<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
            Annual Report for the fiscal year ended December 31, 2002

                               AMBIENT CORPORATION
        (Exact name of Small Business Issuer as specified in its chapter)



Delaware                            0-23723                 98-0166007
(State or Other Jurisdiction        (Commission File        (IRS Employer
of Incorporation)                   Number)                 Identification No.)

               1033 BEACON STREET, BROOKLINE, MASSACHUSETTS, 02446
                    (Address of Principal Executive Offices)

                                  617-735-9395
         (Small Business Issuer's Telephone Number, including Area Code)

     [Mark One]

     |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002

     |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

      Securities Registered Pursuant to Section 12(B) of the Exchange Act:
                                      None

      Securities Registered Pursuant to Section 12(G) of the Exchange Act:
                          $.001 Par Value Common Stock

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Company was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes |X| No |_|

     Check if there is no disclosure contained herein of delinquent filers in
response to Item 405 of Regulation S-B, and will not be contained, to the best
of the Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|

     The Issuer did not report any revenues for the year ended December 31,
2002.

     As of March 31, 2003, there were 70,589,634 outstanding shares of the
issuer's Common Stock. The aggregate market value of the shares of the issuer's
Common Stock held by non-affiliates was approximately $3 million. Such market
value was calculated using the closing price of such common stock as of such
date as quoted on the OTC Electronic Bulletin Board.

     Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|

<PAGE>

                           FORWARD LOOKING STATEMENTS

     THE FOLLOWING DISCUSSION AND EXPOSITIONS SHOULD BE READ IN CONJUNCTION WITH
THE FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THIS FORM
10-KSB. 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 CONTINUING
IN BUSINESS; EXPECTATIONS AS TO PRODUCT PERFORMANCE; EXPECTATIONS AS TO MARKET
ACCEPTANCE OF THE COMPANY'S TECHNOLOGY; INTENTIONS TO ACQUIRE OR DEVELOP OTHER
TECHNOLOGIES; AND BELIEF AS TO THE SUFFICIENCY OF CASH RESERVES. BECAUSE
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, THERE ARE IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE,
BUT ARE NOT LIMITED TO, THE COMPANY'S INABILITY TO CONTINUE OPERATIONS; THE
COMPANY'S INABILITY TO IMMEDIATELY OBTAIN FINANCING; THE EFFECT OF A GOING
CONCERN STATEMENT BY THE COMPANY'S AUDITOR'S; THE COMPETITIVE ENVIRONMENT
GENERALLY AND IN THE COMPANY'S SPECIFIC MARKET AREAS; CHANGES IN TECHNOLOGY; THE
TECHNOLOGY IS UNPROVEN; THE ENCUMBRANCE OF THE COMPANY'S 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; CHANGES IN OPERATING STRATEGY OR
DEVELOPMENT PLANS; THE ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL; AND
CHANGES IN THE COMPANY'S ACQUISITIONS AND CAPITAL EXPENDITURE PLANS. 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.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

INTRODUCTION

     Ambient Corporation ("Ambient" or the "Company") is a development stage
company engaged in the architecture, design, development and implementation of a
proposed comprehensive high-speed communication infrastructure that is designed
to utilize existing electrical power distribution lines as a high-speed
communication medium, thereby enabling existing electrical distribution systems
to function as 'broadband pipelines'. Although historically used for low speed
data communication, existing electrical power lines have not been used for
high-speed data transmission, due to certain technological and infrastructure
limitations. Ambient has designed and developed proprietary and patent protected
and pending technologies designed to overcome these limitations and has
positioned itself as a leading systems integrator for powerline communication.
The Company's proposed powerline communication technology solution entails
partnering arrangements with leading utilities, their affiliates and other
technology companies in order to complete the design, development, testing and
commercialization of our solution. The Company is currently working with
technology and utility companies in the design, development and testing of its
proposed solution and its various components/technologies.

                                        2
<PAGE>

     The Company was incorporated under Delaware law in June 1996. The principal
executive offices of the Company are located at 1033 Beacon Street, Brookline,
Massachusetts, 02446.

GENERAL BACKGROUND

HIGH SPEED COMMUNICATIONS (BROADBAND)

     The telecommunications industry has changed dramatically over the past
decade. Deregulation led to increased competition and tremendous growth
opportunity, making the telecommunications industry one of the fastest growing
industries in the world during the last ten years. Products and services
providing consumer access to high-speed communication comprise a multi-billion
dollar market in the United States alone. As broadband technologies mature,
exponential growth in users and services is also occurring. The number of
households in the United States with broadband Internet is estimated at 20
million today and by 2005 that figure is estimated to be at approximately 35
million.

     Internet communications worldwide can be divided into the "backbone"
network and the "access" network. The backbone networks are typically comprised
of optical fiber cables between cities, countries and continents that provide
essentially unlimited capacity for sending relatively large amounts of data over
long distances. However, the optical fiber technology used for the backbone
network is considered too expensive and disruptive to extend to each individual
user. Accordingly, distributing data from the backbone network to homes and
business is done via an "access" network, also referred to as the "last mile"
network.

     To date, traditional access networks have included modems connected to
conventional telephone lines, higher speed digital subscriber telephone lines
(DSL), cable TV with data modems in set-top boxes and, more recently, wireless
networks. Powerline communication technology represents an opportunity for
electrical utilities to take part in this high growth, high margin industry.

     The use of electrical power lines as an access method is, in management's
view, an especially attractive proposition given the widespread infrastructure
"wiring" already in place. The same electrical wiring that carries electrical
power to individual homes and businesses can also transmit high-speed data.
However, there are certain infra-structural limitations that have, until
recently, effectively precluded the use of conventional electrical power grids
as an affordable and achievable access method.

LIMITATIONS INHERENT IN UTILIZATION OF POWERLINE COMMUNICATION SOLUTIONS

     Electrical power is generated at a power station and furnished to an urban
or rural substation, which services a neighborhood, typically extending over
several square miles. The electrical power generated at the power station is
sent over relatively high voltage lines and is stepped down to lower voltages at
various stages of distribution. At the substation level, a "step-down
transformer" reduces the high voltage electrical power generated to "medium"
voltage for further distribution within the neighborhood. The "medium" voltage
is further reduced by "distribution transformers" typically located on the poles
to the lower voltage levels utilized by industrial, commercial and residential
premises.

     Distribution transformers are extensive in countries such as the US, where
power is supplied to consumers at 120 volts or less, and each transformer needs
to be located near its load. However, distribution transformers block the
transmission of high frequency data. Accordingly, a means to bypass the
distribution transformer is required. Ambient's "bypass coupler" is considered a
highly effective bridge around the distribution transformer.

                                       3
<PAGE>

     The conventional option for bypass coupling was to use capacitive couplers,
which need to be physically (and therefore electrically) connected directly to
the medium voltage lines. To achieve the electrical connection the capacitive
coupler needs to include a capacitor that can withstand high voltage, and is
therefore relatively expensive to manufacture. The cost of such a key component
in the overall system has represented a significant hurdle in the development of
an economical solution to offering consumer services over the power distribution
infrastructure.

AMBIENT'S PROPOSED SOLUTION

     Ambient has designed, developed and successfully tested, on a small limited
trial basis, its bypass coupler technology that is designed to achieve
high-speed data transfer to and from the neighborhood distribution lines without
the need to establish an electrical connection. Ambient's couplers have been
designed to slip around overhead low or medium voltage distribution wires.
Accordingly, the Company anticipates that implementation costs of its technology
will be significantly lower in comparison to the conventional solutions that
attempt to use a capacitive bypass coupler thereby affording a cost effective
powerline telecommunications technology solution. In September 2002, the Company
was issued a patent with respect to its bypass coupler technology.

     In order to be commercially deployed, Ambient's proposed powerline
communications network architecture needs to be integrated with related
equipment and technologies that the Company has been developing in conjunction
with third-party technology partners. Powerline modems need to cope with the
particular challenges of power lines, including signal loss and noise.

     An integral component of Ambient's proposed powerline communications
solution are the nodes, or communication controllers that enable the
transmission of high frequency signals over electrical lines. In 2001, the
Company entered into an agreement with Design of Systems on Silicon ("DS-2"), a
leading Spanish silicon design company, pursuant to which DS-2 will provide
modem/communication chipsets that convert digital bit streams into high
frequency data signals, and back again. The DS-2 technology has been integrated
into Ambient's communications system network architecture for field trial
testing.

     Over the course of the past two years, the Company has entered into an
agreement with Aquila Technologies Group, Inc., a subsidiary of Canberra
Industries (Parent Company, Cogema Instruments, Inc.), a leading provider of
research and development and equipment fabrication ("Aquila") pursuant to which
Aquila has undertaken to assist in the design and development, of the
communications controller or nodes. Initial prototypes of the equipment have
been installed and monitored in a field trial since May 2002.

     Additionally, Aquilla undertook to coordinate large scale offshore
manufacturing facilities, monitor legislative activities and government funded
research activities in the powerline telecommunications technology area and
pursue opportunities for our technologies in a variety of other arenas.

     Management believes that active participation of utilities or utility
operators is also essential to the design and development of equipment, testing
of the proposed solution and eventual successful commercial deployment. In
December 2001, the Company entered into a testing and development agreement with
Southern Telecom, Inc. ("STI"), a provider of telecommunications related
services in the southern United States and a subsidiary of Southern Company, a
leading energy company and the parent company of five operating utilities in the
Southeast region of the United States, pursuant to which the Company and STI
contemplate the design and development of hardware products and a six phase
development project to explore and evaluate the feasibility of high speed
communications over the utility's electric power delivery infrastructure
utilizing both medium voltage primary and low voltage secondary lines. The STI
agreement contemplates the development of hardware coupling to

                                       4
<PAGE>

such utility's power system, identifying and designing the communications and
utility systems architecture and the conduct of field trials. The agreement
provides that the Company and STI together own any jointly created technology
resulting from the project. Ambient was granted royalty free licenses to use the
jointly developed technology worldwide, except within specified geographic areas
within the United States which are reserved to STI. The Company has initiated a
field trial of its proposed technology and related equipment on the distribution
grid of an affiliate of STI, which field trial the Company anticipates expanding
over the course of 2003, subject to the Company successfully raising sufficient
financing necessary for it to maintain its operations.

     In February 2002, the Company and Consolidated Edison Company of New York,
Inc. ("CECONY"), entered into a research and development agreement whereby
Ambient and CECONY have agreed to cooperate in the further research and
development of high-speed communication via electric power lines. Expanding upon
the informal research and development arrangement that has existed between the
Company and CECONY from mid 2000, the agreement contemplates that CECONY and
Ambient pool their efforts to further develop and test the feasibility of
Ambient's proposed high speed powerline communications technology with the goal
of commercialization of this technology. The agreement with CECONY contemplated
the creation of a fully functioning powerline communication demonstration
intended to demonstrate medium voltage to low voltage connectivity at speeds,
distances and configurations that are mutually agreed upon. The demonstration
was successfully established during the second quarter 2002 and has been
monitored and expanded throughout 2002. The parties are currently preparing to
scale the demonstration to a small field trial designed to implement and
evaluate connectivity/services involving a minimum of twenty residential
premises or commercial establishments (the "Small Field Trial"). Following the
success of the Small Field Trial, the parties are to expand the field trial to a
larger area with significant more sites. Ambient and CECONY are also examining
the prospects for the commercialization of Ambient's proposed powerline
solution.

     Pursuant to the agreement entered into between CECONY and the Company,
CECONY advanced to Ambient in February 2002 the amount of $325,000 in order to
commence the demonstration phase. Under the terms of the agreement with CECONY,
the advance is repayable only if the Small Field Trial of the proposed solution
under conditions specified in the agreement is deemed unsuccessful; otherwise,
the amount is subsumed under the royalty agreement with CECONY. The Company has
agreed to grant to CECONY a first priority lien on all Company assets to secure
the repayment of the advance. The lien is extinguished if the Small Field Trial
is successful. Under the Agreement, CECONY will be entitled to a 2.5% royalty,
based on net revenues from powerline equipment and related services for a
ninety-nine year period, commencing on the date on which the agreement was
signed. Royalty payments are only due if the Company has positive cash flow and
will be payable quarterly, in arrears, and do not accrue from one quarter to
another during periods of negative cash flow. The Company will have sole rights
to any jointly developed technology. In June-August 2002, CECONY advanced an
additional $265,000 to enable the Company to meet its then immediate financial
obligations which amount has as of September 2002 been converted into equity and
the repayment obligation thereto cancelled.

     On September 30, 2002, the Company and Consolidated Edison, Inc. ("ConEd"),
an affiliate of CECONY, entered into a stock purchase agreement (the "Investment
Agreement") pursuant to which ConEd invested $1.4 million in the Company over
the succeeding five months, in consideration of the issuance of 35 million
shares of the Company's common stock, par value $0.001 (the "Common Stock").
Under the Investment Agreement, the amount that ConEd invested included the
conversion into equity and the cancellation of the Company's repayment
obligation respecting the $265,000 advanced by CECONY to the Company during
June-August 2002. Under the terms of the Investment Agreement, so long as ConEd
continues to hold, in the aggregate, 25% of the issued and outstanding shares of
the Company's Common Stock (the "Requisite Percentage Holdings"), the Company
undertook to notify ConEd of the terms of any proposed equity or debt financing
in an amount exceeding $500,000 and to afford ConEd the opportunity to approve
or reject such subsequent

                                       5
<PAGE>

investment, provided, that following June 30, 2003, the minimum amount per
subsequent investment requiring notification is increased to $750,000 and should
ConEd not approve the proposed financing, ConEd undertook to complete such
financing on substantially similar terms. Additionally, so long as ConEd
continues to hold at all times the Requisite Percentage Holdings, ConEd is
entitled to designate one member of the Company's board of directors (the
"Board").

AMBIENT'S STRATEGY

     The Company's immediate goal is to complete the design, development and
testing of Ambient's proposed powerline communications technology, including the
various integral components and technologies being designed and developed by
third party technology and other partners. As the proposed powerline
communications solution approaches commercialization, management anticipates
that the Company will be advantageously positioned to serve as a leading systems
integrator and coordinator for powerline communications, generating revenue from
the analysis and design of powerline communications system networks as well as
the sale and installation of related equipment.

     To achieve these goals, the Company has entered into partnering
arrangements with communications and other technology companies, as well as
utilities or utility operators, as described above. Management intends to
continue to pursue this approach as appropriate. No assurance can be provided
that we will be successful in completing the design and development of such
solution (including all of the integral components/technologies to be created by
third parties) or, that even if successfully completed, such solution can or
will be commercially deployable.

     Once a powerline communications solution is commercially deployed,
management believes that revenues and cost savings may be generated by the
utility from both consumer services as well as from utility initiatives which
are expected to generate to the utility, or the utility operator, significant
savings, benefits and additional value. We expect the consumer products' to
include, initially, high-speed Internet access via existing electrical wiring,
with such product offerings as streaming video, alarm monitoring and others to
follow. Management anticipates that the utility services/initiatives may include
features such as automatic meter reading (AMR), real-time outage reporting and
load balancing/switching allowing utilities to significantly enhance their
service offerings to their industrial, commercial, and residential customers.
Such services are expected to lead to significant cost savings and additional
revenue to utilities and their partners.

     Management also contemplates the possibility that, assuming the deployment
of its proposed powerline communication network, as individual utilities
evaluate their respective market opportunities and determine the optimum form of
their commercial participation, Ambient may, through partnering arrangements,
participate in the management and coordination of the delivery of consumer
products.

     Management also contemplates that prior to the commercialization of the
proposed powerline based solution, the Company may be able to generate
non-significant revenues in the form of fees payable to us by our utility
development relations. Such fees are to compensate Ambient for direct
out-of-pocket costs associated with the field trials. The Company anticipates
that these payments will be made to us upon the achievement of certain
pre-designated development and commercialization milestones.

COMPETING TECHNOLOGIES

     The competition for the Company's proposed high-speed powerline
communications technology originates primarily from non-powerline based
providers of broadband capability and, to a lesser extent, from other providers
of powerline based capability. Management believes that many, if not all, of the
providers of this high-speed communications access have

                                       6
<PAGE>

substantially greater financial, technological, marketing, personnel and
research and development resources than the Company. We expect significant
competition from the following:

I.   POWERLINE COMMUNICATION TECHNOLOGY

     Certain companies, including those with significantly greater resources
than our company, such as Siemens and Nortell, have undertaken efforts to
implement a comprehensive powerline communication based solutions. However, to
date, none have, to the Company's knowledge, implemented and commercialized any
such solution. Certain other companies, including those with significantly
greater resources than the Company, provide, management, believes, partial
powerline based solutions. These include the following: Amperion, a
Massachusetts based company; Current Technologies, LLC, a Maryland based
company; and Main.net Power line Communications, Inc., the North American
subsidiary of Main.net.com, an Israeli company, which, together with a German
utility, began offering Internet service to residents in Mannheim, Germany;
PowerComm System, Inc.

     Management believes that the Company's core strategy, which attempts
principally to partner the proposed powerline based solution with appropriate
parties in the communication and service technology areas as well as utilities
and other providers of electric power equipment, provides the most viable
powerline communication based high-speed solution.

II.  INCUMBENT TELEPHONE (DSL) SERVICE PROVIDERS.

     The Company faces competition from other providers of telephony
transmission services. Many of the existing providers of telephony services,
such as regional Bell operating companies and other competitive local exchange
carriers (CLECs), have greater financial and other resources than us with more
established brand awareness in their service areas. However, the Company expects
to be able to distinguish itself from these competitors by offering greater
speeds for connectivity at lower costs and together with our prospective
partners - the utility companies - we envision being able to compensate for the
brand awareness and the financial resources of the competitors.

     In addition, the Company's proposed solution will offer a cost-effective
suite of beneficial services not offered by these competitors to the utilities
and electricity distribution operators.

III. WIRELESS AND SATELLITE SERVICE PROVIDERS.

     Especially in underserved areas, the Company faces competition from
fixed-wireless and satellite service providers for voice and high-speed data
customers in businesses and residences. Many of these competitors are offering,
or may soon offer, technologies and services that will compete with some or all
of our service offerings. However, services based on these technologies
historically offer communications speeds lower than those supplied by DSL, cable
systems, and anticipated speeds from our solution.

     In addition, the Company's proposed solution will offer a cost-effective
suite of beneficial services not offered by these competitors to the utilities
and electricity distribution operators.

IV. SUBSCRIPTION TELEVISION COMPETITION HARDWIRE CABLE.

     Traditional hardwire cable operators are also competitors. Hardwire cable
companies generally are well established and known to potential customers of
PLC. In addition, these competitors are also bundling additional services with
their cable TV services, such as high-speed Internet access, to enhance their
products. In order to provide such services, however, the current cable
infrastructure requires in many instances significant capital expenditures.
Because of the existing wires of the electrical power grid, the build-out of our
powerline based system is not expected to require similar heavy infrastructure
costs.

                                       7
<PAGE>

PROPRIETARY RIGHTS

     The Company currently relies on a combination of trade secret, patent,
copyright and trademark law, as well as non-disclosure agreements and
invention-assignment agreements, to protect the technologies used in the
Company's products and other proprietary information. However, such methods may
not afford complete protection and there can be no assurance that other
competitors will not independently develop such processes, concepts, ideas and
documentation. The Company has filed several provisional as well as formal
patent applications in the United States with respect to the different
applications on the medium and low voltage overhead distribution grid and
building wiring, as well as underground distribution infrastructures. Beginning
with its initial filing for the inductive coupling of a data signal to a power
transmission cable with the United States Patent and Trademark Office in 1999,
the Company has made several additional filing in the United States and
internationally to protect its technology and enhancements. In September 2002,
the Company was issued by the United States Patent and Trademark Office a patent
with respect to the technology employed in its coupler.

     The Company's policy is to require its employees, consultants, other
advisors, as well as utility and design partners, to execute confidentiality
agreements upon the commencement of employment, consulting or advisory
relationships. These agreements generally provide that all confidential
information developed or made known to the individual by the Company during the
course of the individual's relationship 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 provide
that all inventions conceived by the individual in the course of their
employment or consulting relationship with the Company shall be the Company's
exclusive property. There can be no assurance, however, that these agreements
will provide meaningful protection or adequate remedies for trade secrets in the
event of unauthorized use or disclosure of such information.

RESEARCH & DEVELOPMENT

     From the date of inception through December 31, 2002, the Company has
expended a net amount of approximately $5.5 million on research and development
(net of $558,195 received in 1998-9 by Ambient Ltd., the Company's Israeli
subsidiary, as government participation in its smart card development from the
Office of Chief Scientist of the Israeli Ministry of Industry and Trade). During
each of calendar year 2002 and 2001 the Company expended, respectively, $1
million and $2.9 million on its powerline communications technology development.

     All our design, development, and testing activities are conducted through
our premises in Brookline, Massachusetts.

EMPLOYEES

     The Company currently employs five full-time employees, all of whom work
out of the Company's offices in Brookline Massachusetts.

     The Company's future performance depends highly upon the continued service
of the senior members of its management team.

     The Company believes that its future success will also depend upon its
continuing ability to identify, attract, train and retain other highly skilled
managerial, technical, sales and marketing personnel. Hiring for such personnel
is competitive, and there can be no assurance that the Company will be able to
retain its key employees or attract, assimilate or retain the qualified
personnel necessary for the development of its business.

                                       8
<PAGE>

                                  RISK FACTORS

     In addition to the other information contained in this Annual Report on
Form 10-K, investors should consider carefully the following risks. If any of
these risks occurs, our business, financial condition or operating results could
be adversely affected.

     THE COMPANY MUST RAISE AT LEAST $200,000 ON AN IMMEDIATE BASIS IN ORDER TO
REMAIN IN BUSINESS.

     Management believes that it has sufficient cash resources to maintain its
operations as presently conducted through April 2003. Thereafter, the Company
will need to raise at least $200,000 on an immediate basis in order to maintain
operations as presently conducted through the second quarter of 2003.

     The Company has no commitments for any funds and no assurance can be given
that the Company will be able to raise any funds on commercially reasonable
basis. Even if the Company is successful in identifying potential financing
sources, under the terms of the Investment Agreement with ConEd, so long as
ConEd continues to hold, in the aggregate, 25% of the issued and outstanding
shares of the Company's Common Stock, the Company undertook to notify ConEd of
the terms of any proposed equity or debt financing in an amount exceeding
$500,000 and to afford ConEd the opportunity to approve or reject such
subsequent investment, PROVIDED, that following June 30, 2003, the minimum
amount per subsequent investment requiring notification is increased to $750,000
and should ConEd not approve the proposed financing, ConEd undertook to complete
such financing on substantially similar terms.

     The failure to raise the required minimum funds by April 30, 2003 may
require management to initiate proceedings seeking protection under pertinent
reorganization or bankruptcy law and will have a material adverse effect on the
Company's business and prospects.

     Management believes that any successful financing will result in a
significant dilution to present stockholders.

     "GOING CONCERN" QUALIFICATION IN AUDITOR'S REPORT MAY MAKE IT DIFFICULT TO
RAISE NEW CAPITAL.

     The Company has not had any significant revenues to date. As of December
31, 2002, the Company had an accumulated deficit of approximately $62 million.
The report of the independent auditors on the Company's financial statements for
the year ended December 31, 2002 includes an explanatory paragraph relating to
the uncertainty of the Company's ability to continue as a going concern. The
Company anticipates that the "going concern" report will make it more difficult
for the Company to raise additional capital. The comprehensive communications
infrastructure underlying the Company's proposed powerline solution is in the
design, development and testing stage.

     EVEN IF AMBIENT IS SUCCESSFUL IN RAISING THE MINIMUM AMOUNT REQUIRED TO
REMAIN IN BUSINESS, IT WILL REQUIRE ADDITIONAL FINANCING TO FULLY REALIZE
BUSINESS PLANS.

     The Company will require additional financing to maintain its operations as
presently conducted. Management estimates that it will need at least $2.4
million, barring any currently unforeseen contingencies, to complete the design,
development and testing of the proposed communications infrastructure. The
Company has no financing commitments and no assurance can be given that the
Company will be able to raise funds on commercially acceptable terms and
conditions.

                                       9
<PAGE>

     Even if the Company is successful in identifying financing sources, under
the terms of the Investment Agreement with ConEd, so long as ConEd continues to
hold, in the aggregate, 25% of the issued and outstanding shares of the
Company's Common Stock, the Company undertook to notify ConEd of the terms of
any proposed equity or debt financing in an amount exceeding $500,000 and to
afford ConEd the opportunity to approve or reject such subsequent investment,
PROVIDED, that following June 30, 2003, the minimum amount per subsequent
investment requiring notification is increased to $750,000 and should ConEd not
approve the proposed financing, ConEd undertook to complete such financing on
substantially similar terms.

     THE COMPANY'S ASSETS, INCLUDING THE TECHNOLOGY UNDERLYING THE PROPOSED
POWERLINE COMMUNICATIONS INFRASTRUCTURE, ARE SUBJECT TO A LIEN IN FAVOR OF
CECONY.

     In January 2002, the Company entered into an agreement with CECONY to
jointly develop and test the technologies underlying the Company's proposed
communications solution and infrastructure. The agreement with CECONY
contemplates the joint development of products necessary to the provision of
powerline communications and provides for discrete demonstration and field
trials phases. Pursuant to such agreement, CECONY advanced to the Company
$325,000 for the purpose of commencing the demonstration phase. In order to
secure the repayment of the advance, Ambient agreed to grant to CECONY a first
priority security interest and lien on all of the Company's assets, including
the technology underlying the proposed powerline based solution. Under the terms
of the CECONY agreement, such lien will be removed if the parties deem the
initial field trial to be successful. In the event that either of the parties
concludes that the initial field trial is not successful, Ambient will be
required to repay such advance, as well as certain other expenses incurred by
CECONY. No assurance can be provided that the initial field trial will be
successful or that the lien will be removed. The continuation of the lien on the
Company's technologies could have a material adverse effect on Company
operations, business and prospects.

     A SIGNIFICANT PART OF THE ISSUED AND OUTSTANDING SHARES OF THE COMPANY'S
COMMON STOCK IS HELD BY CONED, AN AFFILIATE OF CECONY, THE COMPANY'S LARGEST
STOCKHOLDER.

     ConEd, an affiliate of CECONY, one of the Company's leading utility
development partner and the Company's largest stockholder, holds, as of the
filing of this report, approximately 49.58% of the Company's issued and
outstanding Common Stock. Additionally, under the terms of the Investment
Agreement entered into by the Company and ConEd, so long as ConEd holds at least
25% of the Company's outstanding Common Stock, it is entitled to designate one
member of the Company's Board. While as of the filing of this report ConEd has
not designated a member to the Board, no assurance can be given that ConEd will
not elect to exercise such right.

     THE COMPREHENSIVE COMMUNICATIONS INFRASTRUCTURE UNDERLYING THE COMPANY'S
PROPOSED POWERLINE SOLUTION IS IN THE DESIGN, DEVELOPMENT AND TESTING STAGE.

     The Company is engaged in the architecture, design, development,
implementation and marketing of a proposed comprehensive communication
infrastructure which uses electrical power lines as a high-speed communication
medium. Current activities are focused on the implementation and marketing of
the Company's proposed powerline communications technology solution and system
architectures for use on low and medium voltage systems. The proposed powerline
communication solution is based on the Company's establishing and maintaining
partnership relationships with utilities and electrical power distribution
companies and telecommunication and technology companies. While the Company has
established contractual relationships with two leading operators of utilities in
the United States for the design, development and testing of its proposed
communications infrastructure, as well as the design and development of certain
integral components, no assurance can be given that these arrangements will
achieve their intended results or that they will result in a

                                       10
<PAGE>

solution that can be successfully commercialized. The Company is in the process
of integrating the solution concept with various other complementary and
necessary technologies. The Company anticipates and proposes to have these
complementary components and technologies produced by prospective third party
partners in the telecommunications and related industries.

     No assurance can be given that these complementary components or
technologies will be successfully developed or technologically feasible or
integrated into proposed communications infrastructure or, even if they can be
successfully developed and integrated and technologically feasible, that they
can be so developed and integrated on commercially acceptable terms and
conditions. Once the Company completes the successful design, development and
testing of the proposed solution, if ever, its current business model
contemplates that, in order to adequately deliver its proposed solution to
end-users, the Company will need to enter into collaborative arrangements with
third party utilities or other providers of electric power. No assurance can be
provided that the Company will be successful in establishing and maintaining
these collaborative arrangements on commercially acceptable terms or will be
successful in marketing.

     SUCCESS OF THE PROPOSED COMPREHENSIVE COMMUNICATIONS INFRASTRUCTURE IS
CONTINGENT UPON ITS ADOPTION BY UTILITIES AND OTHER DISTRIBUTORS OF ELECTRIC
POWER.

     The Company's current business and revenue model contemplate, at least
initially, that the proposed communication solution will be made available to
residential customers and other end-users through the existing infrastructure of
utilities or other distributors of electric power. Accordingly, management
believes that the Company's success is contingent upon the technological
feasibility and commercial and fiscal viability of its proposed communications
solution and its acceptance and adoption by utilities and other distributors of
electric power. While management believes that the proposed powerline
telecommunications solution, once successfully developed and integrated and
fully implemented, will prove to be an attractive proposition to utilities and
other electric power distributors, it cannot provide any assurance that the
utilities or the other distributors of electric power will in fact so adopt or
ratify the proposed powerline communications solution. Additionally, management
believes that the success of wireless based solution providers overcoming
technical challenges and furnishing a reliable, technologically feasible and
commercially viable solution for high-speed data transfer may adversely
influence the utilities' decision to adopt our proposed solution.

     GOVERNMENTAL REGULATIONS MAY DELAY OR PRECLUDE THE ADOPTION OF THE PROPOSED
SOLUTION.

     Utilities and other providers of electric power are ordinarily subject to
significant governmental oversight and regulations, on both the state and
federal level. Foreign utilities and other providers of electric power are also
subject to significant governmental oversight and regulations in their
respective home countries. In certain countries, such as Japan, there may be
regulations restricting the transmission of high frequency signals over
powerlines, necessitating governmental permission. These regulations may be
interpreted in such a manner as to inhibit, delay or preclude the provision of
the proposed communications solutions or to require costly modifications to the
proposed solution. In addition, regulations in the telecommunications field may
also adversely affect the provision of the proposed solution.

     ADDITIONALLY, IF THE COMPANY EXPANDS ITS CURRENT OPERATIONS TO INCLUDE
STRATEGIC PARTNERSHIPS OR MERGERS OR ACQUISITIONS, THEN IT WILL ALSO REQUIRE
ADDITIONAL FINANCING TO REALIZE SUCH MERGERS OR ACQUISITIONS.

     Ambient has no current plans to realize mergers or acquisitions, nor
commitments for any such financing that may be necessary, and there can be no
assurance that it will obtain additional capital when needed or any assurance
that any additional financing can be obtained

                                       11
<PAGE>

on favorable terms, if at all. Any additional financing is likely to result in
dilution to stockholders.

     AMBIENT HAS INCURRED LOSSES IN EVERY QUARTER AND YEAR, AND IT EXPECTS
LOSSES TO CONTINUE THROUGH THE FORESEEABLE FUTURE.

     Since Ambient began operations in 1996, the Company has lost money in every
quarter and year. Prior to March 2000, when Ambient actively began to engage in
the design, development, testing and commercialization of powerline
communication technology, it designed, developed and marketed smart-card
applications, a business in which the Company is no longer engaged. As of
December 31, 2002, Ambient had an accumulated deficit of approximately $62
million, which includes $41 million in non-cash charges primarily related to the
issuance of our Common Stock, warrants and the extinguishment of debt. Ambient
may not be able to generate sufficient revenue to become profitable. Even if the
Company does become profitable, it may not be able to sustain or increase
profitability on a quarterly or annual basis in the future.

     AMBIENT HAS BEEN IN BUSINESS IN THE POWERLINE COMMUNICATION FIELD FOR A
SHORT PERIOD OF TIME, SO THE BASIS FOR EVALUATING THE COMPANY IS LIMITED.

     Ambient is a development stage company engaged in the design, development
and commercialization of its proposed powerline communication infrastructure
only since March 2000. As a result, there is a limited history of operations for
evaluating the power-line communication technology business. Investors must
consider the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets, including the market for the
provision of rapid power-line telecommunication services. Some of these risks
and uncertainties include:

     *The technological feasibility of Ambient's proposed communications
solution;

     *The successful implementation of the communications infrastructure which
is required to properly deliver to the end-user our proposed communications
solution;

     * The Company's ability to establish and maintain relationships with
appropriate parties in the electric power distributions and telecommunications
industries;

     * The adoption by the electric power distribution of the proposed
communications solution;

     * The Company's ability to respond effectively to actions taken by its
competitors;

     * The Company and industry's ability to respond effectively to pertinent
governmental regulatory concerns and demands;

     * The Company's ability to build its organizational and technical
infrastructures to manage its growth effectively;

     * The Company's ability to design, develop and implement effective product
offerings; and

     * The Company's ability to retain qualified personnel.

     If Ambient is unsuccessful in addressing these risks and uncertainties, its
business, financial condition and results of operations will be materially and
adversely affected.

     AMBIENT FACES COMPETITION FROM SEVERAL SOURCES FOR ITS PROPOSED HIGH-SPEED
POWERLINE COMMUNICATIONS TECHNOLOGY.

                                       12
<PAGE>

     The competition for the Company's proposed high-speed powerline
communications technology originates primarily from non-powerline based
providers of broadband capability and, to a lesser extent, from other providers
of powerline based capability. Many, if not all, of the providers of this
high-speed communications access have substantially greater financial,
technological, marketing, personnel and research and development resources than
the Company.

     Numerous companies claim to provide non-powerline based high-speed data
transmission. In particular, Internet service providers (ISPs) provide Internet
access over existing networks and have nationwide marketing presence and
strategic or commercial licenses with telecom carriers, and wireless and
satellite service providers have announced plans to expand fixed-wireless
networks for high-speed data customers. Cellular operators are establishing
portals facilitating access to web and information services.

     Certain companies, including those with significantly greater resources
than Ambient, such as Siemens and Nortell, have undertaken efforts to implement
comprehensive powerline communication based solutions. However, to date, none
have, to the Company's knowledge, implemented and commercialized any such
solution. Certain other companies, including those with significantly greater
resources than Ambient, provide partial powerline based solutions. These include
the following: Amperion, a Massachusetts based company; Current Technologies,
LLC, a Maryland based company; Main.net Power line Communications, Inc., the
North American subsidiary of Main.net, an Israeli company, which, together with
a German utility, began offering broadband service to residents in Mannheim,
Germany; and PowerComm System, Inc. The Company's management believes that the
Company's core strategy, which attempts principally to partner Ambient's
proposed powerline based solution with appropriate parties in the communication
and service technology areas as well as utilities and other providers of
electric power, provides the most viable prospect of a powerline communication
based high-speed solution. However, there can be no assurance that Ambient will
be able to compete successfully in this market.

     There can be no assurance that other companies will not enter the market in
the future. There can be no assurance that development by others of similar or
more effective technologies or solutions will not render Ambient's proposed
solution non-competitive or obsolete.

     AMBIENT'S ABILITY TO MANAGE GROWTH IS LIMITED.

     If Ambient expands its management, design and development, testing, quality
control, marketing, sales and service and support operations, as well as
financial and accounting controls, such expansion could place a significant
strain on the Company. If management is unable to manage growth effectively,
Ambient's business and financial conditions could be materially adversely
affected. Failure to integrate new personnel on a timely basis could also have
an adverse effect on the Company's operations. Furthermore, the expenses
associated with expanding management team and hiring new employees will likely
be incurred prior to the generation of any associated revenues.

     THE MARKET FOR AMBIENT'S PROPOSED TECHNOLOGIES IS UNPROVEN.

     The market for rapid power-line data telecommunication is unproven. The use
of electrical power-lines for high-speed communication is in an embryonic stage.
For Ambient to be successful, utilities other providers of electrical power and
telecommunication and technology service companies, as well as end-users, must
accept the concept of power-line data telecommunication generally and also adopt
the solution that Ambient developed. There can be no assurance that utilization
of electrical powerlines as a medium of rapid data transmission will be
commercially accepted. Moreover, the high frequency electrical characteristics
of the powerlines in some countries or localities may prevent the efficient

                                       13
<PAGE>

transmission of high frequency signals, and thus not permit the implementation
of Ambient's solution. Further the solution may not achieve or sustain market
acceptance under emerging industry standards or may not meet, or continue to
meet, the changing demands of the media access and technology service companies.
If the market for power-line based rapid transmission of data does not develop
or expand, Ambient's business, financial condition and results of operations
would be materially adversely affected.

     NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE MAY RENDER AMBIENT VULNERABLE
TO TECHNOLOGICAL OBSOLESCENCE.

     The high-speed data communications industry is characterized by rapidly
changing technology, evolving industry standards and frequent new product
introductions. The Company's success will depend in part on the Company's
ability to meet changing customer requirements and evolving industry standards.
Ambient currently devotes, and intends to continue to devote, resources toward
the development of high-speed power-line based data transmission and Internet
access. There can be no assurance that the Company will successfully complete
the development of these technologies and related products in a timely fashion
or that its prospective technologies or future products, if any, will satisfy
the needs of the market. There can also be no assurance that products and
technologies developed by others will not adversely affect Ambient's competitive
position or render its prospective technologies non-competitive or obsolete.

     THE COMPANY HAS LIMITED MARKETING EXPERIENCE AND CAPABILITIES.

     Ambient has limited marketing experience and limited financial, personnel
and other resources to undertake marketing and advertising activities. To date,
Ambient has not generated revenues. As is typically the case with newly
introduced products or technologies in the design, development and testing
stage, the ultimate level of demand is subject to a high degree of uncertainty.
Developing market acceptance for proposed high-speed communication medium will
require substantial marketing efforts and the expenditure of a significant
amount of funds to inform utilities, electrical power distributors, as well as
communication service technology companies of the perceived advantages of the
proposed solution. There can be no assurance that these marketing efforts will
result in demand for, or market acceptance of, the proposed technologies or
solution. There can be no assurance that Ambient will be able to market these
proposed technologies successfully or that its efforts will result in any
significant revenues. Ambient's business model contemplates that the Company
will need to establish and maintain commercial relationships with utilities and
other providers of electrical power as well as communications service
technologies in order to commercialize the proposed solution. There can be no
assurance that the Company will be able to identify suitable partners or that,
if suitable partners are identified, that it will be able to sign appropriate
agreements on acceptable terms.

     AMBIENT HAS VERY FEW EMPLOYEES AND IS PARTICULARLY DEPENDENT ON CERTAIN OF
ITS KEY PERSONNEL.

     Ambient currently employs five full-time employees. Although management
believes that the Company maintains a core group sufficient to effectively
conduct its operations at the current levels, the loss of certain of the
Company's limited personnel could, to varying degrees, have an adverse effect on
Company operations and product development. There can be no assurance that
Ambient will be successful in identifying and retaining such personnel on
commercially acceptable terms.

     The Company's future success is also dependent upon its continuing ability
to retain highly qualified technical personnel to perform research, design,
development and testing activities as well as commercialization activities.
There is a high demand in the market for qualified technical personnel and
competition for such personnel is generally intense.

                                       14
<PAGE>

     AMBIENT'S EFFORTS TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS MAY NOT BE
ADEQUATE.

     Ambient's success depends in part on it proprietary technologies. The
Company has filed with the United States Patent and Trademark Office and
internationally, provisional and formal, patent applications with respect to the
different applications on the medium and low voltage overhead distribution grid
and building wiring, as well as underground distribution structures, and for the
inductive coupling of a data signal to a power transmission cable. Accordingly,
Ambient relies on a combination of copyright and trade secret laws,
nondisclosure and other contractual provisions, and technical measures to
protect its intellectual property rights. The Company's rights relating to
powerline communication technology may be challenged and invalidated or
circumvented. Others may develop technologies that are similar or superior to
Ambient's technologies or duplicate such technologies. Effective intellectual
property protection may be unavailable or limited in certain foreign countries.
Despite efforts to protect the Company's proprietary rights, unauthorized
parties may attempt to copy or otherwise use aspects of processes and devices
that Ambient may regard as proprietary. Policing unauthorized use of proprietary
information is difficult, and there can be no assurance that the steps the
Company has taken will prevent misappropriation of the Company's technologies.
In the event that the Company' s intellectual property protection is
insufficient to protect its intellectual property rights, Ambient could face
increased competition in the market for technologies, which could have a
material adverse effect on Ambient's business, financial condition and results
of operations.

     Litigation may be necessary in the future to enforce any patents that may
be issued and other intellectual property rights, to protect trade secrets or to
determine the validity and scope of the proprietary rights of others. There can
be no assurance that any litigation of these types will be successful.
Litigation could result in substantial costs, including indemnification of
customers, and diversion of resources and could have a material adverse effect
on the Company's business, financial condition and results of operations,
whether or not this litigation is determined adversely to Ambient. In the event
of an adverse ruling in any litigation, Ambient might be required to pay
substantial damages, discontinue the use and sale of infringing products, and
expend significant resources to develop non-infringing technology or obtain
licenses to infringed technology. Failure to develop or license a substitute
technology could have a material adverse effect on the Company's business,
financial condition and results of operations.

     AMBIENT'S STOCK PRICE IS VOLATILE AND COULD CONTINUE TO BE VOLATILE.

     Investment interest in Ambient Common Stock may not lead to the development
of an active or liquid trading market. The market price of Company Common Stock
has fluctuated in the past and is likely to continue to be volatile and subject
to wide fluctuations. In addition, the stock market has experienced extreme
price and volume fluctuations. The stock prices and trading volumes for many
hi-tech companies fluctuate widely for reasons that may be unrelated to their
business or results of operations. The market price of Ambient's common stock
may further decline. General economic, market and political conditions could
also materially and adversely affect the market price of the Company's Common
Stock and investors may be unable to resell their shares of Common Stock at or
above the offering price.

     IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE THE COMPANY.

     Provisions of Delaware law could make it more difficult for a third party
to acquire Ambient, even if it would be beneficial to our stockholders.

     PENNY STOCK REGULATIONS ARE APPLICABLE TO INVESTMENT IN AMBIENT SHARES.

     Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities

                                       15
<PAGE>

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

ITEM 2. DESCRIPTION OF PROPERTY.

     Ambient's corporate offices are located at 1033 Beacon Street, Brookline,
Massachusetts, 02446, and are comprised of approximately 4,350 square feet
leased at a monthly rental of approximately $11,700 with a scheduled expiration
date of July 1, 2003. The Company has improved this facility to meet its design
and development activities. The Company believes that this facility is
sufficient to meet its current and anticipated future requirements. The Company
believes that it will be able to renew its present lease or obtain suitable
replacement facilities.

ITEM 3. LEGAL PROCEEDINGS.

     On March 27, 2003, the Company's former Chief Financial Officer and a
former director filed a complaint against the Company in State Court in
Massachusetts. The action alleges, among other things, that the Company breached
the terms of the Settlement Agreement, dated as of April 1, 2002 (the
"Settlement Agreement"), entered into by the Company and Mr. Kopelowitz in
connection with Mr. Kopelowitz's resignation from all offices held in the
Company and its affiliates and seeks damages of $205,000, along with interest,
costs and attorney's fees. The Company believes it has meritorious defenses to
this lawsuit and believes that under the terms of the Settlement Agreement,
there is an executed release for most of these claims. Given the early stage of
this proceeding, it is not possible to estimate the liability, if any, in
connection with this matter. As of the filing of this report, the Company has
not filed an answer.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     The Company held its 2002 Annual Meeting of Stockholders on December 30,
2002 and the stockholders voted as to the following: (i) to elect John Joyce,
Michael Widland, Judah Marvin Feigenbaum, Michael Braunold and Henry Seduski, as
directors to serve for a term of one year or until a successor is duly elected;
(ii) increase the authorized shares of Common Stock that the Company is
authorized to issue from time to time from 100 million shares to 200 million
shares; (iii) increase the number of shares of Common Stock reserved for
issuance under the Company's 2000 Equity Incentive Plan from 5,000,000 to
15,000,000 shares; (iv) adopt the 2002 Non-Employee Directors' Plan and (v)
ratify the appointment of Brightman Almagor & Co., a member of Deloitte Touche
Tohmatsu, as auditors for the year ending December 31, 2002.

Voting results were as follows:

                                       16
<PAGE>

                               For               Against           Abstain
1. Directors
John Joyce                  27,137,748           336,700             --
Michael Widland             27,137,748           336,700             --
Judah Marvin Feigenbaum     27,137,748           336,700             --
Michael Braunold            27,137,748           336,700             --
Henry Seduski               27,137,748           336,700             --

2. Increase in Authorized
Shares of Common Stock      27,366,168           106,280            2,000

3. Increase in Shares
Reserved under the 2000
Equity Incentive Plan       27,355,518           116,930            2,000

4. Adoption of the
Non-Employee Directors
Plan                        27,360,968           106,480            7,000

5. Auditors                 27,430,948            43,000              500

     All Items above were approved by the Company's stockholders.

     No other matters were submitted to a vote of stockholders during the three
month period ended December 31, 2002.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     The Company's common stock is quoted on OTCBB under the symbol "ABTG".

     The following table sets forth, for the periods indicated, the range of
high and low bid prices per share of the Company's Common Stock, as reported on
OTCBB.

                Quarter Ended                    High     Low

                2002
                March 31                         $0.40   $0.16
                June 30                          $0.18   $0.06
                September 30                     $0.26   $0.07
                December 31                      $0.25   $0.08

                2001
                March 31                         $2.59   $1.25
                June 30                          $1.80   $0.70
                September 30                     $0.94   $0.11
                December 31                      $0.25   $0.15

     The foregoing represent inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.

     As of March 28, 2003, there were approximately 151 holders of record of the
Company's Common Stock. The Company believes that a significant number of shares
of Common Stock are held in either nominee name or street name brokerage
accounts and, consequently, it is unable to determine the number of beneficial
owners of the Company's Common Stock.

DIVIDEND POLICY

                                       17
<PAGE>

     The Company has paid no dividends on its Common Stock and does 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 the Company. The
declaration and payment of dividends in the future will be determined by the
Board based upon the Company's earnings, financial condition, capital
requirements and such other factors as the Board may deem relevant. The Company
is not under any contractual restriction as to its present or future ability to
pay dividends.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF  OPERATIONS.

PLAN OF OPERATIONS

     As a development stage company, Ambient has a limited operating history
upon which an evaluation of its prospects can be made. The Company has been in
the powerline technology business since March 2000. The Company's prospects must
therefore be evaluated in light of the problems, expenses, delays and
complications associated with a new business.

     For the year ended December 31, 2002, the Company incurred net losses
aggregating $3.5 million which includes $1 million in non-cash charges primarily
related to the issuance of Common Stock and warrants. The remaining $2.5 million
reflects principally general and administrative and research and development
expenses. The Company expects to incur significant up-front expenditures and
operating losses are expected to continue for the foreseeable future. There can
be no assurance that Ambient can be operated profitably in the future. The
Company's continuation as a going-concern is dependent upon, among other things,
its ability to obtain additional financing when and as needed, and to generate
sufficient cash flow to meet its obligations on a timely basis.

     A portion of the Company's operating expenses are attributable to non-cash
charges associated with the compensation of consultants and senior personnel
through the issuance of stock options and stock grants. Certain employee stock
options which were subject to variable accounting treatment and unvested
non-employee stock options which are re-measured periodically, may result in
unpredictable stock-based compensation dependent on fluctuations in quoted
prices for the Company's common stock. Stock-based compensation is non-cash and
will therefore have no impact on our cash flows or liquidity.

     The Company is in the process of designing, developing and testing its
proposed high-speed powerline communication solution. The Company intends that
its proposed solution will utilize proprietary patent-pending technology
designed and developed by the Company as well as the design and development by
third-party telecommunications and other technology of integral components and
other technologies used in the solution. In the course of 2001 and 2002, the
Company has entered into a series of development and testing agreements with
leading technology companies and utilities for the purpose of furthering the
design, development, testing and commercialization of primary components and
technologies included in its solution. As of July 2002 the Company concluded
successful results and a significant initial phase of the demonstration of
Ambient's proposed powerline communication solution on the overhead electrical
distribution system of CECONY and is currently planning for the expansion of the
demonstration into a small field trial.

     Subject to raising capital in amounts sufficient to realize its business
plans, the Company intends to focus its efforts in the next twelve months to
completing the design, development and testing of its proposed powerline
communications solution such that such solution is capable of being commercially
deployed. As the Company's proposed solution approaches commercialization, if
ever, the Company may be required to increase the number of employees.
Management does not, however, anticipate a significant investment in plant or
equipment.

                                       18
<PAGE>

AGREEMENTS WITH TECHNOLOGY PARTNERS AND UTILITIES

     In connection with the initial advance of $325,000 by CECONY to the Company
in February 2002 in order to commence a demonstration of the Company's proposed
solution, the Company agreed to grant to CECONY a first priority lien on all of
the Company's assets to secure the repayment of the advance which advance is to
become subsumed into the royalty discussed below upon (and subject to) the
successful completion of the Small Field Trial Phase (as defined in the
agreement). The Company will hold sole title to all jointly developed
technology. CECONY will be entitled to a 2.5% royalty, based on net revenues
from powerline equipment and related services for a ninety-nine year period,
commencing on the date on which the agreement was signed. Royalty payments are
only due if the Company has positive cash flow and will be payable quarterly, in
arrears, and do not accrue from one quarter to another during periods of
negative cash flow. In June - August 2002, CECONY advanced to the Company an
additional $265,000 to enable the Company to meet its then immediate financial
obligations.

     Under the terms of the Investment Agreement entered into in September 2002
by the Company and ConEd, an affiliate of CECONY, ConEd invested $1.4 million in
the Company between September 2002 and February 2003, in consideration of the
issuance to ConEd of 35 million shares of the Company's Common Stock. The amount
invested by ConEd included the forgiveness and cancellation of the Company's
repayment obligation relating to $265,000 advanced by CECONY to the Company
during June - August 2002.

     In August 2002, in connection with the Company's efforts then undertaken to
raise needed financing, STI agreed to waive, under limited circumstances,
certain rights and protective provisions contained in the warrant instrument
relating to the warrants issued to it by the Company in January 2002 for up to
2,684,000 shares of the Company's Common Stock in connection with the testing
and development agreement entered into by the Company and STI. In consideration,
the Company agreed to reduce the exercise price of such warrants from $0.20 to
$0.12. Pursuant to such agreement with STI, upon the receipt in full by the
Company of the proceeds of ConEd's investment, the number of shares issuable
under this warrant was increased as of February 2003 by an additional 1,877,005
shares of Common Stock, with the exercise and other provisions applicable
thereto being on terms substantially similar to those relating to the original
issuance of warrants, as modified.

LIQUIDITY

     During the first quarter of 2003, the Company received non-significant fees
and reimbursement of expenses in the aggregate approximate amount of $70,000 in
connection with the testing and deployment of its proposed technology and
related equipment.

     Additionally, ConEd completed the investment contemplated under the
Investment Agreement between September 2002 and February 2003, pursuant to which
the Company received net proceeds of approximately $1.2 million in cash. ConEd's
investment included the contribution into equity of the Company (and the
cancellation of the repayment obligation) of approximately $265,000 owing to
CECONY, an affiliate of ConEd.

     The Company will need to raise additional capital on an immediate basis in
order to continue in business through the second quarter of 2003. If the Company
is unable to raise at least $200,000 on an immediate basis, the Company will
likely cease to operate as a going entity within the second quarter of 2003.
Assuming that the Company successfully raises the minimum amount that it
believes is necessary to maintain operations through the second quarter of 2003,
management believes that the Company will need to raise an additional $2.4
million in order to realize its business plan as contemplated and complete the
design, development, and testing of the Company's proposed powerline
communication architecture for commercial deployment.

                                       19
<PAGE>

     While the Company is actively seeking to raise additional capital, at the
present time it has no commitments for any such financing, and there can be no
assurance that additional capital will be available to the Company on
commercially acceptable terms. The financial statements accompanying this report
for the year ended December 31, 2002, includes an explanatory paragraph relating
to the uncertainty of the Company's ability to continue as a going concern,
which may make it more difficult for the Company to raise additional capital.
Additionally, under the terms of the Investment Agreement with ConEd, so long as
ConEd continues to hold, in the aggregate, 25% of the issued and outstanding
shares of the Company's Common Stock, the Company undertook to notify ConEd of
the terms of any proposed equity or debt financing in an amount exceeding
$500,000 and to afford ConEd the opportunity to approve or reject such
subsequent investment, provided, that following June 30, 2003, the minimum
amount per subsequent investment requiring notification is increased to $750,000
and should ConEd not approve the proposed financing, ConEd undertook to complete
such financing on substantially similar terms.

     Furthermore, it is anticipated that any successful financing will have a
significant dilutive effect on existing stockholders. The inability to obtain
such financing will have a material adverse effect on the Company, its
operations and future business prospects.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 145 ("SFAS No. 145"),
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections." Among other things, SFAS No. 145 eliminates the
requirement that gains and losses from the extinguishment of debt be classified
as extraordinary items. SFAS No. 145 is effective for fiscal years beginning
after May 15, 2002, with early adoption permitted. The Company does not expect
the adoption of this standard to have a significant impact on its financial
statements.

     In June 2002, the FASB issued SFAS No. 146 ("SFAS No. 146"), "Accounting
for Costs Associated with Exit or Disposal Activities." This standard nullifies
Emerging Issues Task Force No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." This standard requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred rather than the date of an entity's commitment to an exit
plan. SFAS No. 146 is effective after December 31, 2002. The Company does not
expect the adoption of this standard to have a significant impact on its
financial statements

     In December 2002, the FASB issued Statement of Financial Accounting
Standards ("SFAS No. 148"), "Accounting for Stock-Based Compensation, Transition
and Disclosure." SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS No. 148 also requires that disclosures of the pro
forma effect of using the fair value method of accounting for stock-based
employee compensation be displayed more prominently and in a tabular format.
Additionally, SFAS No. 148 requires disclosure of the pro forma effect in
interim financial statements. The transition

                                       20
<PAGE>

and annual disclosure requirements of SFAS No. 148 are effective for fiscal
years ending after December 15, 2002. The interim disclosure requirements are
effective for interim periods beginning after December 15, 2002. The Company
does not expect that the adoption of SFAS 148 will have a material effect on its
financial position or results of operations.

ITEM 7. FINANCIAL STATEMENTS.

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

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

     The names, ages and positions of the Company's directors, executive
officers and key employees are as follows:

Name                           Age      Position

John J. Joyce                  51       Chairman of the Board, CEO, Treasurer
                                        and Director

Dr. Yehuda Cern                59       Chief Engineer

Ramdas Rao                     37       Chief Network Architect

Michael Widland                62       Director

Judah Marvin Feigenbaum        52       Director

Michael Braunold               43       Director

Henry Seduski                  48       Director

     The business experience, principal occupations and employment, as well as
the periods of service, of each of the Company's directors and executive
officers during at least the last five years are set forth below.

     John J. Joyce has been the Company's Chairman of the Board of Directors and
Chief Executive Officer since September 2001 and Chief Operating Officer from
November 2000 through August 2001. Prior to joining Ambient, Mr. Joyce served,
from September, 1996 to October 2000, as Senior Vice President of ABB Financial
Services Inc. and President of ABB Financial Consulting, the Americas, where he
was also selected to lead the global energy consulting practice within Financial
Services. Mr. Joyce developed the Americas branch of ABB Financial Consulting,
the financial management consultancy business of ABB Financial Services.
Preceding his association with ABB, Mr. Joyce served, from December 1993 to
August 1996, with The Capital Markets & Treasury Practice of Price Waterhouse
LLP. Returning to the firm where he had previously served for more than five
years in the general audit practice, Mr. Joyce assumed the responsibilities of
Manager, where he advised corporations on a variety of business issues and
strategies. Mr. Joyce was promoted to the

                                       21
<PAGE>

level of Director in June 1995. A CPA in the United States, Mr. Joyce holds an
MBA from the Stern School of Business, New York University, where he majored in
Finance and International Business.

     Dr. Yehuda Cern, has been Chief Engineer since November 2000. Dr. Cern is
the inventor of Ambient's coupling technology and a major technology resource
for the advancement of PLC. Dr. Cern has extensive experience in R&D and New
Product Development. He founded a subsidiary of Ambient in 1999 to pursue an
invention enabling powerline telecommunications, the forerunner of the Company's
current business. From September 1997 to January 2000 he worked as Chief
Technology Officer of Ambient's subsidiary, Ambient Ltd. Prior to his employment
at the Company, Dr. Cern served as COO and CTO of AirOptics, Inc., an infrared
communications company located in Lancaster, Pennsylvania. Dr. Cern is also
credited with founding the Department of Electronics at the Jerusalem College of
Technology, heading the department for six years. Dr. Cern received a B.S.
degree and a M.Sc. degree in electrical engineering from Wayne State University
in Detroit and earned a Ph.D. in medical electronics from the Weizmann Institute
in Israel while on a Fulbright Grant.

     Ramdas Rao has been the Company's Chief Network Architect since September
2000. From March 2000 until the time immediately preceding his joining the
Company, Mr. Rao was the Chief Information Officer at Mullen, one of the larger
advertising agencies in North America. From November 1995 through February 2000,
he was the President and Co-Founder of Gaialinks Inc., a company engaged in the
development of network management software tools and providing network analysis
and consulting services for large heterogeneous, multi-vendor, multi-protocol
networks and systems. From January 1990 through November 1995, he was affiliated
with Boston University where he was Associate Director (from January 1995
through November 1995) and a Network System Manager (from July 1990 through
December 1994). Mr. Rao received a B.S. degree in Computer Engineering (cum
laude) from Boston University College of Engineering in 1988.

     Michael Widland, joined the Company's Board in November 2000. Mr. Widland
has been actively practicing law since 1965 and is presently a corporate partner
at Shipman & Goodwin LLP of Stamford, Connecticut. Mr. Widland's areas of
expertise include commercial and corporate transactions, including financing. He
is a former Connecticut Chairman of the Public Contract Section and Business Law
Section of the American Bar Association and a member of the Association of
Commercial Finance Attorneys.

     Judah Marvin Feigenbaum, joined the Company's Board in November 2001. Since
1994, Mr. Feigenbaum has been involved as chief executive officer in various
affiliates of United Diagnostics, Inc., a company engaged in the provision of
healthcare. He served as President and Chief Executive Officer of The Patient
Discharge Desk, a New York based company specializing in the development of
proprietary software for targeted health care market segments. Mr. Feigenbaum
served as President and Chief Executive Officer of (i) Analytical Biosystems
Corporation located in Rhode Island, (ii) Medical Science Institute located in
California and Physicians Clinical Laboratory, Inc. located in California, each
of which specialize in clinical laboratory services and (iii) NTBM Billing
Services, Inc., a Florida medical billing services company.

     Michael Braunold, joined the Company's Board in December 2001. From March
2000 through September 2000, Mr. Braunold was the Chief Executive Officer and
Chairman of the Company. Since March 1998, Mr. Braunold also has been Chief
Executive Officer and Chairman of the Board of SPO Medical Equipment Ltd., an
Israeli company that specializes in medical technology related to pulse oximetry
techniques. Prior to this assignment, Mr. Braunold was Senior Director of
Business Development at Scitex Corporation Ltd., a multinational corporation
specializing in visual information communication. In such capacity, Mr. Braunold
played a strategic role in managing a team of professionals assigned to M&A
activities. During his 12-year tenure at Scitex, he held various positions
within the worldwide

                                       22
<PAGE>

organization, including a period in the United States as Vice President of an
American subsidiary of Scitex specializing in medical imaging. Mr. Braunold
originates from the United Kingdom where he obtained a B.Sc. in Management
Sciences and a Master of Business Administration from Imperial College Business
School, London.

     Henry Seduski, joined the Company's Board in December 2002. He also has
been serving as the Chief Financial Officer of The Learning Team, a software
publisher, since December 2001. From 1982 through March 2000, Mr. Seduski was
employed by J.P. Morgan & Co. Inc. as the Chief Financial Officer of its Private
Banking Business Group servicing senior business managers. Mr. Seduski was also
a Vice President in Private Banking's Risk Management and Control Group and held
various other positions in Morgan's Financial Group. From 1976 through 1982, Mr.
Seduski served as a Manager with Price Waterhouse & Co., a leading audit and
accounting firm. A CPA in New York State, Mr. Seduski holds a BBA in accounting
from the University of Notre Dame.

     There are no family relationships between any of the above executive
officers or directors, and there is no arrangement or understanding between any
of the above executive officers or directors and any other person pursuant to
which the officer or director was elected to hold office.

     All directors hold office until the next annual meeting of stockholders and
the election and qualification of a successor.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Exchange Act, requires officers and directors of the
Company and persons who own more than ten percent of the Common Stock, to file
initial statements of beneficial ownership (Form 3), and statements of changes
in beneficial ownership (Forms 4 or 5), of Common Stock with the SEC. Officers,
directors and greater than ten-percent stockholders are required by SEC
regulation to furnish the Company with copies of all such forms they file.

     Based solely on review of the copies of such forms received by the Company
with respect to 2002, or written representations from certain reporting persons,
the Company believes that all filing requirements applicable to its directors
and officers and persons who own more than 10% of a registered class of the
Company's equity securities have been complied with.

ITEM 10. EXECUTIVE COMPENSATION.

     The following table sets forth all compensation earned by the Company's
Chief Executive Officer and the most highly compensated executive officers and
key employees of the Company whose total annual salaries and bonuses exceeded
$100,000 for the year ended December 31, 2002 (the "Named Executive Officers"):

<TABLE>
<CAPTION>
                                                                   SUMMARY COMPENSATION TABLE

                                                    Annual Compensation                      Long-Term Compensation
                                        ------------------------------------------      --------------     --------------
                                                                                         Securities          All Other
Name and                                                          Other Annual           Underlying        Compensation
Principal Position              Year    Salary($)    Bonus($)   Compensation($)         Options (#)(1)           ($)
------------------              ----    ---------    --------   ------------------      --------------    --------------
<S>                             <C>     <C>          <C>        <C>                      <C>              <C>
John J. Joyce                   2002    168,000            --       52,000(2)                375,000              --
  Chief Executive Officer       2001    192,471        36,000           --                 1,000,000              --
                                2000     36,285            --           --                   415,000(3)           --

Yehuda Cern                     2002    106,000            --       50,000(4)                     --              --
  Chief Engineer                2001    156,000        50,000           --                 1,900,000              --
                                2000    116,841       150,000           --                        --              --

Ramdas Rao                      2002    105,000            --       50,000(5)              1,200,000              --
  Chief Network Architect       2001    139,375            --           --                        --              --
                                2000     37,916            --           --                   242,000              --
</TABLE>

                                       23
<PAGE>

(1) Represents shares of Common Stock issuable upon exercise of employee stock
options issued in the year indicated under the Company's 1998 Stock Option Plan
and 2000 Equity Plan, except in the case of Dr. Cern for 2001.

(2) Represents the dollar value of 1,040,000 shares of the Company's Common
Stock issued on September 30, 2002 in lieu of then accrued and unpaid salary in
2002 of approximately $65,000.

(3) Prior to his appointment in September 2001 as the Company's Chief Executive
Officer, Mr. Joyce served as Chief Operating Officer of the Company from
November 2000 through August 2001, when he resigned from the Company. These
options, granted prior to Mr. Joyce's resignation in August 2001 in connection
with his service as Chief Operating Officer, expired.

(4) Represents the dollar value of 1,000,000 shares of the Company's Common
Stock issued on September 30, 2002 in lieu of then accrued and unpaid salary in
2002 of approximately $62,500.

(5) Represents the dollar value of 1,000,000 shares of the Company's Common
Stock issued on September 30, 2002 in lieu of then accrued and unpaid salary in
2002 of approximately $62,500.

OPTION GRANTS IN 2002

     The following table sets forth certain information concerning the
individual option grants during the year ended December 31, 2002, to each of the
Named Executive Officers.


                                        % of Total
                     Number of           Options
                    Securities          Granted to     Exercise or
                    Underlying           Employees      Base Price   Expiration
    Name        Options Granted (#)       in 2002         ($/sh)        date
    ----        -------------------       -------         ------        ----
John Joyce          375,000(1)             11.1%           0.10         2012

Ramdas Rao          200,000(2)              5.9%           0.20         2012

Ramdas Rao        1,000,000(3)             29.6%           0.50         2012


(1) Represents shares of Common Stock issuable upon exercise of fully vested and
exercisable options issued under the Company's 2000 Plan in September 2002 in
respect of reduced salary for the period from July - December 2002. All of these
options have vested as of the Record Date.

(2) Represents shares of Common Stock issuable upon exercise of options issued
under the Company's 2000 Plan in September 2002, of which options for 75,000
shares have vested as of December 31, 2002 and options for the remaining 125,000
shares of Common Stock are to vest over 3 years.

(3) Represents shares of Common Stock issuable upon exercise of options issued
under the Company's 2000 Plan in September 2002, of which options for 500,000
shares have vested as of December 31, 2002 and options for the remaining 500,000
shares of Common Stock are to vest over three years.

AGGREGATE OPTIONS EXERCISED IN 2002 AND 2002 YEAR END OPTION VALUES


                                       24
<PAGE>
<TABLE>
<CAPTION>

                                                         Number of Securities         Value of Unexercised
                                                        Underlying Unexercised         In-the-Money Options
                          Shares          Value         Options at Fiscal Year        At Fiscal Year End ($)
                        Acquired on      Realized                End (#)                   Exercisable/
Name                    Exercise (#)       ($)        Exercisable/Unexercisable         Unexercisable (1)
----                   -------------       ---        -------------------------         -----------------
<S>                    <C>                 <C>        <C>                               <C>
John Joyce                  --              --               1,375,000/0                       0/0

Ramdas Rao                  --              --               735,940/706,060                   0/0

Yehuda Cern                 --              --               1,900,000/0                       0/0
</TABLE>

(1) Based upon the difference between the exercise price of such options and the
closing price of the Common Stock ($.10) on December 31, 2002, as reported on
the Over-The-Counter Market.

                              EMPLOYMENT AGREEMENTS

     The Company and John Joyce entered into an employment agreement as of
November 2001 which effectively amended and restated the original employment
agreement entered into by the Company and John Joyce as of October 2000 pursuant
to which he was employed as the Company's Chief Operating Officer. Pursuant to
the agreement, Mr. Joyce is employed as Chief Executive Officer and is entitled
to be paid an annual salary of $275,000, which annual amount has been reduced to
$200,000 for the period from June 1, 2002 through December 31, 2002. The term of
the agreement is two years. If Mr. Joyce is terminated other than for engaging
in willful misconduct or acts of bad faith or conviction of a felony or, if
there is a change in control of the Company (as defined in the employment
agreement) and Mr. Joyce does not continue as Chief Executive Officer on terms
and conditions substantially similar to those contained in his agreement, he
will be entitled to receive the equivalent of 12 months' salary then due under
the agreement.

     The Company and Dr. Yehuda Cern entered into an amended and restated
employment agreement as of December 2001 which effectively amended and restated
the employment originally entered into by the Company and Dr. Cern in November
2000. Pursuant to the agreement as of December 2001, Dr. Cern is employed as
Chief Engineer and is currently paid and annual salary of $156,000. The term of
the agreement is two years whereupon the employment agreement will be
automatically renewable from year to year unless either party gives notice of
termination at least 90 days prior to the scheduled expiration date. If the
employment is terminated for no cause or if the agreement is not renewed by the
Company after the expiration of the initial two year term, then Dr. Cern is
entitled to receive 12 months' salary in bi-monthly installments.

     The Company and Ramdas Rao entered into an employment agreement effective
as of September 2000 (as amended in November 2002) pursuant to which he is
employed as the Company's Chief Network Architect. Mr. Rao is currently paid an
annual salary of approximately $155,000. The employment agreement is for a
period of two years and is to renew automatically unless either party gives 2
months notice to the other prior to the scheduled expiration date of its
election to not renew. If the employment is terminated for no cause or if the
agreement is not renewed by the Company after the expiration of the initial two
year term, then Mr. Rao is entitled to receive 12 months' salary in bi-monthly
installments.

     Each of the executives with an agreement has agreed to certain customary
confidentiality and non-compete provisions that prohibit him from competing with
the Company for one year, or soliciting our employees for one year, following
the termination of his employment.

                                       25
<PAGE>

COMPENSATION OF NON-EMPLOYEE DIRECTORS

     Each of the non-employee directors received, with respect to 2002, an
annual cash payment of $16,000 for serving on the Board and an additional $4,000
in respect of each committee on which he/she serves. None of the
employee-directors receive any cash compensation for serving on the Board. With
respect to 2003, each of the non-employee directors will be entitled to receive
an annual cash payment of $4,000 for serving on the Board. In addition, each
non-employee director is entitled to receive options under the Company's 2002
Non-Employee Directors' Stock Option Plan to purchase 100,000 shares of the
Company Common Stock and options for an additional 20,000 shares of Common Stock
for service on a committee, in each case to vest over one year and at an
exercise price equal to or above the market price on the date of grant.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

     (i) The following table sets forth certain information, as of March 28,
2003, concerning the ownership of the Common Stock by (a) each person who, to
the best of the Company's knowledge, beneficially owned on that date more than
5% of the outstanding Common Stock, (b) each of the Company's directors and
Named Executive Officers and (c) all current directors and executive officers of
the Company as a group.

<TABLE>
<CAPTION>

                                                          Number of Shares             Percent of
Name of Beneficial Owner(1)                             Beneficially Owned(2)        Common Stock(2)
---------------------------                             ---------------------        ---------------
<S>                                                     <C>                          <C>
John J. Joyce, Chairman, CEO and President                   2,430,000 (3)              3.38%

Dr. Yehuda Cern, Chief Engineer                              3,382,167 (4)              4.66%

Ramdas Rao, Chief Network Architect                          1,847,910 (5)              2.59%

Michael Braunold, Director                                     345,000 (6)                 *

Michael Widland, Director                                      178,334 (7)                 *

Judah Marvin Feigenbaum, Director                              133,333 (8)                 *

Henry Seduski, Director                                             -- (9)                 *

Consolidated Edison, Inc.                                   35,000,000 (10)            49.58%

Southern Telecom, Inc. ...........................           4,561,005 (11)             6.07%%

All directors and executive officers as
a group (7 persons) (12)                                     8,316,744                 11.13%
</TABLE>

* Indicates less than 1%.

(1) Unless otherwise indicated, the address of each person listed is c/o Ambient
Corporation, 1033 Beacon Street, Brookline, Massachusetts, 02446.

(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC") and generally includes voting or
investment power with respect to securities. In accordance with SEC rules,
shares of Common Stock issuable upon the exercise of options or warrants which
are currently exercisable or which become exercisable within 60 days following
the date of the information in this table are deemed to be beneficially owned
by, and outstanding with respect to, the holder of such option or warrant.
Except as indicated by footnote, and subject to community property laws where
applicable, to

                                       26
<PAGE>

the knowledge of the Company, each person listed is believed to have sole voting
and investment power with respect to all shares of Common Stock owned by such
person.

(3) Comprised of (i) 1,055,000 shares of Common Stock and (ii) 1,375,000 shares
of Common Stock issuable upon the exercise of currently exercisable employee
stock options issued under the Company's 2000 Equity Plan.

(4) Comprised of (i) 482,167 shares of Common Stock, (ii) 1,900,000 shares of
Common Stock issuable upon the exercise of currently exercisable employee stock
options issued under the Company's 2000 Equity Plan and (iii) 1,000,000 shares
of Common Stock held by the Sarah and David Family Irrevocable Trust (the
"Trust"). Dr. Cern's wife is the trustee of the Trust and Dr. Cern's children
are its income beneficiaries. Dr. Cern disclaims beneficial ownership of all
shares held by the Trust.

(5) Represents (i) 1,015,000 shares of Common Stock and (ii) 832,910 shares of
the Company's Common Stock issuable upon exercise of currently exercisable
employee stock options issued under the Company's 2000 Plan. Does not include
609,090 shares of Common Stock issuable under the Company's 2000 Plan, which
options are scheduled to vest over the next two and one half years.

(6) Represents (i) 300,000 shares of Common Stock and (ii) 45,000 shares of
Common Stock issuable upon exercise of currently exercisable options, of which
options for 45,000 shares are attributable to service on the Board. Does not
include 100,000 shares of Common Stock issuable upon exercise of options issued
under the Company's 2002 Non-Employee Directors' Stock Option Plan and scheduled
to vest in December 2003.

(7) Represents 133,334 shares of Common Stock and (ii) 45,000 shares of Common
Stock issuable upon exercise of currently exercisable options. Does not include
100,000 shares of Common Stock issuable upon exercise of options issued under
the Company's 2002 Non-Employee Directors' Stock Option Plan and scheduled to
vest in December 2003

(8) Represents shares of 83,333 Common Stock and (ii) 50,000 shares of Common
Stock issuable upon exercise of currently exercisable options. Does not include
120,000 shares of Common Stock issuable upon exercise of options issued under
the Company's 2002 Non-Employee Directors' Stock Option Plan and scheduled to
vest in December 2003.

(9) Does not include 120,000 shares of Common Stock issuable upon exercise of
options issued under the Company's 2002 Non-Employee Directors' Stock Option
Plan and scheduled to vest in December 2003.

(10) The business office of Consolidated Edison, Inc. ("ConEd") is at
Consolidated Edison Co. of New York, Inc. 4 Irving Place, New York, NY 10003.
The foregoing is based on a Schedule 13D filed by the stockholder in October
2002, as subsequently amended in March 2003.

(11) Represents 2,684,000 shares of Common Stock issuable upon exercise of
currently exercisable warrants issued in January 2002 (the "Original Warrant")
and (ii) 1,877,005 shares of Common Stock issuable upon exercise of currently
exercisable warrants issued to Southern Telecom, Inc. ("STI") as of March 2003,
pursuant to certain protective provisions contained in the Original Warrant, in
connection with the investment by ConEd under the ConEd Investment Agreement.
The principal business address of STI is 3003 Summit Boulevard, Atlanta, Georgia
30319.

(12) See Footnotes 3-9

      (ii) The following table sets forth, as of December 31, 2002, certain
required information relating to the shares of Common Stock issuable on an
aggregated basis under the Company's 2000 Equity Incentive Plan and the 2002
Non-Employee Directors' Stock Option Plan.

                                       27
<PAGE>
<TABLE>
<CAPTION>

                           EQUITY COMPENSATION PLAN INFORMATION




            Plan Category                  Number of       Weighted-          Number of
                                         securities to      average           securities
                                           be issued    exercise price of     remaining
                                             upon          outstanding      available for
                                          exercise of       options,           future
                                          outstanding       warrants          issuance.
                                           options,        and rights
                                         warrants and
                                            rights
                                              (a)              (b)               (c)
<S>                                       <C>                <C>             <C>
Equity compensation plan approved by      5,172,000           $0.61           12,038,000
         security holders

Equity compensation plans not approved    5,590,000           $0.79              --
         by security holders

               Total
</TABLE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Under the terms of the Investment Agreement between the Company and ConEd,
an affiliate of the Company's largest stockholder, so long as ConEd continues to
hold, in the aggregate, 25% of the issued and outstanding shares of the
Company's Common Stock, the Company undertook to notify ConEd of the terms of
any proposed equity or debt financing in an amount exceeding $500,000 and to
afford ConEd the opportunity to approve or reject such subsequent investment,
PROVIDED, that following June 30, 2003, the minimum amount per subsequent
investment requiring notification is increased to $750,000 and should ConEd not
approve the proposed financing, ConEd undertook to complete such financing on
substantially similar terms. Additionally, so long as ConEd continues to hold at
all times such percentage holdings, ConEd is entitled to designate one member of
the Company's Board.

     In connection with the advance of $325,000 made by CECONY to the Company in
February 2002 in order to commence the demonstration phase under the research
and development agreement entered into by the Company and CECONY in February
2002, the Company agreed to grant to CECONY a first priority lien on all Company
assets, including the technology underlying the Company's proposed technology,
to secure the repayment of the advance. The lien is extinguished if the Small
Field Trial (as defined in the agreement) is successful. Additionally, under
such agreement, CECONY will be entitled to a 2.5% royalty, based on net revenues
from powerline equipment and related services for a ninety-nine year period,
commencing on the date on which the agreement was signed. Royalty payments are
only due if the Company has positive cash flow and will be payable quarterly, in
arrears, and do not accrue from one quarter to another during periods of
negative cash flow.

     In connection with a testing and development agreement entered into as of
December 2001 with Southern Telecom International ("STI"), in January 2002 the
Company issued to STI warrants to purchase up to 2,684,000 shares of the
Company's Common Stock, exercisable through December 31, 2004, at a per share
exercise price of $.20 (the "Warrant"). In August 2002, in connection with the
Company's efforts then undertaken to raise needed financing, STI agreed to waive
certain rights and protective provisions contained in the Warrant. In
consideration, the Company agreed to reduce the exercise price under the Warrant
from $0.20 to $0.12. Pursuant to such agreement with STI, following the receipt
by the Company in full of ConEd's investment under the Investment Agreement, the
number of shares issuable under the Warrant was increased as of February 2003 by
an additional 1,877,005 shares of Common Stock.

                                       28
<PAGE>

     In connection with the amendment and restatement in December 2001 of the
employment agreement ("Restated Agreement") with Dr. Cern, the Company's Chief
Engineer, the Company issued to Dr. Cern 1 million shares of its Common Stock
for a $200,000 non-recourse promissory note. The note bears interest at prime
plus 1% and is due in three equal installments in February, March and April
2003. Under the Restated Agreement, in lieu of repaying the principal, Dr. Cern
is entitled to require the Company to repurchase the shares at the rate of $.20
per share. The shares have been pledged as collateral for the note. In March
2003, Dr. Cern transferred such shares to the Company, for cancellation and
return to the Company's treasury, and the Company cancelled Dr. Cern's
promissory notes.

     Under the Restated Agreement, the Company agreed to certain protective
provisions in favor of Dr. Cern in connection with the commercial exploitation
of subsequently developed technology substantially developed by him (the
"Subsequently Developed Technology") whereby Dr. Cern would be entitled, under
limited circumstances and subject to the agreement of the Company, to an agreed
upon percentage, not to exceed 5%, of the benefits derived from such
Subsequently Developed technology and, in case the Company establishes a
majority-owned subsidiary to exploit such Subsequently Developed Technology, 5%
of the initial equity of such entity. The Company also agreed that if it either
ceases operations or changes its business focus such that the Company no longer
intends to utilize powerline technology, the Company shall sell Dr. Cern the
rights to such technology for ninety percent (90%) of such technology's then
current fair market value as determined by an independent appraiser mutually
selected by the Company and Dr. Cern.

     The Company retains the law firm of Shipman & Goodwin, LLP, of which Mr.
Widland, a non-employee director is a partner, to perform legal services from
time to time.

ITEM 13. CONTROLS AND PROCEDURES.

     The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms,
and that such information is accumulated and communicated to the Company's
management, including its Chief Executive Officer and Principal Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.

     Within the 90 days prior to the filing date of this report on Form 10-KSB,
the Company carried out an evaluation, under the supervision and with the
participation of the Company's Chief Executive and Principal Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14).
Based upon that evaluation, the Chief Executive and Principal Financial Officer
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company required to
be included in the Company's periodic SEC filings. Subsequent to the date of
that evaluation, there have been no significant changes in internal controls or
in other factors that could significantly affect internal controls.

ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

3.1 Certificate of Incorporation of the Company, as amended (1)
3.2 By-Laws of the Company, as amended (1)

                                       29
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                             <C>
3.3 Memorandum of Association of Ambient Ltd. (1)
3.4 Articles of Association of Ambient Ltd. (1)
4.1 Specimen Stock Certificate (1)
4.2 Form of 10% Convertible Debenture due February 28, 2002 (2)
4.3 Form of Common Stock Purchase Warrant (2) Englewood
4.4 Form of Common Stock Purchase Warrant (4)
4.5 Form of Common Stock Option Agreement between the Corporation and certain Executive Officers(4)
4.6 Form of Company Promissory Note (9)
4.7 Form of Company Warrant (9)
10.1 Form of the Company's 1998 Stock Option Plan. (1)
10.2 Form of Subscription Agreement dated July 2000 between Ambient Corporation and certain investors. (3)
10.3 Form of Subscription Agreement dated July-August 2000 between Ambient Corporation and Certain Investors. (3)
10.4 Form of the Company's 2000 Equity Incentive Plan. (3)
10.5 Employment Agreement between Ambient Corporation and Ram das Rao dated as of September 29, 2000. (3)
10.6 Consulting Agreement between Ambient Corporation and Aviz Financial, LLC dated as of December 29, 2000.(4)
10.7 Consulting Agreement between Ambient Corporation and Aviz Consulting Limited dated as of December 29, 2000.(4)
10.8 Subscription Agreement between Ambient Corporation and Oscar Private Equity Investments, L.P. dated June 15, 2001. (5)
10.9 Finders Agreement between Ambient Corporation and TABAY Holdings, L.L.C. dated as of June 15, 2001. (5)
10.10 Service Agreement between Ambient Corporation and Aquilla Corporation dated August 21, 2001. (6)
10.11 Strategic Alliance Agreement between Ambient Corporation and Aquilla Corporation dated November 2, 2001. (6)
10.12 Subscription Agreement between Ambient Corporation and Oscar Private Equity Investments dated November 2, 2001. (6)
10.13 Agreement  between  Ambient  Corporation  and Aryeh  Weinberg  dated October 29, 2001. (6)
10.14 Agreement  between  Ambient Corporation and Mark Isaacson dated September 6, 2001. (7)
10.15 First  Amendment dated November 12, 2001 to Agreement  between Ambient  Corporation and Mark Isaacson dated
      September 6, 2001. (6)
10.16 Restated Employment Agreement between Ambient Corporation and John Joyce dated November 16, 2001. (8)
10.17 Restated Employment Agreement between Ambient Corporation and Dr. Yehuda Cern dated December 31, 2001. (8)
10.18 Settlement Agreement between Ambient Corporation and Wilfred Kopelowitz dated as of April 4, 2002. (8)
10.19 Stock Purchase Agreement dated as of September 30, 2002 between Ambient and Consolidated Edison, Inc. (9)
10.20 Form of Ambient Corporation's 2002 Non-Employee Directors' stock Option Plan (10)
21.1  Subsidiaries of the Company (2)
99.1  Certification of the Company's Chief Executive Officer and Principal Financial Officer under Section 906 of the Sarbanes-Oxley
      Act of 2002. *
</TABLE>

* Filed Herewith

(1) Filed as an Exhibit to Ambient's Registration Statement on Form SB-2, No.
33-40045, and incorporated herein by reference.

(2) Filed as an Exhibit to Ambient's Annual Report on Form 10-KSB for the year
ended December 31, 1999 and incorporated herein by reference.

(3) Filed as an Exhibit to Ambient's Registration Statement on Form SB-2, No.
33-43045, and incorporated herein by reference.

(4) Filed as an Exhibit to Ambient's Registration Statement on Form SB-2, No.
33-56764, and incorporated herein by reference.

                                       30
<PAGE>

(5) Filed as an Exhibit to Ambient's Report on From 10-QSB for the three month
period ended June 30, 2001 and incorporated herein by reference.

(6) Filed as an Exhibit to Ambient's Report on From 10-QSB for the three month
period ended September 30, 2001 and incorporated herein by reference.

(7) Filed as an Exhibit to the Report on Form 8-K filed on September 20, 2001
and incorporated herein by reference.

(8) Filed as an Exhibit to Ambient's Report on Form 10-KSB for the year ended
December 31, 2001 and incorporated herein by reference.

(9) Filed as an Exhibit to Ambient's Report on Form 10-QSB for the three month
period ended June 30, 2002 and incorporated herein by reference.

(10) Filed as an Exhibit to Ambient's Report on Form 10-QSB for the three month
period ended September 30, 2002 and incorporated herein by reference.

(11) Filed as an Exhibit to Ambient's Definitive Proxy Statement on Form 14-A
filed on December 10, 2002 and incorporated herein by reference.

(b)   Reports on Form 8-K

(i)   Report on Form 8-K filed on January 15, 2002

(ii)  Report on Form 8-K filed on February 14, 2002

(iii) Report on Form 8-K filed on September 5, 2002

(iv)  Report on Form 8-K filed on September 30, 2002

                                       31
<PAGE>

                                   SIGNATURES

     In accordance with the requirements of the Exchange Act the registrant
caused this report to be signed by the undersigned thereunto duly authorized.




                                        /s/ JOHN J. JOYCE

DATE: MARCH 31, 2003                    JOHN J. JOYCE
                                        CHIEF EXECUTIVE AND FINANCIAL OFFICER
                                        AND DIRECTOR


     In accordance with the Exchange Act, 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/  MICHAEL WIDLAND                DIRECTOR                      MARCH 31, 2003
MICHAEL WIDLAND

/S/ JUDAH MARVIN FEIGENBAUM         DIRECTOR                      MARCH 31, 2003
JUDAH MARVIN FEIGENBAUM

/S/ MICHAEL BRAUNOLD                DIRECTOR                      MARCH 31, 2003
MICHAEL BRAUNOLD

/S/ HENRY SEDUSKI                   DIRECTOR                      MARCH 31, 2003
HENRY SEDUSKI

                                       32
<PAGE>

     CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John J. Joyce, Chief Executive and Principal Financial Officer of Ambient
Corporation, certify that:

1. I have reviewed this annual report on Form 10-KSB of Ambient Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant, including its consolidated subsidiaries, as of, and for, the period
presented in this annual report;

4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant, including its consolidated subsidiaries, and I have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to me by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report my conclusions about the effectiveness of the
disclosure controls and procedures based on my evaluation as of the Evaluation
Date;

5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
fulfilling the equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. I have indicated in this annual report whether or not there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of the most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

Date: March 31, 2003


                               /s/ JOHN J. JOYCE
                               ---------------------------------
                               JOHN J. JOYCE
                               CHIEF EXECUTIVE OFFICER
                               (AND PRINCIPAL FINANCIAL OFFICER)

                                       33
<PAGE>

                               AMBIENT CORPORATION

                          (A Development Stage Company)

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                            Page

INDEPENDENT AUDITORS' REPORT                                                F-1

CONSOLIDATED FINANCIAL STATEMENTS:

   Balance Sheets                                                           F-2

   Statements of Operations                                                 F-3

   Statement of Changes in Stockholders' Equity (Deficit)                   F-4

   Statements of Cash Flows                                                 F-5

   Notes to Financial Statements                                            F-6


<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE SHAREHOLDERS OF
AMBIENT CORPORATION.

We have audited the accompanying consolidated balance sheets of Ambient
Corporation. ("the Company") (a development-stage company) and its subsidiaries
at December 31, 2002 and 2001, and the related consolidated statements of
operations, comprehensive loss, stockholders' equity (deficit) and cash flows
for the two years ended December 31, 2002, and for the period from June 1, 1996
(date of inception) to December 31, 2002. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Company's management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiaries at December 31, 2002 and 2001, and the consolidated
results of operations, comprehensive loss, stockholders' equity (deficit) and
their cash flows for the two years ended December 31, 2002, and for the period
from June 1, 1996 (date of inception) to December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company's recurring losses from operations and
stockholders' capital deficiency raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


BRIGHTMAN ALMAGOR & CO.
CERTIFIED PUBLIC ACCOUNTANTS (ISRAEL)
A MEMBER OF DELOITTE TOUCHE TOHMATSU

Tel-Aviv, Israel
MARCH 25, 2003

                                      F-1
<PAGE>
<TABLE>
<CAPTION>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                           CONSOLIDATED BALANCE SHEETS

                                                                                              December 31,
                                                                                        2002                 2001
                                                                                        ----                 ----
<S>                                                                             <C>                  <C>
ASSETS
CURRENT ASSETS
     Cash and  cash equivalents                                                 $           75,251   $          177,340
     Receivables and prepaid expenses                                                       28,540               63,590
                                                                                  -----------------    -----------------

               Total current assets                                                        103,791              240,930


Loan receivable, Officer                                                                         -               70,000
Property and equipment, net                                                                 81,583              153,654
                                                                                  -----------------    -----------------

               Total assets                                                     $          185,374   $          464,584
                                                                                  =================    =================

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
     Accounts payable                                                           $          654,460   $          431,501
     Accrued expenses and other current liabilities                                        126,500              211,255
     Advances (Note 11)                                                                    325,000                    -
                                                                                  -----------------    -----------------

               Total current liabilities                                                 1,105,960              642,756
                                                                                  -----------------    -----------------

COMMITMENTS

STOCKHOLDERS' DEFICIT
     Convertible Preferred Stock, $.001 par value;
       5,000,000 shares authorized; none issued and outstanding                                  -                    -
    Common stock, $.001 par value;
      200,000,000 shares authorized; 63,718,384 and 26,177,384
        issued and outstanding, respectively                                                63,719               26,178
     Additional paid-in capital                                                         61,497,304           59,317,682
     Deficit accumulated during the development stage                                  (62,229,370)         (58,748,997)
      Less: Note receivable - stockholder                                                 (200,000)            (200,000)
      Less: deferred compensation                                                          (52,239)            (573,035)
                                                                                  -----------------    -----------------

               Total stockholders' deficit                                                (920,586)            (178,172)
                                                                                  -----------------    -----------------

               Total liabilities and stockholders' deficit                      $          185,374   $          464,584
                                                                                  =================    =================


                                     See Notes to Consolidated Financial Statements.
</TABLE>
                                                           F-2
<PAGE>
<TABLE>
<CAPTION>

                                                   AMBIENT CORPORATION
                                              (A Development Stage Company)
                                          CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                                                                      Cumulative
                                                                                          Year                      From Inception
                                                                                          Ended                           to
                                                                                       December 31,                  December 31,
                                                                                 2002               2001                 2002
                                                                                 ----               ----                 ----
<S>                      <C>                                               <C>               <C>                  <C>
Expenses

Research and Development (1)                                               $        975,536  $       2,856,815    $       6,017,226
Less - Participation by the Office of the
       Chief Scientist of the State of Israel                                             -                  -              558,195
                                                                            ----------------  -----------------    -----------------
                                                                                    975,536          2,856,815            5,459,031

Operating, general and administrative expenses (1)                                1,387,973          5,346,962           12,941,080
Stock based compensation - net                                                    1,067,951            413,651           17,266,664
                                                                            ----------------  -----------------    -----------------

Total expenses                                                                    2,455,924          5,760,613           30,207,744
                                                                            ----------------  -----------------    -----------------

Operating loss                                                                   (3,431,460)        (8,617,428)         (35,666,775)

Legal settlement                                                                          -                  -           (1,512,500)
Interest expense                                                                          -               (885)            (675,513)
Noncash financing expense                                                                 -                  -           (1,600,000)
Beneficial conversion feature of convertible debt                                         -                  -           (3,878,260)
Amortization of deferred financing costs                                            (49,318)                 -           (5,801,333)
Interest income                                                                         405             95,572              321,244
Write-off of convertible note receivable                                                  -           (490,000)            (490,000)
Company's share in net losses of affiliate                                                -         (1,016,842)          (1,352,207)
                                                                            ----------------  -----------------    -----------------

Loss before minority interest and extraordinary item                             (3,480,373)       (10,029,583)         (50,655,344)

Minority interest in subsidiary loss                                                      -                  -               25,000
                                                                            ----------------  -----------------    -----------------

Loss before extraordinary item                                                   (3,480,373)       (10,029,583)         (50,630,344)

Extraordinary item - loss on extinguishment of debt                                       -                  -           (9,778,167)
                                                                            ----------------  -----------------    -----------------

Net loss                                                                         (3,480,373)       (10,029,583)         (60,408,511)

Deemed dividends on convertible preferred stock                                           -                  -           (1,820,859)
                                                                            ----------------  -----------------    -----------------

Net loss attributable to common stockholders                               $     (3,480,373) $     (10,029,583)   $     (62,229,370)
                                                                            ================  =================    =================

Basic and diluted loss per share:
         Net loss before  extraordinary item                               $          (0.10) $           (0.42)
         Extraordinary loss from extinguishment of debt                                   -                  -
                                                                            ----------------  -----------------

      Net loss                                                             $          (0.10) $           (0.42)
                                                                            ================  =================

Weighted average number of shares outstanding                                    33,768,432         23,724,000
                                                                            ================  =================

(1) Excludes non-cash, stock based compensation expense as follows:
    Research and development, net                                          $        587,043  $         843,294    $       1,430,337
    Operating, general and administrative, net                                      480,908           (429,643)          15,836,327
                                                                            ----------------  -----------------    -----------------

                                                                           $      1,067,951  $         413,651    $      17,266,664
                                                                            ================  =================    =================



                                           See Notes to Consolidated Financial Statements.
</TABLE>
                                                                 F-3

<PAGE>
<TABLE>
<CAPTION>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)



                                                                                       Convertible
                                                                                     Preferred Stock                Common Stock
                                                                                  Shares           Amount             Shares
                                                                                ------------  -----------------  -----------------

                                                                             <C>           <C>                <C>
Issuance of common stock to founders for nominal consideration - July 1996                   $                          2,028,833
Issuance of common stock to employees for services - September 1996                                                         5,000
Issuance of common stock to employees for services - October 1996                                                         195,333
Net loss
                                                                                ------------  -----------------  -----------------

Balance - December 31, 1996                                                        -                 -                  2,229,166

Issuance of common stock to employees for services - March 1997                                                            20,000
Issuance of common stock to employees for services - August 1997                                                           84,167
Stock issued in connection with private placement of notes - September 1997                                                60,000
Issuance of common stock to advisor for services - September 1997                                                           6,000
Stock issued in connection with private placement of notes - October 1997                                                  20,000
Amortization of deferred stock - based compensation
Net loss
                                                                                ------------  -----------------  -----------------

Balance - December 31, 1997                                                        -                 -                  2,419,333

Stock issued pursuant to consulting agreement                                                                              75,000
Initial public offering in February 1998                                                                                  525,000
Stock issued in connection with short-term debt financing                                                                  20,000
Additional stock pursuant to founders agreement for nominal consideration                                                  35,000
Warrants issued pursuant to private placement of units
Options granted pursuant to consulting agreement
Amortization of deferred stock - based compensation
Net loss
                                                                                ------------  -----------------  -----------------

Balance - December 31, 1998                                                        -                 -                  3,074,333

Stock issued pursuant to consulting agreement - January 1999                                                                4,000
Stock issued pursuant to consulting agreement - February 1999                                                              15,000
Stock issued pursuant to consulting agreement - February 1999                                                              22,500
Stock issued pursuant to consulting agreement - April 1999                                                                 15,000
Warrants issued pursuant to consulting agreement - April 1999
Amortization of deferred stock - based compensation
Net loss
                                                                                ------------  -----------------  -----------------

Balance - December 31, 1999                                                        -                 -                  3,130,833

Waiver of liability due to related party - January 2000
Stock issued in respect of extinguishment of debt - February 2000                                                       3,490,000
Stock issued pursuant to consulting agreement - February 2000                                                             700,000
Stock issued pursuant to consulting agreement - February 2000                                                             180,000
Stock issued pursuant to consulting agreement - February 2000                                                              70,000
Stock issued pursuant to consulting agreement - February 2000                                                              25,000
Warrants issued pursuant to consulting agreement - February 2000
Warrants issued to convertible debenture holders - February, April and
November 2000
Stock issued pursuant to consulting agreement - February 2000                                                             589,750
Stock issued pursuant to consulting agreement - February 2000                                                             300,000
Stock issued pursuant to consulting agreement - March 2000                                                                250,000
Stock issued pursuant to consulting agreement - March 2000                                                                100,000
Stock issued pursuant to consulting agreement - March 2000                                                                346,250
Stock issued pursuant to consulting agreement - March 2000                                                                200,000
Stock issued for services - May 2000                                                                                       67,250
Stock issued pursuant to settlement agreement                                                                             250,000
Common stock issued in private placement, net of offering costs - July 2000                                             1,000,000
Preferred stock issued in private placement, net of offering costs - August 2000  1,125,000              1,125
Warrants issued to convertible debenture holders - July  through September 2000
Warrants issued in connection with private placement  - September 2000
Stock and stock options issued pursuant to severance agreement - September 2000                                           200,000
Stock issued upon conversion of debentures -  September and November 2000                                               5,000,000
Stock issued upon conversion of debentures - November 2000                                                              3,711,711
Stock issued upon conversion of preferred stock -  November 2000                 (1,125,000)            (1,125)         1,125,000
Stock options issued to employees
Stock options issued to consultants
Stock options and warrants exercised                                                                                      640,000
Beneficial conversion feature of debentures issued
Deemed dividend on convertible preferred stock
Amortization of deferred stock - based compensation
Net loss
                                                                                ------------  -----------------  -----------------

Balance - December 31, 2000                                                        -                 -                 21,375,794

Common stock issued in private placement, net of offering costs - March 2001                                              350,000
Common stock issued for purchase of minority interest                                                                     400,000
Stock issued pursuant to consulting agreement - March 2001                                                                650,000
Stock issued pursuant to consulting agreement - April 2001                                                                202,500
Common stock issued in private placement, net of offering costs - June 2001                                             1,299,090
Stock issued as finders fee - June 2001                                                                                   250,000
Warrants issued pursuant to consulting agreement - June 2001
Warrants issued pursuant to consulting agreement - August 2001
Warrants issued pursuant to consulting agreements - November 2001
Stock issued for services - November 2001                                                                                 650,000
Warrants issued pursuant to consulting agreements - December 2001
Common stock issued for note receivable - December 2001                                                                 1,000,000
Re-measurement of deferred compensation
Cancellation of options and warrants
Amortization of deferred stock - based compensation
Net loss
                                                                                ------------  -----------------  -----------------

Balance - December 31, 2001                                                        -                 -                 26,177,384

Stock and warrants issued for rent reduction - April - December 2002                                                      562,500
Stock and warrants issued in private placement - July 2002                                                                400,000
Stock and warrants issued as repayment of loans - September 2002                                                        1,500,000
Stock issued as payment accrued salaries  - September 2002                                                              4,104,000
Stock and warrants issued upon conversion of debt - September 2002                                                      1,332,833
Common stock issued for cash - September 2002                                                                          12,250,000
Stock issued upon conversion of debt - October 2002                                                                     1,000,000
Common stock issued for cash - October 2002                                                                             5,000,000
Common stock issued for cash - November 2002                                                                            5,000,000
Stock issued upon conversion of debt - November 2002                                                                      183,334
Stock issued upon conversion of debt - December 2002                                                                       83,333
Common stock issued for cash - December 2002                                                                            5,000,000
Exercise of warrants                                                                                                    1,125,000
Options and warrants issued
Amortization of deferred stock - based compensation
Net loss
                                                                                ------------  -----------------  -----------------

Balance - December 31, 2002                                                        -         $       -          $      63,718,384
                                                                                ============  =================  =================

(CONTINUED)

                                                                                                       Additional        Note
                                                                                 Common Stock           Paid-in        Receivable
                                                                                    Amount              Capital       Stockholder
                                                                                -----------------   ---------------   ------------

Issuance of common stock to founders for nominal consideration - July 1996                 2,029   $                 $
Issuance of common stock to employees for services - September 1996                            5
Issuance of common stock to employees for services - October 1996                            195
Net loss
                                                                                -----------------   ---------------   ------------

Balance - December 31, 1996                                                                2,229                 -         -

Issuance of common stock to employees for services - March 1997                               20            50,000
Issuance of common stock to employees for services - August 1997                              84           336,668
Stock issued in connection with private placement of notes - September 1997                   60           239,940
Issuance of common stock to advisor for services - September 1997                              6            23,994
Stock issued in connection with private placement of notes - October 1997                     20            79,980
Amortization of deferred stock - based compensation
Net loss
                                                                                -----------------   ---------------   ------------

Balance - December 31, 1997                                                                2,419           730,582         -

Stock issued pursuant to consulting agreement                                                 75           654,925
Initial public offering in February 1998                                                     525         3,432,502
Stock issued in connection with short-term debt financing                                     20            99,980
Additional stock pursuant to founders agreement for nominal consideration                     35
Warrants issued pursuant to private placement of units                                                      21,600
Options granted pursuant to consulting agreement                                                             1,600
Amortization of deferred stock - based compensation
Net loss
                                                                                -----------------   ---------------   ------------

Balance - December 31, 1998                                                                3,074         4,941,189         -

Stock issued pursuant to consulting agreement - January 1999                                   4             7,996
Stock issued pursuant to consulting agreement - February 1999                                 15
Stock issued pursuant to consulting agreement - February 1999                                 23            69,977
Stock issued pursuant to consulting agreement - April 1999                                    15            12,173
Warrants issued pursuant to consulting agreement - April 1999                                               10,260
Amortization of deferred stock - based compensation
Net loss
                                                                                -----------------   ---------------   ------------

Balance - December 31, 1999                                                                3,131         5,041,595         -

Waiver of liability due to related party - January 2000                                                     75,328
Stock issued in respect of extinguishment of debt - February 2000                          3,490        10,466,510
Stock issued pursuant to consulting agreement - February 2000                                700         2,099,300
Stock issued pursuant to consulting agreement - February 2000                                180           539,820
Stock issued pursuant to consulting agreement - February 2000                                 70           192,430
Stock issued pursuant to consulting agreement - February 2000                                 25            68,725
Warrants issued pursuant to consulting agreement - February 2000                                         1,500,000
Warrants issued to convertible debenture holders - February, April and                                   1,144,805
November 2000
Stock issued pursuant to consulting agreement - February 2000                                590         1,768,660
Stock issued pursuant to consulting agreement - February 2000                                300         1,246,560
Stock issued pursuant to consulting agreement - March 2000                                   250         1,499,750
Stock issued pursuant to consulting agreement - March 2000                                   100           587,400
Stock issued pursuant to consulting agreement - March 2000                                   346         2,033,873
Stock issued pursuant to consulting agreement - March 2000                                   200         1,149,800
Stock issued for services - May 2000                                                          67           130,196
Stock issued pursuant to settlement agreement                                                250         1,312,250
Common stock issued in private placement, net of offering costs - July 2000                1,000         1,799,000
Preferred stock issued in private placement, net of offering costs - August 2000                         1,819,734
Warrants issued to convertible debenture holders - July  through September 2000                          3,447,147
Warrants issued in connection with private placement  - September 2000                                     410,495
Stock and stock options issued pursuant to severance agreement - September 2000              200         1,756,042
Stock issued upon conversion of debentures -  September and November 2000                  5,000           795,680
Stock issued upon conversion of debentures - November 2000                                 3,712         8,490,545
Stock issued upon conversion of preferred stock -  November 2000                           1,125
Stock options issued to employees                                                                        4,059,080
Stock options issued to consultants                                                                      1,999,329
Stock options and warrants exercised                                                         640
Beneficial conversion feature of debentures issued                                                       3,878,260
Deemed dividend on convertible preferred stock                                                           1,820,859
Amortization of deferred stock - based compensation
Net loss
                                                                                -----------------   ---------------   ------------

Balance - December 31, 2000                                                               21,376        61,133,173         -

Common stock issued in private placement, net of offering costs - March 2001                 350           308,153
Common stock issued for purchase of minority interest                                        400           862,000
Stock issued pursuant to consulting agreement - March 2001                                   650           992,413
Stock issued pursuant to consulting agreement - April 2001                                   203           309,623
Common stock issued in private placement, net of offering costs - June 2001                1,299         1,133,531
Stock issued as finders fee - June 2001                                                      250              (250)
Warrants issued pursuant to consulting agreement - June 2001                                                90,648
Warrants issued pursuant to consulting agreement - August 2001                                              12,553
Warrants issued pursuant to consulting agreements - November 2001                                           13,087
Stock issued for services - November 2001                                                    650           109,850
Warrants issued pursuant to consulting agreements - December 2001                                            4,355
Common stock issued for note receivable - December 2001                                    1,000           199,000       (200,000)
Re-measurement of deferred compensation                                                                 (5,235,512)
Cancellation of options and warrants                                                                      (614,941)
Amortization of deferred stock - based compensation
Net loss
                                                                                -----------------   ---------------   ------------

Balance - December 31, 2001                                                               26,178        59,317,682       (200,000)

Stock and warrants issued for rent reduction - April - December 2002                         563            44,438
Stock and warrants issued in private placement - July 2002                                   400            68,918
Stock and warrants issued as repayment of loans - September 2002                           1,500            98,500
Stock issued as payment accrued salaries  - September 2002                                 4,104           201,096
Stock and warrants issued upon conversion of debt - September 2002                         1,333           186,107
Common stock issued for cash - September 2002                                             12,250           537,750
Stock issued upon conversion of debt - October 2002                                        1,000           119,000
Common stock issued for cash - October 2002                                                5,000           195,000
Common stock issued for cash - November 2002                                               5,000           195,000
Stock issued upon conversion of debt - November 2002                                         183            21,817
Stock issued upon conversion of debt - December 2002                                          83             9,917
Common stock issued for cash - December 2002                                               5,000           195,000
Exercise of warrants                                                                       1,125            10,125
Options and warrants issued                                                                                296,955
Amortization of deferred stock - based compensation
Net loss
                                                                                -----------------   ---------------   ------------

Balance - December 31, 2002                                                               63,719   $    61,497,304       (200,000)
                                                                                =================   ===============   ============

[CONTINUED)

                                                                                                       Deficit
                                                                                                     Accumulated
                                                                                                       During
                                                                                   Deferred          Development
                                                                                Compensation            Stage             Total
                                                                               ----------------    -----------------  ------------

Issuance of common stock to founders for nominal consideration - July 1996                        $                  $      2,029
Issuance of common stock to employees for services - September 1996                                                             5
Issuance of common stock to employees for services - October 1996                                                             195
Net loss                                                                                                   (693,995)     (693,995)
                                                                               ----------------    -----------------  ------------

Balance - December 31, 1996                                                                  -             (693,995)     (691,766)

Issuance of common stock to employees for services - March 1997                        (50,000)                                20
Issuance of common stock to employees for services - August 1997                      (336,668)                                84
Stock issued in connection with private placement of notes - September 1997                                               240,000
Issuance of common stock to advisor for services - September 1997                                                          24,000
Stock issued in connection with private placement of notes - October 1997                                                  80,000
Amortization of deferred stock - based compensation                                    145,556                            145,556
Net loss                                                                                                 (1,432,815)   (1,432,815)
                                                                               ----------------    -----------------  ------------

Balance - December 31, 1997                                                           (241,112)          (2,126,810)   (1,634,921)

Stock issued pursuant to consulting agreement                                         (655,000)                                 -
Initial public offering in February 1998                                                                                3,433,027
Stock issued in connection with short-term debt financing                                                                 100,000
Additional stock pursuant to founders agreement for nominal consideration                                                      35
Warrants issued pursuant to private placement of units                                                                     21,600
Options granted pursuant to consulting agreement                                        (1,600)                                 -
Amortization of deferred stock - based compensation                                    658,029                            658,029
Net loss                                                                                                 (2,820,314)   (2,820,314)
                                                                               ----------------    -----------------  ------------

Balance - December 31, 1998                                                           (239,683)          (4,947,124)     (242,544)

Stock issued pursuant to consulting agreement - January 1999                            (8,000)                                 -
Stock issued pursuant to consulting agreement - February 1999                                                                  15
Stock issued pursuant to consulting agreement - February 1999                          (70,000)                                 -
Stock issued pursuant to consulting agreement - April 1999                             (12,188)                                 -
Warrants issued pursuant to consulting agreement - April 1999                                                              10,260
Amortization of deferred stock - based compensation                                    325,808                            325,808
Net loss                                                                                                 (1,131,404)   (1,131,404)
                                                                               ----------------    -----------------  ------------

Balance - December 31, 1999                                                             (4,063)          (6,078,528)   (1,037,865)

Waiver of liability due to related party - January 2000                                                                    75,328
Stock issued in respect of extinguishment of debt - February 2000                                                      10,470,000
Stock issued pursuant to consulting agreement - February 2000                       (2,100,000)                                 -
Stock issued pursuant to consulting agreement - February 2000                         (540,000)                                 -
Stock issued pursuant to consulting agreement - February 2000                         (192,500)                                 -
Stock issued pursuant to consulting agreement - February 2000                          (68,750)                                 -
Warrants issued pursuant to consulting agreement - February 2000                    (1,500,000)                                 -
Warrants issued to convertible debenture holders - February, April and
November 2000                                                                                                           1,144,805
Stock issued pursuant to consulting agreement - February 2000                       (1,769,250)                                 -
Stock issued pursuant to consulting agreement - February 2000                       (1,246,860)                                 -
Stock issued pursuant to consulting agreement - March 2000                          (1,500,000)                                 -
Stock issued pursuant to consulting agreement - March 2000                            (587,500)                                 -
Stock issued pursuant to consulting agreement - March 2000                          (2,034,219)                                 -
Stock issued pursuant to consulting agreement - March 2000                          (1,150,000)                                 -
Stock issued for services - May 2000                                                                                      130,263
Stock issued pursuant to settlement agreement                                                                           1,312,500
Common stock issued in private placement, net of offering costs - July 2000                                             1,800,000
Preferred stock issued in private placement, net of offering costs - August 2000                                        1,820,859
Warrants issued to convertible debenture holders - July  through September 2000                                         3,447,147
Warrants issued in connection with private placement  - September 2000                                                    410,495
Stock and stock options issued pursuant to severance agreement - September 2000     (1,756,242)                                 -
Stock issued upon conversion of debentures -  September and November 2000                                                 800,680
Stock issued upon conversion of debentures - November 2000                                                              8,494,257
Stock issued upon conversion of preferred stock -  November 2000                                                                -
Stock options issued to employees                                                   (4,059,080)                                 -
Stock options issued to consultants                                                 (1,999,329)                                 -
Stock options and warrants exercised                                                                                          640
Beneficial conversion feature of debentures issued                                                                      3,878,260
Deemed dividend on convertible preferred stock                                                                          1,820,859
Amortization of deferred stock - based compensation                                 16,067,085                         16,067,085
Net loss                                                                                                (42,640,886)  (42,640,886)
                                                                               ----------------    -----------------  ------------

Balance - December 31, 2000                                                         (4,440,708)         (48,719,414)    7,994,427

Common stock issued in private placement, net of offering costs - March 2001                                              308,503
Common stock issued for purchase of minority interest                                 (862,400)                                 -
Stock issued pursuant to consulting agreement - March 2001                            (993,063)                                 -
Stock issued pursuant to consulting agreement - April 2001                            (309,825)                                 -
Common stock issued in private placement, net of offering costs - June 2001                                             1,134,830
Stock issued as finders fee - June 2001                                                                                         -
Warrants issued pursuant to consulting agreement - June 2001                           (90,648)                                 -
Warrants issued pursuant to consulting agreement - August 2001                         (12,553)                                 -
Warrants issued pursuant to consulting agreements - November 2001                      (13,087)                                 -
Stock issued for services - November 2001                                             (110,500)                                 -
Warrants issued pursuant to consulting agreements - December 2001                       (4,355)                                 -
Common stock issued for note receivable - December 2001                                                                         -
Re-measurement of deferred compensation                                              3,526,232                         (1,709,280)
Cancellation of options and warrants                                                   614,941                                  -
Amortization of deferred stock - based compensation                                  2,122,931                          2,122,931
Net loss                                                                                                (10,029,583)  (10,029,583)
                                                                               ----------------    -----------------  ------------

Balance - December 31, 2001                                                           (573,035)         (58,748,997)     (178,172)

Stock and warrants issued for rent reduction - April - December 2002                                                       45,000
Stock and warrants issued in private placement - July 2002                                                                 69,318
Stock and warrants issued as repayment of loans - September 2002                                                          100,000
Stock issued as payment accrued salaries  - September 2002                                                                205,200
Stock and warrants issued upon conversion of debt - September 2002                                                        187,440
Common stock issued for cash - September 2002                                                                             550,000
Stock issued upon conversion of debt - October 2002                                                                       120,000
Common stock issued for cash - October 2002                                                                               200,000
Common stock issued for cash - November 2002                                                                              200,000
Stock issued upon conversion of debt - November 2002                                                                       22,000
Stock issued upon conversion of debt - December 2002                                                                       10,000
Common stock issued for cash - December 2002                                                                              200,000
Exercise of warrants                                                                                                       11,250
Options and warrants issued                                                           (296,955)                                 -
Amortization of deferred stock - based compensation                                    817,751                            817,751
Net loss                                                                                                 (3,480,373)   (3,480,373)
                                                                               ----------------    -----------------  ------------

Balance - December 31, 2002                                                   $        (52,239)   $     (62,229,370) $   (920,586)
                                                                               ================    =================  ============

                                           See Notes to Consolidated Financial Statements.
</TABLE>
                                                                 F-4

<PAGE>
<TABLE>
<CAPTION>

                                                         AMBIENT CORPORATION
                                                    (A Development Stage Company)
                                                CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                                                                     Cumulative
                                                                                            Year                   From Inception
                                                                                            Ended                        to
                                                                                        December 31,                December 31,
                                                                                  2002                 2001             2002
                                                                                  ----                 ----
<S>                                                                             <C>             <C>             <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                                      $  (3,480,373)  $ (10,029,583)  $   (62,229,370)
  Adjustments to reconcile net loss to net cash used by operating activities:
      Depreciation and amortization                                                    86,861         123,106           414,445
      Amortization of note discount                                                    49,318       -                 5,156,462
      Cancellation of Officer loans in settlement of employment contract               70,000         654,447           724,447
      Loss on sale of fixed assets                                                          -           3,836            20,135
      Beneficial conversion feature of convertible debt                                     -               -         3,878,260
      Deemed dividends on convertible preferred stock                                       -               -         1,820,859
      Financing,  consulting and other expenses paid via the
               issuance of common stock and warrants                                1,067,951         413,651        30,610,542
      Increase (decrease) in net liability for severance pay                                -               -            15,141
      Accrued interest on loans and notes payable                                           -               -           210,016
      Company's share in net losses of affiliates                                           -       1,016,842         1,352,207
      Minority interest in subsidiary loss                                                  -               -           (25,000)
      Write-off of convertible note receivable                                              -         400,000           400,000
      Write-down of long term investment                                                    -          90,000           835,000
      Write-off of fixed assets                                                             -               -           136,066
      Increase (decrease) in cash attributable to changes in assets and
       liabilities
           Receivables and prepaid expenses                                            35,050         163,156            60,690
           Accounts payable                                                           562,399         198,193           795,754
           Other current liabilities                                                  (24,755)       (415,224)          277,156
                                                                                 -------------   -------------   ---------------

Net cash used in operating activities                                              (1,633,549)     (7,381,576)      (15,547,190)
                                                                                 -------------   -------------   ---------------

CASH FLOWS FROM  INVESTING ACTIVITIES
      Loan provided to another company                                                      -               -          (835,000)
      Purchase of convertible promissory note                                               -        (150,000)         (400,000)
      Investment in affiliated company                                                      -               -          (375,000)
      Additions to property and equipment                                             (14,790)       (136,329)         (693,464)
      Proceeds from disposal of fixed assets                                                -               -            42,100
      Loans to Officers                                                                     -      (2,072,000)       (2,137,677)
      Repayment of loans to Officer                                                         -       1,431,226         1,431,226
                                                                                 -------------   -------------   ---------------

Net cash used in investing activities                                                 (14,790)       (927,103)       (2,967,815)
                                                                                 -------------   -------------   ---------------

CASH FLOWS FROM FINANCING ACTIVITIES
      Net proceeds from issuance of share capital                                     856,250       1,443,333         5,744,567
      Proceeds from loans and advances                                                690,000                           690,000
      Proceeds from issuance of notes payable                                               -               -         1,000,000
      Net proceeds from issuance of convertible debentures                                  -               -         9,148,262
      Repayment of notes payable                                                            -               -          (400,000)
      Proceeds of loans from shareholders, net                                              -               -           919,600
      Repayment of loans from shareholders                                                  -               -          (968,000)
      Proceeds from long-term bank credit                                                   -               -            95,969
      Repayment of long-term bank credit                                                    -         (10,243)          (87,996)
      Increase (decrease) in short term bank credit                                         -               -           (32,004)
      Public offering of common stock                                                       -               -         3,433,027
      Repayment of short-term debt                                                          -               -          (250,000)
      Proceeds from short-term debt                                                         -               -           274,038
      Loans to affiliate                                                                    -               -          (977,207)
                                                                                 -------------   -------------   ---------------

Net cash provided by financing activities                                           1,546,250       1,433,090        18,590,256
                                                                                 -------------   -------------   ---------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     (102,089)     (6,875,589)           75,251

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR                                         177,340       7,052,929                 -
                                                                                 -------------   -------------   ---------------

CASH AND CASH EQUIVALENTS - END OF YEAR                                         $      75,251   $     177,340   $        75,251
                                                                                 =============   =============   ===============


Noncash financing and investing activities for the year ended December 31, 2002
   Issuance of common stock in respect of outstanding accounts payable, accrued
   expenses and loans payable in the amount of $339,440.

                                           See Notes to Consolidated Financial Statements.
</TABLE>

                                                                 F-5
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - DESCRIPTION OF BUSINESS

         Ambient Corporation ("the Company"), was founded in June 1996 to design
         and develop advanced smart card interface technology. In August 1996,
         the Company purchased substantially all of the net assets of Gen
         Technologies, Inc., a smart card research and development company.

         During 1999 the Company ceased its research and design efforts in the
         smart card interface technology area and commenced the design,
         development, implementation and marketing of a proposed comprehensive
         communication infrastructure, which uses the electrical power
         distribution grid as a high-speed telecommunication medium. The
         Company's proposed powerline telecommunication solution is based on
         establishing and maintaining partnership relationships with utilities
         and electrical power distribution companies, as well as developing and
         maintaining business relations with telecommunication service and
         technology companies.

         The Company has been active in the powerline telecommunications field
         for a short time and its success is subject to risks and uncertainties
         frequently encountered by early stage companies in new and rapidly
         evolving markets. These risks include primarily the technological
         feasibility of the Company's proposed communications solution, its
         adoption by utilities and other providers of electrical power, and the
         commercial viability of the technology.

         The Company has not generated any revenues to date, and is considered
         to be in the development stage. Business activities to date have
         focused on research and development, marketing and raising of capital
         and financing. The Company anticipates that it will continue to incur
         significant operating costs and losses in connection with the
         development of its products and increased marketing efforts and is
         subject to other risks affecting the business of the Company. (See Note
         3).

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements include the accounts of the
         Company, its' wholly owned subsidiaries, Ambient Ltd. ("LTD") and
         Insulated Connections Corporation Limited ("ICC"), and PLT Solutions,
         Inc. ("PLT"). All inter-company balances and transactions have been
         eliminated in consolidation. At December 31, 2000 an employee held a
         9.9% minority interest in the Company's subsidiary, PLT, which was
         subsequently purchased and merged into the Company. LTD and ICC ceased
         business operations in 2001.

         USE OF ESTIMATES

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

                                      F-6
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

         CASH EQUIVALENTS

         Cash and cash equivalents consist of cash and short-term investments
         with insignificant interest rate risk and original maturities of 90
         days or less. Cash and cash equivalents are carried at cost, which
         approximates market value.

         FAIR VALUE OF FINANCIAL INSTRUMENTS

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

         FOREIGN CURRENCY TRANSLATIONS

         The U.S. dollar is the functional currency for the Company and its
         subsidiaries. The financial statements of the Company's foreign
         subsidiaries have been translated into U.S. dollars in accordance with
         FASB Statement No. 52.

         STOCK-BASED COMPENSATION

         The Company accounts for stock-based compensation in accordance with
         APB Opinion No. 25, "Accounting for Stock Issued to Employees" and FASB
         Interpretation 44, "Accounting for Certain Transactions Involving Stock
         Compensation." Pursuant to these accounting standards, the Company
         records deferred compensation for share options granted to employees at
         the date of grant based on the difference between the exercise price of
         the options and the market value of the underlying shares at that date.
         Deferred compensation is amortized to compensation expense over the
         vesting period of the underlying options. No compensation expense is
         recorded for fixed stock options that are granted to employees and
         directors at an exercise price equal to the fair market value of the
         common stock at the time of the grant.

         For variable stock options, compensation expenses are recognized over
         the vesting period based on the difference, if any, between the quoted
         market price of the Company's stock on the last trading day of each
         reporting period and the exercise price of the option.

         Stock options granted to non-employees are recorded at their fair
         value, as determined in accordance with SFAS No. 123 and Emerging
         Issues Task Force Consensus No. 96-18, and recognized over the related
         service period. Deferred charges for options granted to non-employees
         are periodically re-measured as the options vest.

                                      F-7
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


         The following table illustrates the effect on net loss and loss per
         share if the company had applied the fair value recognition provisions
         of SFAS No. 123 to stock options issued to employees:

<TABLE>
<CAPTION>
                                                                 Year ended
                                                                December 31,
                                                          2002                2001
                                                    ------------------  -----------------
<S>                                                      <C>               <C>
Net loss, as reported                                    ($3,480,373)      ($10,029,583)
Add: Stock based compensation
           expense, as reported, net                           90,678        (1,520,891)
Deduct: Total stock-based compensation
           expense determined under the fair
           value based method for all awards, net           (472,497)         1,334,327
                                                            ---------         ---------

Pro forma net loss                                       ($3,862,192)      ($10,216,147)
                                                         ============      =============

Basic and diluted loss per share, as reported                 ($0.10)            ($0.42)
Basic and diluted loss per share, pro forma                   ($0.11)            ($0.43)
</TABLE>

         For the purpose of providing pro forma disclosures, the fair values of
         stock options granted were estimated using the Black-Scholes
         option-pricing model with the following weighted-average assumptions
         used for grants in 2002 and 2001, respectively: a risk-free interest
         rate of 3% and 4.63%; an expected life of 7 and 4 years; an expected
         volatility of 139% and 133%; and no expected dividends.

         NET LOSS PER SHARE

         Basic earnings (loss) per share EPS is computed by dividing net income
         (loss) applicable to common shares by the weighted-average of common
         shares outstanding during the period. Diluted earnings (loss) per share
         adjusts basic earnings (loss) per share for the effects of convertible
         securities, stock options and other potentially dilutive instruments,
         only in the periods in which such effect is dilutive. The following
         securities have been excluded from the calculation of net loss per
         share, as their effect would be antidilutive.

                                            2002            2001
                                            ----            ----
                Stock options             10,762,000      8,079,500
                Warrants                  15,138,841      9,802,711

         PROPERTY AND EQUIPMENT

         Equipment and furniture and fixtures are recorded at cost and
         depreciated using the straight-line method over the estimated useful
         lives of the assets, which range from three to fourteen years. For
         leasehold improvements, amortization is provided over the shorter of
         the estimated useful lives of the assets or the lease term.

                                       F-8
<PAGE>
                               AMBIENT CORPORATION
                          (A Development Stage Company)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


         RESEARCH AND DEVELOPMENT COSTS

         Research and development costs are charged to operations as incurred.

         INCOME TAXES

         The Company uses the liability method to determine its income tax. This
         method requires the establishment of a deferred tax asset or liability
         for the recognition of future deductible or taxable amounts and
         operating loss carryforwards. Deferred tax expense or benefit is
         recognized as a result of the changes in the assets and liabilities
         during the year. Valuation allowances are established when necessary,
         to reduce deferred tax assets, if it is more likely than not that all
         or a portion of it will not be realized.

         CONCENTRATIONS

         Cash and cash equivalents are, for the most part, maintained with a
         major financial institution in the United States. Deposits held with
         these banks at times exceed the amount of insurance provided on such
         deposits. Generally these deposits may be redeemed upon demand and
         therefore, bear minimal risk.

         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.

         COMPREHENSIVE INCOME (LOSS)

         FASB Statement No. 130, "Reporting Comprehensive Income" prescribes
         standards for reporting comprehensive income and its components. Since
         the Company currently does not have any items of other comprehensive
         income, a statement of comprehensive income is not required.

         RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
         Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
         Technical Corrections. Among other things, SFAS No. 145 eliminates the
         requirement that gains and losses from the extinguishment of debt be
         classified as extraordinary items. SFAS No. 145 is effective for fiscal
         years beginning after May 15, 2002, with early adoption permitted. The
         Company does not expect the adoption of this standard to have a
         significant impact on its financial statements.

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
         Associated with Exit or Disposal Activities." This standard nullifies
         Emerging Issues Task Force No. 94-3, "Liability Recognition for Certain
         Employee Termination Benefits and Other Costs to Exit an Activity
         (including Certain Costs Incurred in a Restructuring)." This standard

                                      F-9
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


         requires that a liability for a cost associated with an exit or
         disposal activity be recognized when the liability is incurred rather
         than the date of an entity's commitment to an exit plan. SFAS No. 146
         is effective after December 31, 2002. The Company does not expect the
         adoption of this standard to have a significant impact on its financial
         statements

         In December 2002, the FASB issued Statement of Financial Accounting
         Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation,
         Transition and Disclosure." SFAS No. 148 provides alternative methods
         of transition for a voluntary change to the fair value based method of
         accounting for stock-based employee compensation. SFAS No. 148 also
         requires that disclosures of the pro forma effect of using the fair
         value method of accounting for stock-based employee compensation be
         displayed more prominently and in a tabular format. Additionally, SFAS
         No. 148 requires disclosure of the pro forma effect in interim
         financial statements. The transition and annual disclosure requirements
         of SFAS No. 148 are effective for fiscal years ending after December
         15, 2002. The interim disclosure requirements are effective for interim
         periods beginning after December 15, 2002. The Company does not expect
         that the adoption of SFAS 148 will have a material effect on its
         financial position or results of operations.

NOTE 3 - GOING CONCERN

         The accompanying financial statements have been prepared assuming that
         the Company will continue as a going-concern, which contemplates the
         realization of assets and the satisfaction of liabilities in the normal
         course of business. The Company has a limited operating history, has
         sustained losses since its inception. As shown in the accompanying
         financial statements, the Company incurred a net loss of $3.48 million
         for the year ended December 31, 2002. The future of the Company is
         dependent upon future profitable operations from the commercial success
         of its proposed comprehensive communication infrastructure utilizing
         the electrical power distribution grid as a high-speed
         telecommunication medium. The Company anticipates that it will continue
         to incur significant operating costs and losses in connection with the
         development of its products.

         On September 30, 2002, the Company and Consolidated Edison, Inc.
         ("ConEd"), an affiliate of Consolidated Edison Company of New York,
         Inc. ("CECONY"), entered into a stock purchase agreement whereby ConEd
         undertook to invest $1.4 million in the Company over the next six
         months, in consideration of the issuance of 35 million shares of the
         Company's common stock. The investment by ConEd included the
         forgiveness of $265,000 previously advanced by CECONY to the Company.
         The investment was completed in February 2003. (See Note 9).

         Management is continuing to actively seek additional capital that will
         provide funds needed to fund the research and development in order to
         fully implement its business plans. In addition, management has
         established and implemented plans designed to reduce the monthly level
         operating of expenditures.

         There is no assurance, however, that additional capital will be
         available to the Company and the inability to obtain such financing
         would have a material adverse effect on the Company. The Company
         currently has no financing commitments. The consolidated

                                      F-10
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

         financial statements do not include any adjustments that might result
         from the outcome of this uncertainty and these adjustments may be
         material.

NOTE 4 - CONVERTIBLE NOTE RECEIVABLE

         In July 2000 and February 2001, the Company invested a total of
         $400,000 in a convertible promissory note of a privately-held company
         active in the development of high-speed chips. The note became due in
         July 2001. The Company wrote off the note receivable in 2001 after
         evaluating prospects for collection, including a review of the
         company's financial condition and the note's default status.

NOTE 5 - PROPERTY AND EQUIPMENT

                                                    December 31,
                                                    ------------
                                                2002           2001
                                                ----           ----

           Computers                          $110,242        $102,896
           Machinery and equipment              59,015          54,411
           Furniture and office equipment       89,356          86,516
                                                ------          ------
                                               258,613         243,823
           Less - accumulated depreciation     177,030          90,169
                                               -------          ------
                                               $81,583        $153,654
                                               =======        ========

         Depreciation expense was $ 86,861 and $ 123,106 for the years ended
         December 31, 2002 and 2001, respectively.

NOTE 6 - INVESTMENT IN AFFILIATE

         The Company owned a 49% interest in Kliks.com Ltd.("Kliks") which was
         engaged in designing and establishing a nationwide internet screen
         phone network in Israel. Kliks was established in February 2000 and
         ceased to operate in 2001. The Company applies the equity method of
         accounting for its investment in Kliks and has written off its
         investment by recording a charge to operations in the amount of
         $1,016,842 representing its share of the loss for the year ended
         December 31, 2001.

NOTE 7 - OTHER CURRENT LIABILITIES

                                                     December 31,
                                                     ------------
                                                2002           2001
                                                ----           ----
           Accrued payroll and payroll taxes   $65,000         $50,000
           Accrued liabilities                  61,500         161,255
                                               -------         -------
                                              $126,500        $211,255
                                              ========        ========

                                      F-11
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8 - INCOME TAXES

         At December 31, 2002, the Company has available $30.5 million of loss
         carryforwards, for U.S. income tax purposes which expire in the years
         2016 through 2022. However, due to recent changes in stock ownership
         the use of the U.S. net operating loss carryforwards is severely
         limited under section 382 of the Internal Revenue code pertaining to
         changes in stock ownership. The Company's annual Section 382 limitation
         is approximately $63,000. As such, approximately $29 million of these
         NOL's will expire as worthless. The Company also has $2.5 million of
         foreign net operating loss carryforwards with no limitations or
         expiration date.


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

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

                                                        December 31,
                                                        ------------
                                                    2002            2001
                                                    ----            ----

           Net operating loss carryforwards     $1,412,750     $12,969,192
           Stock based compensation                696,822         457,960
           Other                                         -         540,883
                                                ----------     -----------
                 Total deferred tax assets       2,109,572      13,968,035
                 Valuation allowance            (2,109,572     (13,968,035
                                                ----------     -----------

                 Net deferred tax assets        $       --     $        --
                                                ==========     ===========

NOTE 9 - STOCKHOLDERS' EQUITY

         STOCK OPTION PLANS

         In February 1998, the Company adopted the 1998 Incentive and
         Non-Qualified Stock Option Plan (the "1998 Option Plan"). There are
         currently a total of 210,000 options outstanding under the 1998 Plan
         and future grants have been discontinued.

         In November 2000, the Company adopted the 2000 Equity Incentive Plan
         (the "2000 Incentive Plan"). A total of 5 million shares of Common
         Stock have been reserved for issuance under the 2000 Incentive Plan.
         The 2000 Incentive Plan provides for the grant of incentive stock
         options, nonqualified stock options, stock appreciation rights,
         restricted stock, bonus stock, awards in lieu of cash obligations,
         other stock-based awards and performance units. The 2000 Incentive Plan
         also permits cash payments under certain conditions. In December 2002,
         the number of shares of Common Stock reserved for issuance under the
         Company's 2000 Equity Incentive Plan was increased from 5,000,000 to
         15,000,000.

                                      F-12
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


         The Compensation Committee of the Board of Directors is responsible for
         determining the type of award, when and to who 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 up to 2,000,000 shares of Common Stock to non-employee
         directors. Under the 2002 Directors Plan, the only non-qualified
         options may be issued and they will be exercisable for a period of six
         years from the date of grant

         During 2000, the Company granted stock options (the "Variable Options")
         to certain employees with anti-dilution rights and exercise price
         adjustment provisions. Since the number of options and the associated
         exercise prices are subject to adjustment and not fixed at the grant
         date, these stock options are accounted for under variable stock option
         accounting. Accordingly, the Variable Options are re-valued on a
         periodic basis by measuring the difference between the current exercise
         price and the fair market value of the Company's common stock on that
         balance sheet date.

         OTHER OPTION GRANTS

         In addition to the options granted under the Stock Option Plans, the
         Company has issued options outside of the plans, pursuant to various
         employment, consulting and separation agreements.

         Option activity for 2002 and 2001 is summarized as follows:

<TABLE>
<CAPTION>
                                                                                                 Weighted
                                                                       Options                   Average
                                                                       -------                   Exercise
                                                            Plan       Non-plan       Total       Price
                                                            ----       --------       -----       -----
<S>                                                        <C>          <C>           <C>         <C>
         Options outstanding, January 1, 2001              1,684,500    5,050,000     6,734,500   $1.15
             Granted                                       1,000,000    1,900,000     2,900,000     .45
             Forfeited                                      (445,000)  (1,110,000)   (1,155,000)   1.18
                                                           ---------   ----------    ----------    ----
         Options outstanding, December 31, 2001            2,239,500    5,840,000     8,079,500     .73
             Granted                                       3,375,000            -     3,375,000     .38
             Exercised                                             -     (250,000)     (250,000)    .01
             Forfeited                                      (442,500)           -      (442,500)   2.19
                                                           ---------   -----------    ---------    ----
         Options outstanding, December 31, 2002            5,172,000    5,590,000    10,762,000    $.70
                                                           =========    =========    ==========    ====

         Shares of common stock available for
           future grant under the plan                    12,038,000
                                                          ==========
</TABLE>


                                      F-13
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


         The following table summarizes information about stock options
         outstanding at December 31, 2002:

<TABLE>
<CAPTION>
                                                                              Options Exercisable
                                                 Weighted Average               Weighted Average
                                                    Remaining
             Range of          Number        Contractual     Exercise        Number          Exercise
              Price         Outstanding         Life          Price       Exercisable          Price
              -----         -----------         ----          -----       -----------          -----
<S>                            <C>                <C>         <C>            <C>                 <C>
         $.01                      120,000            7.63        $0.01          120,000             $0.01
         $.10                      375,000            9.75          .10          375,000               .10
         $.20                      850,000            9.75          .20          481,818               .20
         $.35-.50                5,050,000            8.86          .47        3,484,165               .46
         $.81-1.00               3,860,000            7.84         0.99        3,460,000              0.99
         $1.97-2.50                507,000            8.00         2.24          305,000              2.18
                                   -------            ----         ----          -------              ----

         $.01-$2.50             10,762,000            8.54         $.70        8,225,983             $0.71
                                ==========            ====         ====        =========             =====
</TABLE>

         Weighted-average grant date fair value of options granted under the
         Plans in 2002 and 2001, under the Black-Scholes option pricing model,
         was $.26 and $.14 per option, respectively.

         WARRANTS

         o     In March through June 2001, in connection with a private
               placement of Common Stock the Company issued 575,000 warrants
               with an exercise price of $2.00. The warrants expire in four
               years.

         o     In June 2001, in connection with a service agreement, the Company
               issued five year immediately vested warrants to purchase 180,000
               shares of the Company's Common Stock at a per share purchase
               price ranging between $1.50 and $2.50.

         o     In August and November 2001, in connection with a service
               agreement, the Company issue five year warrants to purchase
               200,000 shares of the Company's Common Stock at a per share
               purchase price ranging between $1.25 and $2.50, which warrants
               vest upon the completion of various phases of the development
               activities.

         o     In November and December 2001, in connection with service
               agreements, the Company issue five year immediately vested
               warrants to purchase 116,000 shares of the Company's Common Stock
               at a per share purchase price ranging between $.50 and $.80.

         o     In January 2002, in connection with a Testing and Development
               Agreement (see note 11), the Company issued warrants to purchase
               up to 2,684,000 shares of the Company's Common Stock, exercisable
               through December 31, 2004 at a per share exercise price of $.20.
               In the event that the price of the Company's Common stock

                                      F-14
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


               closes at $1.50 or above for 10 consecutive business days, the
               Warrant may only be exercised during the next ninety day period.
               Under the agreement, warrant holder has an anti-dilution
               privilege that may require, under certain circumstances, both an
               adjustment to the exercise price and number of shares issuable
               under the warrant. In August 2002, the agreement was amended
               whereby the exercise price was reduced to $.12 per share and, as
               of February 2003, the number of shares issuable under this
               warrant due to the anti-dilution provision has increased to
               4,439,248.

         o     In February 2002, in connection with a service agreement, the
               Company issue two-year immediately vested warrants to purchase
               125,000 shares of the Company's Common Stock at a per share
               purchase price of $1.

         o     In September through December 2002, in settlement of various
               accounts payable, the Company issued warrants to purchase
               1,137,500 shares of the Company's Common Stock at a per share
               purchase price ranging between $.12 and $.25.

          A summary of the warrants outstanding at December 31, 2002 is as
          follows:


                                          Exercise   Expiration
                         Warrants          Price       Date

                         4,414,539           $.12     2004-05
                           400,000           $.15      2005
                           937,500           $.25      2004
                           660,000           $.40      2005
                            56,000           $.50      2006
                            60,000           $.80      2002
                         1,375,000          $1.00     2003-06
                           100,000          $1.25      2006
                           140,000          $1.50      2006
                           715,000          $2.00     2004-06
                            70,000          $2.50      2006
                         4,622,750          $3.50      2004
                           300,000          $4.00      2004
                         1,230,909          $4.50      2004
                            57,143          $8.00      2004
                            ------

                        15,138,841
                        ==========

         STOCK ISSUANCES

          o    On January 1, 2001, the Company entered into an agreement for the
               purchase of the 9.9% minority interest held in its subsidiary,
               PLT Solutions, Inc (PLT). Under the agreement the Company issued
               400,000 shares of its common stock to the minority shareholder,
               which was released over a two year period upon the satisfaction
               of certain release conditions. The Company recorded a charge to
               deferred compensation

                                      F-15
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


               from this issuance in the amount of $862,400 and is amortizing it
               over the related vesting period.

          o    In March through June of 2001, the Company realized net proceeds
               of $1.44 million from the sale of 1.649 million shares of its
               common stock and 575,000 warrants in private placements. The
               warrants are exercisable into common stock at the rate of $2.00
               per share and expire four years from date of issuance. The
               Company was also required to issue an additional 40,000 penalty
               shares for not having certain of these shares registered by
               November 15, 2001. The Company issued an additional 250,000
               shares of common stock to a placement agent in connection with
               one of the private placements.

          o    In November 2001, in order to settle certain disputes with a
               stockholder, the Company issued to such stockholder 650,000
               shares of the Company's Common Stock. The Company undertook to
               register these shares, as well as an additional 750,000 shares of
               Common Stock purchased by such stockholder in June, 2001, as well
               as an additional 250,000 shares issued to an affiliate of such
               stockholder; in the event that registration is not had by such
               date, the Company undertook to issue to such stockholder 100,000
               of its Common Stock for each 30 day period (or a pro-rated amount
               for any lesser period) that such shares are not so registered,
               for an aggregate maximum amount of 300,000 additional shares.

          o    In December 2001, in connection with an amended employment
               agreement, the Company issued 1 million shares of its Common
               Stock to its Chief Engineer for a $200,000 non-recourse
               promissory note. The note bears interest at prime plus 1% and
               becomes due in three equal installments in February, March and
               April 2003. Under the agreement, in lieu of repaying the
               principal, the employee has the right to require the Company to
               repurchase the shares at the rate of $.20 per share. The shares
               have been pledged as collateral for the note. In March 2003, the
               shares were returned to treasury and the note receivable was
               cancelled.

          o    During 2001, the Company entered into three one-year financial
               consulting agreements in March and April 2001 pursuant to which
               the Company issued a total of 852,500 shares of common stock. The
               Company recorded a charge to deferred stock based compensation in
               the amount of $1.3 million relating to the issuance of these
               shares and is amortizing it over the service period.

          o    In April through May 2002, in connection with a potential
               financing, the Company was advanced a $100,000 bridge loan. The
               financing was not completed and therefore under the terms of the
               agreement the Company was required to repay the loan by September
               2002. On September 30, 2002, the Company converted this loan into
               equity and issued 1,500,000 shares of its' Common Stock thereon
               in settlement of certain outstanding disputes. In connection with
               this agreement a total of 660,000 three-year warrants were issued
               with an exercise price of $.40.

          o    In July 2002, the Company issued 400,000 shares of its' Common
               Stock and 400,000 warrants for an aggregate purchase price of
               $20,000. The warrants are exercisable for one year from date of
               grant at a per share exercise price of $0.15, provided that the
               exercise period shall be reduced to 60 days following the trading
               day on which the

                                      F-16
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


               price per share of the Company' publicly traded common stock
               closes at $0.50 or more for a period of 20 consecutive trading
               days on the market or exchange on which such stock is then
               primarily quoted

          o    In April through December 2002, the Company issued 2,162,000
               shares of its' Common Stock and 1,137,500 Common Stock warrants
               to its landlord and other creditors in settlement of $264,440 in
               rent and other accounts payable.

          o    In September 2002, the Company issued 4,104,000 shares of Common
               Stock to various employees in settlement of $205,200 in accrued
               salaries.

          o    In September 2002, the Company issued a convertible note to a
               vendor in the amount of $120,000, representing previous accounts
               payable. The note, which was convertible into shares of the
               Company's Common Stock at the rate of $.12 per share, was
               converted in October 2002.

          o    In September 2002, the Company entered into a stock purchase
               agreement with ConEd pursuant to which ConEd undertook to invest
               $1.4 million in the Company. Pursuant to such agreement, ConEd
               purchased 12,250,000 shares of the Company's Common stock for
               $490,000, of which $265,000 was previously advanced to the
               Company by CECONY, an affiliate of ConEd. Under the stock
               purchase agreement, ConEd undertook to purchase an additional
               22,750,000 shares of Common Stock for $910,000 of which $600,000
               was received by December 31, 2002 and the remaining $310,000 in
               January and February 2003.

     AUTHORIZED SHARES

          In December 2002 the Company's stockholders voted as to increase the
          authorized shares of Common Stock from 100 million shares to 200
          million shares.

NOTE 10 - TERMINATION AGREEMENTS

          o    In connection with the then proposed relocation of the Company's
               headquarters, the Company advanced in April 2001 a loan of
               approximately $2 million to Mr. Isaacson, the Company's former
               Chief Executive Officer and the then Chairman of the Board of
               Directors, to be used for the purchase of a residence in the New
               York Metropolitan area. The loan was partially repaid in June and
               August 2001 from the proceeds of a mortgage on the new home and
               from the net proceeds from the sale of Mr. Isaacson's former home
               in Massachusetts. In connection with his resignation in September
               2001 from all offices held with the Company and the waiver by him
               of certain rights and claims under his employment agreement, the
               Company paid Mr. Isaacson $206,250 and forgave the unpaid
               balances of the outstanding loan in the amount of $570,774 and
               forgave another outstanding loan in an aggregate principal amount
               of $83,673. The Company also agreed to accelerate the vesting on
               1 million of Mr. Isaacson's unvested stock options exercisable at
               $1.00 per share and extend the exercise period for all of Mr.
               Isaacson's options through September 5, 2005.

          o    On April 4, 2002, the Company entered into an agreement with its
               Chief Financial Officer and a director pursuant to which such
               officer resigned from all positions held

                                      F-17
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


               with the Company. Under the agreement, in consideration of the
               waiver by such officer of certain payments due to him under the
               employment agreement with the Company, the Company forgave the a
               loan previously granted in the amount of $70,000, and agreed to
               remit to him up to $35,000, subject to the Company realizing net
               proceeds of $500,000 to $1 million from future financings. The
               Company also agreed to extend the life on a total of 165,000
               vested employee stock options and to grant an additional 80,000
               options exercisable at $.50 per share. In October 2002, the
               Company remitted to such former officer $15,000 and in February
               2003 the Company remitted $10,000

NOTE 11 - DEVELOPMENT AGREEMENTS

          o    In December 2001, the Company entered into a Testing and
               Development Agreement with Southern Telecom, Inc. ("STI"), a
               provider of telecommunications related services in the southern
               United States to develop certain hardware identify and design the
               communications and utility systems architecture and the conduct
               of field trials. The Agreement provides that each party retains
               ownership of their respective technologies, but jointly own any
               newly created technology resulting from the project. The Company
               was granted royalty free licenses to use the jointly developed
               technology world-wide, except within specified geographic areas
               within the United States.

               As additional consideration for the agreement, in January 2002,
               the Company issued to STI, warrants to purchase up to 2,684,000
               shares of the Company's Common Stock, exercisable through
               December 31, 2004 at a per share exercise price of $.20. Under
               the agreement, warrant holder has an anti-dilution privilege that
               may require, under certain circumstances, both an adjustment to
               the exercise price and number of shares issuable under the
               warrant. In August 2002, the agreement was amended whereby the
               exercise price was reduced to $.12 per share. As of February
               2003, the number of shares issuable under this warrant due to the
               anti-dilution provision has increased to 4,439,248.

          o    Effective February 7, 2002 the Company and Consolidated Edison
               Company of New York, Inc. ("CECONY"), an affiliate of CE, entered
               into a Research and Development Agreement to further develop and
               test the Company's proposed high speed powerline communications
               technology. Pursuant to the agreement, CECONY has advanced
               $325,000 to the Company, which will only be repayable if the
               Small Field Trial Phase, as defined, is deemed unsuccessful. In
               connection with this advance, the Company granted a first
               priority security interest and lien on all of its assets. The
               Company will have sole rights to any jointly developed
               intellectual property; however CECONY will be entitles to a 2.5%
               royalty, based on the Company's total net revenues for a
               ninety-nine year period. Royalty payments are only due if the
               Company has positive cash flow and will be payable quarterly, in
               arrears, and does not accrue from one quarter to another during
               periods of negative cash flow.


                                      F-18
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - COMMITMENTS AND CONTINGENCIES

         ROYALTIES

         The Company is committed to pay royalties to the Office of the Chief
         Scientist of the Government of Israel (OCS) on proceeds from sales of
         products in the smart cards interface technology area of which the OCS
         has participated by way of grants. The royalties are payable at the
         rate of 3% to 4.5% of product sales up to a maximum of 100% of the
         grant including accrued interest. The total amount of grants received
         was $ 558,195.

         The refund of the grant is contingent on future sales of these products
         and the Company has no obligation to refund these grants if the sales
         are not sufficient. The Company has ceased all activities in this area
         and does not expect any future revenues from these products. The
         Company is awaiting a formal letter from the Chief Scientist regarding
         the non-completion of the technology.

         EMPLOYMENT AGREEMENTS

         The Company entered into, and amended two employment agreements in
         September and December 2001 with its CEO and Chief Engineer. The
         Company's aggregate commitments under these employment agreements are
         approximately $425,000 during 2003. In addition, each of the agreements
         provides for a termination payment, under certain circumstances, equal
         to 12 months salary.

NOTE 13 - SUBSEQUENT EVENT - UNAUDITED

         On March 27, 2003, the Company's former Chief Financial Officer and a
         former director filed a complaint against the Company in State Court in
         Massachusetts. The action alleges, among other things, that the Company
         breached the termination and settlement agreement relating to his
         termination of employment and seeks damages of $205,000, along with
         interest, costs and attorney's fees. The Company believes it has
         meritorious defenses to this lawsuit, however at this early stage it is
         not possible to estimate the liability, if any, in connection with this
         matter.


                                      F-19