AMBIENT CORP /NY - FORM 10-K - February 23, 2011

Attached files

file	filename
EX-32 - CERTIFICATION - AMBIENT CORP /NY	abtg_ex32.htm
EX-21 - SUBSIDIARIES - AMBIENT CORP /NY	abtg_ex21.htm
EX-31 - CERTIFICATION - AMBIENT CORP /NY	abtg_ex31.htm
EX-23.1 - CONSENT OF INDEPENDENT ACCOUNTANTS - AMBIENT CORP /NY	abtg_ex231.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-K

———————

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

for the fiscal year ended December 31, 2010

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

For the transition period from: _____________ to _____________

Commission file number 0-23723

———————

AMBIENT CORPORATION

(Exact name of registrant as specified in its charter)

———————

Delaware		98-0166007
(State or Other Jurisdiction		(I.R.S. Employer
of Incorporation)		Identification No.)

7 WELLS AVENUE, NEWTON, MASSACHUSETTS 02459

(Address of Principal Executive Office)

617-332-0004

(Registrant’s telephone number, including area code)

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

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

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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files Yes ¨ No ¨

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

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

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No þ

The registrant had 1,648,826,354 shares of common stock outstanding as of February 22, 2011. The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2010, was $15,666,074 computed by reference to the closing price of such common stock on the OTC Bulletin Board on such date.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required by Part III of Form 10-K is incorporated by reference to the Registrant's proxy statement for the 2011 Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission.

AMBIENT CORPORATION

2010 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

		Page
	PART I

Item 1.	Business		4

Item 1A.	Risk Factors		13

Item 1B.	Unresolved Staff Comments		17

Item 2.	Properties		17

Item 3.	Legal Proceedings		17

Item 4.	[REMOVED AND RESERVED]		17

	PART II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		17

Item 6.	Selected Financial Data		18

Item 7.	Management Discussion and Analysis of Financial Condition and Results of Operation.		18

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.		24

Item 8.	Financial Statements and Supplementary Data		25

Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		25

Item 9A(T).	Controls and Procedures		25

Item 9B.	Other Information		25

	PART III

Item 10.	Directors, Executive Officers and Corporate Governance		26

Item 11.	Executive Compensation		26

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		26

Item 13.	Certain Relationships and Related Transactions and Director Independence		26

Item 14.	Principal Accountant Fees and Services		26

Item 15.	Exhibits and Financial Statement Schedules		27

SIGNATURES			29

FORWARD LOOKING STATEMENTS

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

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

PART I

ITEM 1. BUSINESS

OVERVIEW

Ambient Corporation (“Ambient” the “Company” “we or “us”) is a pioneering integrator of smart grid communications platforms, creating high-speed Internet Protocols (IP) based data communications networks for the medium and low-voltage distribution grid. The Ambient smart grid platform, known as Ambient Smart Grid®, facilitates a two-way, real-time communications network designed to modernize the power grid infrastructure, making it more receptive to wide-scale adoption of renewable energy sources and supportive of new energy efficiency technologies and programs. The Ambient Smart Grid® platform facilitates a utility’s ability to implement smart grid applications such as Advanced Metering Infrastructures (AMI), Demand Side Management (DSM), Distribution Monitoring and Automation, direct load control and more. When combined, these applications offer economic, operational and environmental benefits for utilities, and ultimately the utility customers.

Ambient has been focused, since 2000, on the collaborative development of communication solutions that meet the needs of utilities to ultimately deploy what is now referred to as the smart grid. From inception, Ambient’s platform, which includes nodes, management systems, current transformers and a suite of applications, has been designed to function as an open standards-based system intended to support a variety of applications and services simultaneously. Over the years, Ambient has developed and delivered three generations of smart grid communications nodes that with thousands of our units deployed in the field are already beginning to transform today’s century-old power delivery system into an advanced energy network that provides timely energy usage information and remote grid monitoring, automation and control. With each successive generation, Ambient has continued to support and integrate additional applications, while driving lower the manufacturing costs and price to our customers making our products even more attractive. In December 2010, Ambient delivered to our marquee customer, units of our fourth generation communications node which are being beta tested in the field.

Throughout the past five years, Ambient has been a key supplier to Duke Energy’s grid efficiency programs, and the leading supplier of the smart grid communications nodes for their smart grid deployments. During 2008, Ambient received purchase orders from Duke Energy to purchase its X2000 and X-3000 communications nodes and to license our AmbientNMS®, to enable the building out of an intelligent grid/intelligent-metering platform, which generated approximately $14.8 million in revenues throughout 2008 and 2009.

In September 2009, we entered into a long-term agreement, running through 2015 to supply Ambient’s X-3100 Node and to license our management software – AmbientNMS® for deployment throughout the utility’s electric power distribution grid. Since the execution of the agreement, we have generated, through December 31, 2010, approximately $21.1 million in revenues from the sale of our product.

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

Ambient continues to seek new opportunities for commercial deployments and to bring new and existing networks to full commercialization. Throughout 2011, Ambient’s principal target customers will continue to be electric utilities that seek to both increase efficiencies in the delivery of energy and enable consumers to better understand and manage their energy consumption. Ambient seeks to continue to extend existing relationships and develop new relationships to collaborate on efforts to drive the development of new functionality for both utility and consumer applications that further enhance the value of the Ambient Smart Grid® platform.

Ambient is a Delaware Corporation incorporated on June 26, 1996. Since inception, we have funded operations primarily through the sale of our securities and most recently from the revenue generated from purchase orders received from our marquee customer. In connection with the continued development, upgrade, and marketing of our products, technology, and services, Ambient will continue to emphasize the ongoing development efforts necessary to complete development of our fourth generation node, incorporate additional applications into our platform, and to continue to enhance the capabilities and functionality of our AmbientNMS® system.

INDUSTRY BACKGROUND

The existing electrical power distribution system continues to be under increasing pressure to catch up to the digital economy. Through the incorporation and deployment of advanced communication technology throughout the grid system, the singular approach of building new environmentally unfriendly centrally located power plants to meet energy and capacity requirements will no longer be the sole solution to utilities. The smarter grid will help increase the use of renewable capacity, embrace the emergence of electric vehicles and distributed generation, and equip customers with the tools and technology needed to help navigate through an environment increasingly concerned with such issues as climate change, rising costs, increasing regulation, and energy independence. Increasing the efficiency in the delivery of energy will continue to be an emphasis for utilities and regulators alike. A dedicated communication infrastructure to monitor and manage the distribution grid is a key enabler for accomplishing this efficiency.

In 2007, the Federal Energy Independence and Security Act underscored the need for a smart grid and provided a mechanism for federal funds to help promote smart grid deployments and developments. The prospects of the deployment of smart grid technologies were significantly advanced through the passage of both the Troubled Asset Relief Program, which reduced the period of depreciation of smart grid assets from twenty years to ten years and the later passage of the American Reinvestment and Recovery Act (ARRA) in February 2009, which provided stimulus funding of smart grid projects. In March 2010, the smart grid received a further federal boost with the release of the National Broadband Plan that highlighted the role smart grid communications can have in improving the grid’s reliability, security and efficiency.

The ultimate allocation of funding from the federal government provided by the ARRA (Stimulus Funding) was intended to eliminate a portion of the risk associated with early adoption of technology. The promise of funding encouraged utilities considering smart grid deployments to actively develop business and deployment plans and to negotiate terms with the U.S. Department of Energy ("DOE") to receive the ARRA funds. For many utilities, this process required significant effort over many months, and thus resulted in the lack of available federal funds throughout 2009 and into 2010. Many of the ultimate grant recipients executed agreements with the DOE and thus smart grid deployments began in earnest in the later part of 2010.

AMBIENT SOLUTION

THE AMBIENT SMART GRID® COMMUNICATIONS NETWORK

Ambient’s vision for the smart grid calls for solutions based on interoperable and open, standards-based technologies. This vision is made a reality through the Ambient Smart Grid® Node and network management system - AmbientNMS® and an open application environment. A common underlying communications platform (Ambient Smart Grid®) is utilized to support all the smart grid applications and services in parallel to achieve the lowest cost point on an overall system basis while achieving a high level of integration of communications services and applications. The use of open, standards-based technologies is widely accepted as the basis for the success of the Internet and credited with enabling all of the applications that have evolved on the Internet. Ambient’s communication platform relies on distributed Ambient Smart Grid® Nodes incorporating remote processing and flash memory that allow for a robust application-hosting environment enabling the platform to evolve like the Internet. Additionally, remote processing and storage of data combined with the ability to access this locally, without the use of the backhaul connection, allow the utility and end users to limit network charges.

Ambient’s distributed platform system architecture are depicted below in Figure 1.

Rather than the typical disconnected and application specific communications systems that have been the norm in the utility environment, Ambient provides a common communications platform that allows costs to be allocated across many applications or purposes thus enhancing the value and minimizing the overall costs of the communications infrastructure and total smart grid build out. The Internet is an excellent reference and analogy for the common infrastructure concept. The growing trend of providing multiple communications services (television, telephone, and Internet access) over a single medium into the premises demonstrates the concept, both technically and economically, of supporting multiple services and applications over a common network infrastructure. This holistic approach will enable a variety of distribution system monitoring and management capabilities that have not thus far not been feasible or not even envisioned today.

AMBIENT SMART GRID® COMMUNICATIONS PLATFORM FUNCTIONALITY AND BENEFITS

Complete Turnkey Delivery: Ambient designs and builds the core network hardware and management software incorporating smart grid communication technologies. Our familiarity with multiple communications protocols, architecture, hardware, and software requirements, coupled with experienced field engineers, provides us with the tools necessary for a successful rollout.

Open Architecture: For a smart grid to evolve with the advancement in technologies, and expectations of what the smart grid will enable, utilities need an open and flexible platform architecture comprised of open and flexible building blocks such as the Ambient Smart Grid® Node (“Node”) and AmbientNMS®. Ambient’s architecture for the communications Node, offers the openness and flexibility that allows utilities to mix and match smart grid application technologies today, and a platform that can evolve with the technology. As no single communication technology is likely to meet all smart grid requirements for all environments or locations, the use of an open and flexible communications architecture and Node is more likely to ensure higher levels of interoperability, longevity and overall success. Having several available Node components and options overcomes fundamental impediments, such as topographical, economical, or other inherent impediments in the physical infrastructure itself, and will be required to successfully address as large a portion of the system requirements as possible.

Wide Area Network (WAN) Technologies: There are a variety of Ethernet technologies, both wired and wireless, that can be used by Ambient’s Node for backhaul or WAN purposes. The use of 3G/4G cellular wireless networks for WAN services for a large, if not the most significant, portions of the smart grid infrastructure is most practical as it leverages the cellular carrier's commitment and investment into their wireless network. Although utilities have a long history of using cellular networks for some applications, the scale required for the smart grid is unprecedented. The availability of multiple carriers and technologies is beneficial. The 3G networks of today and the planned 4G networks being rolled-out certainly provide sufficient bandwidth to address the requirements of the smart grid.

Local Area Network (LAN) Technologies: Ambient’s Node also supports a variety of LAN technologies. As demonstrated with its products to date, Ambient has been able to support a variety of smart grid applications and services with these technologies. Ethernet and serial ports are the basic and most commonly found technologies used for communications interfaces. This is why Ambient’s typical Node configuration has included both Ethernet and serial (RS-232) ports.

The Ambient Node supports multiple communication technologies simultaneously allowing a utility to leverage a single communications infrastructure to support many smart grid applications that rely on different communication methods i.e. 3G cellular, Wi-Fi, 900MHz radio frequency, power line carrier etc., all operating in parallel in a single communications Node. Each customizable Node combines to create the overarching communication platform that protects a utility against stranding IT and smart grid related assets. A graphical description of how an individual Node can function as part of a collected platform is below.

The Node utilizes standard-based protocols as well as proprietary technologies for communications. This allows the Ambient Smart Grid® platform to connect with any IP device as well as legacy systems and vendor technologies reliant on proprietary protocols. Ambient’s architecture provides utilities an open IP-based architecture that pushes proprietary technologies out to the fringes of the network, which enhances the flexibility and longevity of the overall architecture. Flexibility with communication technologies and protocols means in different segments of the utility’s distribution network a single communications platform and foundational architecture can be leveraged yet customized to meet locational needs and economies that vary between urban and rural environments.

Flexible and Expandable Network Architecture: The Ambient Smart Grid® communications platform permits sequential expansions corresponding to actual demand. When the platform is first deployed, separate network elements can be “bridged” at specific points. As the network load increases, switches and/or routers can maximize the bandwidth available to a particular network segment. At higher subscriber densities, additional backhaul connectivity points may be added. By allowing utilities to build networks that provide just the capacity that is needed, as it is needed, we help our customers minimize initial installation costs, shorten the time between investment and realization of revenues, and reduce operations and maintenance expense.

Ability to Integrate Many Applications: Utility operators are not limited to Advanced Meter Reading (AMR), smart metering, or other applications at the end of the distribution grid: Grid operators can monitor and communicate with Nodes or any piece of IP-based equipment integrated at any point along the medium and low voltage distribution network, which can range from distributed generation resources, power quality control devices, and a range of Demand Side Management and Demand Response applications. When couplers are integrated into an Ambient Smart Grid® communications network, information on the current of the distribution grid can be obtained in real-time enabling better energy management, predictive maintenance and less system down-time which can combine to reduce the need for additional generation facilities.

Outage Detection and Restoration Confirmation: Rather than dedicated outage detection systems that employ either customer premise or service side equipment, the Node is powered from the low voltage line itself and can be equipped with an optional battery that can help a utility specifically identify line outages and allow for continued Node operation in the event of such a power outage. Access to the Nodes in an outage scenario allows timely recognition of outage locations and provides invaluable input to the restoration process. Additional information provided by our energy sensing capabilities may also provide useful and preventative information to utilities.

Support External Applications: A high-speed Ambient Smart Grid® enhances traditional low bandwidth, one-way applications such as meter reading. In addition to the elimination of the labor required to visit every customer location each month, or the inaccuracies introduced by customer self-reporting, the constant real-time load data can enhance a utility's ability to balance its supply portfolio, improve its load profiling, and increase its knowledge of customer usage patterns. Meters that remotely turn service on or off can be deployed, eliminating the labor involved in this non-repair, non-revenue task. Additionally, real-time communications enabled by Ambient’s high-speed backhaul network allow utilities the flexibility to introduce time-of-use pricing models.

Application Development Environment: To support our collaborative efforts, Ambient has developed specifications for developing and supporting third-party applications to run on the Ambient’s platform. The specifications provide for third-party applications to run in a structured, controlled, and predictable environment. This framework has been used to support third party application to provide connectivity to, and management of, their distribution line sensors. This configuration is deployed for testing in the field today.

AMBIENT STRATEGY

We intend to generate revenues and gross margin from the sales, and support of the necessary equipment and technologies, of the Ambient Smart Grid® communications platform, licensing of our network management system, AmbientNMS®, and from software maintenance. Our efforts include the following areas of focus:

BUSINESS DEVELOPMENT

Ambient believes the industry is being driven by a few key early adopters who will set the stage for additional smart grid deployments of our open architecture design. Ambient has and will continue to work closely with utility partners to develop an increasing value proposition for each utility’s unique needs and infrastructure. Ambient will focus engineering efforts on developing more robust solutions and additional value-added functionality for the Ambient Smart Grid® solution, creating an even more attractive business model for other utilities. In 2010, Ambient expanded our relationships with the public carriers by adding certifications on the Sprint Network to our long-standing relationship with Verizon Wireless.

EXPAND THE RANGE OF AMBIENT SMART GRID® APPLICATIONS

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

PURSUE OUR ROLE AS A PIONEERING SYSTEMS INTEGRATOR

We are committed to continuing our role as a supplier of a turnkey smart grid communications platform, taking responsibility for network design, hardware and software delivery, installation support, operator training and network management. Our familiarity with the architecture, hardware, and software requirements from years of close collaboration with major utility clients has enabled us to design the Ambient Smart Grid® communications platform from the ground up and to meet individual utility requirements. Ambient designs, manufactures (through a contract manufacturer) and markets the key hardware and software components of the Ambient Smart Grid® network. We have developed strategic relationships with key material and fabrication suppliers, and have put in place a reliable, scalable supply chain for timely delivery of the necessary product. Our technical personnel, including experienced field engineers, support pilot as well as larger deployments, ensuring successful Ambient Smart Grid® rollouts.

FURTHER ENHANCE THE AMBIENTNMS®

To manage communications networks, we have developed, and continue to improve, our network management software solution, AmbientNMS®. Ambient has developed AmbientNMS® to work with Ambient and non-Ambient hardware and it currently manages multiple Ambient-supported networks. AmbientNMS® allows for multiple user groups, each with customizable permission and views. Using the AmbientNMS®, a user can sort and filter lists and views via many Node parameters including geographical views, enabled applications, firmware and software versions and more. We intend to continue to develop and extend our network design expertise, as well as our hardware and software technology and our deployment and network management capabilities, to generate revenues from all phases of Ambient Smart Grid® communication deployments. To date, we have not sold and /or licensed any software for use on third party equipment.

EXPAND OUR STRATEGIC COLLABORATIVE RELATIONSHIPS

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

INDUSTRY STANDARDIZATION EFFORTS

We believe that open standards and interoperability will hasten the deployment of all smart grid technology and lead to greater success for both Ambient and the entire smart grid industry, and we are active in standards organizations and efforts to promote openness and interoperability. Ambient is a voting member of the National Institute of Standards and Technology’s Smart Grid Interoperability Panel (NIST SGIP) and several working groups such as PAP15.

We will continue to drive industry standardization efforts through leadership roles in the major industry associations and standards setting organizations, and promote open standards through our participation in both local and federal smart grid and utility organizations including the GridWise Alliance, DRSG, UTC, EEI, NRECA, IEEE and more.

COMMERCIAL DEPLOYMENTS

Duke Energy is currently deploying the Ambient Smart Grid® and AmbientNMS®. The deployments are directed towards a variety of goals, including developing, integrating, and demonstrating smart grid utility applications within our product offering.

DUKE ENERGY

Since 2005, Ambient has worked and collaborated with Duke Energy, our marquee customer, and an innovator and early adopter of smart grid technologies. Over the course of that time, 98% of Ambient’s revenue has been generated from contracts with and purchase orders received from Duke Energy for the Ambient Smart Grid® platform which has allowed this utility to deploy a robust smart grid platform. Our relationship with this customer has supported the development and enhancement of the Ambient Smart Grid® platform. Because Duke Energy is subject to both federal regulations and state utility regulators, much of Duke’s ability to deploy our technology is influenced by federal and state regulations.

In 2005, Ambient entered into an initial pilot agreement to test our Communications Node and newly developed AmbientNMS® with Duke Energy. In September 2006, we entered into an additional agreement expanding the scope and functionality of our developing network.

During 2007, Ambient focused on the execution of the agreement entered into in September 2006 that expanded the scope of Ambient's platform while addressing the challenges raised in our early 2006 pilot. In late 2007, Ambient enhanced the communication options available in our Node by introducing cellular technology into our platform.

During 2008, Ambient furthered its relationship with Duke Energy with the execution of a second Commercial Deployment Agreement to serve, initially, 50,000 end points in Cincinnati, Ohio. The Company received purchase orders from Duke Energy to purchase its X2000 and X-3000 communications Nodes and license of its AmbientNMS® software in support of building out an intelligent grid/intelligent-metering platform. As a result of these purchase orders, we generated approximately $12.6 million in revenues for the year ended December 31, 2008.

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

Since entering into the long- term supply agreement in 2009, Ambient has delivered approximately 23,900 units of the X-3100s. Today there are three generations of Nodes deployed in the field totaling over 25,000 Nodes which are supplying connectivity to over 250,000 endpoints.

The agreement is in effect until December 31, 2015, subject to various rights of the parties to terminate the agreement prior to such time. Ambient has agreed to provide maintenance services potentially extending for ten years after the termination of the agreement if Duke Energy continues to pay for such maintenance services on an uninterrupted basis throughout the extended period. Since the execution of the long-term supply agreement, we have generated, approximately $21.1 million in revenues through December 31, 2010 from the sale of our product.

KEY ALLIANCES / PRODUCTION & SUPPLIES

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

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

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

In September 2009 we entered into a Master Supply and Alliance Agreement with an equipment manufacturer with global manufacturing capabilities, for the supply of our communication Nodes. This relationship has been instrumental in allowing us to successfully deliver 23,900 Nodes over the sixteen month period ended December 31, 2010. We are also a party to a number of third party software license agreements that allow us to incorporate third party software products and features into our products.

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

COMPETITION

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

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

PROPRIETARY RIGHTS

We have taken steps to ensure the protection of our internally developed intellectual property (IP). We currently rely on a combination of patent, trade secret, copyright and trademark law, as well as non-disclosure agreements and invention assignment agreements, to protect our technologies and other proprietary company information.

Our IP portfolio includes twenty-six patents issued or allowed by the United States Patent and Trademark Office ("USPTO") primarily relating to coupling technology, and we have several pending patent applications in the United States and in other jurisdictions. We have filed with the USPTO and with the appropriate agencies in foreign countries and other jurisdictions, patent applications with respect to various aspects and applications of our smart grid technology including the Energy Sensing portion of Ambient Smart Grid®.

Ambient, Ambient Smart Grid, Communications for a Smarter Grid and AmbientNMS are registered trademarks of Ambient Corporation with the USPTO. Other marks are pending with the USPTO.

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

EMPLOYEES

We presently employ 59 full time employees, 56 of whom work out of our offices in Newton, Massachusetts. The three off site employees are field engineers dedicated to active network deployments.

RESEARCH AND DEVELOPMENT

During our 2010 and 2009 fiscal years, we incurred approximately $6.1 and $4.6 million, respectively, on the research and development of our Ambient Smart Grid® and related solutions.

AVAILABLE INFORMATION

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

ITEM 1A. RISK FACTORS

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

RISKS CONCERNING OUR BUSINESS

WE CURRENTLY DEPEND ON ONE KEY CUSTOMER FOR ALL OUR REVENUE, AND THE LOSS OF, OR A SIGNIFICANT SHORTFALL IN ORDERS FROM, THIS KEY CUSTOMER COULD SIGNIFICANTLY REDUCE OUR REVENUE.

For the years ended December 31, 2010 and 2009, 100% of our revenue was from Duke Energy. Our inability to generate additional anticipated revenue from our key customer, or a significant shortfall in sales will likely significantly reduce our revenue and adversely affect our business. Our operating results in the foreseeable future continue to depend on our ability to further our deployments with our existing customer.

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

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

Additionally, management is unable at this time to assess the effects, if any, that the proposed merger between Duke and Progress Energy, which merger was announced in January 2011 and is subject to shareholder and regulatory approval, will have on the continuation and/or expansion of our deployment by the new combined company following the merger, No assurance can be provided that the post merger entity will continue with or expand the current deployments at Duke Energy.

WE UTILIZE ONE SUPPLIER TO MANUFACTURE OUR NODES

In both 2010 and 2009, we utilized one contract manufacturer to produce our Nodes. Should our relationship with the manufacturer deteriorate or terminate or should this supplier lose some or all of its access to the products or components that comprise all or part of the Nodes that we purchase from it performance would be adversely affected. Under such circumstances, we would be required to seek alternative sources of supply for these products, and there can be no assurance that we would be able to obtain such products from alternative sources on the same terms. A failure to obtain such products on as favorable terms would have an adverse effect on our revenue and/or gross margin.

SLOWER ECONOMIC GROWTH RATES IN THE US MAY MATERIALLY ADVERSELY IMPACT OUR OPERATING RESULTS.

The US and other economies are recovering from a global financial crisis and recession which began in 2008. Growth has resumed, but has been modest and at an unsteady rate. There are likely to be significant long-term effects resulting from the financial crisis and recession, including a future global economic growth rate that is slower than what was experienced in the years leading up to the crisis, and more volatility may occur before a sustainable, yet lower, growth rate is achieved.

In addition, the OECD has encouraged countries with large federal budget deficits, such as the US, to initiate deficit reduction measures. Such measures, if they are undertaken too rapidly, could further undermine economic recovery and slow growth by reducing demand.

A lower future economic growth rate could result in reductions in sales of our products and services, slower adoption of new technologies and increase price competition. Any of these events would likely harm our business, results of operations and financial condition or cash flows from operations and our profitability.

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

Management believes that our currently available cash resources, as well as anticipated revenue from firm purchase orders will allow us to meet our operating requirements through fiscal 2011. However, it is conceivable that we may raise additional funds to expand existing commercial deployments, support strategic acquisitions and/ orjoint venture opportunities, and/or to satisfy any additional significant purchase order that it may receive. If and or when additional capital is required there are no assurances that we will be successful in obtaining additional required capital on reasonable terms and conditions.

OTHERS MAY CHALLENGE OUR INTELLECTUAL PROPERTY RIGHTS WHICH MAY NEGATIVELY IMPACT OUR COMPETITIVE POSITION

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

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

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

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

WE HAVE A HISTORY OF LOSSES AND WE MAY EXPERIENCE LOSSES IN THE FUTURE

We are a company engaged in the design, development and marketing of our smart grid communication technology and solutions. We have incurred losses of $3,186,229 and $14,246,284 for the years ended December 31, 2010 and 2009, respectively.

Our ability to generate and sustain significant additional revenues or achieve profitability will depend upon the factors discussed elsewhere in this "Risk Factors" section. There are no assurances that we will sustain profitability, or that operating losses will not resume in the future.

RISKS CONCERNING OUR CAPITAL STRUCTURE

VICIS CAPITAL MASTER FUND OWNS A MAJORITY OF AMBIENT’S ISSUED AND OUTSTANDING COMMON STOCK AND WILL THUS BE ABLE TO CONTROL THE OUTCOME OF ALL ISSUES SUBMITTED TO OUR STOCKHOLDERS.

Vicis holds, as of February 22, 2011, approximately 84.2% of our issued and outstanding common stock. As a result, Vicis is able to control the outcome of all issues submitted to our stockholders, including the election of all of our directors and the approval of any other action requiring the approval of our stockholders, including any amendments to our certificate of incorporation, a sale of all or substantially all of our assets or a merger or a private transaction. A principal of Vicis also is a member of our board of directors.

THE EFFECTS OF A POTENTIAL REVERSE STOCK SPLIT OF OUR COMMON STOCK ARE UNKNOWN.

In February 2011, our majority stockholder approved a reverse split of Ambient’s stock, in the range of 1-for 30 to 1-for 100, which the Board of Directors may implement in its discretion (if at all) before December 31, 2011, without any further stockholder approval. In connection therewith, on February 16, 2011, we filed with the Securities and Exchange Commission (“SEC”) a preliminary information statement on Schedule 14 C. The Board’s discretionary authority will become effective only after the filing with the SEC and mailing to Ambient's shareholders of record of the definitive Information Statement on Schedule 14 C.

The Board approved and recommended the reverse stock split primarily in order to increase Ambient’s prospects of successfully listing its common stock on the Nasdaq Capital Market. If the Board determines to effect a reverse stock split, we cannot assure you that it will be successful in achieving a listing on The Nasdaq Capital Market (or any other exchange). Stockholders should also note that if our Board elects to implement a reverse stock split, there is no assurance that prices for shares of the Common Stock after the reverse split will increase proportionally to the exchange ratio of the reverse stock split (or at all). We cannot guarantee to stockholders that the price of our shares will reach or sustain any price level in the future, and it is possible the proposed reverse stock split will have no lasting impact on our share price.

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

As of February 22, 2011, we were authorized to issue up to 2,000,000,000 shares of common stock, of which 1,648,376,354 shares were outstanding. As of February 22, 2011, an additional 292,931,931 shares of common stock were reserved for the exercise of outstanding options and warrants to purchase common stock and the reservations of shares in the various stock option plans. Many of the above options and warrants contain provisions that require the issuance of increased numbers of shares of common stock in the event of stock splits, redemptions, mergers and other transactions. The occurrence of any such event or the exercise of any of these options or warrants would dilute the interest in our company represented by each share of common stock and may adversely affect the prevailing market price of our common stock.

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

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

OUR STOCK PRICE MAY BE VOLATILE.

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

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

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

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

Additions or departures of key personnel;

Future sales of our common stock;

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

Commencement of or involvement in litigation; and/or

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

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

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

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

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

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

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

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

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. [REMOVED AND RESERVED]

PART II

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

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

The following table shows the quarterly high and low bid prices for our Common Stock over the last two completed fiscal years as quoted on the OTC Bulletin Board. The prices represent quotations by dealers without adjustments for retail mark-ups, mark-downs or commission and may not represent actual transactions. The closing price of our Common Stock on February 22, 2011, was $0.09 per share.

	Low		High
Year Ended December 31, 2010
First Quarter	$	0.102	$	0.165
Second Quarter	$	0.062	$	0.101
Third Quarter		0.063		0.097
Fourth Quarter		0.088		0.139

Year Ended December 31, 2009
First Quarter	$	0.02	$	0.101
Second Quarter	$	0.091	$	0.198
Third Quarter	$	0.14	$	0.183
Fourth Quarter	$	0.13	$	0.25

As of February 21, 2011, there were 140 holders of record of our Common Stock. A significant number of shares of our Common Stock are held in either nominee name or street name brokerage accounts, and consequently, we are unable to determine the number of beneficial owners of our stock.

DIVIDEND POLICY

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

ISSUER PURCHASES OF EQUITY SECURITIES

We do not have a stock repurchase program for our common stock.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES RELATED TO THOSE STATEMENTS. SOME OF OUR DISCUSSION IS FORWARD-LOOKING AND INVOLVES RISKS AND UNCERTAINTIES. FOR INFORMATION REGARDING RISK FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, REFER TO THE “RISK FACTORS” SECTION OF THIS ANNUAL REPORT.

OVERVIEW

Ambient has been focused, since 2000, on the collaborative development of communication solutions that meet the needs of utilities to ultimately deploy what is now referred to as the smart grid. From inception, Ambient’s platform, which includes Nodes, management systems, current transformers and a suite of applications, has been designed to function as an open standards-based system intended to support a variety of applications and services simultaneously. Over the years, Ambient has developed and delivered three generations of smart grid communications Nodes that with thousands of our units deployed in the field are already beginning to transform today’s century-old power delivery system into an advanced energy network that provides timely energy usage information and remote grid monitoring, automation and control. With each successive generation, Ambient has continued to support and integrate additional applications, while driving lower the manufacturing costs and price to our customers making our products even more attractive. In December of 2010, Ambient delivered to our marquee customer units of our fourth generation communications Node which are being beta tested in the field.

Throughout the past five years, Ambient has been a key supplier to Duke Energy’s grid efficiency programs, and the leading supplier of the smart grid communications Nodes for their smart grid deployments. During 2008, Ambient received purchase orders from Duke Energy to purchase its X2000 and X-3000 communications Nodes and to license our AmbientNMS®, to enable the building out of an intelligent grid/intelligent-metering platform, which generated approximately $14.8 million in revenues throughout 2008 and 2009.

Ambient continues to seek new opportunities for commercial deployments and to bring new and existing networks to full commercialization. Throughout 2011, Ambient’s principal target customers will continue to be electric utilities that seek to both increase efficiencies in the delivery of energy and enable consumers to better understand and manage their energy consumption. Ambient seeks to continue to extend existing relationships, and develop new relationships to collaborate on efforts to drive the development of new functionality for both utility and consumer applications that further enhance the value of the Ambient Smart Grid® platform.

Since inception, we have funded operations primarily through the sale of our securities and most recently from the revenue generated from purchase orders received from our marquee customer. In connection with the continued development, upgrade, and marketing of our products, technology, and services, Ambient will continue to emphasize the ongoing research and development efforts necessary to complete development of our fourth generation Node, incorporate additional applications into our platform, and to continue to enhance the capabilities and functionality of our AmbientNMS® system used by customers to scale and manage the network created by the deployment of our Nodes.

In February 2011, our majority stockholder approved a reverse split of our common stock, in the range of 1-for 30 to 1-for 100, which our Board of Directors may implement in its discretion (if at all) before December 31, 2011, without any further stockholder approval. Our Board approved and recommended the reverse stock split primarily in order to increase Ambient’s prospects of successfully listing its common stock on the NASDAQ Capital Market. In connection therewith and in an effort to strengthen our balance sheet position in any such listing effort, as discussed below in further detail in December 2010 our majority stockholder applied the $5 million then remaining in the escrow account for our benefit to the purchase of Ambient’s securities.

Prospects and Outlook

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

Notwithstanding the above, Ambient recognizes that our customer could alter their vision regarding the common communications infrastructure, determine that a competing company offers a more desirable product, or slow its deployments indefinitely, significantly affecting the prospects and outlook of the Company.

As we have demonstrated success over the course of 2010, we believe that additional utilities will ultimately begin to accept and endorse the concept of one common communications infrastructure to support many utility and consumer applications, strengthening Ambient’s position. However, no assurance can be given that this development will in fact ultimately occur and even if it does that the Ambient Smart Grid® will be their choice technology.

RESULTS OF OPERATIONS

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2010 (the “2010 Period”) AND THE YEAR ENDED DECEMBER 31, 2009 (the “2009 Period”)

REVENUES. Revenues for the 2010 Period were $20,358,040, compared to $2,193,338, for the 2009 Period. Revenues for each of the 2010 and 2009 Periods were attributable to the sales of products, and maintenance to our customer. Revenues for the 2010 and 2009 Periods related to the sales of products totaled $20,282,596 and $2,127,977, respectively. Revenues from the sale of software and services for the 2010 Period and the 2009 Period totaled $75,444 and $65,361, respectively. The increase in revenue during the 2010 Period compared to the 2009 Period reflects an increase in the number of communication nodes delivered as well as increased license fees recorded from the licensing of our AmbientNMS®.

COST OF GOODS SOLD. Cost of goods sold for the 2010 Period was $12,023,332 compared to $1,836,546 for the 2009 Period. Cost of goods sold included all costs related to manufacturing of our products and consisted primarily of direct material costs. Cost of goods sold also included expenses related to the write down of inventory to the lower of cost or market. For the 2010 and 2009 Periods, cost of goods sold included an inventory write-off of $0 and $151,689 and respectively for excess, obsolete inventory. The increase in cost of goods sold during the 2010 period reflected the increase in production to fill orders placed by our customer as discussed above in REVENUES.

GROSS PROFIT. Gross profits for the 2010 Period was $8,334,708 compared to $356,792 for the 2009 Period. The gross profit on product sales amounted to $11,177,367 during the 2010 Period compared to $291,431 during the 2009 Period. The overall gross margins for the 2010 Period increased to 41% compared to 16% during the 2009 Period. The increase in the gross margin percentage in the 2010 Period compared to the 2009 Period is a reflection of the maturing of our product set, an enhanced ability to plan production and scale based on increased lead-time and transparency in the forecasting and purchasing process of our customer, and a stable and productive relationship with our contract manufacturer.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses consisted of expenses incurred primarily in designing, developing and field testing our smart grid solutions. These expenses consisted primarily of salaries and related expenses for personnel, contract design and testing services, supplies used and consulting and license fees paid to third parties. Research and development expenses were approximately $6.1 million for the 2010 Period compared to $4.6 million for the 2009 Period. The increase in research and development during the 2010 Period was due primarily to the increase in personnel and consultants for the continued development of our fourth generation communications Node, and the enhancement of our AmbientNMS® system. We believe that our continued development efforts are critical to our strategic objectives of enhancing our technology while reducing cost and therefore we expect that our research and development expenses will increase over the next twelve months as we continue to focus our efforts on developing more robust solutions and additional value-added functionality for the Ambient Smart Grid® communications platforms.

OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES. Operating, general and administrative expenses primarily consisted of salaries and other related costs for personnel in executive and other administrative functions. Other significant costs included professional fees for legal, accounting and other services. General and administrative expenses for the 2010 Period were approximately $4.8 million compared to $4.1 million for the 2009 Period. The increase in operating, general and administrative expenses during the 2010 period as compared to the 2009 period was due to the increase in efforts to market and commercialize the Ambient Smart Grid® communications platforms. As we continue to increase our efforts to market and commercialize the Ambient Smart Grid® communication platforms, over the next twelve months, we expect our operating, general and administrative expenses to increase during that time.

STOCK BASED COMPENSATION. A portion of our operating expenses was attributable to non-cash charges associated with the compensation of consultants and employees through the issuance of stock options and stock grants. Stock-based compensation is non-cash and will therefore have no impact on our cash flows or liquidity. For the 2010 Period, we incurred non-cash stock based compensation expense of $725,343 compared to $967,301 for the 2009 Period.

INTEREST AND FINANCE EXPENSES. For the 2010 Period, we incurred interest of $31,814 compared to $617,060 for the 2009 Period, respectively. The interest related primarily to our 8% Secured Convertible Promissory Notes, which were issued in July and November of 2007 and January 2008. Additionally, for the 2010 Period and 2009 Period, we incurred non-cash interest of $183,609 and $4,375,767, respectively. This interest related to the amortization of the beneficial conversion features and deferred financing costs incurred in connection with the placement of our convertible promissory notes. These costs are amortized to the date of maturity of the debt unless converted earlier. In January 2010, Vicis converted the remaining $10 million outstanding on the notes. Following the conversion of the notes, we no longer had any long-term debt. In addition, on June 30, 2009, we agreed to modify the terms of the expiring Class A warrants. Under the new terms, the warrants were exercisable through August 31, 2009 and the exercise prices were reduced from $0.20 to $0.15 per share. The resulting charge due to the modification was $1,147,167 and was reflected as additional interest expense.

LIQUIDITY AND CAPITAL RESOURCES

While we have, since inception, funded operations primarily through the sale of our securities, most recently the revenues generated from purchase orders received from our marquee customer have been applied to meet our operating requirement. In addition, the $5 million proceeds from the investment in December 2010 by our majority stockholder formerly on deposit in the escrow account established for our benefit strengthened our cash position. Management believes that cash on hand plus anticipated revenue from purchase orders received from our marquee customer will allow us to meet our operating requirements for fiscal year 2011. However, we may need to raise additional funds to expand existing commercial deployments, support strategic acquisitions and/ or joint venture opportunities, and/or to satisfy any additional significant purchase order that it may receive. At the present time, the Company does not have any commitments for additional funding.

Cash balances totaled $6,986,881 at December 31, 2010 and $987,010 at December 31, 2009. As of February 21, 2011, we have approximately $7,494,525 cash on hand.

Net cash used in operating activities during the year ended December 31, 2010 was approximately $1.7 million and was used primarily to pay ongoing research and development and operating, general and administrative expenses.

Net cash used in investing activities during the year ended December 31, 2010 was approximately $410,805 and was for additions to property and equipment.

Net cash provided by financing activities during the year ended December 31, 2010 was approximately $8,118,934, and represented the issuance of common stock, exercise of warrants and options and the payments on capitalized lease obligations.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

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

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

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

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

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

INVENTORY VALUATION. Inventory is valued at the lower of cost or market determined on the first-in, first-out (FIFO) basis. Market, with respect to direct materials, is replacement cost and is net realizable value for work-in-process and finished goods. The value of the inventory is adjusted for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.

SOFTWARE DEVELOPMENT COSTS. Costs incurred in the research and development of new software products and enhancements to existing software products have historically been expensed as incurred. After technological feasibility is established, additional development costs are capitalized. No software development costs have been capitalized as of December 31, 2010 and 2009.

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

DEFERRED INCOME TAXES. Deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. At December 31, 2010, our deferred income tax assets consisted primarily of net operating loss carry forwards and stock based compensation charges which have been fully offset with a valuation allowance due to the uncertainty that a tax benefit will be realized from the assets in the future.

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

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

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) ratified Accounting Statement Update 2009-13 (ASU), “Revenue Recognition-Milestone Method (Topic 605): Multiple-Deliverable Revenue Arrangements,” which eliminates the residual method of allocation, and instead requires companies to use the relative selling price method when allocating revenue in a multiple deliverable arrangement. When applying the relative selling price method, the selling price for each deliverable shall be determined using vendor specific objective evidence of selling price, if it exists, and otherwise using third-party evidence of selling price. If neither vendor specific objective evidence nor third-party evidence of selling price exists for a deliverable, companies shall use their best estimate of the selling price for that deliverable when applying the relative selling price method. ASU 2009-13 shall be effective in fiscal years beginning on or after June 15, 2010, with earlier application permitted. Companies may elect to adopt this guidance prospectively for all revenue arrangements entered into or materially modified after the date of adoption, or retrospectively for all periods presented. The Company will adopt this standard effective January 1, 2011. The Company does not expect the provisions of ASU 2010-13 to have a material effect on the financial position, results of operations or cash flows of the Company.

In April 2010, the FASB issued ASU 2010-17 (ASU 2010-17), “Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition.” The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. The Company will adopt this standard effective January 1, 2011. The Company does not expect the provisions of ASU 2010-17 to have a material effect on the financial position, results of operations or cash flows of the Company.

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

OFF-BALANCE SHEET ARRANGEMENTS

None.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

	Payments Due By Period
Contractual Obligations	Total		Less Than 1 Year		1 – 3 Years		3 – 5 Years		More Than 5 years
Short -Term Debt Obligations	$	0	$	0	$	0	$	0	$	0
Capital Lease Obligations		10,842		10,842		0		0		0
Operating Lease Obligations		793,724		389,885		403,839		0		0
Purchase Obligations		0		0		0		0		0
Other Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under GAAP		0		0		0		0		0
Total	$	804,566	$	400,727	$	403,839	$	0	$	0

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

Not applicable

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including our President and Chief Executive Officer (who also serves as our principal executive officer and principal financial and accounting officer) to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e).

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with participation of management, including our President and Chief Executive Officer (who also serves as our principal executive officer and principal financial and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our President and Chief Executive Officer concluded that our disclosure controls and procedures were effective.

MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Our management, including our principal executive officer who also serves as our principal financial and accounting officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on his evaluation under the framework in Internal Control - Integrated Framework , our management concluded that our internal control over financial reporting was effective as of December 31, 2010.

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

During the year ended December 31, 2010, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, out internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE