommunications
technology and the smart card business environment, we elected to redirect our
business focus to the field of powerline telecommunications technology. We have
subsequently ceased all design and development efforts in the smart card area.
19
During the first quarter of 2000, we established a subsidiary, PLT
Solutions, Inc., in which we held a 90.01 interest, to promote our powerline
telecommunications technology. The remaining 9.90 interest was held by Dr.
Yehuda Cern, one of our key employees. In January 2001, we purchased from Dr.
Cern the entirety of his shareholdings in PLT Solutions Inc. and we subsequently
merged such company into us, with our company being the surviving entity of such
merger. We continue to use the name "PLT" as our commercial trade name for our
powerline telecommunications technology products and services.
As a development stage company, we have a limited operating history upon
which an evaluation of our prospects can be made. We have been in the powerline
technology business, which is the field in which we engage, since March 2000.
Our prospects must therefore be evaluated in light of the problems, expenses,
delays and complications associated with a new business.
From the date of inception through December 31, 2000, we expended $1.63
million on research and development activities (net of $558,195 received by
Ambient Ltd., our Israeli subsidiary, as government participation in its smart
card development, from the Office of Chief Scientist of the Israeli Ministry of
Industry and Trade). Of this amount, during each of calendar year 2000 and 1999
we expended, respectively, $463,068 and $108,520. The amounts expended in 2000
related exclusively for powerline telecommunication technology.
As of December 31, 2000, we incurred net losses aggregating $48.7 million
(which includes $40 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. We expect to incur
significant up-front expenditures in connection with the new focus of our
operations, and operating losses are expected to continue for the foreseeable
future. There can be no assurance that we can be operated profitably in the
future. Our continuation as a going-concern is dependent upon, among other
things, our ability to obtain additional financing when and as needed, and to
generate sufficient cash flow to meet our obligations on a timely basis. We may
also explore other business options including strategic joint ventures and
business combinations, including investments in other companies, or mergers.
In September 2000, our management was reorganized, with the then existing
Chief Executive Officer and Chief Financial Officer resigning from all positions
held and their replacement by our current Chief Executive Officer, Mark Isaacson
(formerly the acting Chief Executive Officer of PLT Solutions, Inc., our former
subsidiary which has been subsequently merged with and into our company), and
Chief Financial Officer, Wilfred Kopelowitz, a new Chief Operating Officer, John
Joyce, as well as technical, marketing and other supporting personnel.
A substantial portion of our operating expenses are attributable to
non-cash charges associated with the compensation of consultants and senior
personnel through the issuance of stock options and stock grants. Such stock
based compensation resulted in non-cash charges of $14.7 million for the year
ended December 31, 2000. We believe that these compensation levels were
necessary to retain the services of qualified individuals.
20
In February 2000 We 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. We recorded a
non-cash extraordinary loss in the amount of approximately $9.8 million and a
corresponding increase of additional paid-in capital to reflect the fair value
of shares issued in connection with this transaction.
Last year, we issued $2,000,000 of our 10% convertible debentures and
1,250,000 common stock warrants to private investors. Pursuant to the terms of
the debentures, the entire principal balance was converted into 5,000,000 shares
of our common stock. The warrants are exercisable at a price per share of $1.00.
In connection with this issuance, we recorded a total note discount of $1.14
million representing the value of the warrants and $571,600 representing the
beneficial conversion feature of the convertible debentures.
In the July and August 2000, we received gross proceeds of $4.25 million
(before deducting approximately $425,000 in commissions) from the private
placement of 1 million shares of our common stock and 1.25 million shares of our
convertible preferred stock. As part of this private placement, we issued
four-year warrants to purchase 2.125 million of our preferred stock, at an
exercise price per share of $3.50. Pursuant to the terms of the agreement, in
November 2000, upon our stockholders' approval of a proposal to increase our
authorized shares of common stock, the convertible preferred stock automatically
converted into 1.25 million shares of common stock. In connection with the
issuance of the convertible preferred stock, we recorded a deemed preferred
stock dividend in the amount of $1.8 million representing the beneficial
conversion feature of the convertible preferred stock issuance.
In the third quarter of 2000, we issued $8,345,500 of our one-year
convertible debentures to private investors. Pursuant to the terms of the
agreement relating to these convertible debentures, in November 2000, upon our
stockholders' approval of a proposal to increase our authorized shares of common
stock, the debentures automatically converted into 3,711,711 shares of common
stock at per share conversion rates ranging from $2 to $4. Additionally,
pursuant to the agreement, we issued four year warrants to purchase up to
3,711,711 shares of our common stock. The warrants are exercisable at prices
ranging from $3.50 to $8.00 per share. In connection with the issuance of the
convertible debentures, we recorded a total note discount of $3.4 million
representing the value of the warrants and $3.3 million representing the
beneficial conversion feature of the convertible debentures.
In connection with certain of the private placements in July-September
2000, we issued, as a finders fee, warrants to purchase, in the aggregate,
770,000 shares of our common stock, at per share exercise prices ranging between
$2 and $4.50.
In January 2001, we purchased from Dr. Yehuda Cern, one of our key
employees, his 9.9 percent shareholdings in our majority owned subsidiary PLT
Solutions, Inc. In consideration of the transfer of his shares in PLT, we issued
to Dr. Cern 400,000 shares of our common stock, subject to certain lock-ups and
other restrictions. Following the purchase of PLT, we merged PLT into our
company with
21
our company as the surviving entity. The term "PLT" continues to be used by us
as a trade name for our powerline telecommunications technology.
In January 2001, pursuant to our joint development agreement with Cisco
Systems, Inc., we expended $2,000,000 for the products under joint development.
Upon the achievement of certain specified development and testing milestones, we
expect to expend an additional $4,500,000 over the next eighteen months.
During January - April 2001, we privately placed 700,000 shares of our
common stock for aggregate consideration of $700,000, of which approximately
$600,000 have been received and the remaining balance of approximately $100,000
are anticipated to be received shortly. We anticipate that we will received
additional gross proceeds of at least $1.5 million by June 30, 2001 from the
private placement of additional shares of our common stock though no assurance
can be provided that such amount (or any lesser amount), if any, will in fact be
received.
In connection with the proposed relocation of our headquarters from
Brookline, Massachusetts to New York City, in April 2001 we advanced to Mark
Isaacson, a director and our Chief Executive Officer, a interest free loan for a
term not exceeding 10 years of $2 million to be used for the purchase of a home
in the New York Metropolitan area. We hold a first mortgage on that home, as
well a security interest in his existing home. The loan will be partially repaid
out of the net proceeds from the sale of Mr. Isaacson's existing home in
Massachusetts, at which time it is anticipated that Mr. Isaacson will apply for
a mortgage of approximately $900,000 on his new home, the entire net proceeds of
which will be used to repay a portion of the loan. No assurance can however be
provided that Mr. Isaacson will secure a mortgage on the new home on acceptable
terms. Upon the repayment of a portion of the loan from the net proceeds from
the sale of Mr. Isaacson's existing home and the obtaining of a mortgage, it is
anticipated that the remaining outstanding loan to Mr. Isaacson will be
approximately $500,000. See "Certain Relationships and Related Transactions".
We anticipate that cash on hand will allow us to maintain operations as
presently conducted at least through the next twelve months. However, we will
need additional financing in order to fully execute our design, development and
commercialization plans including the completion of the design, development and
testing of the products under joint development with Cisco Systems, Inc. See
"Business". Additionally, if we expand our current operations, including
strategic partnerships or mergers or acquisitions, then we will require
additional financing to realize such mergers or acquisitions. We are currently
reviewing possible further 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 be able to obtain additional financing when needed or that any such
additional financing will not have a dilutive effect on current stockholders.
22
BUSINESS
Introduction
We are engaged in the architecture, design, development, implementation
and marketing of a proposed comprehensive communication infrastructure which
uses the electrical power distribution grid as a high-speed telecommunication
medium. The use of conventional electrical power grids for high-speed data
transmission is referred to as "powerline telecommunication technology". Our
proposed powerline telecommunication solution is based on our establishing and
maintaining partnership relationships with utilities and electrical power
distribution companies, as well as developing and maintaining business relations
with telecommunication service providers and other technology companies.
Although historically used for low speed data communication, existing
electrical power grids have not been used for high-speed data transmission due
to certain technological and infrastructure limitations. Our current activities
are focused on the implementation and marketing of our proposed powerline
telecommunications technology solutions and system architectures for use on low
and medium voltage systems. With carriage on low and medium voltage, we believe
that powerline telecommunication technology can be made available worldwide. The
proposed solution is designed to facilitate the provision of powerline
telecommunication technology solutions to virtually any building and premise,
overcoming existing infrastructure limitations.
The proposed powerline telecommunications technology solution utilizes our
proprietary technology and contemplates the design and development of certain
integral components by our existing and prospective technology partners. We
entered into an agreement with Cisco Systems, Inc. to collaborate in the
development of a Head-end Router and a Customer Premise Equipment (CPE) unit, as
well as ancillary products, designed to be used for the low voltage system. The
Router is intended to be placed at the pole-top or pad-mounted and is designed
to facilitate the transfer of high speed data-carrying signals to the CPE device
which intended to be connected to the standard electrical outlets in the home or
business. The CPE unit will be designed to enable the transport of data and
voice between the Router and the home or business user. Cisco is a leading
developer, manufacturer and marketer of hardware and software products for use
in computer and communications networks. Our agreement with Cisco contemplates
that Ambient be granted an initial period of exclusivity with respect to the
design, development and marketing of the products under development. Beyond such
initial period, the agreement contemplates that we will negotiate the terms of
the license and manufacturing rights, as well as other matters, relating to the
products under development. To date we have invested $2,000,000 in this project
and we are to expend, upon the achievement of certain specified development and
testing milestones, an aggregate of $4,500,000 over the next eighteen months.
We believe that electric utilities and power distribution companies will
be our natural partners. We believe that powerline telecommunications technology
affords not only an advantage to the consumer but should allow our prospective
utility partners to significantly enhance their service offerings to their
industrial, commercial
23
and residential customers. We envision the utility basket of services to include
features such as automatic meter reading (AMR), real time outage reporting and
load balancing/switching. We envision that the consumer basket of services will
include, initially, high speed internet access and telephony, with such features
as streaming video alarm monitoring and others to follow. We believe that these
and other features should render the proposed powerline telecommunications
solution an attractive proposition to utilities.
To date, most of the concepts underlying our technology have been
confirmed in first phase alpha demonstration in joint testing and field trials
with Consolidated Edison Company of New York, one of the larger investor owned
utility companies in the United States and certain other utilities, and Sumitomo
Electric Industries, Ltd., one of Japan's larger manufacturer of electric wire
and cable. In these demonstrations and filed trials, our proposed solution
carried streaming video, video conferencing and Internet connectivity over
standard electrical power lines in point-to-point, limited distance
demonstrations. In January 2001, the first alpha testing of a point-to-point
high-speed communications in a residential setting in Hong Kong was successfully
concluded. These tests represent the first stage alpha tests of our proposed
solution and additional alpha testing and demonstrations are expected.
Since our founding as a Delaware company in June 1996, we have been
engaged in the design and development of technologies and products, initially
focused on the enhancement of smart card applications. Owing to a fundamental
reassessment of general market developments in the field of powerline
telecommunications technology and the smart card business environment, we
elected to redirect our business focus to the field of powerline
telecommunications technology. We have subsequently ceased all design and
development efforts in the smart card area and have focused on powerline
telecommunications technology.
General Background Relating To Internet Access
Internet communications worldwide can be divided into the "backbone"
network and the "access" network. The backbone networks are typically comprised
of optical fiber cables between cities, countries and continents, and we believe
that optical fiber cables provide essentially unlimited capacity for sending
relatively large amounts of data over long distances. However, the optical fiber
technology used for the backbone network is too expensive to extend to each
individual user. Accordingly, distributing data from the backbone network to
homes and business is done via an "access" network, also referred to as the
"last mile" network.
To date, traditional access networks have included modems connected to
conventional telephone lines, higher speed digital subscriber telephone lines
(DSL), cable TV with data modems in set-top boxes and, more recently, wireless
networks. However, we believe that the traditional access methods have certain
drawbacks. The ADSL method typically requires high implementation costs as well
as high maintenance cost to prevent the deterioration of bandwidth. Cable TV
modems are characterized by loss of bandwidth when the number of subscribers
reaches a critical mass and wireless networks are unreliable, as is generally
the case in the use of cell phones.
24
The use of electrical power grids as an access method is, in our view, an
especially attractive proposition given the widespread infrastructure "wiring"
already in place. The same electrical wiring that carries electrical power to
individual homes and businesses can also transmit high-speed data. However,
there are certain infra-structural limitations that have, until recently,
effectively precluded the use of conventional electrical power grids as an
affordable and achievable access method.
Electrical power is generated at a power station and furnished to an urban
or rural substation, which services a neighborhood, typically extending over
several square miles. The electrical power generated at the power station is
sent over relatively high voltage lines and is stepped down to lower voltages at
various stages of distribution At the substation level, a "step-down
transformer" reduces the high voltage electrical power generated to "medium"
voltage for further distribution within the neighborhood. The "medium" voltage
is further reduced by "distribution transformers" typically located on the poles
to the lower voltage levels utilized by industrial, commercial and residential
premises.
However, the distribution transformers block the high frequency,
data-carrying signals arriving over the grid from the substation. Therefore, to
ensure that data can get from the neighborhood lines to the premises a "bypass
coupler" is needed as a bridge around the distribution transformer. The only
currently existing option for bypass coupling was to use capacitive couplers,
which need to be physically (and therefore electrically) connected directly to
the medium voltage lines. To achieve the electrical connection the capacitive
coupler needs to include a capacitor that can withstand high voltage, and is
therefore very expensive to manufacture. The cost of such a key component in the
overall system has represented a significant hurdle in the development of an
economical solution to offering consumer services over the power distribution
infrastructure.
The Proposed Powerline Telecommunications Technology Solution
Our proposed solution, which includes our proprietary coupler technology,
is designed to achieve high-speed data transfer to and from the neighborhood
distribution lines without the need to establish an electrical connection. Our
proposed solution is designed to slip around overhead low or medium voltage
distribution wires. Accordingly, we anticipate that implementation costs of our
technology will be significantly lowered in comparison to the conventional
solutions that attempt to use a capacitive bypass coupler thereby affording a
cost effective powerline telecommunications technology solution.
The data path of our proposed utilization of electrical power lines is as
follows: (i) high speed data arrives over the optical fiber backbone cable,
routed to the neighborhood utility substation, (ii) the specific data intended
for the subscribers of a particular neighborhood is selected from the general
data stream by a standard network device called a router, (iii) the digital data
is turned into a high frequency signal using a modem, and (iv) the high
frequency, data-carrying signal is carried onto the neighborhood power
distribution line using our proprietary coupler.
Advantages of Utilizing Existing Power lines for High Speed Data Transmission
25
The use of electricity power lines to connect industrial, commercial and
residential consumers to the internet, for telephony or for any other form of
data communication provides both consumers and suppliers with a range of
compelling economic and practical benefits.
The advantages in employing power line communication include:
*Coverage - the power grid is the most extensive "wire" network in the
world. More individuals and businesses have access to the electrical grid than
any other "wired" network, including telephone lines. The low voltage wiring
extends to every room in the business and home, and obviates expensive and
disruptive wiring.
*Modernity - the electric grid in most areas of the world is more modern
and better maintained than any other wired communication network.
*Simplicity - Power line communications are not burdened by telephony's
conventional technologies, including outdated routers, bridges, gateways, legacy
switches and software, which slow down traditional communications.
*Electrical Wires-Powerline communications have the large advantage of all
wires in place usable without large-scale infrastructure lay such as with fiber
optics.
*Additionally, the impediment of atmospheric challenges and physical
blockage such as with wireless is not an issue with powerline.
*The added practical functionality of utility function significantly
enhances the business case.
Fueled by recognition of the overwhelming financial and practical
benefits, interest in high-speed power-line telecommunication has expanded.
Technical conferences on the subject are frequent, and attended by power
companies, as well as those from other relevant fields including
telecommunications and networking companies such as Cisco, Siemens, and others.
Powerline Telecommunication technology chips and modems for in-house networking
are maturing, and a large number of companies are vying for this market. Network
speeds of data transmission are rapidly increasing. To realize maximum benefit
from the in-home network, users are looking to connect it to a high speed
Internet feed.
Comparison of Power-Line Communication with other High Speed Access Solutions
*Digital Subscriber Line (DSL) - subscribers need to be within
approximately 5.5 km of the telephone company's central office. It is a
point-to-point connection, so the one time installation cost to the end user is
high. Users report that installation times are long, and availability is sparse.
Phone companies need to invest considerably to beef up their networks, which
were never designed for high-speed data and very long session times.
In contrast, powerline telecommunications technology networks can be
deployed in entire neighborhoods in a matter of days, and their direct
connection to
26
the backbone means no bottlenecks or heavy investments. Also, telephone outlets
typically exist in only one to three locations within a premise, while power
outlets are already installed in every room.
*T1 Trunks - T1 (1.544 Mbps) is a digital telephony trunk, typically used
by phone companies to provide telephone service to large organizations. It
provides high- speed communications in both directions. But, its high (hundreds
of dollars per month) tariff prices it out of the market for most home and small
business users. In addition, it is not a full system solution, but is stand
alone in installation.
*Satellite - Some satellites serve as data relay stations, and some of
these are connected to the Internet backbone to provide data to users. The user
needs to buy, mount and aim a fairly large dish, he needs a microwave
transmitter/receiver, and a special modem. Since the ground-based antennae
cannot beam a strong signal back to the satellite, only low speeds of 56
kilobits per second can be sent from the user to the Web, the same data speed as
is available over dialup modems.
*Cable Modems - Cable TV networks have been designed and constructed to
provide significantly higher bandwidth in one direction, providing a large
number of channels to a large user base. Subscribers to cable companies share
their cable lines with other subscribers, sometimes a very large number of them,
so even the high promised data speeds (up to 36Mbps) may not guarantee good
service during usage. Sending data back from the user to the network is
problematic over cable TV lines, due to the accumulation of noise accumulated on
the lines from all of the connected customers, reaching the cable TV network.
Cable companies must invest substantially in upgrading their equipment to be
able to send data upstream, and in laying cables outside of urban areas. Data
service over cable TV systems is available to only a small percentage of
Internet users.
In contrast, powerline telecommunication technology exploits the natural
segmentation of the neighborhood power grid, to keep the number of users sharing
the data stream within reasonable limits. Typically, only 50 - 200 premises
share a common phase line in the US, and the number of users demanding
simultaneous downloads of large files is likely to be very small. Ambient
expects the typical user to enjoy data rates from 1 to 10 megabits per second,
usually enough to pass the maximum data rate available from the Web site being
accessed, for the foreseeable future.
In addition, cable TV outlets typically exist in only one or two locations
within a premise, while power outlets are already installed in every room. This
saves expensive and disruptive rewiring, when data users include PCs, Internet
telephones, and eventually many intelligent appliances.
*Wireless Local Loop - Similar to cellular telephone network deployment,
microwave relay stations may be deployed in neighborhoods to provide last mile
access for Internet data to homes and businesses. The same problems of
communications reliability that beset cellular telephones are likely to affect
wireless local loop systems. These include need for near line of sight between
hub and user, multiple reflections of signals in dense residential areas, the
blocking effects of the
27
metal building materials, and seasonal variation of foliage and effects of
precipitation on radio transmission quality.
Another inherent limitation is the frequency bandwidth available in the
shared domain of radio frequencies, and the difficulty of providing significant
future upgrades in data speeds without regulatory permission and massive
retrofitting of equipment. All other systems currently are limited both by
infrastructure, cost, reach, speed, and other limiting factors. We believe that
powerline telecommunication technology should be an easier way to bypass such
limitations.
Integrating Our Proposed Solution into a Complete Access Network
In order to provide our comprehensive powerline access solution to the end
user, our powerline telecommunications technology is required to be integrated
with the following technologies:
* a modem;
* a media access control processor;
* a network communication and control system; and
* user interface devices.
The modem is the device that turns the digital data into a high frequency
analog signal, and it both minimizes radio interference emissions and provides
tolerance for the noise interference to be found on power lines. The media
access control processor is the "traffic cop" that coordinates packaging of data
into "packets," and who sends and listens. The network control system provides
overall control of traffic. And the user interface devices translate the high
frequency signals coming over the power line into useable data for their
computers and other devices.
Our solution seeks to provide an initial system data rate of up to 10
megabits per second, and we believe that this can be upgraded to several times
this speed, with future developments in hardware and software. Future modems are
expected to use more sophisticated modulation techniques that allow the same
frequency band to carry at least three times more data.
To date, most of the concepts underlying our proposed powerline
telecommunication technology solution were validated in first alpha joint
testing and field trials with each of Consolidated Edison Company of New York,
one of the nation's larger utility companies and Sumitomo Electric Industries,
Ltd., Japan's largest manufacturer of electric wire and cable. The Con Edison
testing involved a successful point-to-point, limited distance demonstration (as
yet without full network service) wherein our powerline telecommunication
technology carried streaming video, video conferencing and Internet connectivity
over standard electrical power lines. This proof of concept testing is the first
stage of alpha demonstration. Further alpha demonstration will involve greater
distances and additional consumer and utility services and products. In the
Sumitomo testing, larger distances were recorded for connectivity over standard
electrical powerlines. Our existing powerline technology was successfully tested
in a field trial in a Hong Kong in a residential building.
Our Coupler
28
We anticipate that our proposed solution will utilize our coupler. A
prototype product has passed high voltage testing at a lab in the US and has
been field tested for communications between two transformers at a power company
site.
Our coupler features:
* Low cost;
* Capacity for very high data rates, exceeding 10 megabits per second, which
is at least 200 times faster than dialup modems can provide:
* Installation without interruption of service to customer;
* No material impact on reliability of electrical grid;
* Works even during power outage (when cable connectivity exists)
* Installation without exposure to high voltages; and
* Virtually unlimited life of service.
We are currently in the process of arranging for the pilot testing of our
proposed product with potential commercial partners. Further production steps
will include Standards testing and certification, mechanical package design and
tooling for mass production.
Production & Supplies
We envision that our proposed access solution will integrate various
technologies and systems.
We believe that our proprietary couplers that utilize special magnetic
materials and high voltage weatherproof plastics, as well as standard components
that are obtainable from local sources, will be used. We have identified
potential suppliers to manufacture the coupler and expect subcontract mass
production of the coupler. We believe that we will be able to produce the
necessary couplers at competitive market costs.
The proposed powerline telecommunications technology contemplates the
design and development of certain integral components by our existing and
prospective technology partners. We entered into an agreement with Cisco
Systems, Inc. to collaborate in the development of a Head-end Router and a
Customer Premise Equipment (CPE) unit, as well as ancillary products, designed
to be used for the low voltage system. The Router is intended to be placed at
the pole-top or pad-mounted and is designed to facilitate the transfer of high
speed data-carrying signals to the CPE device which may be connected to a
standard electrical outlets in the home or business. The CPE unit is intended to
enable the transport of data and voice between the Router and the home or
business user. Cisco is a leading developer, manufacturer and marketer of
hardware and software products for use in computer and communications networks.
Our agreement with Cisco contemplates that Ambient be granted an initial period
of exclusivity. Beyond the initial time period covered by the current
development agreement, the agreement contemplates that we will negotiate the
terms of the license and manufacturing rights, as well as other matters,
relating to the products under development. To date we have invested $2,000,000
in this project and we are to expend, upon the achievement of certain specified
development and
29
testing milestones, an aggregate of $4,500,000 over the next eighteen months.
See "Risk Factors".
We anticipate that all future suppliers and assemblers will be certified
to recognized international quality assurance standards.
Marketing and Sales Plan
Our current business model contemplates that once our proposed
communication infrastructure is ready for commercialization, we and our
prospective utility partners will be responsible for promoting and marketing the
proposed solution to its intended users. We anticipate that we, with the
assistance of our prospective utility partners, will share any expenditures that
may be necessary to fully implement the communication infrastructure.
Once the communications infrastructure is complete and our proposed
solution is ready for commercialization, we envision that our proposed solution
will generate revenues from both a consumer basket of services as well as from
"utility products" which will generate savings and create additional value for
the utility distribution companies.
We expect the consumer products to include initially high-speed Internet
access and telephony, with such features as streaming video, alarm monitoring
and others to follow. We envisage that the consumer products will be marketed
and sold, in collaboration with an unregulated subsidiary of our utility
partners.
We expect to assume a significant portion of the start-up costs associated
with the introduction of the consumer basket of services as well as training and
maintenance cost.
We anticipate that within the commercialization agreement will be a
revenue share arrangement whereby we and our prospective utility partners will
divide revenue and profits generated in an agreed upon manner.
We envision the utility basket of services to include features such as
automatic meter reading (AMR), real-time outage reporting and load
balancing/switching allowing utilities to significantly enhance their service
offerings to their industrial, commercial, and residential customers. Such
services are expected to lead to significant cost savings and additional revenue
to utilities, which will generate revenue for Ambient in the form of a portion
of such savings being equitably shared between partners.
Additionally, prior to the commercialization of our proposed powerline
based solution, we believe that we will be able to generate revenue. We
anticipate that we will negotiate with our prospective utility partners an
arrangement whereby they will be bearing a portion of the costs incurred in the
design, development and commercialization of the solution. We anticipate that
these payments will be made to us upon the achievement of certain pre-designated
development and commercialization milestones.
30
The development phase is anticipated to span a period of twelve to
eighteen months and is characterized primarily by the following: a system
evaluation phase, a device connection phase, a small pilot phase and a large
pilot phase. During the development phase, which characterized the present phase
that we are in, we expect to negotiate the terms of complete commercial
agreements with prospective partner utilities that will define the arrangement
for deployment (including the sharing of necessary capital expenditures)
marketing, sales and customer relations issues leading to a business model which
envisions the sharing of revenue and profit between the interested partners.
The arrangements discussed above are premised on our successfully
concluding marketing and other agreements on terms and conditions that are
favorable to us. For example, our agreement with Cisco Systems, Inc.
contemplates that, beyond an initial period of exclusivity with respect to the
products under development, we and Cisco negotiate the terms of the license and
manufacturing rights, as well as other related matters, to the products under
development. No assurance can be given that we will be successful in concluding
such agreements on terms and conditions that are favorable to us.
Competing Technologies
Our proposed powerline telecommunications technology solution affords, we
believe, a commercially viable alternative to the local incumbent
telecommunications carrier breaking a competitive position which has been
difficult to penetrate by other CLEC (competitive local exchange carriers)
companies depended on gaining access to local markets through the use of the
local carriers infrastructure. Additionally, powerline telecommunication
technology offers the opportunity to bring telephony and Internet services to
under-served, under-developed markets. For instance, in areas of the world,
including rural United States, there are limited or no existing options for
telephony and Internet access. At least in some of these areas, we expect
powerline telecommunications technology services to offer a viable solution.
The telecommunications services market, including internet access, is
competitive. We face competition from many service providers with significant
financial resources, well-established brand names and large, existing customer
bases. Moreover, we expect the level of competition to intensify in the future.
We expect significant competition from:
I. Powerline telecommunication technology
Certain companies, including those with significantly greater resources
than our company, such as Siemens and Nortell, have undertaken efforts to
implement a comprehensive powerline telecommunication based solutions. However,
to date, none have, to our knowledge, implemented and commercialized any such
solution. Certain other companies, including those with significantly greater
resources than our company, provide, we believe, partial powerline based
solutions. We believe that our core strategy, which attempts principally to
partner our proposed powerline based solution with appropriate parties in the
telecommunication and service technology areas as well as utilities and other
providers of electric power, provides the most viable powerline
telecommunication based high-speed solution.
II. Incumbent Telephone (DSL) Service Providers.
31
We face competition from other providers of telephony transmission
services. Many of the existing providers of telephony services, such as regional
Bell operating companies and other competitive local exchange carriers (CLECs),
have greater financial and other resources than us with more established brand
awareness in their service areas. However, we expect to be able to distinguish
ourselves from these competitors by offering greater speeds for connectivity at
lower costs and together with our prospective partners - the utility companies -
we envision being able to compensate for the brand awareness and the financial
resources of the competitors.
In addition, our solution will offer a cost-effective suite of beneficial
services not offered by these competitors to the utilities and electricity
distribution operators.
III. Wireless and Satellite Service Providers.
Especially in underserved areas, we face competition from fixed-wireless
and satellite service providers for voice and high-speed data customers in
businesses and residences. Many of these competitors are offering, or may soon
offer, technologies and services that will compete with some or all of our
service offerings. However, services based on these technologies typically offer
communications speeds lower than those supplied by DSL, cable systems, and
anticipated speeds from our solution.
In addition, our solution will offer a cost-effective suite of beneficial
services not offered by these competitors to the utilities and electricity
distribution operators.
IV. Subscription Television Competition Hardwire Cable.
Our principal subscription television competitors are traditional hardwire
cable operators. Hardwire cable companies generally are well established and
known to our potential customers. In addition, these competitors are also
bundling additional services with their cable TV services, such as high-speed
Internet access, to enhance their products. In order to provide such services,
however, the current cable infrastructure would require significant capital
expenditures. Because of the existing wires of the electrical power grid, the
build-out of our PLT system is not expected to require similar heavy
infrastructure costs.
We believe that our proposed technology is designed to enable electric
utilities and power companies to create a basket of products that is designed to
add value to utility operational services. These may include, we believe, such
features as load switching/balancing, demand management, alarm monitoring,
outage reporting and automatic meter reading, as well as additional consumer
services such as internet, telephony, video-on-demand, content and smart
appliances.
Patents & Trademarks
We filed with the United States Patent and Trademark Office patent
applications for the inductive coupling of a data signal to a power transmission
cable. We anticipate filing shortly a patent application for the coupling of
broadband modems to powerlines. No patents have yet been issued. Additionally,
we have certain patents and patent applications pending in the smart-card
applications area, a business in which we are no longer engaged.
32
There can be no assurance that any of our current or future patent
applications in the powerline telecommunication technology area, will provide
significant protection for our future products or proposed technology, be of
commercial benefit to us, or that the validity of such patents or patent
applications will not be challenged. Furthermore, there can be no assurance that
any patent underlying licensed technology will not be challenged. Moreover,
there can be no assurance that foreign patent, trade secret or copyright laws
will protect our technologies or that we will not be vulnerable to competitors
who attempt to copy or use our products or processes.
Currently, we are in the process of establishing two trademarks, PLT
solutions for our low-voltage system architecture, and PLTsystems for our
medium-voltage system architecture.
Research & Development
From the date of inception through December 31, 2000, we have expended
approximately $1.63 million on research and development (net of $558,195
received by Ambient Ltd., our Israeli subsidiary, as government participation in
its smart card development from the Office of Chief Scientist of the Israeli
Ministry of Industry and Trade). Of this amount, during each of calendar year
2000 and 1999 we expended, respectively, $463,068 and $108,520. The amounts
expended in 2000 related exclusively to our powerline telecommunications
technology business.
We are committed to pay royalties to Office of the Chief Scientist on
proceeds from sales of products derived from the smart-card area which the
office supported by way of grants. The refund of the grant is contingent on
future sales of these products. We have ceased all activities in the smart card
area and have not received and do not anticipate receiving any revenues from
these products. All our design, development testing activities are conducted out
of our premises in Brookline, Massachusetts.
Subsidiary business
We also hold a 49% interest in Kliks.com Ltd., an Israeli corporation that
intends to develop and implement a screen phone network in Israel, designed to
enable e-commerce and Internet browsing for business and home consumers who do
not have access to, personal computers. We are not actively involved in the
day-to-day operation of the Kliks.com nor does management anticipate becoming so
involved in the future. Mr. Michael Braunold, our former Chief Executive
Officer, is our designee serving on the board of directors of Kliks.com. See
"Certain Relationships and Related Transactions".
Employees
Currently we employ 15 full-time employees. Mr. Mark Isaacson, our Chief
Executive Officer, also serves as Chairman of the Board of Directors and our
Chief Financial Officer, Mr. Wilfred Kopelowitz, also serves as a member of the
Board of Directors. Mr. Aaron Fischman, our Vice President for Investor
Relations, is not a
33
full-time employee but devotes a substantial amount of time to our business. See
"Risk Factors".
Wholly-Owned Inactive Subsidiaries
We have two wholly-owned inactive Israeli subsidiaries, Ambient Ltd. and
Insulated Connections Corporation Ltd. We currently conduct no significant
business through either subsidiary nor do they employ any persons. In the past,
when we were engaged in smart-card application, a business in which we are no
longer engaged, we used to conduct our design and development activities through
Ambient Ltd. We used to conduct certain of our design and development activities
relating to powerline telecommunication business through Insulated Connections
Corporation Ltd. However, since October 2000, all of our design and development
efforts have been relocated to our primary premises in Brookline, Massachusetts.
In January 2001, we purchased from Dr. Yehuda Cern, one of our key
employees, his 9.9 percent shareholdings in our majority owned subsidiary PLT
Solutions, Inc. In consideration of the transfer of his shares in PLT, we issued
to Dr. Cern 400,000 shares of our common stock, subject to certain lock-ups and
other restrictions. Following the purchase of PLT, we merged PLT into our
company with our company as the surviving entity. The term "PLT" continues to be
used by us as a trade name for our powerline telecommunications technology.
Advisory Board
We have established an advisory board which is comprised of certain
individuals of recognized stature and experience with whom our board and
management team consult with on a regular basis from time to time on certain
issues and challenges facing our business and industry. The individuals
currently serving on our advisory board possess significant experience in
government, regulated industries and finance. We believe that the members of the
advisory board comprises a reservoir of experience and expertise for us.
Currently the members of our advisory board include the following persons:
J. Bennett Johnston, Rudy Boschowitz, Robert Abrams, Dr. Oleg Vorontsov and
George Jee, on behalf of Consolidated Edison. A brief description of each
individual follows:
Former Senator J. Bennett Johnston, former Chairman of the United States
Senate's Energy and Natural Resources Committee (1986 - 1992) and former
Chairman of the Energy Appropriations sub-committee served for 24 years in the
senate (1972 - 1996) and served his entire career on the Energy and Natural
Resources Committee, chairing it from 1986 - 1992. During this period, Senator
Johnston chaired or was a ranking member as well of the Energy and Water
Appropriations Sub-Committee. In this dual assignment Senator Johnston was
author and principal sponsor of literally hundreds of energy bills and
legislation. Senator Johnston was principle sponsor of the Natural Gas
De-regulation Act and authored by the first Electricity Re-structuring
legislation of the United States Energy Policy Act of 1992.
34
Rudy Boschowitz, former United States Senator from Minnesota, was a
two-term member of the United States Senate and is the founder and CEO of
Plywood Minnesota. During his distinguished tenure in the United States Senate
(1978-1990), Boschowitz served on the Foreign Affairs, Budget, Small Business
and Veterans Affairs committees.
Robert Abrams is the former New York State Attorney General. Mr. Abrams,
who served as New York State's highest law enforcement official for 4 terms,
served as well as President of the National Association of Attorneys Generals
heading its committees on Environmental Protection, Anti-trust and Civil Rights.
He currently is a partner at the law firm of Stroock & Stroock & Lavan LLP,
where he has been involved in government regulatory matters.
Dr. Voronstov has been a member of the International Olympic Committee
since 1993. He has been involved in various marketing programs of the National
Olympic committees of the former Soviet Bloc and is active in marketing,
cultural and educational programs of the Olympic Committee of Asia. Dr.
Voronstov holds a Ph.D. in International Economics from the University of Kiev
We expect to invite from time to time to serve on our advisory board other
individuals or persons of recognized experience and expertise.
In consideration for the services provided to our company, members of our
advisory board are compensated with options to purchase our common stock and
reimbursement of any reasonable expenses and do not receive any cash
compensation. For information relating to such compensation, see "Executive
Compensation - Advisory Board"
Our Offices
Our corporate offices are located at 1033 Beacon Street, Brookline,
Massachusetts, 02446, and are comprised of approximately 4,350 square feet
leased at a monthly rental of approximately $11,700 with a scheduled expiration
date of July 1, 2003. We have improved this facility to meet our design and
development activities. We believe that this facility is sufficient to meet our
current and anticipated future requirements. We believe that we will be able to
renew our present lease or obtain suitable replacement facilities.
We expect to relocate our headquarters to New York. We expect to begin a
phased transfer of our executive, financial and operational functions to New
York City by August 2001. Presently, we plan to keep our technology staff in our
present premises in Brookline, so as to continue benefitting from the
accessibility and close working relationships we have developed with the
scientific and technology communities in the region, as well as the proximity to
the large number of universities in the Boston Area.
Legal Proceedings
We are not involved in any pending legal proceedings which we anticipate
can result in a material adverse effect on our business or operations.
35
MANAGEMENT
Directors, Executive Officers, Promoters And Control Persons
The names, ages and positions of our directors, executive officers and key
employees are as follows:
Name Age Position
- ---- --- --------
Mark Isaacson 41 Chief Executive Officer, Chairman of the
Board of Directors
John Joyce 49 Chief Operating Officer
Wilfred Kopelowitz 44 Chief Financial Officer and Secretary;
Director; Director of Ambient Ltd.]
Aaron Fischman 41 Vice President, Strategic Development
Ramdas Rao 36 Chief Network Architect
Martin B. Hoffman 63 Director
Michael Widland 60 Director
The business experience, principal occupations and employment, as well as
the periods of service, of each of our directors and executive officers during
at least the last five years are set forth below.
Mark Isaacson has been and a director and Chief Executive Officer of the
Company since September 2000, and has been affiliated with us since April 2000.
Prior to his appointment as Chief Executive Officer, Mr. Isaacson managed our
former subsidiary PLT Solutions, Inc. (which has been subsequently merged with
and into our company). From 1998 until April 2000, Mr. Isaacson served as an
independent consultant to various companies in the high technology industry.
From 1995 to 1998, he held the post of President of The Marlin Group, Inc., a
marketing and business development consultancy specializing in brand marketing.
In this capacity he was responsible for company operations and business
development. From 1983 through 1994, as President of Prestige International, a
specialist company in implementing consumer brand marketing and merchandising
projects for Fortune 1000 companies, he was responsible for company operations
and worldwide business development. Mr. Isaacson has over 16 years of senior
management experience.
36
Mr. Joyce has been Chief Operating Officer since November 2000. Prior to
joining Ambient, Mr. Joyce served, from September, 1996 to October 2000, as
Senior Vice President of ABB Financial Services Inc. and President of ABB
Financial Consulting, The Americas, where he was also selected to lead the
global energy consulting practice within Financial Services. Mr. Joyce developed
the Americas branch of ABB Financial Consulting, the financial management
consultancy business of ABB Financial Services. Preceding his association with
ABB, Mr. Joyce served, from December 1993 to August 1996, as a Director with The
Capital Markets & Treasury Practice of Price Waterhouse LLP. Returning to the
firm where he had previously served for more than five years in the general
audit practice, Mr. Joyce assumed the responsibilities of Manager,, where he
advised corporations on a variety of business issues relating to capital markets
and financial initiatives. In the risk management area, Mr. Joyce assisted
clients in the evaluation of organizational needs and internal capabilities as
they related to the development of risk management programs and strategies. Mr.
Joyce was promoted to the level of Director in June 1995. From 1985 to 1989, Mr.
Joyce directed new business development as a Vice President of Citicorp N.A.. A
CPA in the United States, Mr. Joyce holds an MBA from the Stern School of
Business, New York University, where he majored in Finance and International
Business.
Mr. Kopelowitz has been Chief Financial Officer and Secretary of our
company since September 2000 and a director since January 2001. From May 2000
through the time preceding his appointment as Chief Financial Officer, Mr.
Kopelowitz worked for a financial consulting agency. From January 1999 through
April 2000, Mr. Kopelowitz served as Corporate Controller at Amdocs, a
multi-national company specializing in software solutions for customer care and
billing to the telecommunications industry whose securities are traded on NYSE.
From August 1993 through December 1998, he served as Corporate Controller at
Indigo N.V., a worldwide developer, manufacturer and distributor of innovative
digital color printing systems. Mr. Kopelowitz held other senior finance
positions with a major multi-national chemical company. Mr. Kopelowitz obtained
a BA in economics and accounting in 1983 from Bar-Ilan University in Israel and
is a certified public accountant.
Mr. Aaron Fischman has been our Vice President, Strategic Development,
since December 2000. Mr. Fischman is not a full-time employee and has other
concurrent work-related obligations. Since September, 1998, Mr. Fischman has
been the President of Chosen Israel LLC, group of merchant bankers responsible
for locating and financing of Israeli based high-tech companies. Prior to his
affiliation with Chosen, in 1995 he founded and managed Ephod Israel Management
Group, which was also engaged in high-tech financing activities.
37
Mr. Ramdas Rao has been the Company's Chief Network Architect since
September 2000. From March 2000 until the time immediately preceding his joining
the Company, Mr. Rao was the was the Chief Information Officer at Mullen, one of
the larger advertising agencies in North America. From November 1995 through
February 2000, he was the President and Co-Founder of Gaialinks Inc., a company
engaged in the development of network management software tools and providing
network analysis and consulting services for large heterogeneous, multi-vendor,
multi-protocol networks and systems. From January 1990 through November 1995, he
was affiliated with Boston University where he was Associate Director (from
January 1995 through November 1995) and a Network System Manager (from July 1990
through December 1994). Mr. Rao received a B.S. degree in Computer Engineering
(cum laude) from Boston University College of Engineering in 1988.
Michael Widland joined our Board in November 2000. Mr. Widland has been
actively practicing law since 1965 and is presently a corporate partner at
Shipman & Goodwin LLP of Stamford, Connecticut. Mr. Widland's areas of expertise
include commercial and corporate transactions, including financing. He is a
former Connecticut Chairman of the Public Contract Section and Business Law
Section of the American Bar Association and a member of the Association of
Commercial Finance Attorneys.
Martin B Hoffman joined our Board in November 2000. Mr. Hoffman serves as
President and Director of Hoffman Apparel International Corp, a private
licensing company and also serves as President and Director of The Chardon
Corporation, a private company that acts as the General Partner of a company
active in real estate. He has also served as a member of the Presidential
Advisory Committee on the Arts at the John F. Kennedy Center in Washington DC
and as a member of the State Advisory Board of the Department of Welfare of the
Commonwealth of Massachusetts.
There are no family relationships between any of the above executive
officers or directors, and there is no arrangement or understanding between any
of the above executive officers or directors and any other person pursuant to
which the officer or director was elected to hold office.
Our Board of directors is currently comprised of four Directors. All
directors hold office until the next annual meeting of stockholders and the
election and qualification of a successor. Directors currently do not receive
cash compensation for serving on the Board of Directors. Officers are elected
by the Board of Directors and serve at the discretion of the Board.
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation for each of the last three
fiscal years awarded to, or earned by, our Chief Executive Officer and to all
other executive officers serving as such at the end of 2000 whose salary and
bonus exceeded $100,000 for the year ended December 31, 2000 or who, as of
December 31, 2000, was being paid a salary at a rate of $100,000 per year.
Annual Compensation Long-Term Compensation
------------------------------------------ -------------------------------------------------
Awards Payouts
------------------ -----------------------
Restricted All
Name and Other Annual Stock Underlying Securities Other
Principal Position Salary Bonus Compensation Awards Options LTIP Comp-
Year ($) ($) ($) ($) (#) Pay-outs($) ensation
---- --- --- --- --- --- ----------- --------
Mark Isaacson 2000 $171,667 $162,000(1) $ 8,907(2) -- 2,350,000(4) -- --
Chairman and Chief 1999 -- -- -- -- -- -- --
Executive Officer (3) 1998 -- -- -- -- -- -- --
John Joyce 2000 $ 36,284 $ 5,000 $ 1,500(2) 415,000(6) -- --
Chief Operating 1999 -- -- -- -- -- -- --
Officer (5) 1998 -- -- -- -- -- -- --
Wilfred Kopelowitz 2000 $ 39,375 -- $ 2,100(2) -- 405,000(8) -- --
Chief Financial 1999 -- -- -- -- -- -- --
Officer (7) 1998 -- -- -- -- -- -- --
Ramdas Rao 2000 $ 37,916 -- $ 1,400(2) -- 242,000(10) -- --
Chief Network 1999 -- -- -- -- -- -- --
Architect (9) 1998 -- -- -- -- -- -- --
Aaron Fishman 2000 -- -- -- -- 1,100,000(12) -- --
Vice-President 1999 -- -- -- -- -- -- --
Finance (11) 1998 -- -- -- -- -- -- --
Michael Braunold 2000 $ 33,214 -- $150,000(14) -- 250,000(15) -- --
Former Chief Executive 1999 -- -- -- -- -- -- --
Officer (13) 1998 -- -- -- -- -- -- --
Aryeh Weinberg 2000 $ 58,945 -- 44,000(17) -- -- -- --
Former Chief 1999 $ 65,666 -- -- -- 51,000 -- --
Financial Officer (16) 1998 $ 52,484 -- -- -- -- -- --
(1) Represents a bonus granted with respect to 2000.
(2) Includes contributions to health coverage plan, automobile allowance and
automobile expenses.
(3) Mr. Isaacson's employment with our company commenced in April 2000 and he
assumed the position of Chief Executive Officer in September 2000.
(4) Represents shares of our common stock issuable upon exercise of options, of
which options for 1,350,000 are fully vested and options for the remaining
1,000,000 shares are to vest in two equal installments of 500,000 in September
of each of 2001 and 2002, in each case at a per share exercise price of $1.00.
See "Management -- Employment Agreements".
(5) Mr. Joyce's employment with our company commenced in November 2000.
(6) Represents shares of our common stock issuable upon exercise of options
issued under our 2000 Equity Plan, of which options for 250,000 shares vest in
two equal installments of 125,000 in November of each of 2001 and 2002, at an
exercise price per share of $1.00, and options for the remaining 165,000 shares
vest in two equal installments of 82,500 in November of each of 2003 and 2004,
at an exercise price per share of $2.50. See "Management -- Employment
Agreements".
(7) Mr. Kopelowitz's employment with our company commenced in September 2000.
38
(8) Represents shares of our common stock issuable upon exercise of options
issued under our 2000 Equity Plan, of which options for 90,000 shares are fully
vested and exercisable at a price per share of $1.00 and options for 75,000
shares vest in September of each of 2001 and 2002, at an exercise price per
share of $2.00. The options for the remaining 165,000 vest in two installments
in September of each of 2003 and 2004, in each case at an exercise price per
share of $2.50. See "Management -- Employment Agreements".
(9) Mr. Rao's employment with our company commenced in September 2000.
(10) Represents shares of our common stock issuable upon exercise of options
issued under our 2000 Equity Plan, exercisable at a per share exercise price of
$2.50, as follows: 55,000 in each of September 2001 and 2002 and 66,000 in each
of September 2003 and 2004. See "Management -- Employment Agreements".
(11) Mr. Fischman's employment with our company commenced as of December 2000.
(12) Represents shares of our common stock issuable upon exercise of options,
exercisable at a per share exercise price of $1.00, and vesting as follows:
366,666 in each of December 2001 and 2002 and 366,668 in December 2003. Does not
include 250,000 shares of our common stock which Mr. Fischman holds jointly with
his spouse.
(13) Mr. Braunold served as our Chief Executive Officer and Chairman of our
Board from March 2000 and resigned from employment with our company and his
directorship in September 2000.
(14) Represents amount paid to Mr. Braunold in connection with his resignation
from our company. See "Certain Relationships and Related Transactions".
(15) Represents shares of our common stock issuable upon exercise of warrants
issued to Mr. Braunold in connection with his resignation from the Company. See
"Certain Relationships and Related Transactions".
(16) Mr. Weinberg acted as our Chief Executive Officer From September 1999 to
March 2000. Mr. Weinberg resigned from his positions as Chief Financial Officer
and from his directorship in September 2000.
(17) Represents an amount claimed by Mr. Weinberg. See "Certain Relationships
and Related Transactions".
OPTIONS GRANTED IN 2000
The following table sets forth certain information concerning options
granted during 2000 to the executive officers named in the Summary Compensation
Table:
Number of Percentage of
Securities Total Options Exercise
Underlying Granted to Price Expiration
Name Options Granted (#) Employees in 2000 ($/Share) Date
- ---- ------------------- ----------------- --------- ----
Mark S. Isaacson 2,350,000 $1 2010
John Joyce 250,000 $1 2010
John Joyce 165,000 $2.50 2010
Wilfred Kopelowitz 90,000 $1 2010
Wilfred Kopelowitz 150,000 $2 2010
Wilfred Kopelowitz 165,000 $2.50 2010
Ramdas Rao 242,000 $2.50 2010
Aaron Fischman 1,100,000 $1 2010
Michael Braunold (1) 250,000 $0.01 2010
(1) Mr. Braunold resigned from employment with our company in September 2000.
39
AGGREGATED OPTION EXERCISES IN 2000 AND 2000 YEAR END OPTION VALUES
Number of Securities
-------------------------------------------------------
Underlying
Unexercised Value of Unexercised
Number of Options at in-the-Money Options
Shares December 31, 2000(#) at December 31, 2000($)
Acquired on Value ------------------------- ----------------------------
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable(1)/Unexercisable
- ---- ------------ ------------ ------------------------- ----------------------------
Mark S. Isaacson -- -- 1,350,000 1,000,000 1,602,450 1,187,000
John Joyce -- -- -- 415,000 -- 296,750
Wilfred Kopelowitz -- -- 90,000 315,000 106,830 28,050
Ramdas Rao -- -- -- 242,000 -- --
Aaron Fischman -- -- -- 1,100,000 -- 1,305,701
Michael Braunold -- -- 250,000 -- 544,250 --
Aryeh Weinberg -- -- 51,000 -- 154,567 --
(1) Based on the difference between the exercise price of such options and the
closing price of the common stock on December 31, 2000 ($2.187), as reported on
the OTC Electronic Bulletin Board.
Stock Option Plans
Our current policy is that all full time employees be considered annually
for the possible grant of stock options, depending upon employee performance.
The criteria for the awards are experience, uniqueness of contribution and level
of performance shown during the year. Stock options are intended to improve
loyalty to the Company and help make each employee aware of the importance of
our business success.
2000 Equity Incentive Plan
In July 2000, our Board of Directors adopted the 2000 Equity Incentive
Plan (the "2000 Incentive Plan") and in November 2000 our stockholders approved
such plan. The 2000 Incentive Plan is administered by our Board of Directors or,
at its discretion, by a committee. Persons eligible to participate in the 2000
Incentive Plan include all our key employees and consultants, as well as those
of our subsidiaries, as determined by the Committee, and our directors. The 2000
Incentive Plan provides for the grant of incentive stock options, nonqualified
stock options, stock appreciation rights, restricted stock, bonus stock, awards
in lieu of cash obligations, other stock-based awards and performance units. The
2000 Incentive Plan also permits cash payments either as a separate award or as
a supplement to a stock-based award, including cash payments for the income and
employment taxes imposed on a participant in respect of any award. The 2000
Incentive Plan is of indefinite duration; continuing until all shares reserved
therefore have been issued and performance units have been granted or until
terminated by the Board. A total of 5,000,000 shares of common stock have been
reserved for issuance under the 2000 Incentive Plan.
Options under the 2000 Incentive Plan may be incentive stock options and
nonqualified stock options. The 2000 Incentive Plan also provides for the grant
of stock appreciation rights entitling the participant to receive the excess of
the fair market value of a share of our common stock on the date of exercise
over the grant price of the stock appreciation right. The exercise price per
share of common stock subject to an option and the grant price of an stock
40
appreciation right are determined by the Board of Directors or a committee,
provided that the exercise price of an incentive stock option or stock
appreciation right may not be less than the fair market value (110% of the fair
market value in the case of an incentive stock option granted to a 10%
shareholder) of the common stock on the date of grant. However, the 2000
Incentive Plan also provides for the grant of an option, a stock appreciation
right or other award allowing the purchase of common stock at an exercise price
or grant price less than fair market value when it is granted in substitution
for some other award or retroactively in tandem with an outstanding award. In
those cases, the exercise or grant price may be the fair market value at that
date, at the date of the earlier award or at that date reduced by the fair
market value of the award required to be surrendered as a condition to the
receipt of the substitute award. Options or stock appreciation rights may not be
exercised more than 10 years after grant (five years if the grant is to an
employee who owns more than 10% of our outstanding common stock). The 2000
Incentive Plan also provides for the grant of restricted stock. Restricted stock
is an award of shares of common stock which may not be disposed of by
participants and which may be forfeited in the event of certain terminations of
employment or certain other events prior to the end of a restriction period
established under the grant. Such an award entitles the participant to all of
the rights of a stockholder, including the right to vote the shares and the
right to receive any dividends thereon, unless otherwise determined at the time
of grant. The number of shares of our common stock reserved for issuance, the
number of options outstanding are subject to an adjustment in the case of
certain transaction such as mergers, recapitalizations, stock splits or stock
dividends.
Under the 2000 Incentive Plan, an award may also be denominated or payable
in, or valued in whole or in part by reference to the value of, our common
stock. The terms and conditions of such awards, including consideration to be
paid to exercise awards in the nature of purchase rights, the period during
which awards will be outstanding and forfeiture conditions and restrictions on
awards, are determined at the time of grant. In addition, the Board of Directors
or a committee is authorized to grant shares as a bonus, free of restrictions,
or to grant shares or other awards in lieu of our obligations to pay cash or
deliver other property under other plans or compensatory arrangements, subject
to such terms as the Committee may specify. Grants may also consist of the right
to receive cash payments, whether as a separate award or as a supplement to any
stock-based awards. A grant under the 2000 Incentive Plan may also be comprised
of a performance unit, which is a right to receive a payment in cash
41
equal to the increase in our book value if specified performance goals during a
specified time period are met.
In the event of a change of control, awards granted under the 2000
Incentive Plan that are outstanding and not yet vested or exercisable or which
are subject to restrictions, may, at the discretion of the Board, become
immediately 100% vested in each participant or will be free of any restrictions,
and will be exercisable for the remaining duration of the award. All awards that
are exercisable as of the effective date of the change of control will remain
exercisable for the remaining duration of the award.
As of March 1, 2001, 1,539,000 options to purchase shares of common stock
were outstanding under the 2000 Plan, leaving a balance of 3,461,000 shares of
our common stock available for issuance.
1998 Incentive Stock Option Plan
The Company adopted the 1998 Incentive and Non-Qualified Stock Option Plan
(the "1998 Option Plan") in July 1998. The 1998 Option Plan provides for the
grant of options to purchase shares of common stock to eligible employees,
officers, directors, consultants and service providers of the Company. A total
of 250,000 shares of our common stock has been reserved for issuance under the
1998 Option Plan and as of March 1, 2001, 210,000 options to purchase shares of
common stock were outstanding under the 1998 Option Plan. Upon the approval in
November 2000 by our stockholders of the 2000 Incentive Plan, the 1998 Option
Plan was discontinued.
The 1998 Option Plan was administered by the Board of Directors. The Board
has discretion to select the optionee and to establish the terms and conditions
of each option, subject to the provisions of the 1998 Option Plan. Options
granted under the 1998 Option Plan may be non-qualified stock options or
Incentive Stock Options (an option which is intended to meet the requirements of
Section 422 of the Internal Revenue Code) but in any case the exercise price of
options granted may not be less than 100% of the fair market value of the common
stock as of the date of grant (110% of the fair market value if the grant is to
an employee who owns more than 10% of the outstanding common stock.) Options may
not be exercised more than 10 years after the grant (five years if the grant is
an Incentive Stock Option to any employee who owns more than 10% of the
outstanding common stock). The Board may, in its discretion and subject to the
terms of the 1998 Option Plan (i) accelerate the date or dates on which all or
any particular option
42
or options granted under the 1998 Option Plan may be exercised, or (ii) extend
the dates during which all, or any particular, option or options granted under
the 1998 Option Plan may be exercised, provided, that no such extension will be
permitted if it would cause the 1998 Option Plan, or any option granted
thereunder, to fail to comply with Rule 16b-3 of the Securities and Exchange Act
of 1934, as amended, or if it would cause any incentive stock option granted
under the 1998 Option Plan to fail to qualify as an incentive stock option.
Except as described below or as otherwise determined by the Board at the date of
the grant of the option, and subject to the provisions of the 1998 Option Plan,
an optionee may exercise an option at any time within three months (or within
such lesser period as may be specified in the applicable option agreement)
following termination of the optionee's employment or other relationship with
the Company (one year if such termination was due to the death or Disability (as
defined) of the optionee) but in no event later than the expiration date of the
Option. Except as otherwise determined by the Board at the date of the grant of
an Option, if the termination of the optionee's employment or other relationship
is for cause, the Option will expire immediately upon such termination. Options
granted under the 1998 Option Plan are not transferable and may be exercised
only by the respective grantees during their lifetimes or by their heirs,
executors or administrators in the event of death. Under the 1998 Option Plan,
shares subject to unexercised canceled or terminated options are reserved for
subsequently granted options. The number of shares of our common stock reserved
for issuance under the 1998 Option Plan, the number of options outstanding and
the exercise price thereof are subject to adjustment in the case of certain
transactions such as mergers, recapitalizations, stock splits or stock
dividends.
Employment Agreements
Mark Isaacson has been our Chief Executive Officer and a director since
September 2000 and affiliated with our company since April 2000. Mr. Isaacson
entered into a 5 year employment agreement with our company as of September 1,
2000 pursuant to which he receives an annual salary of $275,000. We issued in
September 2000 to Mr. Isaacson fully vested options for an aggregate of
1,350,000 shares of our common stock, at an exercise price per share of $1.00.
In December 2000, we issued to Mr. Isaacson options to purchase an additional
1,000,000 shares of our common stock, with the option for 500,000 shares vesting
in September 2001, the first anniversary of his employment with us, and the
option for the remaining 500,000 shares vesting on the second anniversary of his
employment, September 2002, all an exercise price of $1.00 per share. In
connection with any future
43
stock issuances by us, Mr. Isaacson is entitled to anti-dilution protection with
respect to the issuance in September 2000 in an amount necessary to maintain his
percentage ownership of the outstanding shares of our stock on a fully diluted
basis on the date of such grant had his option been exercised on the date of
grant. In case of a change in control (as defined in the agreement), all such
options will become exercisable at a price per share of $0.10. In case of any
such change in control where Mr. Isaacson does not continue as Chief Executive
Officer of our company on terms and conditions substantially similar to those
contained in his agreement, then he is eligible to receive one-time payment
equal to, on an after tax basis, to twice his then current annual salary.
Additionally, Mr. Isaacson is entitled to a bonus, payable in respect of each 12
month period commencing on September 1, 2000 in stock or cash, at our Board's
option, equal to 2% of the increase in market capitalization for such 12 month
period, based on the excess of the average closing bid of a share of our common
stock during the last 90 days of such 12 month period times the then outstanding
shares of common stock over the greater of (i) $105,000,000 or (ii) the highest
previous 90 day average against which a bonus was paid under this plan. Mr.
Isaacson is entitled to resign at any time on 30 days notice. If Mr. Isaacson's
employment is not renewed by us or is terminated by us for any reason other than
his death or disability or cause (as defined in the agreement) or Mr. Isaacson
elects to terminate the agreement upon certain pre-designated conditions, then
our obligations to Mr. Isaacson, including salary payment and option issuances,
continue in full force. Mr. Isaacson has agreed to certain customary
confidentiality and non-compete provisions continuing for one year following the
termination of his employment, except that upon Mr. Isaacson's resignation upon
certain pre-designated conditions, the non-compete provision do not apply.
Mr. John Joyce entered into an employment agreement with us effective as
of October 2000, pursuant to which he is employed as our Chief Operating
Officer. Mr. Joyce is paid an annual salary of $190,000. Upon the first
anniversary of his employment, Mr. Joyce may qualify for an annual bonus of up
to $36,000 (as defined in the agreement). We issued to Mr. Joyce 250,000
options, 125,000 of which will be vested on the first anniversary of his
employment and 125,000 options are scheduled to vest on the second anniversary
of his employment, in each case exercisable at an exercise price per share of
$1.00, subject to his continuing employment with the Company. Additionally, Mr.
Joyce was issued in December 2000 options for an additional 165,000 shares of
our Common Stock at $2.50 per share, half of which vest in November 2003, on the
third anniversary of his employment with us, and the remaining 82,500 in
November 2004, on the fourth
44
anniversary of his employment with us. The employment agreement is for a period
of 2 years and is to renew automatically unless either party gives the other 2
months notice prior to scheduled expiration of its election to not renew. Mr.
Joyce has agreed to certain customary confidentiality and non-compete
provisions.
Wilfred Kopelowitz entered into an employment agreement with us in
September 2000 pursuant to which he is employed as our Chief Financial Officer.
Mr. Kopelowitz is paid an annual salary of $135,000 (which salary is scheduled
to be increased to $155,000 upon the first anniversary of employment) and, we
issued to him 240,000 options, 90,000 of which will be fully vested upon
issuance and will be exercisable at an exercise price per share of $1.00, 75,000
options scheduled to vest in September 2001 and the remaining 75,000 options in
September 2002, in each case exercisable at an exercise price per share of
$2.00, subject to his continuing employment with the Company. In December 2000,
we issued to Mr. Kopelowitz options for an additional 165,000 shares at an
exercise price of $2.50 per share, half of which vest in September 2003, on the
third anniversary of his employment with us, and the remaining 82,500 in
September 2004, on the fourth anniversary of his employment wit us. In case of
any future stock issuances by us, Mr. Kopelowitz is entitled to anti-dilution
protection with respect to the initial grant of options for 240,000 shares in an
amount necessary to maintain his percentage ownership of our outstanding shares
of common stock on a fully diluted basis on the date of such grant had such
option been exercised on the date of grant. In case of a change in control (as
defined in the agreement), all options will immediately vest at a per share
exercise price of $0.10. The employment agreement is for 2 years and is to renew
automatically unless either party gives the other notice 3 months prior to
scheduled expiration of its election to not renew. Mr. Kopelowitz has agreed to
certain customary confidentiality and non-compete provisions.
We entered into an employment agreement with Ramdas Rao effective as of
September 2000 pursuant to which he is employed as our Chief Network Architect.
Mr. Rao is paid an annual salary of approximately $130,000 and we issued to him
options for 242,000 shares, exercisable at an exercise price per share of $2.50,
to vest as follows: 55,000 in each of September 2001 and 2002 and 66,000 in each
in each of September 2003 and 2004, subject to his continuing employment with
the Company. The employment agreement is for a period of two years and is to
renew automatically unless either party gives 2 months notice to the other prior
to the scheduled expiration date of its election to not renew. Mr. Rao has
agreed to certain customary confidentiality and non-compete provisions.
45
We entered into an employment agreement with Aaron Fischman as of December
2000, pursuant to which Mr. Fischman is employed as Vice President of Strategic
Development. He received options to purchase 1,100,000 shares of our common
stock, with the options for 366,666 shares vesting in December of each of 2001
and 2002 and the option for the remaining 366,668 vesting in December 2003, in
each case at an exercise price per share of $1.00. In the event of a triggering
event such as sale by the Company of its assets or change of control (as defined
in the agreement) all of the options will immediately vest and become
exercisable, at a per share price of $0.10. The employment agreement is for a
period of three years. Mr. Fischman is entitled to resign at any time on 30 days
notice.
Key Employee
We entered into an employment agreement with Yehuda Cern effective as of,
November 2000, pursuant to which Mr. Cern is employed as the Chief Engineer of
the Company He receives a salary of $150,000 per annum and will receive bonuses
of $150,000 on February 1, 2001 and $50,000 on February 1, 2002. The employment
agreement is for a term of 2 years and will renew automatically for additional
one year terms unless terminated by either party upon three months prior written
notice. Dr. Cern has agreed to certain customary confidentiality and non-compete
provisions that prohibit him from competing with the Company or soliciting
employees of the Company following the termination of his employment.
Directors
Each of our non-employee directors has been issued options for 10,000
shares of our common stock, exercisable at a per share exercise price of $1.00.
The option vests in two equal annual installments in September of each of 2001
and 2002, in the case of Michael Widland and in December of each of 2001 and
2002, in the case of Martin Hoffman . Upon a change in control (as defined in
the option agreements), all of the stock options become immediately vested.
Advisory Board
We have issued to members of our advisory board options to purchase shares
of our common stock as compensation for service on our advisory board. Below is
a summary of the options issued to the current members of our advisory board.
We issued 100,000 options to J. Bennet Johnson, exercisable at a per share
exercise price of $1.00, with 33,334 options vesting in November of 2001 and
33,333 options vesting in each of November 2002 and 2003.
46
We issued 20,000 options to each of, Rudy Boschowitz and Robert Abrams,
each exercisable at a per share exercise price of $1.00, and vesting in two
equal annual installments in February of each of 2001 and 2002 in the case of
Robert Abrams and November of each 2001 and 2002 in the case of Rudy Boschwitz.
We issued 10,000 options to each of, Oleg Voronstov and Consolidated
Edison, each exercisable at a per share exercise price of $1.00, and vesting in
two equal annual installments in November of each of 2001 and 2002.
47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 7, 2001, certain information
with respect to the beneficial ownership of common stock by (i) each person
known by the Company to be the owner of more than 5% of the outstanding common
stock, (ii) each director, (iii) each executive officer named in the Summary
Compensation Table and (iv) all directors and executive officers as a group:
Shares of common stock Percent of
Name and Address of Beneficial Owner Beneficially Owned Class (1)
Dimensional Partners, Ltd. (2) 2,000,000 8.29%
JDS Capital Management, Inc. (3) 2,000,000 8.29%
Dimensional Partners, L.P. (4) 2,000,000 8.29%
JDS Asset Management, LLC (5) 2,000,000 8.29%
Joseph D. Samberg (6) 2,000,000 8.29%
Seneca Capital International Ltd. (7) 2,250,000 9.28%
Seneca Capital LP (8) 2,250,000 9.28%
Pequot Capital Management, Inc. (9) 2,000,000 8.29%
Oscar Capital Management, LLC. (10) 1,560,000 6.53%
Andrew K. Boszhardt, Jr. (11) 1,592,000 6.66%
Mark S. Isaacson (12) 1,350,000(13) 5.52%
Wilfred Kopelowitz (12) 100,000(14) *
Aaron Fischman (12) 250,000(15) 1.08%
Martin Hoffman (12) 2,000(16) *
Michael Widland (12) 0(17) *
John Joyce (12) 0(18) *
Ramdas Rao (12) 0(19) *
Directors and executive officers as a group
(7 persons) 1,702,000(20) 6.93%
* Less than 1%
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of common
stock beneficially owned by them. A person is deemed to be the beneficial owner
of securities that can be acquired by such person within 60 days from May 7,
2001 upon the exercise of warrants or options. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants that are
held by such person (but not those held by any other person) and which are
exercisable within 60 days from May 7, 2001, have been so exercised.
(2) Includes (i) 720,000 shares of common stock issuable upon exercise of
warrants exercisable within 60 days from May 7, 2001 (the "Dimensional II
Warrants"), and (ii)280,000 shares of common stock held in the name of
Dimensional Partners, L.P. ("Dimensional I"), an affiliate of Dimensional
Partners, Ltd. ("Dimensional II"), and 280,000 shares of common stock issuable
upon exercise of warrants exercisable within 60 days from May 7, 2001 (the
"Dimensional I Warrants") held by
48
Dimensional I, over which Dimensional II has shared voting and dispositive power
and as to which Dimensional II disclaims beneficial ownership. The business
address of Dimensional II is Corporate Center, West Bay Road, P.O. Box 31106
SMB, Grand Cayman, Cayman Islands.
(3) Includes (i) 280,000 shares of common stock held in the name of Dimensional
I and 280,000 shares of common stock issuable upon exercise of the Dimensional I
Warrants, and (ii) 720,000 shares of common stock held in the name of
Dimensional II and 720,000 shares issuable upon exercise of the Dimensional II
Warrants, over which JDS Capital Management, Inc. ("JDSCM") has shared voting
and dispositive power and as to which JDSCM disclaims beneficial ownership.
JDSCM is the investment manager and subadvisor of Dimensional II. The business
address of JDSCM is 780 Third Avenue, 45th Floor, New York, New York 10017.
(4) Includes (i) 280,000 shares of common stock issuable upon exercise of the
Dimensional I Warrants, and (ii) 720,000 shares of common stock held in the name
of Dimensional II (an affiliate of Dimensional I) and 720,000 shares of common
stock issuable upon exercise of the Dimensional II Warrants, over which
Dimensional I has shared voting and dispositive power and as to which
Dimensional I disclaims beneficial ownership. The business address of
Dimensional I is 780 Third Avenue, 45th Floor, New York, New York 10017.
(5) Includes (i) 280,000 shares of common stock held in the name of Dimensional
I and 280,000 shares of common stock issuable upon exercise of the Dimensional I
Warrants, and (ii) 720,000 shares of common stock held in the name of
Dimensional II and 720,000 shares issuable upon exercise of the Dimensional II
Warrants, over which JDS Asset Management, LLC ("JDSAM") has shared voting and
dispositive power and as to which JDSAM disclaims beneficial ownership. JDSAM is
the general partner of Dimensional I. The business address of JDSAM is 780 Third
Avenue, 45th Floor, New York, New York 10017.
(6) Includes (i) 280,000 shares of common stock held in the name Dimensional I
and 280,000 shares of common stock issuable upon exercise of the Dimensional I
Warrants, and (ii) 720,000 shares of common stock held by Dimensional II and
720,000 shares of common stock issuable upon exercise of the Dimensional II
Warrants, over which Joseph D. Samberg ("Samberg") has shared voting and
dispositive power and as to which Samberg disclaims beneficial ownership.
Samberg is the managing member of JDSAM and the president of JDSCM. The business
address of Samberg is 780 Third Avenue, 45th Floor, New York, New York 10017.
(7) Includes (i) 728,500 shares of common stock, issuable upon exercise of
warrants exercisable within 60 days from May 7, 2001 (the "Seneca Ltd.
Warrants") and (ii) 396,500 shares of common stock held in the name of Seneca
Capital L.P. ( "Seneca LP"), an affiliate of Seneca Capital International Ltd.
("Seneca Ltd."), and 396,500 shares of common stock issuable upon exercise of
warrants exercisable within 60 days from May 7, 2001
49
(the "Seneca LP Warrants") held by Seneca LP, over which Seneca Ltd. has shared
voting and dispositive power and as to which Seneca Ltd. disclaims beneficial
ownership. The business address of Seneca Ltd. is 527 Madison Avenue, New York,
New York 10022.
(8) Includes (i) 396,500 shares of common stock issuable upon exercise of the
Seneca LP Warrants and (ii) 728,500 shares of common stock held in the name of
Seneca Ltd., an affiliate of Seneca LP, and 728,500 shares of common stock
issuable upon exercise of the Seneca Ltd. Warrants, over which Seneca LP has
shared voting and dispositive power and as to which Seneca LP disclaims
beneficial ownership. The business address of Seneca LP is 527 Madison Avenue,
New York, New York 10022.
(9) Includes 1,000,000 shares of common stock held in the name of Pequot Scout
Fund, LP ("Pequot Scout"), issuable and an additional 1,000,000 shares issuable
upon exercise of warrants exercisable within 60 days from May 7, 2001 (the
"Pequot Warrants") by Pequot Scout. Pequot Capital Management, Inc., a Delaware
corporation ("Pequot Capital"), is the investment advisor of Pequot Scout and
has sole dispositive and voting power over the shares held in the name of Pequot
Scout and the Pequot Warrants and may be deemed to be a beneficial owner of
these shares and warrants. The business address of Pequot Scout and Pequot
Capital is 500 Nyala Farm Road, Westport, Connecticut 06880.
(10) Oscar Capital Management, LLC ("Oscar Capital") is the general partner of
each of Oscar Investment Fund LP (" Oscar Investment Fund") and Oscar
Opportunistic Fund II, LP ("Oscar Opportunistic Fund II") and acts as investment
advisor to Oscar Fund (Cayman) Limited ("Oscar Cayman") and Oscar Opportunistic
Offshore Fund Limited ("Oscar Opportunistic Offshore Fund"). Mr. Andrew Bozhardt
is the Chief Investment Officer of Oscar Capital and has sole voting and
dispositive power over the shares of common stock and warrants held by Oscar
Capital, Oscar Investment Fund, Oscar Cayman,, Oscar Opportunistic Offshore Fund
and Oscar Opportunistic Fund II and may be deemed to be a beneficial owner of
these shares and warrants.
Oscar Capital beneficially owns an aggregate of 1,560,000 shares of common
stock, of which 780,000 of these shares are in the form of currently exercisable
warrants. Theses shares, which equal 6.8% of the outstanding common stock,
includes (i) 360,000 shares of common stock held in the name of Oscar Investment
Fund, 360,000 shares of common stock issuable upon exercise of warrants
exercisable within 60 days from May 7, 2001 (the "Oscar Investment Fund
Warrants"), (ii) 120,000 shares of common stock held in the name of Oscar
Cayman, and 120,000 shares of common stock issuable within 60 days from May 7,
2001 upon exercise of warrants ("Oscar Cayman Warrants") held in the name of
Oscar Cayman, (iii) 200,000 shares of common stock held in the name of Oscar
Opportunistic Offshore Fund, and 200,000 shares of common stock issuable within
60 days from May 7, 2001 upon exercise of warrants ("Oscar Opportunistic
Offshore Fund Warrants") held in the name of Oscar Opportunistic Offshore Fund
and (iv) 100,000 shares of common stock held in the name of Oscar Opportunistic
Fund II, and 100,000 shares of common stock issuable within 60 days from May 7,
2001 upon exercise of warrants ("Oscar Opportunistic II Fund Warrants") held in
the name of Oscar Opportunistic II Fund.
50
The business address of Oscar Capital is 900 Third Avenue, 2nd Floor, New York,
NY 10022.
(11) Mr. Andrew K. Boszhardt has sole voting and dispositvie power with respect
to 16,000 shares of common stock held in the name of Andrew K. Boszhardt. and
16,000 shares of common stock issuable within 60 days from May 7, 2001 upon
exercise of warrants. Therefore Mr. Boszhardt beneficially owns an aggregate of
1,596,000 shares, 796 of these shares are in the form of currently exercisable
warrants.
(12) The business address of such beneficial owner is 1033 Beacon Street,
Brookline, Massachusetts 02446.
(13) Represents shares issuable upon exercise of an option to purchase such
number of shares.
(14) Includes an option to purchase up to 90,000 of shares issued under the 2000
Equity Incentive Plan. Does not include shares issuable upon exercise of options
to purchase up to 315,000 shares of our common stock, which options are
scheduled to commence vesting as to a portion of such shares in September 2001.
(15) Represents shares of our common stock held jointly by Aaron Fischman and
his spouse.
(16) Represents shares purchased prior to joining our company. Does not include
shares issuable upon exercise of options to purchase up to 10,000 shares of our
common stock, which option is scheduled to commence vesting as to a portion of
such shares in December 2001.
(17) Does not include shares issuable upon exercise of options to purchase up to
10,000 shares of our common stock, which option is scheduled to commence vesting
as to a portion of such shares in September 2001.
(18) Does not include shares issuable upon exercise of options to purchase up to
415,000 shares of our common stock, which option is scheduled to commence
vesting as to a portion of such shares in November 2001.
(19) Does not include shares issuable upon exercise of options to purchase up to
242,000 shares of our common stock, which option is scheduled to commence
vesting as to a portion of such shares in September 2001.
(20) See footnotes 13 through 19.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to his employment agreement as our Chief Executive Officer, we
issued to Mark Isaacson an option to purchase up to 1,350,000 shares of our
common stock, at an exercise price per share of $1. Subsequently, in December
2000, we issued to Mr. Isaacson options to purchase an additional 1,000,000
shares of our common stock with the option for 500,000 shares scheduled to vest
on the first anniversary of his employment in September 2001 and the option for
the remaining 500,000 shares on the second anniversary of employment in
September 2002, each at an exercise price of $1.00. Upon the occurrence of a
change in control (as defined in the agreement), these options are immediately
exercisable at a per share price of $0.10. With respect to the initial grant of
stock options, Mr. Isaacson was granted anti-dilution protection with respect to
any future stock issuances by us to a third party in an amount necessary to
maintain his percentage ownership of the outstanding shares of our stock on a
fully diluted basis on the date of grant had his option been exercised on the
date of grant.
In September 2000 we loaned to Mr. Isaacson, our Chief Executive Officer
and Chairman of our Board, approximately $90,000. The principal and accrued
interest are payable over 5 years. Subsequent to the making of the loan, we
agreed to forgive, as of December 31 of each year, the principal and accrued
interest then due for such year. We also agreed that if Mr. Isaacson's
51
employment were to terminate for any reason whatsoever, then the entire
principal and accrued interest then owing will be forgiven.
In November 2000, we granted to Mr. Isaacson a bonus of 162,000.
In connection with the proposed relocation of our headquarters to New York
City and in order to induce Mark Isaacson, a director and Chief Executive
Officer, to relocate his family to the New York City metropolitan area, our
Board of Directors advanced an interest free loan for a term not to exceed 10
years to Mr. Isaacson of $2 million. Mr. Isaacson used the proceeds of the loan
for the purchase of a home in the New York City metropolitan area. Our company
holds a first mortgage on that home. As further security on the loan, Mr.
Isaacson granted to our company a mortgage on his home in Brookline,
Massachusetts. The loan will be partially repaid out of the net proceeds from
the sale of Mr. Isaacson's existing home in Massachusetts, at which time it is
anticipated that Mr. Isaacson will apply for a mortgage of approximately
$900,000 on his new home, the entire net proceeds of which will be used to repay
a portion of the loan. No assurance can however be provided that Mr. Isaacson
will secure a mortgage on the new home on acceptable terms. Upon the repayment
of a portion of the loan from the net proceeds from the sale of Mr. Isaacson's
existing home and the obtaining of a mortgage, it is anticipated that the
remaining outstanding loan to Mr. Isaacson will be approximately $500,000.
We issued to our Chief Operating Officer, John Joyce, in connection with
his employment agreement, from our 2000 Equity Incentive Plan an option for
250,000 shares of our common stock, 125,000 of which are scheduled to vest in
November 2001 and the remaining 125,000 in November 2002, each at an exercise
price of $1. In December 2000 we issued to Mr. Joyce from our 2000 Equity
Incentive Plan options for an additional 165,000 shares, with the option for
82,500 scheduled to vest on the third anniversary of his employment in November
2003 and the remaining 82,500 on the fourth anniversary of his employment in
November 2004, in each case at an exercise price of $2.50 per share.
We issued to our Chief Financial Officer, Wilfred Kopelowitz, in
connection with his employment agreement, 240,000 options to purchase shares of
our common stock, 90,000 of which were fully vested upon issuance at an exercise
price per share of $1, 75,000 options scheduled to vest in September 2001 and
the remaining in September 2002, in each case at an exercise price per share of
$2. In December 2000, we issued to Mr. Kopelowitz an option for an additional
165,000 shares, with the option for 82,500 shares scheduled to vest on the third
anniversary of employment in September 2003 and option for the remaining 82,500
shares on the fourth anniversary of employment in September 2004, in each case
at an exercise price of $2.50 per share Upon the occurrence of a "change in
control" (as defined in the agreement), these options are immediately
exercisable at a per share price of $0.10. With respect to the initial grant of
stock options, Mr. Kopelowitz was granted anti-dilution protection with respect
to any future stock issuances by us to a third party in an amount necessary to
maintain his percentage ownership of the outstanding shares of our stock on a
fully diluted basis on the date of grant had his option been exercised on the
date of grant.
We issued to Ramdas Rao, our Chief Network Architect, options for 240,000
shares of our common stock, which are scheduled to vest as follows: 55,000 in
each of September 2001 and 2002 and 66,000 in each of September 2003 and 2004,
in each case at an exercise price per share of $2.50.
We issued to Aaron Fischman, our Vice-President, Strategic Development,
options to purchase 1,100,000 shares of our common stock, with the option for
366,666 shares vesting in each of December 2001 and 2002 and the option for the
remaining 366,668 shares vesting in December 2003, all an exercise price of
$1.00 per share. In the
52
event of a triggering event such as sale by the Company of its assets or change
of control (as defined in the agreement) all of the options will immediately
vest and become exercisable. In addition, Mr. Fischman, jointly with his spouse,
holds 250,000 shares of our common stock issued in April 2000 pursuant to a
consulting agreement with us.
In consideration of the transfer to the Company of his 9.9% shareholdings
in PLT Solutions Inc. to us, we issued in January 2001 to Dr. Yehuda Cern, a key
employee of ours, 400,000 shares of our common stock, which shares are subject
to certain lockups and other restrictions.
In July 2000 we privately placed an aggregate of 1,000,000 shares of our
common stock with Dimensional Partners, Ltd. and Dimensional Partners, L.P. In
connection with the placement of these shares, we also issued to these entities
warrants to purchase, in the aggregate, 1,000,000 shares of our convertible
preferred stock at an exercise price per share of $3.50. In August 2000, we
privately placed an aggregate of 1,125,000 shares of our convertible preferred
stock with Seneca Capital International Ltd. and Seneca Capital LP. In
connection with the placement of these shares, we also issued to these entities
warrants to purchase, in the aggregate, 1,125,000 shares of our convertible
preferred stock at an exercise price per share of $3.50. In November 2000, the
shares of convertible preferred stock issued and issuable were converted, on a
1:1 basis, into shares of the Company's common stock. Forty three and three
quarter percent (43.75%) of the proceeds of this private placement must be used
solely to finance the activities relating to our PLT subsidiary.
In August-September 2000, we privately placed to certain unaffiliated
private accredited investors approximately $8,345,500 in aggregate principal
amount of convertible 10% debentures, which debentures in November 2000 were
automatically converted into 3,711,711 shares of our common stock, at a
conversion price per share ranging from $2.00 to $3.50. Additionally, pursuant
to the agreement we issued four-year warrants to purchase up to 3,711,711 shares
of our common stock, at per share exercise prices ranging from $3.50 to $8.00.
Of the shares issued upon conversion of these debentures, Pequot Scout Fund, LP
was issued 1,000,000 shares of Common Stock, as well as warrants to purchase an
additional 1,000,000 shares of Common Stock at an exercise price per share of
$3.50. A group of investors controlled by Oscar Capital, LLC and Andrew K.
Boszhardt, Jr., was issued 800,000 shares of our common stock as well as
warrants to purchase an additional 800,000 shares of our common stock at a per
share exercise price of $4.50.
In connection with Mr. Braunold's resignation in September 2000 from the
position of our Chief Executive Officer, we paid to him a one-lump sum amount of
$150,000 and issued a warrant to
53
purchase up to 250,000 shares of our common stock, at an exercise price per
share of $0.01, such warrant exercisable through November, 2000. Additionally,
Mr. Braunold was irrevocably designated as our designee on the Board of
Directors of 49% owned subsidiary Kliks.com.
In connection with Mr. Braunold's resignation in September 2000 from the
position of our Chief Executive Officer, we paid to him a one-lump sum amount of
$150,000 and issued a 3 year warrant to purchase up to 250,000 shares of our
common stock, at an exercise price per share of $0.01. Additionally, Mr.
Braunold was irrevocably designated as our designee on the Board of Directors of
49% owned subsidiary Kliks.com.
In April 2000, Mr. Weinberg, our former Chief Executive Officer, was
granted an additional 30,000 options under our 1998 Option Plan at a nominal
exercise price per share, which options vest over 12 months. [Mr. Weinberg
resigned from all positions with our company in September 2000. In connection
with such resignation, Mr. Weinberg contends that we owe approximately $44,000
as well as the issuance of 25,000 shares of our common stock, at a nominal price
per share consideration and acceleration of the 30,000 options previously
granted to him. We deny these contentions and are currently attempting to
resolve this matter amicably.
In August 2000, we, pursuant to our shareholders agreement with Kliks.com,
advanced as a loan to Kliks $617,500. The Chief Executive Officer and a director
of Kliks served, until September 4, 2000, as our Vice-President. The members of
the board of Kliks are Mr. Wolff and Michael Braunold.
54
SELLING STOCKHOLDERS
The following table provides certain information with respect to the
shares of our common stock beneficially owned by each selling stockholder as of
May 7, 2001.
Common Stock to be
Beneficially Owned if
All shares offered
Hereunder are sold
(assumes that all
Number of Shares Offered shares are sold)
Shares Owned Pursuant to this ----------------------
Selling Stockholder Before Offering Prospectus shares Percent
- ------------------- --------------- ---------- ------ -------
Inglewood Holdings Inc. * (1)(7) 1,515,875 1,515,875 0 0
Clearview International
Investment* (2) (7) 1,222,125 1,222,125 0 0
Ashfield Investment* (2) (7) 1,220,125 1,220,125 0 0
Econor Investment
Corporation* (2) (7) 1,281,250 1,281,250 0 0
Mantle International
Investment* (2) (7) 1,204,825 1,204,825 0 0
Mark Isaacson (3) 2,350,000 2,350,000 0 0
Pequot Scout Fund L.P.* (4) 2,000,000 2,000,000 0 0
Seneca Capital International Ltd.* (5) 1,457,000 1,457,000 0 0
Edelweiss Trading Limited* (6) (7) 262,500 262,500 0 0
Viscons Ltd.* (6) (7) 287,500 287,500 0 0
Dimensional Partners Ltd. (8)* 1,440,000 1,440,000 0 0
Aaron Fischman (11) 1,100,000 1,100,000 0 0
Seneca Capital L.P.* (5) 793,000 793,000 0 0
Oscar Investment Fund LP* (12) 720,000 720,000 0 0
June Street Company* (12) 500,000 500,000 0 0
Lindsay A. Rosenwald 2000
Irrevocable Trust* (12) 500,000 500,000 0 0
Venturetek L.P.* (12) 500,000 500,000 0 0
Oscar Opportunistic
Offshore Fund Ltd.* (12) 400,000 400,000 0 0
Dimensional Partners L.P* (8) 560,000 560,000 0 0
Minow Financial Corp. (13) 104,000 104,000 0 0
Lubecka Financial SA (13) 104,000 104,000 0 0
55
Michael Braunold (14) 250,000 250,000
Oscar Fund (Cayman) Limited* (12) 240,000 240,000 0 0
Oscar Opportunistic Fund II L.P.*(12) 200,000 200,000 0 0
Rachel Family Partnership* (12) 166,666 166,666 0 0
Moshe Isaac Fund* (12) 150,000 150,000 0 0
Beck Family Partner L.P.* (12) 114,284 114,284 0 0
Rukal Foundation* (12) 100,000 100,000 0 0
Astar Foundation* (12) 100,000 100,000 0 0
Alyad Foundation* (12) 100,000 100,000 0 0
Gemini Domestic Fund II L.P.* (12) 139,740 139,740 0 0
Gitel Family Partnership* (12) 66,666 66,666 0 0
Biscount Overseas Ltd. (17) 26,000 26,000 0 0
H. Dietsch* (12) 50,000 50,000 0 0
M. Vogel* (12) 50,000 50,000 0 0
J. Jacobs* (12) 50,000 50,000 0 0
The Gemini Master Fund* (12) 48,000 48,000 0 0
B. Salamon* (12) 35,000 35,000 0 0
B. Salamon* (12) 25,000 25,000 0 0
Tani Family Partnership L.P.*(12) 33,334 33,334 0 0
Tova Family Limited
Partnership* (12) 33,334 33,334 0 0
Ruki Renov c/f Ari Renov* (12) 33,334 33,334 0 0
Ruki Renov c/f Emily Renov* (12) 33,334 33,334 0 0
Ruki Renov c/f Yoni Renov* (12) 33,334 33,334 0 0
Ruki Renov c/f Yael Renov* (12) 33,334 33,334 0 0
Ruki Renov c/f Eli Renov* (12) 33,334 33,334 0 0
Ruki Renov c/f Benji Renov* (12) 33,334 33,334 0 0
Andrew K. Bozhardt* (12) 32,000 32,000 0 0
Sam Baratz (15) 25,000 25,000 0 0
56
M. Gross* (12) 25,000 25,000 0 0
J&V Gutman* (12) 25,000 25,000 0 0
A. Hammer* (12) 25,000 25,000 0 0
J. Baum* (12) 25,000 25,000 0 0
J. Blum* (12) 25,000 25,000 0 0
M. Blisko* (12) 25,000 25,000 0 0
J. Gross* (12) 25,000 25,000 0 0
H. Hefter* (12) 25,000 25,000 0 0
Larry Morris (15) 20,000 20,000 0 0
S. Kessler* (12) 20,000 20,000 0 0
Esther Stahler c/f David Stahler* (12) 16,666 16,666 0 0
Esther Stahler c/f Avi Stahler* (12) 16,666 16,666 0 0
Esther Stahler c/f Daniel Stahler* (12) 16,666 16,666 0 0
Esther Stahler c/f Eli Stahler* (12) 16,666 16,666 0 0
Esther Stahler c/f Lisa Stahler* (12) 16,666 16,666 0 0
Jamie Family Limited
Partnership* (12) 16,666 16,666 0 0
Bedford Med* (12) 15,000 15,000 0 0
Shor Yoshuv* (12) 12,500 12,500 0 0
H. Leiner* (12) 12,500 12,500 0 0
R. Leiner* (12) 12,500 12,500 0 0
A. Wurzberger* (12) 12,500 12,500 0 0
Marnaco* (12) 12,500 12,500 0 0
Gemini Domestic Fund L.P.* (12) 12,260 12,260 0 0
526 Willow* (12) 10,000 10,000 0 0
M. Lerer* (12) 10,000 10,000 0 0
J. Schneider* (12) 10,000 10,000 0 0
Z. Novicello* (12) 8,000 8,000 0 0
Anthony Scaramucci* (12) 8,000 8,000 0 0
Ron Detomaso (15) 7,750 7,750 0 0
Dave Sanders (17) 7,750 7,750 0 0
Bnos Bais Yaacov (15) 6,750 6,750 0 0
Michael Hoffman (9) 4,000 4,000(9) 0 0
Bernie Wolff (19) 75,000 75,000 0 0
57
Aviz Financial LLC (20) 550,000 550,000 0 0
Aviz Consulting Ltd. (20) 550,000 550,000 0 0
Scott Cohen* (21) 185,734 185,734 0 0
Michael Gantcher* (21) 61,912 61,912 0 0
Nancy Abbe Trust* (21) 61,911 61,911 0 0
Balmor S.A.* (21) 44,380 44,380 0 0
Vertical Ventures* (21) 37,550 37,550 0 0
Cooke & Cie* (21) 22,191 22,191 0 0
Counter Point Master* (21) 22,191 22,191 0 0
Gantcher Family 1986 Trust* (21) 22,191 22,191 0 0
Mier Morag* (21) 22,191 22,191 0 0
Rick Miller* (21) 22,191 22,191 0 0
Real Prop* (21) 22,191 22,191 0 0
Igor Sill* (21) 22,191 22,191 0 0
MDBC Capital Corp.* (21) 22,190 22,190 0 0
Robert MacGregor* (21) 17,196 17,196 0 0
Ockwell* (21) 17,196 17,196 0 0
Barry Cohen* (21) 14,792 14,792 0 0
Richard Ekstract* (21) 14,792 14,792 0 0
Redwood Partners* (21) 11,239 11,239 0 0
Isaac Applebaum* (21) 11,094 11,094 0 0
Rob Stewart* (21) 11,094 11,094 0 0
John Shulman* (21) 11,094 11,094 0 0
Tom Weiner* (21) 9,265 9,265 0 0
Walter Weiner* (21) 5,526 5,526 0 0
Josh Silverman* (21) 2,733 2,733 0 0
Andree Jill Finkle* (21) 1,366 1,366 0 0
Michael Gregory* (21) 1,366 1,366 0 0
Travis Putnam* (21) 1,366 1,366 0 0
Eric Richardson* (21) 867 867 0 0
Gerry Hugg* (22) 70,000 70,000 0 0
Michael Widland* (23) 10,000 10,000 0 0
Martin Hoffman* (23) 10,000 10,000 0 0
58
J. Bennet Johnston* (24) 100,000 100,000 0 0
Rudy Boschowitz* (25) 20,000 20,000 0 0
Robert Abrams* (25) 20,000 20,000 0 0
Consolidated Edison* (25) 10,000 10,000 0 0
Oleg Voronstov* (25) 10,000 10,000 0 0
Each of the selling stockholders (except those identified above with an
asterisk) and any of their transferees may sell or otherwise transfer the lesser
of (i) the number of shares registered in the name of such selling stockholder
or (ii) 20,000 shares, plus, for such selling stockholders who have more than
20,000 shares registered in their name, during the 30 days following
effectiveness of this registration statement and for each successive 30 day
period, not more than 20% of the amount of shares in excess of such 20,000
shares. Notwithstanding the above, the applicable selling stockholders may
effect a private transfer of all or part of their registered shares provided
that the transferee agrees in writing to be bound by all of the terms of such
lock up.
(1) Includes 875,000 shares of our common stock issuable upon exercise of
warrants issued in February 2000 pursuant to a consulting agreement of such date
and are exercisable through February 2003 at an exercise price per share of
$0.01. The shares were acquired upon conversion of an outstanding loan and all
interest thereunder.
(2) Includes 250,000 shares issuable upon exercise of warrants issued in
February 2000, at an exercise price per share of $1.00. The remaining securities
represent shares issued in September - November 2000 upon conversion of our 10%
convertible debentures issued in February 2000 at a per share conversion price
of $0.40. The convertible debentures and warrants were issued as part of our
private placement of $2,000,000 of our 10% convertible debentures. See "Plan of
Operations".
(3) Represents shares of our common stock issuable upon exercise of options
issued in connection with Mr. Issacson's employment as our Chief Executive
Officer. The option for 1,350,000 of these shares is fully vested and, with
respect to the remaining 1,000,000, the option become vested in 2 equal
installments of 500,000 in each of September 2001 and September 2002. Mr.
Isaacson serves as our Chief Executive Officer and Chairman of our Board of
Directors. See "Employment Agreements".
(4) Includes 1,000,000 shares of our common stock issuable upon exercise of
four-year warrants, at a per share exercise price of $3.50. The shares and
warrants were issued in September 2000 in consideration for $2 million. See
"Plan of Operations".
(5) With respect to Seneca Capital International Ltd. ("Seneca Ltd."), includes
728,500 shares of our common stock issuable upon exercise of four-year warrants,
at a per share exercise price of $3.50. With respect to Seneca Capital L.P.
("Seneca L.P."), includes 396,500 shares of our common stock issuable upon
exercise of four-year warrants, at a per share exercise price of $3.50. The
shares of common stock were issued in November 2000 upon conversion of
convertible preferred stock originally issued in August 2000 and warrants were
issued upon conversion of the preferred stock in consideration for $2.25
million. See "Plan of Operations"
59
(6) Includes 62,500 shares issuable upon exercise of warrants issued in February
2000, at an exercise price per share of $1.00. The remaining securities
represent shares issued in September - November 2000 upon conversion of our 10%
convertible debentures issued in February 2000 at a per share conversion price
of $0.40. The convertible debentures and warrants were issued as part of our
private placement of $2,000,000 of our 10% convertible debentures. See "Plan of
Operations".
(7) We are registering 110% of the total number of shares issuable upon exercise
of the warrants. As required by SEC regulations, the number of shares shown as
beneficially owned includes shares which may be acquired within 60 days after
the date of this prospectus. However, the terms of the warrants restrict the
beneficial owners from exercising their warrants to the extent that such
conversion or exercise would result in such owners and their affiliates
beneficially owing more than 4.99% of the then outstanding stock. Thus, although
some of the shares listed on the table may not be fully vested within 60 days,
they are nevertheless included in the table.
(8) With respect to Dimensional Partners Ltd. ("Dimensional Ltd."), includes
720,000 shares of our common stock issuable upon exercise of warrants, at a per
share exercise price of $3.50. With respect to Dimensional Partners L.P.
("Dimensional L.P."), includes 280,000 shares of our common stock issuable upon
exercise of warrants, at a per share exercise price of $3.50. The shares and
warrants issued to each of Dimensional Ltd. and Dimensional LP were issued in
July 2000 in consideration for $2 million. See "Plan of Operations".
(9) Represents shares of our common stock acquired under consulting agreements.
(10) Represents shares acquired upon conversion of principal and accrued
interest on outstanding loan.
(11) Represents shares of our common stock issuable upon exercise of options
issued in connection with employment with our company as Vice President of
Investor relations. The option for 366,666 shares vests in each of December 2001
and December 2002 and the option for the remaining 366,368 shares vests in
December 2003, in each case at a per share exercise price of $1.00. Mr. Fischman
serves as our Vice President of Investor Relations. Excludes shares of common
stock in an aggregate amount of 250,000 held jointly by Mr. Fischman and his
spouse. See "Management -- Employment Agreements".
(12) With respect to each entity, includes shares of our common stock in an
amount which is half of the figure listed opposite such entity's name issuable
upon exercise of four-year warrants, at a per share exercise price ranging
between $3.50 and $8.00. The shares were issued in November 2000, upon approval
by our stockholders of a proposal to increase our authorized common stock, in
conversion of our one year convertible debentures originally issued in
August-October 2000 to each of these entities. The warrants were issued at the
time that the conversion shares were issued, in an aggregate amount equal to the
conversion shares. The aggregate consideration received by us for the issuance
of the convertible debentures were approximately $8.39 million. See "Plan of
Operations"
(13) Represents shares acquired under a settlement agreement entered into in
April 2000 settling certain third party claims. Certain parties contended that
we guaranteed, in a prior year, the repayment of an outstanding third-party loan
obligation, which
60
contention we denied. In settlement of the dispute, we, on April 14, 2000,
entered into a settlement agreement with such parties pursuant to which we
undertook to pay to said claimants, in the aggregate, $200,000 and issued to
them an aggregate of 250,000 shares of our common stock.
(14) Represents shares issued in November 2000 pursuant to the resignation of
Mr. Braunold as our then Chief Executive Officer. The shares were issued in
November 2000 following approval by our stockholders of a proposal to increase
our authorized shares of common stock. Mr. Braunold resigned from the positions
of Chief Executive Officer and Chairman of our Board of Directors in September
2000.
(15) Represents shares issued by us in respect of services rendered to us.
(16) Represents 62,500 shares acquired under a consulting agreement and 5,000
shares that, to the best of our knowledge, were acquired from a third party to
whom such shares were issued by us under a consulting agreement.
(17) Represents shares that we have been advised were acquired from a third
party.
(18) Represents 25,000 shares acquired upon conversion of a loan, and all
interest thereunder, and 15,000 shares issued by us in respect of services
rendered to us.
(19) Represents shares of our common stock issuable upon exercise of options
issued in connection with Mr. Wolff's resignation as our Vice-President. This
includes 65,000 penny options of which 16,250 are fully vested and options for
48,750 shares will vest in three equal installments in March, June and September
2001. This includes options for 10,000 shares at a per share exercise price of
$1.97 vesting in four equal, quarterly, installments from December 2000.
(20) Represents shares of our common stock issuable upon exercise of options
issued in connection with the provision of consulting services. The warrants
vest in three equal annual installments in December of each of 2001, 2002 and
2003, in each case at an exercise price per share of $1.00.
(21) Represents shares of our common stock issuable upon exercise of warrants
which we undertook to issue, as a finders fee, to Vertical Ventures, Inc. in
connection with certain of our private placements in July-September 2000. See
"Plan of Operations". The warrant instruments were issued as of September 2000
to designees of Vertical and are exercisable through September 2004, at a per
share exercise price of $4.50.
61
(22) Represents shares of our common stock issuable upon exercise of warrants
which we undertook to issue, as a finders fee, in connection with certain of our
private placements in July-September 2000. See "Plan of Operations". The
warrants were issued as of September 2000 and are exercisable through September
2004, at a per share exercise price of $2.00.
(23) Represents shares of our common stock issuable upon exercise of options in
connection with service on our Board of Directors. The options with respect to
half of the shares vests in September of each of 2001 and 2002, in the case of
Mr. Widland and in December of each of 2001 and 2002, in the case of Mr.
Hoffman. The options are exercisable at a per share exercise price of $1.00. See
"Management - Executive Compensation".
(24) Represents shares of our common stock issuable upon exercise of options in
connection with service on our advisory board. The options with respect to
33,333 shares vests in each of November 2001 and 2002 and the option with
respect to the remaining 33,334 shares vests in November 2003. The options are
exercisable at a per share exercise price of $1.00. See "Advisory Board".
(25) Represents shares of our common stock issuable upon exercise of options in
connection with service on our advisory board. The options with respect to half
of the shares vests in December 2001 and the option with respect to the
remaining half vests in December 2002. The options are exercisable at a per
share exercise price of $1.00. See "Management - Advisory Board".
62
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 100,000,000 shares of common stock, $.001 par
value per share, of which 23,125,794 shares were outstanding and held of record
as of May 7, 2001, by approximately 150 shareholders of record. A significant
portion of our common stock is held in either nominee name or street name
brokerage accounts. Holders of shares of common stock are entitled to one vote
for each share held of record on all matters to be voted on by stockholders.
Holders of shares of common stock are entitled to receive dividends when, as and
if declared by the Board of Directors from funds legally available therefor and
to share ratably in our assets available upon liquidation, dissolution or
winding up. The holders of shares of common stock do not have cumulative voting
rights for the election of directors and, accordingly, the holders of more than
50% of the shares of common stock are able to elect all directors.
We undertook to issue to certain of our stockholders additional shares in
an amount equal to 5% of their holdings for each 30 day period (pro-rated for
any period less than 30 days), commencing April 11, 2001, in which the
registration statement which forms a part of this Prospectus is not declared
effective, up to a maximum of three such consecutive 30 day periods. As of the
date on which the registration statement which forms a part of this Prospectus
became effective, these shareholders are entitled to approximately 150,000
additional shares of our common stock. We also granted to certain of our
shareholders limited pre-emption rights. Except for the foregoing, there are no
preemptive, subscription, conversion or redemption rights pertaining to the
common stock.
Effect of Delaware Anti-takeover Statute
We are subject to Section 203 of the DGCL (the anti-takeover law), which
regulates corporate acquisitions. The anti-takeover law prevents certain
Delaware corporations, including those whose securities are authorized for
quotation on the NASDAQ Stock Market, from engaging, under certain circumstances
in a "business combination" with any "interested stockholder" for three years
following the date that such stockholder became an interested stockholder. For
purposes of the anti-takeover law, a "business combination" includes, among
other things, a merger or consolidation involving us and the interested
shareholder and the sale of more than 10% of our assets. In general, the
anti-takeover law defines an "interested stockholder" as any entity or person
beneficially owning 15% or more our outstanding voting stock and any entity or
person affiliated with or controlling or controlled by such entity or person. A
Delaware corporation may "opt out" of the anti-takeover law with an express
provision in its original articles of
63
incorporation or an express provision in its certificate of incorporation or
bylaws resulting from amendments approved by the holders of at least a majority
of our outstanding voting shares. We have not "opted out" of the provisions of
the anti-takeover law.
Anti-takeover Effects of By-laws
Under Delaware law, all stockholder actions must be effected at a duly
called annual or special meeting or by written consent. Our by-laws provide
that, except as otherwise required by law, special meetings of the stockholders
can only be called by the president, the board of directors, the Chairman of the
Board, the President or the holders of a majority of all shares entitled to vote
at the meeting.
Transfer Agent
American Stock Transfer and Trust Company is the transfer agent for our
common stock.
Certain Limited Liability and Indemnification Provisions
Pursuant to our Certificate of Incorporation and By-laws, as amended, our
officers and directors shall be indemnified by us to the fullest extent allowed
under Delaware law for claims brought against them in their capacities as
officers and directors. Indemnification is not allowed if the officer or
director does not act in good faith and in a manner reasonably believed to be in
our best interest, or if the officer or director had no reasonable cause to
believe his conduct was lawful. Accordingly, indemnification may occur for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Insofar as indemnification for liabilities arising under the
Securities Act may be permitted for our directors, officers and controlling
persons pursuant to the foregoing provisions or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
64
PLAN OF DISTRIBUTION
Our Obligations to Certain Holders of Our Stock
We are registering the shares offered hereby in order to satisfy our
obligations to certain of our stockholders. Under a Securities Purchase
Agreement (hereinafter, "the SPA") and a related Registration Rights Agreement
dated February 15, 2000, as amended between us and the holders of certain of our
convertible debentures issued in February 2000, the outstanding principal of
which has been converted into shares of our common stock, we are obligated to
register with the SEC 110% of the number of shares of common stock issuable upon
exercise of the warrants issued at the time of the issuance of the debentures.
In satisfaction of our obligations to these holders, we filed a registration
statement which was declared effective in October 2000. Additionally, we
undertook to certain investors in our company, under certain securities
subscription agreements entered into between July - October 2000 (hereinafter,
the "Subscription Agreements"), with respect to the purchase of an aggregate of
approximately $8.7 million of our one year convertible debentures issued in
August - October 2000, the principal amount of which has been converted into
shares of our common stock, that we would file the Registration Statement which
forms a part of this prospectus to register their securities. We are filing this
Registration Statement of which this prospectus forms a part in order to comply
with our undertaking to the subsequent investors.
We are also obligated to keep the Registration Statement of which this
prospectus forms a part effective until the earliest of October 2002 or the date
on which such holders may sell all shares registered on their behalf under this
prospectus under Rule 144 of the Securities Act, or the date on which such
holders no longer own any of those shares.
We are also registering 6,502,500 shares held by certain other selling
stockholders and shares issuable upon exercise of certain other warrants and
options held by certain selling stockholders.
The SPA provides as follows:
65
If we are limited in the number of shares of common stock we may issue by
virtue of (i) the number of authorized shares or (ii) the applicable rules and
regulations of the principal securities market on which the common stock is
listed or traded, including, but not limited to, NASDAQ, (a) we must take all
steps reasonably necessary to be in a position to issue shares of common stock
on conversion of the debentures without violating such rules and regulations and
(b) if, despite taking such steps, we still cannot issue such shares of common
stock without violating such rules and regulations, the holder of a debenture
which can not be converted as result of such rules and regulations shall have
the option, (x) if permitted by the regulations, require us to issue shares of
common stock at a conversion purchase price equal to the average of the closing
price per share of common stock for any five consecutive trading days (subject
to certain equitable adjustments for certain events occurring during such
period) during the 60 trading days immediately preceding the date of notice of
conversion or (y) require us to redeem each unconverted debenture for an amount,
payable in cash, determined pursuant to a formula provided in the debentures.
66
We have agreed that if, on or before July 20, 2001, we elect to enter into
any transaction other than with a Strategic Partner for the sale of new common
stock or securities convertible into common stock, we must offer the holders the
right, pro rata to their respective holdings, to participate in all or any part
of the proposed transaction on the same terms thereof.
We will be obligated to pay liquidated damages if the debenture holders
are restricted from making sales of the shares offered hereby covered by a
previously effective Registration Statement at any time (the date such
restriction commences, a "Restricted Sale Date") after the date of the
prospectus other than during a Permitted Suspension Period (as defined). The
amount that we must pay to the debenture holders in respect of the fees
associated with the Restricted Sale Date will be determined as of each
Computation Date (as defined) and will be equal to the Periodic Amount
Percentage of the aggregate principal amount of all debentures for the period
from the date following the relevant Restricted Sale Date to the first relevant
Computation Date, and thereafter to each subsequent Computation Date. The
Periodic Amount Percentage means (A) 2% of the principal amount of all the
debentures for the period from the date following the relevant Restricted Sale
Date, as the case may be, to the first relevant Computation Date, and (B) 3% of
the Purchase Price of all debentures to each Computation Date thereafter. The
Purchase Price means the sum of (X) the principal amount of all debentures not
yet converted and (Y) the Held Shares Value. The Held Shares Value means, with
certain exceptions, for shares acquired upon a conversion of a debenture within
the 30 day preceding the Restricted Sale Date, but not yet sold, the principal
amount of the debentures converted into such shares.
Additionally, we undertook to the holders who purchased their securities
under the Subscription Agreements that, if the registration statement which
forms a part of this Prospectus is not declared effective by April 11, 2001, we
will issue additional shares to them, in an amount equal to 5% of their holdings
as of the date hereof for each 30 day period in which the registration statement
is not declared effective, up to a maximum of three such consecutive 30 day
periods. Accordingly, as of the date on which the registration statement which
forms a part of this Prospectus became effective, these shareholders are
entitled to approximately 150,000 additional shares of our common stock.
Our Obligations to all Selling Stockholders; Sales of Registered Shares.
As used in this prospectus, stockholders selling our shares pursuant to
this prospectus includes donees and pledgees selling
67
shares received after the date of this prospectus from a selling stockholder
named in this prospectus.
We have agreed to bear all costs, expenses and fees of registration of the
shares of common stock offered by the selling stockholders for resale other than
the legal fees and expenses of counsel or other advisors to the selling
stockholders. Any brokerage commissions, discounts, concessions or other fees,
if any, payable to broker-dealers in connection with any sale of the shares of
common stock will be borne by the selling stockholders selling those shares or
by the purchasers of such shares.
Upon our being notified by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing:
o The name of each such selling stockholder and of the participating
broker-dealer(s);
o The number of securities involved;
o The price at which such securities were sold;
o The commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
o That such broker-dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in this
prospectus; and
o Other facts material to the transaction.
We have agreed to indemnify certain selling stockholders or their
transferees or assignees against certain liabilities, including liabilities
under the Securities Act of 1933, or to contribute to payments to which such
selling stockholders or their respective pledgees, donees, transferees or other
successors in interest may be required to make in respect thereof.
68
Pursuant to the Registration Rights Agreement, each of the selling
stockholders (other than the holders with an asterisk next to their names) has
agreed with certain stockholders not to sell any shares within 30 days following
the effectiveness date of this registration statement, and each successive 30
day period, in an amount more than 20% of the amount set forth opposite such
holder's name.
The selling stockholders may sell their shares of common stock directly to
purchasers as principals, or through one or more underwriters, brokers, dealers
or agents from time to time in one or more transactions (which may involve block
transactions). Any sales of the shares may be effected through the OTC Bulletin
Board, in private transactions or otherwise, and the shares may be sold at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. If the selling stockholders
effect sales through underwriters, brokers, dealers or agents, such firms may
receive compensation in the form of discounts, concessions or commissions from
the selling stockholders or the purchasers of the shares for whom they may act
as agent, principal or both. Those persons who act as broker-dealers or
underwriters in connection with the sale of the shares may be selected by the
selling stockholders and may have other business relationships with, and perform
services for, us. Any selling shareholder, underwriter or broker-dealer who
participates in the sale of the shares may be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act. Any commissions
received by any underwriter or broker-dealer and any profit on any sale of the
shares as principal may be deemed to be underwriting discounts and commissions
under the Securities Act.
The anti-manipulation provisions of Rules 101 through 104 under the
Exchange Act may apply to purchases and sales of shares of common stock by the
selling stockholders. In addition, there are restrictions on market-making
activities by persons engaged in the distribution of the common stock.
Under the securities laws of certain states, the shares may be sold in
such states only through registered or licensed brokers or dealers. In addition,
in certain states the shares may not be able to be sold unless the common stock
has been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
We are required to pay expenses incident to the registration, offering and
sale of the shares pursuant to this offering. We estimate that our expenses will
be $98,250 in the aggregate. We
69
have agreed to indemnify the selling stockholders and certain other persons
against certain liabilities, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons, we have been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
We have advised the selling stockholders that if a particular offer of
shares is to be made on terms constituting a material change from the
information set forth above, then to the extent required, a prospectus
supplement should be distributed setting forth such terms and related
information and should be used.
LEGAL MATTERS
The legality of the shares of common stock offered hereby will be passed
upon for us by our special counsel Baer Marks & Upham LLP, 805 Third Avenue, New
York, New York 10022. Certain other matters will be passed upon by our general
counsel Aboudi & Brounstein, 3 Gavish Street, Kfar Saba, 44641, Israel.
EXPERTS
The financial statements as of December 31, 2000 and 1999 included in this
prospectus and elsewhere in the registration statement have been audited by
Brightman Almagor & Co. (a member of Deloitte Touche Tohmatsu), independent
auditors, as stated in their reports appearing herein and elsewhere in the
registration statement (which reports express an unqualified opinion) and have
been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC under the Securities Act a Registration
Statement on Form SB-2 (the "Registration Statement"), of which this prospectus
is a part, with respect to the shares offered hereby. This prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in exhibits and schedules as permitted by the rules and regulations of
the Securities and Exchange Commission. Statements made in this prospectus as to
the contents of any contract, agreement or other document referred to herein are
not necessarily
70
complete. With respect to each contract, agreement or other document filed as an
exhibit to the Registration Statement or in a filing incorporated by reference
herein or otherwise, reference is made to the exhibit for a more complete
description of the matters involved, and each statement shall be deemed
qualified in its entirety by this reference.
We are subject to the informational requirements of the Exchange Act and
file periodic reports, proxy statements and other information with the SEC.
Reports and other information filed by us may be inspected and copied at the
public reference facilities maintained by the SEC at:
Judiciary Plaza
450 Fifth Street, N. W.
Room 1024
Washington, D.C. 20549
Seven World Trade Center
13th Floor
New York, New York 10048
500 West Madison Street
Suite 1400
Chicago, Illinois 60601
Copies of such material may be obtained by mail from the Public Reference
Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the SEC maintains a Web site at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC, including us. The
SEC's telephone number is 1-800-SEC-0330.
71
AMBIENT CORPORATION
(A Development Stage Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
INDEPENDENT AUDITORS' REPORT OF BRIGHTMAN ALMAGOR & CO. F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets F-2
Statements of Operations F-3
Statement of Changes in Stockholders' Equity (Deficit) F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of Ambient Corporation
We have audited the accompanying consolidated balance sheets of Ambient
Corporation ("the Company") (a development-stage company) as of December 31,
2000 and 1999, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the two years ended December
31, 2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Company (a development-stage company) as of December 31, 2000 and 1999, and the
consolidated results of operations, stockholders' equity (deficit) and its cash
flows for the two years ended December 31, 2000 in conformity with generally
accepted accounting principles.
Brightman Almagor & Co.
Certified Public Accountants (Israel)
A member of Deloitte & Touche
Tel-Aviv, Israel
March 1, 2001
F-1
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2000 1999
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,052,929 $ 8,071
Restricted cash -- 84,820
Convertible note receivable 250,000 --
Receivables and prepaid expenses 244,742 34,821
------------ ------------
Total current assets 7,547,671 127,712
Long-term loan and investment 155,677 170,000
Investment in affiliate 1,016,842 --
Property and equipment, net 144,267 135,298
------------ ------------
Total assets $ 8,864,457 $ 433,010
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Short term borrowings $ 10,243 $ 140,903
Accounts payables 201,888 212,967
Accrued expenses and other current liabilities 657,899 491,713
------------ ------------
Total current liabilities 870,030 845,583
------------ ------------
LONG TERM LIABILITIES
Long-term bank credit -- 9,958
Accrued severance pay -- 15,334
------------ ------------
Total long-term liabilities -- 25,292
------------ ------------
Total liabilities 870,030 870,875
------------ ------------
COMMITMENTS AND CONTINGENCIES
NOTES PAYABLE -- 600,000
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible Preferred Stock, $.001 par value;
5,000,000 shares authorized; none issued and outstanding -- --
Common stock, $.001 par value;
100,000,000 shares authorized; 21,375,794 and 3,130,833
issued and outstanding, respectively 21,376 3,131
Additional paid-in capital 61,133,173 5,041,595
Deficit accumulated during the development stage (48,719,414) (6,078,528)
Less: deferred compensation (4,440,708) (4,063)
------------ ------------
Total stockholders' equity (deficit) 7,994,427 (1,037,865)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 8,864,457 $ 433,010
============ ============
See Notes to Consolidated Financial Statements.
F-2
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative
Year From Inception
Ended to
December 31, December 31,
Expenses 2000 1999 2000
---- ---- ----
Research and Development $ 463,038 $ 340,287 $ 2,184,875
Less - Participation by the Office of the
Chief Scientist of the State of Israel -- 231,767 558,195
------------ ------------ ------------
463,038 108,520 1,626,680
Operating, general and administrative
expenses (excludes $14,724,328 and $96,000
of stock based compensation in 2000
and 1999, respectively) 3,391,571 588,234 6,206,145
Stock based compensation 14,724,328 96,000 15,785,062
------------ ------------ ------------
Total expenses 18,115,899 684,234 21,991,207
------------ ------------ ------------
Operating loss (18,578,937) (792,754) (23,617,887)
Legal settlement (1,512,500) -- (1,512,500)
Interest expense (397,921) (66,104) (674,628)
Noncash financing expense (1,500,000) (1,600,000)
Beneficial conversion feature of convertible debt (3,878,260) -- (3,878,260)
Amortization of deferred financing costs (5,089,144) (272,546) (5,752,015)
Interest income 225,267 -- 225,267
Company's share in net losses of affiliate (335,365) -- (335,365)
------------ ------------ ------------
Loss before minority interest and extraordinary item (31,066,860) (1,131,404) (37,145,388)
Minority interest in subsidiary loss 25,000 -- 25,000
------------ ------------ ------------
Loss before extraordinary item (31,041,860) (1,131,404) (37,120,388)
Extraordinary item - loss on extinguishment of debt (9,778,167) -- (9,778,167)
------------ ------------ ------------
Net loss (40,820,027) (1,131,404) $(46,898,555)
Deemed dividends on convertible preferred stock (1,820,859) -- (1,820,859)
------------ ------------ ------------
Net loss attributable to common stockholders $(42,640,886) $ (1,131,404) (48,719,414)
============ ============ ============
Basic and diluted loss per share:
Net loss before extraordinary item $ (3.06) $ (0.36)
Extraordinary loss from extinguishment of debt (0.91) --
------------ ------------
Net loss $ (3.98) $ (0.36)
============ ============
Weighted average number of shares outstanding 10,725,464 3,121,479
============ ============
See Notes to Consolidated Financial Statements.
F-3
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Convertible
Preferred Stock Common Stock
Shares Amount Shares Amount
------ ------ ------ ------
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
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, 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
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
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, April and November 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
Stock issued pursuant to settlement agreement 250,000 250
Common stock issued in private placement, net of offering costs -- July 2000 1,000,000 1,000
Preferred stock issued in private placement, net of offering costs -- August 2000 1,125,000 1,125
Warrants issued to convertible debenture holders -- July through September 2000
Warrants issued in connection with private placement -- September 2000
Stock and stock options issued pursuant to severance agreement -- September 2000 200,000 200
Stock issued upon conversion of debentures -- September and November 2000 5,000,000 5,000
Stock issued upon conversion of debentures -- November 2000 3,711,711 3,712
Stock issued upon conversion of preferred stock -- November 2000 (1,125,000) (1,125) 1,125,000 1,125
Stock options issued to employees
Stock options issued to consultants
Stock options and warrants exercised 640,000 640
Beneficial conversion feature of debentures issued
Deemed dividend on convertible preferred stock
Amortization of deferred stock -- based compensation
Net loss
------- -------- ---------- --------
Balance -- December 31, 2000 -- $ -- 21,375,794 $ 21,376
======= ======== ========== ========
Additional
Paid-in Deferred
Capital Compensation
------------ -------------
Issuance of common stock to founders for nominal consideration -- July 1996 $ $
Issuance of common stock to employees for services -- September 1996
Issuance of common stock to employees for services -- October 1996
Net loss
------------ -----------
Balance -- December 31, 1996 -- --
Issuance of common stock to employees for services -- March 1997 50,000 (50,000)
Issuance of common stock to employees for services -- August 1997 336,668 (336,668)
Stock issued in connection with private placement of notes -- September 1997 239,940
Issuance of common stock to advisor for services -- September 1997 23,994
Stock issued in connection with private placement of notes -- October 1997 79,980
Amortization of deferred stock -- based compensation 145,556
Net loss
------------ -----------
Balance -- December 31, 1997 730,582 (241,112)
Stock issued pursuant to consulting agreement 654,925 (655,000)
Initial public offering in February 1998 3,432,502
Stock issued in connection with short--term debt financing 99,980
Additional stock pursuant to founders agreement for nominal consideration
Warrants issued pursuant to private placement of units 21,600
Options granted pursuant to consulting agreement 1,600 (1,600)
Amortization of deferred stock -- based compensation 658,029
Net loss
------------ -----------
Balance -- December 31, 1998 4,941,189 (239,683)
Stock issued pursuant to consulting agreement -- January 1999 7,996 (8,000)
Stock issued pursuant to consulting agreement -- February 1999
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
Amortization of deferred stock -- based compensation 325,808
Net loss
------------ -----------
Balance -- December 31, 1999 5,041,595 (4,063)
Waiver of liability due to related party -- January 2000 75,328
Stock issued in respect of extinguishment of debt -- February 2000 10,466,510
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, April and November 2000 1,144,805
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
Stock issued pursuant to settlement agreement 1,312,250
Common stock issued in private placement, net of offering costs -- July 2000 1,799,000
Preferred stock issued in private placement, net of offering costs -- August 2000 1,819,734
Warrants issued to convertible debenture holders -- July through September 2000 3,447,147
Warrants issued in connection with private placement -- September 2000 410,495
Stock and stock options issued pursuant to severance agreement -- September 2000 1,756,042 (1,756,242)
Stock issued upon conversion of debentures -- September and November 2000 795,680
Stock issued upon conversion of debentures -- November 2000 8,490,545
Stock issued upon conversion of preferred stock -- November 2000
Stock options issued to employees 4,059,080 (4,059,080)
Stock options issued to consultants 1,999,329 (1,999,329)
Stock options and warrants exercised
Beneficial conversion feature of debentures issued 3,878,260
Deemed dividend on convertible preferred stock 1,820,859
Amortization of deferred stock -- based compensation 16,067,085
Net loss
------------ -----------
Balance -- December 31, 2000 $ 61,133,173 $(4,440,708)
============ ===========
Deficit
Accumulated
During
Development
Stage Total
------------ ------------
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)
Issuance of common stock to employees for services -- March 1997 20
Issuance of common stock to employees for services -- August 1997 84
Stock issued in connection with private placement of notes -- September 1997 240,000
Issuance of common stock to advisor for services -- September 1997 24,000
Stock issued in connection with private placement of notes -- October 1997 80,000
Amortization of deferred stock -- based compensation 145,556
Net loss (1,432,815) (1,432,815)
------------ ------------
Balance -- December 31, 1997 (2,126,810) (1,634,921)
Stock issued pursuant to consulting agreement --
Initial public offering in February 1998 3,433,027
Stock issued in connection with short--term debt financing 100,000
Additional stock pursuant to founders agreement for nominal consideration 35
Warrants issued pursuant to private placement of units 21,600
Options granted pursuant to consulting agreement --
Amortization of deferred stock -- based compensation 658,029
Net loss (2,820,314) (2,820,314)
------------ ------------
Balance -- December 31, 1998 (4,947,124) (242,544)
Stock issued pursuant to consulting agreement -- January 1999 --
Stock issued pursuant to consulting agreement -- February 1999 15
Stock issued pursuant to consulting agreement -- February 1999 --
Stock issued pursuant to consulting agreement -- April 1999 --
Warrants issued pursuant to consulting agreement -- April 1999 10,260
Amortization of deferred stock -- based compensation 325,808
Net loss (1,131,404) (1,131,404)
------------ ------------
Balance -- December 31, 1999 (6,078,528) (1,037,865)
Waiver of liability due to related party -- January 2000 75,328
Stock issued in respect of extinguishment of debt -- February 2000 10,470,000
Stock issued pursuant to consulting agreement -- February 2000 --
Stock issued pursuant to consulting agreement -- February 2000 --
Stock issued pursuant to consulting agreement -- February 2000 --
Stock issued pursuant to consulting agreement -- February 2000 --
Warrants issued pursuant to consulting agreement -- February 2000 --
Warrants issued to convertible debenture holders -- February, April and November 2000 1,144,805
Stock issued pursuant to consulting agreement -- February 2000 --
Stock issued pursuant to consulting agreement -- February 2000 --
Stock issued pursuant to consulting agreement -- March 2000 --
Stock issued pursuant to consulting agreement -- March 2000 --
Stock issued pursuant to consulting agreement -- March 2000 --
Stock issued pursuant to consulting agreement -- March 2000 --
Stock issued for services -- May 2000 130,263
Stock issued pursuant to settlement agreement 1,312,500
Common stock issued in private placement, net of offering costs -- July 2000 1,800,000
Preferred stock issued in private placement, net of offering costs -- August 2000 1,820,859
Warrants issued to convertible debenture holders -- July through September 2000 3,447,147
Warrants issued in connection with private placement -- September 2000 410,495
Stock and stock options issued pursuant to severance agreement -- September 2000 --
Stock issued upon conversion of debentures -- September and November 2000 800,680
Stock issued upon conversion of debentures -- November 2000 8,494,257
Stock issued upon conversion of preferred stock -- November 2000 --
Stock options issued to employees --
Stock options issued to consultants --
Stock options and warrants exercised 640
Beneficial conversion feature of debentures issued 3,878,260
Deemed dividend on convertible preferred stock 1,820,859
Amortization of deferred stock -- based compensation 16,067,085
Net loss (42,640,886) (42,640,886)
------------ ------------
Balance -- December 31, 2000 $(48,719,414) $ 7,994,427
============ ============
See Notes to Consolidated Financial Statements.
F-4
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
Cumulative
Year From Inception
Ended to
December 31, December 31,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2000 1999 2000
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(42,640,886) $ (1,131,404) $(48,719,414)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 43,456 57,150 204,478
Amortization of note discount 5,089,144 -- 5,107,144
Loss on sale of fixed assets 2,482 13,817 16,299
Beneficial conversion feature of convertible debt 3,878,260 -- 3,878,260
Deemed dividends on convertible preferred stock 1,820,859 -- 1,820,859
Financing, consulting and other expenses paid via the
issuance of common stock and warrants 27,313,015 350,183 29,128,940
Increase (decrease) in net liability for severance pay -- (15,885) 15,141
Accrued interest on loans and notes payable -- -- 210,016
Company's share in net losses of affiliates 335,365 -- 335,365
Minority interest in subsidiary loss (25,000) (25,000)
Write-down of long term investment 80,000 180,000 745,000
Write-off of fixed assets 115,613 -- 136,066
(Increase) decrease in cash attributable to changes in assets
and liabilities
Receivables and prepaid expenses (129,650) 300,355 (137,516)
Accounts payable 51,442 (124,138) 35,162
Other current liabilities 413,977 316,449 717,135
------------ ------------ ------------
Net cash used in operating activities (3,651,923) (53,473) (6,532,065)
------------ ------------ ------------
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 (170,526) (12,102) (542,345)
Proceeds from disposal of fixed assets -- 42,100 42,100
Decrease in restricted cash 84,820 46,439 --
------------ ------------ ------------
Net cash provided by (used in) in investing activities (710,706) 76,437 (1,960,245)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of share capital 3,442,720 -- 3,444,984
Proceeds from issuance of notes payable -- -- 1,000,000
Net proceeds from issuance of convertible debentures 9,148,262 9,148,262
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 (9,951) (40,935) (87,996)
Increase (decrease) in short term bank credit (130,660) 9,904 (21,761)
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
Increase in long-term loans and investment (65,677) (65,677)
Loans to affiliate (977,207) -- (977,207)
------------ ------------ ------------
Net cash provided by (used in) financing activities 11,407,487 (31,031) 15,545,239
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,044,858 (8,067) 7,052,929
7
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 8,071 16,138 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 7,052,929 $ 8,071 $ 7,052,929
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Noncash financing andinvesting activities for the year ended December 31, 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 9).
(b) Waiver of liability due to related party in the amount of $75,328.
(c) Conversion of debentures in the amount of $9,846,550 into 8,711,711
shares of common stock.
See Notes to Consolidated Financial Statements.
F-5
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Description of Business
Ambient Corporation ("the Company"), was founded in June 1996 to design and
develop advanced smart card interface technology. In August 1996, the Company
purchased substantially all of the net assets of Gen Technologies, Inc., a smart
card research and development company.
During 1999 the Company ceased its research and design efforts in the smart card
interface technology area. In 2000, the Company commenced the design,
development, implementation and marketing of a proposed comprehensive
communication infrastructure, which uses the electrical power distribution grid
as a high-speed telecommunication medium. The Company's proposed powerline
telecommunication solution is based on establishing and maintaining partnership
relationships with utilities and electrical power distribution companies, as
well as developing and maintaining business relations with telecommunication
service and technology companies.
The Company has been active in the powerline telecommunications field for a
short time and its success is subject to risks and uncertainties frequently
encountered by early stage companies in new and rapidly evolving markets. These
risks include primarily the technological feasibility of the Company's proposed
communications solution, its adoption by utilities and other providers of
electrical power, and the commercial viability of the technology.
The Company has not generated any revenues to date, and is considered to be in
the development stage. Business activities to date have focused on research and
development, marketing and raising of capital and financing.
Note 2 - Summary of Significant Accounting Policies
Principles 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 have been eliminated in
consolidation. At December 31, 2000 an employee held the minority interest in
the Company's subsidiary, PLT (see Note - Subsequent Events).
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
years presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements.
Actual results may differ from those estimates.
F-6
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Cash Equivalents
Cash and cash equivalents consist of cash and short-term investments with
insignificant interest rate risk and original maturities of 90 days or less.
Cash and cash equivalents are carried at cost, which approximates market value.
Fair Value of Financial Instruments
Substantially all of the Company's financial instruments, consisting primarily
of cash equivalents, current receivables, accounts payable and accrued expenses,
are carried at, or approximate, fair value because of their short-term nature or
because they carry market rates of interest.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees" and FASB Interpretation 44,
"Accounting for Certain Transactions Involving Stock Compensation.". Pursuant to
these accounting standards, the Company records deferred compensation for share
options granted to employees at the date of grant based on the difference
between the exercise price of the options and the market value of the underlying
shares at that date. Deferred compensation is amortized to compensation expense
over the vesting period of the underlying options. No compensation expense is
recorded for fixed stock options that are granted to employees and directors at
an exercise price equal to the fair market value of the common stock at the time
of the grant
For variable stock options, compensation expenses are recognized over the
vesting period based on the difference, if any, between the quoted market price
of the Company's stock on the last trading day of each reporting period and the
exercise price of the option.
See Note 12 for pro forma disclosures required in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation".
Stock options granted to non-employees are recorded at their fair value, as
determined in accordance with SFAS No. 123 and Emerging Issues Task Force
Consensus No. 96-18, and recognized over the related service period. Deferred
charges for options granted to non-employees are periodically re-measured as the
options vest.
Foreign Currency Translations
The U.S. dollar is the functional currency for the Company and its subsidiaries.
The financial statements of the Company's foreign subsidiaries have been
translated into U.S. dollars in accordance with FASB Statement No. 52.
Net Loss Per Share
Basic earnings (loss) per share EPS is computed by dividing net income (loss)
applicable to common shares by the weighted-average of common shares outstanding
during the period.
F-7
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Diluted earnings (loss) per share adjusts basic earnings (loss) per share for
the effects of convertible securities, stock options and other potentially
dilutive instruments, only in the periods in which such effect is dilutive. The
shares issuable upon exercise of stock options and warrants are excluded from
the calculation of net loss per share, as their effect would be antidilituve.
Property and Equipment
Equipment and furniture and fixtures are recorded at cost and depreciated using
the straight-line method over the estimated useful lives of the assets, which
range from three to fourteen years. For leasehold improvements, amortization is
provided over the shorter of the estimated useful lives of the assets or the
lease term.
Research and Development Costs
Research and development costs, net of participation by the Government of Israel
are charged to operations as incurred.
Income Taxes
The Company uses the liability method to determine its income tax expense as
required under the FASB Standards No. 109, (SFAS 109). SFAS 109 requires the
establishment of a deferred tax asset or liability for the recognition of future
deductible or taxable amounts and operating loss carryforwards. Deferred tax
expense or benefit is recognized as a result of the changes in the assets and
liabilities during the year. Valuation allowances are established when
necessary, to reduce deferred tax assets, if it is more likely than not that all
or a portion of it will not be realized.
Concentrations
Cash and cash equivalents are, for the most part, maintained with a major
financial institution in the United States. Deposits held with these banks
exceed the amount of insurance provided on such deposits. Generally these
deposits may be redeemed upon demand and therefore, bear minimal risk.
Long-Lived Assets
In accordance with FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets.
Comprehensive Income (Loss)
FASB Statement No. 130, "Reporting Comprehensive Income" prescribes standards
for reporting comprehensive income and its components. Since the Company
currently does not have any items of other comprehensive income, a statement of
comprehensive income is not required.
F-8
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Recently Issued Accounting Pronouncements
In June 1998, FASB Statement No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities," was issued which establishes accounting and
reporting standards for all derivative instruments. SFAS No. 133, as amended by
SFAS No, 137 and 138, is effective for fiscal years beginning after June 15,
2000. The Company believes that the adoption of SFAS No. 133 on January 1, 2001
will not have a significant effect on its financial statements.
Note 3 - Restricted Cash
In connection with a line of credit and short-term loan from a bank (see Note
8), the Company was required to maintain a compensating balance, which is
restricted for a period of up to one year. The restricted balance as of December
31, 1999 amounted to $ 84,820
Note 4 - Convertible Note Receivable
In July 2000, the Company invested in a $250,000 convertible promissory note of,
a privately-held company active in the development of high speed chips. The note
is due in July 2001 and bears interest at the rate of 6% per annum. The note is
convertible into common stock based on the price per share of a future financing
of this company. Additionally, the Company received warrants to purchase common
stock of this company in connection with this investment.
Note 5 - Property And Equipment
December 31,
------------
2000 1999
-------- --------
Computers $ 56,599 $104,437
Machinery and equipment 19,552 63,164
Furniture and office equipment 83,097 40,346
Leasehold improvements -- 12,102
Motor vehicles -- 44,879
-------- --------
159,248 264,928
Less - accumulated depreciation 14,981 129,630
-------- --------
$144,267 $135,298
======== ========
Depreciation expense was $ 43,456 and $ 57,150 for the years ended December 31,
2000 and 1999, respectively.
Note 6 - Investment in Affiliate
F-9
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company owns a 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. Kliks was established in
February 2000, and to date the Company has invested equity capital totaling
$375,000 and provided loans totaling $977,207. 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 $335,365 representing
its share of the loss for the year ended December 31, 2000.
Note 7 - Other Current Liabilities
December 31,
------------
2000 1999
-------- --------
Accrued payroll and payroll taxes $421,644 $123,357
Accrued liabilities 187,746 190,930
Accrued interest 48,509 --
Related parties -- 177,426
-------- --------
$657,899 $491,713
======== ========
Note 8 - Bank Loans
December 31,
------------
2000 1999
-------- --------
Long-term bank credit (a) -- $ 17,924
Bank overdraft line of credit (b) -- 132,937
-------- --------
-- 150,861
Less: current portion -- 140,903
-------- --------
-- $ 9,958
======== ========
(a) Consists of vehicle financing loans, payable in monthly installments
with interest at rates ranging from 14%-16% per annum.
(b) Interest is payable monthly at the rate of 18% per annum.
Note 9 - Notes Payable
F-10
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In June 1998, the Company realized gross proceeds of $600,000 from a private
offering of 12 Units, each Unit consisting of a $50,000 10% Promissory Note, and
Warrants to purchase 10,000 shares. The notes became due in June 1999.
In February 2000, the Company converted principal and accrued interest of
approximately $700,000 and 120,000 warrants into 3,490,000 shares of the
Company's common stock. The Company recorded an extraordinary charge in the
amount of $9,778,167 on conversion of the notes.
Note 10 - Debt Financings
10% Convertible Debentures
In February 2000, the Company signed an agreement to issue $2 million of 10%
Convertible Debentures and 1,250,000 Warrants to private investors. The
Debentures were convertible into shares of the Company's Common Stock at the
rate of $ 0.40. In accordance with EITF 98-5, the Company has recorded financing
expense in the amount of $571,636 representing the beneficial conversion feature
of the debt. The warrants are exercisable into common stock at the rate of $1.00
per share for a three-year period. The Company recorded a discount of $1,144,804
to reflect the fair value of the Warrants
In September through November 2000, pursuant to the terms of the debentures, the
investors converted the $2 million of the 10% convertible debentures purchased
into 5,000,000 shares of Common Stock.
Convertible Debentures
During the third quarter of 2000, the Company issued $8,345,500 of one-year
convertible debentures to private investors. The debentures are convertible only
upon the approval of the Company's stockholders to increase the authorized
shares of the Company's common stock. At such time the debentures convert
automatically into shares of common stock. In November 2000, pursuant to the
approval of the Company's stockholders, the debentures automatically converted
into 3,711,711 shares of common stock. Additionally, pursuant to the
subscription agreement, the Company issued 3,711,711 common stock purchase
warrants. The warrants are exercisable at prices ranging from $3.50 to $8.00 per
share. The Company recorded a discount of $3.4 million to reflect the fair value
of the Warrants, determined using using the Black-Scholes pricing model. The
unamortized portion of the discount was charged to operations in the period the
debentures were converted. In accordance with EITF 98-5, the Company has
recorded financing expense in the amount of $3.3 million representing the
beneficial conversion feature of this debt.
In connection with the sale of Debentures, the Company issued warrants to
placement agents to purchase up to 770,000 shares of Common Stock, 70,000 an
with exercise price of $2.00 and 700,000 at $4.50 per share.
Note 11 - Income Taxes
At December 31, 2000, the Company had available $21.3 million of net operating
loss carryforwards for U.S. federal income tax purposes which expire in the
years 2016 through 2020,
F-11
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
and $ 2.5 million of foreign net operating loss carryforwards with no expiration
date. Due to the uncertainty of their realization, no income tax benefit has
been recorded by the Company for these net operating loss carryforwards as
valuation allowances have been established for any such benefits. The use of the
U.S. federal net operating loss carryforwards is subject to limitations under
section 382 of the Internal Revenue code pertaining to changes in stock
ownership.
Significant components of the Company's deferred tax assets for U.S. federal and
Israel income taxes are as follows:
December 31,
------------
2000 1999
-------- --------
Net operating loss carryforwards $ 9,440,958 $ 2,258,382
Stock based compensation 1,124,838 --
Other 134,146 --
----------- -----------
Total deferred tax assets 10,699,942 2,258,382
Valuation allowance (10,699,942) (2,258,382)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
Note 12 - Stockholders' Equity
Stock option plans
In February 1998, the Company adopted the 1998 Incentive and Non-Qualified Stock
Option Plan (the "1998 Option Plan"). There are currently a total of 210,000
options outstanding under the 1998 Plan and future grants have been
discontinued.
In November 2000, the Company adopted the 2000 Equity Incentive Plan (the "2000
Incentive Plan"). A total of 5 million shares of common stock have been reserved
for issuance under the 2000 Incentive Plan. 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.
The Compensation Committee of the Board of Directors is responsible for
determining the type of award, when and to whom awards are granted, the number
of shares and the terms of the awards and exercise prices. The options are
exercisable for a period not to exceed ten years from the date of grant. Vesting
periods range from immediately to four years.
F-12
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
During 2000, the Company granted stock options (the "Variable Options") to
certain employees with anti-dilution rights and exercise price adjustment
provisions. Since the number of options and the associated exercise prices are
subject to adjustment and not fixed at the grant date, these stock options are
accounted for under variable stock option accounting. Accordingly, the Variable
Options are re-valued on a periodic basis by measuring the difference between
the current exercise price and the fair market value of the Company's common
stock on that balance sheet date.
Other Option Grants
In addition to the options granted under the Stock Option Plans, the Company has
issued options outside of the plans, pursuant to various employment, consulting
and separation agreements.
Option activity for 1999 and 2000 is summarized as follows:
Weighted
Average
Options Exercise
Plan Non-plan Total Price
---- -------- ----- -----
Options outstanding, January 1, 1999 80,000 -- 80,000 $6.00
Granted 170,000 -- 170,000 0.81
Forfeited (80,000) -- (80,000) 6.00
--------- --------- --------- -----
Options outstanding, December 31, 1999 170,000 -- 170,000 0.81
Granted 1,579,500 4,985,000 6,564,500 1.16
--------- --------- --------- -----
Options outstanding, December 31, 2000 1,749,500 4,985,000 6,734,500 $1.15
========= ========= ========= =====
Shares of common stock available for
future grant under the plan 3,460,500
=========
The following table summarizes information about stock options outstanding at
December 31, 2000:
F-13
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Options Exercisable
Weighted Average Weighted Average
Remaining
Range of Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
----- ----------- ---- ----- ----------- -----
$.01 370,000 9.71 $0.01 370,000 $0.01
$.8125-1.00 5,220,000 9.88 0.99 1,620,037 0.98
$1.97-2.50 1,144,500 9.96 2.25 10,000 1.97
--------- ---- ----- --------- -----
$.01-$2.50 6,734,500 9.88 $1.15 2,000,037 $0.81
========= ==== ===== ========= =====
Weighted-average grant date fair value of options granted under the Plans in
2000 and 1999, under the Black-Scholes option pricing model, was $1.52 and $1.08
per option, respectively.
The Company has adopted the pro forma disclosure provisions of SFAS No. 123. Had
compensation cost for all of the Company's stock-based compensation grants been
determined in a manner consistent with the fair value approach described in SFAS
No. 123, the Company's net loss and net loss per share as reported would have
been increased to the pro forma amounts indicated below:
Year ended
December 31,
2000 1999
---- ----
Net loss
As reported ($42,640,886) ($1,131,404)
Proforma (42,837,740) (1,223,594)
Loss per share
As reported (3.98) (0.36)
Proforma (3.99) (0.39)
The fair value of each option granted in 2000 and 1999 is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions:
Year ended
December 31,
2000 1999
---- ----
Risk free interest rates 5.30% 5.00%
Expected option lives (in years) 4.24 10
Expected volatilities 70.00% 50.00%
Expected dividend yields None None
F-14
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Authorized shares
In November 2000, the Company's stockholders approved a resolution of the Board
of Directors adopted in July 2000, to increase the authorized common stock to
100 million shares.
Warrants
o In February 2000, the Company issued to a financial consultant
warrants to purchase 1,500,000 shares of Common Stock. The warrants
are exercisable for a period of three years at a nominal price per
share.
o In February, April and November 2000, in connection with the sale of
10% convertible debentures (see Note 10) the Company issued 1.25
million warrants. These warrants expire in three years and are
exercisable at $1 Per share.
o In July through September 2000, in connection with the private
placement of common stock, convertible preferred stock and
convertible debentures (see Notes 10 and 12) the Company issued a
total of 5.8 million warrants with exercise prices ranging from
$3.50 to $8.00. The warrants expire in four years.
o In September 2000, in connection with the private placement the
Company issued 700,000 and 70,000 warrants with an exercise price of
$4.50 and $2.00, respectively, as a placement agent fee.
A summary of the warrants outstanding at December 31, 2000 is as follows:
Exercise Expiration
Warrants Price Date
-------- ----- ----------
875,000 $0.01 2003
1,250,000 1.00 2003
70,000 2.00 2004
4,497,750 3.50 2004
300,000 4.00 2004
1,681,818 4.50 2004
57,143 8.00 2004
8,731,711
Stock Issuances
o During 1999, the Company issued to consultants 56,500 shares of
common stock for their services. The Company recorded deferred
compensation in the amount of $90,188, relating to the issuance of
these shares based on the market value of the shares at the date of
issuance. The deferred compensation was amortized over the service
period.
F-15
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
o During 2000, the Company entered into various marketing, financial
consulting and separation agreements. Pursuant to these agreements,
the Company issued a total of 3,038,250 shares of common stock. The
Company recorded deferred compensation in the amount of $11.9
million relating based on the market value of the shares at the date
of issuance. The deferred compensation was amortized over the
service period.
o In July and August 2000, the Company sold 1 million shares of its
common stock, 1.25 million shares of its convertible preferred
stock, and 2.25 million warrants in a private placement, for an
aggregate purchase price of $4,250,000. The convertible preferred
stock is convertible only upon the approval of the Company's
stockholders to increase the authorized shares of the Company's
common stock. At such time the convertible preferred stock converts
automatically into shares of common stock. In November 2000, the
preferred stock automatically converted into 1.25 million shares of
common stock. 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 $1.8 million,
representing the beneficial conversion feature of the convertible
preferred stock. The warrants are exercisable into common stock at
the rate of $3.50 per share and expire four years from date of
issuance.
Pursuant the private placement agreement, the Company is required to
have the common stock and common stock underlying the warrants
registered by April 11,2001. Thereafter, for each 30-day period that
the shares remain unregistered, the Company will be required to
issue an additional 198,750 shares limited to a total of 596,250.
Note 13 - Commitments And Contingencies
Royalties
The Company is committed to pay royalties to the Office of the Chief Scientist
of the Government of Israel (OCS) on proceeds from sales of products in the
smart cards interface technology area of which the OCS has participated by way
of grants. The royalties are payable at the rate of 3% for the first three years
of product sales, 4% for the following three years, and 5% thereafter up to a
maximum of 100% of the grant including accrued interest. The total amount of
grants received at December 31, 2000 was $ 558,195.
The refund of the grant is contingent on future sales of these products and the
Company has no obligation to refund these grants if the sales are not
sufficient. The Company has ceased all activities in this area and does not
expect any future revenues from these products. The Company is awaiting a formal
letter from the Chief Scientist regarding the non-completion of the technology.
Operating leases
The Company has entered into a lease agreement for office space expiring through
2003. Rent expense for 2000 and 1999 was $75,064 and $50,109, respectively.
Future minimum rentals on this lease as of December 31, 2000 is as follows:
F-16
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31,
2001 $140,400
2002 140,400
2003 70,200
---------
Total $ 351,000
=========
Employment Agreement
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 a minimum of $275,000. The CEO was also granted 1,350,000
fully vested non-plan options exercisable at $1.00 per share, which includes an
anti-dilution provision. In case of a change in control, as defined, 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 a 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 December 2000, the Company granted an
additional 1 million non-plan options to the CEO, 500,000 to vest in September
2001 and the remaining 500,000 in September 2002. The options are exercisable at
$1.00 per share.
The Company has an outstanding note receivable in the amount of $83,673 due from
this officer. The terms of the note require annual installments including
interest at the rate of 7% through December 31, 2005.
Note 14 - Geographic Data
% of % of
U.S. Total Israel Total Total
---- ----- ------ ----- -----
For the year ended
December 31, 2000
Operating loss $(18,012,639) 96.95% (566,298) 3.05% $(18,578,937)
Identifiable assets 7,694,233 86.80% 1,170,224 13.20% 8,864,457
For the year ended
December 31, 1999
Operating loss -- -0-% (792,754) 100% (792,754)
Identifiable assets -- -0-% 433,010 100% 433,010
F-17
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 15 - Subsequent Events
Stock Purchase and Merger Agreement
On January 1, 2001, the Company entered into an agreement for the purchase of
the 9.9% minority interest held in its subsidiary, PLT Solutions. The Company
will issue 400,000 shares of its common stock to the minority shareholder, to be
held in escrow. On April 1, 2001, 200,000 shares will be released from escrow if
the minority shareholder is still employed by the Company. On April 1, 2002 the
remaining 200,000 shares will be released from escrow under the same terms.
The Company expects to record a charge from this issuance in the amount of
$862,400 and amortize it over the vesting period.
Development and License Agreement
Effective January 2001, the Company entered into a Development and License
agreement with Cisco Systems, Inc. (Cisco). Pursuant to the agreement, the
Company is obligated to pay a total of $6,500,000 over the development period as
milestones are reached. The Company has been granted the exclusive right in the
United States to sell the developed product for a period of six months after the
successful field-tested demonstrations.
F-18