Ambient Corp. 10-KSB ANNUAL REPORT: company shows BPL progress and status

Ambient Reflects on Progress of 2005 and Opportunities in 2006
$725,000 in Revenue Recorded in First Quarter of 2006

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PILOTS, DEPLOYMENTS, AND OTHER COLLABORATIVE ARRANGEMENTS

We are is currently conducting field trials and pilot demonstrations that are evaluating the components and technologies that compose our BPL Solutions. Since 2002 we have had a Research and Development Agreement with Consolidated Edison Company of New York Inc. ("Con Edison"), a leading utility service provider and our principle collaborative partner. Under this agreement we have sole rights to any jointly developed BPL technology, and we are jointly operating several BPL pilot, trial, and demonstration networks on Con Edison's electric distribution system. EarthLink, Inc.("EarthLink"), a leading ISP, has agreed to participate in and support our trials with Con Edison. We are also conducting limited field trials and joint cooperative efforts with several other electric utilities. In addition we are working with leading BPL technology companies, such as Design of Systems on Silicon ("DS2")and Toyo Network Systems("TNS"), to further develop, deploy, and commercialize our BPL technology.

o A UTILITY APPLICATIONS BPL PILOT NETWORK IN PEARL RIVER, NEW YORK. In early 2004, we installed a BPL network that spans approximately one and one half miles at Orange and Rockland Utilities, Inc., a Con Edison subsidiary headquartered in Pearl River, New York. This network is used to demonstrate substation monitoring to an energy control center facility and can be used for other potential core utility applications.

o AN INDUSTRIAL APPLICATIONS BPL PILOT NETWORK IN MANHATTAN, NEW YORK CITY. In 2004, we installed a BPL network in Con Edison's First Avenue steam tunnel in Manhattan in New York City. Con Edison uses the network to monitor environmental conditions and the state of the steam main and to provide telephony service in the tunnel using Voice over Internet Protocol (VoIP) technology. This single BPL network provides a variety of services that would have otherwise required multiple technologies and wiring systems.

o A CONSUMER ORIENTED AND UTILITY APPLICATION BPL PILOT DEMONSTRATION NETWORK IN WESTCHESTER COUNTY, NEW YORK. In 2002, Ambient and Con Edison deployed a BPL network in the Village of Briarcliff Manor, New York, a suburb located north of New York City. This network spans a distance of approximately one mile and has achieved speed from 10 to 16 Mbps over the medium voltage lines and 3.5 to 7 Mbps delivered to consumers. The initial pilot now passes over 700 residences, and currently provides consumer broadband Internet access to pilot participants and allows for video monitoring of a local intersection.

o PILOT PHASE OF AN ADVANCED GRID MANAGEMENT TRIAL. Since 2004, Ambient and Con Edison have been conducting phased development trials of utility service and management applications, and have successfully completed a small field trial phase. On January 27, 2006, Con Edison and Ambient entered into an agreement with NYSERDA (the New York State Energy Research and Development Authority) (the "NYSERDA Agreement") pursuant to which they undertook to conduct medium and low voltage electric systems monitoring activities to detect incipient or impending failures and related activities, for which Con Edison was awarded a $200,000 grant from NYSERDA. The NYSERDA Agreement necessitated an amendment to the Research and Development Agreement to modify the implementation plan contained therein to encompass the objectives of the NYSERDA Agreement. In the amendment, Con Edison and Ambient certified the completion of the Small Field Trial Phase, agreed that the $325,000 advance owing from Ambient to Con Edison was subsumed into the revenue royalty granted to Con Edison in the Research and Development Agreement, and agreed to move forward to an Advanced Grid Management Pilot Phase that encompassed the statement of work contained in the NYSERDA Agreement. Additionally, in the amendment, Con Edison committed to remit to Ambient not less than $180,000 of the grant monies received from NYSERDA to compensate Ambient for its equipment and other costs to be incurred in performing the Advanced Grid Management Pilot Phase. NYSERDA is a public benefit corporation created by the New York State Legislature to administer the State's energy program.

The $325,000 advance will be recorded as revenue by Ambient during the first quarter of 2006.

o A CONSUMER ORIENTED MULTIPLE DWELLING UNIT BPL NETWORK IN MANHATTAN, NEW YORK CITY. In March 2005, we installed and activated a pilot Multiple Dwelling Unit (MDU) BPL network in a 16 floor, 213 unit condominium building located on Manhattan's upper west side. This network initially offered consumer high-speed Internet service. In October 2005 we deployed EarthLink's next generation Voice over Internet Protocol (VoIP) service, trueVoice(TM). Video surveillance, intercom services, cached video-on-demand capability, and remote load management and control applications are currently in development.

o BPL NETWORK PILOT WITH SAN DIEGO GAS & ELECTRIC COMPANY. In July 2005, we undertook a pilot demonstration with San Diego Gas & Electric Company (SDG&E) to install a BPL-network on the SDG&E grid. This pilot will allow SDG&E to evaluate several consumer and utility based applications including BPL-enabled meter reading, and demonstrate how our solution may help to fulfill the California Advanced Metering Initiative (AMI). SDG&E has also licensed our new Network Management System (NMS) to monitor and manage the BPL network. This pilot was showcased at the United Power Line Council (UPLC) conference in February 2006.

o BPL NETWORK PILOT IN THE SOUTHEASTERN UNITED STATES. After successful completion of a proof of concept phase, in January 2006 we entered into a pilot demonstration agreement with a large investor-owned utility in the southeastern United States.

The pilot, which will service approximately 700 homes, is being designed to encompass a comprehensive, end-to-end solution for high-speed transmission and reception of data and voice services via electric power lines for both broadband carrier and core utility applications/services. Included in the pilot is a demonstration of the Company's ability to simultaneously support utility applications as well as provide an infrastructure for the utility to offer its electricity customers a choice of multiple ISPs over the same power lines. The network will be monitored and managed by the Company Network Management System, a proprietary software management system. The pilot is expected to continue for approximately 8 weeks, at the conclusion of which the parties will separately evaluate the results of the pilot and the feasibility of commencing an initial commercial build out and deployment of the Company BPL Solutions to approximately 10,000 homes on the utility's electrical power distribution system (the "Phase 1 Deployment").

The pilot demonstration agreement contemplates that the Company will enter into negotiations with the utility regarding an agreement respecting the Phase 1 Deployment with the goal of completing this agreement on or about the time of the expected completion of the pilot. No assurance can be given, however, that the company will in fact agree with the utility on the feasibility of proceeding to Phase I Deployment or consummate an agreement respecting Phase I Deployment on mutually acceptable terms.

In January and February of 2006, revenue from the pilot program amounted to approximately $400,000.

No assurance can be given that we will agree with the utility on the feasibility of proceeding to Phase I Deployment or consummate an agreement respecting Phase I Deployment on mutually acceptable terms.

o LICENSING AGREEMENT WITH DESIGN OF SYSTEMS ON SILICON. In 2001, we entered into an initial licensing agreement with Design of Systems on Silicon S.A. (DS2), the world leader in the development of BPL chipset products, to incorporate DS2's chipsets and software into our BPL

Solution. In January 2004, we entered into a new agreement that strengthens and builds upon this relationship. We are now working with DS2 to further develop its technology and are integrating DS2's next-generation 200 Mbps chipsets, which feature 10 to 40 times faster performance than other broadband technologies, integrated support for Quality and Class of Service (QoS and CoS) for latency-sensitive and bandwidth-intensive services such as delivery of multiple streams of video content (HDTV and SDTV), and support for new interoperability standards.

o ALLIANCE AND DISTRIBUTION AGREEMENT WITH TOYO NETWORK SYSTEMS CO., LTD.:
In February 2005, we entered into an alliance and distribution agreement with Toyo Network Systems ("TNS") of Japan formerly known as Toyo Communication Equipment Co. Ltd. TNS is a subsidiary of NEC. This agreement is intended to lead to our collaboration with TNS in the commercialization of our respective BPL technologies. TNS has been a licensee of DS2 technologies since 2002, and its equipment and technologies have been deployed in large-scale BPL pilots in Spain and Portugal.

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