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, 2008 ON FORM 10-K.

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 over existing medium and low-voltage distribution grids, thereby enabling smart grid applications. The Ambient smart grid platform, known as Ambient Smart Grid™, facilitates a two-way, real-time communications network to serve the "last mile" backhaul necessary for utilities to implement smart grid applications such as Advanced Metering Infrastructures (AMI), real-time pricing, Demand Side Management (DSM), Distribution Monitoring and Automation, and direct load control and more. When combined, these applications can offer economic, operational and environmental benefits for utilities, and ultimately utility customers.

We are currently conducting 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. In 2008, Ambient received purchase orders from a major US investor owned utility to purchase its X2000 and X-3000 communications nodes, license it's AmbientNMS™, and acquire engineering support in building out an intelligent grid/intelligent-metering platform. These purchase orders have generated revenues of approximately $12.6 million for the year ended December 31, 2008 and $857,183 for the six month period ended June 30, 2009.

We intend to actively seek new opportunities for commercial deployments and work to bring new and existing networks to full commercialization. In 2009, our principal target customers will continue to be electric utilities in North America that will be deploying smart grid technologies. We will work with our utility customers to drive the development of new utility and consumer applications that create the need for our Ambient Smart Grid™ platform.

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. In addition, we will likely need to raise funds in order to expand existing commercial deployments and otherwise grow our operations to meet the demands associated with any additional significant purchase order, or from any substantial expansion of existing commercial deployments.

Ambient has played a principal role in driving industry standardization efforts through leadership roles in industry associations and standards setting organizations, and continues to expand strategic relationships with leading suppliers of critical smart grid technologies. Our goal is to be the leading designer, developer and systems integrator of turn-key Ambient Smart Grid ™ communications networks, incorporating a wide array of communications protocols and smart grid applications such as advanced metering solutions to complement our internally developed energy sensing capabilities.

RESULTS OF OPERATIONS

COMPARISON OF THE SIX AND THREE MONTHS ENDED JUNE 30, 2009 TO THE SIX AND THREE MONTHS ENDED JUNE 30, 2008

REVENUE. Revenues for the six and three months ended June 30, 2009 were $857,183 and $30,590 respectively. Revenues for the corresponding periods in 2008 were $810,865 and $747,223, respectively. Revenues for the 2009 period were attributable to the sales of equipment and software to Duke Energy. Revenues for the 2008 period were attributable to the sales of equipment to Duke Energy. Revenues for the six and three months ended June 30, 2009 related to the sales of equipment totaled $823,253 and $30,590, respectively, as compared to $810,865 and $747,223 for the corresponding periods in 2008.

COST OF GOODS SOLD. Cost of goods sold for the six and three months ended June 30, 2009 were $756,854 and $25,618, respectively, compared to $948,500 and $605,630 during the corresponding periods in 2008. Cost of goods sold included all costs related to manufacturing and selling products and services and consisted primarily of direct material costs. Cost of goods sold for the 2008 period included expenses related to the write down of inventory to the lower of cost or market.

GROSS PROFIT. Gross profit for the six and three months ended June 30, 2009 were $100,329 and $4,972, compared to a loss of $137,635 and a gain of $141,593 for the corresponding periods in 2008.

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 for the six and three months ended June 30, 2009 were $2,017,105 and $1,015,396, respectively, compared to $1,786,067 and $926,822 during the corresponding periods in 2008.

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 six and three months ended June 30, 2009 were $2,136,900 and $1,071,316, respectively, compared to $1,697,311 and $951,754 for the corresponding periods in 2008. The increase in general and administrative expenses is due to the increase efforts to market and commercialize our Ambient Smart Grid™ communication platforms.

STOCK BASED COMPENSATION. A portion of our operating expenses were 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 six and three months ended June 30, 2009, we incurred non-cash stock-based compensation expense of $471,062 and $248,388, respectively, compared to $299,599 and $184,731 for the corresponding periods in 2008.

INTEREST AND FINANCE EXPENSES. For the six and three months ended June 30, 2009, we incurred interest of $333,334 and $166,667, respectively, compared to $338,129 and $166,667 for the corresponding periods in 2008. 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 and were retired in their entirety as of January 2, 2008. Additionally, for the six and three months ended June 30, 2009, we incurred non-cash interest of $3,413,919 and $1,716,390, respectively, compared to $783,563 and $424,956 for the corresponding periods in 2008. This interest related to the amortization of the beneficial conversion features and deferred financing costs was 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. In addition, on June 30, 2009, we agreed to modify the terms of the expiring Class A warrants. Under the new terms the warrants are exercisable thought 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 is reflected as additional interest expense.

LIQUIDITY AND CAPITAL RESOURCES

Cash balances totaled $4,877,075 at June 30, 2009 and $8,011,764 at December 31, 2008.

Net cash used in operating activities for the six months ended June 30, 2009 was $3,167,279 and was used primarily to pay ongoing research and development and general and administrative expenses.

Net cash provided by investing activities totaled $29,181 during the six months ended June 30, 2009 and was for the redemption of marketable securities of $125,000, net of purchases and sale of property and equipment of $95,819.

Net cash provided by financing activities totaled $3,409 during the six months ended June 30, 2009 and represents the exercise of options and the payments on capitalized lease obligations.

A discussion of our recent financings follows.

In July 2007, November 2007 and January 2008, the Company entered into Securities Purchase Agreements with an institutional investor, Vicis Capital Master Fund ("Vicis"), and raised gross proceeds of $12.5 million. The notes (the "Vicis Notes") issued under the Securities Purchase Agreements have a term of three years are payable between July 2010 and January 2011. The outstanding principal amounts of the notes were convertible at the option of Vicis into shares of Common Stock at an original conversion price of $0.035 per share, subject to certain adjustments. As discussed below, in November 2008, the conversion rate was reduced to the current rate of $0.015 per shares, subject to certain adjustments. On August 10, 2009, Vicis Converted $2.5 million of the Vicis notes into 166,666,667 shares of our common stock (See ITEM 5(i)).

On April 23, 2008, we raised from Vicis $3,000,000 from the issuance of 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. On November 21, 2008, we and Vicis entered into a Debenture Amendment Agreement (the "Debenture Amendment Agreement"), pursuant to which Vicis invested in the Company an additional $8,000,000. In consideration of Vicis' investment, we reduced the conversion price on the Vicis Notes from $0.035 per share to $0.015 per share. The parties also agreed under the Debenture Amendment Agreement that, in the event that on the trading day immediately preceding June 1, 2009, the closing per share price of our common stock is less than $0.10, then the per share conversion price with respect to any amount then outstanding under the Notes would automatically be further adjusted to $0.01. The price of the Common Stock was greater than $0.10 on the trading day immediately preceding June 1, 2009 and therefore no adjustment was made.

On June 30, 2009, the Company extended the terms of the expiring Class A warrants (See note 8 of the consolidated financial Statements). For the period July 1, 2009 to August 13, 2009, the Company received gross proceeds of $142,500 for the exercise of 950,000 class A warrants.

Management believes that cash on hand, plus anticipated short term revenues, will allow us to meet our operating requirements for the balance of the 2009 fiscal year. However, we will likely need to raise funds in order to expand existing commercial deployments and/or satisfy any additional significant purchase order that we may receive. At the present time, we have no commitments for any additional funding that may be needed.

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 (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.

During the quarter ended June 30, 2009, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.