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

                                  FORM 10-KSB/A
            Annual Report for the fiscal year ended December 31, 2001

                               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, 2001

|_| 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. |_|

      The Issuer did not report any revenues for the year ended December 31,
2001.

      As of March 28, 2002, there were 26,177,384 outstanding shares of the
issuer's Common Stock. The aggregate market value of the shares of the issuer's
Common Stock on April 1, 2002 held by non-affiliates was approximately $4.2
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|

                               Explanatory Notice

      The small business issuer amends its Annual Report on Form 10-KSB for the
year ended December 31, 2001 to amend and restate Part III in its entirety to
provide the information called for in Items 9, 10, 11 and 12 therein.
<PAGE>

                                     Part I

Item 1. 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 pending
technologies designed to overcome these limitations and has positioned itself as
a leading systems integrator for powerline communication. Our proposed powerline
communication technology solution entails partnering arrangements with leading
telecommunication and other technology companies in order to complete the
design, development, testing and commercialization of our solution. We are
currently working with technology and utility companies in the design,
development and testing of our solution and its various components/technologies.

      We believe that powerline communication holds the promise of providing
broadband Internet access over existing electrical lines and home wiring at
speeds comparable to cable modem service and to DSL. Management believes further
that if and when commercially deployed, powerline communications presents an
attractive addition to the services routinely offered by utilities and other
providers of electricity.

      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, making
the telecommunications industry one of the fastest growing industries in the
world. Products and services providing consumer access to high-speed
communication comprise a multi-billion dollar market in the United States alone.
The number of online households in the United States is estimated at 157 million
today and by 2006 that figure is estimated to be at approximately 210 million
users. As broadband technologies mature, exponential growth in users and
services is also occurring. Currently there are approximately 15 million
high-speed broadband users. This number is estimated to be in excess of 35
million by 2006.

      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 too expensive 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. In
the U.S. alone, there are approximately 125,000,000 electrical utility
customers.


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<PAGE>

      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 "bypass coupler" is needed
as a bridge around the distribution transformer.

      The only currently existing 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 couplers that are
designed to achieve high-speed data transfer to and from the neighborhood
distribution lines without the need to establish an electrical connection. Our
couplers have been designed to slip around overhead low or medium voltage
distribution wires. Accordingly, we anticipate that implementation costs of our
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 order to be deployed, Ambient's solution will need to be integrated
with related equipment and technologies that the Company intends to develop in
conjunction with third-party technology partners. An integral component of our
proposed powerline communications solution are the nodes, or communication
controllers that enable the transmission of high frequency signals over
electrical lines. We have 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 design and
develop, and provide support to, the nodes. 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. As of the date of the filing of this report, the
Company anticipates that initial prototypes of the equipment for field testing
will be available prior to June 30, 2002.


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<PAGE>

      Our proposed powerline communication technology will also need to be
integrated with suitable modems, which convert digital bit streams into high
frequency data signals, and back again. Powerline modems need to cope with the
particular challenges of power lines, including signal loss and noise. We have
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 will be integrated into Ambient's
communications system network architecture. As of the date of the filing of this
report, initial prototypes of the modem are being tested.

      Management believes that active participation of utilities or utility
operators is essential to the design and development of our equipment, testing
of the proposed solution and eventual successful commercial deployment. In
December 2001, we 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 we 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 such utility's power system, identifying and
designing the communications and utility systems architecture and the conduct of
field trials. The course of the development plan envisioned under the STI
agreement is expected to be completed by the first quarter of 2003. The
agreement provides that we and STI together own any jointly created technology
resulting from the project. Ambient was granted royalty free licenses to use the
jointly developed technology world-wide, except within specified geographic
areas within the United States which are reserved to STI.

      In February 2002,we 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 us and CECONY from
mid 2000, the agreement contemplates that CECONY and Ambient will 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 contemplates 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. Following a successful demonstration, the parties are
to hold an initial field trial designed to implement and evaluate
connectivity/services in a trial site involving a pre-designated number of
residential premises or commercial establishments (the "Small Field Trial"),
which the Company anticipates will be initiated by the third quarter of 2002.
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
will also examine the prospects for the commercialization of Ambient's proposed
powerline solution.

      Pursuant to the agreement, CECONY advanced to us 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. The Company anticipates that the demonstration will be initiated in
May 2002 and that the Small Field Trial of the proposed technology is to
commence by June 2002.

Our Strategy

      Our 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 our third
party technology and other


                                       4
<PAGE>

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 as expeditiously as practicable, the Company has
entered into partnering arrangements with telecommunications and other
technology companies, as well as utilities or utility operators, as described
above. Management intends to continue to pursue this approach as appropriate.
Ambient anticipates that the design, development and testing of its proposed
powerline communication technology, as well as all of the integral components
and other technologies to be designed and developed by our third party
technology and utility partners will be completed and ready for commercial
deployment by the second quarter of 2003. 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 from both a
consumer basket of services as well as from utility products which are expected
to generate to the utility, or the utility operator, significant savings,
benefits and additional value. We expect the consumer products' basket 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 basket of services 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 our 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 our
proposed powerline based solution, the Company may be able to generate 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. We anticipate that these payments will be made to us upon the
achievement of certain pre-designated development and commercialization
milestones.

Potential Applications Relating to Powerline Communications Technology

      Management believes that there are four primary sectors for the proposed
powerline communications related products and services: urban, rural, suburban,
and underserved/underdeveloped. Each of these sectors has unique characteristics
that provide opportunity for powerline communications.

      Urban markets are primarily large cities with densely populated areas and
a large number of commercial buildings. The type of distribution system
typically used in urban markets is either underground radial or underground
network. Within this market, consumers per transformer are typically as high as
12 and in many cases significantly greater. Competition within these areas also
tends to be much greater, offsetting some of the benefits


                                       5
<PAGE>

of high customer density. Other broadband sources will enjoy a high penetration
in many of these areas, making entry of new competitors problematic. Ambient's
strategy for the urban sector will be targeted at special situations such as
those areas where the competition has not yet been firmly established and/or
where in-building powerline based communication could have a significant
advantage (e.g., apartments, office complexes, etc.)

      The suburban sector is generally characterized by small neighborhoods that
will utilize both the underground radial and overhead radial distribution
environments. This market will typically have between six-eight consumers per
distribution transformer. Within these area's, broadband solutions are just
beginning to develop. Therefore, at present these consumers have fewer options.
In addition, their economic status will typically be higher than the other
sectors. These factors (less competition, higher potential revenue) make this
sector a particularly attractive target.

      The rural markets tend to be large in landmass with a low customer
density. The distance between consumers will be much greater than in either
urban or suburban areas. Due to the large distance, overhead radial environments
are prevalent. Within this environment there are typically one-six homes per
transformer. Powerline communications promises special advantages in the rural
sector. Build-out of wired systems will be very costly, which has prevented many
competing technologies from marketing to this sector. Funding from federal,
state or local programs is available and may also stimulate the rural market.

      The underdeveloped sector, generally consisting of third world countries,
can especially benefit from powerline-based technology. Many governments are
becoming extremely cognizant of their populations' need for basic telephony and
Internet services and are interested in establishing these services in areas
where they are lacking today.

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. 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. We expect significant competition from the following:

      I. Powerline telecommunication 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 our knowledge, implemented and commercialized any such
solution. Certain other companies, including those with significantly greater
resources than our company, provide, we believe, partial powerline based
solutions. These include the following: Amperion, a Massachusetts based company
that, to the best of management's knowledge, is focusing on developing a medium
voltage access solution; Current Technologies, LLC, a Maryland based company;
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.

      We believe that our core strategy, which attempts principally to partner
our proposed powerline based solution with appropriate parties in the
communication and service


                                       6
<PAGE>

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.

      We face 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, we expect to be able to distinguish
ourselves 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, our 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, we face 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 typically offer
communications speeds lower than those supplied by DSL, cable systems, and
anticipated speeds from our solution.

      In addition, our 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 would require 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.

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. As of March 28,
2002, no patents have yet been issued. There can be no assurance that any patent
will be issued in respect of any currently pending application.

      The Company's policy is to require our 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, 2001, we have expended a
net amount of approximately $4.5 million on research and development (net of
$558,195 received in 1998-9 by Ambient Ltd., our 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 2001 and 2000 we expended, respectively, $2.9 million and $463,068
on our powerline communications technology development.

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


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<PAGE>

Employees

      Currently we employ 13 full-time employees, all of whom work out of our
offices in Brookline Massachusetts.

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

                                  RISK FACTORS

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

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


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<PAGE>

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 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. The Company is
attempting to address these regulatory challenges in part by its advisory board,
which is staffed with non-employee individuals who have extensive experience in
a broad array of professional areas, including in regulatory areas that
management believes may be relevant to the industries the Company may become
engaged in.


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<PAGE>

Ambient will require additional financing.

      The Company will require additional financing to maintain its operations
as presently conducted. Management estimates that it will need at least $3,
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.

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

The Company's assets, including the technology underlying the proposed powerline
communications infrastructure, is 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.

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, 2001, Ambient had an accumulated deficit of approximately $59
million, which includes $40 million in non-cash charges primarily related to the
issuance of our Common Stock, warrants and the extinguishment of debt. Ambient


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<PAGE>

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.

"Going concern" statement in auditor's report may make it difficult to raise new
capital.

      We have not had any significant revenues to date. As of December 31, 2001,
we had an accumulated deficit of approximately $59 million . The report of the
independent auditors on our financial statements for the year ended December 31,
2001 includes an explanatory paragraph relating to the uncertainty of our
ability to continue as a going concern, which may make it more difficult for us
to raise additional capital.

Ambient has been in business in the powerline communication field for a short
period of time, so your 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. You 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'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


                                       11
<PAGE>

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 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.

Ambient faces competition from several sources for its proposed high-speed
powerline communications technology.

      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 that, to the best of
management's knowledge, is focusing on developing a medium voltage access
solution; 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


                                       12
<PAGE>

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.

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 13 full-time employees. Although management
believes that the Company maintain a core group sufficient for to effectively
conduct its operations, the loss of certain of the Company's key 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


                                       13
<PAGE>

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.

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. No patents
have yet been issued, and no assurance can be given that any patents will be
issued. 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.

Future Sales of Common Stock by Ambient stockholders could have an adverse
effect on the market price of Ambient's common stock.

      Ambient has 26,177,384 shares of Common Stock presently issued and
outstanding. In addition, there are currently outstanding options or warrants to
purchase approximately 22,600,302 shares of our common stock, with exercise
prices ranging from a nominal price to $8.00 per share. Of the shares
outstanding, there are approximately 4 million shares currently transferable
under Rule 144 promulgated under the Securities Act of 1933, as amended, subject
to the volume limitations and other conditions of such Rule. The market price of
Ambient Common Stock could decline as a result of sales by existing stockholders
of a large number of shares of common stock in the market, or the perception
that such sales may occur. These sales also might make it more difficult for
Ambient to sell equity securities in the future at a time and a price that we
deem appropriate.


                                       14
<PAGE>

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 Regulation is 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 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. PROPERTIES

      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 November 9, 2001, an alleged shareholder of the Company, commenced a
derivative lawsuit in the Court of Chancery of the State of Delaware against
three of the


                                       15
<PAGE>

Company's current and/or former directors, Wilfred Kopelowitz, Michael Widland,
and Martin B. Hoffman, its former chief executive officer, Mark Isaacson, and
the Company as a nominal defendant. The complaint alleges that the individual
defendants breached their fiduciary duties with respect to certain transactions
identified in the complaint, resulting in damages to the Company. The complaint
seeks rescission of certain transactions, unspecified damages and recovery of
plaintiff's fees and costs. On April 1, 2002, all defendants moved to dismiss
the complaint for failure to state a claim upon which relief may be granted and
for failure to adequately plead demand futility. The Company does not believe
the lawsuit will have a material adverse effect on its financial condition or
operations.

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

Not Applicable

                                     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
sales prices per share of the Company's common stock, as reported on OTCBB.

                                  HIGH     LOW

2001
First Quarter                    $2.59   $ 1.25
Second Quarter                   $1.80   $ 0.70
Third Quarter                    $0.94   $ 0.11
Fourth Quarter                   $0.25   $ 0.15

2000
First Quarter                    $6.25   $1.375
Second Quarter                   $5.31   $ 2.03
Third Quarter                    $4.97   $ 3.03
Fourth Quarter                   $3.28   $1.781

      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, 2002, there were approximately 134 holders of record of
our common stock. We believe that a significant number of shares of our common
stock are held in either nominee name or street name brokerage accounts and,
consequently, we are unable to determine the number of beneficial owners of our
stock.

Dividend Policy

      We have not declared or paid dividends on our common stock since our
formation, and we do not anticipate paying dividends in the foreseeable future.
Declaration or payment of dividends, if any, in the future, will be at the
discretion of the Board of Directors and will depend on our then current
financial condition, results of operations, capital requirements and other
factors deemed relevant by the Board of Directors.


                                       16
<PAGE>

Sales of Unregistered Securities During 2001

      Set forth below is a listing of all sales by the Company of unregistered
equity securities during 2001, excluding sales that were previously reported on
a Quarterly Report on Form 10-Q. Unless otherwise indicated such sales were
exempt from registration under the Securities Act of 1933, as amended (the
"Act"), pursuant to Section 4(2) of the Act, as they were transactions not
involving a public offering.

1. In November 2001, the Company issued to a stockholder 650,000 shares of the
Company's Common Stock, as settlement of certain outstanding disputed issues.

2. In January 2002, the Company issued 1 million shares of its Common Stock to
its Chief Engineer at an aggregate purchase price of $200,000.

ITEM 6. PLAN OF OPERATIONS

      THE FOLLOWING DISCUSSION AND EXPOSITIONS SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THIS FORM
10-KSB/A. CERTAIN STATEMENTS MADE IN THIS DISCUSSION ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY TERMINOLOGY SUCH AS
"MAY", "WILL", "SHOULD", "EXPECTS", "INTENDS", "ANTICIPATES", "BELIEVES",
"ESTIMATES", "PREDICTS", OR "CONTINUE" OR THE NEGATIVE OF THESE TERMS OR OTHER
COMPARABLE TERMINOLOGY AND INCLUDE, WITHOUT LIMITATION, STATEMENTS BELOW
REGARDING: THE COMPANY'S INTENDED BUSINESS PLANS; EXPECTATIONS AS TO PRODUCT
PERFORMANCE; 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
COMPETITIVE ENVIRONMENT GENERALLY AND IN THE COMPANY'S SPECIFIC MARKET AREAS;
CHANGES IN TECHNOLOGY; THE AVAILABILITY OF AND THE TERMS OF FINANCING,
INFLATION, CHANGES IN COSTS AND AVAILABILITY OF GOODS AND SERVICES, ECONOMIC
CONDITIONS IN GENERAL AND IN THE COMPANY'S SPECIFIC MARKET AREAS, DEMOGRAPHIC
CHANGES, CHANGES IN FEDERAL, STATE AND /OR LOCAL GOVERNMENT LAW AND REGULATIONS;
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.


                                       17
<PAGE>

      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, 2001, the Company incurred net losses
aggregating $10 million reflecting principally general and administrative
expenses 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.

      In September 2001, the Company's senior management was reorganized, with
the then existing Chief Executive Officer and Chairman of the Company board of
directors, Mark Isaacson, resigning from all positions held with the Company and
his replacement by John J. Joyce, formerly the Chief Operating Officer from
October 2000 until his resignation from the Company in August 2001, as the new
Chief Executive Officer.

      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, 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. 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.

Agreements with Technology Partners and Utilities

      In consideration of Aquila's agreement to provide support to the Company
in the design, engineering and/or manufacturing of certain prototypes, the
Company agreed to pay Aquila an amount not to exceed $140,000 and to issue to
Aquila five-year warrants to purchase 200,000 of the Company's Common Stock,
exercisable at a per share price between $1.25 and $2.50 which vest upon the
completion of various phases of the development activities. In June, 2001, we
issued to Bechtel options to purchase 180,000 shares of the Company's Common
Stock at a per share purchase price between $1.50 and $2.50, in consideration
for Bechtel's assistance in formulating compliance standards, developing testing
criteria and surveying utility powerline systems.


                                       18
<PAGE>

      Under the Agreement with CECONY, they advanced $325,000 to the Company in
February 2002 in order to commence a demonstration of the Company's proposed
solution. The Company has agreed to grant to CECONY a first priority lien on all
of its assets to secure the repayment of the advance. 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. The Company anticipates that the
demonstration will be completed in May 2002 and that the initial field trial of
the proposed technology is to commence in June, 2002.

         In December 2001, the Company entered into an agreement with STI to
develop certain hardware, identify and design the communications and utility
systems architecture and the conduct of field trials. As additional
consideration for the licenses granted, 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
terms of the warrant provide that the if the Company's Common Stock closes at or
above $1.50 for 10 consecutive trading days, then the warrant exercise period is
reduced and the warrant may be exercised only through the 90th day following
such time.

Liquidity

      During September-December 2001, the Company restructured its cost base and
reduced its salary outlays by approximately 25%. However, the Company will need
to raise additional capital on an immediate basis in order to continue in
business. If it is unable to raise at least $1.0 million on an immediate basis,
the Company will likely cease to operate as a going entity. Management believes
that the Company will need to raise at least $3 million dollars in order to
complete the design, development, and testing of the Company's proposed
powerline communication such that the solution can be ready to be deployed.

     The Company is actively seeking additional capital in the form of private
sales of equity or debt with equity features necessary to fund the Company's
research and development activities, including our current obligations pursuant
to development agreements with third parties, in order to continue operations
and implement our business plans. The financial statements accompanying this
report for the year ended December 31, 2001, includes an explanatory paragraph
relating to the uncertainty of our ability to continue as a going concern, which
may make it more difficult for us to raise additional capital. At the present
time, we have no commitments for any such financing, and there can be no
assurance that additional capital will be available to us on terms acceptable to
us. Furthermore, it is anticipated that any such financing will have a 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.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      Our financial statements, which are included in this report on pages F-1
through F-18, are incorporated herein by reference.

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

None.


                                       19
<PAGE>

                                    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                  50       Chairman of the Board, CEO, Treasurer
                                        and Director

Dr. Yehuda Cern                58       Chief Engineer

Ramdas Rao                     37       Chief Network Architect

Michael Widland                61       Director

Judah Marvin Feigenbaum        51       Director

Michael Braunold               42       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 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.


                                       20
<PAGE>

      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. From
January 2000 through the present time, he has continually served as President
and Chief Executive Officer of The Patient Discharge Desk, a New York based
company, which he founded, specializing in the development of proprietary
software for targeted health care market segments. Prior thereto, Mr. Feigenbaum
served as President and Chief Executive Officer of United Diagnostics, Inc. From
1990 through 2000, Mr. Feigenbaum served as President and Chief Executive
Officer of (i) Analytical Biosystems Corporation located in Rhode Island, and
(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, and (iv) Comprehensive Care Corp., a New York Stock
Exchange listed company located in California that operated 150 managed care
behavioral facilities. From 1970 through 1990 Mr. Feigenbaum was involved in
founding and operating a number of health care related products and services
companies.

      Michael Braunold, has been a director of the Company since 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 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.

      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. Each of the non-employee
directors receives an annual cash payment of $16,000 for serving on the Board
and an additional $4,000 in respect of each


                                       21
<PAGE>

committee on which he/she serves. None of the employee- directors receive any
cash compensation for serving on the Board. Officers are elected by the Board of
Directors and serve at the discretion of the Board.

             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 2001, 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, except that Neuberger
Berman, Inc. and Neuberger Berman, LLC, or affliated entities, have not filed
Forms 3 or 4 upon acquiring more than 10% of the issued and outstanding Common
Stock.

ITEM 10. EXECUTIVE COMPENSATION

      The following table sets forth all compensation earned by the Company's
Chief Executive Officer and the other executive officers of the Company whose
total annual salaries and bonuses exceeded $100,000 for the year ended December
31, 2001 (the "Named Executive Officers"):


                                       22
<PAGE>

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                               Annual Compensation                  Long-Term Compensation
                                     ------------------------------------------     ----------------------        --------------
                                                                                                  Securities          All Other
Name and                                                       Other Annual                       Underlying        Compensation
Principal Position           Year    Salary($)    Bonus($)   Compensation($)(1)                 Options (#)(2)           ($)
------------------           ----    ---------    --------   ------------------                 --------------           ---
<S>                          <C>     <C>           <C>           <C>                         <C>   <C>               <C>
John J. Joyce                2001    185,052        36,000            --                           1,000,000              --
 Chief Executive Officer(3)  2000     36,285            --            --                             415,000(4)           --
                             1999         --            --            --                                  --              --

Yehuda Cern                  2001    150,000        50,000            --                           1,900,000              --
 Chief Engineer              2000    116,841       150,000            --                                  --              --
                             1999    113,220            --            --                                  --              --

Ramdas Rao                   2001    139,375            --            --                                  --              --
Chief Network Architect      2000     37,916            --            --                             242,000              --
                             1999         --            --            --                                  --              --

Wilfred Kopelowitz           2001    143,750         5,000        50,000(6)                               --              --
Former Chief Financial       2000     39,375            --                                           405,000(7)           --
Officer (5)                  1999         --            --            --                                  --              --

Mark Isaacson                2001    174,792            --       237,462(6)                               --        860,697(10)
Former Chief Executive       2000    166,250       162,000            --                           2,350,000(9)           --
Officer (8)                  1999         --            --            --                                  --
</TABLE>

(1) Except as otherwise indicated, includes, for each Named Executive Officer,
some or all of the following: (i) Company contributions to insurance premiums
and (ii) taxable automobile related benefits.

(2) 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 Incentive Plan, except in the case of each of Dr. Cern, Mr.
Isaacson and Mr. Braunold.

(3) Mr. Joyce was appointed Chief Executive Officer and Chairman as of September
2001. Prior to such appointment, Mr. Joyce served as Chief Operating Officer of
the Company from November 2000 through August 2001, when he resigned from the
Company.

(4) Upon the Mr. Joyce's resignation in August 2001, these options expired.

(5) Mr. Kopelowitz resigned in February 2002 from all positions held with the
Company.

(6) Represents relocation and temporary housing allowances in connection with
the then proposed relocation by the Company.

(7) In connection with Mr. Kopelowitz's resignation, all such options have
expired except for options for 165,000 shares of Common Stock which continue to
be exercisable through February 2006.

(8) Mr. Isaacson resigned from all positions held in the Company in September
2001.

(9) In connection with Mr. Isaacson's resignation from the Company, the options
will continue to be exercisable through September 2005.

(10) Comprised of (i) forgiveness of the unpaid balance of $570,774 owing from a
loan in the principal amount of $2 million made by the Company in April 2001 in
connection with the then proposed relocation by the Company of its executives
offices for the purpose of the purchase by Mr. Isaacson of a personal residence
in the New York metropolitan area, (ii) payments in the aggregate amount of
$206,250 and (iii) forgiveness of a loan balance of $83,673, all of which were
effected in connection with the resignation by Mr. Isaacson of all positions
held with the Company.


Option Grants in 2001

      The following table sets forth certain information concerning the
individual option grants during the year ended December 31, 2001, to each of the
Named Executive Officers.


                                       23
<PAGE>

<TABLE>
<CAPTION>
                                          % of Total
                       Number of            Options
                      Securities          Granted to     Exercise or
                      Underlying           Employees      Base Price     Expiration
    Name          Options Granted (#)       in 2001         ($/sh)          date
    ----          -------------------       -------         ------          ----
<S>                   <C>                    <C>            <C>             <C>
John J. Joyce         1,000,000(1)           34.48%         0.50            2011

Yehuda Cern             950,000(2)           32.76%         0.35            2011
                        950,000(3)           32.76%         0.50            2011
</TABLE>

(1) Represents shares of Common Stock issuable upon exercise of options issued
under the Company's 2000 Equity Incentive Plan, of which options for 325,000
shares have vested and the balance are scheduled to vest over the next two and
one-half years.

(2) Represents shares of Common Stock issuable upon exercise of options issued
under the Company's 2000 Equity Incentive Plan which are scheduled to vest on
June 30, 2002.

(3) Represents shares of Common Stock issuable upon exercise of options issued
under the Company's 2000 Equity Incentive Plan which are scheduled to vest on
December 31, 2002.

Aggregate Options Exercised in 2001 and 2001 Year End Option Values

<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                  --              --             125,000/875,000                      0/0

Yehuda Cern                 --              --                 0/1,900,000                      0/0

Ramdas Rao                  --              --              60,500/181,500                      0/0
</TABLE>

(1) Based upon the difference between the exercise price of such options and the
closing price of the Common Stock ($.20) on December 31, 2001, 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 as of November 2001, Mr. Joyce is employed as Chief Executive
Officer and is currently paid an annual salary of $225,000. 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


                                       24
<PAGE>

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 $150,000. 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 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.

      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.

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

      The following table sets forth certain information, as of April 30, 2002,
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 ....................................             339,000(3)                  1.3%

Dr. Yehuda Cern ..................................           2,432,167(4)                  9.0%

Ramdas Rao .......................................             319,999(5)                  1.2%

Michael Braunold .................................             250,000(6)                    *

Michael Widland ..................................               5,000(7)                    *

Judah Marvin Feigenbaum ..........................                   0(8)                    *

Oscar Private Investment Fund, Inc. ..............           1,400,000(9)                  5.3

Neuberger Berman Inc. ............................           3,556,000(10)                13.4%
Neuberger Berman, LLC

Southern Telecom, Inc. ...........................           2,684,000(11)                 9.3%

Mark Isaacson ....................................           2,350,000(12)                 8.2%

Wilfred Kopelowitz................................             260,000(13)                    *

All directors and executive officers as
a group (6 persons) (14)                                     3,346,166                    12.0%
</TABLE>


                                       25
<PAGE>

* 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 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) 14,000 shares of Common Stock, (ii) 325,000 shares of
Common Stock issuable upon the exercise of currently exercisable employee stock
options issued under the Company's 2000 Equity Incentive Plan. Does not include
(A) 675,000 shares of Common Stock issuable upon exercise of employee stock
options issued under the Company's 2000 Equity Incentive Plan, which options are
scheduled to vest over the next two and one-half years.

(4) Comprised of (i) 1,482,167 shares of Common Stock and (ii) 950,000 shares of
Common Stock issuable upon the exercise of employee stock options exercisable
within 60 days of the Record Date. Does not include employee stock options for
an additional 950,000 shares of the Company's common stock that is to vest by
December 31, 2002.

(5) Represents (i) 15,000 shares of Common Stock and (ii) 304,999 shares of the
Company's common stock issuable upon exercise of currently exercisable employee
stock options issued under the Company's 2000 Equity Incentive Plan. Does not
include options for an additional 937,001 of Common Stock issuable upon
exercise of options issued under the Company's 2000 Equity Incentive Plan, which
options are scheduled to vest over the next three years.

(6) Represents shares of Common Stock issuable upon exercise of currently
exercisable stock options.

(7) Represents shares of Common Stock issuable upon exercise of currently
exercisable stock options. Does not include options for 5,000 shares of Common
Stock issuable upon exercise of options, scheduled to vest in December 2002.

(8) Does not include options for 50,000 shares of Common Stock issuable upon
exercise of options, of which options for 25,000 shares are scheduled to vest in
December 2002 and options for an additonal 50,000 shares of Common Stock are
scheduled to vest in December 2003.

(9) The business office of Oscar Private Investment Fund, Inc. ("Oscar Inc.") is
at 605 Third Avenue, New York, NY 10158-3698. The foregoing disclosure is based
on a Schedule 13G filed in February 2002.

(10) Includes (i) 360,000 shares of Common Stock issuable upon exercise of
warrants held in the name of Oscar Inc. and (ii) 100,000 shares of Common Stock
issuable upon exercise of warrants held in the name of Oscar Opportunistic Fund,
LLC ("Oscar Opportunistic"). Neuberger Berman, Inc. ("Neuberger Inc.") owns 100%
of Neuberger Berman, LLC ("Neuberger LLC") and Neuberger Berman [Asset]
Management, Inc. ("Neuberger Management"). Neuberger Management is the General
Partner of, and Neuberger LLC acts as investment advisor to, Oscar Private
Investment Fund LP ("Oscar LP"), Oscar Opportunistic and Oscar Private Equity
Fund ("Oscar Equity"). Neuberger LLC has shared power to make decisions whether
to retain or dispose of, and in some cases the sole power to vote the Common
Stock and warrants held by foregoing and may be deemed to be a beneficial owner
of those shares and warrants. The address of the principal business office of
Neuberger Inc. and Neuberger LLC is 605 Third Avenue, New York, NY 10158-3698.
The foregoing disclosure is based on a Schedule 13G filed in February 2002.

(11) Represents shares of Common Stock issuable upon exercise of currently
exercisable stock options. The principal business address of such person is 3003
Summit Boulevard, Atlanta, Georgia 30319.

(12) Represents shares of Common Stock issuable upon exercise of currently
exercisable stock options. The address of such person is 149 Lakeside Dr. South,
Lawrence, New York, 11559.

(13) Represents (i) 15,000 shares of Common Stock and (ii) 245,000 shares of
Common Stock issuable upon exercise of currently exercisable stock options. Mr.
Kopelowitz, the Company's former Chief Financial Officer and a director,
resigned from all positions held with the Company as of February 2002. The
address of such person is 1240 E. Palisades, Englewood, N.J. 07631.

(14)See Footnotes 3-8
                                       26
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      In connection with Wilfred Kopelowitz's resignation as of February 2002
from his position as the Company's Chief Financial Officer and from his
directorship, in consideration of the waiver by Mr. Kopelowitz of certain
payments due to him under the employment agreement with the Company, the Company
forgave an outstanding loan 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 issued under the 2000 Incentive
Plan and to grant an additional 80,000 options exercisable at $.50 per share.

      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. In the event that the price of the Company's Common
stock closes at $1.50 or above for 10 consecutive business days, the warrant may
only be exercised during the next ninety day period.

      In connection with the amendment and restatement in December 2001 of the
employment 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
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 connection with the amendment and restatement in December 2001 of the
employment agreement with Dr. Cern, the Company's Chief Engineer, the Company
agreed to grant to Dr. Cern 5% of the rights to any subsequently developed
technology that is substantially developed by Dr. Cern; if the subsequently
developed technology is developed by Dr. Cern's substantial initiatives, then
Dr. Cern's entitled to 2.5% of the rights thereto. Additionally, the Company
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.

      In January 2002, the Company issued to Ramdas Rao, the Company's Chief
Network Architect, from the 2000 Incentive Plan options to purchase up to
1,000,000 shares of the Company's Common Stock, at a per share exercise price of
$0.01. The options are scheduled to vest over the next three years.

      In November 2001, in order to settle certain disputes, the Company issued
to Oscar Private Investment Fund, Inc., a stockholder who holds as of the date
of the filing of this report approximately 5.3% of the Company's issued and
outstanding Common Stock, 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 such securities are not registered by July 15, 2002, 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.


                                       27
<PAGE>

ITEM 13. 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)
3.3   Memorandum of Association of Ambient Israel (1)
3.4   Articles of Association of Ambient Ltd. (1)
3.5   Certificate of Incorporation of PLT Solutions, Inc. (2)
3.6   By-Laws of PLT Solutions, Inc. (2)
3.7   Memorandum of Kliks.com Ltd. (2)
3.8   Articles of Association of Kliks.com Ltd. (2)
3.9   Memorandum of Insulated Connection Corporation, Ltd. (2)
3.10  Articles of Association of Insulated Connection Corporation, Ltd. (2)
4.1   Specimen Stock Certificate (1)
4.2   Form of 10% Promissory Note due January 30, 2000 (2)
4.2.1 Form of 10% Convertible Debenture due February 28, 2002 (2)
4.2.2 Form of Common Stock Purchase Warrant (2)
4.2.3 Warrant Agreement dated as of February 17, 2000 between Ambient and
      Inglewood Holdings Inc. (2)
4.2.4 Form of Convertible Preferred Stock Warrant (3)
4.2.5 Form of 10% Convertible Debenture due August 2001 (3)
4.2.6 Form of Common Stock Purchase Warrant (4)
4.2.7 Form of Common Stock Option Agreement between the Corporation and certain
      Executive Officers(4)
10.1  Form of the Company's 1998 Stock Option Plan. (1)
10.2  Form of Registration Rights Agreement dated as of February 15, 2000
      between Ambient and Certain Investors (2)
10.3  Form of Amendment, dated June 30, 2000, to Securities Purchase Agreement
      between Ambient and certain security holders dated as of February 15,
      2000. (3)
10.4  Form of Subscription Agreement dated July 2000 between Ambient Corporation
      and certain investors. (3)
10.5  Form of Subscription Agreement dated July-August 2000 between Ambient
      Corporation and Certain Investors. (3)
10.6  Form of the Company's Proposed 2000 Equity Incentive Plan. (3)
10.7  Termination Agreement between Ambient Corporation and Aryeh Weinberg dated
      as of September 4, 2000. (3)
10.8  Amendment dated as of September 1, 2000 to Consulting Agreement between
      Ambient Corporation and Rivermill Ltd. (3)
10.9  Amendment No. 2 dated August 10, 2000 to Shareholders Agreement among
      Ambient Corporation, Bernie Wolff and Kliks.com Ltd. (3)
10.10 Termination Agreement between Ambient Corporation and Michael Braunold
      dated as of September 12, 2000. (3)
10.11 Employment Agreement between Ambient Corporation and Mark Isaacson dated
      as of September 18, 2000. (3)
10.12 Employment Agreement between Ambient Corporation and Wilfred Kopelowitz
      dated as of September 29, 2000. (3)
10.13 Employment Agreement between Ambient Corporation and Ram das Rao dated as
      of September 29, 2000. (3)
10.14 Employment Agreement between Ambient Corporation and John Joyce. (4)
10.15 Employment Agreement between Ambient Corporation and Aaron Fischman dated
      as of December 29, 2000. (4)
10.16 Consulting Agreement between Ambient Corporation and Aviz Financial, LLC
      dated as of December 29, 2000.(4)
10.17 Consulting Agreement between Ambient Corporation and Aviz Consulting
      Limited dated as of December 29, 2000.(4)
10.18 Stock Purchase Agreement between Ambient Corporation and Dr. Yehuda
      Cern.(4)
10.19 Agreement between Ambient Corporation and Cisco Systems Inc. dated as of
      January 3, 2001.(4)
10.20 Employment Agreement between Ambient Corporation and Dr. Yehuda Cern


                                       28
<PAGE>

10.21 Stock Purchase Agreement between Ambient Corporation and Dr. Yehuda Cern
      dated as of January 1, 2001.(4)
10.22 Corrected Purchase Money Mortgage Note date as of April 5, 2001 in favor
      of the Company executed by Mark S. Isaacson, Linda J. Isaacson and The
      Rashi Realty Trust. (4)
10.23 Mortgage and Security Agreement dated April 3, 2001 executed in favor of
      Ambient Corporation relating to real property in Brookline, Massachussets.
      (4)
10.24 Mortgage Agreement dated April 16, 2001 executed in favor of Ambient
      Corporation relating to real property in Nassau County, New York. (4)
10.25 Service Agreement between Ambient Corporation and Bechtel Corporation
      dated as of February 19, 2001. (5)
10.26 Subscription Agreement between Ambient Corporation and Oscar Private
      Equity Investments, L.P. dated June 15, 2001. (5)
10.27 Finders Agreement between Ambient Corporation and TABAY Holdings, L.L.C.
      dated as of June 15, 2001. (5)
10.28 Service Agreement between Ambient Corporation and Aquilla Corporation
      dated August 21, 2001. (6)
10.29 Strategic Alliance Agreement between Ambient Corporation and Aquilla
      Corporation dated November 2, 2001. (6)
10.30 Subscription Agreement between Ambient Corporation and Oscar Private
      Equity Investments dated November 2, 2001. (6)
10.31 Agreement between Ambient Corporation and Aryeh Weinberg dated October 29,
      2001. (6)
10.32 Agreement between Ambient Corporation and Mark Isaacson dated September 6,
      2001. (7)
10.33 First Amendment dated November 12, 2001 to Agreement between Ambient
      Corporation and Mark Isaacson dated September 6, 2001. (6)
10.34 Restated Employment Agreement between Ambient Corporation and John Joyce
      dated November 16, 2001. *
10.35 Restated Employment Agreement between Ambient Corporation and Dr. Yehuda
      Cern dated December 31, 2001. *
10.36 Settlement Agreement between Ambient Corporation and Wilfred Kopelowitz
      dated as of April 4, 2002. *
21.1  Subsidiaries of the Company (2)

* 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.

(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.


                                       29
<PAGE>

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

(b) Reports on Form 8-K

(i) Report on Form 8-K dated February 2, 2001

(ii) Report on Form 8-K dated September 20, 2001


                                       30
<PAGE>

     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: April 30, 2002                    John J. Joyce
                                        Chief Executive and Financial Officer
                                        and Director


                                       31
<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, 2001 and 2000, and the related consolidated statements of
operations, comprehensive loss, stockholders' equity (deficit) and cash flows
for the two years ended December 31, 2001, and for the period from June 1, 1996
(date of inception) to December 31, 2001. 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, 2001 and 2000, and the consolidated
results of operations, comprehensive loss, stockholders' equity (deficit) and
its cash flows for the two years ended December 31, 2001, and for the period
from June 1, 1996 (date of inception) to December 31, 2001, 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.


/s/ Brightman Almagor & Co.

Brightman Almagor & Co.
Certified Public Accountants (Israel)
A member of Deloitte & Touche

Tel-Aviv, Israel
March 25, 2002


                                      F-1
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                          December 31,
                                                                      2001            2000
<S>                                                               <C>             <C>
ASSETS
CURRENT ASSETS
  Cash and  cash equivalents                                      $    177,340    $  7,052,929
  Convertible note receivable                                               --         250,000
  Loan receivable, Officer                                                  --          17,996
  Receivables and prepaid expenses                                      63,590         226,746
                                                                  ------------    ------------

       Total current assets                                            240,930       7,547,671

Loan receivable, Officer                                                70,000          65,677
Long-term  investment                                                       --          90,000
Investment in affiliate                                                     --       1,016,842
Property and equipment, net                                            153,654         144,267
                                                                  ------------    ------------

       Total assets                                               $    464,584    $  8,864,457
                                                                  ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Short term borrowings                                           $         --    $     10,243
  Accounts payable                                                     431,501         201,888
  Accrued expenses and other current liabilities                       211,255         657,899
                                                                  ------------    ------------

       Total current liabilities                                       642,756         870,030
                                                                  ------------    ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)
  Convertible Preferred Stock, $.001 par value;
   5,000,000 shares authorized; none issued and outstanding             --              --
  Common stock, $.001 par value;
   100,000,000 shares authorized; 26,177,384 and 21,375,794
    issued and outstanding, respectively                                26,178          21,376
  Additional paid-in capital                                        59,317,682      61,133,173
  Deficit accumulated during the development stage                 (58,748,997)    (48,719,414)
   Less: Note receivable - stockholder                                (200,000)             --
   Less: deferred compensation                                        (573,035)     (4,440,708)
                                                                  ------------    ------------

       Total stockholders' equity (deficit)                           (178,172)      7,994,427
                                                                  ------------    ------------

       Total liabilities and stockholders' equity (deficit)       $    464,584    $  8,864,457
                                                                  ============    ============
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       F-2
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                        Cumulative
                                                                                  Year                From Inception
                                                                                  Ended                     to
                                                                                December 31,           December 31,
                                                                            2001            2000            2001
                                                                       ------------    ------------    ------------
<S>                                                                    <C>             <C>             <C>
Expenses

Research and Development (1)                                           $  2,856,815    $    463,038    $  5,041,690
Less - Participation by the Office of the
    Chief Scientist of the State of Israel                                       --              --         558,195
                                                                       ------------    ------------    ------------
                                                                          2,856,815         463,038       4,483,495

Operating, general and administrative expenses (1)                        5,346,962       3,391,571      11,553,107
Stock based compensation - net                                              413,651      14,724,328      16,198,713
                                                                       ------------    ------------    ------------

Total expenses                                                            5,760,613      18,115,899      27,751,820
                                                                       ------------    ------------    ------------

Operating loss                                                           (8,617,428)    (18,578,937)    (32,235,315)

Legal settlement                                                                 --      (1,512,500)     (1,512,500)
Interest expense                                                               (885)       (397,921)       (675,513)
Noncash financing expense                                                        --      (1,500,000)     (1,600,000)
Beneficial conversion feature of convertible debt                                --      (3,878,260)     (3,878,260)
Amortization of deferred financing costs                                         --      (5,089,144)     (5,752,015)
Interest income                                                              95,572          225267         320,839
Write-off of Investment and convertible note receivable                    (490,000)             --        (490,000)
Company's share in net losses of affiliate                               (1,016,842)       (335,365)     (1,352,207)
                                                                       ------------    ------------    ------------

Loss before minority interest and extraordinary item                    (10,029,583)    (31,066,860)    (47,174,971)

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

Loss before extraordinary item                                          (10,029,583)    (31,041,860)    (47,149,971)

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

Net loss                                                                (10,029,583)    (40,820,027)    (56,928,138)

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

Net loss attributable to common stockholders                           $(10,029,583)   $(42,640,886)   $(58,748,997)
                                                                       ============    ============    ============

Basic and diluted loss per share:
     Net loss before  extraordinary item                               $      (0.42)   $      (2.89)
     Extraordinary loss from extinguishment of debt                              --           (0.91)
                                                                       ------------    ------------

    Net loss                                                           $      (0.42)   $      (3.81)
                                                                       ============    ============

Weighted average number of shares outstanding                            23,724,000      10,725,464
                                                                       ============    ============

(1) Excludes non-cash, stock based compensation expense as follows:
    Research and development                                           $    843,294    $         --    $    843,294
    Operating, general and administrative, net                             (429,643)     14,724,328      15,355,419
                                                                       ------------    ------------    ------------

                                                                       $    413,651    $ 14,724,328    $ 16,198,713
                                                                       ============    ============    ============
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       F-3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                      Convertible
                                                                                    Preferred Stock           Common Stock
                                                                                   Shares     Amount       Shares      Amount
                                                                                 ----------  --------    -----------  ---------
<S>                                                                              <C>         <C>          <C>          <C>
Issuance of common stock to founders for nominal consideration - July 1996                   $             2,028,833   $  2,029
Issuance of common stock to employees for services - September 1996                                            5,000          5
Issuance of common stock to employees for services - October 1996                                            195,333        195
Net loss
                                                                                 ----------  --------    -----------  ---------

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

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

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

Stock issued pursuant to consulting agreement                                                                 75,000         75
Initial public offering in February 1998                                                                     525,000        525
Stock issued in connection with short-term debt financing                                                     20,000         20
Additional stock pursuant to founders agreement for nominal consideration                                     35,000         35
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      3,074

Stock issued pursuant to consulting agreement - January 1999                                                   4,000          4
Stock issued pursuant to consulting agreement - February 1999                                                 15,000         15
Stock issued pursuant to consulting agreement - February 1999                                                 22,500         23
Stock issued pursuant to consulting agreement - April 1999                                                    15,000         15
Warrants issued pursuant to consulting agreement - April 1999
Amortization of deferred stock - based compensation
Net loss
                                                                                 ----------  --------    -----------  ---------

Balance - December 31, 1999                                                              --        --      3,130,833      3,131

Waiver of liability due to related party - January 2000
Stock issued in respect of extinguishment of debt - February 2000                                          3,490,000      3,490
Stock issued pursuant to consulting agreement - February 2000                                                700,000        700
Stock issued pursuant to consulting agreement - February 2000                                                180,000        180
Stock issued pursuant to consulting agreement - February 2000                                                 70,000         70
Stock issued pursuant to consulting agreement - February 2000                                                 25,000         25
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        590
Stock issued pursuant to consulting agreement - February 2000                                                300,000        300
Stock issued pursuant to consulting agreement - March 2000                                                   250,000        250
Stock issued pursuant to consulting agreement - March 2000                                                   100,000        100
Stock issued pursuant to consulting agreement - March 2000                                                   346,250        346
Stock issued pursuant to consulting agreement - March 2000                                                   200,000        200
Stock issued for services - May 2000                                                                          67,250         67
Stock issued pursuant to settlement agreement                                                                250,000        250
Common stock issued in private placement, net of offering costs - July 2000                                1,000,000      1,000
Preferred stock issued in private placement, net of offering costs - August 200   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        200
Stock issued upon conversion of debentures - September and November 2000                                   5,000,000      5,000
Stock issued upon conversion of debentures - November 2000                                                 3,711,711      3,712
Stock issued upon conversion of preferred stock - November 2000                  (1,125,000)   (1,125)     1,125,000      1,125
Stock options issued to employees
Stock options issued to consultants
Stock options and warrants exercised                                                                         640,000        640
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     21,376

Common stock issued in private placement, net of offering costs - March 2001                                 350,000        350
Common stock issued for purchase of minority interest                                                        400,000        400
Stock issued pursuant to consulting agreement - March 2001                                                   650,000        650
Stock issued pursuant to consulting agreement - April 2001                                                   202,500        203
Common stock issued in private placement, net of offering costs - June 2001                                1,299,090      1,299
Stock issued as finders fee - June 2001                                                                      250,000        250
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        650
Warrants issued pursuant to consulting agreements - December 2001
Common stock issued for note receivable - December 2001                                                    1,000,000      1,000
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  $  26,178
                                                                                 ==========  ========    ===========  =========

<CAPTION>
                                                                                Additional       Note
                                                                                 Paid-in       Receivable    Deferred
                                                                                 Capital      Stockholder  Compensation
                                                                               ------------   -----------  ------------
<S>                                                                            <C>             <C>          <C>
Issuance of common stock to founders for nominal consideration - July 1996     $               $            $
Issuance of common stock to employees for services - September 1996
Issuance of common stock to employees for services - October 1996
Net loss
                                                                               ------------    ---------    -----------

Balance - December 31, 1996                                                              --           --             --

Issuance of common stock to employees for services - March 1997                      50,000                     (50,000)
Issuance of common stock to employees for services - August 1997                    336,668                    (336,668)
Stock issued in connection with private placement of notes - September 1997         239,940
Issuance of common stock to advisor for services - September 1997                    23,994
Stock issued in connection with private placement of notes - October 1997            79,980
Amortization of deferred stock - based compensation                                                             145,556
Net loss
                                                                               ------------    ---------    -----------

Balance - December 31, 1997                                                         730,582           --       (241,112)

Stock issued pursuant to consulting agreement                                       654,925                    (655,000)
Initial public offering in February 1998                                          3,432,502
Stock issued in connection with short-term debt financing                            99,980
Additional stock pursuant to founders agreement for nominal consideration
Warrants issued pursuant to private placement of units                               21,600
Options granted pursuant to consulting agreement                                      1,600                      (1,600)
Amortization of deferred stock - based compensation                                                             658,029
Net loss
                                                                               ------------    ---------    -----------

Balance - December 31, 1998                                                       4,941,189           --       (239,683)

Stock issued pursuant to consulting agreement - January 1999                          7,996                      (8,000)
Stock issued pursuant to consulting agreement - February 1999
Stock issued pursuant to consulting agreement - February 1999                        69,977                     (70,000)
Stock issued pursuant to consulting agreement - April 1999                           12,173                     (12,188)
Warrants issued pursuant to consulting agreement - April 1999                        10,260
Amortization of deferred stock - based compensation                                                             325,808
Net loss
                                                                               ------------    ---------    -----------

Balance - December 31, 1999                                                       5,041,595           --         (4,063)

Waiver of liability due to related party - January 2000                              75,328
Stock issued in respect of extinguishment of debt - February 2000                10,466,510
Stock issued pursuant to consulting agreement - February 2000                     2,099,300                  (2,100,000)
Stock issued pursuant to consulting agreement - February 2000                       539,820                    (540,000)
Stock issued pursuant to consulting agreement - February 2000                       192,430                    (192,500)
Stock issued pursuant to consulting agreement - February 2000                        68,725                     (68,750)
Warrants issued pursuant to consulting agreement - February 2000                  1,500,000                  (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                     1,768,660                  (1,769,250)
Stock issued pursuant to consulting agreement - February 2000                     1,246,560                  (1,246,860)
Stock issued pursuant to consulting agreement - March 2000                        1,499,750                  (1,500,000)
Stock issued pursuant to consulting agreement - March 2000                          587,400                    (587,500)
Stock issued pursuant to consulting agreement - March 2000                        2,033,873                  (2,034,219)
Stock issued pursuant to consulting agreement - March 2000                        1,149,800                  (1,150,000)
Stock issued for services - May 2000                                                130,196
Stock issued pursuant to settlement agreement                                     1,312,250
Common stock issued in private placement, net of offering costs - July 2000       1,799,000
Preferred stock issued in private placement, net of offering costs - August 200   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   1,756,042                  (1,756,242)
Stock issued upon conversion of debentures - September and November 2000            795,680
Stock issued upon conversion of debentures - November 2000                        8,490,545
Stock issued upon conversion of preferred stock - November 2000
Stock options issued to employees                                                 4,059,080                  (4,059,080)
Stock options issued to consultants                                               1,999,329                  (1,999,329)
Stock options and warrants exercised
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
Net loss
                                                                               ------------    ---------    -----------

Balance - December 31, 2000                                                      61,133,173           --     (4,440,708)

Common stock issued in private placement, net of offering costs - March 2001        308,153
Common stock issued for purchase of minority interest                               862,000                    (862,400)
Stock issued pursuant to consulting agreement - March 2001                          992,413                    (993,063)
Stock issued pursuant to consulting agreement - April 2001                          309,623                    (309,825)
Common stock issued in private placement, net of offering costs - June 2001       1,133,531
Stock issued as finders fee - June 2001                                                (250)
Warrants issued pursuant to consulting agreement - June 2001                         90,648                     (90,648)
Warrants issued pursuant to consulting agreement - August 2001                       12,553                     (12,553)
Warrants issued pursuant to consulting agreements - November 2001                    13,087                     (13,087)
Stock issued for services - November 2001                                           109,850                    (110,500)
Warrants issued pursuant to consulting agreements - December 2001                     4,355                      (4,355)
Common stock issued for note receivable - December 2001                             199,000     (200,000)
Re-measurement of deferred compensation                                          (5,235,512)                  3,526,232
Cancellation of options and warrants                                               (614,941)                    614,941
Amortization of deferred stock - based compensation                                                           2,122,931
Net loss
                                                                               ------------    ---------    -----------

Balance - December 31, 2001                                                      59,317,682    $(200,000)   $  (573,035)
                                                                               ============    =========    ===========

<CAPTION>
                                                                                  Deficit
                                                                                Accumulated
                                                                                  During
                                                                                Development
                                                                                   Stage          Total
                                                                                -----------    ------------
<S>                                                                             <C>            <C>
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                                          20
Issuance of common stock to employees for services - August 1997                                         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
Net loss                                                                         (1,432,815)     (1,432,815)
                                                                               ------------    ------------

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

Stock issued pursuant to consulting agreement                                                             0
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                                                          0
Amortization of deferred stock - based compensation                                                 658,029
Net loss                                                                         (2,820,314)     (2,820,314)
                                                                               ------------    ------------

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

Stock issued pursuant to consulting agreement - January 1999                                              0
Stock issued pursuant to consulting agreement - February 1999                                            15
Stock issued pursuant to consulting agreement - February 1999                                             0
Stock issued pursuant to consulting agreement - April 1999                                                0
Warrants issued pursuant to consulting agreement - April 1999                                        10,260
Amortization of deferred stock - based compensation                                                 325,808
Net loss                                                                         (1,131,404)     (1,131,404)
                                                                               ------------    ------------

Balance - December 31, 1999                                                      (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                                             0
Stock issued pursuant to consulting agreement - February 2000                                             0
Stock issued pursuant to consulting agreement - February 2000                                             0
Stock issued pursuant to consulting agreement - February 2000                                             0
Warrants issued pursuant to consulting agreement - February 2000                                          0
Warrants issued to convertible debenture holders - February, April and
November 2000                                                                                     1,144,805
Stock issued pursuant to consulting agreement - February 2000                                             0
Stock issued pursuant to consulting agreement - February 2000                                             0
Stock issued pursuant to consulting agreement - March 2000                                                0
Stock issued pursuant to consulting agreement - March 2000                                                0
Stock issued pursuant to consulting agreement - March 2000                                                0
Stock issued pursuant to consulting agreement - March 2000                                                0
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 200                   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                           0
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                                           0
Stock options issued to employees                                                                         0
Stock options issued to consultants                                                                       0
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
Net loss                                                                        (42,640,886)    (42,640,886)
                                                                                -----------    ------------

Balance - December 31, 2000                                                     (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                                                     0
Stock issued pursuant to consulting agreement - March 2001                                                0
Stock issued pursuant to consulting agreement - April 2001                                                0
Common stock issued in private placement, net of offering costs - June 2001                       1,134,830
Stock issued as finders fee - June 2001                                                                   0
Warrants issued pursuant to consulting agreement - June 2001                                              0
Warrants issued pursuant to consulting agreement - August 2001                                            0
Warrants issued pursuant to consulting agreements - November 2001                                         0
Stock issued for services - November 2001                                                                 0
Warrants issued pursuant to consulting agreements - December 2001                                         0
Common stock issued for note receivable - December 2001                                                   0
Re-measurement of deferred compensation                                                          (1,709,280)
Cancellation of options and warrants                                                                      0
Amortization of deferred stock - based compensation                                               2,122,931
Net loss                                                                        (10,029,583)    (10,029,583)
                                                                               ------------    ------------

Balance - December 31, 2001                                                    $(58,748,997)   $   (178,172)
                                                                               ============    ============
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       F-4
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                                     Cumulative
                                                                                              Year                 From Inception
                                                                                              Ended                      to
                                                                                            December 31,            December 31,
                                                                                        2001            2000             2001
<S>                                                                                 <C>             <C>              <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                                          $(10,029,583)   $(42,640,886)    (58,748,997)
  Adjustments to reconcile net loss to net cash used by operating activities:
    Depreciation and amortization                                                        123,106          43,456         327,584
    Amortization of note discount                                                             --       5,089,144       5,107,144
    Cancellation of Officer loans in settlement of employment contract                   654,447              --         654,447
    Loss on sale of fixed assets                                                           3,836           2,482          20,135
    Beneficial conversion feature of convertible debt                                         --       3,878,260       3,878,260
    Deemed dividends on convertible preferred stock                                           --       1,820,859       1,820,859
    Financing,  consulting and other expenses paid via the
       issuance of common stock and warrants                                             413,651      27,313,015      29,542,591
    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         335,365       1,352,207
    Minority interest in subsidiary loss                                                      --         (25,000)        (25,000)
    Write-off of convertible note receivable                                             400,000              --         400,000
    Write-down of long term investment                                                    90,000          80,000         835,000
    Write-off of fixed assets                                                                 --         115,613         136,066
    Increase (decrease) in cash attributable to changes in assets and liabilities
       Receivables and prepaid expenses                                                  163,156        (129,650)         25,640
       Accounts payable                                                                  198,193          51,442         233,355
       Other current liabilities                                                        (415,224)        413,977         301,911
                                                                                    ------------    ------------    ------------

Net cash used in operating activities                                                 (7,381,576)     (3,651,923)    (13,913,641)
                                                                                    ------------    ------------    ------------

CASH FLOWS FROM  INVESTING ACTIVITIES
    Loan provided to another company                                                          --              --        (835,000)
    Purchase of convertible promissory note                                             (150,000)       (250,000)       (400,000)
    Investment in affiliated company                                                          --        (375,000)       (375,000)
    Additions to property and equipment                                                 (136,329)       (170,526)       (678,674)
    Proceeds from disposal of fixed assets                                                    --              --          42,100
    Loans to Officers                                                                 (2,072,000)        (65,677)     (2,137,677)
    Repayment of loans to Officer                                                      1,431,226              --       1,431,226
    Decrease in restricted cash                                                               --          84,820              --
                                                                                    ------------    ------------    ------------

Net cash used in investing activities                                                   (927,103)       (776,383)     (2,953,025)
                                                                                    ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Net proceeds from issuance of share capital                                        1,443,333       3,442,720       4,888,317
    Proceeds from issuance of notes payable                                                   --              --       1,000,000
    Net proceeds from issuance of convertible debentures                                      --       9,148,262       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                                                        --          (9,951)        (87,996)
    Increase (decrease) in short term bank credit                                        (10,243)       (130,660)        (32,004)
    Public offering of common stock                                                           --              --       3,433,027
    Repayment of short-term debt                                                              --        (250,000)       (250,000)
    Proceeds from short-term debt                                                             --         250,000         274,038
    Loans to affiliate                                                                        --        (977,207)       (977,207)
                                                                                    ------------    ------------    ------------

Net cash provided by financing activities                                              1,433,090      11,473,164      17,044,006
                                                                                    ------------    ------------    ------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      (6,875,589)      7,044,858         177,340

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                                        7,052,929           8,071              --
                                                                                    ------------    ------------    ------------

CASH AND CASH EQUIVALENTS - END OF PERIOD                                           $    177,340    $  7,052,929    $    177,340
                                                                                    ============    ============    ============
</TABLE>

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Noncash financing and investing activities for the year ended December 31, 2000

      (a)   Issuance of common stock with fair value of $10,470,000 in respect
            of extinguishment of outstanding note payable resulting in an
            extraordinary charge of $9,778,167 (see Note 9).
      (b)   Waiver of liability due to related party in the amount of $75,328.
      (c)   Conversion of debentures in the amount of $9,846,550 into 8,711,711
            shares of common stock.

                 See Notes to Consolidated Financial Statements.


                                       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. 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.

      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.

      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.

      See Note 11 for pro forma disclosures required in accordance with SFAS No.
      123, "Accounting for Stock-Based Compensation".

      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.

      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.

      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,


                                      F-7
<PAGE>

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

      only in the periods in which such effect is dilutive. The shares issuable
      upon exercise of stock options and warrants are excluded from the
      calculation of net loss per share, as their effect would be antidilituve.

      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.

      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
      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 June 2001, the Financial Accounting Standards Board ("FASB") issued
      Statement of Financial Accounting Standards No. 141, "Business
      Combinations." This statement


                                      F-8
<PAGE>

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

      eliminates the pooling of interests method of accounting for all business
      combinations initiated after June 30, 2001, and addresses the initial
      recognition and measurement of goodwill and other intangible assets
      acquired in a business combination. The Company had no significant
      business combinations after June 30, 2001.

      In June 2001, the FASB issued Statement of Financial Accounting Standards
      No. 142, "Goodwill and Other Intangible Assets." This statement changes
      the accounting for goodwill from an amortization method to an impairment
      only approach. As of December 31, 2001 he Company has no unamortized
      goodwill.

      In August 2001, the FASB issued Statement of Financial Accounting
      Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal
      of Long-Lived Assets". This statement supercedes Statement of Financial
      Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
      Assets and for Long-Lived Assets to be Disposed of." The Company will
      adopt SFAS 144 as of January 1, 2002, but does not believe the statement
      will have a material effect on its consolidated financial statements.

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 $10,029,583 for
      the year ended December 31, 2001. 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. Management is actively seeking 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
      of operating 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 consolidated 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, the Company invested in a $250,000 convertible promissory
      note of a privately-held company active in the development of high-speed
      chips. The note bears interest at the rate of 6% per annum. The note is
      convertible into common stock based on the price per share of a future
      financing of this company. Additionally, the Company received warrants to
      purchase common stock of this company in connection with this investment.
      In February 2001, the Company purchased an additional $150,000 convertible
      note under the same terms. The note became due in July 2001. The Company
      wrote off the note receivable after evaluating prospects for collection,
      including a review of the company's financial condition and the note's
      default status.


                                      F-9
<PAGE>

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

Note 5 - Officer Loan

      In connection with the proposed relocation of the Company's headquarters
      in 2001, the Company advanced an interest-free loan to its Chief Financial
      Officer, for the purchase of a home in the New York Metropolitan area, in
      the principal amount of $70,000, which loan matures on July 30, 2006.
      Collateral for the loan is a security interest in such residence.
      Subsequently the Company suspended its plans to relocate.

Note 6 - Property And Equipment

                                                              December 31,
                                                              ------------
                                                         2001             2000
                                                         ----             ----

Computers                                              $102,896         $ 56,599
Machinery and equipment                                  54,411           19,552
Furniture and office equipment                           86,516           83,097
                                                       --------         --------

                                                        243,823          159,248
Less - accumulated depreciation                          90,169           14,981
                                                       --------         --------

                                                       $153,654         $144,267
                                                       ========         ========

      Depreciation expense was $ 123,106 and $ 43,456 for the years ended
      December 31, 2001 and 2000, respectively.

Note 7 - Investment in Affiliate

      The Company owns a 49% interest 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 has recently ceased
      to operate. The Company has invested a total of $1,352,207 in the form of
      equity capital and loans.

      The Company applies the equity method of accounting for its investment in
      Kliks and has recorded a charge to operations in the amount of $1,016,842
      and $335,365 representing its share of the loss for the year ended
      December 31, 2001 and 2000, respectively.

Note 8 - Other Current Liabilities

                                                              December 31,
                                                              ------------
                                                          2001            2000
                                                          ----            ----
Accrued payroll and payroll taxes                       $ 50,000        $421,644
Accrued liabilities                                      161,255         187,746
Accrued interest                                              --          48,509
                                                        --------        --------

                                                        $211,255        $657,899
                                                        ========        ========


                                      F-10
<PAGE>

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

Note 9 - Debt Financings

      Notes Payable

      In February 2000, the Company converted principal and accrued interest of
      approximately $700,000 and 120,000 warrants into 3,490,000 shares of the
      Company's common stock. The Company recorded an extraordinary charge in
      the amount of $9,778,167 on conversion of the notes.

      10% Convertible Debentures

      In February 2000, the Company signed an agreement to issue $2 million of
      10% Convertible Debentures and 1,250,000 Warrants to private investors.
      The Debentures were convertible into shares of the Company's Common Stock
      at the rate of $ 0.40. In accordance with EITF 98-5, the Company has
      recorded financing expense in the amount of $571,636 representing the
      beneficial conversion feature of the debt. The warrants are exercisable
      into common stock at the rate of $1.00 per share for a three-year period.
      The Company recorded a discount of $1,144,804 to reflect the fair value of
      the Warrants.

      In September through November 2000, pursuant to the terms of the
      debentures, the investors converted the $2 million of the 10% convertible
      debentures purchased into 5,000,000 shares of Common Stock.

      Convertible Debentures

      During the third quarter of 2000, the Company issued $8,345,500 of
      one-year convertible debentures to private investors. The debentures are
      convertible only upon the approval of the Company's stockholders to
      increase the authorized shares of the Company's common stock. At such time
      the debentures convert automatically into shares of common stock. In
      November 2000, pursuant to the approval of the Company's stockholders, the
      debentures automatically converted into 3,711,711 shares of common stock.
      Additionally, pursuant to the subscription agreement, the Company issued
      3,711,711 common stock purchase warrants. The warrants are exercisable at
      prices ranging from $3.50 to $8.00 per share. The Company recorded a
      discount of $3.4 million to reflect the fair value of the Warrants,
      determined using the Black-Scholes pricing model. The unamortized portion
      of the discount was charged to operations in the period the debentures
      were converted. In accordance with EITF 98-5, the Company has recorded
      financing expense in the amount of $3.3 million representing the
      beneficial conversion feature of this debt.

      In connection with the sale of Debentures, the Company issued warrants to
      placement agents to purchase up to 770,000 shares of Common Stock, 70,000
      an with exercise price of $2.00 and 700,000 at $4.50 per share.

Note 10 - Income Taxes

      At December 31, 2001, the Company had available $30 million of net
      operating loss carryforwards for U.S. federal income tax purposes which
      expire in the years 2016 through 2021, and $2.5 million of foreign net
      operating loss carryforwards with no expiration date. Due to the
      uncertainty of their realization, no income tax benefit has been recorded
      by the Company for these net operating loss carryforwards as valuation


                                      F-11
<PAGE>

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

      allowances have been established for any such benefits. The use of the
      U.S. federal net operating loss carryforwards is subject to limitations
      under section 382 of the Internal Revenue code pertaining to changes in
      stock ownership.

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

                                                          December 31,
                                                          ------------
                                                     2001               2000
                                                     ----               ----

Net operating loss carryforwards                 $12,969,192       $  9,440,958
Stock based compensation                             457,960          1,124,838
Other                                                540,883            134,146
                                                 -----------       ------------
      Total deferred tax assets                   13,968,035         10,699,942
      Valuation allowance                        (13,968,035        (10,699,942)
                                                 -----------       ------------

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

Note 11 - 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.

      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.

      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.


                                      F-12
<PAGE>

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

      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 2000 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, 2000        170,000            --       170,000    $      .81
    Granted                               1,579,500     4,985,000     6,564,500          1.16
                                         ----------    ----------    ----------    ----------
Options outstanding, December 31, 2000    1,749,500     4,985,000     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    2,304,500     5,775,000     8,079,500    $      .73
                                         ==========    ==========    ==========    ==========

Shares of common stock available for
  future grant under the plan             2,460,500
                                         ==========
</TABLE>

      In January 2002, the Company granted an additional 2 million options under
      the plan, exercisable at $.50 per share to various employees of the
      Company.

      The following table summarizes information about stock options outstanding
      at December 31, 2001:

<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                      370,000            8.71        $0.01          370,000             $0.01
         $.35-.50                2,900,000            9.90         0.45          125,000              0.50
         $.8125-1.00             3,860,000            9.19         0.99        3,044,293              0.99
         $1.97-2.50                949,500            8.95         2.21          197,900              2.20
                                 ---------            ----         ----        ---------             -----

         $.01-$2.50              8,079,500            5.84        $ .73        3,737,193             $0.96
                                 =========            ====        =====        =========             =====
</TABLE>

      Weighted-average grant date fair value of options granted under the Plans
      in 2001 and 2000, under the Black-Scholes option pricing model, was $.14
      and $1.52 per option, respectively.


                                      F-13
<PAGE>

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

      The Company has adopted the pro forma disclosure provisions of SFAS No.
      123. Had compensation cost for all of the Company's stock-based
      compensation grants been determined in a manner consistent with the fair
      value approach described in SFAS No. 123, the Company's net loss and net
      loss per share as reported would have been increased to the pro forma
      amounts indicated below:

                                                      Year ended
                                                      December 31,
                                               2001                    2000
                                               ----                    ----
Net loss
    As reported                            ($10,029,583)           ($42,640,886)
    Proforma                                (10,216,147)            (42,837,740)

Loss per share
    As reported                                    (.42)                  (3.81)
    Proforma                                       (.43)                  (3.99)

      The fair value of each option granted in 2000 and 1999 is estimated on the
      date of grant using the Black-Scholes option-pricing model with the
      following weighted average assumptions:

                                                              Year ended
                                                              December 31,
                                                          2001            2000
                                                          ----            ----

Risk free interest rates                                   4.63%           5.30%
Expected option lives (in years)                           4.00            4.24
Expected volatilities                                      133.%             70%
Expected dividend yields                                   None            None

      Warrants

      o     In February 2000, the Company issued to a financial consultant
            warrants to purchase 1,500,000 shares of Common Stock. The warrants
            are exercisable for a period of three years at a nominal price per
            share.

      o     In February, April and November 2000, in connection with the sale of
            10% convertible debentures (see Note 10) the Company issued 1.25
            million warrants. These warrants expire in three years and are
            exercisable at $1 Per share.

      o     In July through September 2000, in connection with a private
            placement of common stock, convertible preferred stock and
            convertible debentures (see Notes 9 and 11) the Company issued a
            total of 5.8 million warrants with exercise prices ranging from
            $3.50 to $8.00. The warrants expire in four years.


                                      F-14
<PAGE>

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

      o     In September 2000, in connection with the private placement the
            Company issued 700,000 and 70,000 warrants with an exercise price of
            $4.50 and $2.00, respectively, as a placement agent fee.

      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.

      A summary of the warrants outstanding at December 31, 2001 is as follows:

                            Exercise        Expiration
            Warrants          Price            Date
            --------          -----            ----
             875,000          $0.01            2003
              56,000            .50            2006
              60,000            .80            2002
           1,250,000           1.00            2003
             100,000           1.25            2006
             140,000           1.50            2006
             715,000           2.00         2004-06
              70,000           2.00            2004
           4,622,750           3.50            2004
             300,000           4.00            2004
           1,590,909           4.50            2004
              57,143           8.00            2004
          ----------
           9,836,802
          ==========

      In January 2002, in connection with a Testing and Development Agreement
      (see note 13), the Company issued additional 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 closes at $1.50 or above for 10
      consecutive business days, the Warrant may only be exercised during the
      next ninety day period.


                                      F-15
<PAGE>

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

      Stock Issuances

      o     During 2000, the Company entered into various marketing, financial
            consulting and separation agreements. Pursuant to these agreements,
            the Company issued a total of 3,038,250 shares of common stock. The
            Company recorded deferred compensation in the amount of $11.9
            million relating based on the market value of the shares at the date
            of issuance. The deferred compensation was amortized over the
            service period.

      o     In July and August 2000, the Company sold 1 million shares of its
            common stock, 1.25 million shares of its convertible preferred
            stock, and 2.25 million warrants in a private placement, for an
            aggregate purchase price of $4,250,000. The convertible preferred
            stock is convertible only upon the approval of the Company's
            stockholders to increase the authorized shares of the Company's
            common stock. At such time the convertible preferred stock converts
            automatically into shares of common stock. In November 2000, the
            preferred stock automatically converted into 1.25 million shares of
            common stock. In accordance with EITF 98-5, the Company has recorded
            a deemed preferred stock dividend and an offsetting increase in
            additional paid-in capital of approximately $1.8 million,
            representing the beneficial conversion feature of the convertible
            preferred stock. The warrants are exercisable into common stock at
            the rate of $3.50 per share and expire four years from date of
            issuance.

      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, to be held
            in escrow. On April 1, 2001, 200,000 shares were released from
            escrow and on April 1, 2002 the remaining 200,000 shares will be
            released if the minority shareholder is still employed by the
            Company. The Company recorded a charge to deferred compensation 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.


                                      F-16
<PAGE>

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

      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 is 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.

      o     The Company entered into three one-year financial consulting
            agreements in March and April 2001. Accordingly, 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.

Note 12 - Termination Agreement

      In connection with the proposed relocation of the Company's headquarters
      in April 2001, the Company advanced a loan of approximately $2 million to
      Mr. Isaacson, the Company's former Chief Executive Officer and the
      Chairman of the Board of Directors, to be used for the purchase of a home
      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, the Company agreed to pay Mr. Isaacson
      $206,250 and to forgive the unpaid balances of the outstanding loan to
      purchase the residence in the amount of $570,774 and in addition also
      forgive 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.

Note 13 - Development Agreements

      o     In January 2001, the Company entered into a Development and License
            agreement, with Cisco Systems, Inc. ("Cisco") to collaborate in the
            development of products to be used in the proposed powerline
            telecommunications technology. By mutual agreement, the Development
            Agreement has been terminated, effective November, 2001, and the
            Company has no further obligations, monetary or otherwise, to Cisco.

      o     In August-November 2001, the Company entered into a Service
            Agreement and a Strategic Alliance Agreement with Aquila
            Technologies Group, Inc. pursuant to which Aquila will provide
            support to Ambient in the design, engineering and/or manufacturing
            of Ambient prototypes including in particular a communications
            controller, coordinate large scale offshore manufacturing
            facilities, monitor legislative activities and government funded
            research activities in the PLT area and pursue opportunities for
            Ambient technologies in a variety of arenas. In consideration of the
            services provided by Aquila, Ambient has agreed to pay Aquila an
            amount not to exceed $140,000 and to issue to Aquila five year
            warrants to purchase 200,000


                                      F-17
<PAGE>

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

            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 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. In the event that the price
            of the Company's Common stock closes at $1.50 or above for 10
            consecutive business days, the Warrant may only be exercised during
            the next ninety day period. The Company will record a charge to
            deferred compensation in the amount of $615,000 relating to this
            grant and will amortize it over the estimated service period of one
            year.

Note 14 - Commitments and Contingencies

      Royalties

      The Company's subsidiary 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% for the first three years of product sales, 4% for the
      following three years, and 5% thereafter up to a maximum of 100% of the
      grant including accrued interest. The total amount of grants received at
      December 31, 2000 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.

      Operating leases

      The Company has entered into a lease agreement for office space expiring
      through 2003. Rent expense for 2001 and 2000 was $140,400 and $75,064,
      respectively. Future minimum rentals on this lease as of December 31, 2001
      are as follows:


                                      F-18
<PAGE>

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

Year ended December 31,
2002                                                               $140,400
2003                                                                 70,200
                                                                   --------

Total                                                              $210,600
                                                                   ========

      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
      $404,000 and $425,000 during 2002 and 2003, respectively. In addition,
      each of the agreements provides for a termination payment, under certain
      circumstances, equal to 12 months salary.

Note 15 - Geographic Data

<TABLE>
<CAPTION>
                                              % of                            % of
                               U.S.           Total        Israel             Total       Total
                               ----           -----        ------             -----       -----
<S>                        <C>               <C>          <C>                 <C>      <C>
 For the year ended
   December 31, 2001
     Operating loss        $ (8,617,428)     100.00%             --             .00%   $ (8,617,428)
     Identifiable assets        453,721       97.66%         10,863            2.34%        464,584

 For the year ended
   December 31, 2000
     Operating loss        $(18,012,639)      96.95%       (566,298)           3.05%   $(18,578,937)
     Identifiable assets      7,694,233       86.80%      1,117,224           13.20%      8,864,457
</TABLE>

Note 16 - Legal Matter

      On November 9, 2001, an alleged shareholder of the Company commenced a
      derivative lawsuit in the Court of Chancery of the State of Delaware
      against three of the Company's current and/or former directors, and the
      Company as a nominal defendant. The complaint alleges that the individual
      defendants breached their fiduciary duties with respect to certain
      transactions identified in the complaint, resulting in damages to the
      Company. The complaint seeks rescission of certain transactions,
      unspecified damages and recovery of plaintiff's fees and costs. The
      defendants moved to dismiss the complaint for failure to state a claim
      upon which relief may be granted and for failure to adequately plead
      demand futility. The Company does not believe the lawsuit will have a
      material adverse effect on its financial condition or operations.


                                      F-19
<PAGE>

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

Note 17 - Subsequent Events

      Research and Development Agreement

      Effective February 7, 2002 the Company and Consolidated Edison Company of
      New York, Inc. ("CECONY"), 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 entitled
      to a 2.5% royalty, based on net revenues from powerline equipment and
      related services, as defined, 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.

      Termination Agreement -- UNAUDITED

      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 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
      loan previously granted (see note 5) in the amount of $70,000, and agrees
      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.


                                      F-20