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                       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 March 30, 2002
[ ] 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
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                             AM COMMUNICATIONS, INC.
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                 (Name of small business issuer in its charter)

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

 1900 AM Drive, Quakertown, Pennsylvania                    18951-2107
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     (Address of principal executive offices)                 (Zip Code)

Issuer's Telephone Number:  (215) 538-8700
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Securities Registered Under Section 12(b) of the Act:
                  Title of Each Class                     Name of Each Exchange
                                                          on Which Registered
                        None                                     None
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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 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.[ ]

     Issuer's revenues for fiscal year ended March 30, 2002 were $28,705,000.

     On June 7, 2002, the aggregate market value of Registrant's outstanding
voting (Common) Stock held by non-affiliates, was approximately $9,925,505
(based on the average between the bid and the asked prices of such stock on that
date).

     On June 7, 2002 there were 56,394,016 shares of the Registrant's Common
Stock, par value $.10 per share, outstanding.


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PART I

Item 1. Description of Business

Overview

         AM Communications, Inc. (the "Company" or "AM") is a Delaware
corporation that was formed in 1974. AM provides products (which include
hardware and software systems) and services (which include network engineering,
network design and construction, and subscriber installation) to the broadband
communications market, primarily for cable television ("CATV") systems. AM has
applied its technical strengths, and the strengths of its strategic partners, in
RF communications, microprocessor controlled circuits and application software
in order to produce a suite of products and services that allows CATV system
operators to build better networks, maintain them more efficiently, and
continually monitor their technical performance and operation. The Company's
principal activity from its formation in 1974 to 1989 was the construction of
cable TV systems, which was discontinued in 1989.

         From 1989 to 2001, the Company's revenues were generated primarily from
sales of its OmniStat(TM) family of network monitoring and management systems.
In 1999, the Company undertook a diversification strategy to broaden its
potential sources of revenue and began to investigate the provision of services
to CATV system operators, in addition to AM's traditional product offerings. As
part of this diversification strategy, the Company formed a new business unit,
AM Broadband Services, Inc., a Delaware corporation ("AMBS"). AMBS is a
wholly-owned subsidiary of the Company that began operations in January 2001.
The AMBS unit provides a range of outside-plant services to CATV systems
operators that includes design, engineering, installation, certification and
maintenance. The Company's Broadband Products ("AMBP") business unit continues
to market its OmniStat(TM) product line and other newly developed products
through its traditional sales channels, but is also utilizing the AMBS services
unit as an additional sales channel.

         In October, 2001, the Company increased its broadband services
capabilities through the acquisition of SRS Communications Corporation ("SRS")
and EDJ Communications, Inc. ("EDJ"). The acquisition of SRS and EDJ enabled
AMBS to enter the subscriber fulfillment services business. Following such
acquisition, EDJ was merged with and into SRS and SRS remained a wholly-owned
subsidiary of AMBS.

         On June 3, 2002, the Company entered into a definitive merger agreement
with Nex-Link Communication Project Services, LLC, a company located in Sunrise,
Florida. Nex-Link Communication Project Services, LLC is engaged in the business
of designing, constructing, and installing broadband communications networks.

         Under the terms of the proposed merger, Nex-Link Communications Project
Services, LLC will be merged with and into a wholly-owned corporate subsidiary
of AM Broadband Services, Inc., Nex-Link Acquisition Corp. After the merger is
completed, Nex-Link Communications Project Services, LLC will become a
wholly-owned, corporate subsidiary of AM Broadband Services and will operate
under the name "AM Nex-Link Communications, Inc.". It is anticipated by
management of the Company that this merger will be completed during the second
quarter of fiscal 2003.


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AM Broadband 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 system software is installed on an IBM compatible PC at the central
monitoring location. The PC is connected to one or more monitoring control units
("MCUs") 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
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.

         Cable TV and broadband telecommunications systems have experienced and
continue to experience 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 hybrid fiber coaxial ("HFC"), wireless and existing telco
infrastructure by building new communications networks capable of providing
voice, video, and data services. Recent telecommunications legislation has
further increased the competitive environment among service providers.

         Communications networks conceived to be able to handle the range of
voice, video and data transmissions currently being planned have been termed
"multi-media" networks. CATV operators desiring to provide data and telephony
services have recognized a need to upgrade their existing communications
networks to provide two-way transmission and receipt of services in order to
deliver the wide range of services planned. Status and performance monitoring
products, such as those provided by the Company, have become a critical
component to improved network operating efficiencies and enhanced reliability of
the new communications networks.

         In response to the demand by CATV operators for better network status
and performance monitoring products, the Company introduced, in fiscal 1996, the
OmniStat(TM) System, an advanced status monitoring system for broadband
networks. In fiscal 2000, the Company introduced Omni2000(TM) Network Management
Software, which represents its latest generation of monitoring software
technology.


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         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. OmniStat(TM) 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 network
                  monitoring software 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(TM) Management System incorporates an advanced set of
plant transponders based on AM's FlexStat(TM) platform. The FlexStat(TM)
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 almost every major brand and type of
network distribution equipment, including amplifiers, power supplies, and
optical nodes. The Company currently has over 40 different types of 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, battery status,
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.


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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 OmniStat(TM) MCU 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 a Scanning Ingress Monitor System ("SIMS") and
introduced the second generation of the SIMS module in fiscal 2000. 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 needed for modulators, switching equipment, and
other headend systems and will undertake new product development efforts when
market opportunities warrant.


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Network Monitoring Software System

         The Omni2000(TM) monitoring software is a multi-user, multi-tasking
system that runs under Windows NT. Its 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 Omni2000(TM) with
operation support systems and other third party software applications. The
Company commenced shipment of its initial release of the Omni-based monitoring
software in April 1996.

         As part of its strategic development relationship with Network Systems
and Technologies (P) Ltd. ("NeST"), which commenced in November 1998, the
Company substantially increased its product development efforts. These
development efforts resulted in the introduction of the new Omni2000(TM)
software platform in 1999. The Omni2000(TM) 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 many 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 began delivering this product during fiscal 2000.

         A significant part of the Company's product development strategy has
been to form close working relationships with the major OEM (original equipment
manufacturer) CATV network equipment suppliers and to develop customized
monitors which meet the specific requirements, including size and performance
characteristics, for each type of network equipment offered by such OEMs. The
Company's Omni2000(TM) system is generally inter-operable with most cable
network distribution and transmission equipment. The Company believes it has the
broadest monitoring product line currently available in the CATV monitoring
industry. OmnistatTM 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   Motorola (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 with, or provides OEM private label products to,
Motorola Broadband Communications (formerly General Instrument),
Scientific-Atlanta and Philips Broadband Systems.


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AM Broadband Services

          During 2000, management of the Company made the decision to expand the
Company's potential revenue base by pursuing the broadband services business
directly through the formation of a new, wholly-owned business unit. In January
2001, the Company's broadband services business unit and wholly-owned
subsidiary, AM Broadband Services, Inc. ("AMBS"), began operations.

         AMBS is engaged in the business of engineering, designing, upgrading,
constructing and installing hybrid-fiber/coaxial networks for the broadband/CATV
industries. AMBS has assembled an established, experienced management team that
includes some of the pioneers in the CATV services industry. AMBS provides a
diverse suite of value-added solutions to its clients throughout the United
States. The goal of AMBS is to provide a broad and comprehensive range of
outside-plant ("OSP") services to CATV system operators that will include
design, engineering, construction, installation, certification and maintenance,
with a focus on quality and reliability. The Company believes that quality and
reliability achieved through software-optimized services will be critical
metrics as CATV system operators battle competitive access providers in the new,
unregulated communications environment.

         AMBS conducts business through its separately managed business
divisions detailed below.

Fulfillment Installation Services

         On October 1, 2001, with the acquisition of SRS Communications
Corporation ("SRS") and EDJ Communications, Inc. ("EDJ"), two related
Connecticut-based companies, AMBS entered the subscriber fulfillment services
business. Following such acquisition, EDJ was merged with and into SRS and SRS
became a wholly-owned subsidiary of AMBS.

         AMBS' fulfillment services division provides `last mile' connectivity
solutions for the cable television industry. In pursuing the Company's goal to
offer the best of breed in services, all work is performed by the Company's
in-house employees using company vehicles. Understanding that our employees are
our clients' representatives, they must go through a rigorous training and
testing process. The initial screening of new employees includes testing for
aptitude, drugs and communications skills. The successful candidates then
receive classroom-based, as well as practical, training before they are
certified and deployed to the field.

         We offer a wide array of services for residential and commercial
customers. Our services to the cable television industry include: analog and
digital installations, aerial and underground installations, custom wiring
services, converter deployments, maintenance services, and other special
services, such as converter replacements, service drop rebuilds, and quality
assurance and fulfillment audits. For providers of high speed data services, we
provide RF installation and connection, modem installation and certification,
software installation and configuration, customer education and troubleshooting.
For cable telephony service providers, we provide network and local powering
capability, ancillary device verification, internal wire troubleshooting and
repair, and local loop performance characteristic certification.


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Engineering Services

         In January, 2002, AMBS formed its design and engineering services
division. This division is based in Denver, Colorado and its primary focus is to
provide specialized engineering services to the cable television and
telecommunications industries.

         AMBS is an accredited World Class Partner of GE Small World. The full
scope of services provided by the AMBS engineering services division includes:

         Engineering Analysis of Existing Head-end and Distribution
             Infrastructure
         HFC Planning and Consulting
         GIS Land Base Development
         Site Surveys (Strand Mapping and As-Built Surveys)
         Make-Ready Surveys
         Broadband RF Design (new and retrofit)
         Fiber Design and Documentation
         CAD Conversion to GIS Database-related Systems ("MapVault")
         Demographic and Address Database Creation
         Permitting

         AMBS's design services include the full scope of engineering functions
required to develop hybrid fiber/coaxial cable ("HFC") broadband distribution
networks. Using its proprietary MapVault(TM) software, the AMBS engineering
services division can build network inventory databases and hierarchy databases
from the AutoCAD map files for the entire HFC plant. MapVault can also determine
the hierarchical relationship between devices and their linkages to the
subscribers. This information can be converted into a Geographic Information
System ("GIS"), which then can become the foundation for a subscriber
demographics and network infrastructure database.

         AutoCad maps produced with the MapVault(TM) software can also provide
network service technicians and contractors with a full-fledged configuration
management system. There are also advanced Web interfaces in the system to
enable the checking in and checking out of AutoCAD cable distribution maps from
the Document Management System.

         AMBS permitting specialists work with local municipalities or liaison
offices on behalf of their customers to acquire the approvals for all required
permits in a timely manner so that construction projects can proceed without
interruption.

Construction Services

         In early 2002, the Company formed AMC Services, Inc., a Delaware
corporation ("AMC") and a wholly-owned subsidiary of AMBS, with the assistance
of Michael N. Johnson, an individual with over 20 years of experience providing
construction services to the cable television and broadband communications
industries. The Company had originally planned to hold a twenty percent (20%)
interest in AMC, with Mr. Johnson and his spouse holding the remaining eighty
percent (80%) of the outstanding capital stock of AMC. However, due to potential
negative financial and legal consequences arising from the proposed structure
that were brought to light during the due diligence stage, the Company decided
it was in its best interest to hold AMC as a wholly-owned subsidiary, and the


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Company negotiated an alternative working arrangement with Mr. and Mrs. Johnson.
As of April 1, 2002, Mr. Johnson assumed the role of President of AMC pursuant
to an employment agreement guaranteed by the Company. Prior to the formation of
AMC, Mr. and Mrs. Johnson had not previously been affiliated with the Company
nor with any affiliate of the Company.

         AMC is based in Boca Raton, Florida, and is engaged in the business of
providing construction services to the cable television and broadband
communications industries. AMC has master agreements with several major CATV
system operators under which it is engaged to perform a wide range of
construction services. In order to maximize its resources and remain flexible in
performing its contracts, AMC employs a significant number of subcontractors on
a job-by-job basis to fulfill its contract obligations. Approximately 60% of the
total workforce employed by AMC are subcontractors, though each of AMC's
projects has a manager and administrative and quality assurance staff that are
direct employees of AMC.

Software Optimized Solutions

         AMBS provides integration of the "back office" software systems used by
broadband network service providers. Working with its strategic partner, NeST
Technologies, Inc., AMBS seeks to offer its customers a "toolkit" of
intelligence-based software products that can be used to provide rapid and
efficient systems integration which is customized for each customer's
requirements.

         AMBS has developed software management and control systems that assist
our well-trained workforce in meeting customers' schedules and expected quality
of work. AMBS software optimized tools are web-based and therefore accessible to
customers at their convenience, 24 hours a day, 7 days a week, anywhere in the
world.

         The AMBS business strategy is to provide software-optimized broadband
services in a very challenging climate for operational support systems ("OSS").
We have diversified our service offerings to include core competencies in all
vocations within the telecommunications services industry. Our primary focus has
been to develop and implement both administrative and operational efficiencies
through our OSS offerings.

Major Customers

         In the past, the Company's Broadband Products Unit derived a
significant portion of its revenue from OEMs (original equipment manufacturers),
but in fiscal 2002 a greater portion of its revenue came from MSOs (multiple
system operators) and other direct end-user customers as a result of the unit's
expanded direct global sales and marketing efforts. The multi-year agreement
with Charter Communications is also contributing to a greater portion of revenue
coming from MSOs and other direct end-users. The Broadband Products Unit
maintains key strategic OEM relationships with Motorola, Philips,
Scientific-Atlanta and others, which purchase the Company's products under
private label relationships and re-sell them primarily to their international
customers.

         The Company's Broadband Services Unit primarily generates its revenue
through the sale of services to MSOs. In fiscal 2002, the Broadband Services
Unit relied on two primary customers, Cox Communications and AT&T Broadband and
Internet Services, Inc., for a majority of its business. This reliance on two


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significant customers is due primarily to the existing business relationships of
SRS and EDJ for fulfillment services, and due to industry consolidation. Through
the new engineering and construction divisions, we anticipate that revenues in
fiscal 2003 will come from a broader range of customers, thus decreasing our
reliance on two customers to account for a majority of AMBS revenues. We have
recently entered into Master Service Agreements with Comcast Corporation,
Charter Communications and Cablevision Systems Corporation that will begin to
balance the revenues from our customers.

         In fiscal 2002, three MSO customers contributed more than 10% of the
Company's total revenues. These customers contributed 38%, 15% and 14%,
respectively. In fiscal 2001, two OEM customers contributed 27% and 22%,
respectively, of the Company's total revenues. No other customer contributed
more than 10% of revenues in either year.

         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.

Backlog

         At March 30, 2002, the Company's Broadband Products Unit had a backlog
of orders of $4.1 million, as compared with a backlog of $3.2 million as of
April 1, 2001. All orders in the backlog are expected to ship during fiscal
2003. The Company's Broadband Services Unit has multi-year master contracts with
MSOs that currently generate approximately $400,000 in weekly billings.

Marketing and Markets

         AMBP sells its products directly to end-user customers through its OEM
relationships, through its direct sales force, and through independent
value-added-resellers in selected international regions. 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 AMBP'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 AMBP's technical personnel is
frequently required.

         AMBP's marketing activity is also directed towards establishing
strategic OEM relationships in which the OEM customer will purchase private
label versions of AMBP's products and include them as part of an integrated
package to the OEM's customers. The OEM strategy allows AMBP to greatly expand
its selling presence, particularly in the international markets. AMBP also
utilizes its OEM relationships to assist in defining and developing new
products. Direct sales to end-user customers and sales generated through sales
representatives accounted for 67% of the Company's total sales, and OEM
partnerships accounted for generated 33% of the Company's total sales during
fiscal 2002, compared to 31% and 69%, respectively, in fiscal 2001.


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         AMBS markets its services primarily to the ten largest cable television
multiple system operators (MSO's) A substantial portion of the AMBS service
business is performed under nationally generated and locally approved service
agreements. These agreements are generally performance based and not exclusive
to a particular market. Most agreements have a term of one year with options to
renew, and payment terms are based on a fixed unit pricing schedule. Some
projects are bid by AMBS on a non-recurring unit basis.

         The AMBS management team is primarily responsible for the sales and
marketing efforts of the business unit and it receives support from the
corporate staff of the Company.

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 third party assembly vendors, into finished products that often are
integrated with standard peripherals. The Company's operations also include
extensive testing of its systems and components. The Company is ISO 9001
certified. The Company also develops the proprietary hardware (master control
units) used to control various network systems, as well as the software
(Omni2000(TM)) for such systems.

         As part of its association with the NeST organization, the Company has
entered into an outsource manufacturing arrangement in which substantially all
of the Company's products are manufactured using a NeST associated
sub-contractor assembly and test operation in India. Under this relationship,
the Company's existing manufacturing staff was transferred and became employees
of NeSTronix as of January 2, 2000. In return, the Company received a long-term
commitment from NeSTronix to manage and supply all of the Company's
manufacturing requirements for a three year period with agreed upon pricing.
NeSTronix utilizes, as its subcontractors, the Indian-based operation and other
third party assemblers as previously described. The Company continues to
purchase and hold title to all material purchases used in the manufacturing
operations and consigns such materials to NeSTronix as required.

         The Company generally has multiple sources of supply for the various
component parts which it purchases and utilizes several sub-contract board
assemblers. However, shortages or delayed deliveries of certain components are
possible and could have an adverse effect on the Company's business. Future
shortages of components or production capacity constraints could negatively
impact the Company's ability to meet its customer obligations or result in
increased prices for components. During fiscal 2002, two vendors accounted for
over 10% of the Company's purchases of component parts as follows: 25% and 19%.
During fiscal 2001, two vendors accounted for over 10% of the Company's
purchases of component parts as follows: 21% and 11%. In addition, any failure
or default by NeST or NeSTronix could have a material adverse effect on the
Company.

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.


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         During fiscal 1999, the Company entered into a strategic relationship
with NeST, under which NeST provides a substantial portion of the Company's
product development engineering requirements. Under this agreement, the Company
continually develops new transponder and software products which it believes are
critical for improving its competitive position.

         The Company currently maintains OEM agreements with, or provides
private label versions of its products to, Motorola, Scientific-Atlanta (SA) and
Philips Broadband Networks (Philips), as well as other smaller international OEM
equipment manufacturers. 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 that sometimes includes 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. The Company obtained
revenue from customer-funded development contracts that totaled $248,000 and
$216,000 in fiscal 2002 and 2001, respectively. The development revenues
primarily relate to OEM development efforts.

         The Company's research and development costs totaled $3.9 million in
fiscal 2002 and $3.5 million in fiscal 2001.

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 continues to identify product development needs in excess
of its available development resources, which may negatively impact its
competitive position. The Company's strategic development relationship with
NeST, established during the third quarter of fiscal 1999, has significantly
expanded the Company's technical resources and enabled it to respond more
quickly to market requirements.

         There are several competitors providing network monitoring systems to
the CATV industry, including Acterna, which acquired the Company's leading
competitor, Cheetah Technologies, in 2000. In addition, other major competitors
of the Company include Tollgrade Communications, Inc. and Barco, which was
acquired by Scientific-Atlanta in 2001. Although the Company's market share
compared to its competitors improved dramatically during fiscal 2002, all of
these competitors have greater financial, marketing, and technical resources
than the Company.


                                       12
<PAGE>


         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.

          The broadband services industry is highly fragmented and extremely
competitive. AMBS competes with locally-owned and operated companies as well as
large corporations with nationwide operations. Some of the larger companies have
greater financial, technical and marketing resources than the Company. There are
few barriers to entry in the markets in which AMBS conducts business. A
significant portion of AMBS' business is originated under master service
agreements where the work can be put to bid by multiple service providers. Thus,
AMBS may, from time to time, lose opportunities to its competitors in the
competitive bidding process. While AMBS believes it has certain competitive
advantages in the market, there can be no assurances that AMBS' competitors will
not develop the expertise, experience and resources that are equal to or greater
than that of AMBS or that AMBS will be able to maintain its competitive
position.

         The Company's management believes that customers in the broadband
services industry will generally base decisions concerning the awarding of
projects on the reputation, expertise, level of service offerings, and financial
stability of the bidders. We believe that we will compete favorably with our
competition with respect to all of the criteria.

         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. The Society
of Cable Telecommunications Engineers ("SCTE"), 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 Omni2000(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 three years for its performance/status monitoring
products. Warranties on these products are on a repair or replacement basis.

Intellectual Property

         The Company's products and services have been enhanced by a significant
investment by the Company in information technology, research and development.
The Company has developed certain proprietary computer software that it seeks to
protect through a combination of contract law, trademarks, and trade secrets.


                                       13
<PAGE>


         It is also the Company's policy to seek patent protection in the United
States for 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, trademarks and service marks relating to its
status monitoring products and to its broader business. While these patents,
trademarks and service marks are of value, the Company does not believe that it
is dependent, to any material extent, upon patent or trademark protection.

Government Regulation

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

         Much of the work performed by AMBS requires the Company to obtain
permits and licenses from state and local authorities in order to undertake
those projects, and the Company makes all reasonable efforts to take the
necessary steps to comply with state and local regulations and requirements.

Employees

         As of March 30, 2002, the Company had 424 full-time employees,
including 22 in administration, 13 in marketing and sales, 13 in engineering, 13
in engineering services, 29 in project management, and 334 service technicians.
Through the NeST strategic relationship, the Company had, as of such date,
approximately 50 NeST design staff members working on AM programs as of such
date. In addition, the Company utilizes contract employees and temporary
employees to meet peak production demands or special project needs.

         None of the Company's employees nor any of its locations are subject to
a collective bargaining agreement, and there have been no known attempts to
unionize made by the Company's employees. The Company considers its relations
with its employees to be good.

Risks Related to the Company's Business

         The risk factors identified in the cautionary statements below could
cause the Company's actual results to differ materially from those suggested in
the forward-looking statements appearing elsewhere in this report on Form
10-KSB. However, these risk factors are not exhaustive and new risk factors may
also emerge from time to time. It is not possible for management to predict all
risk factors or to assess the impact of all risk factors on our business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
Accordingly, forward-looking statements should not be relied upon as a
prediction of actual results.

The Company depends on the capital spending of CATV system operators for a
substantial portion of its revenues and any decrease or delay in this capital
spending would negatively impact the Company's resources, operating results and
financial condition.


                                       14
<PAGE>


         Historically, almost all of AM's sales had been derived from sales to
cable television system operators and we expect these sales to constitute a
significant portion of revenues for the foreseeable future. Demand for AM's
products and services will depend on the timing and magnitude of capital
spending by cable television system operators in constructing and upgrading of
their CATV systems.

         These capital spending patterns are dependent on a variety of factors,
including:

         o        overall demand for communication services and the acceptance
                  of new video, voice and data services;

         o        the status of federal, local and foreign government regulation
                  of telecommunications and television broadcasting;

         o        annual budget cycle;

         o        evolving industry standards and network architectures;

         o        competitive pressures in the market;

         o        the impact of industry consolidation; and

         o        general economic conditions.

         In the past, specific factors contributing to reduced capital spending
have included:

         o        uncertainties related to the development of digital video and
                  cable modem industry standards;

         o        delays associated with the evaluation of new services and
                  system architectures by many cable television operators;

         o        emphasis on generating revenue from existing customers by
                  cable television operators instead of new construction or
                  network upgrades; and

         o        general economic conditions in domestic and international
                  markets.

         Developments in capital markets over the last several months have
reduced access to funding for new and existing customers, causing delays in the
timing and scale of deployments of our equipment, as well as the postponement of
certain projects by our customers. Over the past year, AM has received
notification from certain of its customers that they were going to delay or
cancel new projects or new orders due to market conditions or funding
constraints. Since the majority of our sales have been to relatively few
customers, a delay or cancellation of a project or an order by any one customer
has in the past, and could in the future, have a material adverse effect on our
sales in a particular quarter. For a more detailed discussion regarding risks
related to our major customers, see "Our customer base is concentrated and the
loss of any key customer would have a negative effect on our business."


                                       15
<PAGE>


Our customer base is concentrated and the loss of any key customer would have a
negative effect on our business.

         Historically, a majority of our sales have been to relatively few
customers, and due in part to the consolidation of ownership of cable television
systems, we expect this customer concentration to continue in the foreseeable
future. Sales to our two largest customers in fiscal 2002 and 2001 accounted for
approximately 53% and 49% of revenues, respectively. Although we are attempting
to broaden our customer base, we expect to see continuing industry consolidation
and customer concentration due in part to the significant capital costs involved
with constructing broadband networks. For example, Comcast and AT&T Broadband
have announced plans to merge, subject to regulatory and shareholder approvals,
among other conditions. In fiscal 2002, three MSO customers contributed more
than 10% of the Company's total revenues, contributing 38%, 15% and 14%,
respectively. No other customer accounted for more than 10% of our net sales in
2002. The loss of any significant customer or any reduction in orders by any
significant customer, or our failure to qualify our products with a significant
customer could adversely affect our business, operating results and liquidity.
We cannot currently predict the impact of the AT&T Broadband merger with Comcast
on our future sales. Our sales are made on a purchase order or system contract
basis, and none of our customers has entered into a long-term agreement
requiring it to purchase our products. The loss of, or any substantial reduction
in orders from, a significant customer would harm our business.

Our operating results are likely to fluctuate significantly and may fail to meet
or exceed the expectations of investors, causing our stock price to decline.

         Our operating results have fluctuated in the past and are likely to
continue to fluctuate in the future, on an annual and a quarterly basis, as a
result of several factors, many of which are outside of our control. Some of the
factors that may cause these fluctuations include:

         o        the level and timing of capital spending by our customers;

         o        changes in market conditions;

         o        the timing and amount of customer orders;

         o        the timing of revenue from systems contracts which may span
                  several quarters;

         o        unpredictable sales cycles;

         o        seasonality of the business;

         o        market acceptance of new products and services;

         o        the cost and availability of components, subassemblies and
                  modules;

         o        the mix of our customer base and sales channels;

         o        the mix of our products and services sold;


                                       16
<PAGE>


         o        the development of custom products and software; and

         o        general economic conditions and economic conditions specific
                  to the cable television industry.

         In addition, we establish our expenditure levels for product
development, engineering and other operating expenses based on projected sales
levels, and expenses are relatively fixed in the short term. Accordingly,
variations in the timing of sales can cause significant fluctuations in
operating results. In addition, because a significant portion of our business is
derived from orders placed by a limited number of large customers, the timing of
such orders can also cause significant fluctuations in our operating results. As
a result of all these factors, our operating results in one or more future
periods may fail to meet or exceed the expectations of investors. In that event,
the trading price of our common stock would likely decline.

         Following the September 11, 2001 terrorist attacks on New York City and
Washington, D.C., the U.S. and global economies were weakened. Any continued
economic deterioration in these economies may impair our ability to ship our
products internationally from our suppliers and within the United States. This
may result in further decreases in our revenues. In addition, these events may
have a negative impact on our business as a result of the cautious purchasing
behavior of customers.

The Company may need additional capital in the future and may not be able to
secure adequate funds on acceptable terms.

           We currently believe that our existing liquidity sources, including
our bank line of credit facility, will satisfy our requirements for at least the
next twelve months. We may need to raise additional funds if our estimates
change or prove inaccurate or in order for us to respond to unforeseen
technological or marketing hurdles, or to take advantage of unanticipated
opportunities. Our ability to raise funds may be adversely affected by a number
of factors relating to AM, as well as factors beyond our control, including
increased market uncertainty following the events of September 11, 2001,
continued unrest in the Middle East and the ongoing U.S. war on terrorism. There
can be no assurance that such financing, if needed, will be available on terms
acceptable to us, if at all.

          In addition, we may review other potential acquisitions that would
complement our existing product offerings, enhance our technical capabilities,
expand the scale of our services business or expand our marketing and sales
presence. While we have no current agreements or negotiations underway with
respect to any potential acquisition that have not already been publicly
announced, any future transaction of this nature could require potentially
significant amounts of capital. If adequate funds are not available, or are not
available on acceptable terms, we may not be able to take advantage of market
opportunities, to develop new products or to otherwise respond to competitive
pressures.

The cable television and broadband communications industries are consolidating
and markets are subject to rapid technological change.

         The cable television and broadband communications industries are
undergoing significant change as CATV system 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,


                                       17
<PAGE>

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.

         It is difficult to accurately predict the cable television and
broadband communications markets' future growth rates, sizes or technological
directions. In view of the evolving nature of these markets, it is possible that
cable television operators, telephone companies or other suppliers of broadband
wireless and satellite services will decide to adopt alternative technologies or
architectures that are not compatible with AM's current or future products. If
we are unable to design, develop, manufacture and sell products that incorporate
or are compatible with these new technologies or architectures our business will
suffer.

We need to develop and introduce new and enhanced products in a timely manner to
remain competitive.

         Broadband communications markets are characterized by continuing
technological advancement, changes in customer requirements and evolving
industry standards. To compete successfully, we must design, develop,
manufacture and sell new or enhanced products that provide increasingly higher
levels of performance and reliability. However, we may not be able to
successfully develop or introduce these products, if our products:

         o        are not brought to market in a timely manner,

         o        are not cost effective, or

         o        are not developed to the evolving industry standards.

         Further, to develop and market certain of our planned future products
we may be required to enter into technology development or licensing agreements
with third parties. We cannot assure you that we will be able to enter into any
necessary technology development or licensing agreement on terms acceptable to
us, or at all. The failure to enter into technology development or licensing
agreements when necessary could limit our ability to develop and market new
products and, accordingly, could materially and adversely affect our business
and operating results.

We need to effectively manage our operations and the cyclical and seasonal
nature of our businesses.

         The growth of our operations and the cyclical nature of our business
has placed, and is expected to continue to place, a significant strain on our
resources. Our ability to manage our business effectively in the future,
including any future growth, will require us to train, motivate and manage our
employees successfully, to attract and integrate new employees into our overall
operations, to retain key employees and to continue to improve our operational,
financial and management systems. The Company, with the assistance of its


                                       18
<PAGE>

strategic partner, NeST Technologies, Inc., has attempted to implement, and
intends to continue to implement, information technology systems that will
enhance the efficiency and productivity of the Company's employees and other
resources. While the early stages of this implementation have improved
operations, there can be no assurance that the Company will implement the
information technology systems in an efficient, cost-effective or timely manner
or that the new information technology systems will be adequate to support all
of our operations. If we fail to manage our existing operations or any future
growth effectively, our business could suffer.

         CATV system operators' capital spending may be subject to the effects
of seasonality, with generally fewer construction and upgrade projects scheduled
in winter months, and the timing of these projects may be otherwise affected by
inclement weather. Due to a significant concentration of the business of AMBS in
the Northeast Region of the United States, the Company's fiscal fourth and first
quarters are subject to fluctuation in revenues and are generally less active
for the services business than the second and third fiscal quarters. Also, the
majority of our clients tend to expend their annual budgets by the end of the
calendar year, and delay new projects until at least the middle of the first
calendar quarter. Due to the cycle of the capital spending plans of our
customers and seasonal weakness, we generally expect a slight sequential sales
decline during our fiscal fourth quarter.

Our businesses are reliant on qualified personnel and we may not be successful
in attracting, training and retaining our key personnel.

         Our future success will depend, to a significant extent, on the ability
of our management to operate effectively, both individually and as a group. We
are dependent on our ability to retain and motivate high caliber personnel, in
addition to attracting new personnel. In spite of the current worldwide economic
slowdown, competition for qualified technical and other personnel remains
intense and we may not be successful in attracting and retaining such personnel.

         The success of AM's services business is highly dependent on AM's
ability to attract and retain qualified service personnel. In addition, to
successfully develop and market AM's products, we must retain and continue to
attract personnel with appropriate experience and expertise. Competition for
qualified personnel is intense. We may not be successful in retaining and
attracting qualified personnel.

         Competitors and others have in the past and may in the future attempt
to recruit our employees. While our employees are required to sign standard
agreements concerning confidentiality, non-competition and ownership of
inventions, we generally do not have employment agreements with any of our
non-executive personnel. The loss of the services of any of our key personnel,
the inability to attract or retain qualified personnel in the future or delays
in hiring required personnel, particularly engineers and other technical
personnel, could negatively affect our business.

We may be subject to risks associated with recent acquisitions.

          We have made and may make investments in complementary companies,
products or technologies. If we make acquisitions, we could have difficulty
assimilating or retaining the acquired companies' personnel and operations or
integrating the acquired technology or products into ours. These difficulties


                                       19
<PAGE>

could disrupt our ongoing business, distract our management and employees and
increase our expenses. Moreover, our operating results may suffer because of
acquisition-related expenses, amortization of intangible assets and impairment
of acquired goodwill or intangible assets. Furthermore, we may have to incur
debt or issue equity securities to pay for any future acquisitions, the issuance
of which could be dilutive to our existing shareholders. If we are unable to
successfully address any of these risks, our business, financial condition and
operating results could be harmed.

The Company's failure to adequately protect its proprietary rights may adversely
affect it in the future.

         We currently hold several United States patents relating to our
products. Although we attempt to protect our intellectual property rights
through patents, trademarks, copyrights, licensing arrangements, maintaining
certain technology as trade secrets and other measures, we cannot assure you
that any patent, trademark, copyright or other intellectual property rights
owned by us will not be invalidated, circumvented or challenged, that such
intellectual property rights will provide competitive advantages to us or that
any of our pending or future patent applications will be issued with the scope
of the claims sought by us, if at all. We cannot assure you that others will not
develop technologies that are similar or superior to our technology, duplicate
our technology or design around the patents that we own. In addition, effective
patent, copyright and trade secret protection may be unavailable or limited in
certain foreign countries in which we do business or may do business in the
future.

         We believe that the future success of our business will depend on our
ability to translate the technological expertise and innovation of our personnel
and of our strategic partners into new and enhanced products and services. We
generally enter into confidentiality or license agreements with our employees,
consultants, vendors and customers as needed, and generally limit access to and
distribution of our proprietary information. Nevertheless, we cannot assure you
that the steps taken by us will prevent misappropriation of our technology. In
addition, we have taken in the past, and may take in the future, legal action to
enforce our patents and other intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could negatively effect our business, operating results, financial position and
liquidity.

         In order to successfully develop and market certain of our new products
in the future AM may be required to enter into technology development or
licensing agreements with third parties. Although many companies are often
willing to enter into such technology development or licensing agreements, we
cannot assure you that such agreements will be negotiated on terms acceptable to
us, or at all. The failure to enter into technology development or licensing
agreements, when necessary, could limit our ability to develop and market new
products and could cause our business to suffer.


                                       20
<PAGE>


The Company faces risks associated with its key vendors having important
facilities and resources located in India

          AM's hardware products are manufactured and its software is developed
by its partners NeSTronix, Inc. and NeST Technologies, Inc., respectively,
primarily with personnel and at facilities located in India. The personnel at
these facilities represent a significant portion of our research and development
operations. Accordingly, we are directly influenced by the political, economic
and military conditions affecting India, and any major hostilities involving
India or the interruption or curtailment of trade between India and its present
trading partners could significantly harm our business. The September terrorist
attacks, the ongoing U.S. war on terrorism and the escalation of hostilities
between Pakistan and India have heightened these risks. We cannot assure you
that the protraction or escalation of current tensions in Southern Asia will not
adversely affect our business and results of operations.

Our stock price may be volatile.

         The market price of our common stock has fluctuated significantly in
recent years, and is likely to fluctuate in the future. In addition, the
securities markets have experienced significant price and volume fluctuations
and the market prices of the securities of technology companies have been
especially volatile. Investors may be unable to resell their shares of our
common stock at or above their purchase price. In the past, companies that have
experienced volatility in the market price of their stock have been the object
of securities class action litigation, though the Company is not aware of the
present threat of any such action.

Item 2. Description of Property.

The Company's corporate headquarters and production operations are located in
Quakertown, Pennsylvania in a 46,000 sq. ft. modern, leased facility. The lease
is on a month-to-month basis. Subsequent to March 30, 2002, the Company
purchased the property for $2,565,000. The Company also leases office/warehouse
space for its various projects throughout the United States as follows:


<TABLE>
<CAPTION>
                                                                                                    Minimum Lease
                                                                                                       Payments
                                     Square                        Lease                        ----------------------
             Location                 Feet                          Term                        Monthly       Annually
             --------                 ----                          ----                        -------       --------

<S>                                  <C>         <C>                                              <C>         <C>
Atlanta, Georgia                     3,844       February 15, 2002 to February 15, 2003           7,368        88,412
Framingham, Massachusetts            2,000       October 1, 2001 to September 30, 2006            5,417        65,000
Newport News, Virginia              12,551       October 1, 2001 to September 30, 2004            2,300        27,600
Worcester, Massachusetts             1,000       October 15, 2001 to October 14, 2002             2,000        24,000
Waterville, Maine                    2,000       January 18, 2001 to July 31, 2002                  550         6,600
Canterbury, Connecticut              1,000       January 1, 2002 to January 31, 2003                600         7,200
Norfolk, Virginia                    1,480       April 1, 2002 to March 31, 2007                  5,608        67,296
Stratford, Connecticut               2,600       January 1, 2002 to June 30, 2002                 2,350        28,200
Falls Church, Virginia               4,560       January 1, 2002 to December 31, 2004             4,500        54,000
Marlborough, Massachusetts             427       October 1, 2001 to September 30, 2002              550         6,600
West Hartford, Connecticut           3,000       June 1, 2002 to May 31, 2003                     4,400        52,800
Englewood, Colorado                  8,979       January 8, 2002 to February 28, 2005             8,979       107,748
Dallas, Texas                       15,000       October 1, 2001 to September 30, 2003            4,375        52,500
</TABLE>


                                       21
<PAGE>


Item 3. Legal Matters.

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

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

         None.

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 the 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, markdowns or commissions and do
not necessarily represent actual transactions.


                                 Bid Quotations
                                 --------------

Fiscal Quarter                 High         Low
--------------                 ----         ---
   2002
   ----
      First Quarter             .65         .26
      Second Quarter            .45         .25
      Third Quarter             .62         .30
      Fourth Quarter            .61         .35

   2001
   ----
      First Quarter           1.937        .562
      Second Quarter          1.438        .510
      Third Quarter           1.187        .220
      Fourth Quarter           .740        .260


                                       22
<PAGE>
         As of June 7, 2002, there were approximately 861 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 Strategic Development
and Manufacturing Agreement with Network Systems & Technologies(P) Ltd. ("NeST
(P) Ltd."). NeST (P) Ltd. is a technology company located in India which
provides software and hardware design services and manufacturing services. NeST
(P) Ltd. is controlled and managed by N. Jehangir, who is the brother of Mr. Jay
Hassan. Mr. Hassan is the founder, CEO, and owner of NeST Technologies, Inc., a
U.S. headquartered technology services company, which provides and receives
services to and from NeST (P) Ltd. Collectively, these operations are referred
to at times herein as "NeST".

         Under the terms of the Strategic Development and Manufacturing
Agreement, the Company on April 3, 1999 issued to NeST warrants to purchase
4,234,018 shares of the Company's Common Stock, at an exercise price of $.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 Company
also issued to NeST warrants to purchase 3,628,316 shares of the Company's
Common Stock, at an exercise price of $.01 per share, in payment of $1,157,197
of NeST development services for the period from April 4, 1999 through January
1, 2000. On January 24, 2001, NeST exercised all of its warrants and purchased
7,862,334 shares of the Company's Common Stock.

         The NeST warrants, and the shares of the Common Stock issued upon the
exercise thereof, 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.


                                       23
<PAGE>


         As compensation for its services as investment advisor to the Company,
on March 15, 2002 the Company issued warrants to Investec PMG Capital to
purchase 900,000 shares of the Company's Common Stock, at an exercise price of
$0.42 per share. The warrants were immediately vested and expire on March 15,
2007 unless sooner exercised.

         The Investec 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 Investec as compensation for services
provided by Investec to the Company. No offer of the warrants was made by the
Company to any other person or entity.

         On October 30, 2000, the Company's majority shareholder, Alvin Hoffman,
exercised his right to convert 6,000 shares of senior convertible preferred
stock into 800,000 shares of the Company's common stock.

         During fiscal year 2002, the Company's Board of Directors authorized
the Company's investment banker to assist the Company in raising up to
$2,000,000 in additional equity financing for the Company. To raise such
additional capital, the Company's Board of Directors approved a private
placement of restricted shares of the Company's Series A Preferred Stock, which
bears a 10% annual cumulative dividend, at a price of $27.00 per share. Each
share of the Series A Preferred Stock can be converted into 100 shares of the
Company's Common Stock, subject to standard anti-dilution provisions. Purchasers
of each share of the Company's Series A Preferred Stock in this offering are
also entitled to receive a warrant to purchase up to 25 shares of the Company's
Common Stock, at a price of $0.27 per share. These warrants vest immediately and
are exercisable for six years from the date of purchase. The shares of the
Series A Preferred Stock being sold in this offering will be sold only to
accredited investors, including, without limitation, certain members of the
Company's Board of Directors. On January 29, 2002 the Company's Chairman and
CEO. Jay Hassan, purchased $1,000,000 of the shares of Series A Preferred Stock
included in this offering. In February 2002, a member of the Company's Board of
Directors, Alvin Hoffman, purchased $200,000 of the shares included in this
offering. The shares of the Series A Preferred Stock and the related Common
Stock purchase warrants were offered and sold by the Company in reliance upon
the exemption from registration provided for in Rule 506 of Regulation D
promulgated under the Securities Act of 1933, as amended.


                                       24
<PAGE>

                      Equity Compensation Plan Information

<TABLE>
<CAPTION>

                                                                                          Number of securities
                                                                                          remaining available for
                                Number of Securities to be   Weighted-average exercise    future issuance under
                                issued Upon Exercise of      price of outstanding         equity plan
                                Outstanding Options,         options, warrants and        (excluding securities
                                Warrants and Rights          rights compensation plans    reflected in column (a))
Plan Category                   (a)                          (b)                          (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------

<S>                             <C>                          <C>                          <C>
Equity Compensation plans       17,184,405                   0.30                         (332,338)(1)
   approved by security
   holders

Equity Compensation plans       -                            -                            -
   not approved by security
   holders
</TABLE>


(1) The issuance of these shares is contingent upon shareholder approval.
    Shareholders will be requested to vote upon a proposal to increase the
    authorized shares for issuance under the 1999 Stock Option Plan at our
    Annual Meeting of Stockholders to be held on November 15, 2002.

Item 6. Management's Discussion and Analysis of Operations

Cautionary Statement For Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995

         The statements contained in this Annual Report on Form 10-KSB, along
with statements in other reports filed by the Company with the Securities and
Exchange Commission, external documents and oral presentations, which are not
historical are 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
present expectations or beliefs of the Company concerning future events. Such
statements must be qualified by important factors that could cause actual
results to differ materially from those achieved in the past or those expected
by the Company. Those factors which specifically relate to the Company's
business include: a history of operating losses (including a significant
reduction in revenue in fiscal 1999), rapid technological change along with the
need to continually develop new products and gain customer acceptance,
dependence on a relatively small total available market size, competition,
dependence on key employees, dependence on a small number of large customers,
whose demand for Company products are subject to substantial changes from year
to year, dependence on certain suppliers, and reliance on NeST related
operations for engineering and manufacturing services with respect to the
Company's products unit.


                                       25
<PAGE>


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

Overview

         The Company provides products (which include hardware and software
systems) and services (which include network engineering, design and
construction and subscriber installation) to the broadband communications
industry, primarily for CATV systems. AM has applied its technical strengths,
and the strengths of its strategic partners, in RF communications,
microprocessor controlled circuits and application software in order to produce
a suite of products and services that allows CATV system operators to build
better networks, maintain them more efficiently, and continually monitor their
technical performance and operation. The Company's principal activity from its
formation in 1974 to 1989 was the construction of cable TV systems, which was
discontinued in 1989.

         From 1989 to 2001, the Company's primary revenue was derived from the
sale of its OmniStatTM family of network monitoring and management systems.
Beginning in 1999, the Company began to pursue a diversification strategy to
broaden its offerings to include services as well as products. As part of this
diversification strategy, the Company formed a new business unit, AM Broadband
Services, Inc. ("AMBS"). AMBS is a wholly owned subsidiary of the Company that
began operations in January 2001. This business unit provides a range of
outside-plant services to CATV systems operators that include design,
engineering, installation, certification and maintenance. The Company's
Broadband Products ("AMBP") business unit continues to market its OmniStatTM
product line and other newly developed products through its traditional sales
channels, but is also utilizing the AMBS services unit as an additional sales
channel.

         During fiscal 2002, the Broadband Services Unit embarked on an
aggressive growth strategy with the following actions:

         (a)      On October 1, 2001, with the acquisition of SRS Communications
                  Corporation and EDJ Communications, Inc., AMBS entered into
                  the subscriber fulfillment services business.

         (b)      In January 2002, AMBS formed its design and engineering
                  services division in order to provide specialized engineering
                  services to the cable television and telecommunications
                  industries.

         (c)      In early 2002, AMBS formed AMC Services, Inc. in order to
                  provide construction services to the cable television and
                  broadband communications industries.

The formation of both of the new divisions of AMBS required significant capital
and employee-related expenditures to start and were built by procuring the
services of highly experienced, industry professionals with strong reputations.


                                       26
<PAGE>


On June 3, 2002, subsequent to the end of the 2002 fiscal year, the Company
entered into a definitive merger agreement with Nex-Link Communication Project
Services, LLC. The acquisition of this entity as a result of the merger will add
significant depth to AMBS's ability to provide engineering, design,
construction, and installation services to owners of broadband communications
networks.

Critical Accounting Policies

         In December 2001, the Securities and Exchange Commission ("SEC") issued
disclosure guidance for "critical accounting policies". The SEC defines
"critical accounting policies" as those that require application of management's
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain and
may change in subsequent periods.

         The Company's significant accounting policies are described in Note A
in the Notes to Consolidated Financial Statements. Not all of these significant
accounting policies require management to make difficult, subjective or complex
judgments or estimates. However, the following policies could be deemed to be
critical within the SEC definition:

Revenue Recognition

         The Company derives its revenues principally from sales of its products
to the cable television industry. Revenue is recognized when the product is
shipped to customers. The Company's software revenue is recognized in accordance
with the American Institute of Certified Public Accountant's Statement of
Position (SOP) 97-2 and related amendments. 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. Each component of the Company's
products is sold separately and the cost of each component is listed separately
in the purchase documentation. Revenue from custom development efforts is
recognized as contractual milestones are achieved.

         The Broadband Services Unit segment derives its revenues from sales of
outside-plant services to CATV operators. Revenue is recognized as contracted
tasks are completed and billed. Individual contracts are of short duration.

Inventory

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

Use of Estimates

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.


                                       27
<PAGE>


         The above listing is not intended to be a comprehensive list of all of
the Company's accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application. There
are also areas in which management's judgment in selecting any available
alternatives would not produce a materially different result. See the Company's
audited Consolidated Financial Statements and Notes thereto which are a part of
this Annual Report on Form 10-KSB and contain accounting policies and other
disclosures required by generally accepted accounting principles.

Results of Operations
Fiscal 2002 vs. 2001
                                              Fiscal 2002        Fiscal 2001
                                              -----------        ----------
Revenues                                        100.0%             100.0%

Cost of Sales                                    57.9               49.3
Selling, General and Administrative              25.1               20.3
Research and Development                         13.6               22.1

Operating Income (Loss)                           3.4                8.3
Other Expense                                    (1.7)              (0.9)
                                                -----              -----

Income (Loss) Before Income Taxes                 1.7                7.4
Income Tax (Benefit) Provision                    0.6                 --
                                                -----              -----

Net Income (Loss)                                 2.3%               7.4%
                                                =====              =====

Revenues

         Total revenues were $28.7 million for the fiscal year ended March 30,
2002. compared to $15.9 million in fiscal 2001. The increase in revenues in
fiscal 2002 from fiscal 2001 is primarily due to growth in the Company's
Broadband Services Unit. This growth is attributable to the acquisition of SRS
Communications Corp./EDJ Communications, Inc. which together contributed $8.9
million in revenue during fiscal 2002. The remaining increase in revenues is due
to the Company's Broadband Products Unit expanding its direct global sales and
marketing efforts, and sales made pursuant to its multi-year agreement with
Charter Communications.

         The Company's Broadband Products Unit maintains key strategic OEM
(original equipment manufacturer) relationships with Motorola, Philips,
Scientific-Atlanta and others, which purchase the Company's products under
private label relationships and re-sell them primarily to their international
customers. The Broadband Products Unit's revenue from OEMs and foreign
distributors was 33% of its revenue for the fiscal year ended March 30, 2002,
compared to 69% of its revenue in fiscal 2001. A greater portion of the Product
Unit's revenue is coming from MSOs (multiple system operators) and other direct
end-user customers as a result of its expanded direct global sales and marketing
efforts and its multi-year agreement with Charter Communications.

         The Company's Broadband Services Unit primarily generates its revenue
through the sale of services to MSOs. Three MSO customers contributed more than
10% of the Company's total revenues in the fiscal year ended March 30, 2002 -
38%, 15% and 14%, respectively. In fiscal 2001, two OEM customers contributed
27% and 22%, respectively, of the Company's total revenues for the fiscal year.


                                       28
<PAGE>

         As the purchase of the Company's products and services is generally
associated with a customer's capital upgrade, expansion or marketing programs,
contribution levels of individual customers can be subject to wide fluctuations
from year to year.

         Software revenues totaled $1.7 million and $1.9 million in fiscal 2002
and 2001, respectively. Software revenues were higher in fiscal 2001 as many of
the Company's existing customers were completing their upgrade to the Company's
newly released Omni2000 software. All software development costs are charged to
research and development when incurred.

         Development revenues totaled $248,000 and $216,000 in fiscal 2002 and
2001, 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.

         Backlog for the Company's Broadband Products Unit was $4.1 million as
of March 30, 2002, compared to $3.2 million as of March 31, 2001. One MSO
customer accounted for 71% of the total backlog as of March 30, 2002. The
backlog had been reduced to $3.8 million as of June 21, 2002. The Company's
Broadband Services Unit has multi-year master contracts with MSO(s) that
currently generate approximately $400,000 in weekly billings.

Cost of Sales

         Cost of sales includes all manufacturing costs of the Company's
Broadband Products Unit's hardware products and the job costs of the Company's
Broadband Services Unit's services. Total cost of sales represented 57.9% of
total revenues in the fiscal year ended March 30, 2002, compared to 49.3% in
fiscal 2001. The increase in total cost of sales as a percentage of total
revenues in fiscal 2002 is due to the Company's expansion into broadband
services, which carry a lower gross margin.

         Gross margin for the Broadband Products Unit was 54.8% for the fiscal
year ended March 30, 2002, compared to 51.5% for fiscal 2001. The Broadband
Products Unit's gross margin is generally dependent on customer mix and product
mix.

         Gross margin for the Broadband Services Unit was 20.5% for the fiscal
year ended March 30, 2002, compared to 35.1% for fiscal 2001. Included in cost
of sales for fiscal 2002 were $148,000 and $15,000 in start-up costs for the
Broadband Services Unit's new engineering and construction divisions,
respectively. The Broadband Services Unit's gross margin is dependent upon the
mix of fulfillment, engineering and construction services.

Selling, General and Administrative

         Selling, general and administrative expenses were $7.2 million in
fiscal 2002, compared to $3.2 million in fiscal 2001. Selling expenses increased
from fiscal 2001 as the result of the Company's Broadband Products Unit
expanding its direct global sales and marketing efforts. Additionally, selling
expenses increased due to higher sales commissions associated with a greater
percentage of revenues coming from MSO(s) and other direct-end user customers.


                                       29
<PAGE>

General and administrative costs also increased to support the Company's new
Broadband Services Unit and its increased business levels, including the
acquisition of SRS Communications Corporation/EDJ Communications, Inc.
Additionally, the Company incurred approximately $154,000 in one-time costs
associated with its move to a new corporate headquarters. During the latter part
of fiscal 2002, the Company added additional personnel and infrastructure that
it believes will support growth to an annual revenue level of over $45 million.
Selling, general and administrative expenses are expected to increase in fiscal
2003, but such expenses are expected to decline as a percentage of revenue.

Research and Development

         Research and development expense totaled $3.9 million for fiscal 2002,
compared to $3.5 million in fiscal 2001. The Company continued to spend a
significant amount on research and development during fiscal 2002 and 2001,
including expenditures related to its major development efforts to upgrade and
expand its software and hardware products. The Company expects research and
development spending to increase in fiscal 2003 in response to increased
customer demand for more advanced systems and software, but anticipates that
such expenses will decline as a percentage of revenue.

Operating Income

         The Company had operating income of $984,000 for fiscal 2002, compared
to operating income of $1.3 million in fiscal 2001. Operating income declined as
a percentage of sales in fiscal 2002 primarily due to a larger percentage of
revenues being generated by the Company's Broadband Services Unit. These
revenues carry a lower gross margin. The decline is also due to the one-time
costs associated with the Company's move to a new corporate headquarters and
with the start-up costs associated with the Broadband Services Unit's new
engineering and construction services divisions.

Interest and Other Expense (Income)

         The Company had interest and other expense (income) of $500,000 in
fiscal 2002, compared to $136,000 in fiscal 2001. In both fiscal 2002 and 2001
this consists primarily of interest expense on the Company's debt obligations.
In fiscal 2002, this also includes $240,000 in interest and penalties that have
been accrued on a state corporate income tax liability dating back to 1983
through 1985 and of which the Company's current management recently became
aware.

Income Taxes

         Due to the significant net operating loss carry-forward, the Company
pays minimal income taxes, which includes federal income taxes, based on an
"alternative minimum tax" calculation and state taxes in those states where the
Company does not have net operating loss carry-forwards.


                                       30
<PAGE>


Liquidity and Capital Resources

          In fiscal 2002, the Company consumed net cash of $158,000 compared to
generating net cash of $271,000 in fiscal 2001.

         Net cash generated by operating activities was $708,000 in fiscal 2002
versus net cash consumed of $170,000 in fiscal 2001. The positive cash flow from
operations was aided by an increase in accounts payable of $558,000 and a
decrease in inventory of $109,000, which offset the $838,000 increase in
accounts receivable related to the Company's growth in revenue.

         Net cash used in investing activities was $2,971,000 in fiscal 2002
versus $208,000 in fiscal 2001. This was due to the acquisition of businesses,
net of cash acquired, of $1,191,000 consummated on October 1, 2001, a
significant increase in capital expenditures and a $1,000,000 loan to attract a
key employee to head the Broadband Services Unit's construction services
business.

         Cash flow from financing activities was $2,105,000 in fiscal 2002
versus $ 649,000 in fiscal 2001. The major sources of cash in fiscal 2002 were
bank borrowings of $783,000 and $1.4 million in proceeds from the Company's
Series A Preferred Stock offering.

         During fiscal 1999, the Company received a $150,000 technology
improvement fund loan from the Ben Franklin Technology Center of Southeastern
Pennsylvania. The loan was for the initial phase development of the Company's
Omni2000 software package. The loan principal is payable in quarterly
installments of $7,500 over 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 outstanding loan balance as
of March 30, 2002 was $90,000.

         The Company maintains a working capital line of credit from a
commercial bank to provide up to $3,000,000 based on 80% of the value of
qualified accounts receivable. Under the terms of the loan documents for such
financing, all of the Company's assets, including without limitation all of the
outstanding shares of the Company's subsidiaries, are pledged to the lender and
interest is payable at 2% above prime. The line expires on September 30, 2002.
Current borrowings under the line are $2,991,000.

         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, 2002. No amounts were borrowed under this
line during fiscal 2002 or fiscal 2001.

         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 elected to issue NeST warrants
to purchase 4,234,018 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 April 3, 1999. The Company also issued
warrants to purchase 3,628,316 shares of the Company's Common Stock, at an
exercise price of $.01 per share, in payment of



                                       31
<PAGE>


$1,157,197 of NeST development services for the period from April 4, 1999
through January 1, 2000. Since January 2, 2000, the Company has paid cash for
NeST development services. As a result of improved operations, the Company
expects to pay ongoing NeST development expenses in cash, but continues to have
the option to issue warrants, up to a limit of 10 million total shares, under
the NeST agreement.

         In October 2000, the Company's majority shareholder exercised his right
to convert 6,000 shares of senior convertible preferred stock into 800,000
shares of the Company's common stock. In October 2001, the Company's majority
shareholder exercised his right to convert 19,825 shares of senior convertible
preferred stock into 3,965,000 shares of the Company's common stock at an
exercise price of $0.50 per share. Following such conversion, no shares of the
Company's senior convertible preferred stock remained outstanding.

         In January 2001, the NeST related companies exercised their warrants to
purchase 7,862,334 shares of the Company's common stock at an exercise price of
..01 per share.

         In January 2002, the Company's Board of Directors authorized the
Company's investment banker to raise up to $2,000,000 in additional equity
financing through a private placement of restricted shares of the Company's
Series A Preferred Stock, at a price of $27.00 per share. The Series A Preferred
Stock bears a 10% annual cumulative dividend. Each share of the Series A
Preferred Stock can be converted into 100 shares of the Company's Common Stock,
subject to standard anti-dilution provisions. Purchasers of each share of the
Company's Series A Preferred Stock in this offering are entitled to receive a
warrant to purchase up to 25 shares of the Company's Common Stock, at a price of
$0.27 per share. These warrants vest immediately and are exercisable for six
years from the date of purchase. The sale of shares of the Series A Preferred
Stock in this offering is restricted to accredited investors, including without
limitation certain members of the Company's Board of Directors. On January 29,
2002, the Company's Chairman and CEO purchased $1,000,000 of the shares. In
February 2002, one of the Company's Board of Directors and a family member of
such director each purchased $200,000 of the preferred shares. The remaining
$600,000 of the equity offering was not purchased as of May 21, 2002, at which
time the Company's Board of Directors voted to terminate the offering.

          Capital expenditures totaled $1,019,000 in fiscal 2002 and $215,000 in
fiscal 2001 which included capital leases, computer equipment, software,
manufacturing assembly/test equipment, test lab equipment, office
furniture/fixtures, vehicles, facility improvements and service technician
equipment. For fiscal 2002, this includes $331,000 in renovations and networking
infrastructure associated with the Company's new corporate headquarters. The
increase in capital expenditures for fiscal 2002 is also due to the growth of
the Company's Broadband Services Unit.

        Subsequent to March 30, 2002, the Company obtained a commitment, subject
to the satisfaction of standard terms and conditions, from a bank for a
$10,700,000 credit facility, collateralized by substantially all assets of the
Company. The credit facility, as proposed, would consist of the following:



                                       32
<PAGE>


         1.  Revolving Credit Loans

                  Revolving credit loan having a maximum availability equal to
         the lesser of (a) Seven Million Five Hundred Thousand Dollars
         ($7,500,000); and (b) eighty-five percent (85%) of the Company's
         eligible accounts. The revolving credit loans bear interest, at the
         Company's option, at either (i) a base rate equal to the prime rate of
         the bank plus 0.50% or (ii) at the LIBOR rate plus 2.75%.

         2.  Letters of Credit

                  Standby letters of credit, provided that the aggregate undrawn
         face amount of such letters of credit are not in excess of, at any one
         time, $1,000,000. In addition to the normal charges for letters of
         credit, the Company is subject to an annual 3% administrative fee of
         the face amount of the letters of credit payable monthly. The
         outstanding letters of credit will automatically reduce, dollar for
         dollar, the amount that may be borrowed as revolving credit loans under
         the revolving credit facility.

         3.  Term Loans

                  (a)  A $500,000 discretionary machinery and equipment
                       acquisition line. Advances are limited to 80% of the net
                       invoice cost, cannot be less than $100,000 and will be
                       permitted only during the first two years following the
                       closing date;

                  (b)  A $2,200,000, three-year term loan with a balloon payment
                       payable upon the earlier to occur of the termination of
                       the credit facility or the expiration of the initial
                       contract term;

                       These two term loans bear interest, at the Company's
                       option, at either (i) the prime rate in effect plus 0.75%
                       or (ii) the LIBOR rate plus 3%; and

                  (c)  Up to a $500,000 two year loan with an annual excess cash
                       flow recapture provision of 50%. Interest rate for this
                       loan is prime plus 2%.

         The proceeds of these credit facilities will be used by the Company to
refinance its existing debt and for working capital needs associated with the
Company's growth.

         The Company believes that cash from profitable operations, available
credit facilities and the ability to pay for NeST development services in cash
or warrants, will provide sufficient liquidity to support its operations through
the next fiscal year.

Item 7. Financial Statements

         The information called for by this Item is set forth on Pages F-1
through F-29.

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 as of
March 30, 2002:


Name                         Age    Position
----                         ---    --------

Javad K. Hassan              61     Chairman and Director
Joseph D. Rocci              54     Group Vice President, AM Broadband Products
Maqbool A. Qurashi           69     Group Vice President, AM Training Services
C. Scott Hisey               37     Group Vice President, AM Broadband Services
Michael L. Quelly            48     Vice President, Hardware Engineering
Roger Jack(4)                42     Vice President, Software Engineering
H. Charles Wilson, III       46     Corporate Controller
R. Barry Borden(2)           62     Director
Jill D. Felix(1)(2)          58     Director
Alvin Hoffman                73     Director
Keith D. Schneck(2)(3)       47     Director
Lemuel A. Tarshis, Ph.D.(1)  61     Director




                                       34
<PAGE>
----------------------------
(1)      Member of Compensation and Stock Option Committee of the Board.

(2)      Member of Audit Committee of the Board.

(3)      Mr. Schneck resigned as an officer and an employee of the Company
         effective December 31, 2000, but continues to serve as a director of
         the Company.

(4)      Mr. Jack subsequently resigned as an officer and an employee of the
         Company on June 7, 2002.

         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 succeeding year and
until their successors are duly elected and qualified.

Biographical Information

         R. Barry Borden has been a director of the Company since October 1996.
Mr. Borden is President of LMA Group, a management consulting firm in Merion,
Pennsylvania and is Chairman of Ozro, Inc. of Boston, Massachusetts, a supplier
of E commerce software. He previously was President of Broadbeam Corporation of
Princeton, New Jersey from 1997 and 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 Fastnet Corporation, and Vice Chairman of Sedona
Corporation, both publicly held companies.

         Jill D. Felix was elected director of the Company in March 2000. She
has been President, CEO, and director of the University Science Center since
1997. She previously held executive level positions with Liberty Property Trust
from 1983 to 1997. She also holds director positions for numerous organizations
including Greater Philadelphia First, West Philadelphia Partnership, University
City District, Delaware Valley Industrial Resource Center, Pennsylvania
BioTechnology Association, International House, and the Valley Forge Historical
Society.


                                       35
<PAGE>


         Javad K. Hasan 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. Mr. Hassan is the founder and principal shareholder of NeST
Technologies, Inc., an U.S. headquartered technology services company which
provides and receives services to and from Network Equipment Systems & Services
(P) Ltd. located in India. He also is founder and principal shareholder of
NeSTronix, Inc. a provider of outsource manufacturing services. He currently
serves as Chairman of the Electronic Development Commission for the Government
of Kerala in India. Mr. Hassan also serves as Chairman of NeSTronix and e-Cell
Technologies, Inc. and is a director of Fibercore, Inc., a public company.

         C. Scott Hisey joined the Company in July 2001 as Vice President and
General Manager of AM Broadband Services, Inc., a wholly-owned subsidiary of the
Company. He was promoted to Group Vice President in April 2002. Prior to joining
the Company, Mr. Hisey served as Executive Vice President of International
Fibercom, Inc.'s Outside Plant Division from 2000 to 2001. He previously owned a
communications construction contracting company and served as a consultant in
the cable television industry from 1987 to 1995.

         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.

         Roger Jack joined the Company in May 2000 as Vice President, Software
Engineering. Mr. Jack was a software development consultant with for the Company
since 1997. He also served as a software consultant for QVC, Inc. from 1997 to
2000 and has held senior software engineer positions with Visio Corporation,
Unisys and ECTA Corporation from 1988 to 1996.

         Maqbool A. Qurashi joined the Company in October 2000 as Vice President
and General Manager of AM Broadband Services, Inc., a wholly-owned subsidiary of
the Company. In April 2002 he was appointed Group Vice President of the Training
Services unit of the Company. He previously was a consultant for several
telecommunications firms from 1992 to 2000. Mr. Qurashi co-founded the Company
in 1974.

         Michael L. Quelly joined the Company in 1982. He was appointed Vice
President, Hardware Engineering in May 2000. He previously served as Vice
President, Engineering from September 1989 to May 2000, except for the period
from 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. Mr. Rocci has served as Vice President, Marketing since April 2000.
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. In November
2000, Mr. Rocci was appointed Group Vice President of the Broadband Products
unit of the Company.

         Keith D. Schneck joined the Company in April 1995 as President and
Chief Financial Officer and Director. In April 2000, Mr. Schneck resigned from
his position as President and assumed a financial advisory role with the NeST
related companies in addition to continuing to serve as Chief Financial Officer
of the Company. As of December 31, 2000, Mr. Schneck resigned as Chief Financial
Officer, but continues to serve as a Director of the Company. Mr. Schneck is
currently Chief Financial Officer of T-Networks, Inc., a designer and
manufacturer of equipment for fiber-optic networks.


                                       36
<PAGE>


         Lemuel A. Tarshis was elected a director of the Company in October
1996. Dr. Tarshis is a private consultant and since April 2, 2001 has been
serving as a consultant to the Company and NeST Technologies, Inc. He also has
served as a director and research professor at Stevens Institute of Technology
since 1991. Prior to 1992, Dr. Tarshis held vice president positions with
General Instrument Corporation. He is a director of NeST Technologies, Inc.

         H. Charles Wilson, III joined the Company in January 1996 as
Controller. He has served as Corporate Controller since December 2000. Mr.
Wilson previously held financial management positions with Integrated Circuit
Systems, a publicly held company.

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. An Initial Report of
Stock Ownership on Form 3, due during the Company's fiscal year ended on March
30, 2002, was filed late by H. Charles Wilson, III and by Christopher S. Hisey.
A Statement of Changes in Beneficial Ownership, on Form 4, due during May 2001,
was filed late by Joseph D. Rocci. A Statement of Changes in Beneficial
Ownership, on Form 4, due during March 2002, was filed late by Alvin Hoffman.
The Company believes that, during the fiscal year ended March 30, 2002 all other
filing requirements applicable to its other officers, directors and greater than
10% beneficial owners have been 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 individual who served as the Company's Chief Executive Officer during
fiscal 2002 and to each executive officer of the Company whose cash compensation
exceeded $100,000 per annum during the last fiscal year of the Company, and (b)
stock options granted and certain other compensation paid during the last three
fiscal years to each such individual.

                           Summary Compensation Table

                        Annual and Long Term Compensation

<TABLE>
<CAPTION>
Name & Principal                 Fiscal                       Stock Options             Other
     Position                     Year          Salary           Awarded             Compensation
--------------------------------------------------------------------------------------------------
<S>                                 <C>         <C>              <C>                  <C>
Javad K. Hassan ***                 2002        $106,000         2,500,000                  --
Chairman                            2001              --                --                  --
                                    2000              --                --                  --
---------------------------------------------------------------------------------------------------
Joseph D. Rocci                     2002        $129,000           200,000              $4,036(1)
Group Vice                          2001         120,000           200,000               2,899(1)
President, AMBP                     2000         106,000           705,000(2)            2,630(1)
-------------------------------------------------------------------------------------------------
Michael L. Quelly                   2002        $128,000           100,000              $4,811(3)
Vice President,                     2001         120,000           100,000               3,485(3)
Hardware Engineering                2000         106,000           705,000(4)            3,316(3)
-------------------------------------------------------------------------------------------------
H. Charles Wilson, III              2002        $113,000           150,000               4,202(5)
Corporate Controller                2001          93,000            80,000               2,797(5)
                                    2000          79,000            40,000               2,357(5)
--------------------------------------------------------------------------------------------------
Roger L. Jack *                     2002        $105,000           100,000               1,010(6)
VP, Software Engineering            2001          31,000           150,000                 923(6)
                                    2000              --                --                  --
--------------------------------------------------------------------------------------------------
Maqbool A. Qurashi                  2002        $124,000           300,000               3,358 (7)
Group Vice President, AMTS          2001          51,000           300,000                  --
                                    2000              --                --                  --
--------------------------------------------------------------------------------------------------
C. Scott Hisey                      2002        $106,000           600,000             200,000(8)
VP & General Mgr., AMBS             2001              --                --                  --
                                    2000              --                --                  --
--------------------------------------------------------------------------------------------------
</TABLE>

                                       37
<PAGE>


*        Mr. Jack joined the Company during the fourth quarter of fiscal 2001.
         Mr. Jack resigned as an officer and employee of the Company effective
         June 7, 2002.

(1)      Represents $4,036, $2,899 and $2,630 in matching contributions under
         the Company 401(k) plan paid by the Company in fiscal 2002, 2001 and
         2000, respectively.

(2)      Includes 405,000 shares of repriced stock options previously issued in
         fiscal years 1998, 1997, 1995, and 1993.

(3)      Represents $4,811, $3,485 and $3,316 in matching contributions under
         the Company 401(k) plan paid by the Company in fiscal 2002, 2001 and
         2000, respectively.

(4)      Includes 405,000 shares of repriced stock options previously issued in
         fiscal years 1998, 1997, 1995, and 1993.

(5)      Represents $4,202, $2,797 and $2,357 in matching contributions under
         the Company 401(k) plan paid by the Company in fiscal 2002, 2001 and
         2000, respectively.

(6)      Represents $1,010 and $923 in matching contributions under the Company
         401(k) plan paid by the Company in fiscal 2002 and 2001, respectively.

(7)      Represents $3,358 in matching contributions under the Company 401 (k)
         plan paid by the Company in fiscal 2002.

(8)      Represents $200,000 in sign-on bonuses paid to Mr. Hisey as part of his
         employment terms.

         Other than the salary described herein, the Company did not pay the
executive officers named in the Summary Compensation Table any fringe benefits,
perquisites or other compensation in excess of the lesser of $50,000 or 10% of
such executive officer's salary and bonus during fiscal 2002, 2001, and 2000.
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 of the Company.

         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
generally 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 15,000,000.


                                       38
<PAGE>


     The following table sets forth options granted to the named executive
officers during fiscal 2002:

<TABLE>
<CAPTION>
                                                          % of Total
                                No. of Securities         Options Granted        Exercise
                      Fiscal    Underlying Options        to Employees           Price         Expiration
Name                  Year      Granted                   in Fiscal Year         ($/Share)     Date
----                  ----      ----------------------    --------------         ---------     ------------

<S>                   <C>        <C>                         <C>                   <C>           <C>
Javad K. Hassan       2002       2,500,000                   36.5%                 $0.38         11/01/11
Joseph D. Rocci       2002         200,000                    2.9%                 $0.38         11/01/11
Michael L. Quelly     2002         100,000                    1.4%                 $0.38         11/01/11
H. Charles Wilson     2002         150,000                    2.1%                 $0.38         11/01/11
Roger L. Jack         2002         100,000                    1.4%                 $0.38         11/01/11
Maqbool A. Qurashi    2002         300,000                    4.3%                 $0.38         11/01/11
C. Scott Hisey        2002         600,000                    8.7%                 $0.38         07/09/11
</TABLE>

         The following table sets forth certain information pertaining to the
shares acquired by the individuals named in the Summary Cash Compensation Table
upon exercise of stock options in fiscal 2002 and pertaining to the number and
value of options held by such individuals at year end:

<TABLE>
<CAPTION>
                              Fiscal 2002 Option Exercises and Year End Option Values

                                                             Value of
                        Number of                       Unexercised Options            In-the-Money Options
                        Shares         Value             At Fiscal Year End             at March 30, 2002(2)
                        Acquired on    Realized     ---------------------------     ----------------------------
Name                    Exercise       ($) (1)      Exercisable   Unexercisable     Exercisable    Unexercisable
------------------      ---------------------------------------   -------------     -----------    -------------

<S>                        <C>           <C>         <C>            <C>             <C>                <C>
Javad K. Hassan             --            --        $4,000,000     $2,500,000       $1,136,000         $150,000
Joseph D. Rocci         200,000        $58,000         571,666        333,334          148,650            4,000
Michael L. Quelly           --            --           738,333        166,667          204,650            2,000
H. Charles Wilson           --            --            98,333        195,334           17,513            6,400
Roger L. Jack               --            --           100,000        150,000           (6,000)          (9,000)
Maqbool A. Qurashi          --            --           100,000        500,000           (6,000)           6,000
C. Scott Hisey              --            --                --        600,000               --           36,000
</TABLE>

----------------
(1)      Value realized is the difference between the market price of a share of
         Common Stock on the date of exercise and the exercise price of the
         option, multiplied by the number of shares underlying the option.

(2)      Value is based upon the closing price of the stock on March 30, 2002,
         less the exercise price.

     The Company does not maintain any long term incentive plans for its
officers.


                                       39
<PAGE>


         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 of the Company's Common Stock at an exercise price of
$0.38 on November 11, 2001, with the exception of Messrs. Schneck and Tarshis
who, as Chairmen of the Audit Committee and the Compensation and Stock Option
Committee, respectively, were granted options to purchase 75,000 shares of the
Company's Common Stock at an exercise price of $0.38 on the same date. These
options were fully vested as of the date of grant. In addition, in accordance
with an Executive Employment Agreement, Javad K. Hassan received an option grant
on November 1, 2001 to purchase 2,500,000 shares of the Company's Common Stock
at an exercise price of $0.38 under the terms of the Company's 1999 Stock Option
Plan. Also, on February 19, 1999, Mr. Hassan was granted options to purchase
5,000,000 shares, which became first exercisable equally over a three-year
period and expire on February 19, 2009, at an exercise price of $0.156 in
accordance with a Services Agreement with the Company. During fiscal 2001, Mr.
Hassan exercised 1,000,000 of these option shares.

         The Company does not have any employment contracts or arrangements with
any of its executive officers, other than the employment agreement with its CEO,
Jay Hassan, which is described in Item 12 hereof.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The table below sets forth certain information as of June 7, 2002 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 the Company's common stock, and all
officers and directors of the Company as a group.

                                               Beneficial Ownership
Beneficial Owner (1) (2)                 Amount          Percentage of Class(16)
-------------------------                ------          -----------------------
Javad K. Hassan                       31,883,796(3)              49.0%
Alvin Hoffman                         21,105,712(4)              36.7%
NT Holdings Mauritius                  7,862,334(5)              13.9%
Keith D. Schneck                       1,395,000(6)               2.4%
Michael L. Quelly                        903,333(7)               1.6%
Joseph D. Rocci                          864,512(8)               1.5%
Lemuel A. Tarshis                        325,000(9)               *
R. Barry Borden                          310,000(10)              *
H. Charles Wilson, III                   298,333(11)              *
Jill D. Felix                            100,000(12)              *
Roger L. Jack                            100,000(13)              *
Maqbool A. Qurashi                       100,000(14)              *
C. Scott Hisey                                --                  *
All Directors and Executive
  Officers as a Group (12 Persons)    42,993,849(15)             61.7%
-----------------
* Less than one percent.


                                       40
<PAGE>


(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 that 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.,
         1900 AM Drive, Quakertown, PA 18951-2107.

(3)      Includes (i) 14,391,837 shares of the Common Stock pursuant to The
         Voting Trust and Share Price Participation Agreement between Mr.
         Hoffman and Mr. Hassan, as the Voting Trustee, over which Mr. Hassan
         exercises all voting rights, (ii) 1,000,000 shares of Common Stock
         issued pursuant to a stock option exercise, (iii) 4,000,000 shares
         issuable pursuant to currently outstanding stock options, (iv) 37,037
         shares of Series A Convertible Preferred Stock convertible into
         3,703,700 shares of Common Stock , (v) 925,925 shares issuable upon the
         exercise of Series A warrants, and (vi) 7,862,334 shares issued upon
         the exercise of warrants which were issued to NeST Technologies, Inc.
         for services rendered, of which Mr. Hassan is CEO and sole owner, and
         to NeST (P) Ltd. for services rendered, which is controlled by Mr.
         Hassan's brother, and then subsequently such shares were transferred to
         NT Holdings Mauritius. Mr. Hassan is a less than 50% owner in NT
         Holdings Mauritius and disclaims beneficial ownership in a portion of
         the shares set forth in (vi) above.

(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) 7,407 shares
         of Series A Convertible Preferred Stock convertible into 740,700 shares
         of Common Stock, (ii) 185,175 shares of Common Stock issuable upon the
         exercise of Series A Warrants, (iii) 250,000 shares issuable pursuant
         to stock options, (iv) 773,000 shares of Common Stock currently owned
         by Mr. Hoffman's wife, (v) 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, and (vi)
         800,000 shares of Common Stock issued pursuant to a preferred stock
         conversion during October 2000, and (vii) 3,965,000 shares of Common
         Stock issued pursuant to a preferred stock conversion during December
         2001. Mr. Hoffman disclaims beneficial ownership of the shares set
         forth in (iv) above.

(5)      Includes 7,862,334 shares of Common Stock issued upon the exercise of
         warrants held by NeST Technologies, Inc. for services rendered, of
         which Mr. Hassan is CEO and sole owner, and NeST (P) Ltd. for services
         rendered, which is controlled by Mr. Hassan's brother and then
         subsequently such shares were transferred to NT Holdings Mauritius. NT
         Holdings Mauritius is a Mauritius holding company for Mr. Hassan's
         various business interests. Mr. Hassan is a less than 50% owner in NT
         Holdings Mauritius and disclaims beneficial ownership in a portion of
         these shares.

(6)      Includes 1,225,000 shares issuable pursuant to stock options.

(7)      Includes 738,333 shares issuable pursuant to stock options.

(8)      Includes 571,666 shares issuable pursuant to stock options.


                                       41
<PAGE>


(9)      Includes 325,000 shares issuable pursuant to stock options.

(10)     Includes 300,000 shares issuable pursuant to stock options.

(11)     Includes 98,333 shares issuable pursuant to stock options.

(12)     Includes 100,000 shares issuable pursuant to stock options.

(13)     Includes 100,000 shares issuable pursuant to stock options.

(14)     Includes 100,000 shares issuable pursuant to stock options.

(15)     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) 44,444 shares of
         Series A Convertible Preferred Stock convertible into 4,444,400 shares
         of Common Stock, (iii) 1,111,100 shares of Common Stock issuable upon
         the exercise of Series A Warrants, (iv) 773,000 shares of Common Stock
         currently owned by Mr. Hoffman's wife as to which Mr. Hoffman disclaims
         beneficial ownership, (v) 7,808,332 shares of Common Stock which may be
         acquired upon the exercise of outstanding options, (vi) 6,402,846
         shares of Common Stock held by other officers and directors, and (vii)
         7,862,334 shares of Common Stock issued to upon the exercise of
         warrants held by NeST Technologies, Inc. and NeST (P) Ltd. and then
         transferred to NT Holdings Mauritius. Mr. Hassan disclaims beneficial
         ownership of the shares set forth in (vi) above.

(16)     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 December 31, 2001 had been converted into Common Stock 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, 1998 (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.


                                       42
<PAGE>


Item 12. Certain Relationships and Related Transactions

         Mr. Javad Hassan is the Chairman of the board of directors (Chairman)
of the Company and has ownership interest in several other companies in the
United States, India and other parts of the world. Among these companies is NeST
group of companies (NeST), including NeST Technologies, Inc. and NeSTronix,
Inc., which are U.S.-based technology service entities that provide engineering
development services and turn-key manufacturing services primarily through the
use of technology resources of staff and electronic manufacturing operations
located in India and controlled by the Chairman's brother, Mr. N. Jehangir. NeST
provides a substantial portion of the Company's engineering and manufacturing
requirements.

         Mr. Hassan, the NeST companies and their respective affiliates
collectively control the voting of 23,254,171 shares of the Company's Common
Stock.

         Under the terms of an agreement with NeST (the "NeST Development
Agreement"), the Company has the option to pay for development services
performed by NeST either in cash or by the issuance of warrants to purchase AM
Common Stock. During fiscal 1999, the Company elected to issue NeST warrants to
purchase 4,234,018 shares of the Company's Common Stock, at an exercise price of
$0.01 per share, in payment of $670,000 of NeST development services for the
period from November 1998 through April 3, 1999. The Company also issued
warrants to purchase 3,628,316 shares of the Company's Common Stock, at an
exercise price of $0.01 per share, in lieu of payment of $1,157,197 of NeST
development services for the period from April 4, 1999 through January 1, 2000.
Since January 2, 2000, the Company has paid cash for NeST development services.
As a result of improved operations, the Company expects to pay ongoing NeST
development expenses in cash, but continues to have the option to issue warrants
up to a limit of ten million total shares under the NeST Development Agreement,
including the 7,862,334 shares already issued. During the fiscal years ended
March 30, 2002 and March 31, 2001, the Company paid $2,500,000 and $2,200,000,
respectively, to NeST for development services. The Company has negotiated
favorable rates with NeST for services performed by both the India-based and
U.S.-based employees of NeST. The Company may not be able to obtain the same
negotiated rates from outside third parties.

         Pursuant to a Manufacturing Services Agreement between NeSTronix, Inc.
and the Company (the "Manufacturing Agreement"), NeSTronix agreed to manufacture
the Company's products on a turn-key basis commencing on January 2, 2000. The
initial term of this Manufacturing Agreement ends on January 2, 2003 and the
Manufacturing Agreement is automatically renewable for an additional 18 month
period unless either party gives written notice to the contrary to the other
party at least six months prior to the end of the then current term. The
Manufacturing Agreement is also terminable by either party upon 60 days prior
written notice upon the default of the other party or the bankruptcy or
liquidation of the other party. Nothing in the Manufacturing Agreement precludes
the Company from resuming manufacturing itself or transferring manufacturing
rights to a third party. The Company retains title to and ownership of all
equipment, inventory and intellectual property rights utilized in connection
with the manufacture of its products. The Company and NeSTronix jointly agree
upon a "bill of materials" price for each product manufactured pursuant to the
Manufacturing Agreement. The Company pays to NeSTronix for each product
manufactured pursuant to the Manufacturing Agreement, an amount equal to the
actual cost of all materials utilized to manufacture the product, plus 0.5 times
the agreed upon "bill of materials" price for the product. During the fiscal
years ended March 30, 2002 and March 31, 2001, the Company paid $3,005,000 and
$2,400,000, respectively, for services provided pursuant to the Manufacturing
Agreement.


                                       43
<PAGE>


         Pursuant to an agreement entered into between the Company and Jay
Hassan, the Chairman has agreed to provide a $500,000 line of credit to the
Company, with interest payable at 10%. No amounts have been borrowed by the
Company under this line since its inception in June 1999.

         On November 1, 2001, the Company entered into an Employment Agreement
with its Chairman, Jay Hassan. In connection with the execution and delivery of
such Employment Agreement, the previous Services Agreement, dated as of October
22, 1998, between Mr. Hassan and the Company was terminated. Under the terms of
the Employment Agreement, the Chairman will serve as Chief Executive Officer and
Chairman of the Board of Directors of the Company. The term of the Employment
Agreement commenced on November 1, 2001 and expires on October 31, 2011.
However, the term of the Employment Agreement will automatically renew for
successive one year terms unless the Company or the Chairman gives a contrary
written notice of termination to the other at least ninety (90) days before the
scheduled expiration date of the Employment Agreement.

         Mr. Hassan's Employment Agreement provides for the payment of a minimum
annual salary of two hundred fifty thousand dollars ($250,000.00) to the
Chairman for his services. If his employment by the Company is terminated due to
disability or without cause, or if he resigns for good reason (as such term is
defined in the Employment Agreement), the Company is obligated to make severance
payments to Mr. Hassan in an amount equal to his then current salary, and to
continue in effect all of the employee benefits, for a period equal to the
lesser of (a) two (2) years following the date of employment termination, or (b)
the remaining term of the Employment Agreement.

         In addition to his base salary, Mr. Hassan is entitled to receive an
annual bonus in an amount equal to 60% of his annual salary if the Company meets
the annual financial performance objectives established by the Board of
Directors for such year, and an annual bonus in an amount equal to 120% of his
annual salary if the Company exceeds the annual financial performance objectives
established by the Board of Directors for such year by at least 30%. For the
years ended March 30, 2002 and March 31, 2001, no bonus payments were made to
Mr. Hassan. Mr. Hassan is also entitled to participate in, or enjoy the benefit
of, any other fringe benefits or prerequisites applicable to the Company's other
executive officers.

         The Company entered into a Stock Purchase Rights Agreement, dated as of
December 30, 2001, with its Chairman and Chief Executive Officer, (the "Company
Stock Purchase Rights Agreement"). Under the terms of the Company Stock Purchase
Rights Agreement, Mr. Hassan has irrevocably agreed to purchase, and the Company
has irrevocably agreed to sell, six million (6,000,000) shares of the Company's
common stock, at a price of thirty-eight cents ($0.38) per share, upon the first
to occur of one of the following events:

                  (1)      the Company enters into a definitive agreement to be
                           acquired or to sell substantially all of its assets;

                  (2)      the one-hundred and eightieth (180th) day following
                           the Company's completion of a subsequent public
                           offering of shares of its common stock; and


                                       44
<PAGE>


                  (3)      the Chairman's termination as Chairman of the
                           Company's Board of Directors and CEO.

         On November 30, 2001, Mr. Hassan entered into an amendment to his
Voting Trust and Share Price Participation Agreement with the Alvin Hoffman,
Revocable Trust U/A/D 2/28/86 pursuant to which Mr. Hassan will no longer share
in the appreciation of AM's stock price from the proceeds of any sale by the
Trust. Simultaneously therewith, Mr. Hassan entered into a Stock Purchase Rights
Agreement with the Alvin Hoffman, Revocable Trust U/A/D 2/28/86 (the "Hoffman
Stock Purchase Rights Agreement"). Under the terms of the Hoffman Stock Purchase
Rights Agreement, Mr. Hassan has irrevocably agreed to purchase, and the Alvin
Hoffman, Revocable Trust U/A/D 2/28/86 has irrevocably agreed to sell, seven
million one-hundred ninety-five thousand nine-hundred nineteen (7,195,919)
shares of the Company's common stock, at a price of ten cents ($0.10) per share,
upon the first to occur of one of the following events:

                  (a)      the Company enters into a definitive agreement to be
                           acquired;

                  (b)      the one-hundred and eightieth (180th) day following
                           the Company's completion of a subsequent public
                           offering of shares of its Class A common stock; and

                  (c)      the death of Alvin Hoffman; and

                  (d)      the Chairman's termination as Chairman of the
                           Company's Board of Directors.

As a result of the foregoing transactions, in accordance with the provisions of
Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for
Stock Based Compensation and FIN No. 44, Accounting for Certain Transactions
Involving Stock Compensation, an interpretation of APB Opinion No. 25, the
Company recorded $83,000 of compensation expense during the year ended
March 30, 2002.

         On December 31, 2001, the Company entered into a loan agreement with
Mr. Hassan. Under this agreement, the Company may loan the Chairman up to
$2,000,000 for the sole purpose of assisting him in exercising his stock
purchase rights. There have been no loans made by the Company to Mr. Hassan
under this agreement to date.

         During fiscal year 2002, the Company's Board of Directors authorized
the Company's investment banker to assist the Company in raising up to
$2,000,000 in additional equity financing for the Company. To raise such
additional capital, the Company's Board of Directors approved a private
placement of restricted shares of the Company's Series A Preferred Stock, which
bears a 10% annual cumulative dividend, at a price of $27.00 per share. Each
share of the Series A Preferred Stock can be converted into 100 shares of the
Company's Common Stock, subject to standard anti-dilution provisions. Purchasers
of each share of the Company's Series A Preferred Stock in this offering are
also entitled to receive a warrant to purchase up to 25 shares of the Company's
Common Stock, at a price of $0.27 per share. These warrants vest immediately and
are exercisable for six years from the date of purchase. The shares of the
Series A Preferred Stock being sold in this offering will be sold only to
accredited investors, including, without limitation, certain members of the
Company's Board of Directors. On January 29, 2002, the Company's Chairman and
CEO, Jay Hassan, purchased $1,000,000 of the shares of Series A Preferred Stock
included in this offering. In February 2002, a member of the Company's Board of
Directors, Alvin Hoffman, purchased $200,000 of the shares included in this
offering. The shares of the Series A Preferred Stock and the related Common
Stock purchase warrants were offered and sold by the Company in reliance upon
the exemption from registration provided for in Rule 506 of Regulation D
promulgated under the Securities Act of 1933, as amended.

         Keith D. Schneck, the former Chief Financial Officer and a director of
the Company also provided advisory services to Mr. Hassan and NeST Technologies,
Inc. during fiscal 2001 and fiscal 2000.

         Under a consulting agreement with Lemuel A. Tarshis, a director of the
Company, the Company incurred expenses of $59,000 during fiscal 2001. Mr.
Tarshis also provides consulting services to NeST Technologies, Inc. and serves
as a director of that company.

         The Company provides certain administrative and support services and
office space to NeST, NeSTronix and several other entities associated with Mr.
Hassan's non-AM business ventures. During fiscal 2002 and fiscal 2001, the
Company charged fees totaling $743,000 and $1,075,000, respectively, for such
services.


                                       45
<PAGE>


         During fiscal year 2002, the Company's Board of Directors authorized
the Company's investment banker to assist the Company in raising up to
$2,000,000 in additional equity financing for the Company. To raise such
additional capital, the Company's Board of Directors approved a private
placement of restricted shares of the Company's Series A Preferred Stock, which
bears a 10% annual cumulative dividend, at a price of $27.00 per share. Each
share of the Series A Preferred Stock can be converted into 100 shares of the
Company's Common Stock, subject to standard anti-dilution provisions. Purchasers
of each share of the Company's Series A Preferred Stock in this offering are
also entitled to receive a warrant to purchase up to 25 shares of the Company's
Common Stock, at a price of $0.27 per share. These warrants vest immediately and
are exercisable for six years from the date of purchase. The shares of the
Series A Preferred Stock being sold in this offering will be sold only to
accredited investors, including, without limitation, certain members of the
Company's Board of Directors. On January 29, 2002 the Company's Chairman and
CEO. Jay Hassan, purchased $1,000,000 of the shares to be sold in this offering.
In February 2002, a member of the Company's Board of Directors, Alvin Hoffman,
purchased $200,000 of the shares to be sold in this offering.












                                       46
<PAGE>

Item 13. Exhibits and Reports on Form 8-K

(a)      (1)      Exhibits

                  3.1      (3.1) Restated Certificate of Incorporation of
                           Registrant(1)

                  3.2      (3.1) Certificate of Amendment to Certificate of
                           Incorporation of Registration(2)

                  3.3      (3-d) Certificate of Designation for Series A
                           Preferred Stock dated January 23, 2002 (filed
                           herewith)

                  3.4.     (3.2) Amended By-Laws of Registrant(1)

                  4.1      (4.1) Specimen of Common Stock Certificate, par value
                           $.10 per share(1)

                  4.2.     Series A Common Stock Purchase Warrant (filed
                           herewith)

                  4.3      Amended and Restated Warrant issued to
                           Scientific-Atlanta (filed herewith)

                  9.1      (9.1) Voting Trust and Share Participation
                           Agreement(4)

                  9.2      (9-b) First Amendment to Voting Trust and Share
                           Participation Agreement dated November 30, 2001(3)

                  9.3      (9-c) Stock Purchase Rights Agreement, dated as of
                           December 30, 2001, between AM and Javad K. Hassan(3)

                  10.1     (10-a) 1991 Incentive Stock Option Plan(5)

                  10.2     (10-b) Joint Development Agreement between AM and
                           Scientific-Atlanta dated May 1996(6)

                  10.3     (10-c) Distribution Agreement and Manufacturing
                           License dated June 14, 1996(6)

                  10.4     (10-d) Registration Rights Agreement dated June 17,
                           1996(6)

                  10.5     (10-e) Warrant Agreement dated June 17, 1996(6)

                  10.6     (10-f) 1999 Stock Option Plan(4)

                  10.7     (10-g) Line of Credit Commitment Letter with Progress
                           Bank dated June 29, 1999(4)

                  10.8     (10-i) Consulting Services Agreement between the
                           Company and NeST(7)

                  10.9     (10.1)Manufacturing Services Agreement between the
                           Company and NeSTronix(4)

                  10.10    Common Stock Purchase Warrant issued to Investec PMG
                           Capital (filed herewith)

                  10.11    (2) Stock Purchase Agreement between the Company,
                           AMBS, SRS Communications Corporation, EDJ
                           Communications, Inc, David P. Sylvestre, Clifford P.
                           Sylvestre, Edward L. Reynolds, Joanne Sylvestre, and
                           Elizabeth D. Reynolds(8)

<PAGE>
                  10.12    (4) Registration Rights Agreement dated as of October
                           1, 2001 between the Company and David P. Sylvestre,
                           Clifford P. Sylvestre, Edward L. Reynolds, Joanne
                           Sylvestre, Donna M. Sylvestre and Elizabeth D.
                           Reynolds(8)

                  10.13    (10-m) Agreement to Terminate Service Agreement
                           between the Company and Javad Hassan (Executive)
                           dated November 1, 2001(3)

                  10.14    (10-n) Executive Employment Agreement between the
                           Company and Javad Hassan dated November 1, 2001(3)

                  10.15    (10-o) Loan Agreement between Javad Hassan (Executive
                           Borrower) and the Company dated December 30, 2001(3)

                  10.16    Agreement and Plan or Merger for Acquisition of
                           Nex-Link Communications Project Services, LLC
                           (exhibits and schedules thereto omitted) (filed
                           herewith)

                  10.17    Amended and Restated Subordinated Note from AM
                           Broadband Services, Inc. in favor of David P.
                           Sylvestre, Clifford P. Sylvestre, Edward L. Reynolds,
                           Joanne Sylvestre, Donna M. Sylvestre and Elizabeth D.
                           Reynolds (filed herewith)

                  10.18    First Amendment to Stock Purchase Agreement (SRS/EDJ
                           acquisition) (filed herewith)

                  10.19    Employment Agreement with Linda Johnson (filed
                           herewith)

                  10.20    Employment Agreement with Michael N. Johnson (filed
                           herewith)

                  21.      Subsidiaries of the Company (filed herewith)

                  23.      Consent of Grant Thorton LLP dated June 28, 2002
                           (filed herewith)

                  99.1     (99.1) Press Release Announcing Series A Preferred
                           Stock Offering(3)
____________________________
(1)      Incorporated by reference to the Exhibit with the number indicated
         parenthetically in Registrant's Registration Statement on Form S-1,
         File No. 33-10163.

(2)      Incorporated by reference to the Exhibit number indicated in
         Registrant's Annual Report on Form 10-KSB for the fiscal year ended
         March 31, 2001.

(3)      Incorporated by reference to the Exhibit number indicated in
         Registrant's Report Form 10-QSB for the fiscal quarter ended December
         29, 2001.

(4)      Incorporated by reference to the Exhibit number indicated in
         Registrant's Annual Report on Form 10-KSB for the fiscal year ended
         April 3, 1999.

(5)      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.

(6)      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.

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

(8)      Incorporated by reference to the Exhibit number indicated in the
         Registrant's Report on Form 8-K dated October 15, 2001.

(b)      Reports on Form 8-K.

         None.
                                       48
<PAGE>

                                   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/ Javad K. Hassan                            /s/ H. Charles Wilson, III
------------------------                      ----------------------------------
By :  Javad K. Hassan                         H. Charles Wilson, III
Chairman of the Board and                     Corporate Controller and
Principal Executive Officer                   Principal Accounting Officer
Date: June 28, 2002                           Date: June 28, 2002

         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                              Keith D. Schneck
Chairman of the Board and Director           Director
(Principal Executive Officer)
Date: June 28, 2002                          Date:  June 28, 2002


/s/ R. Barry Borden                          /s/ Alvin Hoffman
-------------------------------              -----------------------------------
R. Barry Borden                              Alvin Hoffman
Director                                     Director
Date:  June 28, 2002                         Date:  June 28, 2002


/s/ Lemuel A. Tarshis                        /s/ Jill D. Felix
-------------------------------              -----------------------------------
Lemuel A. Tarshis                            Jill D. Felix
Director                                     Director
Date:  June 28, 2002                         Date:  June 28, 2002

                                       49

<PAGE>
                       Financial Statements and Report of
                    Independent Certified Public Accountants

                    AM Communications, Inc. and Subsidiaries

                        March 30, 2002 and March 31, 2001


                                 C O N T E N T S



                                                                           Page
                                                                           ----

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                         F-2


CONSOLIDATED FINANCIAL STATEMENTS

         CONSOLIDATED BALANCE SHEETS                                       F-3

         CONSOLIDATED STATEMENTS OF INCOME                                 F-4

         CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                    F-5

         CONSOLIDATED STATEMENTS OF CASH FLOWS                             F-6

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                        F-7






                                      F-1

<PAGE>


               Report of Independent Certified Public Accountants





Board of Directors
AM Communications, Inc. and Subsidiaries


         We have audited the accompanying consolidated balance sheet of AM
Communications, Inc. and Subsidiaries as of March 30, 2002 and March 31, 2001
and the related statements of income, 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AM
Communications, Inc. and Subsidiaries as of March 30, 2002 and March 31, 2001,
and the results of their operations and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.



/s/ Grant Thornton LLP

Philadelphia, Pennsylvania
June 7, 2002



                                      F-2

<PAGE>





                    AM Communications, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                                March 30, 2002    March 31, 2001
                                                                                                --------------    --------------
<S>                                                                                            <C>                <C>
ASSETS
Current assets
Cash                                                                                            $    192,000      $    350,000
Accounts receivable, net of reserves of $1,122,000 in 2002 and $209,000 in 2001                    6,288,000         2,604,000
Due from affiliates                                                                                  157,000            53,000
Inventory                                                                                          2,826,000         2,935,000
Prepaid expenses and other                                                                           348,000           121,000
                                                                                                ------------      ------------
Total current assets                                                                               9,811,000         6,063,000

Equipment and fixtures, net                                                                        1,719,000           267,000
Notes receivable - officer                                                                         1,033,000            30,000
Goodwill                                                                                           3,735,000                 -
Other intangible assets, net                                                                       1,425,000                 -
        Other assets                                                                                 144,000            13,000
                                                                                                ------------      ------------
Total assets                                                                                    $ 17,867,000      $  6,373,000
                                                                                                ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations                                                    $          -      $      2,000
Current portion of notes payable                                                                     152,000            30,000
Current portion of subordinated note payable                                                         920,000                 -
Bank line of credit                                                                                2,991,000         1,250,000
Accounts payable                                                                                   2,381,000         1,731,000
Accrued expenses                                                                                   1,812,000         1,044,000
Deferred revenue                                                                                     120,000           135,000
Due to affiliates                                                                                    252,000                 -
                                                                                                ------------      ------------

Total current liabilities                                                                          8,628,000         4,192,000
                                                                                                ------------      ------------

Capital lease obligations - long term                                                                      -             1,000
Note payable - long term                                                                             333,000            60,000
Subordinated note payable                                                                          1,610,000                 -
Senior convertible redeemable preferred stock, $100 par value, authorized 1,000,000
shares; issued and outstanding 51,852 shares in 2002 and 19,825 shares in 2001                     1,400,000         1,983,000

Commitments and contingencies
                                                                                                           -                 -

Stockholders' equity
Common stock, $0.10 par value, authorized 100,000,000 shares in 2002 and 2001;
issued and outstanding 56,394,016 shares in 2002 and 43,152,051 shares in 2001                     5,640,000         4,315,000
Capital in excess of par                                                                          36,851,000        33,087,000
Accumulated deficit                                                                              (36,595,000)      (37,265,000)
                                                                                                ------------      ------------

Stockholders' equity                                                                               5,896,000           137,000
                                                                                                ------------      ------------
Total liabilities and stockholders' equity                                                      $ 17,867,000      $  6,373,000
                                                                                                ============      ============
</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-3
<PAGE>


                    AM Communications, Inc. and Subsidiaries

                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                                                             Year ended
                                                                                             ----------
                                                                                   March 30, 2002   March 31, 2001
                                                                                   --------------   --------------
<S>                                                                                 <C>               <C>
       Revenues                                                                     $ 28,705,000      $15,894,000
                                                                                    ------------      -----------

       Costs and expenses
       Cost of sales                                                                  16,602,000        7,836,000
       Selling, general and administrative                                             7,204,000        3,234,000
       Research and development                                                        3,915,000        3,512,000
                                                                                    ------------      -----------
                                                                                      27,721,000       14,582,000
                                                                                    ------------      -----------
       Operating income (loss)                                                           984,000        1,312,000

       Other expense, net                                                               (500,000)        (136,000)
                                                                                    ------------      -----------

       Income before income taxes                                                        484,000        1,176,000
       Income tax (benefit) provision                                                   (186,000)          12,000
                                                                                    ------------      -----------

       Net income                                                                   $    670,000      $ 1,164,000
                                                                                    ============      ===========

       Basic net income per share                                                   $       0.01      $      0.03

       Diluted net income per share                                                 $       0.01      $      0.02

       Shares used in computation of basic net income per share                       49,824,000       35,456,000
                                                                                    ============      ===========

       Shares used in computation of diluted net income per share                     57,722,000       52,636,000
                                                                                    ============      ===========
</TABLE>


The accompanying notes are an integral part of these statements.

                                      F-4
<PAGE>
                    AM Communications, Inc. and Subsidiaries

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                 years ended March 30, 2002 and March 31, 2001
<TABLE>
<CAPTION>

                                        Common stock
                              --------------------------------             Capital in              Accumulated
                                 Shares               Amount              excess of par              deficit
                              ------------          ----------            -------------           ------------
<S>            <C>             <C>                  <C>                    <C>                    <C>
Balance, April 1, 2000         33,335,090           $3,333,000             $33,288,000            $(38,429,000)

Exercise of incentive stock
options                         1,154,627              116,000                  65,000                       -

Exercise of warrants            7,862,334              786,000                (786,000)                      -

Conversion of convertible
preferred stock                   800,000               80,000                 520,000                       -

Net income for year ended
March 31, 2001                          -                    -                       -               1,164,000
                               ----------           ----------             -----------            ------------

Balance, March 31, 2001        43,152,051            4,315,000              33,087,000             (37,265,000)

Exercise of incentive stock
options                           276,965               28,000                  14,000                       -

Issuance of common stock
for purchase of SRS
Communications                  9,000,000              900,000               1,800,000                       -

Issuance of convertible
preferred stock                         -                    -                                               -

Conversion of convertible
preferred stock                 3,965,000              397,000               1,586,000                       -

Compensation related to
stock purchase right                    -                    -                  83,000                       -
Warrants issued                         -                    -                 281,000                       -

Net income for year ended
March 31, 2002                          -                    -                       -                 670,000
                               ----------           ----------             -----------            ------------

Balance, March 31, 2002        56,394,016           $5,640,000             $36,851,000            $(36,595,000)
                               ==========           ==========             ===========            ============
</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-5


<PAGE>

                    AM Communications, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>

                                                                                         Year ended
                                                                                         ----------
                                                                                 March 30,        March 31,
                                                                                   2002             2001
                                                                                 ---------        ---------
<S>                                                                             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                     $  670,000       $ 1,164,000
Adjustments to reconcile net loss to net cash used in operating activities
Bad debt expense                                                                   35,000                 -
Gain on Sale of Equipment                                                               -            (1,000)
Depreciation and Amortization                                                     445,000           169,000
Compensation related to stock purchase rights                                      83,000                 -
Warrants issued                                                                    83,000                 -
Changes in assets and liabilities which provided (used) cash                            -                 -
Accounts receivable                                                              (838,000)         (215,000)
Due from affiliate                                                               (104,000)           (1,000)
Inventory                                                                         109,000        (1,241,000)
Prepaid expenses and other                                                       (340,000)          (30,000)
Accounts payable                                                                  558,000            81,000
Deferred revenue                                                                  (15,000)            9,000
Accrued and other expenses                                                       (176,000)         (105,000)
                                                                               ----------         ---------

Net cash provided by (used in) operating activities                               708,000          (170,000)
                                                                               ----------         ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets                                                     (1,019,000)         (215,000)
Proceeds from sale of equipment                                                         -             7,000
Note receivable - officer                                                      (1,003,000)                -
Due from affiliate                                                                242,000                 -
Acquisition of business, net of cash acquired                                  (1,191,000)                -
                                                                               ----------         ---------
Net cash used in investing activities                                          (2,971,000)         (208,000)
                                                                               ----------         ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under bank line of credit                                783,000           500,000
Conversion of preferred stock                                                           -          (600,000)
Proceeds from preferred stock                                                   1,400,000

Exercise of stock options                                                               -           781,000
Note payable                                                                      (75,000)                -

                                                                                                    (30,000)
Payments under capital lease obligations                                           (3,000)           (2,000)
                                                                               ----------         ---------
Net cash provided by financing activities                                       2,105,000           649,000
                                                                               ----------         ---------

Net (decrease) increase in cash                                                  (158,000)          271,000

Cash

Beginning                                                                         350,000            79,000
                                                                               ----------         ---------
Ending                                                                         $  192,000        $  350,000
                                                                               ==========        ==========

Interest paid                                                                  $  245,000        $  131,000
                                                                               ==========        ==========

Income taxes paid (refunded)                                                   $  325,000        $        -
                                                                               ==========        ==========

Non-cash financing activities
Equipment purchased under capital lease                                        $        -        $        -
                                                                               ==========        ==========
</TABLE>

The accompanying notes are an integral part of these statements

                                      F-6
<PAGE>






                    AM Communications, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        March 30, 2002 and March 31, 2001

NOTE A - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

    1.  Description of Business

    AM Communications, Inc. (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 (CATV)
    systems.

    AM Broadband Services, Inc. (AMBS), a wholly owned subsidiary, provides a
    range of outside-plant services to CATV operators that include design,
    installation, certification and maintenance.

    On October 1, 2001, AMBS acquired all the issued and outstanding common
    stocks of SRS Communications Corporation and EDJ Communications, Inc.
    immediately after the acquisition of EDJ's operations was merged into SRS.
    SRS Communications Corp. (SRS) provides services to the television cable and
    wireless industry. The Company services include installation and maintenance
    of television lines and wireless systems in the Northeastern and
    Southeastern parts of the United States of America.

    AMC Services (AMC) was incorporated on January 18, 2002. AMC Services, Inc.
    is engaged in the business of providing construction services to the cable
    television and broadband communications industry.

    The Company's operations consist of two business segments: (1) Broadband
    Product Unit (AM) and, (2) Broadband Services Unit (AMBS, SRS and AMC). The
    consolidated entities are hereinafter referred to as the Company.

    2.  Fiscal Year

    The Company's fiscal year ends on the Saturday closest to the end of March.
    The fiscal years ending March 30, 2002 and March 31, 2001 each included 52
    weeks.

    3.  Principles of Consolidation

    The consolidated financial statements include the accounts of AM and its
    wholly owned subsidiaries, AMBS, SRS and AMC. All significant intercompany
    balances and transactions have been eliminated in consolidation.



                                   (Continued)

                                      F-7
<PAGE>



                    AM Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001


NOTE A - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - Continued

    4.  Revenue Recognition

    The Company's Broadband Products Unit derives its revenues principally from
    sales of its products to the cable TV industry. Revenue is recognized when
    the product is shipped to customers. The Company's software revenue is
    recognized in accordance with the American Institute of Certified Public
    Accountant's Statement of Position (SOP) 97-2 and related amendments. 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. Each component of the Company's products is sold separately and the
    cost of each component is listed separately in the purchase documentation.
    Revenue from custom development efforts is recognized as contractual
    milestones are achieved.

    The Company's Broadband Services Unit derives its revenues from sales of
    outside-plant services to CATV operators. Revenue is recognized as
    contracted tasks are completed and billed. Individual contracts are of short
    duration.

    5.  Inventory

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

    6.  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.

    7.  Intangibles

    Intangibles include goodwill, customer relations, covenants not to compete
    and the costs associated with the acquisition of patents and fees for the
    successful defense of patents. Customer relationships and
    covenants-not-to-compete are amortized on a straight-line basis over 10 and
    5 years, respectively. Pursuant to SFAS No. 141, Business Combinations, and
    SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is not
    amortized but evaluated periodically for impairment and charged to
    operations only in the period of impairment. Patents are being amortized 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.

                                   (Continued)

                                      F-8
<PAGE>


                    AM Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001

NOTE A - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - Continued

    8.  Advertising

    All advertising costs are expensed as incurred. Advertising expenses for the
    years ended March 30, 2002 and March 31, 2001 were $127,000 and $193,000,
    respectively.

    9.  Income Taxes

    The Company accounts for income taxes in accordance with the asset and
    liability method of accounting for income taxes as required by Statement of
    Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
    Under the asset and liability method, deferred tax assets and liabilities
    are recognized for the future tax consequences attributable to differences
    between the financial statement carrying amounts of existing assets and
    liabilities and their respective tax basis and operating loss carryforwards.
    Deferred tax assets and liabilities are measured using enacted tax rates
    expected to apply to the taxable income in years in which temporary
    differences are expected to be recovered or settled.

    10.  Stock-based Compensation

    The Company accounts for stock-based compensation to employees and directors
    using the intrinsic value method in accordance with the Accounting
    Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
    Employees and related interpretations. The Company accounts for stock-based
    compensation to nonemployees using the fair value method in accordance with
    SFAS No. 123, Accounting for Stock-based Compensation, and related
    interpretations and standards.

    11.  Impairment of Long-Lived Assets

    The Company accounts for its long-lived assets in accordance with SFAS No.
    121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
    Assets to be Disposed of. The Company reviews its long-lived assets,
    including property and equipment, goodwill and customer list, for impairment
    whenever events or changes in circumstances indicate that the carrying
    amount of the assets may not be fully recoverable. To determine
    recoverability of its long-lived assets, the Company evaluates the
    probability that future undiscounted net cash flows will be less than the
    carrying amount of the assets. Impairment is measured at fair value. As of
    March 30, 2002, based on management's evaluation, no write-down of
    long-lived assets is necessary.

                                   (Continued)

                                       F-9
<PAGE>


                    AM Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001

NOTE A - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - Continued

    12.  Comprehensive Income

    The Company follows SFAS No. 130, Reporting Comprehensive Income. SFAS No.
    130 requires companies to classify items of other comprehensive income by
    their nature in a financial statement and display the accumulated balance of
    other comprehensive income separately from the shareholders' equity section
    of the balance sheet. As of and for the years ended March 30, 2002 and March
    31, 2001, the Company did not have accumulated or comprehensive income or
    loss.

    13.  Use of Estimates

    The preparation of financial statements in conformity with accounting
    principles generally accepted in the United States of America requires
    management to make estimates and assumptions that affect the reported
    amounts of assets and liabilities and disclosure of contingent assets and
    liabilities at the date of the financial statements and the reported amounts
    of revenues and expenses during the reporting period. Actual results could
    differ from those estimates.

    14.  Net Income Per Common Share

    The Company has presented net income per common share pursuant to SFAS No.
    128, Earnings Per Share. Basic net income per common share was computed by
    dividing net income available to common shareholders by the weighted average
    number of shares of common stock outstanding during the period. Diluted net
    income per common share reflects the potential dilution from the exercise or
    conversion of securities into common stock, such as stock options.

    15.  Reclassifications

    Certain reclassifications have been made to the 2001 financial statements to
conform to the 2002 presentation.


                                      F-10

<PAGE>


                    AM Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001

NOTE B - INVENTORY

    Inventory consists of the following:

                                                    March 30,        March 31,
                                                      2002             2001
                                                  -----------      ------------

       Raw material                               $ 1,703,000      $  3,355,000
       Work-in-process                                718,000           684,000
       Finished goods                                 505,000           361,000
                                                  -----------      ------------
                                                    2,926,000         4,400,000
       Inventory reserve                             (100,000)       (1,465,000)
                                                  -----------      ------------

       Net inventory                              $ 2,826,000      $  2,935,000
                                                  ===========      ============

    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. During fiscal 2002, the Company wrote off approximately
    $1.3 million of obsolete inventory against the reserves.

NOTE C - EQUIPMENT AND FIXTURES

    Equipment and fixtures consist of the following:
<TABLE>
<CAPTION>
                                                                    Estimated              March 30,        March 31,
                                                                   useful life               2002             2001
                                                                  -------------           ----------        ---------
<S>                                                                 <C>                  <C>               <C>
       Equipment                                                    3-5 years             $ 5,748,000      $ 3,733,000
       Furniture and fixtures                                       3-5 years                 561,000          318,000
       Leasehold improvements                                       2-5 years                 476,000          128,000
                                                                                          -----------      -----------
                                                                                            6,785,000        4,179,000
       Accumulated depreciation and amortization                                           (5,066,000)      (3,912,000)
                                                                                          -----------      -----------

                                                                                          $ 1,719,000      $   267,000
                                                                                          ===========      ===========
</TABLE>

    For the years ended March 30, 2002 and March 31, 2001, depreciation and
    amortization expense was $282,000 and $169,000, respectively.


                                      F-11

<PAGE>


                    AM Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001

NOTE D - OTHER INTANGIBLE ASSETS

    In October 2001, AM's wholly owned subsidiary, AM Broadband Services
    acquired the issued and outstanding common stocks of SRS Communications
    Corporation and EDJ Communications, Inc. See Acquisitions footnote.

    Included in other intangible assets are the following as of March 30, 2002:

                                                     Life            Amount
                                                 -----------      ------------

       Customer relationships                       10 years      $    550,000
       Covenants-not-to-compete                      5 years         1,000,000
       Patents                                       5 years           459,000
                                                                  ------------
                                                                     2,009,000
       Less accumulated amortization                                  (584,000)
                                                                  ------------

                                                                  $  1,425,000
                                                                  ============

NOTE E - ACCRUED EXPENSES

    Accrued expenses consist of the following items:

                                                    March 30,        March 31,
                                                      2002             2001
                                                  -----------      ------------

       Accrued compensation and commissions       $   789,000      $    315,000
       Accrued rent                                    22,000            89,000
       Accrued real estate taxes                       43,000            45,000
       Warranty reserve                               226,000           226,000
       Accrued professional fees                       64,000            40,000
       Accrued contracted R&D                         202,000           227,000
       Accrued income taxes                           135,000            12,000
       Accrued interest and penalties                 284,000                 -
       Other                                           47,000            90,000
                                                  -----------      ------------

                                                  $ 1,812,000      $  1,044,000
                                                  ===========      ============


                                      F-12

<PAGE>


                    AM Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001

NOTE F - OBLIGATIONS UNDER CAPITAL LEASES

    The Company has capital lease agreements for machinery and equipment as
follows:

                                                   March 30,        March 31,
                                                     2002             2001
                                                 -----------      ------------

       Capitalized cost                          $     6,000      $      6,000
       Accumulated amortization                       (5,000)           (3,000)
                                                 -----------      ------------

                                                 $     1,000      $      3,000
                                                 ===========      ============

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

NOTE G - DEBT

    1.  Line of Credit

    The Company maintains a working capital line of credit from a commercial
    bank to provide up to $3,000,000 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 2% above prime. The line expires
    September 30, 2002. Current borrowings under the line are $2,991,000. Also,
    see subsequent event footnote.

    2.  Notes Payable

    Notes payable consist of the following:

<TABLE>
<CAPTION>
                                                                                                       2002           2001
                                                                                                    ----------      ---------
<S>                                                                                                  <C>             <C>
       Note payable to Ben Franklin Technology Center of Southeastern
          Pennsylvania, due in quarterly installments of $7,500, including
          interest 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 paid                                                                 $   60,000      $   90,000

       Note payable to bank, due in monthly installments of $12,153,  including interest at
          6.750% through October 2005, collateralized by the assets of the Company                     413,000              --
</TABLE>
                                   (Continued)

                                      F-13
<PAGE>


                    AM Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001


NOTE G - DEBT (CONTINUED)
<TABLE>
<CAPTION>
                                                                                                            2002           2001
                                                                                                         ----------     ----------
<S>                                                                                                        <C>             <C>
       Note payable to bank, due in monthly installments of $579, including
          interest at 5.9% through January 2004, collateralized by a vehicle                                 12,000             --
                                                                                                         ----------     ----------
                                                                                                            485,000         90,000
       Less current maturities                                                                              152,000         30,000
                                                                                                         ----------     ----------

                                                                                                         $  333,000     $   60,000
                                                                                                         ==========     ==========
       Subordinated note payable to executives,  due in quarterly installments of $230,000,
          including interest at 5% through October 2004                                                  $2,530,000     $       --

       Less current maturities                                                                              920,000             --
                                                                                                         ----------     ----------
                                                                                                         $1,610,000     $       --
                                                                                                         ==========     ==========

    Aggregate maturities of total long-term debt are as follows:

       2003                                                                                  $ 1,710,000
       2004                                                                                    1,710,000
       2005                                                                                      805,000
       2006                                                                                       68,000
                                                                                             -----------

                                                                                             $ 3,015,000
                                                                                             ===========
</TABLE>

NOTE H - SHAREHOLDERS' EQUITY

    1.  Preferred Stock

    During fiscal year 2002, 19,825 shares of Convertible Preferred Stock, owned
    by Alvin Hoffman, were converted into 3,965,000 shares of common stock at an
    exercise price of $0.50 per share.

    During fiscal year 2002, the Company's Board of Directors authorized the
    Company's investment banker to raise up to $2,000,000 in additional equity
    financing through a private placement of restricted shares of the Company's
    Series A Preferred Stock. The Series A Preferred Stock bears a 10% annual
    cumulative dividend, at a price of $27.00 per share. Each share of the
    Series A Preferred Stock can be converted into 100 shares of the Company's
    Common Stock, subject to anti-dilution provisions. Purchasers of each share
    of the Company's Series A Preferred Stock in this offering is entitled to
    receive a warrant to purchase up to 25 shares of the Company's Common Stock,
    at a price of $0.27 per share. These warrants vest immediately and are
    exercisable for six years from the date of purchase. The shares of the
    Series A Preferred Stock being sold in this offering is restricted to
    accredited investors, including, without

                                   (Continued)

                                      F-14
<PAGE>


                    AM Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       March 30, 2002 and March 31, 2001

    NOTE H - SHAREHOLDERS' EQUITY - Continued

    limitation certain members of the Company's Board of Directors. On January
    29, 2002 the Company's Chairman and CEO purchased $1,000,000 of the shares.
    In February 2002, one of the Company's Board of Directors and a family
    member each purchased $200,000 of these preferred shares.

    2.  Common Stock

    The Company issued 9,000,000 shares of common stock as part of the
    acquisition of SRS Communications Corporation and EDJ Communications, Inc.
    consummated on October 1, 2001.

    In addition to the Senior Convertible Redeemable Preferred Stock, the
    Company has authorized 974,175 additional shares of Preferred Stock, $0.10
    par value, none of which are outstanding as of March 30, 2002.

    3.  Stock Options

    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 generally become exercisable
    one-third per year commencing one year after the date of grant and
    terminating after ten years. The aggregate maximum number of shares for
    which options may be issued under the 1999 Plan is 15,000,000.

    The Company has previously adopted a 1982 Stock Option Plan and a 1991 Stock
    Option Plan. Options to acquire 2,225,734 shares of the Company's Common
    Stock are outstanding under the 1982 Stock Option Plan and the 1991 Stock
    Option Plan, respectively, and expire ten 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 year ended
                                                 -----------------------------
                                                   March 30,        March 31,
                                                     2002             2001
                                                 -----------      ------------

       Outstanding at beginning of year           10,823,104        11,514,400
       Granted                                     6,845,000         1,953,000
       Terminated                                    (76,734)       (1,487,669)
       Expired                                      (130,000)           (2,000)
       Exercised                                    (276,965)       (1,154,627)
                                                 -----------      ------------


                                   (Continued)

                                      F-15
<PAGE>


                    AM Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001


NOTE H - SHAREHOLDERS' EQUITY - Continued

Outstanding at end of year                         17,184,405        10,823,104
                                                  ===========      ============

       Available for grant                           (332,338)        1,402,630
                                                  ===========      ============

       Exercisable at end of year                  10,083,017         6,334,045
                                                  ===========      ============

    Price Range of Options Outstanding at March 30, 2002 - $0.125 - $0.52
    (Weighted Average - $0.30) and March 31, 2001 - $0.125 - $0.50 (Weighted
    Average - $0.24).

    The Company has granted 332,338 options in excess of the maximum number of
    shares currently approved by the Company's shareholders for issuance under
    the Company's stock option plans. The grant of these options is expressly
    conditioned upon approval by the Company's shareholders, at the 2002
    Annual Meeting, of an increase in the number of stock options available for
    issuance under the 1999 Plan.

    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 loss and loss per
    share would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
                                                                                                   Fiscal year ended
                                                                                             -----------------------------
                                                                                               March 30,        March 31,
                                                                                                 2002             2001
                                                                                             -----------      ------------

<S>                                                       <C>                                <C>              <C>
       Net income                                          As reported                       $   670,000      $  1,164,000
                                                              Pro forma                      $    38,000      $    435,000

       Basic income per share                              As reported                       $      0.01      $       0.03
                                                              Pro forma                      $       -        $       0.01

       Diluted income per share                            As reported                       $      0.01      $       0.02
                                                              Pro forma                      $       -        $       0.01
</TABLE>

    The per share weighted-average fair value of stock options granted during
    fiscal years 2002 and 2001 was $0.38 and $0.50, respectively, on the date of
    grant calculated using the Black-Scholes option-pricing model with the
    following weighted-average assumptions:

                                                       Fiscal year ended
                                                 -----------------------------
                                                   March 30,        March 31,
                                                     2002             2001
                                                 -----------      ------------

       Expected life (years)                          7.8              7.8
       Risk-free interest rate                        4.9%             5.6%
       Volatility                                    58.0%           143.7%
       Dividend yield                                 0.0%             0.0%

                                      F-16
<PAGE>

                    AM Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001


NOTE H - SHAREHOLDERS' EQUITY - Continued

    4.  Warrants

    At March 30, 2002, the following warrants to purchase the Company's common
stock were outstanding:
<TABLE>
<CAPTION>

             Issued in                          Expiration                    Exercise                   Number of
            fiscal year                            date                         price                     shares
         ---------------                    ------------------               -----------               ------------

<S>            <C>                                <C>                           <C>                     <C>
               1996                          July 1, 2004                       $0.74                   2,027,027
               2002                          March 15, 2007                      0.42                     900,000
               2002                          January 25, 2008                    0.27                     925,925
               2002                          February 15, 2008                   0.27                     370,350
</TABLE>

    In July 1996, the Company issued warrants to purchase 2,027,027 shares of
    common stock at $0.74 per share in return for $300,000 cash. These warrants
    become exercisable in one-third increments per year commencing July 1, 1997
    and expire five years after they become exercisable. In March 2002, the
    Company issued 900,000 warrants to an investment banker for investment
    advisory services. $281,000 of expense have been recorded in the
    accompanying financial statements related to this issuance.

    Under the terms of the Strategic Development and Manufacturing Agreement
    with NeST, the Company elected to issue warrants to purchase 4,234,018
    shares of the Company's Common Stock, at an exercise price of $0.01 per
    share, in lieu of payment of $670,000 of NeST development services charged
    to earnings for the period of November 1998 through April 3, 1999 and
    3,628,316 warrants to purchase the Company's Common Stock, at an exercise
    price of $0.01 per share, in lieu of payment of $1,230,000 owed NeST for
    services performed from April 4, 1999 through January 1, 2000. During fiscal
    year 2001, NeST elected to exercise these warrants and received 7,862,334
    shares of the Company's common stock.

    In January 2002, the Company issued warrants to purchase 925,925 shares of
    common stock at $0.27 per share to an investor who purchased $1,000,000 of
    the Company's Series A Preferred Stock.

    In February 2002, the Company issued warrants to purchase a total of 370,350
    shares of common stock at $0.27 per share to two investors who purchased
    $400,000, in the aggregate, of the Company's Series A Preferred Stock.

    5.  Net Income Per Share

    The following is a reconciliation of the numerator and denominators of the
    basic and diluted EPS computations at March 30, 2002 and March 31, 2001.

                                                  2002               2001
                                              -------------      -------------

       Net income                             $     670,000      $   1,164,000
                                               ============       ============



                                   (Continued)

                                      F-17
<PAGE>


                    AM Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001


NOTE H - SHAREHOLDERS' EQUITY - Continued

                                                  2002               2001
                                               -----------        -----------

       Basic shares                             49,824,000         35,456,402
       Convertible preferred stock               2,214,000          3,109,934
       Diluted options and warrants              5,684,000         14,069,402
                                               -----------        -----------

       Diluted shares                           57,722,000         52,635,738
                                               ===========        ===========

       Net income per common share
          Basic                                       0.01               0.03
          Diluted                                     0.01               0.02

NOTE I - INCOME TAXES

    The Company accounts for income taxes in accordance with SFAS No. 109.

    The (benefit) provision for income taxes consists of the following:

                                                   Fiscal           Fiscal
                                                    2002             2001
                                                -----------      ------------

       Current income taxes                     $  (186,000)     $     12,000
       Deferred income taxes                      1,144,000         1,455,000
       Change in valuation allowance             (1,144,000)       (1,455,000)
                                                -----------      ------------

       Net                                      $  (186,000)     $     12,000
                                                ===========      ============

    Included in current taxes is $54,000 of state income taxes from prior years
    that the Company was notified in 2002 as unpaid. The state also assessed
    interest and penalties of approximately $240,000 on the unpaid taxes. This
    amount is included in other expenses.

    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:
<TABLE>
<CAPTION>

                                                             Fiscal           Fiscal
                                                              2002             2001
                                                          -----------      ------------
<S>                                                       <C>              <C>
       Federal income tax provision at statutory rate     $   144,000      $    400,000
       State income taxes, net of federal benefit              79,000            86,000
</TABLE>

                                   (Continued)

                                      F-18
<PAGE>


                    AM Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001


NOTE H - INCOME TAXES - Continued
<TABLE>
<CAPTION>

<S>                                                            <C>                   <C>
       Research and development credits                                -           (20,000)
       Permanent differences                                       8,000          (483,000)
       Change in valuation allowance                          (1,144,000)       (1,455,000)
       Expiration of net operating loss carryforwards            727,000         1,364,000
       Expiration of tax credit carryforwards                          -           120,000
                                                               ---------        ----------

       Income tax (benefit) provision                        $  (186,000)     $     12,000
                                                              ==========       ===========
</TABLE>

    The components of the net deferred tax asset as of March 30, 2002 and March
31, 2001 are as follows:

                                                  March 30,        March 31,
                                                    2002             2001
                                                -----------      ------------

       Deferred tax items
          Inventory                             $   296,000      $    595,000
          Accrued expenses and reserves             403,000           324,000
          Depreciation and amortization             (87,000)                -
          Net operating loss carryforwards        7,138,000         7,975,000
          Tax credit carryforwards                  743,000           743,000
          Valuation allowance                    (8,493,000)       (9,637,000)
                                                -----------      ------------

          Net deferred tax assets               $         -      $          -
                                                ===========      ============

    The Company has total net operating loss carryforwards available to offset
    future taxable income of approximately $22 million expiring at various times
    from 2002 to 2021. Due to certain statutory limitations under the Internal
    Revenue Code, a portion of such carryforwards may expire unutilized.

    The Company has a valuation allowance equal to 100% of the deferred tax
    assets. In assessing the Company's ability to realize deferred income tax
    assets, the Company considered whether it is more likely than not that some
    or all of the deferred tax assets will be realized. Several factors such as
    changes in stock ownership that may restrict the utilization of net
    operating loss and tax credit carryforwards, and the Company's ability to
    generate sufficient taxable income in the periods before the net operating
    loss and tax credit carryforwards expire or the timing differences reverse
    were considered.


                                      F-19
<PAGE>


                             AM Communications, Inc.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001


NOTE I - RELATED PARTY TRANSACTIONS

    Mr. Javad Hassan is the Chairman of the board of directors (Chairman) of the
    Company and has ownership interest in several other companies in the United
    States, India and other parts of the world. Among these companies is NeST
    group of companies (NeST), including NeST Technologies, Inc. and NeSTronix,
    Inc., which are U.S.-based technology service entities that provide
    engineering development services and turn-key manufacturing services
    primarily through the use of technology resources of staff and electronic
    manufacturing operations located in India and controlled by the Chairman's
    brother, Mr. N. Jehangir. NeST provides a substantial portion of the
    Company's engineering and manufacturing requirements. The Chairman and NeST
    companies control the voting of 14,391,837 shares of the Company's Common
    Stock, hold 1,000,000 shares obtained through the exercise of stocks options
    hold 7,862,334 shares through the exercise of warrants, and hold stock
    option to purchase 4,000,000 shares of common stock at $0.15 per share.

    o    Under the terms of an agreement with NeST (NeST development agreement),
         the Company has the option to pay for development services either in
         cash or by the issuance of warrants to purchase AM Common Stock. During
         fiscal 1999 the Company elected to issue NeST warrants to purchase
         4,234,018 shares of the Company's Common Stock, at an exercise price of
         $0.01 per share, in payment of $670,000 of NeST development services
         for the period from November 1998 through April 3, 1999. The Company
         also issued warrants to purchase 3,628,316 shares of the Company's
         Common Stock, at an exercise price of $0.01 per share, in lieu of
         payment of $1,157,197 of NeST development services for the period from
         April 4, 1999 through January 1, 2000. Since January 2, 2000, the
         Company has paid cash for NeST development services. The Company
         expects to pay ongoing NeST development expenses in cash, but continues
         to have the option to issue warrants up to a limit of ten million total
         shares under the NeST Agreement, including the 7,862,334 shares already
         issued. During years ended March 30, 2002 and March 31, 2001, the
         Company paid approximately $2,500,000 and $2,200,000, respectively. The
         Company has negotiated favorable rates with NeST for services performed
         by both the India-based and U.S.-based employees of NeST. The Company
         may not be able to obtain the same negotiated rates from outside third
         parties.

    o    Pursuant to a Manufacturing Services Agreement (Manufacturing
         Agreement) between NeSTronix, Inc. and the Company, NeSTronix agreed to
         manufacture the Company's products on a turnkey basis commencing on
         January 2, 2000. The initial term of this Manufacturing Agreement ends
         on January 2, 2003 and the Manufacturing Agreement is automatically
         renewable for an additional 18 month period unless either party gives
         written

                                  (Continued)

                                      F-20
<PAGE>


                             AM Communications, Inc.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001

NOTE I - RELATED PARTY TRANSACTIONS - Continued

         notice to the contrary to the other party at least six months prior to
         the end of the then current term. The Manufacturing Agreement is also
         terminable by either party upon 60 days prior written notice upon the
         default of the other party or the bankruptcy or liquidation of the
         other party. Nothing in the Manufacturing Agreement precludes the
         Company from resuming manufacturing itself or transferring
         manufacturing rights to a third party. The Company retains title to and
         ownership of all equipment, inventory and intellectual property rights
         utilized in connection with the manufacture of its products. The
         Company and NeSTronix jointly agree upon a "bill of materials" price
         for each product manufactured pursuant to the Manufacturing Agreement.
         The Company pays NeSTronix for each product manufactured pursuant to
         the Manufacturing Agreement, an amount equal to the actual cost of all
         materials utilized to manufacture the product, plus 0.5 times the
         agreed upon "bill of materials" price for the product. During the years
         ended March 30, 2002 and March 31, 2001 the Company paid approximately
         $3,005,000 and $2,400,000, respectively.

    o    Pursuant to an agreement, the Chairman agreed to provide a $500,000
         line of credit to the Company, with interest payable at 10% and expires
         on December 31, 2002. No amounts were borrowed under this line since
         its inception in June 1999.

    o    On November 1, 2001, the Company entered into an Employment Agreement
         with the Chairman. In connection with the execution and delivery of the
         Employment Agreement, the previous Services Agreement, dated as of
         October 22, 1998, between Mr. Hassan and the Company was terminated.
         Under the terms of the Employment Agreement, the Chairman will serve as
         Chief Executive Officer and Chairman of the Board of Directors of the
         Company. The term of the Employment Agreement commenced on November 1,
         2001 and expires on October 31, 2011. However, the term of the
         Employment Agreement will automatically renew for successive one year
         terms unless the Company or the Chairman gives a contrary written
         notice of termination to the other at least ninety (90) days before the
         scheduled expiration date of the Employment Agreement. The Employment
         Agreement provides for the payment of a minimum annual salary of two
         hundred fifty thousand dollars ($250,000.00) to the Chairman for his
         services. If the Chairman's employment by the Company is terminated due
         to disability or by without cause, or if the Chairman resigns for good
         reason (as such term is defined in the Employment Agreement), the
         Company is obligated to make severance payments to the Chairman in an
         amount equal to the then current salary, and to continue in effect all
         of the employee benefits, for a period equal to the lesser of (a) two
         (2) years following the date of employment termination, or (b) the
         remaining term of the Employment Agreement.

                                      F-21
<PAGE>



                             AM Communications, Inc.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001

NOTE I - RELATED PARTY TRANSACTIONS - Continued


         In addition to his base salary, the Chairman is entitled to receive an
         annual bonus in an amount equal to 60% of his annual salary if the
         Company meets the annual financial performance objectives established
         by the Board of Directors for such year, and an annual bonus in an
         amount equal to 120% of his annual salary if the Company exceeds the
         annual financial performance objectives established by the Board of
         Directors for such year by at least 30%. Mr. Hassan is also entitled to
         participate in, or enjoy the benefit of, any other fringe benefits or
         prerequisites applicable to the Company's other executive officers.

    o    The Company entered into a Stock Purchase Rights Agreement, dated as of
         December 30, 2001, with its Chairman and Chief Executive Officer, (the
         Company Stock Purchase Rights Agreement). Under the terms of the
         Company Stock Purchase Rights Agreement, the Chairman has irrevocably
         agreed to purchase, and the Company has irrevocably agreed to sell, six
         million (6,000,000) shares of the Company's common stock, at a price of
         thirty-eight cents ($0.38) per share, upon the first to occur of one of
         the following events:

         (1)      the Company enters into a definitive agreement to be acquired
                  or to sell substantially all of its assets;

         (2)      the one-hundred and eightieth (180th) day following the
                  Company's completion of a subsequent public offering of shares
                  of its common stock; and

         (3)      the Chairman's termination as Chairman of the Company's Board
                  of Directors and CEO.

    o    On November 30, 2001, the Chairman entered into an amendment to his
         Voting Trust and Share Price Participation Agreement with the Alvin
         Hoffman, Revocable Trust U/A/D 2/28/96 pursuant to which the Chairman
         will no longer share in the appreciation of AM's stock price from the
         proceeds of any sale by the Trust. Simultaneously, the Chairman entered
         into a Stock Purchase Rights Agreement with the Alvin Hoffman,
         Revocable Trust U/A/D 2/28/96 (the Hoffman Stock Purchase Rights
         Agreement). Under the terms of the Hoffman Stock Purchase Rights
         Agreement, the Chairman has irrevocably agreed to purchase, and the
         Alvin Hoffman, Revocable Trust U/A/D 2/28/96 has irrevocably agreed to
         sell, seven million one-hundred ninety-five thousand nine-hundred
         nineteen (7,195,919) shares of the Company's common stock, at a price
         of ten cents ($0.10) per share, upon the first to occur of one of the
         following events:

         (1)      the Company enters into a definitive agreement to be acquired;



                                   (Continued)

                                      F-22
<PAGE>


                             AM Communications, Inc.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001




NOTE I - RELATED PARTY TRANSACTIONS - Continued

         (2)      the  one-hundred and eightieth (180th) day following the
                  Company's completion of a subsequent public offering of shares
                  of its Class A common stock; and

         (3)      the death of Alvin Hoffman; and

         (4)      the Chairman's termination as Chairman of the Company's Board
                  of Directors.

         In accordance with the provisions of Financial Accounting Standards
         Board (FASB) Statement No. 123, Accounting for Stock Based Compensation
         and FIN No. 44, Accounting for Certain Transactions Involving Stock
         Compensation, an interpretation of APB Opinion No. 25. The Company
         recorded $83,000 of compensation expense during the year ended March
         30, 2002.

    o    On December 31, 2001, the Company entered into a loan agreement with
         its Chairman. Under this agreement, the Company may loan the Chairman
         up to $2,000,000 for the sole purpose of assisting him in exercising
         his stock purchase rights. No loans were made or outstanding as of and
         for the year ended March 30, 2002.

    o    On January 15, 2002 the Company loaned an officer of AMC $1,000,000
         evidenced by a note. The note has a due date of April 1, 2005 and bears
         interest at 5% per year. The repayments require the officer to pay
         interest in quarterly installments beginning July 1, 2002 and the
         principal and any remaining interest is due in full on April 1, 2005.

    o    Under a consulting agreement with Mr. Lemuel A. Tarshis, a director of
         the Company, the Company incurred expenses of $75,000 and $59,000
         during fiscal 2002 and 2001, respectively.

NOTE J - COMMITMENTS AND CONTINGENCIES

    The Company leases certain equipment and facilities under short-term leases.
    Rental expense charged to operations for fiscal years 2002 and 2001 was
    $1,079,000 and $312,000, respectively. The Company had leased its corporate
    headquarters on a month-to-month basis for $34,500 per month. Subsequent to
    March 30, 2002, the Company purchased the property. See subsequent events
    footnote.

                                      F-23

<PAGE>


                             AM Communications, Inc.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001


Future minimum lease commitments under the facility leases are:

       2003                                                 $ 1,284,000
       2004                                                   1,162,000
       2005                                                   1,006,000
       2006                                                     719,000
       2007                                                     262,000
                                                            -----------

                                                            $ 4,433,000
                                                            ===========

    From time-to-time the Company is involved in certain legal actions arising
    in the ordinary course of business. In management's opinion, based on the
    advice of counsel, the outcome of such actions is not expected to have a
    material adverse effect on the Company's future financial position or
    results of operations.

NOTE K - BUSINESS, MAJOR CUSTOMERS, AND CREDIT RISK

    The Company operates in two business segments that 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 Broadband Products Unit maintains key strategic Original
    Equipment Manufacturing (OEM) relationships with Motorola, Philips,
    Scientific-Atlanta and others, which purchase the Company's products under
    private label relationships and re-sell them primarily to their
    international customers.

    The Company's Broadband Services Unit primarily generates its revenue
    through the sale of services to Multiple System Operations (MSO).

    Three MSO customers contributed more than 10% of the Company's total
    revenues in the fiscal year ended March 30, 2002 - 38%, 15% and 14%,
    respectively. In fiscal 2001, two OEM customers contributed 27% and 22%,
    respectively, of the Company's total revenues for the fiscal year.

NOTE L - OPERATIONS BY BUSINESS SEGMENT

    The Company has identified the following two business segments:

    The Broadband Products Unit (Products) which manufactures and markets
    network monitoring systems, which include hardware and software sold to the
    broadband communications market, primarily for cable TV (CATV) systems.

                                      F-24
<PAGE>


                             AM Communications, Inc.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001


The Broadband Services Unit (Services), provides a range of outside-plant
    services to CATV operators which include design, installation,
    certification, and maintenance.

    Summarized financial information related to the Company's business segments
    for the years ended March 30, 2002 and March 31, 2001 are shown below.
<TABLE>
<CAPTION>

                                                                          Products           Services        Consolidated
                                                                       -------------      -------------      -------------
<S>                                                                    <C>                <C>                <C>
       Year ended March 30, 2002
          Net sales                                                    $  18,131,000      $  10,574,000      $  28,705,000
          Interest income                                                      3,000                 --              3,000
          Interest expense                                                   189,000             79,000            268,000
          Depreciation and amortization                                      179,000            266,000            445,000
          Income tax (benefit) expense                                        54,000           (240,000)          (186,000)
          Capital expenditures                                               570,000            449,000          1,019,000
          Operating income (loss)                                          1,627,000           (643,000)           984,000

          Total assets as of March 30, 2002                               14,148,000          3,411,000         17,559,000

       Year ended March 31, 2001
          Net sales                                                       15,106,000            788,000         15,894,000
          Interest income                                                      2,000                 --              2,000
          Interest expense                                                   140,000                 --            140,000
          Depreciation and amortization                                      168,000              1,000            169,000
          Income tax (benefit) expense                                            --             12,000             12,000
          Capital expenditures                                               203,000             12,000            215,000
          Operating income                                                 1,096,000            216,000          1,312,000

          Total assets as of March 31, 2001                                5,711,000            662,000          6,373,000
</TABLE>

NOTE M - RECENT ACCOUNTING PRONOUNCEMENTS

    In June 2001, the FASB approved the issuance of SFAS No. 141, Business
    Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. For
    the Company, these statements will generally become effective after March
    30, 2002, although business combinations initiated after June 30, 2001 are
    subject to the non-amortization and purchase accounting provisions.

    SFAS No. 141 addresses financial accounting and reporting for business
    combinations and supercedes APB Opinion No. 16, Business Combinations, and
    SFAS No. 38, Accounting for Preacquisition Contingencies of Purchased
    Enterprises. SFAS No. 141 is effective for all business combinations
    initiated after June 30, 2001 and eliminates the pooling-of-interest method
    of accounting for business combinations except for qualifying business
    combinations that were initiated prior to July 1, 2001. SFAS No. 141 also
    changes the criteria to recognize intangible assets apart from goodwill. The
    Company adopted SFAS No. 141 on July 1, 2001. The provisions of SFAS No. 141
    were applied to the SRS acquisition in October 2001. See the acquisition
    footnote.

                                      F-25
<PAGE>


    SFAS No. 142 stipulates that goodwill and other intangible assets with
    indefinite lives are no longer subject to amortization, but must be
    evaluated periodically for impairment and written down and charged to
    results of operations only in the periods in which the recorded value of
    goodwill and certain intangibles is more than the fair value. Separable
    intangible assets that are not deemed to have indefinite life will be
    amortized over their useful lives.

    The Company had no recorded goodwill and intangibles with indefinite lives
    recorded prior to the acquisition recorded on October 1, 2001. The Company
    has applied the non-amortization and purchase accounting provisions of SFAS
    Nos. 141 and 142 to the SRS acquisition.

    In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
    Obligations. SFAS No. 143 establishes accounting standards for the
    recognition and measurement of legal obligations associated with the
    retirement of tangible long-lived assets that result from the acquisition,
    development and (or) the normal operation of long-lived



                                   (Continued)


                                      F-26
<PAGE>


                    AM Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001




NOTE M - RECENT ACCOUNTING PRONOUNCEMENTS - Continued

    assets, except for certain obligations of lessees. SFAS No. 143 is effective
    for financial statements issued for fiscal years beginning after June 15,
    2002 and requires recognition of a liability for an asset retirement
    obligation in the period in which it is incurred. Management is in the
    process of evaluating the impact this standard will have on the Company's
    financial statements.

    In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
    or Disposal of Long-Lived Assets, that addresses financial accounting and
    reporting for the impairment or disposal of long-lived assets. While SFAS
    No. 144 supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived
    Assets and for Long-Lived Assets to Be Disposed of, it removes goodwill from
    its impairment losses on long-lived assets held for use. SFAS No. 144 also
    supercedes the accounting and reporting provisions of APB Opinion No. 30,
    Reporting the Results of Operations-Reporting the Effects of Disposal of a
    Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
    Events and Transactions, for the disposal of a segment of a business.
    However, it retains the requirement in APB Opinion No. 30 to report
    separately discontinued operations and extends that reporting to a component
    of an entity that either has been disposed of (by sale, abandonment, or in a
    distribution to owners) or is classified as held for sale. SFAS No. 144 is
    effective for fiscal years beginning after December 15, 2001 and interim
    periods within those years. Management is in the process of evaluating the
    impact this standard will have on the Company's financial statements.

NOTE N - SUBSEQUENT EVENTS

    o    In May 2002, the Company purchased the property where its corporate
         headquarters is located for $2,565,000. The Company obtained a
         $1,923,750, 15-year mortgage with a five year balloon payment. The
         mortgage bears interest at prime plus 2%.

    o    Subsequent to March 30, 2002, the Company obtained a commitment,
         subject to terms and conditions, from a bank for a total of $10,700,000
         credit facility, collateralized by substantially all assets of the
         Company, consisting of:

         1.  Revolving Credit Loans

         Seven Million Five Hundred Thousand Dollars ($7,500,000) maximum
         revolving credit; or up to eighty-five percent (85%) of the face amount
         (less maximum discounts, credits and allowances in the ordinary course
         of business) of the eligible accounts (as defined). The revolving
         credit loans bear interest, at the Company's option, at either (a) a
         base rate AM Communications, Inc. and Subsidiaries

                                      F-27
<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001


NOTE     N - SUBSEQUENT EVENTS - Continued equal to the prime rate of the bank
         plus 0.50% or (b) at the LIBOR rate (as defined) plus 2.75%.

         2.  Letters of Credit

         Standby letters of credit, provided that the aggregate undrawn face
         amount of such letters of credit are not in excess of, at any one time,
         $1,000,000. In addition to the normal charges for letters of credit,
         the Company is subject to an annual 3% administrative fee of the face
         amount of the letters of credit payable monthly. The letters of credit
         will be automatically reduced, dollar for dollar, for the amount that
         may be borrowed as revolving credit loans under the revolving credit.
         The letters of credit will expire no later than one year from issuance
         or ten days prior to the end of the contract term.

         3.  Term Loans

         (a) A $500,000 discretionary machinery and equipment acquisition line.
         Advances are limited to 80% of the net invoice cost, cannot be less
         than $100,000 and will be permitted only during the first two years
         following the closing date; (b) a $2,200,000, three-year term loan with
         a balloon payment payable upon the earlier to occur of the termination
         of the credit facility or the expiration of the initial contract term.
         These two term loans bear interest, at the Company's option, at either
         (i) the prime rate in effect plus 0.75% or (ii) the LIBOR rate plus 3%;
         and (c) up to a $500,000 two year loan with an annual excess cash flow
         recapture provision of 50%, as defined. Interest rate for this loan is
         at the prime rate plus 2%.

         The proceeds of the loan may be used to refinance the existing debt and
         for working capital needs.

    o    During June 2002 the Company entered into a merger agreement (subject
         to a number of contingencies) with Nex-Link Communication Project
         Services, LLC, a privately held company located in Ft. Lauderdale,
         Florida. Nex-Link Communications is engaged in the business of design,
         engineering, construction and installation of broadband networks
         throughout the United States. Under the terms of the proposed merger,
         Nex-Link will become a wholly owned subsidiary of AMBS and operate
         under the name "AM Nex-Link Communications, Inc". The merger
         contemplates a payment of approximately $4.59 million to Nex-Link's
         principals. Such consideration will consist of approximately $1 million
         in cash; a promissory note in the amount of $1 million payable over
         three years bearing interest at 5% per year; and seven million
         restricted shares of AM. Management is currently evaluating the assets
         and liabilities to be acquired and the resulting goodwill and
         intangibles, if any.





                                      F-28
<PAGE>


                    AM Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        March 30, 2002 and March 31, 2001


     NOTE N - SUBSEQUENT EVENTS - Continued

    o    The Company entered into a three year employment agreement with an
         officer with an automatic two year extension. The employment agreement
         has a base salary of $250,000; commissions based on AMC achieving
         certain pre-set financial performance objectives; stock options and
         other fringe benefits; vehicle allowance and a retention bonus of
         $500,000 payable in two equal installments of $250,000 on July 1, 2002
         and 2003. If the officer's employment with the Company is terminated
         for any reason before the expiration of the initial term of three
         years, the officer will be responsible for the reimbursement to the
         Company of that portion of the retention bonus that is proportionate to
         the remainder of the initial term at the time of termination.

NOTE O - ACQUISITION

    On October 1, 2001, AM Communications' wholly-owned subsidiary, AM Broadband
    Services, Inc. acquired all the issued and outstanding common stock of SRS
    Communications Corporation and EDJ Communications, Inc. These companies
    provided services to the television cable and wireless industry, including
    installation and maintenance of television lines and wireless systems in the
    Northeastern and Southeastern parts of the United States.

    The transaction provided for the payment of $1,150,000 in cash to the
    Sellers in weekly installments following the close of the stock acquisition.
    Each installment is to equal the cash collection of the Sellers' accounts
    receivable existing as of October 1, 2001, continuing until the total amount
    of such installments equals $1,150,000. The Company also issued a $3,000,000
    subordinated promissory note to the Sellers. The note bears interest at the
    rate of 5% per annum. The outstanding principal balance of the note and all
    accrued interest is payable in twelve consecutive quarterly payments,
    payable on the first day of each quarter, commencing on January 1, 2002. The
    Company also issued 9,000,000 shares of its common stock to the Sellers at
    closing valued at $0.30 per share which was the closing price of AM
    Communication's stock on October 1, 2001, with an aggregate value of
    $2,700,000. The transaction has been accounted for under the purchase method
    of accounting. Excess cost over fair value of net assets acquired of
    approximately $5,376,000, has been recorded on the balance sheet. The
    Company obtained third-party valuations of the acquired intangible assets
    and allocated $550,000 to customer relations and $1,000,000 to covenants not
    to compete and are included in other intangible assets in the accompanying
    balance sheet. The company also recorded $127,500 to goodwill during the
    year ended March 31, 2002.

    During the fourth quarter of 2002, the Company re-negotiated the purchase
    price with the Sellers based upon the fact that certain receivables
    purchased were not collectible. The Company reduced and adjusted $220,000 of
    the purchase price and the related payable to the Sellers and the
    intangibles.

                                      F-29