- Quarterly Report (10-Q)

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, 2010

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: _____________ to _____________

Commission File Number: 0 23723

———————

AMBIENT CORPORATION

(Exact name of 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 o 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 ¨		Accelerated filer ¨
Non-accelerated filer ¨		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 August 10, 2010, there were 1,593,190,354 shares of issuer's common stock, par value $0.001 per share, outstanding.

INDEX PAGE

	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Consolidated Balance Sheets June 30, 2010 (Unaudited) and December 31, 2010 (Audited)	1

	Consolidated Statements of Operations for the six and three months ended June 30, 2010 and 2009 (Unaudited)	2

	Consolidated Statements of Cash Flows for the six and three months ended June 30, 2010 and 2009 (Unaudited)	3

	Notes to the Unaudited Consolidated Financial Statements	4

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operation	7

Item 4T.	Controls and Procedures	10

	PART II – OTHER INFORMATION

Item 6.	Exhibits	11

SIGNATURES		12

*The Balance Sheet at December 31, 2009 has been derived from audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. All other financial statements are unaudited.

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. 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, dependence on one key customer, our inability to obtain necessary financing; changes in economic conditions generally and our specific market areas, changes in technology, legislative or regulatory changes that affect us, the availability of working capital, changes in costs and the availability of goods and services, the introduction of competing products, changes in our operating strategy or development plans, our ability to attract and retain qualified personnel, and changes in our acquisition and capital expenditure plans. 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.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMBIENT CORPORATION

CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2010			2009
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,374,229		$	987,010
Accounts receivable		150,011			1,238,708
Inventory		632,438			361,201
Prepaid expenses and other current assets		199,949			202,568

Total current assets		2,356,627			2,789,487

Property and equipment, net		684,018			603,412

Total assets	$	3,040,645		$	3,392,899

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable	$	1,791,983		$	2,015,771
Accrued expenses and other current liabilities (including related party interest of $718,324 and $690,027 respectively)		924,797			829,041
Deferred revenue		37,724			158,686
Capital lease obligations, current portion		13,276			11,463
Convertible debt, current portion (net of discount of $-0- and $183,609)		-			9,816,391

Total current liabilities		2,767,780			12,831,352

NON-CURRENT LIABILITIES
Deferred rent		160,147			84,906
Capital lease obligations, less current portion		3,524			11,504

Total liabilities		2,931,451			12,927,762

STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value;
2,000,000,000 and 2,000,000,000 shares authorized in 2010 and 2009;
1,594,190,354 and 899,039,687
issued; 1,593,190,354 and 898,039,687 outstanding, respectively		1,594,191			899,040
Additional paid-in capital		141,974,094			130,008,365
Accumulated deficit		(143,259,091	)		(140,242,268	)
Less: treasury stock; 1,000,000 shares at cost		(200,000	)		(200,000	)

Total stockholders' equity (deficit)		109,194			(9,534,863	)

Total liabilities and stockholders' equity (deficit)	$	3,040,645		$	3,392,899

See Notes to Consolidated Financial Statements

AMBIENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

	Six Months Ended						Three Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Revenues	$	6,258,142		$	857,183		$	4,574,217		$	30,590

Less: Cost of goods sold		3,782,123			756,854			2,641,085			25,618

Gross profit		2,476,019			100,329			1,933,132			4,972

Expenses
Research and development		2,958,554			2,017,105			1,393,654			1,015,396
Operating, general and administrative expenses		2,286,488			2,136,900			1,129,762			1,071,316
Stock based compensation - operating, general and administrative		35,190			471,062			5,259			248,388

Total expenses		5,280,232			4,625,067			2,528,675			2,335,100


Loss on disposition of property and equipment		-			(8,935	)		-			-

Operating loss		(2,804,213	)		(4,533,673	)		(595,543	)		(2,330,128	)

Interest and finance expenses (including related party of $211,905, $333,333, $0 and $166,667)		(212,967	)		(4,361,631	)		(493	)		(2,496,582	)
Interest income		358			26,126			224			3,951

Net loss	$	(3,016,822	)	$	(8,869,178	)	$	(595,812	)	$	(4,822,759	)

Basic and diluted loss per share:
Net loss	$	0.00		$	(0.01	)	$	0.00		$	(0.01	)

Weighted average number of shares outstanding		1,502,164,072			719,968,607			1,587,182,112			720,945,575

See Notes to Consolidated Financial Statements

AMBIENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended
	June 30,
	2010			2009
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(3,016,822	)	$	(8,869,178	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		182,502			138,084
Amortization of beneficial conversion feature of convertible debt		183,609			2,880,249
Financing costs related to warrant modification		-			1,147,167
Financing, consulting and other expenses paid via the
issuance of common stock and warrants		35,190			471,062
Loss on disposition of property and equipment		-			8,935
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivables		748,237			1,647,890
Inventory		(271,237	)		(365,652	)
Prepaid expenses and other current assets		2,619			21,631
Increase (decrease) in:
Accounts payable		116,672			(327,872	)
Deferred rent		75,241			-
Accrued expenses and other current liabilities		95,755			114,335
Deferred revenue		(120,963	)		(33,930	)

Net cash used in operating activities		(1,969,197	)		(3,167,279	)

CASH FLOWS FROM INVESTING ACTIVITIES
Redemption of marketable securities		-			125,000
Additions to property and equipment		(263,108	)		(96,279	)
Proceeds from sale of property and equipment		-			460

Net cash (used in) provided by investing activities		(263,108	)		29,181

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock		2,500,000			-
Proceeds from exercise of warrants		100,065			9,000
Proceeds from exercise of options		25,625			-
Payments of capitalized lease obligations		(6,166	)		(5,591	)

Net cash provided by financing activities		2,619,524			3,409

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		387,219			(3,134,689	)

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		987,010			8,011,764

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	1,374,229		$	4,877,075

Noncash financing and investing activities:
Issuance of common stock in connection with conversion of debt	$	10,000,000		$	-

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	1,062		$	425,199

See Notes to Consolidated Financial Statements

AMBIENT CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Ambient Corporation and its subsidiary (collectively the “Company”) 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 presentation have been included. Operating results for the six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2009, as filed with the Securities and Exchange Commission.

The Company has sustained losses since its inception, and expects to incur additional losses in the future. Although these losses have produced operating cash flow deficiencies, management believes that cash on hand, the $5.5 million remaining from the Company’s equity based financing arrangement described in Note 8 below plus anticipated short term revenue, will allow the Company to meet its operating requirements for the remainder of fiscal year 2010. However, the Company may need to raise additional funds in order to expand existing commercial deployments and/or to satisfy any additional significant purchase order that it may receive and to allow for shortfalls in anticipated revenue. At the present time, the Company does not have commitments for additional funding beyond the committed equity based financing arrangement described in Note 8 below .

NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS

The Financial Accounting Standards Board (FASB) ratified Accounting Statement U 2010-13 (ASU), which eliminates the residual method of allocation, and instead requires companies to use the relative selling price method when allocating revenue in a multiple deliverable arrangement. When applying the relative selling price method, the selling price for each deliverable shall be determined using vendor specific objective evidence of selling price, if it exists, otherwise using third-party evidence of selling price. If neither vendor specific objective evidence nor third-party evidence of selling price exists for a deliverable, companies shall use their best estimate of the selling price for that deliverable when applying the relative selling price method. ASU 2010-13 shall be effective in fiscal years beginning on or after June 15, 2010, with earlier application permitted. Companies may elect to adopt this guidance prospectively for all revenue arrangements entered into or materially modified after the date of adoption, or retrospectively for all periods presented. We are currently evaluating the potential impact, if any, of the adoption of this guidance on our financial position, results of operations and cash flows.

Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.

NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Substantially all of the Company’s financial instruments, consisting primarily of cash equivalents, accounts payable and accrued expenses, other current liabilities and convertible notes, are carried at, or approximate, fair value because of their short-term nature or because they carry market rates of interest.

NOTE 4 - NET LOSS PER SHARE

Basic loss per share is computed by dividing net loss applicable to common shares by the weighted-average number of shares of common shares outstanding during the period. Diluted loss per share adjusts basic 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 following securities have been excluded from the calculation of net loss per share, as their effect would be antidilutive.

	Shares of Common Stock Issuable upon Conversion/Exercise of as June 30,
	2010		2009
Stock options		55,987,000		58,937,000
Warrants		100,968,831		118,549,997
Convertible debentures		------		833,333,333

NOTE 5 - SALES AND MAJOR CUSTOMERS

Revenues for the six and three months ending June 30, 2010 and 2009 were as follows:

	Six Months Ended						Three Months Ended
	June 30, 2010			June 30, 2009			June 30, 2010			June 30, 2009
	(Unaudited)						(Unaudited)
Products		$	6,220,422		$	823,253		$	4,555,357		$	30,590
Software and services			37,720			33,930			18,860			—
		$	6,258,142		$	857,183		$	4,574,217		$	30,590

Duke Energy accounted for 100% of the Products and software and services revenue for the 2010 and 2009 periods.

NOTE 6 – INVENTORY

Inventory is valued at the lower of cost or market and is determined on first-in-first-out method (FIFO) basis. Market, with respect to direct materials, is replacement cost and is net realizable value for finished goods. Finished goods also includes shipments in transit which represent the cost of finished goods inventory shipped for which title has yet to pass to our customer. The value of the 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. Inventory consists of the following:

	June 30, 2010			December 31, 2009
	(Unaudited)
Raw materials		$	153,993		$	137,026
Finished goods			478,444			224,175
		$	632,438		$	361,201

NOTE 7 - CONVERTIBLE DEBT

In 2007 and 2008, the Company entered into various financing agreements with an institutional investor and the holder of a majority of the Company's issued and outstanding shares of common stock, par value $0.001 (the “Common Stock”) Vicis Capital Master Fund (the “Investor” or “Vicis”), pursuant to which the Company issued to Vicis convertible promissory notes in the amount of $12.5 million. In August 2009, $2.5 million of convertible debt principal was converted into 166,666,667 shares common stock. In January 2010, the remaining outstanding balance of $10 million was converted into 666,666,667 shares of common stock. Upon the conversion in January 2010, the Company wrote off the remaining unamortized debt discounts totaling $183,609. At June 30, 2010 and December 31, 2009, accrued interest owed to Vicis amounted to $718,324 and $690,027, respectively.

NOTE 8 - STOCKHOLDERS' EQUITY

Securities Purchase Agreement

On November 16, 2009, the Company entered into a Securities Purchase Agreement (the "Agreement") with Vicis, which agreement was subsequently amended on January 15, 2010, pursuant to which Vicis furnished to the Company access to an $8,000,000 equity based credit line. Pursuant to the Agreement, Vicis established an escrow account (the “Holdback Account”) into which it deposited $8,000,000. If the Company’s cash resources fall below $1,500,000, the Company is entitled to make drawdowns in the amount of $500,000 from the Holdback Account in consideration of which, it is obligated to issue to Vicis, 5,000,000 shares of its Common Stock, as well as Series G Warrants for a corresponding number of shares of Common Stock per drawdown.

Any amounts in the Holdback Account that are not withdrawn by Ambient on or prior to June 30, 2011, as such date may be extended by mutual agreement of the parties, will be returned to Vicis, and no securities will be issued with respect to such amounts. If the Holdback Account is utilized in its entirety, then the Company will have issued 80,000,000 shares of restricted stock and warrants for an additional 80,000,000 shares of Common Stock.

The warrants issuable upon each drawdown are exercisable through the second anniversary of issuance at a per share exercise price of $0.25. Vicis received piggy-back registration rights in respect of the shares and the shares of Common Stock issued and underlying the warrants.

For the period January 1, 2010 through June 30, 2010 the Company effected five drawdowns in the amount of $500,000 each, in consideration of which it issued to Vicis 25,000,000 shares of the Company’s Common Stock and warrants exercisable through January 19, 2012 to June 28, 2012 to purchase an additional 25,000,000 shares of the Company’s Common Stock.

Employee Stock Options

In January through May 2010, the Company issued options to various employees from the Company’s 2000 Equity Incentive Plan to purchase up to 550,000 shares of the Company’s Common Stock at a share price of from $.095 to $0.15. The options will be fully vested as of May 2012.

In January to June 2010, the Company issued 625,000 shares of Common Stock upon the exercise of stock options previously issued to employees from the Company's 2000 Equity Incentive Plan.

Warrant Exercises

For the period January 1, 2010 through June 30, 2010, the Company issued 2,859,000 shares upon the exercise of Common Stock purchase warrants.

NOTE 9 - SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date that these financial statements were filed and none were noted.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

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, 2009 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.

Ambient has been focused, since 2000, on the collaborative development of communication solutions that meet the needs of smart grid platforms. From inception, Ambient’s platform, which includes nodes, management systems and a suite of applications, has been architected to be an open standards-based system intended to support a variety of applications and services simultaneously. Over the years, Ambient has developed and shipped three generations of communications nodes. With each successive generation, Ambient has continued to support and integrate applications while driving the cost lower. Ambient began working on its fourth generation of the communications node during the summer of 2009 and anticipates prototypes being delivered to Duke Energy, our marquee customer, for testing and evaluation in third quarter 2010.

Throughout the past four years, Ambient has been a supplier to Duke Energy’s smart grid initiatives. In 2008, Ambient received purchase orders from Duke Energy to purchase its X2000 and X-3000 communications nodes, license its AmbientNMS®, and acquire engineering support in building out an intelligent grid/intelligent-metering platform, which generated approximately $12.6 million in revenues. In 2009, Ambient generated approximately $2.2 million in revenues from the sale of the X-3000 and X-3100 communications nodes which incorporate hardware, embedded software, and firmware essential to the functionality of the hardware device delivered at the time of sale (“Product”), software licenses and support. In September 2009, we entered into a long-term agreement to supply Ambient’s X-3100 Product for deployment throughout the utility’s electric power distribution grid. Under the terms of the agreement, we have, to date, received from Duke Energy purchase orders amounting to approximately $21 million.

With our Ambient Smart Grid®, our goal remains to be a leading designer, developer and systems integrator of a turnkey smart grid communications platform, incorporating a wide array of communications protocols and smart grid applications such as advanced metering solutions to complement our internally developed energy sensing capabilities. We view the smart grid communications platform to be a key factor for utilities to efficiently integrate increasing portfolios of renewable energy generation into the electrical grid.

Ambient is seeking new opportunities for commercial deployments and to bring new and existing networks to full commercialization. Throughout 2010, Ambient’s principal target customers will continue to be electric utilities, primarily in North America, that will be deploying the smart grid technologies. Ambient intends to collaborate with other technology companies and utility customers to drive the development of new utility and consumer applications that create the need for its Ambient Smart Grid® platform.

To date, we have funded operations primarily through the sale of our securities. In connection with the continued development and upgrade, marketing, and deployment of our products, technology, and services, we anticipate that we will continue to augment our revenue generation capabilities with such capital raises in the future, and anticipate that we will continue to incur losses during 2010.

PROSPECTS AND OUTLOOK

Our business success in the immediate future will largely depend on the expansion by our key customer of their existing deployments, as well as the deployment decisions of other utilities. Today, Ambient is reliant on one significant marquee customer that shares the Ambient vision for an open standards-based common communications infrastructure. We anticipate that we will continue to collaborate with this customer and continue to support their smart grid deployments.

Notwithstanding the above, Ambient recognizes that our customer 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 the prospects and outlook of the Company.

As we demonstrate success over the coming months, we believe that additional utilities will ultimately begin to accept and endorse the concept of one common communications infrastructure to support many utility and consumer applications, strengthening Ambient’s position. However, no assurance can be given that this development will in fact ultimately occur and even if it does that the Ambient Smart Grid® will be their choice technology.

RESULTS OF OPERATIONS

COMPARISON OF THE SIX AND THREE MONTHS ENDED JUNE 30, 2010 TO THE SIX AND THREE MONTHS ENDED JUNE 30, 2009

REVENUE. Revenues for the six and three months ended June 30, 2010 were $6,258,142 and $4,574,217, respectively, compared to $857,183 and $30,590 for the corresponding periods in 2009. Revenues for each of the 2010 and 2009 periods were attributable to the sales of Products and software and services to our marquee customer. Revenues for the six and three months ended June 30, 2010 related to the sales of Products totaled $6,220,422 and $4,555,357, respectively, compared to $823,253 and $30,590 for the corresponding periods in 2009. Revenue from the sale of software and services for the six and three months ended June 30, 2010 were $37,720 and $18,860, respectively, compared to $33,930 and $0 for the corresponding periods in 2009. The increase in revenue during the 2010 periods compared to the corresponding periods in 2009 reflects an increase in delivery of Ambient’s X-3100 Product base to fulfill purchase orders received from our marquee customer.

To date, we have received from our marquee customer purchase orders for approximately $21 million for our X-3100 Product.

COST OF GOODS SOLD. Cost of goods sold for the six and three months ended June 30, 2010 were $3,782,123 and $2,641,085, respectively, compared to $756,854 and $25,618 for the corresponding periods in 2009. Cost of goods sold included all costs related to manufacturing and selling Product and consisted primarily of direct material. Cost of goods sold for the 2010 and 2009 periods included an inventory write down of excess and obsolete inventory. The increase in cost of goods sold during the 2010 period reflected the increase in production to fill orders placed by our marquee customer.

GROSS PROFIT. Gross profit for the six and three months ended June 30, 2010 period were $2,476,019 and $1,933,132, respectively, compared to $100,329 and $4,972 for the corresponding periods in 2009. The gross profit on Product sales amounted to $2,438,298 and $66,399, respectively, for the six and three month periods ended June 30, 2010, compared to $1,914,272 and $4,972 for the corresponding periods in 2009. Our overall gross margins increased to 42% and 40% for each of the six and three month periods in 2010 compared to 12% and 16% in the corresponding periods in 2009. The increase in the gross margin percentage in the 2010 periods compared to the 2009 periods was due to the introduction of the X-3100 which allowed for a number of factors including a consistent production and delivery schedule in 2010 and improved cost controls. The gross profit margins for the 2009 periods were lower due to the previous design of the product and low volume production.

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 six and three months ended June 30, 2010 period were $2,958,554 and $1,393,654, respectively, compared to $2,017,105 and $1,105,396 for the corresponding periods in 2009. The increase in research and development during the 2010 periods was due primarily to the increase in personnel and consultants for the continued development of our fourth generation communications node. We expect that our research and development expenses will increase as we continue to focus our efforts on developing more robust solutions and additional value-added functionality for the Ambient Smart Grid® communications platforms.

OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES. Operating, 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 six and three months ended June 30, 2010 were $2,286,488 and $1,129,762 respectively, compared to $2,136,900 and $1,071,316 for the corresponding periods in 2009 The increase in operating, general and administrative expenses during the 2010 periods as compared to the 2009 periods was due to the increase in efforts to market and commercialize the Ambient Smart Grid® communications platforms. As we continue to increase our efforts to market and commercialize the Ambient Smart Grid® communications platform, we expect our operating, general and administrative expenses to increase for the remainder of the fiscal year 2010.

STOCK BASED COMPENSATION. 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 six and three months ended June 30, 2010, we incurred non-cash stock-based compensation expense of $35,190 and $5,259, respectively, compared to $471,062 and $248,388 for the corresponding periods in 2009.

INTEREST AND FINANCE EXPENSES. For the six and three months ended June 30, 2010, we incurred interest of $29,358 and $493, respectively, compared to $334,215 and $166,764 for the corresponding periods in 2009. The interest related primarily to our 8% Secured Convertible Promissory Notes, which were issued in July and November of 2007 and January 2008. Additionally, for the six and three months ended June 30, 2010, we incurred non-cash interest of $183,609 and $0 , respectively, compared to 2,880,249 and $1,182,651 for the corresponding periods in 2009. This interest related to the amortization of the beneficial conversion features and deferred financing costs incurred in connection with the placement of our convertible promissory notes. These costs are amortized to the date of maturity of the debt unless converted earlier. In January 2010, Vicis converted the remaining $10 million outstanding on the notes. Following the conversion of the notes, we no longer have any long-term debt. In addition, on June 30, 2009, we agreed to modify the terms of the expiring Class A warrants. Under the new terms the warrants were exercisable through August 31, 2009 and the exercise prices were reduced from $0.20 to $0.15 per share. The resulting charge due to the modification was $1,147,167 and was reflected as additional interest expense.

LIQUIDITY AND CAPITAL RESOURCES

Management believes that cash on hand, the $5.5 million remaining and available from our equity based financing arrangement described below plus anticipated short-term revenue will allow us to meet our operating requirements through June 30, 2011. As noted above, we have, to date, received from Duke Energy, purchase orders for the Product amounting to approximately $21 million. However, the Company may need to raise additional funds to expand existing commercial deployments and/or to satisfy any additional significant purchase order that it may receive and to allow for shortfalls in anticipated. At the present time, the Company does not have commitments for additional funding beyond the committed equity based financing arrangement described below.

Cash balances totaled $1,374,229 at June 30, 2010 and $987,010 at December 31, 2009.

Net cash used in operating activities for the six months ended June 30, 2010 was $1,969,197 and was used primarily to pay ongoing research and development and general and administrative expenses.

Net cash used in investing activities totaled $263,108 during the six months ended June 30, 2010 and was used primarily for additions to property and equipment.

Net cash provided by financing activities totaled $2,619,524 during the six months ended June 30, 2010 and represented proceeds from the issuances of common stock under the equity based credit line, warrants, options, and was net of the payments on capitalized lease obligations.

A discussion of our recent financings follows.

In July 2007, November 2007 and January 2008, we 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 had a term of three years and were payable between July 2010 and January 2011. The outstanding principal amounts of the Vicis 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. In November 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. In November 2008, the conversion rate was reduced to the current rate of $0.015 per shares, subject to certain adjustments. On August 10, 2009, Vicis converted $2.5 million of the Vicis Notes into 166,666,667 shares of our common stock. On January 21, 2010, Vicis converted the remaining $10 million balance of the Vicis Notes into 666,666,667 shares of our common stock. Following the conversion of the Debentures, we no longer have any long-term debt.

On November 16, 2009, we entered into a Securities Purchase Agreement (the "Agreement") with Vicis, which agreement was subsequently amended on January 15, 2010 pursuant to which Vicis furnished to us access to an $8,000,000 equity based credit line. Pursuant to the Agreement, Vicis established an escrow account (the “Holdback Account”) into which it deposited $8,000,000. If our cash resources fall below $1,500,000, we are entitled to make drawdowns in the amount of $500,000 from the Holdback Account in consideration of which, we are obligated to issue to Vicis, 5,000,000 shares of our Common Stock, as well as Series G Warrants for a corresponding number of shares of Common Stock per drawdown. Any amounts in the Holdback Account that are not disbursed on or prior to June 30, 2011 (as such date may be extended by mutual agreement of the parties) will be returned to Vicis.

Between January 19 and June 30, 2010, we effected five draw-downs in the aggregate amount of the $2,500,000. We have remaining at our disposal in the account $5.5 million. Ambient may draw down on the Holdback account as needed until the entire $8,000,000 is exhausted. The warrants are exercisable through the second anniversary of issuance at a per share exercise price of $0.25.

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 rules and forms of Securities and Exchange Commission, 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 June 30, 2010, 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.

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS

Exhibit No.		Description

31		Certification of John J. Joyce, Chief Executive Officer (Principal Executive officer and Principal Financial and Accounting Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32		Certification of John J. Joyce, Chief Executive Officer (Principal Executive officer and Principal Financial and Accounting Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.

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

Dated: August 10, 2010	By:	/s/ John J. Joyce
		John J. Joyce
		Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit No.		Description

31		Certification of John J. Joyce, Chief Executive Officer (Principal Executive officer and Principal Financial and Accounting Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32		Certification of John J. Joyce, Chief Executive Officer (Principal Executive officer and Principal Financial and Accounting Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.

Boards:

Quotes:

Boards

News

Market Data

Markets

Discover

Your Recent History