<PAGE>

                             AM Communications, Inc.
                             100 Commerce Boulevard
                            Quakertown, PA 18951-2237
                                  215-538-8700




July 16, 1999




Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549

RE:  File No. 0-9856

Dear Sir or Madam:

Included in this transmittal is AM Communications, Inc.'s Form 10-KSB for the
year ended April 3, 1999.

The financial reports included in this 10-KSB do not reflect a change from the
preceding year in any accounting principles or practices or in the method of
application of those principles or practices.

Sincerely,

AM COMMUNICATIONS, INC.


Patricia A. Eynon
Corporate Secretary


<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                   Form 10-KSB


[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended April 3, 1999
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from to ___________ to ___________

Commission File Number:  0-9856

                             AM COMMUNICATIONS, INC.
                             -----------------------
                 (Name of small business issuer in its charter)

         Delaware                                         23-1922958
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

100 Commerce Blvd, Quakertown, Pennsylvania                       18951-2237
-------------------------------------------                       ----------
(Address of principal executive offices)                          (Zip Code)

Issuer's Telephone Number:  (215) 538-8700
                            --------------

Securities Registered Under Section 12(b) of the Act:

                  Title of Each Class                      Name of Each Exchange
                                                           on Which Registered
                           None
----------------------------------------------------      ----------------------

Securities Registered Under Section 12(g) of the Act:

                          Common Stock, $.10 Par Value
                          ----------------------------
                                (Title of Class)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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
   ---   ---
     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B which is not contained in this form, and no disclosure
will be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.[X]
     Issuer's revenues for fiscal year ended April 3, 1999 were $9,069,000.
     On July 2, 1999, the aggregate market value of Registrant's outstanding
voting (Common) Stock held by non-affiliates, was approximately $7,456,385
(based on the average between the bid and the asked prices of such stock on that
date).
     On July 2, 1999 there were 31,112,296 shares of the Registrant's Common
Stock, par value $.10 per share, outstanding.
<PAGE>


           PART I
Item 1.    Description of Business

Overview

     AM Communications, Inc. (the "Company", "AM"), a Delaware corporation,
designs, manufactures and markets network monitoring systems, which include
hardware and software, to the broadband communications market, primarily for
cable TV (CATV) systems. AM has applied its technical strengths in RF
communications, microprocessor controlled circuits and application software to
produce a proprietary system that allows CATV operators to monitor the
performance and operation of the complete broadband transmission network,
thereby enhancing network reliability and optimizing performance. The Company's
principal activity from its formation in 1974 to 1989 was the construction of
cable TV systems, which was discontinued in 1989. The Company's current products
have been the result of a diversification strategy undertaken during the late
1980's.

     In response to a significant loss of revenues during fiscal 1999 (see Item
6, Management's Discussion and Analysis of Operations), the Company undertook
several major strategic actions during the third and fourth quarters of fiscal
1999 which are summarized as follows:

o        On November 2, 1998, the Company entered into a Services Agreement with
         Javad (Jay) K. Hassan pursuant to which Mr. Hassan (i) was appointed to
         the Company's Board of Directors and elected to serve as its Chairman
         of the Board, (ii) agreed to assume the duties and responsibilities
         described therein, and (iii) was granted an option to purchase 5
         million shares of the Company's common stock, at a per share exercise
         price equal to $0.156 (the fair market value of the stock on the date
         the option was granted). Mr. Hassan also assumed voting control over
         14,391,837 shares of the Company's common stock owned by the Company's
         principal shareholder, Alvin Hoffman.

o        On the same date, the Company entered into a strategic development and
         manufacturing agreement with Network Systems & Technologies (P) Ltd.
         (NeST). Mr. Hassan is the founder, CEO, and majority owner of NeST.
         NeST is a U.S. headquartered technology services company with
         operations in Japan, the Middle East, Europe, and the United States.
         Technical staff is located primarily in India. The Company has the
         option to pay for NeST development services either in cash or through
         the issuance of warrants. The Company issued 4,170,806 warrants to
         purchase AM Common Stock, at an exercise price of $.01 per share, in
         payment for $670,000 of NeST services from November 1998 through April
         3, 1999. These warrants are presently exercisable and expire in five
         years.

o        The Company reduced its headcount at its Quakertown facility. The
         reduction in staff was more than offset by an expanded design and
         manufacturing staff provided by NeST in India.


                                       2
<PAGE>


Products

     The Company's network monitoring systems are computer-controlled devices,
which monitor the condition and performance of cable TV and broadband
telecommunications systems. A monitoring system includes system software
installed on a PC, master control units located at the "head-end" control
center, and transponders located in the field. The transponder devices are
placed generally within equipment which transmits or powers the CATV signals in
a network and continuously monitor such functions as signal levels and
temperature and instantaneously report any problems, thus enabling the operator
of the system to pinpoint trouble spots and avoid or minimize system downtime.
The system software is installed on an IBM compatible PC at the central
monitoring location. The PC is connected to one or more Master Control Units
(MCU) typically located in the head-end of a monitored system. The MCU serves as
a real-time "polling engine" for the software system and communicates with
remote monitors called "transponders" via a dedicated RF frequency on the
monitored broadband system. The MCU processes the PC's request for information,
communicates that request to the appropriate transponders, and distills the
response into a form that the PC will accept. The transponders are data
collection and control devices located in remote transmission equipment (line
amplifiers, power supplies, etc.) which can communicate with the MCU.

     The Company also provides performance monitoring products designed to
assist cable TV operators in collecting and analyzing the data associated with
the mandated FCC system proof of performance tests and to assess operating
characteristics of the system at remote points. Performance monitoring units can
make frequency response measurements from 40 MHz through 1 GHz, measure RF
levels against alarm limits, analyze noise, distortion, and hum, and measure
channel frequencies. They also perform real-time spectrum analysis and system
sweep measures, with the results displayed in high-resolution color graphics.

     Current cable TV and broadband telecommunications systems are experiencing
significant change. The cable TV industry is undergoing a trend toward
consolidation as larger operators purchase systems from smaller operators. Cable
TV operators are also developing plans to expand their revenue base by offering
telephony services and other alternative video and multimedia services such as
Internet access, video on demand, home shopping, interactive data services,
distance learning, home monitoring, etc. The U.S. telephone (telco) industry has
entered selected markets for video services using various technologies
including HFC, wireless and existing telco infrastructure by building new
communications networks capable of providing voice, video, and data services.
The recent telecommunications legislation has further increased the competitive
environment among service providers.

     The communications network conceived to be able to handle the range of
voice, video and data being planned has been termed the "information
superhighway". Both CATV operators and telephone providers desiring to provide
video services recognize a need to upgrade their existing communications
networks to provide two-way transmission and receipt of services in the near
future in order to deliver the wide range of services planned. Status and
performance monitoring products, as provided by the Company, have become a
critical component to improve operating efficiencies and insure the reliability
of the new communications networks. In response to this, the Company
significantly increased its development expenditures beginning in fiscal 1997
and in fiscal 1998, and introduced the OmniStat(TM) System, an advanced status
monitoring system for broadband networks. The OmniStat(TM) System represents the
second generation of monitoring technology built on the Company's legacy
technical monitoring system platform.

                                       3
<PAGE>


     OmniStat(TM) is a total integrated system comprised of hardware and
software products designed to address the evolving need for standards based
network management architectures and consists of 4 product categories:

1.   Plant Equipment Monitoring Devices - These 'transponder' units are
     installed inside monitored plant equipment, such as optic-electronic nodes,
     RF amplifiers, power supplies, and end-of-line monitors. The transponders
     measure and monitor various parameters and report the data back to a
     central software monitoring system.

2.   Monitoring Control Units - These units are installed in the headend and/or
     hub locations. They manage the data communications between the plant
     transponders and the software monitoring system.

3.   Headend Monitoring Devices - Telemetry Application Monitor (TAM) is a
     modular rack unit device housed in the headend. It can be equipped with a
     wide range of plug-in application modules.

4.   Network Monitoring Software System - This system communicates with the
     headend monitoring control units. It collects and processes information
     sent back by transponders in the field.

Plant Equipment Monitoring Devices

     The OmniStat Management System incorporates an advanced set of plant
transponders based on AM's FlexStat(TM) platform. The FlexStat platform provides
the following benefits:

     o        Frequency agile RF modems
     o        Downloadable firmware
     o        User defined alarm limits
     o        Real-time measurement display
     o        Remote control of network equipment
     o        Automatic RF return levels

     Transponders are available for most every major brand and type of network
distribution equipment including amplifiers, power supplies, and optical nodes.
The Company currently has over 40 different transponders and continues to design
new devices. Amplifier transponders monitor amplifier internal currents,
voltages, signal levels, and temperature and perform certain control functions.
Power supply transponders monitor and control the status of standby power packs
and provide notice of local power failures, state of batteries, input and output
voltages, output current demand, and enclosure temperature and monitor the RF
levels of the system monitoring communications channels. Fiber node transponders
monitor and control the operation of the fiber optic node equipment and measure
the optical power received by the node, as well as the power supply voltages,
currents, and temperature within the node. Node monitors also allow remote
control of the possible operational modes of the node.


                                       4
<PAGE>


Monitoring Control Units

     The OmniStat(TM) Headend Monitoring Control Unit (MCU) is a real-time data
manager that is capable of managing thousands of transponder equipped devices in
the outside plant as well as in the headend. Its key features include:

     o   Large capacity (over 10,000 transponders)
     o   Fast polling and alarm processing
     o   Automatic new transponder detection
     o   Multi-protocol capability
     o   Robust communications with error correction
     o   Scalable hardware and software architecture
     o   Network capable
     o   Downloadable software
     o   Frequency agile

     The MCU has been designed as a scalable unit. It supports multiple
intelligent plug-in RF protocol cards with the master processor on the backplane
of the MCU managing these protocol cards. This hardware modularity makes it
possible to configure the MCU as a cost-effective solution for small to medium
sized networks or as a robust, powerful solution for large networks. The Company
commenced shipment of the OmniMCU during the first quarter of fiscal 1998.

Headend Monitoring Devices

     A modern HFC headend facility contains different types and brands of
headend equipment, including optical transmitters, optical receivers,
modulators, and other transmission elements. The manufacturers of these headend
elements often incorporate telemetry interfaces to allow an external manager to
monitor and control their equipment. However, no compatibility standards exist
for these interfaces, and so every manufacturer has developed their own unique
electrical interface as well as proprietary data communication protocols.

     The Company's Telemetry Application Monitor (TAM) is a modular rack unit,
which can be equipped with a wide range of application modules to enable
monitoring and control of headend transmission equipment. Serial Application
Modules (SAM) are pre-programmed TAM plug-ins that monitor and manage a specific
brand and type of headend equipment.

     The Company also markets its Scanning Ingress Monitor System (SIMS). The
SIMS module is a TAM based product, which monitors and analyzes the return RF
spectrum from specific node areas. The Company continues to identify new types
of plug-in monitoring modules for modulators, switching equipment, and other
headend systems and will undertake new development efforts when market
opportunities warrant such.

Network Monitoring Software System

     The OmniVU(TM) monitoring software is a multi-user, multi-tasking system
that runs under either Windows 95 or Windows NT. Features include Topologer, a
schematic-based display node that allows a user to view the status of regions,
systems, head-ends and distribution networks. The system is designed
specifically to address new market requirements for integrated, enterprise-wide
network management systems and allows users to interface OmniVU(TM) to operation
support systems and other third party software applications. The Company
commenced shipment of its initial release of OmniVU(TM) in April 1996.


                                       5
<PAGE>

     During fiscal 1999, the Company determined that its OmniVU software
platform needed to be upgraded to improve its competitive features and
performance. In conjunction with a new strategic development relationship with
NeST, the Company undertook a substantial development program, which resulted in
the introduction in the first quarter of fiscal 2000 of the new Omni2000
software platform. The Omni2000 product has been designed as a modular software
platform based upon Windows NT and standard Microsoft interfaces, and employs
standard Microsoft development practices. This modular platform provides
benefits such as easier and more efficient maintenance, improved stability, and
ease of building optional modules for increased features and functionality
including independent third-party add-on products. The Company introduced this
product during the first quarter of fiscal 2000 and expects to be delivering
this product during the third quarter of fiscal 2000.

     The Company's strategy has been to form close working relationships with
the major OEM CATV network suppliers and to develop customized monitors which
meet the specific requirements, including size and performance characteristics,
for each type of network equipment offered. The Company's system is generally
inter-operable with most cable network distribution and transmission equipment.
The Company believes it has the broadest monitoring product line in the
monitoring industry. OmniStat solutions are available for virtually every major
brand of transmission equipment, including:

        o     ADC                              o     Harmonic
        o     Alpha Technologies               o     Kathrein
        o     Antec                            o     Lectro (Exide Electronics)
        o     Augat (Thomas & Betts)           o     Philips Broadband Networks
        o     Fuba Communication Systems       o     Power Guard
        o     General Instrument               o     Scientific-Atlanta

     In addition, several of the major network equipment suppliers have entered
into OEM agreements with AM to private label the AM product. The Company
currently has OEM agreements or provides OEM private label products to: General
Instrument, Scientific-Atlanta and Philips Broadband Systems.

Quick STAT Plant Management System

     AM has leveraged the modularity of the OmniSTAT platform to develop a
cost-effective solution for monitoring small to medium size systems known as
"QuickSTAT." QuickSTAT is a pre-packaged, economical hardware and software
solution built into a client server PC station. The system components include:

     o A single pre-configured PC client/server station
     o Omni2000(TM) network monitoring software
     o OmniAlert(TM) alarm paging software
     o OmniComm(TM) cable system interface card
     o QuickTest(TM) embedded test transponder

     The Company introduced the QuickStat system in the first quarter of fiscal
2000.

     There are several communications delivery technologies which can be
utilized in building the "information superhighway" communications network,
including hybrid fiber/coax (HFC), fiber-to-the curb (FTTC), Digital Subscriber
Loop (DSL), wireless and others. HFC technology is being utilized most
extensively by the CATV providers due to its economics and proven architecture
and also has been recently chosen by several telephone providers as the
technology used to build their video delivery systems. The Company's current
products are substantially focused in HFC architecture systems. Should the
industry adopt other competing architectures, the Company's revenue
opportunities for its existing products could be adversely affected.


                                       6
<PAGE>

     The Company's business is not subject to marked seasonal fluctuation.

Major Customers
---------------

     The Company's revenues in fiscal 1999 included three customers who
individually contributed 29%, 22% and 13% of the total revenues, respectively.
In fiscal 1998, three customers contributed individually greater than 10% of
revenues as follows: 34%, 18% and 12%, respectively. As the purchase of the
Company's products generally is associated with a customer's capital upgrade or
expansion program, contribution levels of individual customers can be subject to
wide fluctuations.

     There is no assurance that any of such customers will be the source of
significant revenues to the Company during the next fiscal year and the loss of
a single customer could have a material adverse effect on the Company's
operating results and financial condition. As disclosed in Item 6, "Management's
Discussion and Analysis of Operations", the Company experienced a substantial
drop in revenues during fiscal 1999 as a result of the cessation of two
customers' capital upgrade programs involving the Company's products.

Backlog
-------

     At April 3, 1999, the Company's backlog of orders totaled $1.9 million as
compared with a backlog of $2.7 million as of March 28, 1998. All orders in the
backlog are expected to ship during fiscal 2000. As further described in Item 6,
"Management's Discussion and Analysis of Operations", the Company was impacted
by the loss of revenues from two major customers and was further limited in its
ability to replace these revenues with new customers as it was undertaking a
major upgrade to its technology software platform which was not completed until
the first quarter of fiscal 2000.

Marketing and Markets
---------------------

     The Company sells its products directly to end user customers through its
OEM (original equipment manufacturer) relationships, through its direct sales
force, and through independent sales representatives in selected international
markets. The Company recently reorganized its sales and marketing organization,
which included the addition and replacement of direct sales and technical
support staff. Promotional advertising and trade show participation also play a
key role in increasing customer awareness and establishing brand recognition.
Direct end user accounts are typically large cable television systems where
considerable time and technical support are necessary to complete a sale and
ensure proper installation and customer satisfaction. The complex nature of the
Company's products necessitates close on-going marketing and technical
engineering support for its direct end users, OEM partners, and representatives.
This is accomplished, when possible, through telephone support, but during
initial product demonstration, installation and subsequent after sale support,
on site support by the Company's technical personnel is frequently required.

                                       7
<PAGE>


     The Company's marketing activity is also directed towards establishing
strategic OEM relationships in which the OEM customer will purchase private
label versions of the Company's products and include them as part of an
integrated package to the OEMs' customers. The OEM strategy allows the Company
to greatly expand its selling presence, particularly in the international
markets. The Company also utilizes its OEM relationships to assist in defining
new products. Direct end user customers and sales representatives generated 37%
of the Company's sales, and OEM partnerships generated 63% of sales during
fiscal 1999 compared to 47% and 53%, respectively in fiscal 1998.

Manufacturing and Supplies
--------------------------

     The Company purchases parts, components and subassemblies (some of which
are designed by the Company) necessary for its products from various suppliers,
primarily in the United States. These materials are then assembled by the
Company, or third party vendors, into finished products which often are
integrated with standard peripherals. The Company develops the proprietary
hardware used to control various network systems, as well as the software for
such systems. The Company's operations also include extensive testing of its
systems and components. During fiscal 1998, the Company received ISO 9001
certification and was re-certified in fiscal 1999.

     The Company generally has multiple sources of supply for the various
component parts, which it purchases. However, shortages or delayed deliveries of
certain components are possible and could have an adverse effect on the
Company's business. During fiscal 1999, three vendors accounted for over 10% of
the Company's purchases of component parts as follows: 16%, 12% and 11%.

     As part of the association with the NeST organization, the Company has also
entered into a manufacturing support arrangement in which a substantial portion
of the Company's products will be manufactured using a NeST associated operation
in India. During the 4th quarter of fiscal 1999, a transition program was
initiated which included transfer of equipment, inventory and product
documentation and initial quantities of selected products were sourced from the
India operation. The Company is in the process of completing this transfer
during the first two quarters of fiscal 2000. The Company expects that once
completed, the India based operation will result in reduced cost of
manufacturing its products. The Company continues to provide production
management, purchasing and technical support from its Quakertown facility.

Product Development
-------------------

     Certain areas of the Company's business involve complex systems, software,
and electronics technology, which can undergo rapid technological change. The
Company's ability to compete successfully in these areas will depend upon the
continued refining and enhancing of its existing products and its development of
new products.

     During fiscal 1999, the Company entered into a strategic development and
manufacturing relationship with NeST Technologies, under which NeST provides a
substantial portion of the Company's engineering and manufacturing requirements.
The Company, using NeST resources, undertook a substantial program to upgrade
its software platform during fiscal 1999. The new product, Omni2000, was
introduced in the first quarter of fiscal 2000.

                                       8
<PAGE>


     The Company also has several new performance monitoring products and
transponders under development which it believes are critical for improving its
competitive position. The Company expects these products to be released during
fiscal 2000.

     The Company currently maintains OEM (original equipment manufacturer)
agreements with or provides private label versions of its products to General
Instrument (GI), Scientific-Atlanta (SA) and Philips Broadband Networks
(Philips). Under these agreements, the Company generally designs customer
specific versions of its monitoring products and allows OEMs to purchase private
label versions of these products for resale. Development is undertaken pursuant
to an agreement which may include funding of a portion of the development costs
by the OEM. Revenue from custom development efforts specific to OEMs is
recognized as contractual milestones are achieved. In certain instances, the
Company may market the OEM specific products directly and pay the OEM a royalty.
The OEM agreements do not require the purchase of any minimum quantity of
product. The OEMs generally have rights to access the technology and manufacture
the products provided by AM should AM default on the agreements.

     The Company continues to work towards establishing new OEM relationships as
well as expanding existing relationships. Revenues from OEMs for research and
development totaled $275,000 and $290,000 in fiscal 1999 and 1998, respectively.

     The Company's research and development costs totaled $4.2 million in fiscal
1999 and $3.9 million in fiscal 1998.

Competition
-----------

     The diversity of a provider's product lines, including compatibility with
OEM distribution equipment, product features, software, equipment reliability,
price, technical support and warranty terms, is the major competitive factor in
the CATV network monitoring market. The network systems monitoring market is
intensely competitive and the Company must continue to invest significant
amounts in technology development to maintain or increase its market position.
The Company substantially increased its spending in research and development and
marketing beginning in fiscal 1997 and maintained this through fiscal 1999.
However, the Company continued to identify product development needs in excess
of its available development resources, which negatively impacted its
competitive position. The Company's strategic development relationship with
NeST, established during the third quarter of fiscal 1999, is expected to
significantly expand the Company's technical resources to enable it to respond
more quickly to market requirements.

     The Company's major competitor for its monitoring system is Cheetah
Technologies (formally Superior Electronics), a Florida-based company which has
greater financial, marketing, and technical resources than the Company. The
Company also competes with other OEM suppliers who continue to market their own
lines of monitoring products.

     The Company's family of status monitoring products is designed to be
compatible with many brands of amplifiers and power supplies. This has enabled
the Company to form business relationships with OEM suppliers who otherwise
would have been competitors but who chose to replace their status monitoring
equipment with a product developed by the Company.

                                       9
<PAGE>


     There can be no assurance that either existing or new competitors will not
develop products or provide services that are more advanced than the Company's
products or services or achieve greater market acceptance. Cable Labs, a CATV
industry standards setting group, along with various OEM equipment and status
monitoring providers and CATV operators, have formulated a committee to work to
establish technical standards for status monitoring systems. The goal is to
develop a set of public domain protocols for transponders and headend
controllers so that monitoring products made by any manufacturer will work
together within the same network. The Company expects that its OmniStat(TM)
family of products will be field upgradeable, when these standards are
finalized. However, the development of standards for status monitoring could
result in additional competitors offering monitoring solutions or downward
pressure on pricing and margins.

Warranties
----------

     The Company warrants its products against defects in materials and
workmanship for up to five years for its performance/status monitoring products.
Warranties on these products are on a repair or replacement policy.

Patent Protection
-----------------

     It is the Company's policy to seek patents on significant products and
systems where possible and to take other measures to protect proprietary
information concerning its products and systems. The Company holds several
patents relating to its status monitoring products.

Government Regulation
---------------------

     The Company's manufacturing activities are not subject to any significant
direct governmental regulations other than those generally applicable to
manufacturers.

Employees
---------

     As of July 2, 1999, the Company had 50 full-time employees including 6 in
administration, 10 in marketing and sales, 17 in engineering, and 17 in
manufacturing. Through the NeST strategic relationship, the Company has
approximately 50 NeST design staff members working on AM programs. In addition,
the Company utilizes contract employees and temporary employees to meet peak
production demands or special project needs.

Related Party Transactions
--------------------------

     As described above, the Company undertook several strategic actions during
fiscal 1999 which included; (a) the election of Javad Hassan as Chairman, (b)
the issuance of a five million share option, (c) the execution of a voting trust
agreement between the Company's majority shareholder which provides Mr. Hassan
with voting control and participation in equity appreciation over 14,391,837
shares of the Company's Common Stock and, (d) entering into a strategic
development and manufacturing agreement with NeST. Mr. Hassan is the founder,
majority shareholder and CEO of NeST. Under the terms of its manufacturing
Agreement with NeST, the Company elected to issue NeST warrants to purchase
4,170,806 shares of the Company's common Stock at an exercise price of $.01 per
share in payment of $670,000 of NeST development services for the period from
November 1998 through March 1999.


                                       10
<PAGE>

     In April 1999, AM agreed to provide certain administrative and
manufacturing support services and provide office space to NeST and several
other entities associated with Mr. Hassan's non-AM business ventures. AM is to
receive a fee of $142,000 per quarter for such services. Should the level of
services exceed planned levels, the parties will negotiate an increase in the
quarterly fee.

     In June 1999, the Company entered into an agreement with its chairman,
Javad K. Hassan, whereby Mr. Hassan will provide a $500,000 line of credit to
the Company, with interest payable at 10%. Payment of all outstanding borrowings
and interest is due by December 31, 2000.



Item 2.    Description of Property.

     The Company's office and production operations are located in Quakertown,
PA in a 40,000 sq. ft. modern, leased facility. The Company's lease expires on
January 31, 2002.

Item 3.    Legal Matters.

     There are no pending or, to the Company's knowledge, threatened legal
actions, to which the Company is a party.

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

     The Company held its Annual Meeting of Stockholders on February 19, 1999.
At such meeting, the following directors were elected:
<TABLE>
<CAPTION>

                                                                                 Abstentions
                                                            Number of Votes       and Broker
                                           For                 Against            Non-Votes
           --------------------------------------------------------------------------------
<S>                                       <C>                  <C>                 <C>
           R. Barry Borden                26,417,376           497,473             120,027
           Javad K. Hassan                26,896,947            18,002             119,927
           Alvin Hoffman                  26,410,946           503,903             120,027
           Hal Krisbergh                  26,914,399               450             120,027
           Keith D. Schneck               26,109,576           804,973             120,327
           Lemuel Tarshis                 26,914,499               350             120,027
</TABLE>

     In addition to the election of the foregoing directors, the shareholders of
the Company approved the adoption of a new stock option plan to be designated
the "AM Communications, Inc. 1999 Stock Option Plan," at the meeting. The
following is a tabulation of the votes cast at the meeting on such proposal:

                                 Number of Votes
                                 ---------------
                     For              Against             Abstain
                 ------------------------------------------------
                 19,798,840         1,427,877             230,662

                                       11


<PAGE>



           PART II

Item 5.    Market for Common Equity and Related Stockholders Matters.

     The Company's Common Stock is quoted on the OTC Bulletin Board of the NASD,
Inc. under the symbol "AMCM." The following table sets forth the closing high
and low bid information as supplied by NASD market makers for each quarter
within the Company's last two fiscal years. These bid quotations reflect
inter-dealer prices, without retail mark-ups, mark-downs or commissions and do
not necessarily represent actual transactions.

                                            Bid Quotations
                                            --------------
Fiscal Quarter                               High     Low
--------------                               ----     ---

     1999
     ----
         First Quarter                        5/8     7/32
         Second Quarter                      .328     .109
         Third Quarter                       3/16      1/8
         Fourth Quarter                      3/16      1/8

     1998
     ----
         First Quarter                       9/16      3/8
         Second Quarter                       3/4      3/8
         Third Quarter                       9/16     7/16
         Fourth Quarter                     11/16     7/16

     As of July 2, 1999 there were approximately 948 holders of record of the
Company's Common Stock.

     The Company has never declared nor paid any dividends on its Common Stock.
The Board of Directors currently intends to retain any earnings for use in the
Company's business, and does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future.

Recent Sales of Unregistered Securities
---------------------------------------

     On November 2, 1998, the Company entered into a Services Agreement with
Javad (Jay) K. Hassan (the "Services Agreement"). Pursuant to the terms of the
Services Agreement, the Company granted an option to Mr. Hassan to acquire
5,000,000 shares of the Company's Common Stock, at a per share exercise price of
$0.156 (which was equal to the fair market value of the Company's common stock
on the date the option was granted). The option is first exercisable on February
19, 1999, and expires on February 19, 2009. The option was issued by the Company
in exchange for certain advisory and consulting services to be provided by Mr.
Hassan to the Company. The option was issued by the Company to Mr. Hassan in
reliance upon the exemption from registration provided for in Section 4(2) of
the Securities Act of 1933, as amended, as a transaction not involving any
public offering.


<PAGE>


     On November 2, 1998, the Company also entered into a Strategic Development
and Manufacturing Agreement with NeST. Mr. Hassan is the founder, majority
shareholder and CEO of NeST. Under the terms of such Manufacturing Agreement,
the Company on April 3, 1999 issued NeST warrants to purchase 4,170,806 share of
the Company's Common Stock, at an exercise price of $0.01 per share, as payment
for $670,000 in development services provided by NeST to the Company for the
period from November 1998 through April 3, 1999. The warrants entitle the
holder(s) thereof to purchase an aggregate of 4,170,806 shares of the Company's
common stock, subject to the application of certain anti-dilution provisions set
forth in the warrants, on or before April 3, 2004.

     The warrants were issued by the Company to NeST in reliance upon the
exemption from registration provided for in Section 4(2) of the Securities Act
of 1933, as amended, as a transaction not involving any public offering. The
warrants were issued to NeST as compensation for services provided by NeST to
the Company. No offer of the warrants was made by the Company to any other
person or entity.


Item 6.  Management's Discussion and Analysis of Operations

     The following discussion contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements represent the Company's present expectations or beliefs concerning
future events. The Company cautions that such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results or anticipated results. Potential risks and
uncertainties include, without limitation, the impact of economic conditions
generally; the competitive nature of the CATV network monitoring market; the
Company's ability to enhance its existing products and develop and introduce new
products which keep pace with technological developments in the marketplace; and
market demand.

     The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing elsewhere in this
Form 10-KSB.

Overview

     The Company is a provider of high technology system level products for the
broadband communications industry, primarily for CATV monitoring and control
systems. During fiscal 1999, the Company experienced a significant downturn in
its business, primarily due to the cessation of programs involving two major
customers, which contributed approximately 50% of revenues in fiscal 1998. In
addition, the Company undertook a substantial development program to upgrade its
software and certain hardware products, which were introduced in the 1st quarter
of fiscal 2000. These products include complete new system platforms for the
Company's Omni2000 software, Scanning Ingress Monitoring Systems, and QuickSTAT.

     Also during fiscal 1999, the Company undertook several major organizational
changes including entering into a strategic development and manufacturing
relationship with NeST, under which NeST provides a substantial portion of the
Company's engineering and manufacturing requirements. The Company also elected a
new Chairman, Mr. Javad Hassan, who also is the Chairman, CEO and majority
shareholder of NeST. Through certain contractual agreements associated with Mr.
Hassan becoming Chairman, he also controls the voting of 14,391,837 shares of
the Company's Common Stock presently owned by the Company's majority
shareholder, Alvin Hoffman.


                                       13
<PAGE>

     As a result of the actions, which occurred during fiscal 1999, the Company
incurred a substantial operating loss which was financed by a reduction in
working capital and borrowings under the Company's line of credit. The costs
associated with the NeST technology development efforts are payable, at the
Company's option, either in cash or warrants. The Company elected to pay a total
of $670,000 of NeST costs incurred through April 3, 1999 by issuing a total of
4,170,806 warrants to NeST exercisable at $.01 per share.

     The Company believes the actions taken during fiscal 1999 significantly
improve the Company's ability to compete and the Company is presently
undertaking an aggressive marketing and sales effort to re-establish its market
position and return to profitability.


Results of Operations
Fiscal 1999 vs. 1998
                                               Fiscal 1999          Fiscal 1998
                                               -----------          -----------
Revenues                                          100.0%                 100.0%

Cost of Sales                                      61.6                   55.2
Selling, General and Administrative                30.0                   15.5
Research and Development                           46.2                   23.4
                                                   ----                  -----

Operating Income (Loss)                           (37.8)                   5.9
Other Income (Expense)                              (.3)                   (.2)
                                                   ----                  -----

Income (Loss) Before Income Taxes                 (38.1)                   5.7
Income Tax Provision                                (.3)                   (.2)
                                                   ----                  -----

Net Income (Loss)                                 (38.4)%                  5.5%
                                                  =====                  =====

Revenues

     Revenues for the fiscal year ended April 3, 1999 were $9.1 million,
representing a 46% decrease compared to fiscal 1998 revenues. Revenues for the
fiscal year ended March 28, 1998 were $16.9 million, representing a 68% increase
compared to fiscal 1997 revenues of $10.5 million. The decrease in revenues in
fiscal 1999 was due to the cessation of programs involving two major customers
which totaled approximately $8 million of revenues during the Company's 1998
fiscal year. The Company was limited in its ability to replace these revenues
with new customers as it was undertaking a major upgrade to its technology
software platform which was not completed until the first quarter of fiscal
2000.

     OEM revenues were 63% of total revenues in fiscal 1999 compared to 53% in
fiscal 1998. The Company maintains key strategic OEM relationships with General
Instrument, Philips and Scientific-Atlanta.

     The Company's revenues in fiscal 1999 included three customers who
individually contributed 27%, 18% and 15% of the total revenues, respectively.
In fiscal 1998, three customers contributed individually greater than 10% of
revenues as follows: 34%, 18% and 12%, respectively. The customer representing
27% and 12% for the years 1999 and 1998, respectively was the only customer
common in both years. As the purchase of the Company's products generally is
associated with a customer's capital upgrade or expansion program, contribution
levels of individual customers can be subject to wide fluctuations.

                                       14

<PAGE>


     Development and software revenues totaled $1.1 million and $1.2 million in
fiscal 1999 and 1998, respectively. Development revenues primarily relate to OEM
development efforts which are recognized when defined milestones are reached,
the timing of which may be different from when the related development expenses
were incurred. The related development costs are reported as research and
development expense. All software development costs are charged to research and
development when incurred.

Cost of Sales

     Costs of sales include manufacturing costs of the Company's hardware
products. Cost of sales represented 62% of revenues in fiscal 1999 compared to
55% in fiscal 1998. The Company's margins are generally dependent on product mix
and customer mix, with sales to OEM customers generally having a lower profit
margin. Cost of sales increased as a percentage of revenues in fiscal 1999 due
to increased material component costs related to lower volumes of purchases,
increased overhead due to lower volume of manufacturing levels and increased
reserves for inventory due to the transition to India based manufacturing.

Selling, General and Administrative

     Selling, general and administrative (S, G&A) expenses were approximately
$2.7 million in fiscal 1999, and $2.6 in fiscal 1998. The Company expects S, G,
& A expenses to remain at approximately the same levels during fiscal 2000.

Research and Development

     Research and development expense totaled $4.2 million for fiscal 1999
compared to $3.9 million in fiscal 1998. The Company continued to spend a
significant amount on research and development during fiscal 1999 which included
expenditures relating to the Company's major development efforts to upgrade its
software products and the transition to development resources in NeST. The
Company expects the research and development levels will decline in fiscal 2000
due to the transition to more cost effective NeST technical resources.

Operating Income (Loss)

     The Company experienced a substantial operating loss for fiscal 1999, due
to the reduced revenue levels as described above. The Company reduced its annual
operating costs, primarily through staff reductions at its Quakertown facility.
Such cost reductions have been offset in part by spending related to the NeST
technical resources as well as continued internal spending to fund critical
research and development efforts.

     The Company achieved profitability in fiscal 1998 due to increased revenue
levels while limiting increases in operating expenses, primarily research and
development.

Income Taxes

     Due to the significant net operating loss carry-forward, the Company pays
minimum income taxes which include state income taxes and federal income taxes,
based on an "alternative minimum tax" calculation.


                                       15
<PAGE>


Industry Factors

     The cable and broadband communications industry is undergoing significant
change as cable television (CATV) operators continue to expand and consolidate
their operations. Operators are also implementing new interactive services such
as video on demand, Internet access and telephony. In addition, competition for
video services has increased with new entrants, including telephone and
satellite providers. This has resulted in existing CATV operators planning to
expand and upgrade their distribution infrastructures and new providers planning
to construct new distribution systems capable of providing a mix of services.
There continues to be many unresolved issues and uncertainties impacting this
convergence of CATV and telecommunications industries, including governmental
regulations, competing distribution technologies, and significant capital costs.

     Demand for CATV monitoring products has increased as monitoring of cable
distribution systems has become an important factor in increasing operating
efficiency and reliability. As previously noted, the Company's operations were
adversely impacted in fiscal 1999 by the combined impact of reduced revenues and
the need to upgrade its software products. The Company's operations are subject
to the timing and success of new product introductions and the scheduling of
orders by customers. The Company also continues to identify product development
needs in excess of its available development resources, which in the past has
negatively impacted its competitive position. The Company believes its strategic
relationship with NeST will allow the Company to become more responsive to
market requirements.

Liquidity and Capital Resources
-------------------------------

     In fiscal 1999, the Company consumed net cash of $686,000 compared to
generating cash of $90,000 in fiscal 1998.

     The Company financed its operating loss in fiscal 1999 through reductions
in cash, accounts receivables and inventory, an increase in accounts payables,
drawdowns on its line of credit and the payment of NeST development expenses
through the issuance of warrants.

     During fiscal 1999, the Company received a $150,000 technology improvement
fund loan from the Ben Franklin Technology Center of Southeastern Pennsylvania.
The loan is for the initial phase development of the Company's OmniVU 2000
software package. The loan principal is payable in quarterly installments of
$7,500 over the next five years. Interest is payable quarterly, contingent on
the commercial success of the product, in an amount equal to 3% of the product
sales for the immediately preceding quarter until a cumulative amount equal to
50% of the loan has been repaid.

     The Company's line of credit is limited to $750,000 of which $625,000 was
outstanding at April 3, 1999. Borrowings under the line are based on 80% of the
value of qualified accounts receivable. Under the terms of the agreement, all
the Company's assets are pledged and interest is payable at 1 1/2% above prime
(increased to 2% effective July 31, 1999). As a result of the losses incurred
for fiscal 1999, the Company was in technical default on several financial
covenants under the line of credit agreement. Subsequent to year-end, the
Company received from the bank a waiver of the default and also an extension of
the line through July 31, 2000.


                                       16
<PAGE>


     In June 1999, the Company entered into an agreement with its chairman,
Javad K. Hassan, whereby Mr. Hassan will provide a $500,000 line of credit to
the Company, with interest payable at 10%. Payment of all outstanding borrowings
and interest is due by December 31, 2000.

     Under the terms of the NeST Development Agreement, the Company has the
option to pay for NeST development services either in cash or by the issuance of
warrants to purchase AM Common Stock. The Company issued 4,170,806 warrants to
purchase common stock at an exercise price of $.01 per share as payment for
$670,000 owed NeST for services performed from November 1998 through April 3,
1999.

     The Company has undertaken several restructuring actions during fiscal 1999
and during the first quarter of fiscal 2000, which are designed to reduce
operating cash expenses. The Company expects to continue to utilize the NeST
technology resources in India for a substantial portion of its development
efforts, which is expected to allow the Company to reduce its overall expenses
for research and development and provide flexibility in payment of services
through the issuance of warrants or payment in cash, at the Company's option.

     During the last quarter of fiscal 1999, the Company began the transfer of a
substantial portion of its manufacturing operations to a NeST associated company
located in India. The use of NeST manufacturing operations is anticipated to
reduce the Company's manufacturing costs and overhead structure. The Company
will continue to manage and provide technical support to the NeST manufacturing
operations from its facility in Quakertown.

     During the first quarter of fiscal 2000, the Company agreed to provide
certain administrative and manufacturing support services and provide office
space to NeST and several other entities associated with Mr. Hassan's non-AM
business ventures. The Company is to receive a fee of $142,000 per quarter for
such services. Should the level of services exceed planned levels, the parties
will negotiate an increase in the quarterly fee.

     As previously described, the Company was required to undertake a
significant upgrade to its software products during fiscal 1999 which impacted
its ability to attract new customers and increase revenues sufficient to cover
the operating costs of the business. The new software product platform has been
introduced in the first quarter of fiscal 2000 and the Company has re-focused
its marketing efforts in an attempt to expand the revenue base.

     The Company believes its present operating structure has reduced its cash
operating requirements to a level, which can be supported under the present
revenue levels. It is the Company's goal to increase revenue levels through
successful marketing of its upgraded product offerings during fiscal 2000.
During the first quarter of fiscal 2000, the Company has expanded its marketing
efforts by replacing and adding additional sales and technical support staff and
launched an aggressive marketing program. The Company believes that existing
cash, available lending lines and the ability to pay for NeST development
services in cash or warrants, will provide sufficient liquidity to support
operations through the next fiscal year. However, should operating losses
continue beyond levels which can be supported, the Company would expect to
implement further actions to reduce expenses or raise additional capital to
enable continued execution of its strategy. There can be no assurance that
additional capital could be raised under acceptable terms.


                                       17
<PAGE>

     Capital expenditures totaled $77,000 in fiscal 1999 and $329,000 in fiscal
1998 which included capital leases, computers, manufacturing assembly and test
equipment and facility related improvements and fixtures.


Impact of Recent Accounting Pronouncements

     In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 requires all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company adopted this statement effective March
29, 1998 and has no components of other comprehensive income to report.

     In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 established standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
shareholders. It also established standards for related disclosure about
products and services, geographic areas, and major customers. The Company
adopted the disclosure prescribed by SFAS 131 in its 1999 Annual Report as
required.

     In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employer's Disclosures about Pensions and Other
Post-retirement Benefits" ("SFAS 132"). This statement revises employers'
disclosures about pension and other post-retirement benefit plans but does not
change the measurement or recognition of those plans. It standardizes the
disclosure requirements, eliminates unnecessary disclosures and requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis. SFAS 132 supersedes the
disclosure requirements of Statement of Financial Accounting Standards ("SFAS")
No. 87, "Employers' Accounting for Pensions" and SFAS No. 106, "Employers'
Accounting for Post-retirement Benefits Other Than Pensions." The Company
adopted this statement in its 1999 Annual Report as required.

     In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The Company adopted
this statement in its 1999 Annual Report as required.

Impact of the Year 2000 Issue

     The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruption of operations, including among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.

                                       18

<PAGE>


     The Company has undertaken a review of all internal systems and products
and have replaced or modified any non-compliant software and hardware with new
compliant systems. As a result, the Company believes that it has minimal
exposure to contingencies related to the Year 2000 Issue for the products it has
sold and its financial and accounting systems. The Company has expended
approximately $10,000 in external costs to date on such efforts and believes any
additional amounts in the future to be minimal.

     The Company has engaged in formal communication with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
Issue. Based on the information received from such parties, the Company believes
that most of its suppliers are addressing any issues associated with their Year
2000 plans. There can be no guarantee that the systems of other companies on
which the Company's systems rely or interface with will be timely converted, or
that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the Company.

                                       19


<PAGE>


Item 7.    Financial Statements




                          INDEPENDENT AUDITORS' REPORT




To the Board of Directors
AM Communications, Inc.
Quakertown, Pennsylvania

We have audited the accompanying balance sheets of AM Communications, Inc. as of
April 3, 1999 and March 28, 1998 and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AM Communications, Inc. as of
March 28, 1998 and March 29, 1997 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.



KPMG LLP
Philadelphia, Pennsylvania
June 30, 1999

                                       20

<PAGE>


                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
AM Communications, Inc.

We have audited the accompanying balance sheets of AM Communications, Inc. as of
April 3, 1999 and March 28, 1998 and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AM Communications, Inc. as of
April 3, 1999 and March 28, 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.



Allentown, Pennsylvania
June 30, 1999

                                       21
<PAGE>


                             AM COMMUNICATIONS, INC.
                            STATEMENTS OF OPERATIONS

                                                         Fiscal Year Ended
                                                     April 3,         March 28,
                                                      1999              1998
                                                   ------------    ------------

Revenues                                            $ 9,069,000     $16,854,000

Costs and Expenses:
   Cost of Sales                                      5,587,000       9,303,000
   Selling, General and Administrative                2,716,000       2,611,000
   Research and Development                           4,192,000       3,937,000
                                                   ------------    ------------

Operating Income (Loss)                              (3,426,000)      1,003,000
Other Income (Expense)                                  (26,000)        (36,000)
                                                   -------------   -------------

Income (Loss) Before Income Taxes                   $(3,452,000)        967,000
Income Tax Provision                                     28,000          30,000
                                                   ------------    ------------

Net Income (Loss)                                   $(3,480,000)    $   937,000
                                                   =============   ============

Basic Net Income (Loss) Per Share                   $     (0.11)    $      0.03
                                                   =============   ============

Diluted Net Income (Loss) Per Share                 $     (0.11)    $      0.03
                                                   =============   ============

Shares Used in Computation of Basic
   Net Income (Loss) Per Share                       31,072,296      31,053,000
                                                   ============    ============

Shares Used in Computation of
   Diluted Net Income (Loss) Per Share               31,072,296      33,902,000
                                                   ============    ============





                        See Notes to Financial Statements

                                       22
<PAGE>


                             AM COMMUNICATIONS, INC.
                                 BALANCE SHEETS
<TABLE>
<CAPTION>


                                                                  April 3,           March 28,
ASSETS                                                             1999                1998
                                                              -------------       -----------
<S>                                                           <C>                 <C>
Current Assets:
   Cash                                                       $     24,000        $   710,000
   Accounts Receivable, Net of Reserves
      of $221,000 - 1999 and $32,000 - 1998                      1,489,000          1,851,000
   Due From Affiliate                                               42,000               ---
   Inventory                                                     1,218,000          2,073,000
   Prepaid Expenses and Other                                       43,000             63,000
                                                              ------------        -----------
         Total Current Assets                                    2,816,000          4,697,000

Equipment and Fixtures, Net                                        396,000            734,000
Other Assets                                                        16,000             19,000
                                                              ------------        -----------
Total Assets                                                  $  3,228,000        $ 5,450,000
                                                              ============     ===============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Current Portion of Capital Lease Obligations               $     38,000        $   108,000
   Current Portion of Notes Payable                                 30,000               ---
   Bank Line of Credit                                             625,000               ---
   Accounts Payable                                              1,163,000            991,000
   Advances                                                         ---               194,000
   Accrued  Expenses                                               889,000            987,000
                                                              ------------        -----------
         Total Current Liabilities                               2,745,000          2,280,000
                                                              ------------        -----------

Capital Lease Obligations - Long Term                                  ---             39,000
Notes Payable - Long Term                                          120,000               ---
Senior Convertible Redeemable Preferred Stock,
   $100 Par Value, Authorized 1,000,000 Shares;
   Issued and Outstanding 25,825 Shares in 1999
   and 1998                                                      2,583,000          2,583,000
                                                              ------------        -----------

Commitments and Contingencies (Notes 7 and 12)
Stockholders' Equity:
   Common Stock, $.10 Par Value, Authorized
      50,000,000 Shares in 1999 and 40,000,000 in 1998;
      Issued and Outstanding 31,072,296 Shares in 1999
      and 1998                                                   3,107,000          3,107,000
Capital in Excess of Par                                        31,981,000         31,269,000
Accumulated Deficit                                            (37,308,000)       (33,828,000)
                                                              ------------        -----------
      Stockholders' Equity (Deficit)                            (2,220,000)           548,000
                                                              ------------        -----------
Total Liabilities and Stockholders' Equity                    $  3,228,000        $ 5,450,000
                                                              ============        ===========
</TABLE>

                        See Notes to Financial Statements


                                       23
<PAGE>


                             AM COMMUNICATIONS, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>


                                                   Common Stock                 Capital
                                                   ------------                in Excess       Accumulated
                                                  Shares        Amount           of Par           Deficit
                                                  ------        ------           ------           -------
<S>                                            <C>            <C>              <C>             <C>
Balance, March 29, 1997                        31,042,296     $3,104,000       $31,264,000     $(34,765,000)
                                               ==========     ==========       ===========     ============


Exercise of Incentive Stock Options                30,000          3,000             5,000          ---

Net Income for Year Ended
March 28, 1998                                      ---           ---              ---              937,000
                                               ----------     ----------       -----------     ------------

Balance, March 28, 1998                        31,072,296     $3,107,000       $31,269,000     $(33,828,000)
                                               ==========     ==========       ===========     ============

Issuance of Warrants                                ---           ---              712,000           ---

Net Loss for Year Ended
April 3, 1999                                       ---           ---               ---          (3,480,000)

Balance, April 3, 1999                         31,072,296     $3,107,000       $31,981,000     $(37,308,000)
                                               ==========     ==========       ===========     ============
</TABLE>

                        See Notes to Financial Statements

                                       24
<PAGE>



                             AM COMMUNICATIONS, INC.
                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>


                                                                             Fiscal Year Ended
                                                                         April 3,        March 28,
                                                                          1999                   1998
                                                                     -------------         ----------
<S>                                                                    <C>                <C>
Cash Flows from Operating Activities:
   Net Income (Loss)                                                   $(3,480,000)      $    937,000
   Adjustments to Reconcile Net Income (Loss) to
   Net Cash Provided By (Used In) Operating Activities:
      Warrants issued to NeST for services                                 670,000              ---
      Depreciation and Amortization                                        431,000            590,000
      Changes in Assets and Liabilities Which
      Provided (Used) Cash:
         Accounts Receivable                                               362,000           (691,000)
         Due from Affiliate                                                (42,000)              ---
         Inventory                                                         855,000             33,000
         Prepaid Expenses and Other                                          7,000              6,000
         Accounts Payable                                                  172,000           (681,000)
         Advances                                                         (194,000)            17,000
         Accrued and Other Expenses                                        (98,000)           335,000
                                                                      ------------       ------------
Net Cash Provided By (Used In) Operating Activities                     (1,317,000)           546,000

Cash Flows From Investing Activities:
   Purchase of Equipment and Intangible Assets                             (77,000)          (329,000)
                                                                      ------------       ------------
Net Cash Used In Investing Activities                                      (77,000)          (329,000)

Cash Flows from Financing Activities:
   Proceeds from Borrowings Under Bank Line of Credit                      625,000            612,000
   Repayment of Borrowings Under Bank Line of Credit                         ---             (612,000)
   Proceeds from Note Payable                                              150,000              ---
   Borrowings from Principal Stockholder                                     ---              200,000
   Repayments from Principal Stockholder                                     ---             (200,000)
   Exercise of Stock Options                                                 ---                8,000
   Issuance of Warrants                                                     42,000              ---
   Payments Under Capital Lease Obligations                               (109,000)          (135,000)
                                                                      ------------       ------------
Net Cash Provided By (Used In) Financing Activities                        708,000           (127,000)

Net Increase (Decrease) In Cash                                           (686,000)            90,000
Cash:
   Beginning                                                               710,000            620,000
                                                                      ------------       ------------
   Ending                                                             $     24,000       $    710,000
                                                                      ============       ============

Interest Paid                                                         $     33,000       $     41,000
                                                                      ============       ============
Income Taxes Paid (Refunded)                                          $     27,000       $    (17,000)
                                                                      ============       =============
</TABLE>

                        See Notes to Financial Statements

                                       25


<PAGE>


                             AM COMMUNICATIONS, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 1.  Significant Accounting Policies:

Description of Business

     AM Communications, Inc. (the "Company", "AM"), a Delaware Corporation,
designs, manufactures and markets network monitoring systems which include
hardware and software to the broadband communications markets, primarily for
cable TV systems.

Fiscal Year

     The Company's fiscal year ends on the Saturday closest to the end of March.
The fiscal years ending April 3, 1999 and March 28, 1998 included 53 weeks and
52 weeks, respectively.

Revenue Recognition

     AM Communications, Inc. (the "Company") derives its revenues principally
from sales of its products to the cable TV industry. As is customary in the
industry, the Company's sales are made pursuant to individual purchase orders
and are recognized upon the shipment of the product. Revenue from custom
development efforts is recognized as contractual milestones are achieved.

Inventory

     Manufacturing inventory which comprises raw materials, work-in-process and
finished goods is valued at the lower of cost (first-in, first-out method) or
market.

Equipment and Fixtures

     Equipment and fixtures are stated at cost. Depreciation is provided over
the estimated useful lives of the related assets using the straight-line method.

Intangibles

     Intangibles include goodwill and the costs associated with the acquisition
of patents and fees for the successful defense of patents. Patents are being
provided on a straight-line basis, over their estimated useful lives of five
years. Costs related to unsuccessful patents or patents relating to products no
longer manufactured are written off. As of April 3, 1999 all goodwill has been
fully amortized.

Deferred Software Development Costs

     Costs incurred for the successful production of computer software that is
used as an integral part of certain of the Company's products are not
capitalized until technological feasibility has been established for the
software, and all research and development activities for the software and for
the other components of the product have been completed. Deferred software
development costs consist of direct salaries, related payroll costs and other
direct costs. Amortization, on a product-by-product basis, commences upon the
product's general release to customers and occurs over a period of three years
as a function

                                       26

<PAGE>

of estimated product life. Amortization of deferred software development costs
charged to research and development expense was $50,000 for the year ended March
28, 1998. Other research and development costs are expensed currently. None of
the Company's software development efforts in fiscal 1999 or 1998 met the
requirements for capitalization.

Income Taxes

     The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes".

Use of Estimates

     The management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.

Stock Based Compensation

     Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS 123) was adopted by the Company in April 1996
and the Company continued to account for such items using the intrinsic value
method as outlined under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, (APB 25) with pro forma disclosures of net income
and net income per share as if the fair value method applied, as discussed in
Note 10.

Income (Loss) Per Common Share

     The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share."

Reclassifications

     Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.

Note 2.  Inventory:
                                             April 3,            March 28,
                                              1999                 1998
                                        --------------       --------------
         Raw Material                   $    1,940,000       $    2,171,000
         Work-in-Process                       595,000              937,000
         Finished Goods                        183,000              180,000
                                        --------------       --------------
                                             2,718,000            3,288,000
         Inventory Reserve                  (1,500,000)          (1,215,000)
                                        --------------       --------------
         Net Inventory                  $    1,218,000       $    2,073,000
                                        ===============      ==============

     The Company evaluates the inventory reserve annually to reflect product
line transitions which have resulted from new product development. The reserve
represents management's estimate of excess inventory not usable in new product
generations.

                                       27
<PAGE>

Note 3.  Equipment and Fixtures:
                                     Estimated            April 3,    March 28,
                                     Useful Lives          1999         1998
                                     ------------        ---------    ---------
     Equipment                          3-5 yrs.     $   3,957,000   $3,881,000
     Furniture and Fixtures             3-5 yrs.           314,000      314,000
     Leasehold Improvements               5 yrs.           126,000      126,000
                                                     -------------   ----------
                                                         4,397,000    4,321,000
     Accumulated Depreciation & Amortization            (4,001,000)  (3,587,000)
                                                     -------------   ----------
                                                     $     396,000   $  734,000
                                                     =============   ==========

Note 4.  Related Party Transactions:

     Under separate consulting agreements, Lemuel A. Tarshis and R. Barry Borden
Directors of the Company, were paid $24,000 and $17,800, respectively, during
fiscal 1998.

     In June 1997, the Company received a $200,000 short-term loan, with
interest payable at 8%, from its principal stockholder, Alvin Hoffman, to
support inventory requirements related to the Company's increased sales backlog.
This loan was repaid in September, 1997. In July 1998, the Company received a
$250,000 commitment from its primary shareholder, Alvin Hoffman, to provide
working capital through July 1999 at 10% interest and payment of outstanding
borrowings due by September 30, 1999. No amounts were utilized under this
commitment.

     In November 1999, the Company entered into a strategic development and
manufacturing agreement with Network Systems and Technologies, Ltd. (NeST). Mr.
Jay Hassan, The Company's chairman is also the founder, CEO, and majority owner
of NeST. See note 10 and note 14.

Note 5.  Accrued Expenses:

     Accrued expenses consist of the following items:
                                                      April 3,      March 28,
                                                       1999             1998
                                                 -------------    -------------
         Accrued Compensation                    $     341,000    $     462,000
         Accrued Rent                                  180,000          180,000
         Accrued Real Estate Taxes                      41,000           29,000
         Warranty Reserve                              203,000          203,000
         Accrued Taxes                                   2,000           32,000
         Accrued Professional Fees                      63,000           60,000
         Other                                          59,000           21,000
                                                 -------------    -------------
                                                 $     889,000    $     987,000
                                                 =============    =============

Note 6.  Income Taxes:

     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109.

                                       28

<PAGE>

     The provision (benefit) for income taxes consisted of:

                                                      Fiscal 1999   Fiscal 1998
                                                      -----------   -----------
         Current Income Taxes                         $    28,000   $    30,000
         Deferred Income Taxes                         (1,464,000)      (85,000)
         Change in Valuation Allowance                  1,464,000        85,000
                                                      -----------   -----------
         Net                                          $    28,000   $    30,000
                                                      ===========   ===========

     A reconciliation between the provision for income taxes, computed by
applying the statutory federal income tax rate of 34% to income before income
taxes and the actual provision for income taxes follows:

                                                      Fiscal 1999   Fiscal 1998
                                                      -----------   -----------
Federal Income Tax Provision (Benefit) at
     Statutory Rate                                   $(1,174,000)  $   329,000
State Income Taxes, Net of Federal Benefit               (185,000)        9,000
Research and Development Credits                          (75,000)      (50,000)
Non-deductible Amounts                                      4,000         3,000
Change in Valuation Allowance                           1,464,000        85,000
Utilization of NOL Carryforward                               ---      (346,000)
Other                                                      (6,000)          ---
                                                      -----------   -----------
Income Tax Provision                                  $    28,000   $    30,000
                                                      ===========   ===========

     The components of the net deferred tax asset as of April 3, 1999 and
March 28, 1998 were as follows:

                                                      April 3,      March 28,
                                                       1999             1998
                                                 -------------    -------------
         Deferred Tax Items:
              Inventory                          $     609,000    $     493,000
              Accrued Expenses and Reserves            379,000          155,000
              Net Operating Loss Carryforwards       8,811,000        7,761,000
              Tax Credit Carryforwards                 822,000          748,000
              Valuation Allowance                  (10,621,000)      (9,157,000)
                                                 -------------    -------------
              Net Deferred Tax Assets            $         ---    $         ---
                                                 =============    =============

     During fiscal 1997, the Company evaluated the carrying value of the
deferred tax asset which was established in fiscal 1995, and determined, after
consideration of that year's loss, that this asset should be fully reserved.
Accordingly, income tax expense of $936,000 was recognized in fiscal 1997 to
fully reserve this asset.

     The Company has total net operating loss carryforwards available to offset
future taxable income of approximately $26 million expiring at various times
from 2000 to 2014. Due to certain statutory limitations under the Internal
Revenue Code, a portion of such carryforwards may expire unutilized.

Note 7.  Operating Leases:

     The Company leases its facility under a lease expiring in January 2002. The
Company also leases certain equipment under short term leases. Rental expense
charged to operations for fiscal years 1999 and 1998 was $288,000 and $302,000,
respectively.

                                       29

<PAGE>

     Future minimum lease commitments under the Company's facility lease are:

                  2000                $     300,000
                  2001                      350,000
                  2002                      322,000
                                      -------------
                                      $     972,000
                                      =============

Note 8.  Obligations Under Capital Leases:

     The Company has capital lease agreements for machinery and equipment as

follows:
                                                      April 3,      March 28,
                                                       1999             1998
                                                 -------------    -------------
       Capitalized cost                          $     482,000    $     482,000
       Accumulated amortization                       (451,000)        (350,000)
                                                 -------------    -------------
                                                 $      31,000    $     132,000
                                                 =============    =============

     Amortization expense on assets capitalized under capital lease obligations
is included in depreciation and amortization. The lease agreements are secured
by the leased property.

     Future minimum lease payments under capital leases for the following fiscal
years, together with the present value of the net minimum lease payments as of
April 3, 1999, are:

     2000                                                           39,000
                                                                  --------
     Total minimum lease payments                                   39,000
     Less amount representing interest                               1,000
                                                                  --------
     Present value of net minimum lease payments                    38,000
     Less current maturities                                       (38,000)
                                                                  --------
     Capital lease obligations - long term                        $    ---
                                                                  ========

Note 9.  Business, Major Customers, and Credit Risk:

     The Company operates in one business segment which manufactures and
supplies products and services to the broadband telecommunications and the cable
TV industries. The majority of the Company's revenues and accounts receivable
relate to customers in these industries.

     The Company's revenues in fiscal 1999 included three customers who
individually contributed 27%, 18% and 15% of the total revenues, respectively.
In fiscal 1998, three customers contributed individually greater than 10% of
revenues as follows: 34%, 18% and 12%, respectively. The customer representing
27% and 12% for the years 1999 and 1998, respectively was the only customer
common in both years.

Note 10. Capital Stock:

     The Company has a stock option plan (the "1999 Plan") for its employees
which was approved by the stockholders in February, 1999. Under this 1999 Plan,
either non-qualified options or incentive stock options may be granted to
purchase shares of the Company's stock at a price not less than its fair market
value on the date of the grant. Options become exercisable one-third per year
commencing one year after the date of grant and terminating after 10 years. The
aggregate maximum number of shares for which options may be issued under the
1999 Plan is 10,000,000.

                                       30


<PAGE>

     The Company has previously adopted a 1982 Stock Option Plan and a 1991
Stock Option Plan. Options to acquire 487,000 shares and 4,570,000 shares of the
Company's Common Stock are outstanding under the 1982 Stock Option Plan and the
1991 Stock Option Plan, respectively, and expire 10 years after the date of
grant. No additional options may be granted under either Plan.

     The following summary shows the aggregate stock option activity expressed
in shares for the 1982, 1991, and 1999 Plans:

                                                        Fiscal Years Ended
                                                      April 3,      March 28,
                                                       1999             1998
                                                   -------------  -------------

Outstanding at Beginning of Year                      6,325,333      5,696,833
     Granted                                          7,583,000      1,368,000
     Terminated                                      (1,903,000)      (213,000)
     Expired                                            (20,000)      (496,500)
     Exercised                                              ---        (30,000)
                                                   ------------    -----------
     Outstanding at End of Year                      11,955,333      6,325,333
                                                   ============    ===========
     Available for Grant                              3,102,000        372,667
                                                   ============    ===========
     Exercisable at End of Year                       3,919,309      4,211,249
                                                   ============    ===========

     Price Range of Options Outstanding at March 28, 1998 - $0.125 - $0.175
(Weighted Average -$0.1553)

     In fiscal year 1999, the Company modified the terms of all previously
issued and outstanding options and repriced the exercise price using the then
current market price of $0.15 per share.

     The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Plan. Accordingly, no compensation cost has been recognized.
Had compensation cost for the Company's Plan been determined consistent with
FASB Statement No. 123, the Company's net income and income per share would have
been increased to the pro forma amounts indicated below:

                                                        Fiscal Years Ended
                                                      April 3,       March 28,
                                                       1999            1998
                                                   -------------   ------------
Net income (loss) as reported      As reported     $  (3,480,000)  $    937,000
                                    Pro forma      $  (3,980,000)  $    490,000

Basic earnings (loss) per share    As reported     $       (0.11)  $       0.03
                                     Pro forma     $       (0.13)  $       0.02

Diluted earnings (loss) per share  As reported     $       (0.11)          0.03
                                     Pro forma     $       (0.13)          0.01

                                       31

<PAGE>


     The per share weighted-average fair value of stock options granted during
fiscal years 1999 and 1998 was $.12 and $.12, respectively, on the date of grant
calculated using the Black Scholes option-pricing model with the following
weighted-average assumptions:

                                                        Fiscal Years Ended
                                                      April 3,       March 28,
                                                       1999            1998
                                                   -------------   ------------
Expected Life (Years)                                   5.0            5.0
Risk-Free Interest Rate                                 6.0%           6.0%
Volatility                                             50.0%          50.0%
Dividend Yield                                          0.0%           0.0%

     At April 3, 1999, the following warrants to purchase the Company's common
stock were outstanding:

      Issued in         Expiration          Exercise          Number of
     Fiscal Year           Date               Price            Shares
     -----------        ----------          --------          ---------
       1996            July 1, 2004           $1.00           1,500,000
       1999            April 3, 2004          $0.01           4,170,806

     In July 1996, the Company issued warrants to purchase 1,500,000 shares of
common stock at $1.00 per share in return for $300,000 cash. These warrants
become exercisable at the rate of 500,000 shares per year commencing July 1,
1997 and expire five years after they become exercisable.

     Under the terms of the Strategic Development and Manufacturing Agreement
with NeST Technologies, Inc., the Company elected, in April 1999, to issue
warrants to purchase 4,170,806 shares of the Company's common stock at an
exercise price of $.01 per share in payment of $670,000 of NeST development
services for the period of November 1998 through April 3 1999.

Net Income/(Loss) Per Share
     The following is a reconciliation of the numerator and denominators of the
basic and diluted EPS computations at April 3, 1999 and March 28, 1998.

                                                        1999            1998
                                                    -------------    -----------
              Net Income (Loss)                     $  (3,480,000)   $ (937,000)
              Basic Shares                             31,072,296    31,053,000
                  Convertible Preferred Stock and
                  Dilutive Options                            ---     2,849,000
                                                    -------------    ----------
              Diluted Shares                           31,072,296    33,902,000
              Net Income (Loss) Per Common Share
                  Basic                                     (0.11)         0.03
                  Diluted                                   (0.11)         0.03

     In 1999, options to purchase common stock were not included in the
computation of diluted EPS because they would be anti-dulutive to the net loss.

                                       32

<PAGE>


Note 11.  Redeemable Preferred Stock and Debt

     Alvin Hoffman, the Company's majority stockholder and a director, owns the
25,825 shares of Senior Convertible Redeemable Preferred Stock which is
convertible into Common Stock at 100 shares of Common Stock for each share of
Senior Convertible Redeemable Preferred Stock held. Such stock is redeemable at
the Company's option under certain circumstances should the holder not elect to
convert. In addition, upon the occurrence of certain events (e.g. - sale of the
Company, merger, bankruptcy), the Company may be required by the holder of any
shares of the Senior Convertible Redeemable Preferred Stock, to redeem, either
in whole or in part, shares of this Senior Convertible Redeemable Preferred
Stock at a price of $100 per share, which such redeemable shares shall then be
retired and not reissued.

     In addition to the Senior Convertible Redeemable Preferred Stock, the
Company has authorized 974,175 additional shares of Preferred Stock, $.10 par
value, none of which are outstanding as of April 3, 1999.

Note 12. Commitments and Contingencies

     None.

Note 13. Working Capital Line of Credit

     The Company maintains a working capital line of credit from a commercial
bank to provide up to $750,000 based on 80% of the value of qualified accounts
receivable. Under terms of the agreement, all the Company's assets are pledged
and interest is payable at 1 1/2% (2% after July 31, 1999) above prime.

     As a result of the financial loss for fiscal 1999, the Company was in
technical default on several financial convenents under the line of credit
agreement. Subsequent to year-end, the Company received from the bank a waiver
of the default and also an extension of the line through July 31, 2000.

Note 14. Subsequent Events

     In June 1999, the Company entered into an agreement with its chairman,
Javad K. Hassan, whereby Mr. Hassan will provide a $500,000 line of credit to
the Company, with interest payable at 10%. Payment of all outstanding borrowings
and interest is due by December 31, 2000.


Item 8.  Changes In and Disagreements With Accountants on Accounting and
         Financial Disclosure

  None.

                                       33

<PAGE>


         PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance With Section 16(a) of the Exchange Act

     Listed below are the directors and executive officers of the Company:

Name                               Age   Position
----                               ---   --------
Javad K. Hassan (1) (2)            58    Chairman
Keith D. Schneck                   44    President, Chief Executive Officer,
                                         Chief Financial Officer and Director
Michael L. Quelly                  45    Vice President, Engineering
Joseph D. Rocci                    51    Vice President, Product Technology
Harry J. Tankin                    47    Vice President, Sales and Marketing
R. Barry Borden (1)                59    Director
Alvin Hoffman                      70    Director
Lemuel A. Tarshis, Ph.D. (2)       58    Director

(1) Member of Compensation and Stock Option Committee of the Board.
(2) Member of Audit Committee of the Board.

     All directors and officers of the Company are elected for a term of one
year at the Annual Meeting of Stockholders and the subsequent Board of Directors
meeting, respectively, to serve in their office for the next succeeding year and
until their successors are duly elected and qualified.

     Mr. Hassan joined the Company in November 1998 as Chairman of the Board.
Prior to joining the Company, Mr. Hassan held senior level positions at AMP,
Inc. from 1988 until he was named President of AMP Communications Systems
Business, a division of AMP, Inc., in 1995. He previously had a 20 year career
at IBM, starting in 1968 as an engineer, and subsequently promoted to head of
the IBM East Fishkill semiconductor facility and of IBM's Tape Drive Division.
He was instrumental in forming a printed wiring board joint venture company,
AMP-AKZO Corporation, of which he has been chairman since its formation in 1990.
Mr. Hassan is the founder and principal shareholder of Network Systems &
Technologies Ltd. (NeST), a provider of software and system solutions and
electronic manufacturing resources located in India. He currently serves as
Chairman of the Electronic Development Commission for the Government of Kerala
in India.

     Keith D. Schneck joined the Company in April 1995 as President and Chief
Financial Officer and became a Director in June 1995. Since January 1998, he has
served as Chief Executive Officer. He held senior management positions at
Integrated Circuit Systems, Inc. including Chief Operating Officer and Senior
Vice President, Finance from 1987 until he joined the Company.

     Michael L. Quelly joined the Company in 1982. He has served as Vice
President, Engineering from September 1989 to the present, except for the period
October 1990 through March 1995 when he also was Executive Vice President.

     Joseph D. Rocci joined the Company in October 1983 as Director of
Engineering. He served as Vice President, Product Operations of the Company from
1988 to 1989 at which time he was appointed Vice President of Product
Technology.

     Harry J. Tankin joined the Company in February 1999 as Vice President,
Sales and Marketing. From 1984 until he joined the Company, he held marketing
and business development positions, including Director of Marketing, at General
Instrument Corporation.

                                       34

<PAGE>

     R. Barry Borden has been a director of the Company since October 1996. Mr.
Borden is President of Nettech Systems, Inc. of Princeton New Jersey. He
previously has held executive level positions with other high technology
companies including Mergent International, Cricket Software, Inc., Franklin
Computer Corporation and Delta Data Systems. Mr. Borden is also a director of
Matterhorn Growth Fund, and Chairman of Scangraphics, a publicly held company.

     Alvin Hoffman was appointed a director of the Company in March 1995. He has
been a private investor and a registered broker with Makefield Securities in
Boca Raton, Florida since 1982.

     Lemuel A. Tarshis was elected director of the Company in October 1996. Dr.
Tarshis is a private consultant since 1992. He also is a director and research
professor at Stevens Institute of Technology since 1991. Dr. Tarshis held vice
president positions with General Instrument Corporation from 1986 to 1990.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16 (a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of its
common stock, to file reports of ownership and changes in ownership of the
Common Stock with the Securities and Exchange Commission. The Company believes
that during the fiscal year of the Company ended on April 3, 1999, all filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were timely satisfied.

Item 10. Executive Compensation

     The following tables set forth certain information concerning (a) the cash
remuneration paid by the Company during each of the last three fiscal years to
the Company's Chief Executive Officer and to each executive officer of the
Company whose cash compensation exceeded $100,000 per annum during any such
year, and (b) stock options granted during the last three fiscal years to each
such individual.

                           Summary Compensation Table
                        Annual and Long Term Compensation
Name & Principal            Fiscal                 Stock Options      Other
     Position                Year     Salary       Awarded         Compensation
-------------------------------------------------------------------------------
Keith D. Schneck             1999   $ 138,000    1,350,000 (1)      $  4,529 (3)
President and CEO            1998     133,000      450,000 (2)         7,982
                             1997     116,000      400,000             2,876
-------------------------------------------------------------------------------
Robert J. Vogel *            1999   $  24,000          ---          $    750 (4)
Vice President, Strategic    1998     107,000      300,000 (2)         5,578
Development                  1997      89,000      250,000             1,395
-------------------------------------------------------------------------------
*    Mr. Vogel resigned as an officer and an employee of the Company on May 8,
     1998.

(1)  Includes 850,000 shares of repriced stock options previously issued in
     fiscal years 1997 and 1996. See paragraphs below.

(2)  Repriced stock options previously issued in fiscal year 1996. See
     paragraphs below.

(3)  Represents $403, $403 and $291 in group life insurance premiums paid by the
     Company in fiscal 1999, 1998 and 1997, respectively, and $4,125, $7,579 and
     $2,576 in matching contributions under the Company's 401(k) plan paid by
     the Company in fiscal 1999, 1998, and 1997, respectively.

                                       35

<PAGE>

(4)  Represents $34, $403 and $259 in group life insurance premiums paid by the
     Company in fiscal 1999, 1998 and 1997, respectively, and $717, $5,175 and
     $1,136 in matching contributions under the Company 401(k) plan paid by the
     Company in fiscal 1999, 1998 and 1997, respectively.

     Other than the salary and bonus described herein, the Company did not pay
either the executive officers named in the Summary Compensation Table any fringe
benefits, perquisites or other compensation in excess of 10% of such executive
officer's salary and bonus during fiscal 1999, 1998, and 1997. The above
compensation does not include certain insurance and other personal benefits, the
total value of which does not exceed, as to any named officer, the lesser of
$50,000 or 10% of such person's cash compensation.

     All of the Company's group life, health, hospitalization or medical
reimbursement plans, if any, do not discriminate in scope, terms, or operation
in favor of the executive officers or directors of the Company and are generally
available to all salaried employees.

     The Company has a stock option plan (the "1999 Plan") for its employees,
directors, and other persons responsible for significant contributions to the
Company's business. Under this 1999 Plan, which was approved by the stockholders
in February, 1999, either non-qualified options or incentive stock options may
be granted to purchase shares of the Company's stock at a price not less than
its fair market value on the date of the grant. Options become exercisable
one-third per year commencing one year after the date of grant and terminating
after 10 years. The aggregate maximum number of shares for which options may be
issued under the 1999 Plan is 10,000,000.

     During fiscal 1999 and fiscal 1998, the Compensation and Stock Option
Committee determined that the goals of the Company's 1991 Incentive Stock Option
Plan and the Company's 1982 Incentive Stock Option Plan (the "Plans") to provide
equity incentives for employees, executive officers, and directors of the
Company would not be achieved with a significant number of options with exercise
prices substantially above the fair market value, of the Company's Common Stock
and therefore that it was in the interests of the Company and the stockholders
to reprice those options.

     The following table sets forth options granted to the Company's CEO during
fiscal 1999:
<TABLE>
<CAPTION>
                                   % of Total
                                No. of Securities         Options Granted        Exercise
                      Fiscal    Underlying Options        to Employees           Price         Expiration
                      Year      Granted                   in Fiscal Year         ($/Share)     Date
                      ------    ------------------        ---------------        ---------     ----------
<S>                   <C>              <C>                 <C>                    <C>            <C>
Keith D. Schneck      1999            500,000                   7%                 $.156        4/01/09
</TABLE>

     The following table sets forth certain information pertaining to the stock
options held by the individuals named in the Summary Cash Compensation Table:
<TABLE>
<CAPTION>
                                                  Fiscal 1999 Year End Option Values
                                            Number of                               Value of
                                        Unexercised Options                In-the-Money Options
                                          At Fiscal Year End                  at April 3, 1999(1)
                                        --------------------               ----------------------
Name                               Exercisable      Unexercisable      Exercisable         Unexercisable
----                               -----------      -------------      -----------         -------------
<S>                                <C>              <C>                 <C>                 <C>
Keith D. Schneck  716,666                              633,334            $27,233             $21,067
Robert J. Vogel (2)                    ---                 ---                ---                 ---
</TABLE>

(1) Value is based upon the closing price of the stock on April 3, 1999, less
    the exercise price.
(2) Mr. Vogel resigned as an officer and an employee of the Company on May 8,
    1998.

                                       36

<PAGE>

     There were no stock options or stock appreciation rights exercised by Mr.
Schneck or Mr. Vogel during the last fiscal year. The Company does not maintain
any long term incentive plans for its officers.

     Directors who are not officers or employees of the Company are paid $500
for each Board of Directors meeting and Committee meeting attended. In addition
to the standard director fees, each director was granted options to purchase
50,000 shares at an exercise price of $0.156 on April 1, 1999. These options
were fully vested as of the date of grant. In addition, Javad K. Hassan received
an option grant on February 19, 1999 to purchase 5,000,000 shares exercisable
equally over a three year period at an exercise price of $0.156 in accordance
with a Services Agreement with the Company. All the options granted to Mr.
Hassan became fully vested as part of the negotiated terms of a $500,000 line of
credit commitment from Mr. Hassan to the Company in June 1999.

     The Company does not have any employment contracts or arrangements with any
of its executive officers.

Item 11. Security Ownership of Certain Beneficial Owners and Management

     The table below sets forth certain information as of July 2, 1999 with
respect to each person and entity known to the Company to be the beneficial
owner of more than 5% of the outstanding shares of the Company's common stock,
each director of the Company and each executive officer listed in the cash
compensation table who owns shares of common stock, and all officers and
directors of the Company as a group.

                                               Beneficial Ownership
Beneficial Owner (1) (2)                 Amount           Percentage of Class(9)
-------------------------                ------           ----------------------
Javad K. Hassan                        23,562,643(3)             58.6%
Alvin Hoffman                          18,147,337(4)             53.7%
Keith D. Schneck                          816,666(5)             2.6%
R. Barry Borden                           160,000(6)               *
Lemuel A. Tarshis                         150,000(7)               *
All Directors and Executive
Officers as a Group (8 Persons)        29,526,819(8)            66.0%

*   Less than one percent.

     (1) To the best of the Company's knowledge, all shares of stock are owned
beneficially, and sole voting and investment power is held with respect thereto,
by the persons and entities named, except as otherwise noted. Share amounts
include additional shares issuable pursuant to options or warrants held by such
owners which are exercisable or may become exercisable within 60 days of the
date hereof.

     (2) The address of all beneficial owners is c/o AM Communications, Inc.,
100 Commerce Boulevard, Quakertown, PA 18951-2237.

     (3) Includes a) 14,391,837 shares of the Common Stock deposited pursuant to
the Voting Trust and Share Price Participation Agreement between Mr. Hoffman and
Mr. Hassan, as the Voting Trustee, b) 5,000,000 shares issuable pursuant to
stock options and c) 4,170,806 shares issuable pursuant to the NeST warrants
issued for services rendered.

                                       37


<PAGE>

     (4) The information concerning the beneficial ownership of Mr. Hoffman is
based, in part, upon information furnished by Mr. Hoffman to the Company. The
beneficial ownership indicated represents (i) 25,825 shares of Senior
Convertible Preferred Stock convertible into 2,582,500 shares of Common Stock,
(ii) 100,000 shares issuable pursuant to stock options, (iii) 1,073,000 shares
of Common Stock currently owned by Mr. Hoffman's wife, and (iv) 14,391,837
shares of Common Stock of the Company which the Hoffman Trust beneficially owns
but over which Javad K. Hassan, as Voting Trustee, exercises all voting rights.
Mr. Hoffman disclaims beneficial ownership of the shares set forth in (iii)
above.

     (5) Includes 716,666 shares issuable pursuant to stock options.

     (6) Includes 150,000 shares issuable pursuant to stock options.

     (7) Includes 150,000 shares issuable pursuant to stock options

     (8) Includes (i) an aggregate of 14,391,837 shares of Common Stock
beneficially owned by the Hoffman Trust but over which Javad K. Hassan, as
Voting Trustee, exercises all voting rights, (ii) 25,825 shares of Senior
Convertible Preferred Stock convertible into 2,582,500 shares of Common Stock,
(iii) 1,073,000 shares of Common Stock currently owned by Mr. Hoffman's wife as
to which Mr. Hoffman disclaims beneficial ownership, (iv) 1,918,330 shares of
Common Stock which may be acquired upon the exercise of outstanding options (v)
9,170,806 options and warrants held by Mr. Hassan and NeST and (vi) 390,346
shares of Common Stock held by other officers and directors.

     (9) The percentages have been calculated on the basis of treating as
outstanding, for a particular holder, all shares of the Common Stock outstanding
on said date and all shares of the Common Stock issuable to such holder in the
event of exercise or conversion of outstanding options, warrants and convertible
securities owned by such holder at said date which are exercisable or
convertible within 60 days of such date.

     All outstanding shares of the Company's Senior Convertible Redeemable
Preferred Stock as of July 2, 1999 are owned by Alvin Hoffman.

     On November 2, 1998, the Alvin Hoffman Revocable Trust UAD 2/28/86 entered
into a Voting Trust and Share Price Participation Agreement dated November 2,
19998 (the "Voting Trust"), with Javad (Jay) K. Hassan as voting trustee (the
"Voting Trustee"), and pursuant thereto deposited with the Voting Trustee
14,391,837 shares of the common stock of the Company. Pursuant to the terms of
the voting Trust, the Voting Trustee is entitled, for the five year term of the
Voting Trust, to exercise all voting rights with respect to such shares.
Accordingly, the Company believes that, while Alvin Hoffman, the settlor of the
Alvin Hoffman Revocable Trust UAD 2.28.86, remains a beneficial owner of such
shares, the transfer of voting rights with respect to such shares resulted in a
change in control of the Company from Mr. Hoffman to Mr. Hassan.

     Neither Mr. Hoffman nor the Alvin Hoffman Revocable Trust UAD 2/28/86
received any consideration for the above-described transfer of voting rights.

Item 12. Certain Relationships and Related Transactions

     In June 1997, the Company received a $200,000 short-term loan, with
interest payable at 8%, from its principal stockholder, Alvin Hoffman, to
support inventory requirements related to the Company's increased sales backlog.
This loan was repaid in September,

                                       38

<PAGE>

1997. In July 1998, the Company received a $250,000 commitment from its primary
shareholder, Alvin Hoffman, to provide working capital through July 1999 at 10%
interest and payment of outstanding borrowings due by September 30, 1999. No
amounts were borrowed under this commitment as of June 30, 1999.

     On November 2, 1998, Javad (Jay) K. Hassan entered into a Services
Agreement with the Company pursuant to which Mr. Hassan (i) was appointed to the
Company's Board of Directors and elected to serve as its Chairman of the Board,
(ii) agreed to assume the duties and responsibilities described therein, and
(iii) was granted an option to acquire 5,000,000 shares of the Company's Common
Stock, at a per share exercise price of $0.156 which was equal to the fair
market value of the stock on the date of grant.

     On the same date, Network Systems and Technologies (P) Ltd. ("NeST"), an
affiliate of Mr. Hassan which is located in Trivandrum, India, entered into a
Consulting Services Agreement with the Company. Pursuant to this Agreement, NeST
will provide technical engineering services to the Company, including without
limitation hardware and software design. The Company has the option of paying
for such services either in cash or in warrants to purchase shares of the
Company's Common Stock. In April 1999, the Company issued 4,170,806 warrants at
$.01 per share in payment of $670,000 due NeST for development services during
fiscal 1999.

     In June 1999, the Company entered into an agreement with its chairman,
Javad K. Hassan, whereby Mr. Hassan will provide a $500,000 line of credit to
the Company, with interest payable at 10%. Payment of all outstanding borrowings
and interest is due by December 31, 2000.

     During the first quarter of fiscal 2000, the Company agreed to provide
certain administrative and manufacturing support services and provide office
space to NeST and several other entities associated with Mr. Hassan's non-AM
business ventures. The Company is to receive a fee of $142,000 per quarter for
such services. Should the level of services exceed planned levels, the parties
will negotiate an increase in the quarterly fee.


Item 13. Exhibits and Reports on Form 8-K

(a)  (1) Exhibits
              See end of exhibit list for footnote references indicated by
asterisks.

            *3-a. (3.1) Restated Certificate of Incorporation of Registrant.

            *3-b. (3.2) Amended By-Laws of Registrant.

            *4-a. (4.1) Specimen of Common Stock Certificate, par value $.10 per
                  share.

             4-b  (4.2) Warrant issued to NeST.

             9-a  Voting Trust and Share Participation Agreement (Exhibit 9.1)

          **10-a. 1991 Incentive Stock Option Plan.

         ***10-b. Joint Development Agreement between AM Communications and
                  Scientific-Atlanta dated May 1996.

                                       39
<PAGE>

         ***10-c. Distribution Agreement and Manufacturing License dated
                  June 14, 1996.

         ***10-d. Registration Rights Agreement dated June 17, 1996.

         ***10-e. Warrant Agreement dated June 17, 1996.

            10-f. 1999 Stock Option Plan.

            10-g. Line of Credit Commitment Letter with Progress Bank dated
                  June 29, 1999.

        ****10-h. Services Agreement between the Company and Jay Hassan
                  (Exhibit 10.1)

        ****10-i. Consulting Services Agreement between the Company and NeST.
                  (Exhibit 10.2)

            11.   Computation of Per Share Earnings for fiscal years ended
                  April 3, 1999 and March 28, 1998.

            23.   Independent Auditors' Consent dated July 16, 1999.

            27.   Financial Data Schedule

              *   Incorporated by reference to the Exhibit with the number
                  indicated parenthetically in Registrant's Registration
                  Statement on Form S-1, File No. 33-10163.

             **   Incorporated by reference to the Exhibit number indicated
                  in Registrant's Annual Report on Form 10-K for the fiscal year
                  ended March 28, 1992.

            ***   Incorporated by reference to the Exhibit number indicated
                  in Registrant's Annual Report on Form 10-KSB for the fiscal
                  year ended March 30, 1996.

           ****   Incorporated by reference to the Exhibit number indicated
                  in Registrant's Report on Form 8-K dated November 9, 1998.

(b) No reports on Form 8-K were filed for the last quarter of the period covered
    by this report on Form 10-KSB.


SIGNATURES

     Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

AM COMMUNICATIONS, INC.
     (Registrant)


    /s/ Keith D. Schneck
    --------------------------------
By: Keith D. Schneck
    President, Chief Financial Officer and
    Chief Executive Officer
    Date:   July 9, 1999

                                       40


<PAGE>

     In accordance with the Securities Exchange Act, this report has been signed
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.


/s/ Javad K. Hassan
-----------------------------         /s/ Keith D. Schneck
Javad K. Hassan                       -----------------------------------
Chairman of the Board                 Keith D. Schneck
   July 9, 1999                       President, Chief Financial Officer, Date:
-----------------------------         Chief Executive Officer and Director
                                      Date:    July 9, 1999
                                           -------------------------------------

/s/ R. Barry Borden                   /s/ Alvin Hoffman
-----------------------------         ------------------------------------------
R. Barry Borden                       Alvin Hoffman
Director                              Director
Date:    July 9, 1999                 Date:    July 9, 1999
      -----------------------              -------------------------------------

/s/ Lemuel A. Tarshis
-----------------------------
Lemuel A. Tarshis
Director
Date:    July 9, 1999
      -----------------------

                                       41


<PAGE>

                                 EXHIBITS INDEX

              See end of exhibit list for footnote references indicated by
asterisks.

            *3-a. (3.1) Restated Certificate of Incorporation of Registrant.

            *3-b. (3.2) Amended By-Laws of Registrant.

            *4-a. (4.1) Specimen of Common Stock Certificate, par value $.10 per
                  share.

             4-b  (4.2) Warrant issued to NeST.

             9-a  Voting Trust and Share Participation Agreement (Exhibit 9.1)

          **10-a. 1991 Incentive Stock Option Plan.

         ***10-b. Joint Development Agreement between AM Communications and
                  Scientific-Atlanta dated May 1996.

         ***10-c. Distribution Agreement and Manufacturing License dated
                  June 14, 1996.

         ***10-d. Registration Rights Agreement dated June 17, 1996.

         ***10-e. Warrant Agreement dated June 17, 1996.

            10-f. 1999 Stock Option Plan.

            10-g. Line of Credit Commitment Letter with Progress Bank dated
                  June 29, 1999.

        ****10-h. Services Agreement between the Company and Jay Hassan
                  (Exhibit 10.1)

        ****10-i. Consulting Services Agreement between the Company and NeST.
                  (Exhibit 10.2)

            11.   Computation of Per Share Earnings for fiscal years ended
                  April 3, 1999 and March 28, 1998.

            23.   Independent Auditors' Consent dated July 16, 1999.

            27.   Financial Data Schedule

              *   Incorporated by reference to the Exhibit with the number
                  indicated parenthetically in Registrant's Registration
                  Statement on Form S-1, File No. 33-10163.

             **   Incorporated by reference to the Exhibit number indicated
                  in Registrant's Annual Report on Form 10-K for the fiscal year
                  ended March 28, 1992.

            ***   Incorporated by reference to the Exhibit number indicated
                  in Registrant's Annual Report on Form 10-KSB for the fiscal
                  year ended March 30, 1996.

           ****   Incorporated by reference to the Exhibit number indicated
                  in Registrant's Report on Form 8-K dated November 9, 1998.