UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




———————


FORM
10-K


———————




þANNUAL REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




for the
fiscal year ended December 31,
2009




 ̈TRANSITION REPORT UNDER 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
            
            (I.R.S.
      Employerof
      Incorporation)
            
            Identification
      No.)




7
WELLS AVENUE, NEWTON, MASSACHUSETTS 02459


(Address
of Principal Executive Office)




617-332-0004


(Registrant’s
telephone number, including area code)




Securities
Registered Under Section 12(b) of the Exchange Act: None




Securities
Registered Under Section 12(g) of the Exchange Act: Common Stock, par value
$.001 per share.




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes  ̈   No 
þ




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Securities Act of 1933. Yes  ̈   No 
þ


Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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 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  ̈   No  ̈


Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.    ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act.




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 Exchange Act.) Yes  ̈   No 
þ




The
registrant had 1,582,075,354 shares of common stock outstanding as of
March 30, 2010.  The aggregate market value of the voting and
non-voting common stock held by non-affiliates of the registrant as of June 30,
2009, was $42,162,531 computed by reference to the closing price of such common
stock on the OTC Bulletin Board on such date.




DOCUMENTS
INCORPORATED BY REFERENCE




Certain information required by Part
III of Form 10-K is incorporated by reference to the Registrant's proxy
statement for the 2010 Annual Stockholders Meeting, which will be filed with the
Securities and Exchange Commission.








AMBIENT
CORPORATION
 2009
FORM 10-K ANNUAL REPORT





TABLE
OF CONTENTS






PagePART IItem
      1.
            Business
            
            
            2Item
      1A.
            Risk
      Factors
            
            
            8Item
      1B.
            Unresolved
      Staff Comments
            
            
            11Item
      2.
            Properties
            
            
            12Item
      3.
            Legal
      Proceedings
            
            
            12Item
      4.
            [REMOVED
      AND RESERVED]
            
            
            12PART
      IIItem
      5.
            Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            
            
            12Item
      6.
            Selected
      Financial Data
            
            
            12Item
      7.
            Management
      Discussion and Analysis of Financial Condition and Results of
      Operation.
            
            
            18Item
      7A.
            Quantitative
      and Qualitative Disclosures About Market Risk.
            
            
            18Item
      8.
            Financial
      Statements and Supplementary Data
            
            
            18Item
      9.
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
            
            
            18Item
      9A(T).
            Controls
      and Procedures
            
            
            18Item
      9B.
            Other
      Information
            
            
            18PART
      IIIItem
      10.
            Directors,
      Executive Officers and Corporate Governance
            
            
            18Item
      11.
            Executive
      Compensation
            
            
            18Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related

              Stockholder Matters
            
            
            18Item
      13.
            Certain
      Relationships and Related Transactions and Director Independence
            
            
            18Item
      14.
            Principal
      Accountant Fees and Services
            
            
            18PART IVItem
      15.
            Exhibits
      and Financial Statement Schedules
            
            
            19SIGNATURES
            
            
            
            22


FORWARD
LOOKING STATEMENTS




CAUTIONARY
STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995




THE
FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS
AND RELATED NOTES CONTAINED ELSEWHERE IN THIS FORM 10-K. CERTAIN STATEMENTS MADE
IN THIS DISCUSSION ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS CAN
BE IDENTIFIED BY TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECTS,"
"INTENDS," "ANTICIPATES," "BELIEVES," "ESTIMATES," "PREDICTS," OR "CONTINUE" OR
THE NEGATIVE OF THESE TERMS OR OTHER COMPARABLE TERMINOLOGY AND INCLUDE, WITHOUT
LIMITATION, STATEMENTS BELOW REGARDING:. THE COMPANY'S INTENDED BUSINESS PLANS;
EXPECTATIONS AS TO PRODUCT PERFORMANCE; EXPECTATIONS AS TO MARKET ACCEPTANCE OF
THE COMPANY'S TECHNOLOGY; AND BELIEF AS TO THE SUFFICIENCY OF CASH RESERVES.
BECAUSE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, THERE ARE
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. THESE FACTORS
INCLUDE, BUT ARE NOT LIMITED TO, THE COMPANY'S SIGNIFICANT DEPENDENCE ON ONE KEY
CUSTOMER, THE COMPANY'S INABILITY TO OBTAIN NECESSARY FINANCING; THE COMPETITIVE
ENVIRONMENT GENERALLY AND IN THE COMPANY'S SPECIFIC MARKET AREAS; CHANGES IN
TECHNOLOGY; THE AVAILABILITY OF AND THE TERMS OF FINANCING; INFLATION; CHANGES
IN COSTS AND AVAILABILITY OF GOODS AND SERVICES; ECONOMIC CONDITIONS IN GENERAL
AND IN THE COMPANY'S SPECIFIC MARKET AREAS; DEMOGRAPHIC CHANGES; CHANGES IN
FEDERAL, STATE AND /OR LOCAL GOVERNMENT LAW AND REGULATIONS AFFECTING THE
TECHNOLOGY; CHANGES IN OPERATING STRATEGY OR DEVELOPMENT PLANS; AND THE ABILITY
TO ATTRACT AND RETAIN QUALIFIED PERSONNEL. ALTHOUGH THE COMPANY BELIEVES THAT
EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT
CANNOT GUARANTEE FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS. MOREOVER, NEITHER
THE COMPANY NOR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THE ACCURACY AND
COMPLETENESS OF THESE FORWARD-LOOKING STATEMENTS. THE COMPANY IS UNDER NO DUTY
TO UPDATE ANY FORWARD-LOOKING STATEMENTS AFTER THE DATE OF THIS REPORT TO
CONFORM SUCH STATEMENTS TO ACTUAL RESULTS.


1





ITEM
1. BUSINESS





OVERVIEW





Ambient
Corporation (referred to herein as “we,” “our,” “us,” “Ambient,” or the
“Company”), incorporated under the laws of the State of Delaware in
June 1996, is a pioneering integrator of a smart grid communications
platform, creating a high-speed Internet Protocols (IP)-based data
communications infrastructure to support all aspects of a smart grid. The
Ambient smart grid platform, known as Ambient Smart Grid®, facilitates a
two-way, real-time communications network to serve the “last mile” backhaul.
This common-core infrastructure is necessary for utilities to implement
smart grid applications such as Advanced Metering Infrastructures (AMI),
real-time pricing, and Demand Side Management (DSM) while enabling distribution
monitoring and automation, as well as direct load control.  When combined,
these applications can offer economic, operational and environmental benefits
for utilities, and their customers.
  The
Ambient’s Smart Grid® platform, which includes communication nodes, a management
system and a suite of applications, has been designed to be an open,
standards-based system intended to support a variety of applications and
services simultaneously.  Ambient has designed, developed, and
delivered three generations of our Smart Grid® communications
nodes.  With each successive generation, Ambient has continued to
support and integrate additional applications.  During the summer of
2009, Ambient began the design and development of its fourth generation
communication node. Testing of prototypes is expected to begin during the second
quarter of 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 for its
X2000 and X-3000 communications nodes, license for the Ambient Element
Management System (AmbientNMS®), and engineering support in building out an
intelligent smart grid platform. In
September 2009, Ambient and the utility entered into a long-term
agreement to supply Ambient’s latest X-series smart grid nodes, the X-3100 for
deployment throughout the utility’s electric power distribution grid. Under
the terms of the agreement, we have, to date, received purchase orders for
product to be delivered through third quarter of 2010, amounting to
approximately $10.0 million.
  Our goal
remains to be the leading designer, developer and systems integrator of a
turnkey Ambient Smart Grid® platform, incorporating a wide array of
communications technology and protocols enabling smart grid applications such as
third-party advanced metering solutions and our internally developed energy
sensing capabilities. Ambient views the smart grid communications platform to be
a key factor for utilities to efficiently integrate increasing portfolios of
energy services and applications.
  Ambient
intends to actively seek 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
deploying smart grid technologies, primarily in North America. Ambient intends
to continue to collaborate with other technology companies and utility customers
to drive the development of new utility and consumer applications and to promote
the need for the Ambient Smart Grid® platform.
  To date,
we have funded operations primarily through the sale of our securities. In
connection with the continued development, marketing, and deployment of our
products, technology, and services, we anticipate that we will continue to
augment our revenue generation capabilities with such raises in the future and
anticipate that we will continue to incur losses during 2010.




INDUSTRY
BACKGROUND





The
existing electrical power distribution system is under increasing pressure to
catch up to the digital economy which it serves. Dedicated sensors and
communications infrastructures are necessary components needed to monitor and
manage the distribution grid, allowing system-wide efficiency and security. For
several decades, utilities have used their distribution networks to carry
low-speed data for simple monitoring and control functions. Ambient has built
upon this model by combining multiple high-speed Internet Protocol (IP)-based
communications technologies to help utilities migrate to the next generation
digital distribution grid and to solve some of the challenges that electric
utilities and their customers have experienced.
 Recently,
the industry has attracted much media attention. The term "smart grid" was
popularized in 2007, and today grid modernization has become more commonly
understood by the public, media, investors, and utility regulators on the state
and federal level. Ambient is ahead of this trend. We began developing the
Ambient Smart Grid® in 2000. Likewise, our customers historically have been
forward-looking utilities on the cutting edge of grid
modernization.
 
 Recent political
developments have had a significant impact on the prospects of the smart grid
industry.In 2007, the Federal Energy Independence and Security Act
underscored the need for smart grid and provided a mechanism for federal funds
to help promote smart grid deployments and developments. In 2008 and 2009, the
prospects of the deployment of smart grid technologies were significantly
advanced through the passage of both the Troubled Asset Relief Program and the
American Reinvestment and Recovery Act (ARRA), which passed early in
2009.
 The
ultimate allocation of funding from the federal government provided by the
ARRA (Stimulus
Funding) eliminated
much of the risk associated with early adoption of technology.  The
promise of funding encouraged utilities considering smart grid deployments to
actively develop business and deployment plans. Although the intent of the ARRA
was to boost the fledgling industry, in 2009, the lack of available federal
funds unexpectedly resulted in a slowing of anticipated deployments while the
Department of Energy transformed the ARRA mandates into workable programs able
to implement those mandates.
  The ARRA,
which passed in February 2009, set federal precedent for state regulators
to support smart grid deployments. However, because each state has an
independent utility regulatory commission charged with regulating its state
utilities, much of 2009 was spent working with state regulators to establish
rules associated with smart grid deployments in individual states. The
regulatory uncertainty related to smart grid deployment and lack of national
uniformity has directly affected our business.





AMBIENT
SOLUTION





THE
AMBIENT SMART GRID® COMMUNICATIONS NETWORK




Ambient’s
vision for the smart grid calls for solutions based on open, standards-based
technologies.  The primary benefits derived from this vision are that
(i) a common underlying communications platform is utilized to support all of
the smart grid applications and services and (ii) the remote processing and
storage of data combine to deliver the lowest cost points on an overall system
basis while achieving a high level of integration of communications services and
applications.  The use of open, standards-based technologies is widely
accepted as the basis for the success of the Internet and credited with enabling
all of the applications that have evolved on the Internet.  Many, if
not most, of these applications were not envisioned in the early days of
development.  Ambient believes that the evolution of the smart
grid is analogous to that of the Internet. It is because of
this vision that from its beginning in its efforts to build communications
platform for the utilities, Ambient has always advocated and designed an open
communications platform for our smart grid solution.  This is depicted
in the Ambient System Architecture diagram shown in Figure 1.





2









Figure
1: Ambient Smart Grid® System
Architecture




Ambient's solution
addresses a key problem with the usual approaches to smart grid communications.
Typically, utilities use multiple application-specific communications systems,
requiring separate resources for each application. The Ambient Smart Grid®
allows utilities to allocate costs across many applications or purposes,thus minimizing the overall costs of the communications
infrastructure.  Once again, the Internet is an excellent reference
and analogy for this concept. The growing trend of providing multiple
communications services (television, telephone, and Internet access) over a
single medium into the premises demonstrates the concept, both technically and
economically, of supporting multiple services and applications over a common
network infrastructure. This holistic approach will enable a variety of
distribution system monitoring and management capabilities that have not thus
far been feasible or not even envisioned today.


AMBIENT
SMART GRID® COMMUNICATIONS PLATFORM FUNCTIONALITY AND BENEFITS





3
 Open Architecture: For a
smart grid to keep
pace with advancing technologies, changing expectations, and evolving
needs,, utilities need an open and flexible platform based architecture
comprised of open and flexible building blocks such as the Ambient Smart Grid
Node® (“Node”) and AmbientNMS®. Ambient’s architecture for the Node, allows
utilities to mix and match smart grid application technologies today, and
provides a platform that can evolve with the technology.  An open and
flexible communications architecture and node improves the chances for success
throughout the distribution system since no one technology is likely to meet the
requirements for all environments or locations.  Having several node
component options to overcome impediments, such as topographical, economical, or
impediments inherent in the physical infrastructure itself, will be required to
successfully address as many of the system requirements as
possible.
 WAN
Technologies: There are a variety of Ethernet technologies, both wired
and wireless, that could be used for backhaul or WAN purposes. 3G cellular
wireless networks for WAN services are the most practical for a large (if not
the most significant) portion of the smart grid infrastructure because it
leverages the cellular carrier’s commitment and investment into their wireless
network.  Although utilities have a long history of using cellular
networks for some applications, the scale required for the smart grid is
unprecedented.   The availability of multiple carriers and
technologies is beneficial.  The 3G networks of today certainly
provide sufficient bandwidth to address the requirements of the smart
grid.  Ambient believes that other wireless technologies, especially
WiMAX may, in the future, be viable for WAN segments of the smart
grid.
  LAN
Technologies: Ambient supports a variety of LAN
technologies.  As demonstrated with its products to date, Ambient has
been able to support a variety of smart grid applications and services with
these technologies.  Ethernet and serial ports are the basic and most
commonly found technologies utilized for communications
interfaces.  This is why Ambient’s typical node configuration has
included both Ethernet and serial (RS-232) ports.
  Though not quite as prevalent as Ethernet and serial
ports, IEEE 802.11 (Wi-Fi) is fast becoming a leading choice for connectivity
between devices physically separated by some distance.  The increasing
market share has helped to drive down the costs of the technology.  In
the smart grid architecture, Wi-Fi can be a convenient and useful technology to
provide connectivity from the Node to other distribution system devices, such as
sensors and switches, where wired connectivity between the Node and these
devices could be impractical or cost prohibitive. Ambient
offers Wi-Fi connectivity as an optional node
component.
  4
 
 Power
Line Carrier (PLC) technologies have been in existence for a very long time, and
more importantly, they are known and proven technologies in the distribution
system.  A significant advantage to these technologies when
incorporated in a smart grid platform is that they inherently provide
information about the distribution system
infrastructure.  From our earlier Broadband over Power Lines
(BPL) pilots, Ambient has extensive experience in the use of such technologies
utilizing the distribution system. To date, Ambient has worked with and
integrated multiple PLC technologies into its Node.
  The
Ambient Node supports a variety of communication technologies simultaneously
allowing a utility to leverage a single communications infrastructure to support
smart grid applications that rely on different communication methods (i.e.,
Wi-Fi, Radio Frequency, power line carrier etc.). The Node uses standards
based protocols as well as proprietary technologies for
communications. This allows the Ambient Smart Grid® platform to connect with any
IP device as well as legacy systems and vendor technologies reliant on
proprietary protocols. Ambient’s architecture also allows the utility to have an
open IP-based architecture that pushes proprietary technologies out to the
fringes of the network, which enhances the flexibility of the overall
architecture.   Flexibility with communication technologies and
protocols means in different segments of the utility’s distribution network a
single communications platform and foundational architecture can be leveraged
yet customized to meet locational needs and economies that vary between
urban and rural environments.
  Expandable network
architecture: An Ambient Smart Grid® communications platform
permits sequential expansions corresponding to actual demand. When the platform
is first deployed, separate network elements can be “bridged” at specific
points. As the network load increases, switches and/or routers can maximize the
bandwidth available to a particular network segment. At higher subscriber
densities, additional backhaul connectivity points may be added. By allowing
utilities to build networks that provide just the capacity that is needed, as it
is needed, we help our customers minimize initial installation costs, shorten
the time between investment and realization of revenues, and reduce operations
and maintenance expense.
  Utility operators are not limited to
Advanced Meter Reading (AMR) and other applications at the end of the
distribution grid: An Ambient Smart Grid® transforms the
distribution grid itself into a series of communication backhaul and data
points. Grid operators can monitor and communicate with nodes or any piece of
IP-based equipment integrated at any point along the Ambient Smart Grid®
distribution network, which can range from distributed generation resources,
power quality control devices, and a range of Demand Side Management and Demand
Response applications. When couplers are integrated into an Ambient Smart Grid®
communications network, information on the current of the distribution grid can
be obtained in real-time enabling better energy management, predictive
maintenance and less system down-time. This
information can reduce the need for additional generation
facilities.
  Application Development Environment: To support our collaborative efforts, Ambient has
recently developed a specification for developing and supporting third-party
applications to run on the Node.  The specification provides for
third-party applications to run in a structured, controlled, and predictable
environment. This framework has been used
successfully: We recently launchedan application developed by a
third-party to provide connectivity to, and management of, their
distribution line sensors.  This configuration is deployed for testing
in the field today.
  Complete turnkey
delivery: Ambient designs and builds the core network hardware and
management software incorporating the leading smart grid communication
technologies. Our familiarity with multiple communications protocols,
architecture, hardware, and software requirements, coupled with experienced
field engineers, provides us with the tools necessary for a successful
rollout.


5




AMBIENT
STRATEGY




We intend
to generate revenues from the design, sales, installation, and support of the
necessary equipment and technologies, of the Ambient Smart Grid® communications
platform, and from licensing of our network management system, AmbientNMS®. Our
efforts are presently focused on attaining the following goals:




BUSINESS
DEVELPOMENT




Ambient
believes the industry will be driven by a few key early adopters (marquee
customers) who will set the stage for additional North American smart grid
deployments. Ambient has and will continue to work closely with utility partners
to develop an increasing value proposition for each utility’s unique needs and
infrastructure. Ambient will focus engineering efforts on developing more robust
solutions and additional value-added functionality for the Ambient Smart Grid®
solution, creating an even more attractive business model for other utilities.
Additionally, in 2009, Ambient entered into a joint marketing agreement
with Verizon Wireless that will afford us the opportunity to expand our efforts
to introduce the Ambient Smart Grid® platform to other select utilities in the
Unites States. In 2010,
we entered into an Interoperability and Co-Marketing Agreement with Tollgrade, a
medium-voltage sensing device developer that will also expand our smart
grid platform while opening the door to new business
opportunities.





EXPAND
THE RANGE OF AMBIENT SMART GRID® APPLICATIONS:




Applications
create the need for the platform, and thus our goal is to drive application
development. While the Ambient Smart Grid® communications platform incorporates
our voltage and current sensing capabilities (Energy Sensing) allowing for basic
outage notification, we believe that growth in the smart grid communications
industry will come primarily as utilities deploy and adopt smart grid
applications. Applications, such as AMR/AMI provide several benefits
to utilities, including the potential fortime-of-day pricing, demand
side management, and the potential to assist in direct load control (enables the
reduction of electrical usage at critical times) which will require the backhaul
capability provided by the Ambient Smart Grid® network. Ambient is currently
piloting and deploying some of the aforementioned
applications.




PURSUE
OUR ROLE AS A PIONEERING SYSTEMS INTEGRATOR:




We are
committed to continuing our role as a supplier of turnkey smart grid
communications platforms, taking responsibility for network design, hardware and
software delivery, installation support, operator training and network
management. Our familiarity with the architecture, hardware, and software
requirements from years of close collaboration with major utility clients has
enabled us to design the Ambient Smart Grid® communications platform from the
ground up and to meet individual utility requirements. Ambient designs,
manufactures (through
a contract manufacturer) and
markets all of the key hardware components of the Ambient Smart Grid® network.
We have developed strategic relationships with key material and fabrication
suppliers and put in place a reliable, scalable supply chain for timely delivery
of the necessary hardware. Our technical personnel, including experienced field
engineers, support pilot scale and larger deployments, ensuring successful
Ambient Smart Grid® rollouts. To manage communications networks, we have
developed, and continue to improve, our network management software solution,
AmbientNMS®. AmbientNMS® works with Ambient and non-Ambient hardware and is
presently managing several networks. We intend to continue to develop and extend
our network design expertise, as well as our hardware and software technology
and our deployment and network management capabilities, to generate revenues
from all phases of Ambient Smart Grid® communication deployments. To date,
we have not sold and /or licensed any software for use on third party
equipment.




EXPAND
OUR STRATEGIC COLLABORATIVE RELATIONSHIPS:




Continued
collaboration with smart
grid application providers, suppliers,
and utility customers will enhance the development and functionality of our
Ambient Smart Grid® platform. To keep us on the cutting edge of new
technologies, we maintain collaborative working relationships with leading
suppliers of critical network components such as signal processing chips,
wireless devices and cellular modems, as well as metering solution providers to
develop and demonstrate Ambient Smart Grid® utility applications, and our
network management system, AmbientNMS®. We intend to strengthen these
existing relationships and to seek out new strategic and commercial
relationships with utilities and other technology companies.




INDUSTRY
STANDARDIZATION EFFORTS:




We
believe that open standards andinteroperability will
hasten the deployment of all smart grid technology and lead to greater success
for both Ambient and the entire smart grid industry. We have driven industry
standardization efforts through leadership roles in the major industry
associations and standards-setting organizations. In January 2010, Ambient
accepted a position on the Board of Directors of the Demand Response and Smart
Grid (DRSG) Coalition and continues to be an active member of the GridWise
Alliance.




Ambient
is also involved with federal smart grid standardization efforts put forward by
the National Institute of Standards and Technology (NIST), the organization
mandated by the Energy Independence and Security Act of 2007 and funded by the
American Recovery and Reinvestment Act to create interoperability standards and
protocols for the smart grid.




6





COMMERCIAL
DEPLOYMENTS




We are
currently deploying the Ambient Smart Grid® and Ambient NMS® with Duke Energy.
Deployments are directed towards a variety of goals including, developing,
integrating, and demonstrating smart grid utility applications within our
product offering.


Since
inception, 95% of Ambient’s revenue has been generated from our relationship
with our key customer Duke Energy. Ambient has worked with our key customer as
an early adopter, that has supported the development of the Ambient Smart Grid®
platform since 2005. Because our key customer is subject to both federal
regulations and five different state utility regulators, much of their ability
to deploy smart grid technology is influenced by regulations, and accordingly,
so is Ambient’s current source of revenue.
 
 In 2005,
Ambient entered into a pilot agreement to test the Ambient Smart Grid® solution
with our key customer. After completion of a proof of concept phase, in
January 2006, we entered into a pilot demonstration agreement to build a
BPL network servicing approximately 500 homes. The pilot network was an
important first test for our newly developed AmbientNMS®. In
September 2006, we entered into a Commercial Deployment Agreement expanding
the scope and functionality of the network.
 
 During
2007, Ambient focused on the execution of the agreement entered into in
September 2006 that expanded the scope of Ambient's platform while addressing
the challenges raised in our early 2006 BPL pilots. In late 2007, Ambient
introduced cellular technology into our platform, eliminating the platform's
dependency on BPL.
 
 During
2008, Ambient furthered its relationship with our key customer with the
execution of a second Commercial Deployment Agreement to serve, initially,
50,000 end points in Cincinnati, Ohio. The Company received purchase orders
from our key customer to purchase its X2000 and X-3000 communications
nodes, license of its AmbientNMS®, software, and provide engineering
support in building out an intelligent grid/intelligent-metering platform. As a
result of these purchase orders, we generated approximately $12.6 million
in revenues for the year ended December 31, 2008.
 
 In
September 2009, the Company and our key customer entered into a long-term
agreement to supply Ambient’s latest X-series smart grid nodes, (the
X-3100) for deployment throughout the utility’s electric power distribution
grid. The agreement also provides for a license of the node software and the
network management system software to operate and manage the product.
Additionally, the agreement set forth the terms for Ambient to provide
maintenance service and support for which our key customer will be
required to pay an established maintenance fee beginning at the expiration of
the stated warranty period.
 
 The
agreement is in effect until December 31, 2015, subject to various rights
of the parties to terminate the agreement prior to such time. Ambient has agreed
to provide maintenance services potentially extending for ten years after the
termination of the agreement if our key customer continues to pay for
such maintenance services on an uninterrupted basis throughout the extended
period. Under agreement to date, we have received purchase orders for product to
be delivered through third quarter of 2010, amounting to approximately $10
million.  These purchase orders resulted in recorded revenue of
approximately $1.3 million for the year ended December 31, 2009. Under the
terms of this agreement, no assurances can be provided that
additional pu rchase
orders will be received.
 KEY ALLIANCES / PRODUCTION &
SUPPLIES




In
addition to working closely with our electric utility customers, we have
cultivated, maintained and grown collaborative working relationships with
leading suppliers of the critical components necessary for Ambient Smart Grid®
solutions. These relationships along with the advancements of our technology
have provided us with the means of significant scalability.




Ambient continuously looks to
further collaborative efforts to enhance our smart grid capabilities. Ambient’s
communications platform facilitates the delivery of data and information over
the utility distribution grid from low-speed control networks and other devices
allowing utilities the ability to enable such smart grid functionality as
advanced metering, load profiles, remote disconnect/reconnect and
more.




We
believe that an enhanced utility automation suite of products is complementary
to Ambient’s communications platform, and together such collaborative efforts
will enable comprehensive offerings to utilities enabling a more efficient
platform for Ambient Smart Grid® applications.





We have
entered into a Master Supply and Alliance Agreement with an equipment
manufacturer with global manufacturing capabilities, for the supply of our
communication nodes. We are also a party to a number of third-party software
license agreements that allow us to incorporate third-party software products
and features into our Products.




Ambient
continues to maintain open dialogue with leaders in the utility and
communications industries to keep Ambient’s solution at the cutting edge. Moving
forward, we intend to continue leveraging our technology and distribution
alliances along with value-added manufacturing services to ensure we are
positioned to support continued large-scale rollouts of our products and
technology, allowing us to ensure competitive pricing.





COMPETITION




Competition
in our market involves rapidly changing technologies, evolving industry
standards, frequent new product introductions, and changes in customer
requirements. To maintain and improve our competitive position, we must keep
pace with the evolving needs of our customers and continue to develop and
introduce new products, features and services in a timely and efficient
manner.




Our
competitors include both small companies as well as some of the largest
companies in the electronics industry, operating either alone or together with
trade associations and partners. Some of our potential competitors have longer
operating histories, greater name recognition and substantially greater
financial, technical, sales, marketing and other resources than
Ambient.




7





PROPRIETARY
RIGHTS





Our
portfolio includes twenty-three patents issued or allowed by the USPTO primarily
relating to coupling technology, and we have several pending patent applications
in the United States and in other jurisdictions. We have filed with the United
States Patent and Trademark Office ("USPTO"), and with the appropriate agencies
in foreign countries and other jurisdictions, patent applications with respect
to various aspects and applications of our smart grid technology including the
Energy Sensing portion of Ambient Smart Grid®.
 
 We have
taken steps to ensure the protection of our internally developed intellectual
property (IP). We currently rely on a combination of patent, trade secret,
copyright and trademark law, as well as non-disclosure agreements and invention
assignment agreements, to protect our technologies and other proprietary company
information.




Our
policy is to require our employees, consultants, advisors, and collaborators to
execute confidentiality agreements. We also require employees and consultants,
to execute assignment of invention agreements upon the commencement of
employment, consulting or advisory relationships. These agreements generally
provide that all confidential information developed or made known to a party by
us during the course of the party's association with the Company is to be kept
confidential and not to be disclosed to third parties except in specific
circumstances. In the case of employees and consultants, the agreements also
provide that all inventions conceived by the individual in the course of their
employment or consulting relationship will be our exclusive
property.




EMPLOYEES




We
presently employ 44 full time employees, 41 of whom work out of our offices in
Newton, Massachusetts. Three off-site employees are field engineers dedicated to
active network deployments.


RESEARCH
AND DEVELOPMENT
  During
our 2009 and 2008 fiscal years, we incurred approximately $4.6 and $4.2 million,
respectively, on the research and development of our Ambient Smart Grid® and
related solutions.





AVAILABLE
INFORMATION




Our
Internet website is located at http://www.ambientcorp.com. The reference to our
Internet website does not constitute incorporation by reference of the
information contained on or hyperlinked from our Internet website and should not
be considered part of this document. The public may read and copy any materials
we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Rooms by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet website that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC. The SEC's Internet website is located at
http://www.sec.gov.




ITEM 1A. RISK FACTORS




OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY
ADVERSELY AFFECTED BY VARIOUS RISKS, INCLUDING, BUT NOT LIMITED TO THE PRINCIPAL
RISKS NOTED BELOW.




RISKS
CONCERNING OUR BUSINESS




OUR
RELATIONSHIP WITH DUKE ENERGY IS MATERIAL TO OUR SUCCESS, AND THE TERMINATION OF
SUCH RELATIONSHIP FOR ANY REASON WILL ADVERSELY AFFECT OUR OPERATIONS AND
PROSPECTS.




Our
immediate business opportunities continue to be largely dependent on the success
of our deployments, and the future decisions of Duke Energy relating to smart
grid system architecture, and the Ambient fourth generation Node. We are
focusing much of our time, attention and resources on the rollout of the
equipment and software delivered to Duke Energy. The success of our endeavors
with respect to the deployment is subject to several risks. These risks include
our dependence on third parties to deliver and support reliable components to
manufacture and assemble our end products, and our dependence on our engineering
team to continue to advance our software products.




If we are
unable to effectively manage and maintain our relationship with Duke Energy, our
business could be materially and adversely affected in its ability to continue,
and our operations could be jeopardized.


We will
need to secure additional firm purchase orders from Duke Energy or enter into
additional contracts with other utilities to be able to continue our operations
in the future, and there is no assurance that other utilities will adopt our
smart grid technology or contract with us to provide our services to them.
Further, no assurance can be provided that Duke Energy will purchase or deploy
our new generation nodes that are currently under
development.








8


WE
CURRENTLY DEPEND ON ONE KEY CUSTOMER FOR All OUR REVENUE, AND THE LOSS OF, OR A
SIGNIFICANT SHORTFALL IN ORDERS FROM, THIS KEY CUSTOMER COULD SIGNIFICANTLY
REDUCE OUR REVENUE.
  For the
years ended December 31, 2009 and 2008, 100% of our revenue was from
Duke Energy. Our inability to generate additional anticipated revenue from
our key customer, or a significant shortfall in sales will likely significantly
reduce our revenue and adversely affect our business. Our operating results in
the foreseeable future continue to depend on our ability to further our
deployments with our existing customer, and our ability to affect deployments
with our existing utility.
 THE
PACE AND PROGRESS OF FEDERAL INITIATIVES IN THE SMART GRID AREA, MAY AFFECT
PURCHASING DECISION BY UTILITIES AND THEREBY ADVERSELY AFFECT OUR BUSINESS
OPERATIONS.
  The
promise of funding from the federal government, provided by the American
Reinvestment and Recovery Act, minimized much of the risk associated with
adoption of new technology and encouraged utilities considering smart grid
deployments to actively develop deployment plans. While the intent of the
American Reinvestment and Recovery Act was to boost the fledgling industry, in
2009, the lack of available federal funds unexpectedly resulted in a
slowing of anticipated deployments while the Department of Energy transformed
the ARRA mandates into workable programs. Accordingly, any further
significant delay in utilities reaching agreement with the terms of the
grant awards may affect utilities' decision process as it relates to the timing
of deployment of smart grid technologies.  All of these factors could
materially adversely affect our business and prospects.
  WE HAVE
CONTRACTED WITH ONE SUPPLIER TO MANUFACTURE OUR NODES
 
 In both
2009 and 2008, we used one contract manufacturer to produce our
nodes. Should our relationship with the manufacturer deteriorate or
terminate or should this supplier lose some or all of its access to the products
or components that comprise all or part of the nodes that we purchase from it
our performance could be adversely affected.  Under such circumstances, we
would be required to seek alternative sources of supply for these products, and
there can be no assurance that we would be able to obtain such products from
alternative sources on the same terms.  A failure to obtain such products
on as favorable terms could have an adverse effect on our revenue and/or gross
margin.





FUTURE
ECONOMIC CONDITIONS IN THE U.S. AND GLOBAL MARKETS MAY HAVE A MATERIAL ADVERSE
IMPACT ON OUR BUSINESS AND FINANCIAL CONDITION THAT WE CURRENTLY CANNOT
PREDICT.




The U.S.
and other global world economies are slowly recovering from a
recession that began in 2008 and extended into 2009. Although economic
growth has resumed, it remains modest and the timing of an economic recovery is
uncertain. There are likely to be significant long-term effects resulting from
the recession and credit market crisis, including a future global economic
growth rate that is slower than what was experienced in recent years.
Unemployment rates remain high and businesses and consumer confidence levels
have not yet fully recovered to pre-recession levels. In addition, more
volatility may occur before a sustainable, yet lower, growth rate is achieved.
This could result in reductions in sales of our products and services, slower
adoption of new technologies and increase price competition. Any of these events
would likely harm our business, results of operations and financial
conditions.




IF
WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDS WHEN NEEDED, WE MAY NOT BE ABLE TO
EXPAND EXISTING COMMERCIAL DEPLOYMENTS.




Management
believes that we will be able to meet our operating requirements for the balance
of 2010. This is based on the value of our currently available cash
resources, the committed equity based financing arrangement discussed in
Note 9 to our financial statements, and anticipated revenues. However, 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 orders. There are no assurances that we will be successful
in obtaining additional required capital if or when needed.









9


OTHERS MAY CHALLENGE OUR
INTELLECTUAL PROPERTY RIGHTS WHICH MAY NEGATIVELY IMPACT OUR COMPETITIVE
POSITION
  Our portfolio includes
twenty-three patents issued or allowed by the USPTO primarily relating to
coupling technology, and we have several pending patent applications in the
United States and in other jurisdictions. We have filed with the United States
Patent and Trademark Office ("USPTO"), and with the appropriate agencies in
foreign countries and other jurisdictions, patent applications with respect to
various aspects and applications of our smart grid technology including the
Energy Sensing portion of Ambient Smart Grid®.


Although
we rely on a combination of patents, copyrights, trade secrets, nondisclosure
and other contractual provisions and technical measures to protect our
intellectual property rights, it is possible that our rights relating to
Ambient’s Smart GridTM solution may be challenged and invalidated or
circumvented. Further, effective intellectual property protection may be
unavailable or limited. Despite efforts to protect our proprietary rights,
unauthorized parties may attempt to copy, reverse engineer, or otherwise use
aspects of processes and devices that we may regard as proprietary. Policing
unauthorized use of proprietary information is difficult, and there can be no
assurance that the steps we have taken will prevent misappropriation of our
technologies. In the event that our intellectual property protection is
insufficient to protect our intellectual property rights, we could face
increased competition in the market for technologies, which could have a
material adverse effect on our business, financial condition and results of
operations.




OTHER
COMPANIES MAY DEVELOP AND SELL COMPETING PRODUCTS THAT MAY REDUCE THE SALES OF
OUR PRODUCTS OR RENDER OUR PRODUCTS OBSOLETE.




The smart
grid communications marketplace is rapidly evolving and therefore has rapidly
changing technological, regulatory and consumer requirements. We will need to
continue to maintain and improve our competitive position to keep pace with the
evolving needs of our customers, and continue to develop and introduce new
products, features and services in a timely and efficient manner.




Our
competitors include both small companies and some of the largest companies in
the electronics industry, operating either alone or together with trade
associations and partners. There can be no assurance that other companies will
not develop products that compete with our products in the future.




Some of
our potential competitors have longer operating histories, greater name
recognition, and substantially greater financial, technical, sales, marketing
and other resources than our Company. These potential competitors may, among
other things, undertake more extensive marketing campaigns, adopt more
aggressive pricing policies, obtain more favorable pricing from suppliers and
manufacturers and exert more influence on the sales channel than we do. As a
result, we may not be able to compete successfully with these potential
competitors, and these potential competitors may develop or market technologies
and products that are more widely accepted than those we are developing or that
would render our products obsolete or noncompetitive.




WE
HAVE A HISTORY OF LOSSES, AND WE EXPECT THESE LOSSES TO CONTINUE INTO
2010.




We are a
company engaged in the design, development and marketing of our smart grid
communication technology and solutions. We incurred net losses of $14,246,284
and $11,294,199 for the years ended December 31, 2009 and 2008,
respectively.




We expect
to continue to incur net losses as we further develop, test, and market Ambient
Smart Grid® technology. Our ability to generate and sustain significant
additional revenues or achieve profitability will depend upon the factors
discussed elsewhere in this "Risk Factors" section. There are no assurances that
we will achieve or sustain profitability, or that our operating losses will not
increase in the future. If we do achieve profitability, we cannot be certain
that we can sustain or increase profitability on a quarterly or annual basis in
the future.




IF
WE ARE UNABLE TO SATISFY THE REQUIREMENTS OF SECTION 404 OF THE SARBANES-OXLEY
ACT, OR OUR INTERNAL CONTROL OVER FINANCIAL REPORTING IS NOT EFFECTIVE, THE
RELIABILITY OF OUR FINANCIAL STATEMENTS MAY BE QUESTIONED AND OUR SHARE PRICE
MAY SUFFER.




Section 404
of the Sarbanes-Oxley Act requires any company subject to the reporting
requirements of the U.S. securities laws to do a comprehensive evaluation of its
internal control over financial reporting. Our independent auditors will be required
to issue an opinion on the effectiveness of our internal control over financial
reporting for our annual report on Form 10-K for our fiscal year ending
December 31, 2010. The rules governing the standards that must be met for
management to assess our internal controls over financial reporting are complex
and require significant documentation, testing and possible remediation to meet
the detailed standards under the rules. It is possible that we could discover
certain deficiencies in the design and/or operation of our internal controls
that could adversely affect our ability to record, process, summarize and report
financial data. We have invested and will continue to invest significant
resources in this process. We are uncertain as to what impact a conclusion that
deficiencies exist in our internal control over financial reporting would have
on the trading price of our common stock.







10
 
 RISKS
CONCERNING OUR CAPITAL STRUCTURE
  VICIS CAPITAL MASTER FUND OWNS A MAJORITY OF AMBIENT’S ISSUED AND
OUTSTANDING COMMON STOCK AND WILL THUS BE ABLE TO CONTROL THE OUTCOME OF ALL
ISSUES SUBMITTED TO OUR STOCKHOLDERS.
 
 Vicis
holds, as of March 31, 2010, approximately 83.6% of our issued and outstanding
common stock. As a result, Vicis is able to control the outcome of all issues
submitted to our stockholders, including the election of all of our directors,
the appointment of new management and the approval of any other action requiring
the approval of our stockholders, including any amendments to our certificate of
incorporation, a sale of all or substantially all of our assets or a merger or a
going private transaction. A principal of Vicis also is a member of our board of
directors.


FUTURE
SALES OF COMMON STOCK OR OTHER DILUTIVE EVENTS MAY ADVERSELY AFFECT PREVAILING
MARKET PRICES FOR OUR COMMON STOCK.




As of
March 31, 2010, we were authorized to issue up to 2,000,000,000 shares of common
stock, of which 1,582,075,354 shares were outstanding. As of March 31,
2010, an additional 227,732,931 shares of common stock were reserved for the
exercise of outstanding options and warrants to purchase common stock and the
reservations of shares in the various stock option plans. Many of the above
options and warrants contain provisions that require the issuance of increased
numbers of shares of common stock in the event of stock splits, redemptions,
mergers and other transactions. The occurrence of any such event or the exercise
of any of these options or warrants would dilute the interest in our company
represented by each share of common stock and may adversely affect the
prevailing market price of our common stock.




Additionally,
our board of directors has the authority, without further action or vote of our
stockholders, to issue authorized shares of our common stock that are not
reserved for issuance. In addition, in order to raise the amount of capital that
we need at the current market price of our common stock, we may need to issue a
significant number of shares of common stock (or securities that are convertible
into or exercisable for a significant number of shares of our common
stock).




Any of
these issuances will dilute the percentage ownership interests of our
current stockholders, which will have the effect of reducing their influence on
matters on which our stockholders vote, and might dilute the book value and
market value of our common stock. Our stockholders may incur additional dilution
upon the exercise of currently outstanding or subsequently granted options or
warrants to purchase shares of our common stock.




OUR
STOCK PRICE MAY BE VOLATILE.




The
market price of our common stock will likely fluctuate significantly in response
to the following factors, some of which are beyond our control:




·
            Announcements
      by us of commencement of, changes to, or cancellation of significant
      contracts, acquisitions, strategic partnerships, joint ventures or capital
      commitments;





·
              Changes
      in financial estimates of our revenues and operating results by securities
      analysts or investors;




·
            Variations
      in our quarterly operating results due to a number of factors, including
      but not limited to those identified in this "RISK FACTORS"
      section;




·
            Additions
      or departures of key personnel;




·
            Future
      sales of our common stock;




·
            Stock
      market price and volume fluctuations attributable to inconsistent trading
      volume levels of our stock;




·
            Commencement
      of or involvement in litigation;
and/or




·
            Announcements
      by us, or by our competitors of technological innovations or new
      products.




In
addition, the equity markets have experienced volatility that has particularly
affected the market prices of equity securities issued by high technology
companies. This volatility often has been unrelated or disproportionate to the
operating results of those companies. These broad market fluctuations may
adversely affect the market price of our common stock.




PENNY
STOCK REGULATIONS ARE APPLICABLE TO INVESTMENT IN SHARES OF OUR COMMON
STOCK.




Broker-dealer
practices in connection with transactions in "penny stocks" are regulated by
certain penny stock rules adopted by the SEC. Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities registered on
certain national securities exchanges, provided that current prices and volume
information with respect to transactions in such securities are provided by the
exchange or system). Penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and monthly account statements showing the market value of each penny stock held
in the customer's account. In addition, penny stock rules generally require that
prior to a transaction in a penny stock, the broker-dealer make a special
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to
penny stock rules. Many brokers will not deal with penny stocks, restricting the
market for our shares of common stock.




BECAUSE
WE DO NOT INTEND TO PAY ANY CASH DIVIDENDS ON OUR SHARES OF COMMON STOCK, OUR
STOCKHOLDERS WILL NOT BE ABLE TO RECEIVE A RETURN ON THEIR SHARES UNLESS THEY
SELL THEM.




We intend
to retain any future earnings to finance the development and expansion of our
business. We do not anticipate paying any cash dividends on our common stock in
the foreseeable future. Unless we pay dividends, our stockholders will not be
able to receive a return on their shares unless they sell them.




ITEM 1B. UNRESOLVED STAFF
COMMENTS




Not
applicable.




11




ITEM 2. PROPERTIES




Ambient
does not own any real property. The Company's corporate office in Newton,
Massachusetts consists of two floors comprised of approximately 20,242 square
feet. The lease term for the premises was scheduled to commence on September 1,
2009 and continues through December 31, 2012. At our request, the landlord
agreed that we could commence the lease earlier, and we completed the move into
our new headquarters in August 2009.





The lease
provides for an initial period of the lease to be rent-free and includes
scheduled rent escalations.  Accounting principles generally accepted
in the United States of America require that the total rent expense to be
incurred over the term of the lease be recognized on a straight-line basis.
Deferred rent represents the cumulative excess of the straight-line expense over
the payments made.  The average annual rent expense over the term of
the lease is approximately $304,000.




We believe that
this facility is sufficient to meet our current requirements and that we would
be able to renew our present lease or obtain suitable replacement
facilities.





ITEM 3. LEGAL
PROCEEDINGS




We are
not involved in any pending legal proceedings that we anticipate would result in
a material adverse effect on our business or operations.




ITEM 4. [REMOVED AND RESERVED]




PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES




Our
Common Stock is quoted on the OTC Bulletin Board under the symbol "ABTG.”
Although trading in our Common Stock has occurred on a relatively consistent
basis, the volume of shares traded has been sporadic. There can be no assurance
that an established trading market will develop, that the current market will be
maintained or that a liquid market for our Common Stock will be available in the
future. Investors should not rely on historical stock price performance as an
indication of future price performance.




The following table shows the quarterly
high and low bid prices for our Common Stock over the last two completed fiscal
years as quoted on the OTC Bulletin Board. The prices represent quotations by
dealers without adjustments for retail mark-ups, mark-downs or commission and
may not represent actual transactions. The closing price of our Common Stock on
March 30, 2010, was $0.10 per share.





Low
            
            
            HighYear
      Ended December 31, 2009First
      Quarter
            
            $
            0.02
            
            
            $
            0.101Second
      Quarter
            
            $
            0.091
            
            
            $
            0.198Third
      Quarter
            
            $
            0.14
            
            
            $
            0.183Fourth
      Quarter
            
            $
            0.13
            
            
            $
            0.25Year
      Ended December 31, 2008First Quarter
            
            $
            0.03
            
            
            $
            0.045Second Quarter
            
            $
            0.03
            
            
            $
            0.06Third Quarter
            
            $
            0.027
            
            
            $
            0.036Fourth Quarter
            
            $
            0.011
            
            
            $
            0.03





As of
March 30, 2010, there were 153 holders of record of our Common Stock. A
significant number of shares of our Common Stock are held in either nominee name
or street name brokerage accounts, and consequently, we are unable to determine
the number of beneficial owners of our stock.




DIVIDEND
POLICY




We have
not paid dividends on our Common Stock and do not expect to pay cash dividends
in the foreseeable future. It is the present policy of the Board to retain all
earnings to provide funds for the growth of our company. The declaration and
payment of dividends in the future will be determined by the Board based upon
our earnings, financial condition, capital requirements and such other factors
as the Board may deem relevant.




ITEM 6. SELECTED FINANCIAL
DATA




Not
applicable.




ITEM 7. MANAGEMENT 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 RELATED TO THOSE STATEMENTS. 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 THIS ANNUAL REPORT.




12





OVERVIEW




Ambient
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, direct load control
and more.  When combined, these applications can offer economic,
operational and environmental benefits for utilities, and ultimately the
utility’s customers.




Ambient
has been focused, since 2000, on the collaborative development of communication
solutions that meets 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 more applications
while driving the price lower.  Ambient began working on its fourth
generation of the communications node during the summer of 2009, and anticipates
prototypes being available for testing during the second quarter of
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 communication nodes,
software licenses and support. In September 2009, we entered into a
long-term agreement to supply Ambient’s X-3100 for deployment throughout the
utility’s electric power distribution grid. Under the terms of the
agreement, we have, to date, received purchase orders for product to be
delivered through third quarter of 2010, amounting to approximately $10.0
million.




Our goal
remains to be the leading designer, developer and systems integrator of a
turnkey Ambient 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
intends to actively seek 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 standard-based
common communication infrastructure. We anticipate that we will continue to
collaborate with this customer and continue to support their smart grid
deployments. In September 2009, Ambient and this customer entered into
a long-term agreement to supply Ambient’s latest X-series smart grid nodes, the
X-3100 for deployment throughout the utility’s electric power distribution
grid. Under the terms of the agreement, we have, to date, received purchase
orders for product to be delivered through third quarter of 2010, amounting to
approximately $10.0 million. Notwithstanding the above, Ambient recognizes
that our customer could alter its vision regarding the common communication
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 begin to accept and endorse the concept of one common communication
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 Ambient will be their
choice technology.
 
 Additionally,
the time lag from the issuance of the federal mandate to assist the deployment
of the smart grid to the development of workable programs to support such
mandates is likely to have affected, and will continue to affect, the decision
process of utilities as to the deployment and expansion of smart grid projects.
In turn, these developments are likely to affect the cash flow that we are able
to generate from purchase orders for Ambient Smart Grid®
technologies.
 
 As
further clarity is achieved on both the federal and state levels relating to
funding, standards, and the ability to receive regulatory approval from
individual state regulators for smart grid deployments, we believe that the
prospects for additional smart grid deployments should increase though no
assurance can of course be provided that this will in fact
occur.   RESULTS
OF OPERATIONS




COMPARISON
OF THE YEAR ENDED DECEMBER 31, 2009 (the “2009 Period”) AND THE YEAR ENDED
DECEMBER 31, 2008 (the “2008 Period”)




REVENUES.
Revenues for the 2009 Period were $2,193,338, compared to $12,622,353, for the
2008 Period. Revenues for the 2009 Period were attributable to the sales of
equipment, software and services to Duke Energy. Revenues for the 2008 period
were attributable to the sales of equipment and software to Duke Energy.
Revenues for the 2009 and 2008 Periods related to the sales of equipment totaled
$2,127,977 and $12,136,283, respectively. Revenues from the sale of software and
services for the 2009 Period and the 2008 Period totaled $65,361 and $486,070,
respectively. During the fourth quarter of 2009 and first quarter of 2010, we
received new purchase orders for approximately $10 million for our third
generation X-node product base. These purchase orders resulted in recorded
hardware revenues of approximately $1.3 million for the year ended
December 31,
2009. We intend to fulfill the remainder of the purchase orders by
third quarter of 2010.


The
decline in firm purchase orders received from our customer accounted for the
decline in revenues during the 2009 Period as compared to the 2008 Period.
Numerous factors contributed to the decline, including the uncertainty of the
amount and timing of any federal grant funding by our major customer and
uncertainty and delay of state regulatory approvals related to smart grid
deployments. We are positioned to fulfill the purchase orders
received to date.




COST OF
GOODS SOLD. Cost of goods sold for the 2009 Period was $1,836,546 compared to
$9,942,009 for the 2008 Period. 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 also included expenses related to the
write down of inventory to the lower of cost or market. For the 2009 and 2008
Periods, cost of goods sold included aninventory write-off of $151,689 and $481,860 respectively for excess,
obsolete, and surplus inventory resulting from the transition from second to
third generation technology. The decrease in cost of goods sold during the 2009
Period was due to the decrease in sales as discussed above in
REVENUES.




13


GROSS
PROFIT. Gross profits for the 2009 Period was $356,792 compared to $2,680,344
for the 2008 Period. The gross profit on hardware sales amounted to $291,431
during the 2009 Period compared to $2,194,274 in the 2008 Period. Our
overall gross margins also decreased from 21% in 2008 compared to 16% in 2009.
The decrease in gross margin percentage in the 2009 Period as compared to
the 2008 Period was primarily due to changes to our products, associated
cost of our older generation Nodes, and inventory markdown having a greater
impact in the 2009 Period than in 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 were approximately $4.6 million for the 2009 Period compared to
$4.2 million for 2008 Period. The increase in research and development
during the 2009 Period was due primarily to the increase in personnel and
consultants for the development of our X-3100 Node, as we ready it for
commercialization.  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 additional value-added
functionality for the Ambient Smart Grid® communication platforms.




OPERATING,
GENERAL AND ADMINISTRATIVE EXPENSES. Operating, general and administrative
expenses consisted primarily of salaries and other related costs for personnel
in executive and other functions. Other significant costs included insurance and
professional fees for legal, accounting and other services. General and
administrative expenses for the 2009 Period were approximately $4.1 million
compared to $3.4 million for the 2008 Period. The increase in operating,
general and administrative expenses was due to the increase in efforts to
market and commercialize the Ambient Smart
Grid® communication
platforms. As we continue to increase our efforts to market and
commercialize the Ambient Smart
Grid®
communication platforms, over the next twelve months, we expect our
operating, general and administrative expenses to increase during that
time.




STOCK
BASED COMPENSATION. A portion of our operating expenses was 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 non-cash and will therefore have no impact on our cash flows or liquidity.
For the 2009 Period, we incurred non-cash stock based compensation expense of
$967,301 compared to $329,320 for the 2008 Period.




INTEREST
AND FINANCE EXPENSES. For the 2009 Period and 2008 Period, interest expense
totaled $4,992,827 and $3,155,815, respectively. Interest totaling $617,060 for
the 2009 period and $673,527 for the 2008 Period related primarily to
our 8% Secured Convertible Promissory Notes, which were issued in July and
November of 2007 and 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 $3,228,600 and $2,482,288, 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. 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.





LOSS ON EXTINGUISHMENT
OF DEBT.  We accounted for the modification in November 2008 of the
convertible promissory notes that we issued to Vicis between July 2007 and
January 2008 as an extinguishment of debt.  We deemed the terms of the
amendment to be substantially different and treated the notes as extinguished
and exchanged for new notes. As such, it was necessary to reflect the
convertible promissory notes at fair market value and record a loss on
extinguishment of debt of approximately $2.8 million. See Note 8 of the
financial statements for a more detailed discussion.


14




LIQUIDITY
AND CAPITAL RESOURCES




Management
believes that cash on hand, the $6.5 million remaining from our equity
based financing arrangement plus anticipated short term revenue, will allow
us to meet our operating requirements for fiscal year 2010. However, we may need
to raise funds in order to allow for shortfalls in anticipated revenue, or to
expand existing commercial deployments and/or to satisfy any additional
significant purchase order that we may receive. At the present time, we
have no assurances of additional revenue beyond the firm purchase orders we
have received from our largest customer, nor do we have commitments for
additional funding beyond the committed equity based financing arrangement
described below.




Cash
balances totaled $987,010 at December 31, 2009 and $8,011,764 at
December 31, 2008. As of March 30, 2010, we have approximately
$836,577 cash on hand.




From
inception through December 31, 2009, we have funded our operations
primarily through the issuance of our securities. Our recent financings are
discussed below.




Net cash
used in operating activities during the year ended December 31, 2009 was
approximately $7.7 million and was used primarily to pay ongoing research
and development and operating, general and administrative expenses.




Net cash
used in investing activities during the year ended December 31, 2009 was
approximately $268,969 and was for the redemption of marketable securities of
$125,000, and net of purchases and proceeds from sale of property and equipment
of $393,969.




Net cash provided by financing
activities during the year ended December 31, 2009 was approximately
$964,492, and represented the exercise of warrants and the payments on
capitalized lease obligations.




Our
recent financing transactions are discussed below.





15


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 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 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 into
666,666,667 shares of our common stock. Following the conversion of the
Debentures, we no longer have any long-term debt.





On
April 23, 2008, we raised $3,000,000 from Vicis 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 $8,000,000. 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 was 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.
The price of the Common Stock was greater than $0.10 on the trading day
immediately preceding June 1, 2009, and therefore no adjustment was
made.





On
June 30, 2009, the Company extended the terms of the expiring Class A
warrants (See note 9 of the consolidated financial statements). For the period
from July 1, 2009 to August 31, 2009, we received net proceeds of
$848,250 for the exercise of 6,283,333 Class A warrants.





Finally,
on November 13, 2009, we and Vicis entered into an agreement pursuant to
which Vicis furnished to us access to a $3,000,000 equity based credit line.
Pursuant to the arrangement, Vicis established an escrow account into which it
deposited $3,000,000. From time to time as our cash resources fall below
$1,500,000, we are entitled to receive $500,000 from the account in
consideration of which we initially agreed to issue to Vicis 3,333,333 shares of
our common stock as well as warrants for a corresponding number of shares. On
January 15, 2010, we and Vicis entered into an amendment to the arrangement
described above pursuant to which Vicis deposited an additional $5 million into
the Escrow Account such that the total amount in the escrow account, prior to
any drawdown by us, will be $8,000,000. In consideration of Vicis’ increase of
the Escrow Account and its agreement to convert the Vicis Notes, we agreed that
upon each drawdown from the escrow account, which is required to be in the
amount of $500,000, we will issue to Vicis 5,000,000 shares of Common
Stock   and warrants  for a corresponding number of
shares of Common Stock. Between January 19 and March 16, 2010, we effected three
draw-downs in the amount of the $1,500,000. Ambient may draw down on the escrow
account as needed until the entire $8,000,000 is exhausted. The arrangement
terminates on June 30, 2011, unless the parties elect to extend it by
mutual agreement. The Warrants are exercisable through the second anniversary of
issuance at a per share exercise price of $0.25.
  Between January 19 and
March 16, 2010, we effected three draw-downs in the amount of the $1,500,000.
Ambient may draw down on the escrow account as needed until the entire
$8,000,000 is exhausted. The arrangement terminates on June 30, 2011, unless the
parties elect to extend it by mutual agreement.
  CRITICAL
ACCOUNTING POLICIES AND USE OF ESTIMATES




The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have
been prepared in accordance with generally accepted accounting principles in the
United States. The preparation of these financial statements requires management
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to revenue recognition, bad debts, investments, intangible assets
and income taxes. Our estimates are based on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.




We have
identified the accounting policies below as critical to our business operations
and the understanding of our results of operations.




REVENUE RECOGNITION. Hardware
sales consist of smart grid nodes ("Nodes") and system software embedded in the
nodes. System software embedded in Ambient’s Nodes is used solely in connection
with the operation of the product.  Upon the sale and shipment of its
product, Ambient is not required to update the embedded software for newer
versions that are subsequently developed.  In addition, the Company
does not offer or provide any free post-contract customer
support.  There is an original warranty period, which may run for a
period of up to twelve months from sale of product, in which the Company will
provide fixes for the Nodes when and if appropriate. As such, we recognize
revenue from the sales of the Nodes when shipped. Amounts billed to customers
before the Nodes are shipped are classified as deferred revenue.





The
Company’s other proprietary software consists of the Ambient NMS®, an element
management product that may be sold on a stand-alone basis.  A
purchaser of Ambient’s Nodes is not required to purchase this product, as our
Nodes could be managed with independently developed management software. The
sale of the Ambient NMS® does not include post-contract customer support, unless
the customer enters into a maintenance agreement with the Company. As such,
Ambient recognizes revenue from the sale of this software product when shipped.
Amounts billed to customers before software is shipped are classified as
deferred revenue.





The
Company offers maintenance service, on a fee basis that entitles the purchasers
of its Nodes and NMS® software to benefits including telephone support, as well
as updates and upgrades to our products.  Such revenue, when received,
will be amortized over the appropriate period based on the terms of individual
agreements and contracts.





16


INVENTORY VALUATION. Inventory
is valued at the lower of cost or market determined on the first-in, first-out
(FIFO) basis. Market, with respect to direct materials, is replacement cost and
is net realizable value for work-in-process and finished goods. 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.




SOFTWARE DEVELOPMENT COSTS. Costs incurred in the research and development of new software
products and enhancements to existing software products have historically been
expensed as incurred. After technological feasibility is established, additional
development costs are capitalized. No software development costs have been
capitalized as of December 31, 2009 and 2008.




STOCK-BASED COMPENSATION. The
Company accounts for stock-based compensation in accordance with accounting
guidance now codified as Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 718, “Compensation – Stock
Compensation.” Under the fair value recognition provision of ASC
718 stock-based compensation cost is estimated at the grant date based on
the fair value of the award. The Company estimates the fair value of stock
options granted using the Black-Scholes option pricing model.




DEFERRED INCOME TAXES.
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory rates applicable to future years to
differences between the financial statement carrying amounts and the tax basis
of existing assets and liabilities. At December 31, 2009, our deferred
income tax assets consisted primarily of net operating loss carry forwards and
stock based compensation charges which have been fully offset with a valuation
allowance due to the uncertainty that a tax benefit will be realized from the
assets in the future.




WARRANTIES.The Company
accounts for its warranties under the FASB ASC 450 “Contingencies.”. The Company
generally warrants that its products are free from defects in material and
workmanship for a period of one year from the date of initial acceptance by our
customers. The warranty does not cover any losses or damage that occurs as a
result of improper installation, misuse or neglect or repair or modification by
anyone other than the Company or its authorized repair agent. The Company's
policy is to accrue anticipated warranty costs based upon
historical percentages of items returned for repair within one year of the
initial sale. The Company’s repair rate of products under warranty has been
minimal, and a historical percentage has not been established. The Company
has not provided for any reserves for such warranty liability.




The
Company’s software license agreements generally include certain provisions for
indemnifying customers against liabilities if the Company's software products
infringe upon a third party's intellectual property rights. The Company has not
provided for any reserves for such warranty liabilities.




The
Company’s software license agreements also generally include a warranty that the
Company's software products will substantially operate as described in the
applicable program documentation. The Company also warrants that services the
Company performs will be provided in a manner consistent with industry
standards. To date, the Company has not incurred any material costs associated
with these product and service performance warranties, and as such the Company
has not provided for any reserves for any such warranty liabilities in its
operating results.




RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS





Effective
July 1, 2009, the Financial Accounting Standards Board’s (“FASB”)
Accounting Standards Codification ("ASC") became the single official source of
authoritative, nongovernmental generally accepted accounting principles (“GAAP”)
in the United States. The historical GAAP hierarchy was eliminated and the ASC
became the only level of authoritative GAAP, other than guidance issued by the
Securities and Exchange Commission. Our accounting policies were not affected by
the conversion to ASC. However, references to specific accounting standards in
the footnotes to our consolidated financial statements have been changed to
refer to the appropriate section of ASC.




In
October 2009, the FASB issued new standards for revenue recognition with
multiple deliverables. These new standards impact the determination of when the
individual deliverables included in a multiple-element arrangement may be
treated as separate units of accounting. Additionally, these new standards
modify the manner in which the transaction consideration is allocated across the
separately identified deliverables by no longer permitting the residual method
of allocating arrangement consideration. These new standards are effective for
us beginning in the first quarter of fiscal year 2011; however, early adoption
is permitted. Ambient does not expect these new standards to significantly
impact its consolidated financial statements.




In
October 2009, the FASB issued new standards for the accounting for certain
revenue arrangements that include software elements. These new standards amend
the scope of pre-existing software revenue guidance by removing from the
guidance non-software components of tangible products and certain software
components of tangible products. These new standards are required to be adopted
in the first quarter of 2011; however, early adoption is permitted. We do not
expect these new standards to significantly impact our consolidated financial
statements.





In
January 2010, the FASB issued amended standards that require additional fair
value disclosures. These amended standards require disclosures about inputs and
valuation techniques used to measure fair value as well as disclosures about
significant transfers, beginning in the first quarter of 2010. Additionally,
these amended standards require presentation of disaggregated activity within
the reconciliation for fair value measurements using significant unobservable
inputs (Level 3), beginning in the first quarter of 2011. We do not expect these
new standards to significantly impact our consolidated financial
statements.




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 financial statements.




17


OFF-BALANCE
SHEET ARRANGEMENTS




None.




TABULAR
DISCLOSURE OF CONTRACTUAL OBLIGATIONS





Payments
      Due By PeriodContractual
      Obligations
            
            Total
            
            
            Less
      Than
              1
      Year
            
            
            1
      – 3
              Years
            
            
            3
      – 5
              Years
            
            
            More
      Than
              5
      yearsShort
      -Term Debt Obligations
            
            $
            10,000,000
            
            
            $
            10,000,000
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0Capital
      Lease Obligations
            
            
            25,298
            
            
            
            14,456
            
            
            
            10,842
            
            
            
            0
            
            
            
            0Operating
      Lease Obligations
            
            
            996,910
            
            
            
            203,186,
            
            
            
            793,724
            
            
            
            0
            
            
            
            0Purchase
      Obligations
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Other
      Long-Term LiabilitiesReflected
      on the Registrant’s Balance Sheet under GAAP
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Total
            
            $
            11,022,208
            
            
            $
            10,217,642
            
            
            $
            804,566
            
            
            $
            0
            
            
            $
            0




ITEM 7A. QUANTITAVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.




Not
applicable





ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA




The
information called for by this Item 8 is included following the "Index to
Financial Statements" on page F-1 contained in this Annual Report on
Form 10-K.




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE




None




ITEM 9A(T). CONTROLS AND
PROCEDURES




EVALUATION
OF DISCLOSURE 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.
  MANAGEMENT'S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
 Internal Control - Integrated
Framework Internal Control - Integrated
Framework




This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management's report
in this Annual Report.




During
the year ended December 31, 2009, there have been no changes in our
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, out internal control over financial
reporting.




ITEM 9B. OTHER INFORMATION




None.





PART
III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE




The
information required by this Item is incorporated by reference to the Company's
definitive proxy statement for the 2010 annual meeting of stockholders.




ITEM 11. EXECUTIVE
COMPENSATION




The
information required by this Item is incorporated by reference to the Company's
definitive proxy statement for the 2010 annual meeting of stockholders.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS




The
information required by this Item is incorporated by reference to the Company's
definitive proxy statement for the 2010 annual meeting of stockholders.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS AND DIRECTORS INDEPENDENCE




The
information required by this Item is incorporated by reference to the Company's
definitive proxy statement for the 2010 annual meeting of stockholders.




ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES




The
information required by this Item is incorporated by reference to the Company's
definitive proxy statement for the 2010 annual meeting of stockholders.




18





PART
IV




ITEM 15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES





(a)
              (1)
              Financial
      Statements:
 
 Report of Independent Registered Public Accounting
      FirmsCONSOLIDATED
      FINANCIAL STATEMENTS:Consolidated
      Balance Sheets as of December 31, 2009 and
      2008Consolidated
      Statements of Operations for the Years Ended December 31, 2009
      and 2008Consolidated
      Statements of Changes in Stockholders’ (Deficit) Equity for the Years
      Ended December 31, 2009 and 2008Consolidated
      Statements of Cash Flows for the Years Ended December 31,
      2009 and 2008Notes to
      Consolidated Financial Statements


(3)
      Exhibit
              Number
            
            Description3.1
            
            Restated Certificate of Incorporation of the Company, as amended. (1)
      (Exhibit 3.1), (2) (Exhibit 3.1)3.2
            
            Bylaws of the Company, as amended. (3) (Exhibit 3.2)4.1
            
            Specimen Stock Certificate. (3) (Exhibit 4.1)4.2
            
            Common Stock Purchase Warrant issued by the Company on January 25,
      2006. (4) (Exhibit 4.6)4.3
            
            Form of Common Stock Purchase Warrant issued by the Company on May
      26, 2006. (5) (Exhibit 4.7)4.4
            
            Secured Convertible Promissory Note due July 31, 2010. (6) (Exhibit
      4.1)4.5
            
            Common Stock Purchase Warrant (Series A) (6). (Exhibit
  4.2)4.6
            
            Common Stock Purchase Warrant (Series B) (6). (Exhibit
  4.3)4.7
            
            Secured Convertible Promissory Note due November 1, 2010. (7)
      (Exhibit 4.1)4.8
            
            Common Stock Purchase Warrant (Series C). (7) (Exhibit
  4.2)4.9
            
            Common Stock Purchase Warrant (Series D).  (7) (Exhibit
      4.3)4.10
            
            Secured Convertible Promissory Note due January 15, 2011. (8)
      (Exhibit 4.1)4.11
            
            Common Stock Purchase Warrant (Series E). (8) (Exhibit
  4.2)4.12
            
            Warrant issued as of April 23, 2008. (2) (Exhibit 4.1)4.13
            
            Common
      Stock Purchase Warrant (Series G) (15) (4.1)10.1
            
            Ambient Corporation 2000 Equity Incentive Plan. (9) +  (Appendix
      B)


10.2
            
            Stock Purchase Agreement dated as of September 30, 2002 between the
      Company and Consolidated Edison, Inc. (10) (Exhibit 10.2)10.3
            
            Ambient Corporation 2002 Non-Employee Directors' Stock Option Plan.
      (9) (Appendix C)10.4
            
            Amended and Restated Employment Agreement effective as of December
      30, 2008 between the Company and John Joyce. (14) (10.4) +10.5
            
            Amended and Restated Employment Agreement effective as of June 2,
      2008 between the Company and Ramdas Rao.  (14) (10.5) +10.6
            
            Securities Purchase Agreement dated as of May 26, 2006 among the
      Company and certain investors.  (5) (Exhibit 10.8)10.7
            
            Registration Rights Agreement dated as of May 26, 2006 among the
      Company and certain investors.  (5) (Exhibit 10.9)10.
      8
            
            Registration Rights Agreement, dated as of July 31, 2007, between
      Ambient Corporation and Vicis Master Capital Fund.  (6) (Exhibit
      10.1)10.9
            
            Securities Purchase Agreement, dated as of July 31, 2007 between
      Ambient Corporation and Vicis Master Capital Fund.
       (6)  (Exhibit 10.2)10.10
            
            Security Agreement, dated as of July 31, 2007 between Ambient
      Corporation and Vicis Master Capital Fund.  (6) (Exhibit
    10.3)10.11
            
            Securities Purchase Agreement dated as of November 1, 2007, between
      Ambient Corporation and the Vicis Master Fund.  (7) (Exhibit
      10.1)




19




Exhibit
                Number
              
              Description


10.12
            
            First Amendment dated as of November 1, 2007 to Registration Rights
      Agreement, dated as of July 31, 2007, between Ambient and Vicis Master
      Capital Fund. (7) (Exhibit 10.2)10.13
            
            First Amendment dated as of November 1, 2007 to Securities Purchase
      Agreement, dated as of July 31, 2007 between Ambient Corporation and Vicis
      Master Capital Fund. (7) (Exhibit 10.3)10.14
            
            Securities Purchase Agreement dated as of January 15, 2008, between
      Ambient Corporation and the Vicis Master Capital Fund.  (8) (Exhibit
      10.1)10.15
            
            Second Amendment dated as of January 15, 2008 to Registration Rights
      Agreement, dated as of July 31, 2007, between Ambient Corporation and
      Vicis Master Capital Fund.  (8) (Exhibit 10.2)10.16
            
            First Amendment dated as of January 15, 2008 to Securities Purchase
      Agreement, dated as of November 1, 2007 between Ambient Corporation and
      Vicis Master Capital Fund.  (8) (Exhibit 10.3)10.17
            
            Second Amendment dated as of January 15, 2008 to Securities Purchase
      Agreement, dated as of July 31, 2007 between Ambient Corporation and Vicis
      Master Capital Fund.  (8) (Exhibit 10.4)10.18
            
            Securities Purchase Agreement dated as of April 23, 2008 between
      Ambient Corporation and Vicis Capital  Master Fund. (2) (Exhibit
      10.1)10.19
            
            Amendment and Waiver dated as of April 23, 2008 between Ambient
      Corporation and Vicis Capital  Master Fund. (2) (Exhibit
    10.2)10.20
            
            Debenture Amendment Agreement dated as of November 21, 2008
      between Ambient Corporation and Vicis
      Capital Master Fund.  (11) (Exhibit 10.1)10.21
            
            Commercial Deployment Agreement dated as of March 31, 2008 between
      Ambient Corporation and Duke Energy Carolinas, LLC.  (13 ) (10.1)
       (Pursuant to Rule 24 b-2 under the Securities Exchange Act of 1934,
      the registrant has requested confidential treatment of the portion of this
      exhibit deleted from the filed copy).10.22
            
            Product Sales,
      Services & Software Agreement between Ambient Corporation and Duke
      Energy business Services LLC on its own behalf and as agent for and on
      behalf of Duke Energy Carolinas, LLC, Duke Energy Indiana, Inc,
      Duke Energy Ohio, Inc., Duke Energy Kentucky, Inc., and certain after
      acquired affiliates (Pursuant to Rule 24b-2 under the Exchange Act, the
      registrant has requested confidential treatment of portions of this
      exhibit deleted from the filed copy.) (15) (10.1)10.23
            
            Securities
      Purchase Agreement, dated as of November 16, 2009 between Ambient
      Corporation and Vicis Master Capital Fund (15) (10.2)10.24
            
            Registration
      Rights Agreement, dated as of November 16, 2009 between Ambient
      Corporation and Vicis Master Capital Fund. (15)(10.3)10.25
            
            Office
      Lease Agreement dated as of May 21, 2009, between Ambient Corporation
      and NS 7/57 Acquisition LLC (16) (10.1)10.26
            
            Amendment
      to Securities Purchase Agreement dated as of January 15, 2010, between
      Ambient and Vicis Master Capital Fund.14
            
            Code of Conduct and Ethics.  (12) (Exhibit 14)21
            *
            Subsidiaries23.1
            *
            March 30, 2010 Consent of Rotenberg Meril Solomon Bertiger &
      Guttilla, P.C. to the Company’s Registration Statement on Form S-8 (No
      333-112569)31
            
            RULE 13a-14(a) / 15d-14(a) CERTIFICATION32
            
            SECTION 1350 CERTIFICATION


20


———————
 * 
      Filed herewith+  Management Agreement(1)
      Filed as an exhibit (the number of which is indicated in parentheses) to
      the Company’s  Annual Report on Form 10-KSB for the year ended
      December 31, 2007 and incorporated herein by reference.(2)
      Filed as an exhibit (the number of which is indicated in parentheses) to
      the Company’s  Quarterly Report on Form 10-Q for the three month
      period ended June 30, 2008 and incorporated herein by
      reference.(3)
      Filed as an exhibit (the number of which is indicated in parentheses) to
      the Company’s Registration Statement on Form SB-2 (File No. 333-40045) and
      incorporated herein by reference.(4)
      Filed as an exhibit (the number of which is indicated in parentheses) to
      the Company's Annual Report on Form 10-KSB for the year ended December 31,
      2005 and incorporated herein by reference.(5)
      Filed
      as an exhibit (the number of which is indicated in apprentices) to the
      Company’s Registration Statement on Form SB-2 (File No. 33-134872) and
      incorporated by
reference.


(6)
      Filed as an exhibit (the number of which is indicated in parentheses) to
      the Company’s Current Report on Form 8-K filed on July 31, 2007 and
      incorporated herein by reference.(7)
       Filed as an exhibit (the number of which is indicated in
      parentheses) to the Company's Current Report on Form 8-K filed on November
      5, 2007 and incorporated herein by reference.(8)
      Filed as an exhibit (the number of which is indicated in parentheses) to
      the Company's Current Report on Form 8-K filed on January 17, 2008 and
      incorporated herein by reference.(9)
      Filed as an appendix to the Company’s Definitive Proxy Statement on From
      14A filed on May 18, 2008 and incorporated herein by
      reference.(10)
      Filed as an exhibit (the number of which is indicated in parentheses) to
      the Company's Annual Report on Form 10-KSB for the year ended December 31,
      2007 and incorporated herein by reference.(11)
      Filed as an exhibit (the number of which is indicated in parentheses) to
      the Company’s Current Report on Form 8-K filed on November 24, 2008 and
      incorporated herein by reference.(12)
      Filed as an exhibit (the number of which is indicated in parentheses) to
      the Company’s Annual Report on Form 10-KSB for the year ended December 31,
      2003 and incorporated herein by reference.(13) Filed as an exhibit (the
      number of which is indicated in parentheses) to the Company’s Quarterly
      Report on Form 10-Q for the three month period ended March 31, 2008 and
      incorporated herein by reference.(14)
      Filed as an exhibit (the number of which is indicated in parentheses) to
      the Company's Annual Report on Form 10-K for the year ended December 31,
      2008 and incorporated herein by reference.(15)
      Filed as an exhibit (the number of which is indicated in parentheses) to
      the Company’s Quarterly Report on Form 10-Q for the three month period
      ended September 30, 2009 and incorporated herein by
reference.(16)
      Filed as an exhibit (the number of which is indicated in parentheses) to
      the Company’s Quarterly Report on Form 10-Q for the three month period
      ended June 30, 2009 and incorporated herein by
  reference.








21


SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




Date:
March 31, 2010


By:
            /s/
      JOHN J. JOYCEJOHN
      J. JOYCEPRESIDENT
      AND CHIEF EXECUTIVE OFFICER
              (PRINCIPAL
      EXECUTIVE OFFICER AND PRINCIPAL
              FINANCIAL
      AND ACCOUNTING OFFICER)




Pursuant
to requirements with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Signature
            
            Title
            
            Date/s/  JOHN J. JOYCE
            
            PRESIDENT
      AND CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER AND
            
            March 31,
      2010JOHN
      JOYCE
            
            PRINCIPAL
      FINANCIAL AND ACCOUNTING OFFICER)/s/
      MICHAEL WIDLAND
            
            DIRECTOR
            
            March 31,
      2010MICHAEL
      WIDLAND/s/
      D. HOWARD PIERCE
            
            DIRECTOR
            
            March 31,
      2010D.
      HOWARD PIERCE/s/
      MICHAEL THOMAS HIGGINS
            
            DIRECTOR
            
            March 31,
      2010MICHAEL
      THOMAS HIGGINS/s/
      SHAD STASTNEY
            
            DIRECTOR
            
            March 31,
      2010SHAD
      STASTNEY







22




AMBIENT
CORPORATION




INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS





PageReport of
      Independent Registered Accounting Firm
            
            
            F-2Consolidated
      Financial StatementsConsolidated Balance
      Sheets
            
            
            F-3Consolidated
      Statements of Operations
            
            
            F-4Consolidated
      Statement of Changes in Stockholders'  (Deficit) Equity
            
            
            F-5Consolidated
      Statements of Cash Flows
            
            
            F-6Notes to
      Consolidated Financial Statements
            
            
            F-7







F-1






REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
    To the Board of Directors and Stockholders of
  Ambient Corporation
  We have audited the accompanying consolidated balances sheets of
Ambient Corporation and Subsidiary (the “Company”) as of December 31, 2009 and
2008, and the related consolidated statements of operations, changes in
stockholders’ (deficit) equity and cash flows for the years then
ended.  The consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of the
Company as of December 31, 2009 and 2008 and the results of their operations and
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
  /s/  ROTENBERG MERIL SOLOMON BERTIGER & GUTTILLA,
P.C.
  ROTENBERG MERIL SOLOMON BERTIGER & GUTTILLA, P.C.
  Saddle Brook, New Jersey
 March 30,
2010




F-2




AMBIENT
      CORPORATIONCONSOLIDATED
      BALANCE SHEETSDecember
      31,
              
              
              December
      31,2009
              
              
              2008ASSETSCURRENT
      ASSETSCash
      and  cash equivalents
              
              $
              987,010
              
              
              $
              8,011,764Marketable
      securities
              
              
              -
              
              
              
              125,000Accounts
      receivable
              
              
              1,238,708
              
              
              
              1,668,887Inventory
              
              
              361,201
              
              
              
              98,044Prepaid
      expenses and other current assets
              
              
              202,568
              
              
              
              174,425Total
      current assets
              
              
              2,789,487
              
              
              
              10,078,120Property
      and equipment, net
              
              
              603,412
              
              
              
              543,904Total
      assets
              
              $
              3,392,899
              
              
              $
              10,622,024LIABILITIES
      AND STOCKHOLDERS' (DEFICIT) EQUITYCURRENT
      LIABILITIESAccounts
      payable
              
              $
              2,015,771
              
              
              $
              1,333,778Accrued
      expenses and other current liabilities
              
              
              829,041
              
              
              
              936,961Deferred
      revenue
              
              
              158,686
              
              
              
              108,067Capital
      lease obligations, current portion
              
              
              11,463
              
              
              
              11,462Convertible
      debt, current portion (net of discount of $183,609 and $0)
              
              
              9,816,391
              
              
              
              -Total
      current liabilities
              
              
              12,831,352
              
              
              
              2,390,268NON-CURRENT
      LIABILITIESConvertible
      debt, less current portion (net of discount of $0 and
      $11,745,542)
              
              
              -
              
              
              
              754,458Deferred
      rent
              
              
              84,906
              
              
              
              -Capital
      lease obligations, less current portion
              
              
              11,504
              
              
              
              22,967Total  liabilities
              
              
              12,927,762
              
              
              
              3,167,693STOCKHOLDERS'
      (DEFICIT) EQUITYCommon
      stock, $.001 par value;2,000,000,000
      and 2,000,000,000 shares authorized in 2009 and 2008;899,039,687
      and 719,980,784issued;
      898,039,687 and 718,980,784 outstanding, respectively
              
              
              899,040
              
              
              
              719,981Additional
      paid-in capital
              
              
              130,008,365
              
              
              
              132,930,334Accumulated
      deficit
              
              
              (140,242,268
              )
              
              
              (125,995,984
              )Less:
      treasury stock; 1,000,000 shares at cost
              
              
              (200,000
              )
              
              
              (200,000
              )Total
      stockholders' (deficit) equity
              
              
              (9,534,863
              )
              
              
              7,454,331Total
      liabilities and stockholders' (deficit) equity
              
              $
              3,392,899
              
              
              $
              10,622,024See
      Notes to Consolidated Financial Statements.
 F-3
 AMBIENT
      CORPORATIONCONSOLIDATED
      STATEMENTS OF OPERATIONSYear
      EndedDecember
      31,2009
              
              
              2008Revenues
              
              $
              2,193,338
              
              
              $
              12,622,353Cost
      of goods sold
              
              
              1,836,546
              
              
              
              9,942,009Gross
      profit
              
              
              356,792
              
              
              
              2,680,344ExpensesResearch
      and development
              
              
              4,585,979
              
              
              
              4,233,832Operating,
      general and administrative expenses
              
              
              4,054,255
              
              
              
              3,388,299Stock
      based compensation
              
              
              967,301
              
              
              
              329,320Total
      expenses
              
              
              9,607,535
              
              
              
              7,951,451Loss
      on disposition of property and equipment
              
              
              (31,590
              )
              
              
              (117,597
              )Operating
      loss
              
              
              (9,282,333
              )
              
              
              (5,388,704
              )Interest
      and finance expenses
              
              
              (4,992,827
              )
              
              
              (3,155,815
              )Interest
      income
              
              
              28,876
              
              
              
              39,185Loss
      on extinguishment of debt
              
              
              -
              
              
              
              (2,788,865
              )Net
      loss
              
              $
              (14,246,284
              )
              
              $
              (11,294,199
              )Basic
      and diluted loss per share:Net
      loss
              
              $
              (0.02
              )
              
              $
              (0.04
              )Weighted
      average number of shares outstanding
              
              
              789,088,699
              
              
              
              301,559,713See
      Notes to Consolidated Financial Statements.
 F-4
  
 AMBIENT
      CORPORATIONCONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITYAdditional
                
                
                
                
                
                AccumulatedCommon
      Stock
                
                
                Paid-in
                
                
                Treasury
                
                
                AccumulatedShares
                
                
                Amount
                
                
                Capital
                
                
                Stock
                
                
                Deficit
                
                
                TotalBalance
      - January 1, 2008
                
                
                255,615,704
                
                
                $
                255,615
                
                
                $
                113,181,347
                
                
                $
                (200,000
                )
                
                $
                (114,701,785
                )
                
                $
                (1,464,823
                )Common
      stock issued upon exercise of warrants
                
                
                464,365,080
                
                
                
                464,366
                
                
                
                (222,222
                )
                
                
                
                
                
                
                
                
                
                
                242,144Issuance
      of warrants in connection with convertible promissory note
                
                
                
                
                
                
                
                
                
                
                3,146,078
                
                
                
                
                
                
                
                
                
                
                
                3,146,078Beneficial
      conversion feature of convertible promissory note
                
                
                
                
                
                
                
                
                
                
                13,540,811
                
                
                
                
                
                
                
                
                
                
                
                13,540,811Issuance
      of warrants
                
                
                
                
                
                
                
                
                
                
                2,955,000
                
                
                
                
                
                
                
                
                
                
                
                2,955,000Share-based
      compensation expense
                
                
                
                
                
                
                
                
                
                
                329,320
                
                
                
                
                
                
                
                
                
                
                
                329,320Net
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (11,294,199
                )
                
                
                (11,294,199
                )Balance
      - December 31, 2008
                
                
                719,980,784
                
                
                
                719,981
                
                
                
                132,930,334
                
                
                
                (200,000
                )
                
                
                (125,995,984
                )
                
                
                7,454,331Common
      stock issued upon exercise of warrants
                
                
                11,642,236
                
                
                
                11,642
                
                
                
                940,063
                
                
                
                
                
                
                
                
                
                
                
                951,705Common
      stock issued upon exercise of options
                
                
                750,000
                
                
                
                750
                
                
                
                23,500
                
                
                
                
                
                
                
                
                
                
                
                24,250Common
      stock issued upon conversion of convertible debt
                
                
                166,666,667
                
                
                
                166,667
                
                
                
                2,333,333
                
                
                
                
                
                
                
                
                
                
                
                2,500,000Remeasurement
      of beneficial conversion feature of convertible promissory
      note
                
                
                
                
                
                
                
                
                
                
                (8,333,333
                )
                
                
                
                
                
                
                
                
                
                
                (8,333,333
                )Warrant
      repricing
                
                
                
                
                
                
                
                
                
                
                1,147,167
                
                
                
                
                
                
                
                
                
                
                
                1,147,167Share-based
      compensation expense
                
                
                
                
                
                
                
                
                
                
                967,301
                
                
                
                
                
                
                
                
                
                
                
                967,301Net
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (14,246,284
                )
                
                
                (14,246,284
                )Balance
      - December 31, 2009
                
                $
                899,039,687
                
                
                $
                899,040
                
                
                $
                130,008,365
                
                
                $
                (200,000
                )
                
                $
                (140,242,268
                )
                
                $
                (9,534,863
                )See
      Notes to Consolidated Financial Statements.
 
 
 F-5
  AMBIENT
      CORPORATIONCONSOLIDATED
      STATEMENTS OF CASH FLOWSYear
      EndedDecember
      31,2009
                
                
                2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                
                $
                (14,246,284
                )
                
                $
                (11,294,199
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                
                
                302,871
                
                
                
                307,476Amortization
      of note discount
                
                
                -
                
                
                
                1,235,434Amortization
      of beneficial conversion feature of convertible debt
                
                
                3,228,600
                
                
                
                1,246,854Non-cash
      interest related to warrant modification
                
                
                1,147,167
                
                
                
                -Loss
      on extinguishment of debt
                
                
                -
                
                
                
                2,788,865Financing,  consulting
      and other expenses paid via theissuance
      of common stock and warrants
                
                
                967,301
                
                
                
                329,320Loss
      on disposition of property and equipment
                
                
                31,590
                
                
                
                117,598Changes
      in operating assets and liabilities(Increase)
      decrease in:Accounts
      receivables
                
                
                430,178
                
                
                
                (1,475,481
                )Inventory
                
                
                (263,157
                )
                
                
                376,019Prepaid
      expenses and other current assets
                
                
                (28,143
                )
                
                
                (33,244
                )Prepaid
      licensing fees
                
                
                -
                
                
                
                81,997Increase
      (decrease) in:Accounts
      payable
                
                
                681,994
                
                
                
                320,169Deferred
      rent
                
                
                84,906
                
                
                
                -Accrued
      expenses and other current liabilities
                
                
                (107,919
                )
                
                
                341,541Deferred
      revenue
                
                
                50,619
                
                
                
                108,067Net
      cash used in operating activities
                
                
                (7,720,277
                )
                
                
                (5,549,584
                )CASH
      FLOWS FROM  INVESTING ACTIVITIESRedemption
      of marketable securities
                
                
                125,000
                
                
                
                -Purchases
      of marketable securities
                
                
                -
                
                
                
                (125,000
                )Additions
      to property and equipment
                
                
                (394,429
                )
                
                
                (450,725
                )Proceeds
      from sale of property and equipment
                
                
                460
                
                
                
                -Net
      cash used in investing activities
                
                
                (268,969
                )
                
                
                (575,725
                )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of common stock
                
                
                975,955
                
                
                
                242,143Proceeds
      from issuance of warrants
                
                
                -
                
                
                
                3,000,000Finance
      costs relating to the issuance of warrants
                
                
                -
                
                
                
                (45,000
                )Proceeds
      from issuance of notes payable
                
                
                -
                
                
                
                2,500,000Proceeds
      related to the adjustment of terms of convertible
    debentures
                
                
                -
                
                
                
                8,000,000Repayment
      of convertible debentures
                
                
                -
                
                
                
                (103,500
                )Payments
      of capitalized lease obligations
                
                
                (11,463
                )
                
                
                (2,695
                )Net
      cash provided by financing activities
                
                
                964,492
                
                
                
                13,590,948(DECREASE)
      INCREASE IN CASH AND CASH EQUIVALENTS
                
                
                (7,024,754
                )
                
                
                7,465,639CASH
      AND CASH EQUIVALENTS - BEGINNING OF YEAR
                
                
                8,011,764
                
                
                
                546,125CASH
      AND CASH EQUIVALENTS - END OF YEAR
                
                $
                987,010
                
                
                $
                8,011,764Noncash
      financing and investing activities:Issuance
      of warrants in connection with issuance of notes payable
                
                $
                -
                
                
                $
                3,146,078Acquisition
      of property and equipment financed by capital lease
                
                $
                -
                
                
                $
                37,123Supplemental
      disclosures of cash flow information:Cash
      paid during the year for:Interest
                
                $
                675,228
                
                
                $
                115,055See
      Notes to Consolidated Financial
Statements.
    F-6
 AMBIENT
CORPORATION


NOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS




NOTE
1 - DESCRIPTION OF BUSINESS





Ambient
Corporation (referred to herein as “we,” “our,” “us,” “Ambient,” or the
“Company”), incorporated under the laws of the State of Delaware in
June 1996, is a pioneering integrator of a smart grid communications
platform, creating a high-speed Internet Protocols (IP)-based data
communications infrastructure to support all aspects of a smart grid. The
Ambient smart grid platform, known as Ambient Smart Grid®, facilitates a
two-way, real-time communications network to serve the “last mile” backhaul.
This common-core infrastructure is necessary for utilities to implement smart
grid applications such as Advanced Metering Infrastructures (AMI), real-time
pricing, and Demand Side Management (DSM) while enabling distribution monitoring
and automation, as well as direct load control.  When combined, these
applications can offer economic, operational and environmental benefits for
utilities, and their customers.
  Since
2000, Ambient has been focused on the collaborative development of communication
solutions that meet the needs of a smart grid platform. The Ambient’s Smart
Grid® platform, which includes communication nodes, a management system and a
suite of applications, has been designed to be an open, standards-based system
intended to support a variety of applications and services
simultaneously.  Ambient has designed, developed, and delivered three
generations of our Smart Grid® communications nodes.  With each
successive generation, Ambient has continued to support and integrate additional
applications.  During the summer of 2009, Ambient began the design and
development of it fourth generation communication node. Testing of prototypes is
expected to begin during the spring of 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 for its
X2000 and X-3000 communications nodes, license for the Ambient Element
Management System (AmbientNMS®), and engineering support in building out an
intelligent grid platform.
  Our goal
remains to be the leading designer, developer and systems integrator of a
turnkey Ambient Smart Grid® communications platform, incorporating a wide array
of communications technology and protocols and smart grid applications such as
advanced metering solutions and our internally developed energy sensing
capabilities. Also, we view the smart grid communications platform to be a key
factor for utilities to efficiently integrate increasing portfolios of renewable
energy generation and additional products such as recharging stations for
plug-in hybrid electrical vehicles.
  Ambient
intends to actively seek 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
deploying smart grid technologies, primarily in North America. Ambient intends
to continue to collaborate with other technology companies and utility customers
to drive the development of new utility and consumer applications that create
the need for the Ambient Smart Grid® platform.
  To date,
we have funded operations primarily through the sale of our securities. In
connection with the continued development, marketing, and deployment of our
products, technology, and services, we anticipate that we will continue to
augment our revenue generation capabilities with such raises in the future and
anticipate that we will continue to incur losses during 2010.


NOTE
2 - BASIS OF PRESENTATION





Management
believes that its currently available cash resources, together with anticipated
revenues generated from execution on firm purchase orders received to date, and
the committed equity based financing arrangement (see Note 9 below), will be
sufficient to meet its operating requirements through fiscal 2010. Management
does anticipate, however, the need to raise additional capital in order to
expand existing commercial deployments and/or satisfy any additional significant
purchase orders that it may receive.




During
2009, the Company funded its operating cash flow deficit with (i) proceeds from
the private placement of its securities to an institutional investor in 2008,
(ii) proceeds from the issuance of warrants and the adjustment of terms of
convertible debt from the same institutional investor, and (iii) from net
proceeds from the exercise for cash of previously issued warrants and
options.




F-7
 
 
 The
Company has sustained losses since its inception, resulting in operating cash
flow deficiencies, and negative working capital. The Company expects to incur
additional losses in 2010 and may need to raise additional funds in order to
realize its long-range commercial objectives.




NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




PRINCIPLES
OF CONSOLIDATION




The
consolidated financial statements include the accounts of the Company and its
inactive, wholly-owned subsidiary, Insulated Connections Corporation Limited.
The subsidiary has been inactive since 2001. All inter-company balances and
transactions have been eliminated in consolidation.





USE
OF ESTIMATES





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements.
Actual results may differ from those estimates.




CASH
AND CASH EQUIVALENTS





Cash and
cash equivalents consist of cash and short-term investments with insignificant
interest rate risk and original maturities of 90 days or less.




FAIR
VALUE OF FINANCIAL INSTRUMENTS





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




STOCK-BASED
COMPENSATION





The
Company accounts for stock-based compensation in accordance with
accounting guidance now codified as Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 718, “Compensation – Stock
Compensation.” Under the fair value recognition provision of Financialstock-based compensation cost is
estimated at the grant date based on the fair value of the award. The Company
estimates the fair value of stock options granted using the Black-Scholes-Merton
option pricing model.




NET
LOSS PER SHARE





Basic
loss per share (EPS) is computed by dividing net loss available to common
stockholders by the weighted-average number 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 anti-dilutive.




2009
            
            
            2008Stock
      options
            
            
            58,537,000
            
            
            
            32,387,000Warrants
            
            
            78,827,831
            
            
            
            129,216,664Convertible
      debentures
            
            
            666,666,667
            
            
            
            833,333,333




PROPERTY
AND EQUIPMENT




Equipment,
furniture and fixtures are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, which range
from one to five years.





REVENUE
RECOGNITION





Hardware
sales consist of smart grid nodes ("Nodes") as well as system software embedded
in the nodes. System software embedded in Ambient’s Nodes is used solely in
connection with the operation of the product.  Upon the sale and
shipment of its products, Ambient is not required to update the embedded
software for newer versions that are subsequently developed.  In
addition, the Company does not offer or provide any free post-contract customer
support.  There is an original warranty period, which may run for a
period of up to twelve months from sale of product, in which the Company will
provide fixes for the Nodes when and if appropriate. As such, we recognize
revenue from the sales of the Nodes when shipped. Amounts billed to customers
before the Nodes are shipped are classified as deferred revenue.





F-8


The
Company’s other proprietary software consists of the Ambient NMS®; an element
management product that may be sold on a stand-alone basis.  A
purchaser of Ambient’s Nodes is not required to purchase this product, as our
Nodes could be managed with independently developed management software. The
sale of the Ambient NMS® does not include post-contract customer support, unless
the customer enters into a maintenance agreement with the company. As such,
Ambient recognizes revenue from the sale of this software product when shipped.
Amounts billed to customers before software is shipped are classified as
deferred revenue.





The
Company offers maintenance service, on a fee basis that entitles the purchasers
of its Nodes and NMS® software to benefits including telephone support, as well
as updates and upgrades to our products.  Such revenue, when received,
will be amortized over the appropriate period based on the terms of individual
agreements and contracts.





ACCOUNTS
RECEIVABLE




Accounts
receivable are recorded net of an allowance for doubtful accounts based upon
management's analysis of the collectability of the balances. At
December 31, 2009 and 2008, management believed that no allowance was
necessary.




At
December 31, 2009 and 2008, one customer accounted for 99% and 100% of
accounts receivable. See Note 11.




INVENTORY




Inventory
is valued at the lower of cost or market determined on the first-in, first-out
(FIFO) basis. Market, with respect to direct materials, is replacement cost and
is net realizable value for finished goods. 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.




RESEARCH
AND DEVELOPMENT AND PATENT COSTS




Both
research and development costs and patent costs are charged to operations as
incurred.




SOFTWARE
DEVELOPMENT COSTS




Costs
incurred in the research and development of new software products and
enhancements to existing software products have historically been expensed as
incurred. After technological feasibility is established, additional development
costs are capitalized. No software development costs have been capitalized as of
December 31, 2009 and 2008.




LEASED
EMPLOYEES





We have a
contract with Administaff to provide certain professional employment services
such as health, dental and various other types of insurance to our employees at
rates that we would not qualify for otherwise and payroll services to our
personnel. Pursuant to this contract, our personnel are employees of, and paid
by, Administaff as part of an employee leasing arrangement. We lease the
services of these employees from Administaff, and reimburse Administaff for the
costs of compensation and benefits. All of the employees referred to in the
Annual Report are full time employees. For purposes of reporting the number of
employees in our Annual Report, we consider employees of Administaff covered by
this contract to be employees of the Company.





The
Company records these payments using the same classifications for which the
reimbursement is made (i.e. wage reimbursements are recorded as wage
expense).





F-9





INCOME
TAXES




The
Company accounts for income taxes in accordance with accounting guidance now
codified as FASB ASC 740, “Income Taxes,” which requires that the Company
recognize deferred tax liabilities and assets based on the differences between
the financial statement carrying amounts and the tax bases of assets and
liabilities, using enacted tax rates in effect in the years the differences are
expected to reverse. Deferred income tax benefit (expense) results from the
change in net deferred tax assets or deferred tax liabilities. A valuation
allowance is recorded when it is more likely than not that some or all deferred
tax assets will not be realized.







Effective January 1, 2007, the
Company adopted the provisions of FASB ASC 740-10-05, “Accounting for
Uncertainties in Income Taxes.” The ASC clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial
statements.  The ASC prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return.  The ASC
provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.





WARRANTIES




The
Company accounts for its warranties under the FASB ASC 450 “Contingencies.”. The
Company generally warrants that its products are free from defects in material
and workmanship for a period of one year from the date of initial acceptance by
our customers. The warranty does not cover any losses or damage that occurs as a
result of improper installation, misuse or neglect or repair or modification by
anyone other than the Company or its authorized repair agent. The Company's
policy is to accrue anticipated warranty costs based upon
historical percentages of items returned for repair within one year of the
initial sale. The Company’s repair rate of products under warranty has been
minimal, and a historical percentage has not been established. The Company
has not provided for any reserves for such warranty liability.




The
Company’s software license agreements generally include certain provisions for
indemnifying customers against liabilities if the Company's software products
infringe upon a third party's intellectual property rights. The Company has not
provided for any reserves for such warranty liabilities.




The
Company’s software license agreements also generally include a warranty that the
Company's software products will substantially operate as described in the
applicable program documentation. The Company also warrants that services the
Company performs will be provided in a manner consistent with industry
standards. To date, the Company has not incurred any material costs associated
with these product and service performance warranties, and as such the Company
has not provided for any reserves for any such warranty liabilities in its
operating results.




IMPAIRMENT
OF LONG-LIVED ASSETS




The
Company reviews its long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable from future undiscounted cash flows. Impairment losses are recorded
for the excess, if any, of the carrying value over the fair value of the
long-lived assets.  The Company did not record an impairment charge in
2009 and 2008.




FAIR
VALUE MEASUREMENTS




FASB ASC Topic 820, "Fair Value
Measurements and Disclosures" ("ASC 820"),  defines fair value as the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. ASC 820 also establishes a fair value hierarchy that requires
an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The standard describes three
levels of inputs that may be used to measure fair value:




F-10




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.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.




The
Company’s marketable securities at December 31, 2008 consisted of
investments in auction rate securities. Those securities are classified within
Level 1 of the fair value hierarchy because they are valued using quoted
market prices in an active market. The auction rate securities were redeemed in
full in January 2009.


DEVELOPMENT
STAGE


From
inception through the third quarter of 2008, the Company was in the development
stage and had insignificant recurring revenues.  In the fourth quarter of
2008, management determined that the Company was no longer in the development
stage as the Company’s products were being deployed in more significant smart
grid deployments and the prospects for generating significant revenues from
generally available products were increasing. RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS




Effective
July 1, 2009, the FASB’s Accounting Standards Codification became the
single official source of authoritative, nongovernmental generally accepted
accounting principles (“GAAP”) in the United States. The historical GAAP
hierarchy was eliminated and the ASC became the only level of authoritative
GAAP, other than guidance issued by the Securities and Exchange Commission. Our
accounting policies were not affected by the conversion to ASC. However,
references to specific accounting standards in the footnotes to our consolidated
financial statements have been changed to refer to the appropriate section of
ASC.




In
October 2009, the FASB issued new standards for revenue recognition with
multiple deliverables. These new standards impact the determination of when the
individual deliverables included in a multiple-element arrangement may be
treated as separate units of accounting. Additionally, these new standards
modify the manner in which the transaction consideration is allocated across the
separately identified deliverables by no longer permitting the residual method
of allocating arrangement consideration. These new standards are effective for
us beginning in the first quarter of fiscal year 2011; however, early adoption
is permitted. Ambient does not expect these new standards to significantly
impact its consolidated financial statements.




In
October 2009, the FASB issued new standards for the accounting for certain
revenue arrangements that include software elements. These new standards amend
the scope of pre-existing software revenue guidance by removing from the
guidance non-software components of tangible products and certain software
components of tangible products. These new standards are required to be adopted
in the first quarter of 2011; however, early adoption is permitted. Ambient does
not expect these new standards to significantly impact its consolidated
financial statements.





In
January 2010, the FASB issued amended standards that require additional fair
value disclosures. These amended standards require disclosures about inputs and
valuation techniques used to measure fair value as well as disclosures about
significant transfers, beginning in the first quarter of 2010. Additionally,
these amended standards require presentation of disaggregated activity within
the reconciliation for fair value measurements using significant unobservable
inputs (Level 3), beginning in the first quarter of 2011. Ambient does not
expect these new standards to significantly impact its consolidated financial
statements.




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 financial statements.




F-11





NOTE
4 – INVENTORY





Inventory
consisted of the following:


December 31,2009
            
            2008Raw
      material
            
            $
            137,026
            
            
            $
            30,057Finished
      goods
            
            
            224,175
            
            
            
            67,987$
            361,201
            
            
            $
            98,044




NOTE
5 - PROPERTY AND EQUIPMENT


December 31,2009
            
            
            2008Computers
            
            $
            162,768
            
            
            $
            294,954Software
            
            
            367,844
            
            
            
            362,686Software
      (capital lease)
            
            
            30,429
            
            
            
            30,429Machinery
      and equipment
            
            
            539,005
            
            
            
            350,231Furniture
      and office equipment
            
            
            161,394
            
            
            
            147,9411,261,440
            
            
            
            1,186,241Less
      – accumulated depreciation
            
            
            658,028
            
            
            
            642,337$
            603,412
            
            
            $
            543,904


Depreciation
expense was $302,871 and $307,476 for the years ended December 31, 2009 and
2008, respectively.





NOTE
6 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES




December 31,2009
            
            2008Accrued
      interest
            
            $
            690,028
            
            
            $
            748,082Accrued
      payroll and payroll taxes
            
            
            83,070
            
            
            
            62,668Accrued
      professional fees
            
            
            33,034
            
            
            
            92,298Accrued
      liabilities
            
            
            22,909
            
            
            
            33,913$
            829,041
            
            
            $
            936,961





Accrued interest
represents amounts owed to Vicis Capital Master Fund on secured convertible
promissory notes.  See Note 8.


NOTE
7 – CAPITAL LEASE OBLIGATION




The
Company is the lessee of software under a capital lease expiring in 2011. The
asset and liability under the capital lease are recorded at the lower of the
present value of the minimum lease payments or the fair value of the asset. The
asset is amortized over its estimated productive live. Amortization of assets
under capital leases is included in depreciation expense.




Minimum
future lease payments under capital leases as of December 31, 2009, were as
follows:


Amount2010
            
            $
            14,4562011
            
            
            10,842Net
      minimum lease payments
            
            
            25,298Amount
      representing interest
            
            
            (2,331
            )Present
      value of net minimum lease payments
            
            $
            22,967




The
interest rate on the capitalized lease is 9.1%. Interest is computed based on
the lower of the Company’s incremental borrowing rate at the inception of lease
or the lessor’s implicit rate of return.




F-12





NOTE
8 – CONVERTIBLE DEBT


December
      31,2009
            
            
            2008Secured
      Convertible Promissory note payable - interest at 8%, due July 31, 2010
      (i)
            
            $
            7,500,000
            
            
            $
            7,500,000Secured
      Convertible Promissory note payable - interest at 8%, due November 1, 2010
      (ii)
            
            
            2,500,000
            
            
            
            2,500,000Secured
      Convertible Promissory note payable - interest at 8%, due January 15, 2011
      (iii)
            
            
            ––
            
            
            
            2,500,000Total
            
            
            10,000,000
            
            
            
            12,500,000Less:
      Discount
            
            
            (183,609
            )
            
            
            (11,745,542
            )9,816,391
            
            
            
            754,458Less
      Current Portion
            
            
            9,816,391
            
            
            
            ––Total
            
            $
            –
            
            
            $
            754,458




In 2007
and 2008, the Company entered into various financing agreements, with an
institutional investor, Vicis Capital Master Fund (the “Investor” or "Vicis"),
issuing convertible promissory notes in the amount of $12.5 million. In
addition, in 2008, pursuant to a modification agreement, Vicis injected an
additional $8 million in funds into the Company for a reduction in the
conversion price on the outstanding convertible debt.




Subsequently,
in August 2009, $2.5 million of convertible debt principal was converted into
common stock and in January 2010, the remaining outstanding balance of $10
million was converted into common stock. Subsequent to the conversions, as of
March 2010, Vicis held approximately 83.6% of the outstanding shares of the
Company's common stock.




Securities
Purchase Agreements




(i) On
July 31, 2007, the Company entered into the Securities Purchase Agreement
(the "July 07 Purchase Agreement") with Vicis, pursuant to which the
Investor purchased the Company’s Secured Convertible Promissory Note in
aggregate principal amount of $7,500,000 (the “July 07 Note”). The
July 07 Note had a term of three years and was scheduled to become due on
July 31, 2010. The outstanding principal amount of the July 07 Note
was convertible at the option of the holder into shares of the Company’s common
stock (the “Common Stock”) at an initial conversion price of $0.075 per share,
subject to certain adjustments. The conversion price was adjusted to $0.015 in
connection with the various Agreements discussed below.  Amounts owing
under the July 07 Note were secured by substantially all of the assets of
the Company. In January 2010, the July 07 Note was converted into
500,000,000 shares of Common Stock.




Pursuant
to the July 07 Purchase Agreement, the Company issued Common Stock purchase
warrants (the “July 07 Warrants”) to the Investor, exercisable through
July 31, 2012, to purchase up to 150,000,000 shares of Common Stock at
original exercise prices between of $0.06 and $0.075 per share. The exercise
prices were adjusted to $0.001 in connection with the Agreements discussed
below. All of these warrants were exercised on November 24,
2008.





In
connection with this financing, the Company paid fees to a registered broker
dealer of $570,000 and issued warrants to purchase up to 17,350,000 shares of
the Company's Common Stock at a per share exercise price of $0.035 for
16.6 million shares and $0.075 for 750,000 shares.




F-13


For
financial reporting purposes, the Company recorded a discount of $3,959,362 to
reflect the value of the warrants and an additional discount of $2,310,886 to
reflect the beneficial conversion feature of the July 07 Note. The estimated
value of the warrants was determined using the Black-Scholes option pricing
model under the following weighted average assumptions: life of 5 years, risk
free interest rate of 4.88%, a dividend yield of 0% and volatility of 130.22%.
The discounts were being amortized to the date of maturity unless converted
earlier. As discussed below, the Company and the Investor entered into a
Debenture Amendment Agreement. As a result, all of the remaining unamortized
discounts were expensed in 2008.





(ii) On
November 1, 2007, the Company entered into a Securities Purchase Agreement
(the "November 07 Purchase Agreement") with the Investor pursuant to which
the Investor purchased the Company’s Secured Convertible Promissory Note in the
principal amount of $2,500,000 (the “November 07 Note”). The
November 07 Note had a term of three years and was scheduled to become due
on November 1, 2010. The outstanding principal amount of the
November 07 Note was convertible at the option of the holder into shares of
Common Stock at an initial conversion price of $0.045 per share. In connection
with the Debenture Amendment Agreement discussed below, the conversion price was
adjusted to $0.015 per share. Amounts owing under the November 07 Note were
secured by substantially all of the assets of the Company. In January 2010, the
November 07 Note was converted into 166,666,667 shares of Common
Stock.




In
connection with the issuance of the November 07 Note, the Company issued
Common Stock purchase warrants (the “November 07 Warrants”) to the
Investor, exercisable through October 31, 2012, to purchase up to
83,333,334 shares of Common Stock at original exercise prices between $0.045 per
share and $0.05. The exercise prices were adjusted to $0.001 in connection with
the Agreements discussed below. All of these warrants were exercised on
November 24, 2008.





For
financial reporting purposes, the Company recorded a discount of $1,127,634 to
reflect the value of the November 07 Warrants and an additional discount of
$294,301 to reflect the beneficial conversion feature of November 07 Note. The
estimated value of the warrants was determined using the Black-Scholes option
pricing model under the following weighted average assumptions: life of 5 years,
risk free interest rate of 3.67%, a dividend yield of 0% and volatility of
127.4%. The discounts were being amortized to the date of maturity unless
converted earlier. As discussed below, the Company and the Investor entered into
a Debenture Amendment Agreement. As a result, all of the remaining unamortized
discounts were expensed in 2008.





(iii) On
January 15, 2008, the Company entered into a Securities Purchase Agreement
(the "January 2008 Purchase Agreement") with the Investor pursuant to which
the Investor purchased the Company’s Secured Convertible Promissory Note in the
principal amount of $2,500,000 (the “January 08 Note”; together with the
November 07 Note and the July 07 Note, the “Notes”). The January 08 Note
had a term of three years and was scheduled to become due on January 15,
2011. The outstanding principal amount of the January 08 Note was
convertible at the option of the holder into shares of Common Stock at an
initial conversion price of $0.035 per share. In connection with the Debenture
Amendment Agreement discussed below, the conversion price was adjusted to $0.015
per share. Amounts owing under the January 08 Note were secured by
substantially all of the assets of the Company. In August 2009, the
January 08 Note was converted into 166,666,667 shares of Common
Stock.





In
connection with the issuance of the January 08 Note, the Company issued
Common Stock purchase warrants (the “January 08 Warrants”; together with
the November 07 Warrants and the July 07 Warrants, the “Investor
Warrants”) to the Investor, exercisable through January 15, 2013, to
purchase up to 107,142,857 shares of Common Stock at an original exercise price
of $0.035 per share. The exercise price was adjusted to $0.001 in connection
with the April 08 Purchase Agreement discussed below. All of these Warrants were
exercised on November 24, 2008.




In
connection with the financing, the Company issued, as compensation to a
registered broker dealer, warrants to purchase up to 14,999,999 shares of the
Company's Common Stock at a per share exercise price of $0.035.




For
financial reporting purposes, the Company recorded a discount of $1,459,189 to
reflect the value of the warrants and an additional discount of $1,040,811 to
reflect the beneficial conversion feature of January 08 Note. The estimated
value of the warrants was determined using the Black-Scholes option pricing
model under the following weighted average assumptions: life of 5 years, risk
free interest rate of 3%, a dividend yield of 0% and volatility of 127.4%. The
discounts were being amortized to the date of maturity unless converted earlier.
As discussed below, the Company and the Investor entered into a Debenture
Amendment Agreement. As a result, all of the remaining unamortized discounts
were expensed in 2008.





F-14





Debt
Modification





On
November 21, 2008, the Company and the Investor entered into a Debenture
Amendment Agreement (the “Debenture Amendment Agreement”), pursuant to which the
Investor invested in the Company an additional $8 million. In consideration
of the investment, the Company reduced the conversion price on the Notes
referred to above to $0.015 per share. The parties also agreed that in the event
that on the trading day immediately preceding June 1, 2009, the closing per
share price of the Common Stock was 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.  The price of the
Common Stock was greater than $0.10 on the trading day immediately preceding
June 1, 2009, and therefore no further adjustment of the conversion price
was effected.




In
addition, in consideration for the investment, the parties agreed under the
Debenture Amendment Agreement to remove all conversion caps from the Warrants,
which were contractual provisions that prevented the Investor from exercising an
amount of such warrants to the extent that the Investor would beneficially own
(i) greater than 4.99% of the outstanding Common Stock, and (ii) greater than
9.99% of the outstanding Common Stock without providing the Company with a
sixty-one day notice In addition, Vicis agreed to waive, until further notice,
the Company’s obligation to file on or before December 15, 2008 a resale
registration statement with respect to the shares of Common Stock underlying the
Notes and the Warrants. Vicis also agreed to not sell, through May 31, 2009, any
shares of the Company’s Common Stock.





The
Company accounted for the modification of the Convertible Promissory Notes, as
described above, as an extinguishment of debt.  The Company deemed the
terms of the amendment to be substantially different and treated the Convertible
Promissory Notes as extinguished and exchanged for new notes. As such, it was
necessary to reflect the Convertible Promissory Notes at fair market value and
record a loss on extinguishment of debt of approximately $2.8
million.





The fair
value of the Convertible Promissory Notes was determined utilizing Level 3
inputs. The fair value of the Convertible Promissory Notes was calculated
utilizing the fully diluted market value of the invested capital of the Company
immediately before and after the date of the debt modification. The fair value
was determined to be the face value of the Convertible Promissory Notes at the
date of the debt modification.





For
financial reporting purposes, the Company recorded an initial discount of
$12,500,000, based upon a conversion price of $0.01 to reflect the beneficial
conversion feature related to the Debenture Modification Agreement. The discount
is being amortized to the date of maturity of the various Convertible Promissory
Notes unless converted earlier. On June 1, 2009, the beneficial conversion
feature was re-measured based on the final conversion price being set at $0.015.
This resulted in a reduction in the initial value of the beneficial conversion
feature of $8,333,333 and a like reduction to additional paid-in
capital.




Interest
incurred on convertible debt amounted to $614,822 and $671,461 for the years
ended December 31, 2009 and 2008, respectively. Amortization of the discounts
related to the convertible debentures and notes above totaled $3,228,600 and
$2,482,288 for the years ended December 31, 2009 and 2008. In addition, on
June 30, 2009, the Company 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
is reflected as additional interest expense.  As a result of the debt
conversions of the July 07 Note and the January 08 Note in January 2010, the
unamortized debt discounts totaling $183,609 will be charged to interest expense
in the next reporting period.




NOTE 9 - STOCKHOLDERS'
EQUITY




On
November 16, 2009, the Company entered into a Securities Purchase Agreement
(the "2009 Securities Purchase Agreement") with Vicis pursuant to which Vicis
originally furnished to the Company access to a $3,000,000 equity based credit
line. Pursuant to the 2009 Securities Purchase Agreement, Vicis established an
escrow account (the “Holdback Account”) into which it originally deposited
$3,000,000. If the Company’s cash resources fall below $1,500,000, the Company
is entitled to receive $500,000 from the Holdback Account, and prior to the
Amendment (defined below), in consideration of which, it was obligated to issue
to Vicis, 3,333,333 shares of its Common Stock, as well as Series G
Warrants for a corresponding number of shares of Common Stock. Any amounts in
the Holdback Account that are not disbursed on or prior to June 30, 2011
(as such date may extended by mutual agreement of the parties) will be returned
to Vicis.




F-15


On
January 15, 2010, the Company and Vicis entered into an amendment (the
“Amendment”) to the 2009 Securities Purchase Agreement pursuant to which Vicis
depositan
additional $5 million into the Holdback Account such that the total amount in
the Holdback Account, prior to any drawdown by the Company, was $8,000,000.
Under the Amendment, Ambient continues to be entitled to draw down on the
Holdback Account as needed until the entire $8,000,000 is exhausted. In
consideration of Vicis’ increase of the Holdback Account and its agreement to
convert the Notes referred to in Note 8 above, the Company agreed that upon each
drawdown from the Holdback Account, which is required to be in the amount
of $500,000, the Company will issue to Vicis 5,000,000 Shares and Warrants for a
corresponding number of shares of Common Stock.




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 underlying the Warrants. The Warrants provide that such security may not
be converted or exercised if, following such conversion or exercise, as the case
may be, Vicis will hold in excess of 4.99% of the Company’s then issued and
outstanding Common Stock. However, Vicis is entitled, upon 61 days written
notice to the Company, to waive these restrictions on conversion and/or
exercise.




For the
period January 1, 2010 through March 16, 2010, the Company effected three
drawdowns in the amount of the $500,000 each, in consideration of which it
issued to Vicis 15,000,000 shares of the Company’s Common Stock and Warrants
exercisable through January 19, 2012 to March 16, 2012 to purchase an additional
15,000,000 shares of the Company’s Common Stock at a per share exercise price of
$0.25.




STOCK
OPTION PLANS




In
November 2000, the Company adopted the 2000 Equity Incentive Plan (the
"2000 Incentive Plan"). The 2000 Incentive Plan provides for the grant of
incentive stock options, nonqualified stock options, stock appreciation rights,
restricted stock, bonus stock, awards in lieu of cash obligations, other
stock-based awards and performance units. The 2000 Incentive Plan also permits
cash payments under certain conditions. As of December 31, 2007, the number
of shares of Common Stock reserved for issuance under the 2000 Incentive Plan
was 25,000,000. On June 27, 2008, the number of shares reserved for
issuance was further increased to 50,000,000 shares. On February 4, 2010, the
number of shares reserved for issuance was further increased to 110,000,000
shares




The
compensation committee of the Board of Directors is responsible for determining
the type of award, when and to whom awards are granted, the number of shares and
the terms of the awards and exercise prices. The options are exercisable for a
period not to exceed ten years from the date of grant. Vesting periods range
from immediately to four years.




In
December 2002, the Company adopted the 2002 Non-Employee Directors Stock
Option Plan (the "2002 Directors Plan") providing for the issuance of shares of
Common Stock to non-employee directors. Under the 2002 Directors Plan, only
non-qualified options may be issued, and they will be exercisable for a period
of six years from the date of grant. As of December 31, 2007, the number of
shares of Common Stock reserved for issuance under the 2002 Directors Plan was
6,000,000 shares. On June 27, 2008, the number of shares reserved for
issuance was increased to 12,000,000 shares. On February 4, 2010, the number of
shares of Common Stock reserved for issuance was further increased to 25,000,000
shares




F-16





EMPLOYEE
OPTIONS




In
January and February, 2010, the Company issued options to employees from the
Company’s 2000 Equity Incentive Plan to purchase up to a total of 200,000 shares
of the Company’s Common Stock at an exercise price of $0.15. The options will be
fully vested as of December 1, 2011.




In
February and March 2010, the Company issued a total of 225,000 shares of Common
Stock upon the exercise of stock options previously issued to employees from the
Company’s 2000 Equity Incentive Plan




OTHER
OPTION GRANTS




In
addition to the options granted under the stock option plans discussed above
(the "Plans”), the Company has issued options outside of the Plans, pursuant to
various employment, consulting and separation agreements.




Option
activity for 2009 and 2008 is summarized as follows:


WeightedAveragePlan
            
            
            Nonplan
            
            
            Total
            
            
            Exercise
              PriceOptions
      outstanding, January 1, 2008
            
            
            28,587,000
            
            
            
            3,720,000
            
            
            
            32,307,000
            
            
            $
            0.25Granted
            
            
            1,700,000
            
            
            
            200,000
            
            
            
            1,900,000
            
            
            
            0.03Exercised
            
            
            ––
            
            
            
            ––
            
            
            
            ––
            
            
            
            ––Forfeited
            
            
            (1,675,000
            )
            
            
            (145,000)
            
            
            
            (1,820,000
            )
            
            
            0.16Options
      outstanding, December 31, 2008
            
            
            28,612,000
            
            
            
            3,775,000
            
            
            
            32,387,000
            
            
            
            0.17Granted
            
            
            27,450,000
            
            
            
            ----
            
            
            
            27,450,000
            
            
            
            0.04Exercised
            
            
            (750,000)
            
            
            
            ––
            
            
            
            (750,000)
            
            
            
            0.06Forfeited
            
            
            (400,000
            )
            
            
            (150,000)
            
            
            
            (550,000
            )
            
            
            0.13Options
      outstanding, December 31, 2009
            
            
            54,912,000
            
            
            
            3,625,000
            
            
            
            58,537,000
            
            
            $
            .109Shares
      of Common Stock available forFuture
      grant under the plans
            
            
            4,737,100Aggregate
      intrinsic value
            
            $
            4,149,725





The
aggregate intrinsic value was calculated based on the positive difference
between the closing market price of the Company’s Common Stock and the exercise
price of the underlying options.




The
following table summarizes information about stock options outstanding at
December 31, 2009:




Weighted
      Average
            
            
            Options
      ExercisableRemaining
            
            
            Weighted
      AverageNumber
            
            
            Contractual
            
            
            Exercise
            
            
            Number
            
            
            ExerciseRanges
      of price
            
            
            Outstanding
            
            
            Life
            
            
            Price
            
            
            Exercisable
            
            
            Price$
            0.03-.045
            
            
            
            36,642,500
            
            
            
            7.88
            
            
            $
            0.037
            
            
            
            36,192,500
            
            
            $
            0.037$
            0.05
      - $.06
            
            
            
            350,000
            
            
            
            6.79
            
            
            $
            0.053
            
            
            
            350,000
            
            
            $
            0.053$
            0.10
      - $.164
            
            
            
            1,420,000
            
            
            
            6.08
            
            
            $
            0.132
            
            
            
            1,020,000
            
            
            $
            0.123$
            0.20
      - $0.300
            
            
            
            17,899,500
            
            
            
            3.56
            
            
            $
            0.205
            
            
            
            17,549,500
            
            
            $
            0.206$
            0.50
            
            
            
            2,225,000
            
            
            
            2.54
            
            
            $
            0.500
            
            
            
            2,225,000
            
            
            $
            0.500$
            0.03-$0.50
            
            
            
            58,537,000
            
            
            
            6.31
            
            
            $
            0.109
            
            
            
            57,337,000
            
            
            $
            0.108





F-17


Share
based compensation - The fair values of stock options granted were estimated
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:




2009
            
            
            2008Risk
      free interest rate
            
            
            1.07%-
      2.66
            %
            
            
            1.45%-
      1.87
            %Expected
      life
            
            
            3.5
      -5.75
            
            
            
            1.5
      -5.75Expected
      volatility
            
            
            162%
      - 169
            %
            
            
            133%
      - 162
            %Dividend
      yield
            
            
            ––
            
            
            
            ––Weighted-average
      grant date fair value per share
            
            $
            0.035
            
            
            $
            0.019





As of
December 31, 2009, there was $73,000 of unrecognized compensation cost related
to nonvested options granted. That cost is expected to
be recognized over a weighted-average period of 9.9 months.




WARRANTS




On
April 23, 2008, the Company entered into a Securities Purchase Agreement
(the "April 08 Purchase Agreement") with the Investor referred to in Note 8
above pursuant to which the Company issued to the Investor, in consideration of
an investment of $3,000,000, warrants (the “April 2008 Warrants”),
exercisable through April 2013, to purchase up to 135,000,000 shares of the
Company’s Common Stock, at a per share exercise price of $0.001.




In
connection with the financing, a registered broker dealer received $45,000 as
compensation payment and was issued warrants to purchase up to 1,000,000 shares
of the Company's Common Stock at a per share exercise price of
$0.035.




On
November 24, 2008, the Company issued 464,365,080 shares of its Common
Stock to Vicis upon its exercise of all outstanding Investor Warrants through a
combination of “cashless exercises” as well as for “cash exercises.” The Company
received cash proceeds of $242,143 from the cash exercises.




A summary
of the warrants outstanding at December 31, 2009 is as follows:




Exercise
            
            ExpirationWarrants
            
            Price
            
            Date41,311,165
            
            $
            0.035
            
            2012
      - 2013750,000
            
            $
            0.075
            
            201236,766,666
            
            $
            0.25
            
            201178,827,831




In March
2010, the Company issued 2,144,000 shares of Common Stock upon the exercise of
finder warrants previously issued from the July 07 funding.




Warrant
Modification




In
May 2006, the Company raised net proceeds of $8.986 million in a
private placement of $10,000,000 in principal amount of its two-year 8%
Convertible Debentures (the "2006 Debentures"). The balance was repaid in its
entirety by January 2008. Investors in the private placement also received
Class A warrants, exercisable through June 30, 2009, to purchase up to
33,333,333 shares of the Company's Common Stock at a per share exercise price of
$0.20 and Class B warrants, exercisable through June 30, 2011, to
purchase up to 33,333,333 shares of the Company’s Common Stock at a per share
exercise price of $0.25.




F-18


In
connection with the placement of the 2006 Debentures, the Company issued to a
registered broker dealer that acted as placement agent warrants consisting of
(x) warrants to purchase an aggregate of 6,666,667 shares of Common Stock having
an initial exercise price equal to $0.15, (y) warrants to purchase an aggregate
of 3,333,333 shares of Common Stock having an initial exercise price equal to
$0.20, and (z) warrants to purchase an aggregate of 3,333,333 shares of Common
Stock having an initial exercise price equal to $0.25. Except as specifically
noted, these warrants otherwise are on substantially the same terms and
conditions as the investor warrants.




On
June 30, 2009, the Company modified the terms of the expiring Class A
warrants. Under the new terms the warrants were exercisable thought
August 31, 2009 and the exercise prices were reduced from $.20 to $0.15 per
share. The Company valued the warrant modification at $1,147,167 using the
Black-Scholes pricing model and the following assumptions: contractual term of
0.167 years, an average risk-free interest rate of 0.19% a dividend yield of 0%
and volatility of 93%. The resulting of $1,147,167 is reflected in the Statement
of Operations for 2008 as interest expense.




Following
the modification, Class A warrants for an aggregate of 6,283,333 shares of
the Company’s Common Stock have been exercised for total net cash exercise
proceeds of $848,250 through August 31, 2009, and 30,383,333 Class A
warrants expired.




NOTE
10 - INCOME TAXES




At
December 31, 2009, the Company had available $77 million of net
operating loss carry forwards, for U.S. income tax purposes which expire in the
years 2016 through 2029. However, due to changes in stock ownership, the use of
the U.S. net operating loss carry forwards is severely limited under
Section 382 of the Internal Revenue Code. As such, approximately
$61 million of these net operating loss carry forwards will expire as
worthless. The Company has ceased its foreign operations and has abandoned the
foreign net operating loss carry forwards.




Due to
the uncertainty of their realization, no income tax benefit has been recorded by
the Company for these loss carry forwards as valuation allowances have been
established for any such benefits.




Significant
components of the Company's deferred tax assets for U.S. income taxes are as
follows:


December
      31,2009
            
            
            2008Net
      operating loss carry forwards
            
            $
            6,568,369
            
            
            $
            2,735,184Stock
      based compensation
            
            
            734,654
            
            
            
            355,734Other
            
            
            583,860
            
            
            
            555,204Total
      deferred tax assets
            
            
            7,886,883
            
            
            
            3,646,122Valuation
      allowance
            
            
            (7,886,883
            )
            
            
            (3,646,122
            )Net
      deferred tax assets
            
            $
            ––
            
            
            $
            ––




The
increase in the valuation allowance was due to the increases in the items in the
table above.




The
following is a reconciliation of the federal statutory tax rate of 35% for 2009
and 2008, with the provision for income taxes:


December
      31,2009
            
            
            2008Statutory
      tax rate
            
            
            (35
            %)
            
            
            (35
            %)Valuation
      allowance
            
            
            35
            %
            
            
            35
            %Effective
      federal tax rate
            
            
            0
            %
            
            
            0
            %




At
December 31, 2009 and 2008, the Company had no material unrecognized tax
benefits, and no adjustments to liabilities or operations were required. The
Company does not expect that its unrecognized tax benefits will materially
increase within the next twelve months. The Company did not recognize any
interest or penalties related to uncertain tax positions at December 31,
2009 and 2008.




The
Company files U.S. and state income tax returns in jurisdictions with varying
statutes of limitations. The 2006 through 2009 tax years generally remain
subject to examination by federal and most state tax authorities.




F-19





NOTE
11 – CONCENTRATIONS




CASH
AND CASH EQUIVALENTS




Cash and
cash equivalents are maintained with major financial institutions in the United
States.  At December 31, 2009 and 2008, no amounts were in excess
of insured amounts.





SALES
AND MAJOR CUSTOMERS





Revenues
for the years ended December 31, 2009 and 2008 were as
follows:




December
      31,
              2009
            
            
            December
      31,
              2008Hardware
            
            $
            2,127,977
            
            
            $
            12,136,283Software
      and services
            
            
            65,361
            
            
            
            486,070$
            2,193,338
            
            
            $
            12,622,353




Duke
Energy accounted for 100% of hardware, software and services revenues for the
years ended December 31, 2009 and 2008, respectively.




MAJOR
SUPPLIER





In both
2009 and 2008, we utilized one contract manufacturer to produce our
nodes. Should our relationship with the manufacturer deteriorate or
terminate or should this supplier lose some or all of its access to the products
or components that comprise all or part of the nodes that we purchase from it
our performance could be adversely affected.  Under such circumstances, we
would be required to seek alternative sources of supply for these products, and
there can be no assurance that we would be able to obtain such products from
alternative sources on the same terms.  A failure to obtain such products
on as favorable terms could have an adverse effect on our revenue and/or gross
margin.




NOTE
12 - COMMITMENTS




EMPLOYMENT
AGREEMENTS




On
December 30, 2008, the Board of Directors approved an amended and restated
employment agreement with the Company's Chief Executive Officer. The term of the
agreement is currently scheduled to expire on December 31, 2010, provided
that after expiration of the term, the agreement will automatically renew for
additional one-year terms, unless terminated by the Company upon written notice
given not less than 90 days prior to the expiration of the term. Under the
agreement, the officer is paid an annual salary of $330,000, subject to annual
cost of living adjustments. The agreement also contains certain provisions for
early termination, including in the event of a change in control, which may
result in a severance payment equal to two years of base salary then in effect
and the continuation of certain benefits.




On
June 2, 2008, the Company entered into an amended and restated employment
agreement with its Chief Technical Officer. The agreement was scheduled to
expire on December 31, 2009, provided that the agreement is subject to
renewal for additional one-year terms, unless terminated in accordance with the
agreement upon 60 days’ prior notice. The agreement was renewed through December
31, 2010. Under the agreement, the officer is paid an annual salary of $225,000
subject to review. The agreement also contains certain provisions for early
termination, which may result in a severance payment equal to one year of base
salary then in effect.




On
June 2, 2008, the Company entered into an employment agreement with its
Vice President of Operations. The agreement was scheduled to expire on
December 31, 2009, provided that the agreement is subject to renewal for
additional one-year terms, unless terminated in accordance with the agreement
upon 60 days’ prior notice. The agreement was renewed through December 31, 2010.
Under the agreement, the Vice President of Operations is paid an annual salary
of $175,000 subject to review. The agreement also contains certain provisions
for early termination, which may result in a severance payment equal to one year
of base salary then in effect.





NOTE
13 - OPERATING LEASES




Ambient
does not own any real property. The Company's corporate office in Newton,
Massachusetts consists of two floors comprised of approximately 20,242 square
feet. The lease term for the premises was scheduled to commence on September 1,
2009 and continues through December 31, 2012. At our request, the landlord
agreed that we could commence the lease earlier and we completed the move into
our new headquarters in August 2009.





F-20


The lease
provides for an initial period of the lease to be rent free and includes
scheduled rent escalations.  Accounting principals generally accepted
in the United States of America require that the total rent expense to be
incurred over the term of the lease be recognized on a straight-line basis.
Deferred rent represents the cumulative excess of the straight-line expense over
the payments made.  The average annual rent expense over the term of
the lease is approximately $304,000.





Rent
expense for 2009 and 2008 was $290,430 and $233,315, respectively.




Future
minimum annual rentals through 2012 is as follows:




Years
      ended December 31,2010
            
            $
            203,1862011
            
            
            389,8852012
            
            
            403,839Total
            
            $
            996,910





NOTE
14 - COMMERCIAL DEPLOYMENT AGREEMENTS




In
September 2009, the Company and Duke Energy entered into a long-term
agreement to supply Ambient’s latest X-series smart grid nodes, the X-3100 (the
“Product”) for deployment throughout the utility’s electric power distribution
grid. The agreement also provides for a license of the node software and the
network management system software to operate and manage the Product.
Additionally, the agreement establishes the terms for Ambient provided
maintenance service and support for which Duke Energy will be required to pay an
established maintenance fee beginning at the expiration of the stated warranty
period.





The
agreement is in effect until December 31, 2015, subject to various rights
of the parties to terminate the agreement prior to such time. Ambient has agreed
to provide maintenance services potentially extending for ten years after the
termination of the agreement if Duke Energy continues to pay for such
maintenance services on a non- interrupted basis throughout the extended period.
The agreement continues the relationship that Ambient initiated with Duke Energy
in 2005, initially involving various pilot programs. Under the terms of the
agreement, the Company, to date, has received purchase orders for product to be
delivered through third quarter of 2010, amounting to approximately $10.0
million.  These purchase orders resulted in recorded revenue of
approximately $1.3 million for the year ended December 31,
2009.




F-21