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EXCEL - IDEA: XBRL DOCUMENT - AMBIENT CORP /NY | Financial_Report.xls |
EX-32 - CERTIFICATION - AMBIENT CORP /NY | ambt_ex32.htm |
EX-31.1 - CERTIFICATION - AMBIENT CORP /NY | ambt_ex311.htm |
EX-31.2 - CERTIFICATION - AMBIENT CORP /NY | ambt_ex312.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2012
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _____________ to _____________
Commission File Number: 001-35259
AMBIENT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
|
98-0166007
|
|
(State or Other Jurisdiction of Incorporation)
|
(I.R.S. Employer Identification No.)
|
7 WELLS AVENUE, NEWTON, MASSACHUSETTS 02459
(Address of Principal Executive Office) (Zip Code)
617-332-0004
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer
|
o
|
Accelerated filer
|
o
|
Non-accelerated filer
|
o
|
Smaller reporting company
|
þ
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ
As of September 21, 2012, there were 16,663,720 shares of issuer's common stock, par value $0.001 per share, outstanding.
Table of Contents
PAGE
|
|||||
PART I – FINANCIAL INFORMATION
|
|||||
Item 1.
|
Financial Statements
|
4
|
|||
Balance Sheets as of June 30, 2012 (Unaudited) and December 31, 2011
|
4
|
||||
Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2012 and 2011 (Unaudited)
|
5
|
||||
Statements of Cash Flows for the six months ended June 30, 2012 and 2011 (Unaudited)
|
6
|
||||
Notes to the Unaudited Financial Statements
|
7
|
||||
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operation
|
16
|
|||
Item 4.
|
Controls and Procedures
|
19
|
|||
PART II – OTHER INFORMATION
|
|||||
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
20
|
|||
Item 6.
|
Exhibits
|
20
|
|||
SIGNATURES
|
21
|
2
FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with the financial statements and related notes contained elsewhere in this quarterly report on Form 10-Q. We make forward-looking statements in this report, in other materials we file with the Securities and Exchange Commission (the “SEC”) or that we otherwise release to the public, and on our website. In addition, our senior management might make forward-looking statements orally to analysts, investors, the media, and others. These statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings) and demand for our products and services, and other statements of our plans, beliefs, or expectations, including the statements contained in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our future plans, strategies and expectations are forward-looking statements. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “predict,” “expect,” “intend,” “plan,” “project,” “target,” “continue,” “can,” “could,” “may,” “should,” “will,” “would,” and similar expressions. You are cautioned not to place undue reliance on these forward-looking statements because these forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Thus, our ability to predict results or the actual effect of our future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to, our ability to retain and attract customers, particularly in light of our dependence on a single customer for substantially all of our revenue; our expectations regarding our expenses and revenue, including our expectations that our research and development expenses and selling, general and administrative expenses may increase in absolute dollars; our material weakness in internal control over financial reporting; anticipated trends and challenges in our business and the markets in which we operate, including the market for smart grid technologies; our expectations regarding competition as more and larger companies enter our markets and as existing competitors improve or expand their product offerings; our plans for future products and enhancements of existing products; our anticipated cash needs and our estimates regarding our capital requirements; and our anticipated growth strategies. These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file with the SEC, should be considered in evaluating forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance or achievements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. Moreover, we do not assume the responsibility for the accuracy and completeness of these forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
3
AMBIENT CORPORATION
BALANCE SHEETS
(in thousands, except share and per share data)
June 30,
|
December 31,
|
|||||||
2012
|
2011
|
|||||||
Assets
|
(unaudited)
|
(Restated)
|
||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
16,475
|
$
|
17,965
|
||||
Accounts receivable
|
2,955
|
284
|
||||||
Inventory
|
777
|
1,460
|
||||||
Prepaid expenses and other current assets
|
249
|
527
|
||||||
Total current assets
|
20,456
|
20,236
|
||||||
Property and equipment, net
|
1,274
|
1,249
|
||||||
Deferred finance costs
|
-
|
389
|
||||||
Total assets
|
$
|
21,730
|
$
|
21,874
|
||||
Liabilities and Stockholders' Equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
3,257
|
$
|
3,920
|
||||
Accrued expenses and other current liabilities
|
1,034
|
714
|
||||||
Deferred revenue
|
587
|
453
|
||||||
Accrued warranty
|
118
|
115
|
||||||
Income taxes payable
|
-
|
41
|
||||||
Warrant liability
|
531
|
671
|
||||||
Total current liabilities
|
5,527
|
5,914
|
||||||
Non-current liabilities
|
||||||||
Deferred rent
|
-
|
99
|
||||||
Total liabilities
|
5,527
|
6,013
|
||||||
Stockholders' Equity:
|
||||||||
Common stock, $0.001 par value;
|
||||||||
100,000,000 shares authorized;
|
||||||||
16,628,325 and 16,567,384 shares issued; and
|
||||||||
16,628,325 and 16,557,384 shares outstanding, respectively
|
17
|
17
|
||||||
Additional paid-in capital
|
238,891
|
237,421
|
||||||
Accumulated deficit
|
(222,705
|
)
|
(221,377
|
)
|
||||
Less: treasury stock; 0 and 10,000 shares at cost
|
-
|
(200
|
)
|
|||||
Total stockholders' equity
|
16,203
|
15,861
|
||||||
Total liabilities and stockholders' equity
|
$
|
21,730
|
$
|
21,874
|
The accompanying notes are an integral part of these financial statements.
4
AMBIENT CORPORATION
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands, except per share data)
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
(Restated)
|
(Restated)
|
|||||||||||||||
Total revenue
|
$ | 9,956 | $ | 15,914 | $ | 23,231 | $ | 27,862 | ||||||||
Cost of goods sold
|
5,652 | 9,140 | 13,134 | 15,941 | ||||||||||||
Gross profit
|
4,304 | 6,774 | 10,097 | 11,921 | ||||||||||||
Operating expenses:
|
||||||||||||||||
Research and development expenses
|
3,605 | 2,719 | 6,951 | 4,718 | ||||||||||||
Selling, general and administrative expenses
|
2,116 | 1,349 | 4,244 | 3,185 | ||||||||||||
Write-off of deferred financing costs
|
- | - | 389 | - | ||||||||||||
Total operating expenses
|
5,721 | 4,068 | 11,584 | 7,903 | ||||||||||||
Operating (loss) income
|
(1,417 | ) | 2,706 | (1,487 | ) | 4,018 | ||||||||||
Interest income, net
|
2 | 6 | 4 | 12 | ||||||||||||
Mark-to-market adjustment of warrant liability
|
180 | 872 | (9 | ) | 1,922 | |||||||||||
Other income
|
91 | - | 164 | - | ||||||||||||
Total other income
|
273 | 878 | 159 | 1,934 | ||||||||||||
(Loss) income before taxes
|
(1,144 | ) | 3,584 | (1,328 | ) | 5,952 | ||||||||||
Provision for income taxes
|
- | 81 | - | 109 | ||||||||||||
Net (loss) income and comprehensive (loss) income
|
$ | (1,144 | ) | $ | 3,503 | $ | (1,328 | ) | $ | 5,843 | ||||||
Net (loss) income per share (basic)
|
$ | (0.07 | ) | $ | 0.21 | $ | (0.08 | ) | $ | 0.35 | ||||||
Net (loss) income per share (diluted)
|
$ | (0.07 | ) | $ | 0.21 | $ | (0.08 | ) | $ | 0.35 | ||||||
Weighted average shares used in computing basic net (loss) income per share
|
16,615 | 16,505 | 16,592 | 16,496 | ||||||||||||
Weighted average shares used in computing diluted net (loss) income per share
|
16,615 | 16,909 | 16,592 | 16,936 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
5
AMBIENT CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
June 30,
|
June 30,
|
|||||||
2012
|
2011
|
|||||||
(Restated)
|
||||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net (loss) income
|
$ | (1,328 | ) | $ | 5,843 | |||
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
259 | 206 | ||||||
Amortization of beneficial conversion feature of convertible debt
|
- | |||||||
Stock-based compensation
|
1,272 | 787 | ||||||
Write-off of deferred finance costs
|
389 | - | ||||||
Mark-to-market adjustment of warrant liability
|
9 | (1,922 | ) | |||||
Changes in operating assets and liabilities:
|
- | |||||||
Accounts receivable
|
(2,671 | ) | 1,253 | |||||
Inventory
|
683 | (1,618 | ) | |||||
Prepaid expenses and other current assets
|
278 | 2 | ||||||
Accounts payable
|
(663 | ) | 1,022 | |||||
Deferred rent
|
(50 | ) | (43 | ) | ||||
Accrued warranty
|
3 | - | ||||||
Accrued expenses and other current liabilities
|
271 | 64 | ||||||
Income taxes payable
|
(41 | ) | 109 | |||||
Deferred revenue
|
134 | 237 | ||||||
Net cash (used)/provided by operating activities
|
(1,455 | ) | 5,940 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Purchases of property and equipment
|
(284 | ) | (511 | ) | ||||
Net cash used in investing activities
|
(284 | ) | (511 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITES
|
||||||||
Proceeds from exercise of warrants
|
245 | 106 | ||||||
Proceeds from exercise of stock options
|
4 | 30 | ||||||
Payments of capitalized lease obligations
|
- | (7 | ) | |||||
Net cash provided by financing activities
|
249 | 129 | ||||||
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
|
(1,491 | ) | 5,558 | |||||
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
|
17,965 | 6,987 | ||||||
CASH AND CASH EQUIVALENTS - END OF PERIOD
|
$ | 16,475 | $ | 12,545 | ||||
Supplemental disclosures of cash flow information:
|
||||||||
Interest paid
|
$ | - | $ | 246 | ||||
Income taxes paid
|
$ | 54 | $ | - |
The accompanying notes are an integral part of these financial statements.
6
AMBIENT CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Ambient Corporation (the “Company,” “we” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2012.
These unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Amendment No. 1 to Annual Report on Form 10-K/A for the year ended December 31, 2011, as filed with the Securities and Exchange Commission.
We are a leading provider of a smart grid communications platform that enables utilities to effectively deploy, integrate and communicate with multiple smart grid applications within the electric power distribution grid. The Ambient Smart Grid® communications platform, which includes hardware, software and firmware, provides the network platform to effectively manage the distribution network and individual smart grid applications. Our innovative communications platform enables utilities to deploy and integrate multiple smart grid applications and technologies, in parallel on a single communications infrastructure, supporting smart metering, distribution automation, distribution management, demand response, distributed generation and more.
Our long-standing relationship with Duke Energy, which we believe has one of the most forward-looking smart grid investment initiatives in North America, has led to rapid growth in our business, and we entered into a long-term agreement in September 2009 with them to supply them with our Ambient Smart Grid® communications nodes and license our AmbientNMS® through 2015.
On July 18, 2011, we implemented a reverse stock split of our issued and outstanding shares of common stock at a ratio of 1-for 100 shares (the “Reverse Split”). The Reverse Split became effective on July 18, 2011 and has been reflected in this Quarterly Report on Form 10-Q.
NOTE 2 – RESTATEMENT OF FINANCIAL STATEMENTS
Background of Restatement
In connection with the preparation of Form 10-Q for the quarter ended June 30, 2012, management of the Company concluded that certain previously filed financial statements did not properly account for embedded derivative features of certain historical debt and warrants issued by the Company, which are described in detail below.
Convertible Debt: Certain historical convertible notes (the “Notes”) issued by the Company were previously recorded at their discounted face value. The discounts were comprised of both beneficial conversion features associated with the Notes and the fair value of warrants issued in connection with the Notes. However, the Notes contained certain features, including anti-dilution price protection and others that, in accordance with ASC-815, Derivatives and Hedging (“ASC 815”), should have been bifurcated from the host contract and accounted for as a derivative instrument (the “Embedded Derivatives”). Such Embedded Derivatives are recorded as a separate liability at their fair value on the date of issuance, and as a corresponding discount to the Notes which is amortized as interest expense over the term of the Notes. Changes in the fair values of these instruments require adjustments to the amount of the liabilities recorded on the Company’s balance sheet, and the corresponding gain or loss is required to be recorded in the Company’s statement of operations, and comprehensive income as long as the Notes are outstanding.
Warrants: In connection with issuing the Notes, as well as in connection with other financing transactions, the Company issued warrants to purchase common stock (collectively, the “Warrants”). The Company had previously classified the value of the Warrants as equity. After further review, the Company determined that these instruments should have been classified as liabilities in accordance with ASC 815, due primarily to an anti-dilution price protection feature. Changes in the fair values of these instruments require adjustments to the amount of the liabilities recorded on the Company’s balance sheet, and the corresponding gain or loss is required to be recorded in the Company’s statement of operations and comprehensive income.
7
Stock-based Compensation: The Company had previously used volatility assumptions based on the historical volatility of the price of the Company's common stock, which, based on the historical trading activity of the stock, resulted in inflated price volatilities that were not necessarily indicative of the expected volatility and were substantially higher than other peer-industry companies. Upon further review of the volatility assumptions, the Company determined that it was more appropriate to use an expected volatility based on the volatilities of its industry peer group. Such an approach was used to determine appropriate volatility assumptions for valuation purposes of the Embedded Derivatives and Warrants. As a result, assumed volatilities are lower than those previously used, which reduces stock-based compensation expense.
In addition to the adjustments listed above, the Company recorded immaterial adjustments to revenue to account for the deferral of maintenance revenue arising from the initial period of free maintenance provided upon shipment of our communication nodes.
All of the necessary adjustments relating to the Notes and Warrants are non-cash in nature and do not impact the Company’s total cash flows from operating, investing and financing activities. The adjustments are primarily related to complex accounting requirements of certain characteristics of the Notes and Warrants that require the recording of debt discounts and related amortization, mark-to-market adjustments in the fair value of Warrants and Embedded Derivatives and gains or losses associated with the extinguishment of debt under certain circumstances.
As a result of these cumulative adjustments, as of December 31, 2011, accumulated deficit increased from $138.7 million to $221.4 million and additional paid in capital increased from $155.7 million to $237.4 million. At December 31, 2011, the net impact of the cumulative adjustments was approximately $1.0 million to overall stockholders’ equity.
The following table presents the balance sheet at December 31, 2011 as reported in our Form 10-K filed on March 6, 2012, compared to the restated accounts as reported in our Form 10-K/A filed on September 24, 2012:
(in thousands) |
For the year ended December 31, 2011
|
|||||||||||
As Reported
|
Adjustments
|
Restated
|
||||||||||
ASSETS
|
||||||||||||
CURRENT ASSETS
|
||||||||||||
Cash and cash equivalents
|
$ | 17,965 | $ | - | $ | 17,965 | ||||||
Accounts receivable
|
284 | - | 284 | |||||||||
Inventory
|
1,460 | - | 1,460 | |||||||||
Prepaid expenses and other current assets
|
527 | - | 527 | |||||||||
Total current assets
|
20,236 | - | 20,236 | |||||||||
Property and equipment, net
|
1,249 | - | 1,249 | |||||||||
Deferred financing costs, net
|
389 | - | 389 | |||||||||
Total assets
|
$ | 21,874 | $ | - | $ | 21,874 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||||||
CURRENT LIABILITIES
|
||||||||||||
Accounts payable
|
$ | 3,920 | $ | - | $ | 3,920 | ||||||
Accrued expenses and other current liabilities
|
714 | - | 714 | |||||||||
Deferred revenue
|
119 | 334 | 453 | |||||||||
Accrued warranty
|
115 | - | 115 | |||||||||
Income taxes payable
|
41 | - | 41 | |||||||||
Warrant liability
|
- | 671 | 671 | |||||||||
Total current liabilities
|
4,909 | 1,005 | 5,914 | |||||||||
NON-CURRENT LIABILITIES
|
||||||||||||
Deferred rent
|
99 | - | 99 | |||||||||
Total liabilities
|
5,008 | 1,005 | 6,013 | |||||||||
COMMITMENTS AND CONTINGENCIES
|
||||||||||||
STOCKHOLDERS' EQUITY
|
||||||||||||
Common stock, $.001 par value;
|
||||||||||||
100,000,000 shares authorized;
|
||||||||||||
16,567,384 shares issued; and
|
||||||||||||
16,557,384 shares outstanding
|
17 | - | 17 | |||||||||
Additional paid-in capital
|
155,707 | 81,714 | 237,421 | |||||||||
Accumulated deficit
|
(138,658 | ) | (82,719 | ) | (221,377 | ) | ||||||
Less: treasury stock; 10,000 shares at cost
|
(200 | ) | - | (200 | ) | |||||||
Total stockholders' equity
|
16,866 | (1,005 | ) | 15,861 | ||||||||
Total liabilities and stockholders' equity
|
$ | 21,874 | $ | - | $ | 21,874 |
8
The following table presents the statements of operations and comprehensive income for the three and six months ended June 30, 2011, as reported in our Form 10-Q filed on August 10, 2011, compared to the restated accounts as reported in our Form 10-K/A filed on September 24, 2012:
(in thousands, except per share data)
|
Three Months Ended June 30, 2011
(unaudited) |
Six Months Ended June 30, 2011
(unaudited) |
||||||||||||||||||||||
As Reported
|
Adjustment
|
Restated
|
As Reported
|
Adjustment
|
Restated
|
|||||||||||||||||||
Total revenue
|
$ | 15,986 | $ | (72 | ) | $ | 15,914 | $ | 27,992 | $ | (130 | ) | $ | 27,862 | ||||||||||
Cost of goods sold
|
9,162 | (22 | ) | 9,140 | 15,963 | (22 | ) | 15,941 | ||||||||||||||||
Gross profit
|
6,824 | (50 | ) | 6,774 | 12,029 | (108 | ) | 11,921 | ||||||||||||||||
Operating expenses:
|
||||||||||||||||||||||||
Research and development expenses
|
2,805 | (86 | ) | 2,719 | 4,893 | (175 | ) | 4,718 | ||||||||||||||||
Selling, general and administrative expenses
|
1,496 | (147 | ) | 1,349 | 3,507 | (322 | ) | 3,185 | ||||||||||||||||
Total operating expenses
|
4,301 | (233 | ) | 4,068 | 8,400 | (497 | ) | 7,903 | ||||||||||||||||
Operating income
|
2,523 | 183 | 2,706 | 3,629 | 389 | 4,018 | ||||||||||||||||||
Interest income, net
|
6 | - | 6 | 12 | - | 12 | ||||||||||||||||||
Mark-to-market adjustment of warrant liability
|
- | 872 | 872 | - | 1,922 | 1,922 | ||||||||||||||||||
Total other income
|
6 | 872 | 878 | 12 | 1,922 | 1,934 | ||||||||||||||||||
Income before taxes
|
2,529 | 1,055 | 3,584 | 3,641 | 2,311 | 5,952 | ||||||||||||||||||
Provision for income taxes
|
81 | - | 81 | 109 | - | 109 | ||||||||||||||||||
Net income and comprehensive income
|
$ | 2,448 | $ | 1,055 | $ | 3,503 | $ | 3,532 | $ | 2,311 | $ | 5,843 | ||||||||||||
Net income per share (basic)
|
$ | 0.15 | $ | 0.06 | $ | 0.21 | $ | 0.21 | $ | 0.14 | $ | 0.35 | ||||||||||||
Net income per share (diluted)
|
$ | 0.14 | $ | 0.06 | $ | 0.21 | $ | 0.21 | $ | 0.14 | $ | 0.35 | ||||||||||||
Weighted average shares used in computing basic net income per share
|
16,505 | 16,505 | 16,505 | 16,496 | 16,496 | 16,496 | ||||||||||||||||||
Weighted average shares used in computing diluted net income per share
|
16,909 | 16,909 | 16,909 | 16,936 | 16,936 | 16,936 |
9
The following table presents the statements of cash flows for the six months ended June 30, 2011, as reported in our Form 10-Q filed on August 10, 2011, compared to the restated accounts as reported in our Form 10-K/A filed on September 24, 2012:
Six Months Ended June 30, 2011
(unaudited) |
||||||||||||
As Reported
|
Adjustments
|
Restated
|
||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
Net income
|
$ | 3,532 | $ | 2,311 | $ | 5,843 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||||
Depreciation and amortization
|
206 | - | 206 | |||||||||
Stock-based compensation
|
1,306 | (519 | ) | 787 | ||||||||
Mark-to-market adjustment of warrant liability
|
(1,922 | ) | (1,922 | ) | ||||||||
Changes in operating assets and liabilities:
|
||||||||||||
Accounts receivable
|
1,253 | - | 1,253 | |||||||||
Inventory
|
(1,618 | ) | - | (1,618 | ) | |||||||
Prepaid expenses and other current assets
|
2 | - | 2 | |||||||||
Accounts payable
|
1,022 | - | 1,022 | |||||||||
Accrued expenses and other current liabilities
|
64 | - | 64 | |||||||||
Deferred revenue
|
107 | 130 | 237 | |||||||||
Income taxes payable
|
109 | - | 109 | |||||||||
Deferred rent
|
(43 | ) | - | (43 | ) | |||||||
Net cash provided by operating activities
|
5,940 | - | 5,940 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
Purchases of property and equipment
|
(511 | ) | - | (511 | ) | |||||||
Net cash used in investing activities
|
(511 | ) | - | (511 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITES
|
||||||||||||
Proceeds from exercise of warrants
|
106 | - | 106 | |||||||||
Proceeds from exercise of stock options
|
30 | - | 30 | |||||||||
Payments of capitalized lease obligations
|
(7 | ) | - | (7 | ) | |||||||
Net cash provided by financing activities
|
129 | - | 129 | |||||||||
INCREASE IN CASH AND CASH EQUIVALENTS
|
5,558 | - | 5,558 | |||||||||
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR
|
6,987 | - | 6,987 | |||||||||
CASH AND CASH EQUIVALENTS - END OF YEAR
|
$ | 12,545 | $ | - | $ | 12,545 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Interest paid
|
$ | 246 | $ | 246 |
10
NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Statements Update (ASU) No. 2011-05: Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05). ASU 2011-05 provides that an entity that reports items of other comprehensive income has the option to present comprehensive income in either one continuous financial statement or two consecutive financial statements. ASU 2011-05 is effective for annual periods beginning after December 15, 2011. The Company adopted ASU 2011-05 on January 1, 2012 and reports items of other comprehensive income in one continuous financial statement in the Statement of Operations and Other Comprehensive Income.
We do not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements.
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level of input that is significant to the fair value measurement in its entirety. These levels are.
|
●
|
Level 1 - Quoted prices in active markets for identical assets or liabilities.
|
|
●
|
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities which include certificates of deposits and money market funds.
|
|
●
|
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including liabilities resulting from embedded derivatives associated with certain warrants to purchase common stock (see Note 12).
|
11
The following table provides the assets and liabilities at fair value measured on a recurring basis as of June 30, 2012 and December 31, 2011:
(in thousands)
|
June 30, 2012
(unaudited)
|
|||||||||||||||
Total Carrying Value
|
Quoted Prices in Active Markets
|
Using Significant Other Observable Inputs
|
Using Significant Unobservable Inputs
|
|||||||||||||
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||||
Assets:
|
||||||||||||||||
Cash and cash equivalents:
|
||||||||||||||||
Money market funds and certificates of deposits
|
$ | 17,106 | $ | - | $ | 17,106 | $ | - | ||||||||
Total assets
|
17,106 | - | 17,106 | - | ||||||||||||
Current liabilities:
|
||||||||||||||||
Warrant liabilities
|
531 | - | - | 531 | ||||||||||||
Total liabilities
|
$ | 531 | $ | - | $ | - | $ | 531 | ||||||||
(in thousands)
|
December 31, 2011
(Restated)
|
|||||||||||||||
Total Carrying Value
|
Quoted Prices in Active Markets
|
Using Significant Other Observable Inputs
|
Using Significant Unobservable Inputs
|
|||||||||||||
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||||
Assets:
|
||||||||||||||||
Cash and cash equivalents:
|
||||||||||||||||
Money market funds and certificates of deposits
|
$ | 17,622 | $ | - | $ | 17,622 | $ | - | ||||||||
Total assets
|
17,622 | - | 17,622 | - | ||||||||||||
Current liabilities:
|
||||||||||||||||
Warrant liabilities
|
671 | - | - | 671 | ||||||||||||
Total liabilities
|
$ | 671 | $ | - | $ | - | $ | 671 |
12
NOTE 5 - STOCK-BASED COMPENSATION
The following table presents stock-based compensation expense included in our statements of operations for the three and six months ended June 30, 2012 and 2011 (unaudited):
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
(in thousands)
|
June 30,
|
June 30,
|
||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
(restated)
|
(restated)
|
|||||||||||||||
Cost of goods sold
|
$ | 72 | $ | 34 | $ | 150 | $ | 34 | ||||||||
Research and development
|
210 | 134 | 439 | 264 | ||||||||||||
Selling, general and administrative expenses
|
337 | 230 | 683 | 488 | ||||||||||||
$ | 619 | $ | 398 | $ | 1,272 | $ | 786 |
NOTE 6 - NET (LOSS) INCOME PER SHARE
Basic earnings per share are computed based on the weighted-average number of shares of our common stock outstanding. Diluted earnings per share are computed based on the weighted-average number of shares of our common stock, including common stock equivalents outstanding. Certain common shares consisting of stock options and warrants that would have an anti-dilutive effect were not included in the diluted earnings per share attributable to common stockholders for the three and six months ended June 30, 2012 and 2011.
The following is a reconciliation of the denominators of the basic and diluted earnings per share computations (unaudited):
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
(in thousands)
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
(restated)
|
(restated)
|
|||||||||||||||
Weighted average shares outstanding used to compute basic earnings per share
|
16,615 | 16,505 | 16,592 | 16,496 | ||||||||||||
Effect of dilutive stock options and warrants
|
- | 404 | - | 440 | ||||||||||||
Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share
|
16,615 | 16,909 | 16,592 | 16,936 | ||||||||||||
Anti-dilutive shares excluded from shares used to compute dilutive earnings per share
|
2,321 | 987 | 2,714 | 1,630 |
13
NOTE 7 - SALES AND CUSTOMER CONCENTRATION
Total revenue for the three and six months ended June 30, 2012 and 2011 was as follows (unaudited):
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
(in thousands)
|
June 30,
|
June 30,
|
||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
Products
|
$ | 9,790 | $ | 15,867 | $ | 22,945 | $ | 27,780 | ||||||||
Software maintenance
|
166 | 47 | 286 | 82 | ||||||||||||
Total revenue
|
$ | 9,956 | $ | 15,914 | $ | 23,231 | $ | 27,862 |
Duke Energy accounted for substantially all of the product and software maintenance revenue for the 2012 and 2011 periods and substantially all of the accounts receivable balance at June 30, 2012 and December 31, 2011.
NOTE 8 - INVENTORY
Inventory is valued at the lower of cost or market and is determined on first-in-first-out method (FIFO) basis. Market is determined as the replacement cost for direct materials and the net realizable value for finished goods. At June 30, 2012 and December 31, 2011, inventory of approximately $777,000 and $1.5 million, respectively, consisted of shipments in transit, which represents the cost of finished goods inventory shipped for which title has not yet passed to our customer. The value of inventory is adjusted for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.
NOTE 9 - PRODUCT WARRANTY
The Company’s current standard product warranty includes a one-year warranty period for defects in material and craftsmanship under certain circumstances as specified in customer contracts. Due to the limited deployment of products, the Company did not historically accrue for the cost of warranty obligations and expensed any costs associated with repairing or replacing defective product as incurred. During the third quarter of 2011, the Company began accruing a liability of approximately 0.2% of current communications node revenues for the estimated future costs of meeting its warranty obligations, based on its actual historical return rate of products within the one-year warranty period. The Company makes and revises this estimate based on the number of communications nodes delivered and its historical experience with warranty claims. The Company continually monitors the quality of its products including the quality of the products produced by its U.S.-based contract manufacturer in China.
The Company engages in product quality programs and processes, including monitoring and evaluating the quality of component suppliers, in an effort to ensure the quality of its products and reduce its warranty exposure. The warranty obligation will be affected not only by product failure rates, but also the costs to repair or replace failed products and potential service and delivery costs incurred in correcting a product failure. If the Company’s actual product failure rates, repair or replacement costs, or service or delivery costs differ from these estimates, accrued warranty costs would be adjusted in the period that such events or costs become known.
The following table summarizes the activity of the Company’s warranty accrual for the six months ended June 30, 2012 and total year December 31, 2011:
June 30,
|
December 31,
|
|||||||
(in thousands)
|
2012
|
2011
|
||||||
(unaudited)
|
||||||||
Balance at beginning of period
|
$ | 115 | $ | - | ||||
Warranty costs accrued, net
|
37 | 115 | ||||||
Warrant costs incurred
|
(34 | ) | - | |||||
Balance at end of period
|
$ | 118 | $ | 115 |
14
NOTE 10 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
June 30,
|
December 31,
|
|||||||
(in thousands)
|
2012
|
2011
|
||||||
(unaudited)
|
||||||||
Accrued compensation and benefits
|
$ | 783 | $ | 391 | ||||
Accrued professional services
|
142 | 16 | ||||||
Accrued freight
|
- | 140 | ||||||
Accrued taxes
|
25 | 43 | ||||||
Other accrued liabilities | 84 | 124 | ||||||
$ | 1,034 | $ | 714 |
NOTE 11 - INCOME TAXES
The provision for income taxes at June 30, 2011 was comprised of federal alternative minimum tax. Significant components of deferred tax assets include net operating loss carryforwards and stock-based compensation. Due to the uncertainty of their realization, we have not recorded any income tax benefit as we have established valuation allowances for any such benefits.
NOTE 12 –WARRANT LIABILITIES
In connection with issuing the Notes, as well as in connection with other financing transactions, we issued Warrants which have been classified as liabilities in accordance with ASC 815, due primarily to an anti-dilution price protection feature. Changes in the fair values of these instruments require adjustments to the amount of the liabilities recorded on the Company’s balance sheet, and the corresponding gain or loss is required to be recorded in the Company’s statement of operations and comprehensive income. As such, we recorded a gain of approximately $872,000 and $1.9 million for the three and six months ended June 30, 2011, respectively, and a gain of approximately $180,000 and a loss of approximately $9,000 for the three and six months ended June 30, 2012, respectively. As of December 31, 2011 and June 30, 2012, warrant liabilities totaled approximately $671,000 million and $531,000, respectively.
Fair value of the Warrants is determined by management using a multiple scenario, probability-weighted option-pricing model using the following inputs: the fair value of the underlying common stock at the valuation measurement date; the risk-free interest rates; the expected dividend rates; the remaining contractual terms of the warrants; the expected volatility of the price of the underlying common stock; and the probability of certain events occurring.
The assumptions used by the Company to determine fair value for the Warrants as of June 30, 2012 and December 31, 2011 are summarized in the following tables:
June 30,
2012 |
December 31, 2011
|
|||||||
(unaudited) | ||||||||
Risk free interest rate
|
1.5 | % | 1.7 | % | ||||
Expected life (yrs)
|
0.1-0.8 | 0.1-1.3 | ||||||
Expected volatility
|
62.3 | % | 62.3 | % | ||||
Dividend yield
|
0 | % | 0 | % | ||||
Underlying stock price
|
$ | 5.47 | $ | 4.63 |
The following table summarizes the changes in the estimated fair value of our warrant liabilities (unaudited):
Warrant
|
||||
(in thousands) |
Liability
|
|||
Ending balance as of December 31, 2011
|
$ | 671 | ||
Mark-to-Market adjustment
|
9 | |||
Exercise of warrants
|
(149 | ) | ||
Ending balance as of June 30, 2012 (unaudited)
|
$ | 531 | ||
NOTE 13 - STOCKHOLDERS' EQUITY
Employee Stock Options
For the six months ended June 30, 2012, the Company issued a total of 183,000 stock options from its 2000 Equity Incentive Plan at exercise prices between $4.39 and $6.90 per share and we issued a total of 941 shares of our common stock upon the exercise of stock options for total proceeds of $4,400.
Warrant Exercises
For the six months ended June 30, 2012, the Company issued 70,000 shares of common stock upon the exercise of warrants for total proceeds of $245,000.
As of June 30, 2012, the Company had 803,484 warrants outstanding with a weighted average exercise price of approximately $15.14 per share, of which 563,833 are held by Vicis Master Capital Fund with a weighted average exercise price of approximately $20.04 per share. Approximately 250,000 unexercised warrants expired during the six months ended June 30, 2012.
Treasury Stock
In March 2012, the Company’s Board of Directors authorized the retirement of 10,000 shares of treasury stock. As such, all shares of treasury stock were retired and resumed the status of authorized and unissued shares of common stock.
Adoption of the 2012 Stock Incentive Plan
At the Company’s Annual Meeting held on June 7, 2012, stockholders approved the adoption of the Company's 2012 Stock Incentive Plan. A total of 4,000,000 shares of Common Stock have been reserved for issuance under the 2012 Stock Incentive Plan. As of June 30, 2012, no awards were granted under the 2012 Stock Incentive Plan.
NOTE 14 - DEFERRED FINANCING COSTS
In August 2011, the Company filed a Form S-1 registration statement with the Securities and Exchange Commission for a proposed public offering of the Company’s common stock (the “S-1 Registration Statement”), for which the Company had incurred approximately $389,000 in expenses as of December 31, 2011. Such costs had been capitalized and were to be charged to additional paid in capital upon completion of the Company’s proposed public offering. In April 2012, the Company voluntarily filed an application with the Securities and Exchange Commission requesting the withdrawal of the S-1 Registration Statement. The Company requested withdrawal of the registration statement based on current market conditions and management’s ensuing determination to not proceed with the contemplated offering at this time. Accordingly, previously capitalized deferred financing costs of approximately $389,000 were written off.
NOTE 15 - SUBSEQUENT EVENTS
None.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
As discussed in Note 2 of the Notes to the Audited Financial Statements of our Amended Annual Report on Form 10K/A for the year ended December 31, 2011, we are amending and restating our unaudited financial statements and related disclosures for all periods presented in that amended filing. The following discussion and analysis of our financial condition and results of operations incorporates the restated amounts.
The following discussion should be read in conjunction with our financial statements and the notes thereto. Some of our discussion is forward-looking and involves risks and uncertainties. For information regarding risk factors that could have a material adverse effect on our business, refer to the risk factors section of our Amendment No. 1 to our Annual Report on Form 10-K/A for the year ended December 31, 2011 that is being concurrently filed with the SEC.
OVERVIEW
We are a leading provider of a smart grid communications platform that enables utilities to effectively deploy, integrate and communicate with multiple smart grid applications within the electric power grid. Our smart grid communications platform significantly improves the ability of utilities to use advanced technologies to upgrade their electric power grids, effectively making the grids more intelligent.
The term “smart grid” refers to the use of advanced technologies to upgrade the electric power grid, or the grid, effectively making the grid more intelligent and efficient. The grid was largely designed and built decades ago to reliably distribute electricity from generators to customers in a manner resulting in sizable capital investments and operating costs. A number of factors are increasingly straining the grid, including rapidly growing electricity demand, two-way power flow, the implementation of renewable and distributed energy sources and advanced pricing plans. As such, the aging grid is prone to reliability, security, and power quality issues, costing utilities and consumers billions of dollars each year. Technology is now revolutionizing the grid and transforming it into an efficient, communicating energy service platform. We believe that the smart grid will address the current shortcomings of the grid and deliver significant benefits to utilities and consumers of energy, including reduced costs, increased power reliability and quality, accommodation of renewable energy technologies, consumer empowerment over energy consumption and a platform for continued integration of new technologies.
The Ambient Smart Grid® communications platform, which includes hardware, software and firmware, enables utilities to effectively manage smart grid applications. Our communications platform provides utilities with a secure, two-way, flexible and open Internet protocol, or IP, architecture that efficiently networks smart grid applications and different technologies within each application and supports multiple communications technologies currently used by utilities, such as Wi-Fi, radio frequency, cellular technologies, power line communications, serial and Ethernet. Today, our communications platform enables the simultaneous integration and parallel communication of multiple smart grid applications provided by a variety of vendors, including smart metering, distribution automation, distribution management, and demand response. We believe that the Ambient Smart Grid® communications platform delivers significant benefits to utilities, including support of a single network; an open, scalable and interoperable platform; preservation of utility investments; third-party application hosting; remote and distributed intelligence; secure communications; and reduced overall implementation and operating costs.
The Ambient Smart Grid® products and services include communications nodes; a network management system, AmbientNMS®; integrated applications; and maintenance and consulting services. The communications nodes, our principal product, are physical boxes that contain the hardware and software needed for communications and data collection in support of smart grid assets. We have configured our communications nodes to act as individual data processors and collectors that receive signals from other networked devices, enabling smart grid applications. To date, Duke Energy, our marquee customer, has deployed approximately 105,000 of our communications nodes that receive data from smart electric and gas meters, using a variety of communications technologies, and process and transmit these data to the utility back office over a cellular carrier network for further processing. Furthermore, our communications nodes also accommodate integrated applications that include our own developed technology and third-party technology, thereby substantially increasing their functionality. By enabling such system interoperability, our communications platform both reduces implementation and ongoing communications costs and improves overall power management efficiencies. We believe that, to date, no other single solution or technology has provided the necessary flexibility in a cost-effective manner and proven at commercial scale, enabling a comprehensive digital communications platform while leveraging standards-based technologies. We developed our communications platform to specifically fill this void.
16
Our long-standing relationship with our marquee customer, which we believe has one of the most forward-looking smart grid initiatives in North America, has led to rapid growth in our business, and we entered into a long-term agreement in September 2009 with our marquee customer to supply the utility with our Ambient Smart Grid® communications platform and license our AmbientNMS® through 2015. We increased revenue from $2.2 million in 2009 to $20.2 million in 2010 to $62.1 million in 2011. As of June 30, 2012, we had backlog of approximately $19 million. We believe there continues to be opportunities for additional sales of our products and services with Duke Energy.
We intend to leverage our success with our marquee customer to secure additional customers in the global utility marketplace. We have recently hired senior-level personnel as well as substantially increased our investment in marketing and sales in order to intensify our efforts in securing new customers, and we expect to continue to invest substantially in our marketing and sales efforts for the foreseeable future. As a result of our recently increased marketing and sales activities, we have engaged with several utilities, and we are in active discussions regarding potential target and pilot programs utilizing our technology to address specific challenges and issues of individual utilities and distribution companies.
Our business success in the immediate future will depend largely on our ability to execute on our agreement with Duke Energy and their continual expansion of their existing deployments, as well as our ability to successfully expand our customer base as a result of our investments in sales and marketing. We anticipate that we will continue to collaborate with Duke Energy and continue to support their grid-modernization programs. Notwithstanding the above, we recognize the utility could alter its vision regarding the common communications infrastructure, determine that a competing company offers a more desirable product, or slow its deployments indefinitely, significantly affecting our prospects and outlook. Additionally, we are unable at this time to assess the effects, if any, that the merger between Duke Energy and Progress Energy, which was finalized in July 2012, will have on the continuation and/or expansion of our deployment by the new combined company following the merger. No assurance can be provided that the post-merger entity will continue with or expand the current deployments.
On July 18, 2011, we implemented a reverse stock split of our issued and outstanding shares of common stock at a ratio of 1-for 100 shares (the “Reverse Split”). The Reverse Split became effective on July 18, 2011 and has been reflected in this Quarterly Report on Form 10-Q. On August 3, 2011, our common stock began to trade on the NASDAQ Capital Market under our new ticker symbol “AMBT.”
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
Total Revenue. Total revenue for the three months ended June 30, 2012 was approximately $10.0 million, representing a decrease of approximately 37% from approximately $15.9 million for the same period in 2011. Total revenue for the six months ended June 30, 2012 was approximately $23.2 million, representing a decrease of approximately 17% from approximately $27.9 million for the same period in 2011. The decrease in total revenue during the three months and six months ended June 30, 2012 as compared to the same periods in 2011 is primarily attributable to our marquee customer's decision to extend the delivery schedule of communications nodes for which they have contracted beyond the originally contemplated delivery time frame.
Cost of Goods Sold. Cost of goods sold for the three months ended June 30, 2012 was approximately $5.7 million, representing a decrease of approximately 38% from approximately $9.1 million for the corresponding period in 2011. Total cost of goods sold for the six months ended June 30, 2012 was approximately $13.1 million, representing a decrease of 18% from approximately $15.9 million for the corresponding period in 2011. The decrease in cost of goods sold during the three and six months ended June 30, 2012 as compared to the same periods in 2011 was due primarily to the decrease in sales volume.
Gross Profit. Gross profit for the three months ended June 30, 2012 was approximately $4.3 million, representing a decrease of $2.5 million from approximately $6.8 million for the corresponding period in 2011. Gross profit for the six months ended June 30, 2012 was approximately $10.1 million, representing a decrease of $1.8 million from approximately $11.9 million for the corresponding period in 2011. Our overall gross margin for each of the three and six months ended June 30, 2012 and 2011 was approximately 43%. Gross margins were stable based upon the commercial scale achieved over the past 18 months.
17
Research and Development Expenses. Research and development expenses for the three months ended June 30, 2012 were approximately $3.6 million, representing an increase of approximately $900,000 from approximately $2.7 million for the corresponding period in 2011. Research and development expenses for the six months ended June 30, 2012 were approximately $6.9 million, representing an increase of $2.2 million from approximately $4.7 million for the corresponding period in 2011. The increase in research and development during the three and six months ended June 30, 2012 as compared to the same periods in 2011 was due primarily to increased personnel and consultant expenses necessary for the continued development of the Company's communication nodes, enhancements to our AmbientNMS® software, and other product development efforts. We believe that our continued development efforts are critical to our strategic objectives of enhancing our technology while reducing costs, and therefore, we expect that our research and development expenses will increase over the next twelve months as we continue to focus our efforts on developing more robust solutions and providing additional value-added functionality for the Ambient Smart Grid® communications platform. Research and development expenses consisted of expenses incurred primarily in designing, prototyping and field testing our smart grid communications platform. These expenses consisted primarily of salaries and related expenses for personnel, contract design and testing services, supplies used, and consulting and license fees paid to third parties.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended June 30, 2012 were approximately $2.1 million, representing an increase of approximately $800,000 from approximately $1.3 million for the corresponding period in 2011. Selling, general and administrative expenses for the six months ended June 30, 2012 were approximately $4.2 million, representing an increase of approximately $1.0 million from approximately $3.2 million for the corresponding period in 2011. The increase in selling, general and administrative expenses during the three and six months ended June 30, 2012 as compared to the same periods in 2011 was due primarily to increased personnel costs and increased activity regarding our efforts to market the Ambient Smart Grid® communications platform. Selling, general and administrative expenses consisted primarily of salaries and other related costs for personnel in executive, marketing and sales and other administrative functions. Other significant costs included professional fees for legal, accounting and other services. We expect that selling, general and administrative expenses will increase over the next twelve months as we hire additional personnel, increase activity associated with business development, and increase activity associated with marketing programs targeted at increasing our overall brand awareness and securing additional customers.
Write-off of Deferred Financing Costs. In August 2011, we filed a Form S-1 registration statement with the Securities and Exchange Commission for a proposed public offering of our common stock, for which we had incurred approximately $389,000 in expenses as of December 31, 2011. Such costs were capitalized and were to be charged to additional paid-in capital upon completion of our proposed public offering. In April 2012, we voluntarily filed an application with the Securities and Exchange Commission requesting the withdrawal of such registration statement. We requested withdrawal of the registration statement based on current market conditions and management’s ensuing determination to not proceed with the contemplated offering at this time. Accordingly, previously capitalized deferred financing costs of approximately $389,000 were written off.
Interest Income, net and Other Income. Interest income for the three months ended June 30, 2012 was approximately $2,000 compared to net interest income of approximately $6,000 for the corresponding period in 2011. Interest income for the six months ended June 30, 2012 was approximately $4,000 compared to net interest income of approximately $12,000 for the corresponding period in 2011. Other income for the six months ended June 30, 2012 was approximately $164,000, representing primarily the partial recovery of loans made by us to an unrelated company during 2000 and 2001, which had been previously written off in 2001.
Mark-to-Market Adjustment of Warrant Liability. Changes in the fair value of warrant liabilities resulted in a gain of $872,000 and $1.9 million for the three and six months ended June 30, 2011, respectively, and a non-cash gain of approximately $180,000 and a non-cash loss of approximately $9,000 for the three and six months ended June 30, 2012, respectively.
Provision for Income Taxes. As a result of our net income of approximately $3.5 million and $5.8 million for the three and six months ended June 30, 2011 respectively, we recorded a provision for income taxes of approximately $81,000 and $109,000 for the same periods, primarily reflecting federal alternative minimum taxes.
18
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through the sale of our securities and, more recently, through revenue generated from sales of our products. At June 30, 2012, we had working capital of approximately $14.9 million, including cash and cash equivalents of approximately $16.5 million. Our cash and cash equivalents were approximately $18.0 million as of December 31, 2011.
Net cash used in operating activities was approximately $1.5 million for the six months ended June 30, 2012 as compared net cash provided by operating activities of approximately $5.9 million for the same period in 2011. Cash used in operating activities during 2012 was due primarily to net loss of $1.3 million (offset by stock-based compensation expense of $1.3 million) and an increase in working capital needs resulting from increased accounts receivable of approximately $2.7 million (which was subsequently collected during the first week in July 2012).
Net cash used in investing activities for the six months ended June 30, 2012 was approximately $284,000 as compared to approximately $511,000 for the same period in 2011. Net cash used in investing activities was for additions of fixed assets.
Net cash provided by financing activities for the six months ended June 30, 2012 was approximately $249,000 as compared to approximately $129,000 for the same period in 2011. For the six months ended June 30, 2012 and 2011, net cash provided by financing activities consisted primarily of proceeds from exercises of warrants and stock options.
We believe that our business plan provides sufficient liquidity to fund our operating needs for the next 12 months. However, there are factors that can impact our ability to continue to fund our operating needs, including:
●
|
Our ability to maintain product pricing as expected, particularly in light of increased competition and its unknown effects on market dynamics;
|
●
|
Our and our contract manufacturer’s ability to reduce manufacturing costs as expected;
|
●
|
Our ability to expand sales volume, which is highly dependent on the smart grid implementation plans of Duke Energy and other utilities; and
|
●
|
The need for us to continue to invest in operating activities in order to remain competitive or acquire other businesses and technologies in order to complement our products, expand the breadth of our business, enhance our technical capabilities, or otherwise offer growth opportunities.
|
If we cannot effectively manage these factors, we may need to raise additional capital in order to fund our operating needs. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e).
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective to provide such reasonable assurance because of a material weakness in our internal control over financial reporting. The material weakness is described in detail in our Amended Annual Report on Form 10-K/A filed simultaneously with this Form 10-Q. Notwithstanding such material weakness, management, based upon the work performed during the restatement process described in Note 2 of the Notes to the Unaudited Financial Statements, has concluded that our financial statements for the periods included in this Quarterly Report on Form 10-Q are fairly stated in all material respects in accordance with generally accepted accounting principles for each of the periods presented herein.
Remediation Plan
We are in the process of remediating this material weakness by, among other things, augmenting our professional staff, providing additional training for our accounting staff, implementing and modifying certain accounting procedures, and seeking assistance from third parties with respect to complex technical accounting issues. If we fail to remediate this material weakness or fail to otherwise maintain effective controls over financial reporting in the future, it could result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis and which could cause investors and other users to lose confidence in our financial statements.
Management believes the foregoing efforts will effectively remediate the material weakness. As the Company continues to evaluate and work to improve its internal control over financial reporting, management may execute additional measures to address potential control deficiencies or modify the remediation plan described above. Management will continue to review and make necessary changes to the overall design of the Company’s internal control.
Changes in Internal Control over Financial Reporting
During the quarter ended June 30 2012, there were no changes made in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
19
PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
A single warrant holder exercised an outstanding warrant on May 29, 2012 for 20,000 shares of Common Stock for $3.50 cash per share for a total consideration of $70,000. The Company issued such shares in reliance upon the exemption from the registration requirements of the Securities Act of 1933 as amended, under Section 4(2) of the Securities Act.
In claiming the exemption under Section 4(2), the Company relied in part on the following facts: (1) the offers and sales involved one warrant holder; (2) the warrant holder had access to information regarding the Company; and (3) the warrant holder represented that he (a) was an accredited investor; and (b) acquired the shares for his own account in a transaction not involving any general solicitation or general advertising, and not with a view to the distribution thereof.
ITEM 6. EXHIBITS
Exhibit No.
|
Description
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
|
||
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
|
||
Certification of Chief Executive Officer and Chief Financial Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
101.INS*
|
|
XBRL Instance Document
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
*
|
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
|
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AMBIENT CORPORATION
|
|||||
(Registrant)
|
|||||
By:
|
/s/ John J. Joyce
|
By:
|
/s/ Mark L. Fidler
|
||
John J. Joyce,
|
Mark L. Fidler,
|
||||
President and Chief Executive Officer
|
Vice President, Chief Financial Officer and Treasurer
|
||||
(Principal Executive Officer)
|
(Principal Financial Officer and Principal Accounting Officer)
|
||||
Date:
|
September 24, 2012
|
Date:
|
September 24, 2012
|
21
EXHIBIT INDEX
Exhibit No.
|
Description
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
|
||
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
|
||
Certification of Chief Executive Officer and Chief Financial Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
101.INS*
|
|
XBRL Instance Document
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
*
|
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
|
22