<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

MARK ONE

[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the Quarterly Period ended September 30, 2005; or

[ ]  Transition Report Pursuant to 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 small business issuer as specified in its charter)

<TABLE>
<S>                                         <C>
            Delaware                                     98-0166007
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)
</TABLE>

                 79 CHAPEL STREET, NEWTON, MASSACHUSETTS, 02458
          (Address of principal executive offices, including zip code)

                                  617- 332-0004
                (Issuer's telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [X] No [ ]

Indicate by a check mark whether the registrant is a shell company (as defined
in Rule 1b-2 of the Exchange Act). Yes [ ] No [X].

As of November 14, 2005, Ambient Corporation had outstanding 163,916,002 shares
of common stock, par value $.001 per share.

Transitional Small Business Disclosure Format (Check one) Yes [ ] No [X]

<PAGE>

                                   INDEX PAGE

                         PART I -- FINANCIAL INFORMATION

<TABLE>
<S>                                                                         <C>
Forward Looking Statements                                                  (ii)

Item 1 - Financial Statements*

         Consolidated Balance Sheet September 30, 2005 (Unaudited) and
            December 31, 2004                                                 1

         Unaudited Consolidated Statements of Operations for the nine and
            three months ended September 30, 2005 and 2004                    2

         Unaudited Consolidated Statements of Cash Flows for the nine and
            three months ended September 30, 2005 and 2004                    3

         Notes to Consolidated Financial Statements                           5

Item 2 - Plan of Operation                                                    8

Item 3 - Controls and Procedures                                             12

                          PART II -- OTHER INFORMATION

Item 1 - Legal Proceedings                                                   13

Item 2 - Changes in Securities and Use of Proceeds                           13

Item 3 - Defaults upon Senior Securities                                     13

Item 4 - Submission of Matters to a Vote of Security Holders                 13

Item 5 - Other Information                                                   13

Item 6 - Exhibits and Reports on Form 8-K                                    13

SIGNATURES
</TABLE>

*    The Balance Sheet at December 31, 2004 has been derived from audited
     financial statements at that date but does not include all of the
     information and footnotes required by generally accepted accounting
     principles for complete financial statements. All other financial
     statements are unaudited.

<PAGE>

                           FORWARD LOOKING STATEMENTS

The following discussion and explanations should be read in conjunction with the
financial statements and related notes contained elsewhere in this quarterly
report on Form 10-QSB. Certain statements made in this discussion are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements can be identified by
terminology such as "may", "will", "should", "expects", "intends",
"anticipates", "believes", "estimates", "predicts", or "continue" or the
negative of these terms or other comparable terminology and include, without
limitation, statements below regarding: the Company's intended business plans;
expectations as to product performance; intentions to acquire or develop other
technologies; and belief as to the sufficiency of cash reserves. Because
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements. These factors include,
but are not limited to, the competitive environment generally and in the
Company's specific market areas; changes in technology; the availability of and
the terms of financing, inflation, changes in costs and availability of goods
and services, economic conditions in general and in the Company's specific
market areas, demographic changes, changes in federal, state and /or local
government law and regulations; changes in operating strategy or development
plans; the ability to attract and retain qualified personnel; and changes in the
Company's acquisitions and capital expenditure plans. Although the Company
believes that expectations reflected in the forward-looking statements are
reasonable, it cannot guarantee future results, performance or achievements.
Moreover, neither the Company nor any other person assumes responsibility for
the accuracy and completeness of these forward-looking statements. The Company
is under no duty to update any forward-looking statements after the date of this
report to conform such statements to actual results.


                                      (ii)

<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                         September 30   December 31,
                                                                             2005           2004
                                                                         ------------   ------------
                                                                         (Unaudited)
<S>                                                                      <C>            <C>
ASSETS
CURRENT ASSETS
   Cash and cash equivalents                                             $  1,831,587   $  6,954,512
   Accounts receivable                                                        147,677         12,487
   Inventory                                                                  644,922        354,497
   Prepaid expenses and other current assets                                   83,301        198,639
                                                                         ------------   ------------
      Total current assets                                                  2,707,487      7,520,135

Property and equipment, net                                                   625,643        343,407
Prepaid licensing fees                                                        257,407        316,808
                                                                         ------------   ------------
      Total assets                                                       $  3,590,537   $  8,180,350
                                                                         ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES
   Accounts payable                                                      $    733,347   $    654,223
   Accrued expenses and other current liabilities                             121,410        242,752
   Advance from stockholder                                                   325,000        325,000
   Deferred revenue                                                            12,501
                                                                         ------------   ------------
      Total current liabilities                                             1,192,258      1,221,975

NON-CURRENT LIABILITIES
   Convertible debentures (net of discount of $846,483 and $5,459,813)        303,517         40,187
                                                                         ------------   ------------
      Total liabilities                                                     1,495,775      1,262,162
                                                                         ------------   ------------

STOCKHOLDERS' EQUITY
   Common stock, $.001 par value;
      300,000,000 shares authorized; 164,918,502 and 146,639,766
      issued; 163,918,502 and 145,639,766 outstanding, respectively           164,918        146,640
   Additional paid-in capital                                              86,552,911     82,031,660
   Deficit accumulated during the development stage                       (84,355,403)   (74,979,445)
   Less: deferred compensation                                                (67,664)       (80,667)
   Less: treasury stock; 1,000,000 shares at cost                            (200,000)      (200,000)
                                                                         ------------   ------------
      Total stockholders' equity                                            2,094,762      6,918,188
                                                                         ------------   ------------
      Total liabilities and stockholders' equity                         $  3,590,537   $  8,180,350
                                                                         ============   ============
</TABLE>

                 See Notes to Consolidated Financial Statements


                                        1

<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                               Nine Months                                   Three months
                                                                  Ended              From Inception             Ended
                                                              September 30,                To                September 30,
                                                       ---------------------------    September 30,   --------------------------
                                                            2005          2004            2005            2005           2004
                                                       ------------   ------------    ------------    ------------   -----------
                                                        (Unaudited)    (Unaudited)     (Unaudited)     (Unaudited)   (Unaudited)
<S>                                                    <C>            <C>             <C>             <C>            <C>
Revenues                                               $    220,595   $               $    343,595    $    208,082   $
Less Cost of goods sold (includes an inventory
   markdown of $151, 278, $-0-, $151,278, $151,278
   and $-0)                                                 352,390                        352,390         339,877
                                                       ------------   ------------    ------------    ------------   ------------
Gross Margin                                              (131,795)                         (8,795)       (131,795)

Expenses
   Research and development (1)                           1,956,861      1,524,394      11,451,527         649,366        649,004
   Less - Participation by the Office of the
      Chief Scientist of the State of Israel                                    --         558,195
                                                       ------------   ------------    ------------    ------------   ------------
                                                          1,956,861      1,524,394      10,893,332         649,366        649,004
Operating, general and administrative expenses (1)        2,637,642      1,574,292      19,345,819         730,384        485,188
Stock based compensation - net                               42,253         62,274      17,567,890          17,427          6,037
                                                       ------------   ------------    ------------    ------------   ------------
Total expenses                                            4,636,756      3,160,960      47,807,041       1,397,177      1,140,229
                                                       ------------   ------------    ------------    ------------   ------------
Operating loss                                           (4,768,551)    (3,160,960)    (47,815,836)     (1,528,972)    (1,140,229)

Interest expense                                            (85,258)       (22,182)       (821,791)        (17,812)         1,056
Amortization of beneficial conversion feature of
   convertible debt                                      (2,274,419)                    (6,389,905)       (160,519)
Amortization of deferred financing costs                 (2,338,911)    (2,504,923)    (13,269,403)       (165,071)
Interest income                                              91,181        100,432         470,265          20,867         16,363
Legal settlement                                                          (121,342)     (1,512,500)
Noncash financing expense                                                               (1,600,000)
Write-off of convertible note receivable                                                  (490,000)
Company's share in net losses of affiliate                                              (1,352,207)
                                                       ------------   ------------    ------------    ------------   ------------
Loss before minority interest and extraordinary
   item                                                  (9,375,958)    (5,649,124)    (72,781,377)     (1,851,507)    (1,122,810)
Minority interest in subsidiary loss                                                        25,000
                                                       ------------   ------------    ------------    ------------   ------------
Loss before extraordinary item                           (9,375,958)    (5,649,124)    (72,756,377)     (1,851,507)    (1,122,810)
Extraordinary item - loss on extinguishment of debt                                     (9,778,167)
                                                       ------------   ------------    ------------    ------------   ------------
Net loss                                                 (9,375,958)    (5,649,124)    (82,534,544)     (1,851,507)    (1,122,810)
Deemed dividends on convertible preferred stock                                         (1,820,859)
                                                       ------------   ------------    ------------    ------------   ------------
Net loss attributable to common stockholders           $ (9,375,958)  $ (5,649,124)   $(84,355,403)   $ (1,851,507)  $ (1,122,810)
                                                       ============   ============    ============    ============   ============
Basic and diluted loss per share:
      Net loss before extraordinary item               $      (0.06)  $      (0.04)                   $      (0.01)  $      (0.01)
      Extraordinary loss from extinguishment of debt
                                                       ------------   ------------                    ------------   ------------
   Net loss                                            $      (0.06)  $      (0.04)                   $      (0.01)  $      (0.01)
                                                       ============   ============                    ============   ============
Weighted average number of shares outstanding           159,890,614    132,065,862                     163,471,202    143,401,170
                                                       ============   ============                    ============   ============
(1) Excludes non-cash, stock based compensation
   expense as follows:
   Research and development, net                       $               $              $  1,454,192    $              $
   Operating, general and administrative, net                42,253         62,274      16,096,271          17,427          6,037
                                                       ------------   ------------    ------------    ------------   ------------
                                                       $     42,253   $     62,274    $ 17,550,463    $     17,427   $      6,037
                                                       ============   ============    ============    ============   ============
</TABLE>

                 See Notes to Consolidated Financial Statements


                                        2

<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                  Nine months          From Inception
                                                                                     Ended                   To
                                                                                 September 30,         September 30,
                                                                           -------------------------   --------------
                                                                               2005          2004           2005
                                                                           -----------   -----------    ------------
                                                                           (Unaudited)   (Unaudited)     (Unaudited)
<S>                                                                        <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                                $(9,375,958)  $(5,649,124)   $(84,362,903)
   Adjustments to reconcile net loss to net cash used in operating
      activities:
      Depreciation and amortization                                            167,024        57,585         723,911
      Amortization of note discount                                          2,338,911     2,504,923      12,624,532
      Beneficial conversion feature of convertible debt                      2,274,419                     6,389,905
      Financing, consulting and other expenses paid via the
         issuance of common stock and warrants                                  86,656       105,208      31,004,292
      Cancellation of officer loans in settlement of employment contract                                     724,447
      Loss on sale of fixed assets                                                                            20,135
      Deemed dividends on convertible preferred stock                                                      1,820,859
      Increase in net liability for severance pay                                                             15,141
      Accrued interest on loans and notes payable                                                            210,016
      Company's share in net losses of affiliates                                                          1,352,207
      Minority interest in subsidiary loss                                                                   (25,000)
      Write-off of convertible note receivable                                                               400,000
      Write-down of long term investment                                                                     835,000
      Write-off of fixed assets                                                                              136,066
      Increase (decrease) in cash attributable to changes in assets
         and liabilities
         Accounts receivables                                                 (135,190)        8,138        (127,152)
         Inventory                                                            (290,425)     (244,962)       (644,922)
         Prepaid expenses and other current assets                             174,739        (7,920)         44,806
         Prepaid licensing fees                                                             (201,608)       (181,808)
         Accounts payable                                                       79,125       121,012       1,009,641
         Accrued expenses and other current liabilities                       (121,342)      (77,335)        272,068
         Deferred revenue                                                       12,501                        20,001
                                                                           -----------   -----------    ------------
Net cash used in operating activities                                       (4,789,540)   (3,384,083)    (27,738,758)
                                                                           -----------   -----------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES
      Loan provided to another company                                                                      (835,000)
      Purchase of convertible promissory note                                                               (400,000)
      Investment in affiliated company                                                                      (375,000)
      Additions to property and equipment                                     (449,260)     (284,219)     (1,546,990)
      Proceeds from disposal of fixed assets                                                                  42,100
      Loans to Officers                                                                                   (2,137,677)
      Repayment of loans to Officer                                                                        1,431,226
                                                                           -----------   -----------    ------------
Net cash used in investing activities                                         (449,260)     (284,219)     (3,821,341)
                                                                           -----------   -----------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES
      Net proceeds from issuance of share capital                              115,875     4,408,174      11,279,128
      Proceeds from loans and advances                                                                       690,000
      Proceeds from issuance of notes payable                                                250,000       1,360,000
      Net proceeds from issuance of convertible debentures                                                18,455,133
      Repayment of notes payable                                                                            (800,000)
      Proceeds of loans from shareholders, net                                                               919,600
      Repayment of loans from shareholders                                                                  (968,000)
      Proceeds from long-term bank credit                                                                     95,969
      Repayment of long-term bank credit                                                                     (87,996)
      Increase (decrease) in short term bank credit                                                          (32,004)
      Public offering of common stock                                                                      3,433,027
      Repayment of short-term debt                                                                          (250,000)
      Proceeds from short-term debt                                                                          274,038
</TABLE>

                 See Notes to Consolidated Financial Statements


                                        3

<PAGE>

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

<TABLE>
<S>                                                                        <C>           <C>           <C>
      Loans to affiliate                                                                                    (977,207)
                                                                           -----------   -----------    ------------
Net cash provided by financing activities                                      115,875     4,658,174      33,391,688
                                                                           -----------   -----------    ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            (5,122,925)      989,872       1,831,587
CASH AND CASH EQUIVALENTS - BEGINNING OF  PERIOD                             6,954,512     2,621,643              --
                                                                           -----------   -----------    ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD                                  $ 1,831,587   $ 3,611,515    $  1,831,587
                                                                           ===========   ===========    ============
Noncash financing and investing activities:
      Issuance of common stock and warrants in respect of accounts
         payable                                                           $             $   150,000
                                                                           ===========   ===========
      Issuance of common stock upon conversion of debentures               $ 4,350,000   $
                                                                           ===========   ===========

Supplemental disclosures of cash flow information:
   Cash paid during the period of:
      Interest Expense                                                     $    31,326
                                                                           ===========
      Income Taxes                                                         $
                                                                           ===========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                        4

<PAGE>

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

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Ambient
Corporation and its subsidiaries (collectively the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with Item 310(b) of Regulation S-B. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine months ended September 30, 2005, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2005. These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and footnotes
thereto included in the Company's Form 10-KSB for the year ended December 31,
2004, as filed with the Securities and Exchange Commission.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is in the development
stage, has a limited operating history and has sustained losses since its
inception. The Company's ability to continue operating as a going concern is
substantially dependent on its ability to generate operating cash flow through
the execution of its business plan or to secure funding sufficient to provide
for working capital needs of its business. There is no assurance that the
Company will generate revenue or raise funds that it needs to realize its
business plan or maintain its operations. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

The Company is aggressively seeking to raise additional capital, and has engaged
an investment banking firm, to assist it, on a best efforts basis, in its
efforts to raise funds. Presently, the Company does not have any indication of
interest from any person and there can be no assurance that additional capital
will be available to the Company on commercially acceptable terms or at all.

NOTE 2 - REVENUE RECOGNITION

We recognize revenue from product sales upon shipment to customers and when all
requirements related to the shipments have occurred. We recognized revenue from
design and installation services at the time services are performed. Revenue
from software licensing is deferred and recognized over the life of the license
agreement.

NOTE 3 - NET LOSS PER SHARE

Basic earnings (loss) per share is computed by dividing net income (loss)
applicable to common shares by the weighted-average of shares of common stock,
par value $0.001 per share (the "Common Stock") outstanding during the period.
Diluted earnings (loss) per share adjusts basic earnings (loss) per share for
the effects of convertible securities, stock options and other potentially
dilutive instruments, only in the periods in which such effect is dilutive. The
following securities have been excluded from the calculation of net loss per
share, as their effect would be antidilutive.

<TABLE>
<CAPTION>
                            2005         2004
                         ----------   ----------
<S>                      <C>          <C>
Stock options            22,498,250   15,970,250
Warrants                 36,733,505   22,872,662
Convertible debentures    4,600,000
</TABLE>


                                        5

<PAGE>

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

NOTE 4 - STOCK BASED COMPENSATION PLANS

The Company accounts for stock-based employee and outside director compensation
under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation" and SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure", which was
released in December 2002 as an amendment of SFAS No. 123.

The following table illustrates the effect on net income and earnings per share
if the fair value based method had been applied to all awards:

<TABLE>
<CAPTION>
                                                     Nine Months Ended           Three Months Ended
                                                       September 30,               September 30,
                                                --------------------------   -------------------------
                                                    2005           2004          2005          2004
                                                ------------   -----------   -----------   -----------
<S>                                             <C>            <C>           <C>           <C>
Net loss, as reported                            ($9,375,958)  ($5,649,124)  ($1,851,507)  ($1,222,810)
Add: Stock based compensation
   expense, as reported                                   --            --            --            --
Deduct: Total stock-based compensation
   expense determined under the fair
   value based method for all awards                (964,886)     (666,408)     (298,985)     (338,208)
                                                ------------   -----------   -----------   -----------
Pro forma net loss                              ($10,340,844)  ($6,315,532)  ($2,150,492)  ($1,561,018)
                                                ============   ===========   ===========   ===========
Basic and diluted loss per share, as reported         ($0.06)       ($0.04)       ($0.01)       ($0.01)
                                                ============   ===========   ===========   ===========
Basic and diluted loss per share, pro forma           ($0.06)       ($0.05)       ($0.01)       ($0.01)
                                                ============   ===========   ===========   ===========
</TABLE>

The weighted average per share fair value of options granted during the nine
months ended September 30, 2005 and 2004 was $.318 and $.186, respectively. The
fair value of each option granted in 2005 and 2004 was estimated using the
Black-Scholes option-pricing model with the following weighted average
assumptions; volatility of 157% and 168%, expected life of options of 7.26 and 8
years, risk free interest rate of 4.18% and 3.65% and a dividend yield of 0% and
0%, respectively.

The FASB issued SFAS 123(R) "Share Based Payment" ("SFAS No. 123(R)") that is
effective for public companies qualifying as SEC small business issuers, as of
the first fiscal year beginning after December 15, 2005. Accordingly, the
adoption of SFAS No. 123(R) requiring the use of the fair value method may have
an impact on our results of operations and overall financial position.


                                        6

<PAGE>

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

NOTE 5 - CASH EQUIVALENTS

Cash and cash equivalents consist of cash and short-term investments with
insignificant interest rate risk and original maturities of 90 days or less.
Cash and cash equivalents are carried at cost, which approximates market value.

NOTE 6 - INVENTORY

Inventory is valued at the lower of cost or market determined on the first-in,
first-out (FIFO) basis. Costs include materials, direct and indirect labor and
overhead. 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. Further, as
the Company is still in development stage, fixed manufacturing costs may produce
negative gross margins. As such, inventories are reviewed for lower of cost or
market valuation.

Inventory consists of the following:

<TABLE>
<CAPTION>
                  September 30, 2005   December 31, 2004
                      (Unaudited)          (Audited)
                  ------------------   -----------------
<S>               <C>                  <C>
Raw materials          $356,865            $159,003
Work in process              --                  --
Finished goods          286,057             195,494
                       --------            --------
                       $644,922            $354,497
                       ========            ========
</TABLE>

NOTE 7 - STOCKHOLDER'S EQUITY

Debenture Conversions

From January through September 30, 2005, $4,350,000 principal amount of the
Company's three year 6% Convertible Debentures issued in December 2004 were
converted into 17.4 million shares of Common Stock. By their terms, the
Debentures are convertible into shares of the Common Stock at a per share
conversion rate of $0.25.

Shares Issued in Lieu of Cash

From January through September 30, 2005, 177,612 shares of common stock were
issued in lieu of cash for $44,403 interest due pursuant to the Company's
convertible debentures.

Option Exercises

From January though September 2005, options for 401,250 shares of common stock
were exercised resulting in gross proceeds to the Company of $80,250.

Warrant Exercises

From January through September 2005, warrants for 296,875 shares of common stock
were exercised resulting in gross proceeds to the Company of $35,625.


                                        7

<PAGE>

ITEM 2. PLAN 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 THE ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31,
2004 ON FORM 10-KSB/A.

OVERVIEW

     Ambient Corporation is engaged in the design, development and marketing of
equipment and technologies designed to utilize existing electrical power medium
voltage and low voltage distribution lines as a medium for the delivery of
broadband and other services (collectively, the "PLC Technologies"). We are
currently working with leading electric utilities and technology companies in
the development and testing of the principal equipment, components and
technologies that comprise our PLC Technologies. Prototypes of these components
and technologies are presently being evaluated and deployed in field trials and
pilot programs.

     We are a development stage company that has generated significant losses
since our inception, and we expect to continue to incur substantial losses for
the foreseeable future. To date, we have devoted substantially all of our
efforts towards research and development activities and initial marketing
efforts. As of September 30, 2005, we had an accumulated deficit of
approximately $84.4 million (which includes approximately $40.6 million in stock
based charges and other non cash charges.) As a development stage company, we
have a limited operating history upon which and evaluation of our prospects can
be made. Ambient's prospects must therefore be evaluated in light of the
problems, expenses, delays and complications associated with a development stage
company.

     We are aggressively pursuing our business plan with respect to product
development and enhancement and field testing, as well as initial marketing
efforts. During fiscal 2004 and the nine month of fiscal 2005, we have
significantly increased our in-house personnel, primarily in product development
and testing, expanded the scope of our pilots with the participation of
Consolidated Edison of New York and EarthLink, Inc. and entered into
collaborative arrangements with leading companies engaged in the PLC field. As
of September 30, 2005, we had 33 employees.

     Subject to raising additional capital, we intend to continue over the next
twelve months to increase commercialization efforts, including increasing our
research and development and sales and marketing efforts, expanding the number
and scope of our pilots and building appropriate inventory levels.

MANAGEMENT DISCUSSION AND ANALYSIS

     REVENUE. Revenue for the three and nine months ended September 30, 2005 was
$208,082 and $220,595, respectively. Revenue for the three and nine months ended
September 30, 2005 was primarily attributable to sales of equipment, software
and related network design and installation services from new pilots that were
launched in the third quarter. The Company did not record any revenues during
the corresponding periods in 2004.


                                        8

<PAGE>

     COSTS OF SALES. Costs of sales for the three months and nine months ended
September 30, 2005 were $339,877 and $352,390, respectively. No costs of sales
were recorded during the corresponding periods in 2004. Cost of sales include
all costs related to manufacturing and selling products and services and consist
primarily of direct material costs and salaries and related expenses for
personnel. Cost of sales also includes expenses related to the write down of
inventory to lower of cost or market. For the three and nine months ended
September 30, 2005 cost of sales included an inventory write down of $151,278
related to lower of cost or market adjustments. There were no costs of sales
adjustments recorded in the corresponding periods in 2004.

     GROSS MARGIN. Gross Margin for the three and nine months ended September
30, 2005 was a loss of 131,795. There was no gross margin recorded during the
corresponding periods in 2004. Our gross margin, for the three and nine month
periods, was negative as a result of inventory write-downs of $151,278 for
lower of cost of market adjustments which includes an allocation of fixed
manufacturing overhead. Because we are still a development stage company, the
allocation of fixed manufacturing costs to cost of goods sold may continue to
result in negative gross margins until we reach commercial viability.

     RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of expenses incurred in designing, developing and field
testing our PLC Technologies. These expenses consist 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 three and nine months ended September 30, 2005 were
$649,366 and $1,956,861, respectively, compared to $649,004 and $1,524,394
during the corresponding periods 2004. The increase in research and development
expenses during 2005 is primarily attributable to an increase in the product
design and development efforts.

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
primarily consist of salaries and other related costs for personnel in executive
and other administrative functions. Other significant costs include professional
fees for legal, accounting and other services. General and administrative
expenses for the three and nine months ended September 30, 2005 were $730,384
and $2,637,642 compared to $485,188 and $1,574,292 for the corresponding periods
in 2004. The increase in general and administrative expenses is primarily
attributable to an increase in personnel and related costs.

     OTHER OPERATING EXPENSES. A portion of our operating expenses are
attributable to non-cash charges associated with the compensation of consultants
and senior personnel through the issuance of stock options and stock grants.
Stock-based compensation is non-cash and will therefore have no impact on our
cash flows or liquidity. For the three and nine months ended September 30, 2005
we incurred non-cash stock-based compensation expense of approximately $17,000
and $42,000 as compared to $6,000 and $62,000 for the three and nine months
ended September 30, 2005.

     NONCASH EXPENSES. For the three and nine months ended September 30, 2005,
we incurred non-cash expenses of approximately $325,500 and $4.6 million,
respectively, related to the amortization of beneficial conversion feature of
convertible debt and amortization of deferred financing costs related to the
conversion of approximately 79% of the Company's convertible debentures during
the period. During the nine months ended September 30, 2004 we incurred non-cash
expenses of approximately $2.5 million. Such expenses relate primarily to the
amortization of deferred finance costs related to the conversion in the fiscal
2004 of the Company's 2003 debentures.


                                        9

<PAGE>

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

     We recognize revenue from product sales upon shipment to customers and when
all requirements related to the shipments have occurred. We recognize revenue
from design and installation services at the time services are performed.
Revenue from software licensing is deferred and recognized over the life of the
license agreement.

INVENTORY VALUATION

     Inventory is valued at the lower of cost or market determined on the
first-in, first-out (FIFO) basis. Costs include materials, direct and indirect
labor and overhead. 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. Further, as the Company is still in development stage, fixed
manufacturing costs may produce negative gross margins. As such, inventories are
reviewed for lower of cost or market valuation.

VALUATION OF STOCK-BASED COMPENSATION

     We account for stock-based compensation (see Note 4 of the Notes to the
Consolidated Financial statements) in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and FASB Interpretation 44,
"Accounting for Certain Transactions Involving Stock Compensation." Pursuant to
these accounting standards, we record deferred compensation for share options
granted to employees at the date of grant based on the difference between the
exercise price of the options and the market value of the underlying shares at
that date. Deferred compensation is amortized to compensation expense over the
vesting period of the underlying options. No compensation expense is recorded
for fixed stock options that are granted to employees and directors at an
exercise price equal to the fair market value of the Common Stock at the time of
the grant.

     Stock options granted to non-employees are recorded at their fair value, as
determined in accordance with SFAS No. 123 and Emerging Issues Task Force
Consensus No. 96-18, and recognized over the related service period. Deferred
charges for options granted to non-employees are periodically re-measured as the
options vest.


                                       10

<PAGE>

     We use the Black-Scholes option-pricing model to estimate the fair value of
options we have granted for purposes of making the disclosure required by SFAS
123. In order to calculate the fair value of the options, assumptions are made
for certain components of the model, including risk-free interest rate,
volatility, expected dividend yield rate and expected option life. Although we
use available resources and information when setting these assumptions, changes
to the assumptions could cause significant adjustments to the valuation.

The FASB issued SFAS 123(R) "Share Based Payment" ("SFAS No. 123(R)") that is
effective for public companies qualifying as SEC small business issuers, as of
the first interim period or fiscal year beginning after December 15, 2005.
Accordingly, the adoption of SFAS No. 123(R) requiring the use of the fair value
method may have an impact on our results of operations and our overall financial
position.

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 September 30, 2005, 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.

LIQUIDITY AND CAPITAL RESOURCES

     At September 30, 2005, cash and cash equivalents totaled approximately $1.8
million as compared to approximately $7.0 million at December 31, 2004.

     Net cash used in operating activities for the nine months ended September
30, 2005 was approximately $4.8 million compared to approximately $3.4 for the
same period in 2004. The increase is primarily attributable to ongoing research
and development and general and administrative expenses, including the addition
to inventory in anticipation of the expansion of ongoing pilots and to further
prepare for the commercialization phase of our PLC Technologies. As of September
30, 2005, inventory on hand was approximately $645,000. In addition, during the
nine months ended September 30, 2005, we augmented our technology team and added
significant resources to our management team.

     Since inception, we have funded our operations primarily through the
issuance of our securities. Our recent financings are discussed below.

     In February 2004, EarthLink invested $500,000 in Ambient though the
purchase of (i) a three-year convertible debenture in the aggregate amount of
$250,000 and (ii) 2,083,333 shares of Common Stock. In March 2004, the
outstanding principal amount and accrued interest on EarthLink's debenture were
converted into 2,087,100 shares of Common Stock.


                                       11

<PAGE>

     In December 2004, we sold $5,500,000 aggregate principal amount of our
convertible debentures and warrants, receiving net proceeds of approximately
$4.9 million after the payment of offering related fees and expenses. As of
September 30, 2005, debentures with a principle amount of $4,350,000 have been
converted into 17,400,000 shares of Common Stock at a conversion price of $0.25.

     We believe that our existing cash and cash equivalents are insufficient to
fund operations beyond the current fiscal year. We will need to raise additional
capital to fund the on-going business operations and continue the commercial
development and introduction of our technologies. Management is aggressively
seeking to raise capital that will provide the funds needed to continue our
business operations and has engaged an investment bank to assist us, on a best
efforts basis, to raise funds. Presently, we do not have any indications of
interest from any person and there can be no assurance that additional capital
will be available to us on commercially acceptable terms or at all. If we are
unable to raise funds as needed, we may need to curtail expenses, reduce planned
research and development and sales and marketing efforts, forego business
opportunities and perhaps cease operations. Our auditors have included a "going
concern" qualification in their auditor's report for the year ended December 31,
2004. Such a "going concern" qualification may make it more difficult for us to
raise funds. Additional equity financings may be dilutive to holders of our
Common Stock and debt financing, if available, may involve significant payment
obligations and covenants that restrict how we operate our business.

ITEM 3. 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 Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure based closely on the
definition of "disclosure controls and procedures" in Rule 13a-14(c).

     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 Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective.

     CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. During the quarter
ended September 30, 2005, there have been no changes in our internal controls
over financial reporting that have materially affected, or are reasonably likely
to materially affect, these controls.


                                       12

<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

SALES OF UNREGISTERED SECURITIES

There were no sales of unregistered securities during the three months ended
September 30, 2005.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

31.1 Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer

31.2 Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer

32.1 Section 1350 Certification

32.2 Section 1350 Certification


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<PAGE>

                                   SIGNATURES

     In accordance with the requirements of the Exchange Act, the small business
issuer has caused this report to be signed by the undersigned thereunto duly
authorized.

DATE: NOVEMBER 14, 2005                 AMBIENT CORPORATION


                                        /s/ JOHN J. JOYCE
                                        ----------------------------------------
                                        JOHN J. JOYCE
                                        CHIEF EXECUTIVE OFFICER

PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER


DATE: NOVEMBER 14, 2005                 BY /s/ LAUREN FARRELL
                                           -----------------------------------
                                           LAUREN FARRELL,
                                           CHIEF FINANCIAL OFFICER