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| ABTG.OB > SEC Filings for ABTG.OB > Form 10-Q on 15-May-2009 | All Recent SEC Filings |
15-May-2009
Quarterly Report
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 CONTAINED HEREIN AND THE RISK FACTORS SECTION OF OUR ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2008 ON FORM 10-K.
OVERVIEW
Ambient Corporation ("Ambient", the "Company" "we or "us") is a pioneering integrator of smart grid communications platforms, creating high-speed Internet Protocols (IP) based data communications networks over existing medium and low-voltage distribution grids, thereby enabling smart grid applications. The Ambient smart grid platform, known as Ambient Smart Grid™, facilitates a two-way, real-time communications network to serve the "last mile" backhaul necessary for utilities to implement smart grid applications such as Advanced Metering Infrastructures (AMI), real-time pricing, Demand Side Management (DSM), Distribution Monitoring and Automation, and direct load control and more. When combined, these applications can offer economic, operational and environmental benefits for utilities, and ultimately utility customers.
We are currently conducting deployments with major electric utilities, developing, demonstrating, and delivering Ambient Smart Grid™ utility applications. We continue to develop and extend our network design expertise, our hardware and software technology, and our deployment and network management capabilities, with the goal of generating revenues from all phases of Ambient Smart Grid™ communications network deployments. In 2008, Ambient received purchase orders from a major US investor owned utility to purchase its X2000 and X-3000 communications nodes, license it's AmbientNMS™, and acquire engineering support in building out an intelligent grid/intelligent-metering platform. These purchase orders have generated revenues of approximately $12.6 million for the year ended December 31, 2008 and $826,593 for the three month period ended March 31, 2009.
We intend to actively seek new opportunities for commercial deployments and work to bring new and existing networks to full commercialization. In 2009, our principal target customers will continue to be electric utilities in North America that will be deploying smart grid technologies. We will work with our utility customers to drive the development of new utility and consumer applications that create the need for our Ambient Smart Grid™ platform.
We were incorporated under the laws of the state of Delaware in June 1996. To date, we have funded operations primarily through the sale of our securities. In addition, we may need to raise funds in order to expand existing commercial deployments and otherwise grow our operations to meet the demands associated with any additional significant purchase order, or from any substantial expansion of existing commercial deployments.
Ambient has played a principal role in driving industry standardization efforts through leadership roles in industry associations and standards setting organizations, and continues to expand strategic relationships with leading suppliers of critical smart grid technologies. Our goal is to be the leading designer, developer and systems integrator of turn-key Ambient Smart Grid ™ communications networks, incorporating a wide array of communications protocols and smart grid applications such as advanced metering solutions to complement our internally developed energy sensing capabilities.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2009 TO THE THREE MONTHS ENDED
MARCH 31, 2008
REVENUE. Revenues for the three months ended March 31, 2009 were $826,593 compared to $63,642 for the corresponding period in 2008. Revenues for the 2009 period were attributable to the sales of equipment and software and related network design to Duke Energy. Revenues for the 2008 period were attributable to the sales of equipment. Revenues for the 2009 period and 2008 period related to the sales of equipment totaled $792,663 and $63,642.
COST OF GOODS SOLD. Cost of goods sold for the three months ended March 31, 2009 was $731,236 compared to $342,870 during the corresponding period in 2008. Cost of goods sold included all costs related to manufacturing and selling products and services and consisted primarily of direct material costs. Cost of goods sold for the 2008 period included expenses related to the write down of inventory to the lower of cost or market. The increase in cost of goods sold during the 2009 Period reflects the increase in production to fill orders placed by Duke Energy.
GROSS PROFIT. Gross profit for the 2009 period was $95,357 compared to a loss of $279,228 for the 2008 period.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses consisted of expenses incurred primarily in designing, developing and field testing our smart grid solutions. 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. Research and development expenses for the three months ended March 31, 2009 were $1,001,709 compared to $859,245 during the corresponding period in 2008.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses primarily consisted of salaries and other related costs for personnel in executive and other administrative functions. Other significant costs included professional fees for legal, accounting and other services. General and administrative expenses for the three months ended March 31, 2009 were $1,073,294 compared to $745,557 for the corresponding period in 2008. The increase in general and administrative expenses is due to the increase efforts to market and commercialize our Ambient Smart Grid™ communication platforms.
OTHER OPERATING EXPENSES. A portion of our operating expenses were attributable to non-cash charges associated with the compensation of consultants and employees through the issuance of stock options and stock grants. Stock-based compensation is a non-cash expense and will therefore have no impact on our cash flows or liquidity. For the three months ended March 31, 2009, we incurred non-cash stock-based compensation expense of $222,674 compared to $114,868 for the corresponding period in 2008.
INTEREST AND FINANCE EXPENSES. For the three months ended March 31, 2009, we incurred interest of $166,764 compared to $171,690 for the corresponding period in 2008. The interest related primarily to our Senior Secured 8% Convertible Debentures, which were issued in July 2007 through January 2008 and our 8% Convertible Debentures, which were issued in May 2006 and were retired in their entirety as of January 2, 2008. Additionally, for the 2009 Period and 2008 Period, we incurred non-cash interest of $1,697,529 and $358,607, respectively. This interest related to the amortization of the beneficial conversion features and deferred financing costs incurred in connection with the placement of our convertible debentures and notes. These costs are amortized to the date of maturity of the debt unless converted earlier.
LIQUIDITY AND CAPITAL RESOURCES
Cash balances totaled $7,262,489 at March 31, 2009 and $8,011,764 at December 31, 2008.
Net cash used in operating activities for the three months ended March 31, 2009 was $856,247 and was used primarily to pay ongoing research and development and general and administrative expenses.
Net cash provided by investing activities totaled $109,734 during the three months ended March 31, 2009 and was for the redemption of marketable securities of $125,000, net of purchases of property and equipment of $15,726.
Net cash used in financing activities totaled $2,762 during the three months ended March 31, 2009 and represents the payments on capitalized lease obligations.
A discussion of our recent financings follows.
In July 2007, November 2007 and January 2008, the Company entered into Securities Purchase Agreements with an institutional investor, Vicis Capital Master Fund ("Vicis"), and raised gross proceeds of $12.5 million. The notes (the "Vicis Notes") issued under the Securities Purchase Agreements have a term of three years are payable between July 2010 and January 2011. The outstanding principal amounts of the notes were convertible at the option of Vicis into shares of Common Stock at an original conversion price of $0.035 per share,
subject to certain adjustments. As discussed below, in November 2008, the conversion rate was reduced to the current rate of $0.015 per shares, subject to certain adjustments.
On April 23, 2008, we raised from Vicis $3,000,000 from the issuance of warrants, exercisable through April 2013, to purchase up to 135,000,000 shares of our Common Stock at a per share exercise price of $0.001. On November 21, 2008, we and Vicis entered into a Debenture Amendment Agreement (the "Debenture Amendment Agreement"), pursuant to which Vicis invested in the Company an additional $8 million. In consideration of Vicis' investment, we reduced the conversion price on the Vicis Notes from $0.035 per share to $0.015 per share. The parties also agreed under the Debenture Amendment Agreement that, in the event that on the trading day immediately preceding June 1, 2009, the closing per share price of our common stock is less than $0.10, then the per share conversion price with respect to any amount then outstanding under the Notes would automatically be further adjusted to $0.01.
Management believes that cash on hand, plus anticipated short term revenues, will allow us to meet our operating requirements for the balance of the 2009 fiscal year. However, we may need to raise funds in order to expand existing commercial deployments and/or satisfy any additional significant purchase order that we may receive. At the present time, we have no commitments for any additional funding that may be needed.
ITEM 4T.
CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure 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 President and Chief Executive Officer (who also serves as our principal executive officer and principal financial and accounting 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 President and Chief Executive Officer (who also serves as our principal executive officer and principal financial and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our President and Chief Executive Officer concluded that our disclosure controls and procedures were effective.
During the quarter ended March 31, 2009, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
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