SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

            |X|   Quarterly Report Pursuant to Section 13 or 15(d) of the
                  Securities Exchange Act of 1934 for the Quarterly Period
                  Ended September 30, 2001

                                       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)

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

               1033 Beacon Street, Brookline, Massachusetts, 02446
          (Address of principal executive offices, including zip code)

                                  617 735-9395
                (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 |_|

      As of November 14, 2001 Ambient Corporation had outstanding 25,053,294
shares of common stock, par value $.001 per share.

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

<PAGE>

                                      Index

PART I -- FINANCIAL INFORMATION

Item 1 -- Financial Statements*

         Consolidated Balance Sheet
             September 30, 2001 and December 31, 2000                          1

         Consolidated Statement of Operations
             For the nine and three months ended September 30, 2001 and 2000   2

         Consolidated Statement of Cash Flows
             For the nine ended September 30, 2001 and 2000                    3

         Notes to Consolidated Financial Statements                            4

Item 2--Plan of Operations                                                     8

PART II--OTHER INFORMATION

Item 1--Legal Proceedings                                                     11

Item 2--Changes in Securities                                                 11

Item 3--Defaults upon Senior Securities                                       11

Item 4--Submission of Matters to a vote of Security Holders                   11

Item 5--Other Information                                                     11

Item 6--Exhibits and Reports on Form 8-K                                      11


Signatures                                                                    12


      *The Balance Sheet at December 31, 2000 has been taken from audited
financial statements at that date. All other financial statements are unaudited.
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                   September 30,    December 31,
                                                                       2001             2000
                                                                   ------------     ------------
<S>                                                                <C>              <C>
ASSETS                                                              (Unaudited)        (Audited)
CURRENT ASSETS
     Cash and  cash equivalents                                    $  1,119,022     $  7,052,929
     Convertible note receivable                                             --          250,000
     Loan receivable, Officer                                                --           17,996
     Receivables and prepaid expenses                                    44,399          226,746
                                                                   ------------     ------------

               Total current assets                                   1,163,421        7,547,671

Loan receivable, Officer                                                 70,000           65,677
Long-term investment                                                     90,000           90,000
Investment in affiliate                                                      --        1,016,842
Property and equipment, net                                             162,784          144,267
                                                                   ------------     ------------

               Total assets                                        $  1,486,205     $  8,864,457
                                                                   ============     ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Short term borrowings                                         $         --     $     10,243
     Accounts payable                                                   303,928          201,888
     Accrued expenses and other current liabilities                     354,924          657,899
                                                                   ------------     ------------

               Total current liabilities                                658,852          870,030
                                                                   ------------     ------------

COMMITMENTS

STOCKHOLDERS' EQUITY
     Convertible Preferred Stock, $.001 par value;
       5,000,000 shares authorized; none issued and outstanding              --               --
    Common stock, $.001 par value;
      100,000,000 shares authorized; 24,403,294 and 21,375,794
        issued and outstanding, respectively                             24,403           21,376
     Additional paid-in capital                                      59,110,263       61,133,173
     Deficit accumulated during the development stage               (57,342,749)     (48,719,414)
     Less: deferred compensation                                       (964,564)      (4,440,708)
                                                                   ------------     ------------

               Total stockholders' equity                               827,353        7,994,427
                                                                   ------------     ------------

               Total liabilities and stockholders' equity          $  1,486,205     $  8,864,457
                                                                   ============     ============
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      -1-
<PAGE>

                               AMBIENT CORPORATION
                          (A Development Stage Company)
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                        Cumulative
                                                                Nine Months            From Inception         Three Months
                                                                   Ended                     to                  Ended
                                                               September 30,           September 30,         September 30,
                                                            2001           2000             2001           2001           2000
                                                        ------------   ------------     ------------   ------------   ------------
Expenses                                                 (Unaudited)    (Unaudited)      (Unaudited)    (Unaudited)    (Unaudited)
<S>                                                     <C>            <C>              <C>            <C>            <C>
Research and Development (1)                            $  2,957,875   $    229,344     $  5,142,750   $    282,340   $    103,124
Less - Participation by the Office of the
    Chief Scientist of the State of Israel                        --             --          558,195             --             --
                                                        ------------   ------------     ------------   ------------   ------------

                                                           2,957,875        229,344        4,584,555        282,340        103,124

Operating, general and administrative expenses (1)         4,353,968      2,622,890       10,560,113      2,255,250      2,025,164
Stock based compensation - net                                (7,072)    11,406,464       15,777,990        162,494      7,426,129
                                                        ------------   ------------     ------------   ------------   ------------

Total expenses                                             4,346,896     14,029,354       26,338,103      2,417,744      9,451,293
                                                        ------------   ------------     ------------   ------------   ------------

Operating loss                                            (7,304,771)   (14,258,698)     (30,922,658)    (2,700,084)    (9,554,417)

Legal settlement                                                  --     (1,512,500)      (1,512,500)            --             --
Interest expense                                                (953)      (196,229)        (675,581)           268       (140,261)
Noncash financing expense                                         --       (928,767)      (1,600,000)            --       (390,266)
Beneficial conversion feature of convertible debt                 --     (2,353,477)      (3,878,260)            --     (1,923,979)
Amortization of deferred financing costs                          --       (647,760)      (5,752,015)            --       (535,161)
Interest income                                               99,231             --          324,498         13,553             --
Write-off of convertible note receivable                    (400,000)            --         (400,000)      (400,000)            --
Company's share in net losses of affiliate                (1,016,842)      (147,365)      (1,352,207)       (58,413)       (93,593)
                                                        ------------   ------------     ------------   ------------   ------------

Loss before minority interest and extraordinary item      (8,623,335)   (20,044,796)     (45,768,723)    (3,144,676)   (12,637,677)

Minority interest in subsidiary loss                              --         25,000           25,000             --          6,595
                                                        ------------   ------------     ------------   ------------   ------------

Loss before extraordinary item                            (8,623,335)   (20,019,796)     (45,743,723)    (3,144,676)   (12,631,082)

Extraordinary item - loss on extinguishment of debt               --     (9,778,167)      (9,778,167)            --             --
                                                        ------------   ------------     ------------   ------------   ------------

Net loss                                                  (8,623,335)   (29,797,963)    $(55,521,890)    (3,144,676)   (12,631,082)

Deemed dividends on convertible preferred stock                   --       (758,663)      (1,820,859)            --       (758,663)
                                                        ------------   ------------     ------------   ------------   ------------

Net loss attributable to common stockholders            $ (8,623,335)  $(30,556,626)     (57,342,749)  $ (3,144,676)  $(13,389,745)
                                                        ============   ============     ============   ============   ============

Basic and diluted loss per share:
        Net loss before  extraordinary item             $      (0.37)  $      (2.31)                   $      (0.13)  $      (1.19)
        Extraordinary loss from extinguishment of debt            --          (1.13)                             --           0.00
                                                        ------------   ------------                    ------------   ------------

    Net loss                                            $      (0.37)  $      (3.43)                   $      (0.13)  $      (1.19)
                                                        ============   ============                    ============   ============

Weighted average number of shares outstanding             23,279,027      8,682,969                      24,403,294     10,606,692
                                                        ============   ============                    ============   ============

(1) Excludes non-cash, stock based compensation
    expense as follows:

    Research and development                            $    688,972   $         --     $    688,972   $     87,187   $         --
    Operating, general and administrative, net              (696,044)    11,406,464       15,089,018         75,307      7,426,129
                                                        ------------   ------------     ------------    -----------   ------------

                                                        $     (7,072)   $11,406,464     $ 15,777,990   $    162,494   $  7,426,129
                                                        ============   ============     ============   ============   ============
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      -2-
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                     Cumulative
                                                                          Nine Months               From Inception
                                                                            Ended                         to
                                                                          September 30,             September 30,
                                                                      2001             2000              2001
                                                                   -----------     ------------     --------------
<S>                                                                <C>             <C>              <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                   (Unaudited)      (Unaudited)      (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                                      $(8,623,335)    $(30,556,626)    $(57,342,749)
     Adjustments to reconcile net loss to net cash used by
         operating activities:
         Depreciation and amortization                                  54,568           33,886          259,046
         Amortization of note discount                                      --          881,020        5,107,144
         Cancellation of Officer loans in settlement of
                  emplyment contract                                   654,447               --          654,447
         Loss on sale of fixed assets                                    3,836               --           20,135
         Beneficial conversion feature of convertible debt                  --        2,353,477        3,878,260
         Deemed dividends on convertible preferred stock                    --          758,663        1,820,859
         Financing,  consulting and other expenses paid via the
                  issuance of common stock and warrants                 (7,072)      24,489,859       29,121,868
         Increase (decrease) 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                 1,016,842          147,365        1,352,207
         Minority interest in subsidiary loss                               --          (25,000)         (25,000)
         Write-off of convertible note receivable                      400,000               --          400,000
         Write-down of long term investment                                 --               --          745,000
         Write-off of fixed assets                                          --           64,227          136,066
         Increase (decrease) in cash attributable to changes
                  in assets and liabilities
              Receivables and prepaid expenses                         182,347         (103,437)          44,831
              Accounts payable                                          70,620          476,495          105,782
              Other current liabilities                               (271,555)        (312,433)         445,580
                                                                   -----------     ------------     ------------

Net cash used in operating activities                               (6,519,302)      (1,792,504)     (13,051,367)
                                                                   -----------     ------------     ------------

CASH FLOWS FROM  INVESTING ACTIVITIES
         Loan provided to another company                                   --               --         (835,000)
         Purchase of convertible promissory note                      (150,000)        (250,000)        (400,000)
         Investment in affiliated company                                   --         (375,000)        (375,000)
         Additions to property and equipment                           (76,921)         (91,026)        (619,266)
         Proceeds from disposal of fixed assets                             --               --           42,100
         Decrease in restricted cash                                        --           84,820               --
                                                                   -----------     ------------     ------------

Net cash used in investing activities                                 (226,921)        (631,206)      (2,187,166)
                                                                   -----------     ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES
         Net proceeds from issuance of share capital                 1,463,333        3,520,276        4,908,317
         Proceeds from issuance of notes payable                            --               --        1,000,000
         Net proceeds from issuance of convertible debentures               --        7,667,042        9,148,262
         Repayment of notes payable                                         --               --         (400,000)
         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                                 --           (9,950)         (87,996)
         Increase (decrease) in short term bank credit                 (10,243)        (128,302)         (32,004)
         Public offering of common stock                                    --               --        3,433,027
         Repayment of short-term debt                                       --         (250,000)        (250,000)
         Proceeds from short-term debt                                      --          250,000          274,038
         Increase in long-term loans and investment                         --               --          (65,677)
         Loans to Officers                                          (2,072,000)              --       (2,072,000)
         Repayment of loans to Officer                               1,431,226                         1,431,226
         Loans to affiliate                                                 --       (1,034,270)        (977,207)
                                                                   -----------     ------------     ------------

Net cash provided by financing activities                              812,316       10,014,796       16,357,555
                                                                   -----------     ------------     ------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                    (5,933,907)       7,591,086        1,119,022

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                      7,052,929            8,071               --
                                                                   -----------     ------------     ------------

CASH AND CASH EQUIVALENTS - END OF PERIOD                          $ 1,119,022     $  7,599,157     $  1,119,022
                                                                   ===========     ============     ============
</TABLE>

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Noncash financing andinvesting activities for the nine months ended September
30, 2000

      (a)   Issuance of common stock with fair value of $10,470,000 in respect
            of extinguishment of outstanding note payable resulting in an
            extraordinary charge of $9,778,167.
      (b)   Waiver of liability due to related party in the amount of $75,328.
      (c)   Conversion of debt in the amount of $600,000 into 1,500,000 shares
            of common stock.

                 See Notes to Consolidated Financial Statements.


                                      -3-
<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 SB.
      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, 2001, are not necessarily indicative of the results
      that may be expected for the year ending December 31, 2001. 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/A for the year ended December 31,
      2000, as filed with the Securities and Exchange Commission

      Going Concern

      The accompanying financial statements have been prepared assuming that the
      Company will continue as a going-concern. As reflected in the Plan of
      Operations, the Company's cash on hand will enable the Company to maintain
      operations through January 31, 2002. Thereafter, the Company will need to
      raise capital. Management is actively seeking additional capital in the
      form of private sales of equity or debt with equity features necessary to
      fund the the Company's research and development activities, including the
      current obligations of the Company pursuant to development agreements with
      third parties, in order to fully implement its business plans and to
      continue the business of the Company. In addition, management has
      established plans designed to reduce the current level of expenditures.
      The Company has no commitments for any such financing and there can be no
      assurance, that additional capital will be available to the Company on
      terms acceptable to it. Furthermore, it is anticipated that any such
      financing will have a dilutive effect on existing stockholders. The
      inability to obtain such financing will have a material adverse effect on
      the Company, its operations and future prospects. The consolidated
      financial statements do not include any adjustments that might result from
      the outcome of this uncertainty and these adjustments may be material.

      Reclassification

      Certain prior period amounts have been reclassified to conform with
      current period presentation.

Note 2 - Convertible Note Receivable

      In July 2000, the Company invested in a $250,000 convertible promissory
      note of a privately-held Company active in the development of high-speed
      chips. The note bears interest at the rate of 6% per annum. The note is
      convertible into common stock based on the price per share of a future
      financing of this company. Additionally, the Company


                                      -4-
<PAGE>

      received warrants to purchase Common Stock of this company in connection
      with this investment. In February 2001, the Company purchased an
      additional $150,000 convertible note under the same terms. The note became
      due in July 2001. The Company has determined, based on various events and
      circumstances, that the loan has become impaired. Accordingly, the Company
      recorded a write-off of the note receivable in the amount of $400,000.

Note 3 - Officer Loan

      In connection with the then proposed relocation of the Company's
      headquarters, the Company advanced in the third quarter of 2001 an
      interest-free loan to its Chief Financial Officer, for the purchase of a
      home in the New York Metropolitan area, in the principal amount of
      $70,000, which loan matures on July 30, 2006. The Chief Financial Officer
      has undertaken to grant to the Company, by December 31, 2001, a security
      interest in such residence.

Note 4 - Stock Based Compensation

      During 2000, the Company granted to certain employees options to purchase
      shares of the Company's Common Stock, par value $0.001 (the "Common
      Stock"), which options contained anti-dilution rights and exercise price
      adjustment provisions. Since the number of options and the associated
      exercise prices are subject to adjustment and not fixed at the grant date,
      they are subject to variable accounting treatment and are periodically
      re-valued until they are either exercised, cancelled or expire.

      The Company also has outstanding unvested options granted to
      non-employees, which are periodically re-measured as the options vest, in
      accordance with EITF 96-18.

      The variable accounting treatment of the employee stock options and the
      re-measurement of unvested non-employee stock options may result in
      unpredictable stock-based compensation dependent on fluctuations in quoted
      prices for the Company's common stock. These unpredictable fluctuations in
      stock-based compensation may result in material non-cash fluctuations in
      our results of operations.

      For the nine months ended September 30, 2001, the Company recorded
      negative expense to stock-based compensation in the amount of $7,072.

Note 5 - Stockholders' Equity

      Stock Purchase and Merger Agreement

      On January 1, 2001, the Company entered into an agreement for the purchase
      of the 9.9% minority interest held in its subsidiary, PLT Solutions, Inc
      (PLT). Under the agreement the Company issued 400,000 shares of its common
      Common stock Stock to the minority shareholder, to be held in escrow. On
      April 1, 2001, 200,000 shares were released from escrow and on April 1,
      2002 the remaining 200,000 shares will be released if the minority
      shareholder is still employed by the Company.

      Private Placement

      In March through June of 2001, the Company realized net proceeds of $1.46
      million from the sale of 1.525 million shares of its common stock in
      private placements. The Company


                                      -5-
<PAGE>

      issued an additional 250,000 shares of common stock to a placement agent
      in connection with one of the private placements.

      In November 2001, in order to settle certain disputes with a stockholder,
      the Company issued to such stockholder 650,000 shares of the Company's
      Common Stock. The Company undertook to register these shares, as well as
      an additional 750,000 shares of Common Stock purchased by such stockholder
      in June, 2001, as well as an additional 250,000 shares issued to an
      affiliate of such stockholder, under the Securities Act of 1933, as
      amended, by June 15, 2002; in the event that registration is not had by
      such date, the Company undertook to issue to such stockholder 100,000 of
      its Common Stock for each 30 day period (or a pro-rated amount for any
      lesser period) that such shares are not so registered, for an aggregate
      maximum amount of 300,000 additional shares.

      Financial consulting agreements

      The Company entered into three one-year financial consulting agreements in
      March and April 2001. Accordingly, the Company issued a total of 825,500
      shares of common stock. The Company recorded a charge to deferred stock
      based compensation in the amount of $1.3 million relating to the issuance
      of these shares and is amortizing it over the service period.

Note 6 - Development Agreements

      In August-November 2001, the Company entered into a Service Agreement and
      a Strategic Alliance Agreement with Aquila Technologies Group, Inc.
      pursuant to which Aquila will provide support to Ambient in the design,
      engineering and/or manufacturing of Ambient prototypes including in
      particular a communications controller, coordinate large scale offshore
      manufacturing facilities, monitor legislative activities and government
      funded research activities in the PLT area and pursue opportunities for
      Ambient technologies in a variety of arenas. In consideration of the
      services provided by Aquila, Ambient has agreed to pay Aquila an amount
      not to exceed $140,000 and to issue to Aquila five year warrants to
      purchase 200,000 shares of the Company's Common Stock at a per share
      purchase price ranging between $1.25 and $2.50, which warrants vest upon
      the completion of various phases of the development activities.

      In January 2001, the Company entered into a Development and License
      agreement, with Cisco Systems, Inc. ("Cisco") to collaborate in the
      development of products to be used in the proposed powerline
      telecommunications technology. By mutual agreement, the Development
      Agreement has been terminated, effective November, 2001, and the Company
      has no further obligations, monetary or otherwise, to Cisco. The full
      payment of $2 million incurred upon signing was charged to research and
      development expense as incurred.

Note 7 - Litigation

      In settlement of a suit brought against the Company in New York in August
      2001 by the Company's former Chief Financial Officer ("Former CFO") and a
      director claiming damages of approximately $400,000 arising from the
      alleged breach of an agreement entered into by the Company and the Former
      CFO in connection with his resignation from the Company, the Company paid,
      in final settlement of all claims arising from this matter, approximately
      $74,000 less taxes due. Additionally, the Company agreed to allow the
      Former CFO through December 31, 2003 to exercise certain stock options
      theretofore granted to such person under the Company's 1998 Stock Option
      Plan.


                                      -6-
<PAGE>

Note 8 - Termination Agreement

      In connection with the then proposed relocation of the Company's
      headquarters, the Company advanced in April 2001 a loan of approximately
      $2 million to Mr. Isaacson, the Company's former Chief Executive Officer
      and the Chairman of the Board of Directors, to be used for the purchase of
      a home in the New York Metropolitan area. The loan was partially repaid in
      June and August 2001 from the proceeds of a mortgage on the new home and
      from the net proceeds from the sale of Mr. Isaacson's former home in
      Massachusetts. In connection with his resignation in September 2001 from
      all offices held with the Company, the Company agreed to pay Mr. Isaacson
      certain monies and to forgive the unpaid balances of the outstanding loan
      to purchase the residence in the amount of $570,774 and in addition also
      forgive another outstanding loan, in an aggregate principal amount of
      $83,673. The Company also agreed to accelerate the vesting on 1 million of
      Mr. Isaacson's unvested stock options exercisable at $1.00 per share and
      extend the exercise period for all of Mr. Isaacson's options through
      September 5, 2005. In settlement of mutual claims, in November 2001 the
      Company paid to Mr. Isaacson $82,250, representing an amount of $206,250
      (the gross payment amount the Company undertook to pay in September 2001),
      less advances paid to Mr. Isaacson prior to his resignation from the
      Company.


                                      -7-
<PAGE>

Item 2. Plan of Operation

      The following discussion should be read in conjunction with our
consolidated financial statements and the notes thereto included elsewhere in
this Report. 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: our intended business plans; expectations as to the performance of
our technologies; our anticipation as to the conclusion of certain equity
investments in our company; 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
our specific market areas; changes in technology; failure of our technology
bundle to work as contemplated; lack of market acceptance; the availability of
and the terms of financing, inflation, changes in costs and availability of
goods and services, economic conditions in general and in our specific market
areas, 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; changes in our acquisitions and capital expenditure
plans; and the ability to successfully conclude anticipated equity investments.
Although we believe that expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, performance or
achievements. Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of these forward-looking statements. We are
under no duty to update any forward-looking statements after the date of this
Report to conform such statements to actual results.

      We are engaged in the architecture, design, development, implementation
and marketing of a proposed comprehensive communication infrastructure which
uses the electrical power distribution grid as a high-speed telecommunication
medium. The use of conventional electrical power grids for high speed data
transmission is referred to as "powerline telecommunication technology". Our
proposed powerline telecommunication solution is based on our establishing and
maintaining partnership relationships with utilities and electrical power
distribution companies, as well as developing and maintaining partnering
relations with telecommunication service and technology companies.

      Although historically used for low speed data communication, existing
electrical power grids have not been used for high-speed data transmission due
to certain technological and infrastructure limitations. Our current activities
are focused on the implementation and marketing of our proposed powerline
telecommunications technology solutions and system architectures for use on low
and medium voltage systems. With carriage on low and medium voltage, we believe
that powerline telecommunication technology should be available worldwide. The
proposed solution is designed to facilitate the provision of powerline
telecommunication technology solutions to virtually any building and premise,
overcoming existing infrastructure limitations.

      We believe that electric utilities and power companies to be our natural
partners. We believe that powerline telecommunications technology affords not
only an advantage to the consumer but should allow our prospective utility
partners to


                                      -8-
<PAGE>

significantly enhance their service offerings to their industrial, commercial
and residential customers. We envision the utility basket of services to include
features such as automatic meter reading (AMR), real time outage reporting and
load balancing/switching. We envision that the consumer basket of services will
include, initially, internet access and telephony, with such features as
streaming video alarm monitoring and others to follow. We believe that these and
other features should render the proposed powerline telecommunications solution
an attractive proposition to utilities.

      Since our founding as a Delaware company in June 1996, we had been engaged
in the design and development of technologies and products, initially focused on
the enhancement of smart card applications. Owing to a fundamental reassessment
of general market developments in the field of powerline telecommunications
technology and the smart card business environment, we elected to redirect our
business focus to the field of powerline telecommunications technology. We have
subsequently ceased all design and development efforts in the smart card area.

      As a development stage company, we have a limited operating history upon
which an evaluation of our prospects can be made. We have been in the powerline
technology business, which is the field in which we engage, since March 2000.
Our prospects must therefore be evaluated in light of the problems, expenses,
delays and complications associated with a new business.

      From the date of inception through September 30, 2001, we expended $4.56
million on research and development activities (net of $558,195 received by
Ambient Ltd., our Israeli subsidiary, as government participation in its smart
card development, from the Office of Chief Scientist of the Israeli Ministry of
Industry and Trade).

      The proposed powerline telecommunications technology solution utilizies
our proprietory technology and contemplates the design and development of
certain integral components by our existing and prospective technology partners.
In the first half of 2001, we entered into an agreement with Bechtel
Telecommunications, a unit of Bechtel Corp. ("Bechtel") whereby Bechtel is to
assist us in formulating compliance standards, develop test criteria and survey
utility powerline systems.

      In August-November 2001, we entered into a Service Agreement and a
Strategic Alliance Agreement with Aquila Technologies Group, Inc., a subsidiary
of Canberre Industries (Parent Company, Cogema Instruments, Inc.) a leading
provider of research and development and equipment fabrication ("Aquila")
pursuant to which Aquila undertook to provide support to us in the design,
engineering and/or manufacturing of our prototypes, including, a communications
controller, coordinate large scale offshore manufacturing facilities, monitor
legislative activities and government funded research activities in the
powerline telecommunications technology area and pursue opportunities for our
technologies in a variety of other arenas. In consideration of the services
provided by Aquila, we have agreed to pay Aquila an amount not to exceed
$140,000 and to issue to Aquila 200,000 common stock purchase warrants
exercisable at a per share price between $1.25 and $2.50 which vest upon the
completion of various phases of the development activities

      In January 2001, pursuant to our joint development agreement with Cisco
Systems, Inc. ("Cisco"), we expended $2,000,000 for the products under joint
development. By mutual agreement with Cisco, effective November 2001, the joint
development agreement has been terminated and we have no further obligations,
monetary or otherwise, to Cisco thereunder.

      For the nine months ended September 30, 2001, we incurred net losses
aggregating $8.6 million reflecting principally net general and administrative
expenses and net research and development expenses. We expect to incur
significant up-front expenditures in connection with the new focus of our
operations, and operating losses are expected to continue for the foreseeable
future. There can be no assurance that we can be operated profitably in the
future. Our continuation as a going-concern is dependent upon, among other
things, our ability to obtain additional financing when and as needed, and to
generate sufficient cash flow to meet our obligations on a timely basis. We may
also explore other business options including strategic joint ventures and
business combinations, including investments in other companies, or mergers.

      In September 2001, the Company's senior management was reorganized, with
the then existing Chief Executive Officer and Chairman of the Company board of
directors, Mark Isaacson, resigning from all positions held with the Company and
his replacement by John J. Joyce, formerly the Chief Operating Officer from
October 2000 until his resignation from the Company in August 2001, as the new
Chief Executive Officer. Subsequently we have suspended plans to move our
Headquarters to New York

      A substantial 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. We believe
that these compensation levels were necessary to retain the services of
qualified individuals. Certain employee stock options which are subject to
variable accounting treatment and unvested non-employee stock options which are
re-measured periodically, may result in unpredictable stock-based compensation
dependent on fluctuations in quoted prices for the Company's common stock. For
the nine months ended September 30, 2001 the Company recorded negative stock-
based compensation expense in the amount of $7,072. Stock-based compensation is
non-cash and will therefore have no impact on our cash flows or liquidity.


                                      -9-
<PAGE>

      During September 2001 we restructured our cost base and reduced our salary
outlays by approximately 27%. Although we raised net proceeds of approximately
$14 million from private placements in 2000 and 2001, we utilized the majority
of such proceeds primarily for product and business development and outlays
associated with the restructuring of our management. We anticipate that cash on
hand as of September 30, 2001, together with $300,000 received in November 2001,
will enable us to maintain operations as presently conducted through January 31,
2002. Thereafter, we will need to raise additional capital to continue in
business. We are actively seeking additional capital in the form of private
sales of equity or debt with equity features necessary to fund the Company's
research and development activities, including our current obligations pursuant
to development agreements with third parties, in order to continue operations
and implement our business plans. The financial statements accompanying this
report for the period ended September 30, 2001, includes an explanatory
paragraph relating to the uncertainty of our ability to continue as a going
concern, which may make it more difficult for us to raise additional capital.

      At the present time, we have no commitments for any such financing, and
there can be no assurance that additional capital will be available to us on
terms acceptable to us. Furthermore, it is anticipated that any such financing
will have a dilutive effect on existing stockholders. The inability to obtain
such financing will have a material adverse effect on the Company, its
operations and future business prospects.


                                      -10-
<PAGE>

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Not Applicable

Item 2. Changes in Securities and Use of Proceeds

Sale of Unregistered Securities

      There were on issuances for sale of any unregistered securities by the
Company during three months ended September 2001.

      Set forth below is certain information concerning sales by the Company of

Item 3. Defaults Upon Senior Securities.

      Not Applicable

Item 4. Submission of Matters to a Vote of Securities Holders.

      Not Applicable

Item 5. Other Information.

      Not Applicable

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

      (a) Reports on Form 8-K for the three months ended June 30, 2001

            (i) Report on Form 8-K filed on September 20, 2001, relating to the
agreement reached with Mark Issacson relating to his resignation from all
offices held in the Company.

      (b) Exhibits

            10.1 Service Agreement between Ambient Corporation and Aquilla
Corporation dated August 21, 2001

            10.2 Strategic Alliance Agreement between Ambient Corporation and
Aquilla Corporation dated November 2, 2001

            10.3 Subscription Agreement between Ambient Corporation and Oscar
Private Equity Investments dated November 2, 2001.

            10.4 Agreement between Ambient Corporation and Aryeh Weinberg dated
October 29, 2001.

            *10.5 Agreement between Ambient Corporation and Mark Isaacson
dated September 6, 2001

            10.6 First Amendment dated November 12, 2001 to Agreement between
Ambient Corporation and Mark Isaacson dated September 6, 2001


                                      -11-
<PAGE>

* Filed as an Exhibit to the Report on Form 8-K filed on September 20, 2001.

                                   SIGNATURES

      In accordance with the requirements of the Exchange Act the registrant
caused this report to be signed by the undersigned thereunto duly authorized.

Date: November 14, 2001                 AMBIENT CORPORATION


                                        /s/ Wilfred Kopelowitz
                                        ----------------------------------------
                                        Chief Financial Officer


                                      -12-