Summary of AMBIENT CORP /NY

MANAGEMENT'S 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 THERETO. 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 CONTAINED HEREIN AND THE RISK FACTORS SECTION OF OUR ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2007 ON FORM 10-KSB.

OVERVIEW

Ambient Corporation ("Ambient", the "Company" "we" or "us") is engaged in the design, development, commercialization, and marketing of Ambient Smart Grid™ communications equipment, technologies, and services. Ambient Smart Grid™ communications technology enables power line infrastructure landlords (electric utilities and property owners) to use their existing medium and low voltage distribution assets for the delivery of high-speed IP-based services. Ambient's goal is to become a leading designer, developer and systems integrator of turn-key Ambient Smart Grid ™ communication platforms, taking responsibility for network design, hardware delivery, installation support, operator training and network management of the utilities next generation digital distribution grid. We intend to generate revenues from these designs, sales, installations, and support of the Ambient Smart Grid™ networks, as well as from the licensing of our network management system. Ambient has played a principal role in driving industry standardization efforts through leadership roles in industry associations and standards setting organizations and has maintained strategic relationships with suppliers of critical communication components thus securing Ambient's access to manufacturing scalability.

We are currently conducting pilot demonstrations and deployments with major electric utilities, developing, demonstrating, and delivering Ambient Smart Grid™ utility applications. We continue to develop and extend our network design expertise, our hardware and software technology, and our deployment and network management capabilities, with the goal of generating revenues from all phases of Ambient Smart Grid™ communications network deployments.

We were incorporated under the laws of the state of Delaware in June 1996. To date, we have funded operations primarily through the sale of our securities, and we anticipate we will have to continue to do so for the foreseeable future. Further, we anticipate that we will continue to incur significant operating costs and losses in connection with the continued development and upgrade, marketing, and deployment of our products, technology, and services.

As of November 2008, we held 21 patents, primarily relating to Power Line Communications ("PLC") and its applications. We have several other patent applications either allowed, pending, or under review by the USPTO and have also applied for corresponding patents in key markets worldwide. We plan to continue to expand our patent portfolio and, when necessary, aggressively protect our proprietary technologies. We have taken steps to ensure the protection of our internally developed intellectual property (IP) and to enhance our position of strength and leadership within the smart grid industry. 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. Ambient's communications node has been certified as fully compliant with current FCC rules including requirements for Access PLC equipment. Ambient participates in key PLC industry associations, and Ambient's technical personnel currently chair key Institute of Electrical and Electronics Engineers ("IEEE") BPL safety and standardization committees.

During 2008, Ambient continues its evolution, expanding our value proposition for our marquee and other potential customer. Dating back to 2000, Ambient has been focused on building communication platforms for utility applications over the existing power line infrastructure, using proprietary PLC technology based upon DS2's chipset. Since our initial PLC offering in 2000, Ambient has evolved considerably to remain at the forefront of utility applications communication infrastructure, or smart grid communications. In 2004, we upgraded to a 200 Mbps chipset that allowed for a stronger and faster communications network that supported more advanced utility applications. In 2005, we leveraged the advantages of using multiple communications technologies to begin the integration of wireless communications in our nodes. During 2007, Ambient integrated voltage sensing and current sensing into our product offerings allowing all nodes the capability to give power quality data back to the utility.

Due to the natural evolution of Ambient's smart grid solution, our nodes presently use a wide range of technologies including but not limited to PLC, Wi-Fi and cellular to deliver a smart grid communications network overlaid upon the existing distribution network for utility applications. During 2008, Ambient has continued to focus on our core business of designing, developing and commercializing our smart grid platform, equipment, technologies, and services. In April 2008, Ambient received a purchase order with a maximum value of up to $11 million, which included the licensing of AmbientNMS and engineering support in building out an intelligent grid/intelligent-metering platform. Management believes that the Company will fulfill the purchase order by the end of November 2008.

Aided by our strategic relationships, we plan to continue development of the next generation of smart grid communications equipment and technology, including our network management system, AmbientNMS™. Through our development we continue to protect our intellectual property by expanding our patent portfolio, and, when necessary, aggressively protecting our proprietary technologies. We intend to continue to drive industry standardization efforts through such industry associations as the Universal Powerline Association, the United Power Line Council, the Utilities Telecom Council, Utilmetrics, and the GridWise Alliance and standards setting organizations such as the Institute of Electrical and Electronics Engineers.

We intend to actively seek new opportunities for commercial deployments and work to bring new and existing networks to full commercialization. In 2008, our principal target customers will continue to be electric utilities in North America and elsewhere that will be deploying smart grid technology. We will work with our utility customers to drive the development of new utility and consumer applications that create the need for Ambient Smart Grid™ networks.

As of September 30, 2008, we had an accumulated deficit of approximately $121.6 million (which includes approximately $69.3 million in stock-based charges and other non-cash charges).

RESULTS OF OPERATIONS

COMPARISON OF THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2008 TO THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2007

REVENUES. Revenues for the nine and three months ended September 30, 2008 were $4,450,099 and $3,639,234 respectively. Revenues for the corresponding periods in 2007 were $1,969,514 and $33,330 respectively. Revenues for the 2008 period were attributable to the sale of equipment and software, related network design, and installation services relating to our most recent purchase order. Revenues for the 2007 period were attributable to the sale of equipment, software, related network design, and installation services that we provided in connection with a purchase order that we received in September 2006. Revenues for the nine and three months ended September 30, 2008 related to the sales of equipment totaled $4,450,099 and $3,639,234 respectively as compared to $1,883,612 and $32,130 for the corresponding periods in 2007.

COST OF GOODS SOLD AND GROSS PROFIT. Cost of goods sold for the nine and three months ended September 30, 2008 were $3,781,648 and $2,833,148, respectively, compared to $1,493,110 and $80,881 during the corresponding periods in 2007. During the nine and three months ended September 30, 2008 cost of goods sold included an inventory reserve of $314,810 and $27,989 for excess, obsolete, and surplus inventory resulting from the transition from first to second generation technology. For the nine months ended September 30, 2008, we realized a gross profit of $668,451 compared to a gross profit of $476,404 for the corresponding nine month period in 2007 and for the three months ended September 30, 2008 we realized a gross profit of $806,086 compared to a gross loss of $47,551 for the corresponding three month periods in 2007. The increases in gross profit for the nine and three months ended September 30, 2008 was attributable to the accelerated efforts to introduce and commercialize our Ambient Smart Grid™ communications platforms while we began fulfilling our most recent purchase order.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses consisted primarily of expenses incurred 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 for the nine and three months ended September 30, 2008 were $2,955,595 and $1,169,528, respectively, compared to $2,690,960 and $913,356 during the corresponding periods in 2007.

GENERAL AND ADMINISTRATIVE EXPENSES. 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 nine and three months ended September 30, 2008 were $2,548,045 and $850,734, respectively, compared to $2,912,665 and $918,465 for the corresponding periods in 2007. The decrease in general and administrative expense for the nine and three months ended September 30, 2008 was primarily attributable to a decrease in professional fees incurred. We expect that our general and administrative expenses will increase over the next twelve months as we fulfill the purchase order that we received in April 2008 and as we intensify our efforts to market and commercialize our Ambient Smart Grid™ communication platforms.

OTHER OPERATING EXPENSES. 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 a non-cash expense and will therefore have no impact on our cash flows or liquidity. For the nine and three months ended September 30, 2008, we incurred non-cash stock-based compensation expense of $311,150 and $11,551, respectively, compared to $204,495 and $68,165 for the corresponding periods in 2007.

OTHER OPERATING INCOME. For the nine months ended September 30, 2008, other operating income totaled $0 compared to $179,755 for the corresponding period in 2007. There was no operating income for either of the three months periods in 2008 and 2007. Other income for the first nine months of 2007 was attributable to grant monies received from Consolidated Edison in order to compensate the Company for equipment costs that were incurred in performing the Advanced Grid Management Pilot Phase with NYSERDA.

NON-CASH EXPENSES. For the nine and three months ended September 30, 2008, we incurred non-cash expenses, excluding stock-based compensation to employees and consultants, of $1,308,136 and $524,573, respectively, compared to $5,837,143 and $3,165,491 for the corresponding periods in 2007. These non-cash expenses related to the amortization of the beneficial conversion feature and deferred financing costs incurred in connection with the placement of our convertible debentures and notes. These costs are amortized to the date of maturity of the debt unless converted earlier.

INTEREST EXPENSE. For the nine and three months ended September 30, 2008, we incurred interest expense of $505,922 and $167,086, respectively, compared to $924,106 and $658,903 for the corresponding periods in 2007. The interest related primarily to our Senior Secured 8% Convertible Debentures, which were issued in July 2007 through January 2008 and our 8% Convertible Debentures, which were issued in May 2006. In January 2008, the 8% Convertible Debentures were repaid in their entirety.

LIQUIDITY AND CAPITAL RESOURCES

Cash balances totaled $855,365 at September 30, 2008 and $546,125 at December 31, 2007.

Net cash used in operating activities for the nine months ended September 30, 2008 was $4,765,786 and was used primarily to pay ongoing research and development and general and administrative expenses. We maintain an inventory of our products to facilitate the expansion of our ongoing pilot projects and deployments. Our inventory was valued at $271,230 as of September 30, 2008.

Net cash used in investing activities totaled $276,474 during the nine months ended September 30, 2008 from the purchase of marketable securities, offset by the sale of marketable securities, and additions to property and equipment. Net cash from financing activities totaled $5,351,500 during the nine month ended September 30, 2008. We received proceeds of $2,500,000 from the issuance of our Secured Convertible Promissory Notes and repaid $103,500 of notes that became due. We also received net proceeds of $2,955,000 from the issuance of warrants in April 2008.

From inception through September 30, 2008, we have funded our operations primarily through the issuance of our securities.

In July 2007, we raised gross proceeds of $7,500,000 from the private placement of our three year 8% Secured Convertible Promissory Note (the "July 2007 Note") to the investor that advanced to us a short-term loan in June 2007. At closing, we received net proceeds of approximately $2.8 million after closing costs and repayment of the short term loan. The investor in this private placement has a lien on substantially all of our assets. The July 2007 Note was originally convertible into shares of our Common Stock at any time at a per share conversion rate of $0.075. In November 2007, we raised additional net proceeds of $2,500,000 from this investor upon its purchase of a three year Secured Convertible Promissory Note (the "November 2007 Note") that is in all material respects identical to the July 2007 Note except that the November 2007 Note is scheduled to mature in November 2010 and the per share conversion rate was set at $0.045. Upon the consummation of the November 2007 financing, the conversion rate of the July 2007 Note was adjusted to $0.045 per share. In January 2008, we raised additional gross proceeds of $2,500,000 from this investor upon its purchase of a three year Secured Convertible Promissory Note that is in all material respects identical to the July 2007 Note except that the January 2008 Note is scheduled to mature in January 2011 and the per share conversion rate was set at $0.035. Following the funding, the conversion price of the July 2007 Note and the November 2007 Note was adjusted to $0.035.

On April 23, 2008, we raised from the investor referred to in the preceding paragraph $3,000,000 from the issuance of warrants (the "April 2008 Warrants"), exercisable through April 2013, to purchase up to 135,000,000 shares of our Common Stock at a per share exercise price of $0.001. In connection with the issuance of the April 2008 Warrants, the per share exercise price of the warrants previously issued to such investor in connection with the placement of the July 2007 Note, the November 2007 Note and the January 2008 Note has been re-set to $0.001 (from $0.035). The number of warrant shares has not been adjusted. The conversion price of the notes has not been reset and such notes remain convertible at a per Common Stock share price of $0.035. Unlike the previous financings, this current financing with the investor did not include any debt component.

We will require additional funds to execute our business plan and to realize our long range growth objectives. Management is seeking to raise the necessary capital through debt or equity issuances to both strategic and institutional investors. At the present time, we have no commitments for any additional funding and no assurance can be provided that we will be able to raise the needed capital on commercially reasonable terms. Our auditors included a "going concern" qualification in their auditors' report for the year ended December 31, 2007. Such a "going concern" qualification may make it more difficult for us to raise funds when needed. In addition, any financing can be expected to result in significant dilution.

ITEM 4T.

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, 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.

We routinely review the Company's internal control over financial reporting and from time to time make changes intended to enhance the effectiveness of our internal control over financial reporting. There was no change in internal control over the financial reporting that materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, subsequent to the evaluation described above.

Reference is made to the Certification of our President and Chief Executive Officer about these and other matters filed as an exhibit to this report.