UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                  -------------

                                    FORM 10-K
                                  -------------

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
(Mark One)
/X/  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934
     For the fiscal year ended December 31, 2002
                               -----------------

                                       OR
/ /  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE  ACT OF 1934
     For  the  transition  period  from  ____________  to  ____________

                         Commission file number 0-18267

                                 NCT Group, Inc.
             (Exact name of registrant as specified in its charter)

Delaware                                                     59-2501025
--------------------------------------------------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

20 Ketchum Street, Westport, Connecticut                          06880
--------------------------------------------------------------------------------
(Address of principal executive offices)                        (Zip Code)

--------------------------------------------------------------------------------
                                 (203) 226-4447
--------------------------------------------------------------------------------
              (Registrant`s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
                                                            ----

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $0.01 par value
                          -----------------------------
                                (Title of Class)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  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.
/X/ Yes /_/ No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. /_/

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). /_/ Yes /X/ No

     The  aggregate  market  value  of  the  outstanding  common  equity  of the
registrant  held  by   non-affiliates  as  of  the  last  business  day  of  the
registrant's  most recently  completed  second fiscal quarter was  approximately
$32.5 million.

     The  number of  shares  outstanding  of the  registrant`s  common  stock is
486,508,326 as of March 28, 2003.

<PAGE>


<TABLE>
<CAPTION>

                                Table of Contents
                                                                                   Page
Part I

<S>  <C>                                                                              <C>
Item 1.   Business                                                                    2
Item 2.   Properties                                                                 21
Item 3.   Legal Proceedings                                                          22
Item 4.   Submission of Matters to a Vote of Security Holders                        25

Part II

Item 5.   Market  for the  Registrant's  Common  Equity and  Related  Stock-
          holder Matters                                                             26
Item 6.   Selected Financial Data                                                    36
Item 7.   Management's  Discussion and Analysis of Financial Condition and
          Results of Operations                                                      37
Item 7A   Quantitative and Qualitative Disclosures About Market Risk                 46
Item 8.   Financial Statements and Supplementary Data                                46
Item 9.   Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure                                                       46

Part III

Item 10.  Directors and Executive Officers of the Registrant                         47
Item 11.  Executive Compensation                                                     49
Item 12.  Security Ownership of Certain Beneficial Owners and Management             54
Item 13.  Certain Relationships and Related Transactions                             57
Item 14.  Controls and Procedures                                                    67

Part IV

Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K           67

Signatures                                                                           68
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002             69
</TABLE>


                                       1
<PAGE>


                                     PART I

ITEM 1.  BUSINESS

A.   General Development of Business
     -------------------------------

     Overview

     NCT  Group,  Inc.  (OTCBB:  NCTI)  is a  high-tech,  intellectual  property
development  company.  As used in this Annual Report on Form 10-K,  "we," "our,"
"us," "company" and "NCT" refer to NCT Group, Inc. and its subsidiaries,  unless
the context requires otherwise.  As of December 31, 2002, NCT held approximately
598  patents  and  related  rights  and an  extensive  library of  know-how  and
non-patented technology. Our patents allow us and our subsidiaries and licensees
to develop  product lines that include those listed below by our three operating
segments:

Communications Segment
----------------------
     o    Pro Tech communications headsets and other products
     o    NoiseBuster(R)consumer headsets; ProActive(R)industrial headsets
     o    ClearSpeech(R)   microphones,   speakers,  suite  of  noise  and  echo
          cancellation algorithms and other products
     o    An aircraft cabin quieting system
     o    Artera Turbo(TM) Internet speed enhancement service

Media Segment
-------------
     o    Sight & Sound(R)place-based audio and billboard media
     o    Gekko(TM)flat speakers, frames, prints and subwoofers

Technology Segment
------------------
     o    Java(TM) - language based microprocessor cores.

     Our total revenue for 2002 consisted of  approximately  61.4% in technology
licensing fees and royalties,  36.8% in product sales, 1.4% in advertising/media
and 0.4% in engineering and development  services.  The revenue  contribution by
our operating segments for 2000, 2001 and 2002 is outlined below in I. - Revenue
and in Note 22 - notes to our consolidated financial statements.

     In 2002, we have been primarily dependent upon funding from Carole Salkind.
Although we do not have a formal  agreement  requiring  her to do so, we believe
that  Carole  Salkind  will  continue to provide  funds to NCT.  Our belief that
funding from her will continue is based, in part, upon her continued  funding of
NCT during 2002 and to date in 2003 despite  NCT's failure to repay her notes as
the notes matured.  Carole  Salkind has allowed  matured notes to be rolled into
new notes  along with  accrued  interest  and  default  penalties.  See  further
information  about  this  in the  section  "Certain  Relationships  and  Related
Transactions."

     Operating segments

     We operate our business  ventures out of separate  subsidiaries,  organized
into three operating segments: communications, media and technology. Each of our
operating segments is targeted to the  commercialization of products in specific
markets.  The following  table  summarizes our ownership of entities  within our
operating segments as of December 31, 2002.

                                       2
<PAGE>


                                 NCT Group, Inc.
                            50% or Greater Ownership
                            ------------------------
<TABLE>
<CAPTION>

                                                                                             % Ownership
                                                                                             ------------
     Operating Segment                                                                 Actual         Fully Diluted (a)
     -----------------                                                                 ------         --------------

<S>                              <C>                                                    <C>                 <C>

     Communications Segment
     ----------------------
      NCT Hearing Products, Inc. ("NCT Hearing")                                        100                 100
          Pro Tech Communications, Inc. ("Pro Tech")                                     82                  24
          NCT Medical Systems, Inc.                                                      90                  90
      Noise Cancellation Technologies (Europe) Ltd. ("NCT Europe") (b)                  100                 100
      Artera Group, Inc. ("Artera")                                                     100                  69(c)
          Artera Group International Limited ("Artera International") (b)               100                 100(d)
      Midcore Software, Inc. ("Midcore")                                                100                 100
          Midcore Software Limited (b)                                                  100                 100
      ConnectClearly.com, Inc. ("ConnectClearly")                                        99                  94

     Media Segment
     -------------
      Distributed Media Corporation ("DMC")                                              99                  99
          DMC Cinema, Inc.                                                               84                  84(e)
          DMC HealthMedia Inc. ("DMC HealthMedia")                                      100                 100
          Distributed Media Corporation International
           Limited ("DMCI") (b)                                                         100                 100
      DMC New York, Inc. ("DMC NY")                                                     100                 100
      NCT Audio Products, Inc. ("NCT Audio")                                            100                 100
      NCT Video Displays, Inc. ("NCT Video")                                            100                 100

     Technology Segment/Other
     ------------------------
      Advancel Logic Corporation ("Advancel")                                            99                  99
      NCT Muffler, Inc.                                                                 100                 100
      Chaplin Patents Holding Company, Inc.                                             100                 100
      NCT Far East, Inc.                                                                100                 100
      2020 Science Limited (b)                                                          100                 100
</TABLE>


          Footnotes:
          ---------
     (a)  In addition to all of the potential dilutions described in this table,
          under convertible notes of NCT Group, Inc. issued to Carole Salkind if
          any subsidiary of NCT (other than Pro Tech Communications, Inc.) makes
          a public offering of its common stock, Carole Salkind has the right to
          exchange  all or any part of the  principal  amount of the notes  into
          that publicly  offered common stock,  at the initial  public  offering
          price  thereof.  No provision has been made for this exchange right in
          any of the subsidiaries listed.

     (b)  Denotes foreign subsidiaries.

     (c)  Assumes a $1.00 per share  price for the  Artera  Group,  Inc.  common
          stock into which certain of the outstanding  Artera Group, Inc. series
          A preferred stock is convertible.  An assumption is necessary  because
          the  conversion  formula  for the  Artera  preferred  stock  is  based
          primarily  on the price of  Artera  common  stock on a public  trading
          market,  and no such  market  yet  exists.  For more  about the Artera
          preferred  stock,  see  Note 2 - notes to the  consolidated  financial
          statements.

     (d)  On April 5, 2002,  Artera  International  ceased its Internet  service
          provider operations and entered into liquidation proceedings that have
          not yet been concluded.

     (e)  On February 28, 2002,  DMC Cinema ceased  business  operations and the
          corporation is now dormant.

     Business Operations

     Business  operations for NCT's  material  business units during fiscal 2002
include those  outlined  below.  During 2002, we exited  certain  businesses and
markets  that  were not  central  to our  strategy.  From  time to time,  we may
rationalize our operating model to emphasize one business unit over others as we
align our limited resources to seek to maximize key opportunities in fast-growth
markets.

                                       3
<PAGE>


     NCT Hearing Products, Inc.:

     o    Designs,  develops and markets  active noise  reduction  headphone and
          headset products for consumer, industrial and communications markets
     o    Product  lines  include  the  NoiseBuster(R)  line of  consumer  audio
          headphones  and the  ProActive(R)  line of  industrial  communications
          headsets and active noise reduction earmuffs
     o    Majority  of NCT  Hearing's  sales  are in  North  America;  principal
          customers  consist of end-users,  retail  stores,  original  equipment
          manufacturers and the airline industry

     Pro Tech Communications, Inc.:

     o    An 82%-owned  subsidiary  of NCT Hearing  Products,  Inc.  acquired in
          September  2000  (see  Note 2 - notes  to the  consolidated  financial
          statements)
     o    Designs,  develops  and  manufactures  lightweight  telecommunications
          headsets and new audio  technologies  for  applications  in fast-food,
          telephone and other commercial settings
     o    Currently  has  marketing  agreements  with  major  companies  in  the
          fast-food  industry and with catalog and Internet site distributors of
          telephone equipment, primarily in North America
     o    Granted  a  license  from  NCT  Hearing  for  active  noise  reduction
          technology as well as noise and echo cancellation technologies for use
          in  lightweight  cellular,  multimedia  and telephony  headsets.  This
          technology will provide differentiation for Pro Tech products
     o    Three  business  divisions  are  headset  products,   which  develops,
          manufactures  and  distributes   headsets  and  other   communications
          products   to  the  call   center   market  and   fast-food   markets;
          telecommunication system integration, which sells and installs analog,
          digital and Internet protocol phone systems to call centers as well as
          to small and medium-sized businesses; and call center operation, which
          runs  a  full  service  call  center  utilizing  the  latest  customer
          relationship management technology

     Noise Cancellation Technologies (Europe) Ltd.:

     o    Provides research and engineering services to the company in the field
          of active sound control  technology  and to all NCT business  units as
          needed
     o    Development center for all ClearSpeech algorithm technology
     o    Provides marketing and sales support to the company for European sales

     Artera Group, Inc.:

     o    Develops and markets  Artera  Turbo(TM)  web  acceleration  service to
          residential as well as small and medium businesses
     o    Foundation  for  Artera  Turbo  provided  by  NCT  subsidiary  Midcore
          Software, Inc.'s product called MidPoint Software
     o    Markets Artera Turbo through a network of resellers including Internet
          service providers, incumbent local exchange carriers and others

     o    U.K.-based   information    technology   subsidiary,    Artera   Group
          International  Limited,  offering  voice  and  data  services  to  the
          business  community  was closed.  On December 18,  2001,  the Board of
          Directors of Artera  Group  International  Limited  decided to suspend
          under-performing  operations  and reduce the number of  employees.  On
          March 21, 2002, the Board decided to cease all  operations.  Cessation
          was  formalized  on April 5,  2002  when  Artera  Group  International
          Limited entered  liquidation  proceedings  which proceedings are still
          underway

     ConnectClearly.com, Inc.:

     o    Established to focus on the  development  of Internet  telephony-based
          voice  applications  targeted to the e-commerce and e-CRM  (electronic
          customer relationship management) markets
     o    NCT's  proprietary  Internet  telephony  software  is  the  basis  for
          developing a user-friendly  "click to talk"  application for improving
          the completion rate of Internet transactions by allowing for real-time
          customer service access by a user

                                       4
<PAGE>


     Distributed Media Corporation:

     o    Media company that uses proprietary  digital technology in combination
          with   advanced   information   technology   and   Internet   protocol
          capabilities  to  deliver  audio  and  visual   advertising   messages
          integrated  with  CD-quality  music to a variety  of  out-of-home  and
          professional venues such as retail stores and hospitals
     o    Develops and distributes Sight & Sound(R), a microbroadcasting  system
          that delivers place-based broadcast and billboard advertising
     o    Generates revenue from advertising sales and licensing activities
     o    Subsidiary DMC HealthMedia  Inc. was formed in May 2000 for developing
          Sight & Sound(R)networks in hospitals and other health care venues. To
          date, DMC  HealthMedia  has completed  installations  in four New York
          City hospitals
     o    Subsidiary DMC Cinema,  Inc., formerly known as Theater Radio Network,
          was  acquired in August  2000 (see Note 2 - notes to the  consolidated
          financial  statements).  DMC  Cinema  provided  audio  programming  in
          cinemas,  producing and  distributing a content mix of music,  trivia,
          public service announcements and advertisements. On February 28, 2002,
          DMC Cinema ceased business operations because of under-performance and
          the corporation is now dormant

     NCT Audio Products, Inc.:

     o    Designs,  develops and markets products which utilize  innovative flat
          panel transducer  technology  including the Gekko(TM) flat speaker and
          ArtGekko(TM) printed grille collection
     o    Gekko(TM)flat  speakers are distributed to consumers through a network
          of audio resellers
     o    Provides speakers to our subsidiary  Distributed Media Corporation for
          use in its Sight & Sound(R)microbroadcasting system

     Advancel Logic Corporation:

     o    Participant  in the native  Java(TM)  (Java(TM)  is a trademark of Sun
          Microsystems, Inc.) embedded microprocessor market whose purpose is to
          simplify application  development by providing a platform for the same
          software to run on many  different  kinds of computers and other smart
          devices
     o    Develops a family of processor cores, which will execute  instructions
          written in both  Java(TM)  bytecode and the C/C++  computer  language,
          significantly enhancing the rate of instruction execution, which opens
          up many new applications including the next generation home appliances
          and automotive applications, smartcards for a variety of applications,
          hearing aids and mobile communications devices
     o    In  1998,  certain  Advancel-developed   technology  was  licensed  to
          STMicroelectronics SA for smartcard applications
     o    In 2000,  Advancel  entered  into a license  agreement  with  Infinite
          Technology Corporation under which Infinite Technology Corporation was
          granted  exclusive rights to create,  make,  market,  sell and license
          products and  intellectual  property  based upon  Advancel's  Java(TM)
          Turbo-J(TM)  technology and granted non-exclusive rights to Advancel's
          Java(TM) smartcard core

     Historical Developments

     During 2002, the company's efforts were focused on developing,  introducing
and  launching  the single  line,  single user  version of its Artera  Turbo(TM)
subscription   service;   growing  the  DMC  HealthMedia   network  and  closing
non-performing subsidiaries. Highlights in 2002 include the following:

     o    We completed our acquisition of DMC New York, Inc. which resulted in a
          charge of $9.2 million.
     o    Artera Group  launched its new Artera Turbo service on October 9, 2002
          and began development of a distribution channel for the product.
     o    Artera Group further developed its relationship with GTSI Corporation,
          a leading  government  reseller with annual sales of over $650 million
          and a sales force of over 300.
     o    Artera entered into an agreement with FairPoint Communications,  Inc.,
          a U.S. telephone company.  FairPoint  Communications  will sell Artera
          Turbo  subscription  services  through its 29 owned and operated rural
          local  exchange  carriers  across  18  states,  serving  approximately
          245,000 access lines.
     o    FairPoint  relationship was expanded;  now FairPoint  Broadband,  Inc.
          serves as the  exclusive  master  distributor  of Artera  Turbo(TM) to
          virtually all of the 1,100 rural local exchange carriers and incumbent
          local exchange

                                       5
<PAGE>


          carriers  and  FairPoint  Broadband  is  also a  non-exclusive  master
          distributor of Artera TurboTM to approximately  7,600 Internet service
          providers across the U.S. and Canada.
     o    DMC HealthMedia  installed Sight & Sound(R) networks in four hospitals
          in the New York metropolitan area this year and initiated  advertising
          sales  efforts  to  organizations   promoting  healthcare   enrollment
          programs.
     o    Two algorithms in NCT's  ClearSpeech suite became certified in 2002 as
          eXpressDSP  Compliant.  This is a program that  certifies  third-party
          developers  who  meet  standards  for  porting   algorithms  to  Texas
          Instruments' platforms, thereby accelerating their time to market.
     o    ClearSpeech(R)  Adaptive Speech Filter algorithm has been incorporated
          into a new line of Third Generation cell phones from Sharp Corporation
          (Japan).
     o    In an effort to  improve  our  financial  performance,  we closed  DMC
          Cinema, Inc. (acquired in 2000 as Theater Radio Network), a subsidiary
          of Distributed Media Corporation,  Artera Group International  Limited
          (acquired in 2001 as the Web  Factory),  a subsidiary of Artera Group,
          Inc. and the Lithicum,  Maryland  corporate  research and  development
          operation.

     During 2001, our activities were focused toward assimilating the operations
of acquired companies,  including Artera  International  (acquired in 2001), DMC
Cinema  (acquired  in 2000),  Midcore  Software  (acquired in 2000) and Pro Tech
Communications   (acquired  in  2000),   and  further   development  of  related
technologies. In addition, we continued our efforts to develop Distributed Media
Corporation. The following were significant events in 2001:

o    In January 2001, Artera Group, Inc. secured initial net financing of $2.5
     million, based upon convertible notes issued to outside investors with a
     face value of $5 million, convertible to Artera common stock if the
     subsidiary goes public. As founder investors, the investors in Artera
     received a 50% discount to face value on the convertible notes. Additional
     6% convertible notes were issued by Artera in 2001 for an aggregate face
     value of $2.6 million.
o    We reacquired (or agreed to reacquire) DMC licenses that had previously
     been sold in 1999 and early 2000, including all DMC licenses for the right
     to operate in the New York area and the license for the right to operate in
     Israel. These repurchases resulted in aggregate charges in 2001 of $19.3
     million, net of $2.7 million reduction of deferred revenue in 2001. Our
     repurchase of DMC licenses was to preserve the value of DMC in the
     respective market areas where licenses had been sold by gaining control of
     the licenses so that they would be available for future sale on our terms.
     To that point in time, we had not been able to develop a sufficient capital
     core to exploit the technology and to execute the DMC business plan.
o    NCT and NXT plc reached an agreement to reorganize their 1997 cross-license
     arrangements related to flat panel speaker technology. Under the new
     agreements, NCT received 2 million ordinary NXT shares in consideration for
     the cancellation of the 6% royalty payable by NXT to NCT Audio Products.
     The NXT shares at issuance held a value of approximately $9.2 million. We
     sold all the NXT shares in 2001 for an aggregate of $6.9 million in cash,
     net of fees and expenses.

     During 2000, our efforts were devoted to consummating  several acquisitions
including Midcore Software,  Inc., Theater Radio Network, Inc. (which we renamed
DMC Cinema),  and Pro Tech  Communications,  Inc. and continuing  efforts on the
development of Distributed  Media  Corporation.  The following were  significant
events in 2000:

o    Distributed Media Corporation licensed to Eagle Assets Limited the right to
     develop a portion of the New York microbroadcasting region for $2 million.
o    Distributed Media Corporation licensed to Brookepark Limited the right to
     develop Israel as a microbroadcasting media market for $2 million.
o    NCT licensed to Delphi Automotive Systems the rights to ClearSpeech(R)
     noise, acoustic echo and live echo cancellation algorithms for use in its
     mobile multimedia computing platform for hands-free cellular
     communications.
o    Our subsidiary, Advancel Logic Corporation, licensed to Infinite Technology
     Corporation exclusive rights to create, make, market, sell and license
     products and intellectual property based upon Advancel's Java(TM)
     Turbo-J(TM) technology, subject to rights previously licensed to ST
     Microelectronics and granted non-exclusive rights to Advancel's Java(TM)
     smartcard core.

     During  1999,  NCT  Audio's   marketing   accelerated.   Headset  marketing
continued,  as did technology  licensing of the ClearSpeech  technology.  During
1999, NCT's media subsidiary  Distributed Media Corporation (formed in 1998) was
launched.  During 1999,  NCT  introduced  home theater in a box and home theater
speaker  bundles;   Lernout  &  Hauspie  licensed  ClearSpeech  noise  and  echo
cancellation for speech  applications;  Distributed

                                       6
<PAGE>


Media Corporation  executed contracts with Barnes & Noble College Bookstores and
Wherehouse  Entertainment stores; and Distributed Media Corporation entered into
a $1 million financing agreement with Production Resource Group.

     During  1998,  our  focus  was the  creation  of a  subsidiary,  NCT  Audio
Products,  Inc.,  a  marketing  and  development  company  for NCT's  flat panel
transducer-based  speaker  products,  and the active sales and  marketing of the
Gekko(TM) flat speaker and ArtGekko(TM)  product lines. There was an acquisition
strategy in place for NCT Audio to roll up other audio companies and incorporate
flat speaker  products  into each acquired  company's  product  lines.  While we
executed  letters of intent to acquire four audio  companies,  this strategy was
eventually  abandoned as a result of our  inability  to attract the  appropriate
financing. (For more about this, see the NCT Audio arbitration discussion in the
section  "Legal  Proceedings.")  At the  end of  1998,  NCT's  media  subsidiary
Distributed Media Corporation was established. Other highlights of 1998 include:
the  introduction  of Gekko(TM) flat speakers,  ArtGekko(TM)  printed grille and
ClearSpeech-Handsfree(TM)  speakerphone;  the license to VLSI Technology Inc. of
ClearSpeech  noise  and  echo  cancellation  algorithms  for  use in  integrated
circuits  for  the  cellular  market;  and the  acquisition  of  Advancel  Logic
Corporation.

B.   Business Strategy
     -----------------

     Our objective is to leverage our existing base of proprietary technology by
licensing  it  and  developing  new  products  and  services.  To  achieve  this
objective,  we license our technologies to subsidiary companies that are focused
in  particular  markets  so that  the  subsidiaries,  in  turn,  may  offer  our
technologies for licensing and developing products and services to be offered to
customers. Employing this strategy, the subsidiary is responsible for developing
the  specific  knowledge  and  intimacy  with its  market  and  industry.  NCT's
technologies  are applicable to a wide variety of markets,  and therefore,  this
market   knowledge   would  be  difficult  to  cultivate   without   specialized
subsidiaries.  For example,  Artera  Group,  Inc. is licensed  with Artera Turbo
technology  and  is  now  commercializing  a   subscription-based   service  for
residential Internet users. Pro Tech Communications, Inc. is licensed with NCT's
active  noise  reduction  and  ClearSpeech(R)  algorithms  for  use  in  headset
products.  Distributed Media Corporation is commercializing a  microbroadcasting
system utilizing NCT's flat speaker technology and proprietary system management
algorithms.  From  time to  time,  we sell  ownership  interests  in NCT and our
subsidiaries  to acquire  assets and funds  needed to operate  and  finance  our
ventures.

     We anticipate  that as we establish  distribution  channels and as consumer
awareness of our products and  communication and media services  increases,  so,
too, will product sales and revenue from licensing  fees and  royalties.  At the
same time,  we continue to strive to lower the cost of our products and services
and enhance their technological performance.

C.   Technology
     ----------

     Active Noise  Reduction.  Active noise reduction  systems are  particularly
effective at minimizing  low frequency  acoustical  noise,  or rumbling  sounds.
Active  noise  reduction  creates  sound waves that are equal in  frequency  but
opposite in phase to the noise,  which is any unwanted  acoustical  signal.  The
effect of the anti-noise  signal on the noise signal is the  cancellation of the
unwanted noise signal.  Products  incorporating  this  technology  include NCT's
NoiseBuster(R) and ProActive(R) headset lines.

     Signal  Enhancement.  Our technology can be used to reduce unwanted signals
that  enter into a  communications  network,  as when  background  noise  enters
telecommunications or radio systems from a telephone receiver or microphone.  We
have developed a line of patented algorithms called  ClearSpeech(R) that perform
various signal  enhancement  functions.  The ClearSpeech  Adaptive Speech Filter
algorithm  removes  noise from  voice  transmissions.  The  filter is  effective
against a variety of stationary  noises whose  amplitude and pitch change slowly
compared to the spectral variations characteristic of human speech.  ClearSpeech
Acoustic Echo  Cancellation  removes  acoustic  echoes in hands-free full duplex
communication   systems.    Acoustic   echo   cancellation   is   an   adaptive,
frequency-based  algorithm that  continuously  tracks and updates the changes in
the acoustic path between the  loudspeaker  and the  microphone to eliminate the
acoustic  echo.  The  ClearSpeech  Reference  Noise Filter  isolates and removes
interfering  signals,  such as background radio,  television,  machine and siren
noise, so communications  can be heard more clearly.  The reference noise filter
algorithm  was  designed  to  remove  interference  from  a  desired  signal  in
applications where a reference signal for the interference is available.

     Silicon Micromachined Microphone.  The silicon micromachined microphone has
potential applications not only in the audible range of frequencies,  but in the
ultrasonic range as well. The silicon micromachined

                                       7
<PAGE>


microphone's   low  noise  floor  and  adjustable   sensitivity   improve  voice
recognition in high ambient noise  environments.  We are currently  working with
Infineon Technologies to arrive at an acceptable prototype.

     Digital Broadcasting Station System Software.  Digital broadcasting station
system   software   is  being   utilized   by  DMC  in  its  Sight  &   Sound(R)
microbroadcasting  system  to  deliver  customized  music  programming  to  each
broadcasting  site.  Advertising  is scheduled and updated via a  communications
link such as the Internet. The software also performs status checking,  play log
functions and other  diagnostic  functions made available to the central control
network.

     Telephone Amplifier Technology. Pro Tech has been awarded a patent entitled
"Linearization  of FET Channel  Impedance for Small Signal  Applications"  which
covers the  semiconductor  technology used in Pro Tech's  two-prong and tabletop
telephone  amplifiers  for call centers.  This  technology  facilitates a higher
level  of  signal  processing  quality  at  a  significantly  lower  price  than
conventional semiconductor solutions.

     Information and Traffic Optimization Management Software. NCT's subsidiary,
Artera  Group,  Inc.'s  patent-pending   technology,   Artera  Turbo(TM),  is  a
subscription-based service that allows users to browse the Internet at effective
speeds  faster  than with a 325kbs  digital  subscriber  line  connection  for a
fraction of the cost of broadband.  Using a single 56K dial-up connection with a
single PC, Artera Turbo enhances the effective speed of all browsing activities,
including web surfing and web-based e-mail, of any small to medium sized office,
educational institution or residence.  This product also manages Internet access
with features such as usage control and accounting,  routing,  firewall,  e-mail
server,  caching,  site blocking and more.  This unique  combination of features
results  in  improved  Internet  access,  regardless  of the type of  connection
available.

D.   NCT Proprietary Rights and Protection
     -------------------------------------

     As of December 31, 2002, NCT and its subsidiaries  held  approximately  598
patents and related  rights and an extensive  library of know-how and unpatented
technology.  We have patent coverage in the U.S., Canada,  Japan, Europe, Korea,
Australia,  Hong Kong and Taiwan. We hold or have rights to 319 inventions as of
December  31,  2002,   including  120  United   States   patents  and  over  496
corresponding  foreign  patents.  We have  pending 105 U.S.  and foreign  patent
applications. Our engineers have made 157 invention disclosures for which we are
in the process of preparing patent applications.

     NCT has continued to make  substantial  investments  in its  technology and
intellectual  property  and  has  incurred  development  costs  for  engineering
prototypes,  pre-production  models and field  testing of several  products  and
applications.  Management  believes that our  investment in our  technology  has
resulted in the expansion of the value of our  intellectual  property  portfolio
and improvement in the functionality,  speed, costs of components,  products and
applications. Our intellectual property strategy has been to build upon our base
of core technology that we have developed, acquired or exclusively licensed with
newer advanced  technology  patents  developed by,  purchased by, or exclusively
licensed to, us. In many instances, we have incorporated the technology embodied
in our  core  patents  into  patents  covering  specific  product  applications,
including the products'  design and  packaging.  We believe this  building-block
approach  provides  greater  protection  to us than  relying  solely on the core
patents. As our patent holdings increase,  we believe the importance of our core
patents will diminish from a competitive viewpoint.

     In 2002, three U.S. patent  applications plus their  corresponding  foreign
applications were filed to cover Artera  technology.  In addition,  one U.S. and
one European headset patent were issued in 2002 covering cushioned earphones and
headsets  for  aircraft.  DMC  received  a U.S.  patent  for  Network of Digital
Broadcast Systems in January 2003.

     Our core patents and advanced patents and patent  applications  include the
following technologies:

o        active noise control for headsets
o        adaptive feed forward approach to active noise control
o        cabin quieting and vibration isolation
o        multi-channel noise control
o        combined feedforward and feedback control
o        control using harmonic filters
o        filters for signal enhancement and speech filtering
o        control systems for noise shaping

                                       8
<PAGE>


o        ClearSpeech technology
o        Sight & Sound(R)'s method and apparatus for delivering audiovisual
         information

     The  patents  described  above  include  patents of all ages  ranging  from
pending  applications,  which will have a duration of 20 years from their filing
dates, through patents soon to expire. Our patents have expiration dates ranging
from 2003 through 2019, with the majority of the material  patents upon which we
rely expiring in 2011 and beyond.

         NCT has been granted the following trademark registrations:

            Mark                              Field of Use
            ----                              ------------
         NCT logo                             Company logo
         NoiseBuster(R)                       Headsets
         ClearSpeech(R)                       Adaptive speech filter products
         ProActive(R)                         Headsets
         Sight & Sound(R)                     Microbroadcasting

         We have also applied for ten trademark registrations including:

            Mark                              Field of Use
            ----                              ------------
         SweetSpace(TM)                       Flat audio speakers
         Artera(TM)                           Web browsing acceleration (a)
         Artera Turbo(TM)                     Web browsing acceleration (a)
         Fastest Ride on the Net!(TM)         Web browsing acceleration
         Broadband for Everyone(TM)           Web browsing acceleration

         Footnote:
         --------
          (a)  In December 2002,  oppositions  were filed before the U.S. Patent
               and Trademark Office to NCT's trademark registration applications
               for  Artera  and  Artera   Turbo.   The  alleged  basis  for  the
               oppositions  is  a  confusing  similarity  to  another  trademark
               already registered (Altera). NCT intends to defend the Artera and
               Artera Turbo trademark  registration  applications  against these
               oppositions.   For  more  information,  see  the  section  "Legal
               Proceedings."

     We also filed trademark  registration  applications for the names Gekko(TM)
and  ArtGekko(TM).  These  applications  were  challenged  by  the  holder  of a
registered  trademark  for the  name  Gecko on the  grounds  of  similarity  and
confusion  in a  proceeding  before the U.S.  Patent  and  Trademark  Office.  A
settlement  of these  challenges  has been  reached  in  principle,  and a final
settlement agreement is expected soon. The settlement is not expected to require
payments  by either  party and is  expected to permit NCT to continue to use the
Gekko and ArtGekko names.

     No  assurance  can be given as to the  range or degree  of  protection  any
patent or  trademark  issued to, or  licensed  by, NCT will  afford or that such
patents,  trademarks or licenses  will provide  protection  that has  commercial
significance  or  will  provide  competitive  advantages  for our  products.  No
assurance can be given that NCT's owned or licensed  patents or trademarks  will
afford  protection  against  competitors  with  similar  patents,   products  or
trademarks.  No  assurance  exists  that  NCT's  owned or  licensed  patents  or
trademarks  will not be challenged by third  parties,  invalidated,  or rendered
unenforceable. Furthermore, there can be no assurance that any pending patent or
trademark  registration  applications or  applications  filed in the future will
result in the issuance of a patent or registered  trademark.  The  invalidation,
abandonment or expiration of patents or trademarks owned or licensed by us which
we believe to be commercially  significant  could permit increased  competition,
with potential adverse effects on NCT and its business prospects.

     We have  conducted  only  limited  patent  and  trademark  searches  and no
assurances  can be given that patents or  trademarks do not exist or will not be
issued or  registered  in the future  that  would have an adverse  effect on our
ability to market our  technologies  or  products or  maintain  our  competitive
position with respect to our  technologies and products.  Substantial  resources
may be required to obtain and defend patent and trademark rights of NCT.

     Our  policy is to enter  into  confidentiality  agreements  with all of our
executive officers,  key technical personnel and advisors, but no assurances can
be made  that  NCT's  know-how,  inventions  and  other  secret  or  unprotected
intellectual property will not be disclosed to third parties by such persons.


                                       9
<PAGE>


     Finally,  annuities and maintenance fees for our extensive patent portfolio
are a  significant  portion of our  expenses;  such costs  typically  range from
$300,000 to $600,000 annually.  Maintenance fees are charged to maintain granted
U.S.  patents in force;  foreign patents and applications are subject to annuity
fees in order to maintain the patents and the pendancy of the applications.  If,
due to financial  constraints,  it becomes necessary for NCT to reduce its level
of  operations,  we will not be able to continue to meet the extensive  monetary
outlay  for  annuities  and  maintenance  fees  to  keep  all  the  patents  and
applications from becoming abandoned. If this occurs, we will have to prioritize
our portfolio accordingly.

E.   Research and Development
     ------------------------

     Our  research  and  development  personnel  focus on product,  software and
algorithm development, which provides the technological basis for our technology
licensing and commercial  products,  and on basic research,  which helps provide
the scientific advances that ultimately lead to new products and technology.  As
of December  31,  2002,  our  product  and  development  team was  comprised  of
approximately 23 development engineers and scientists.

     In addition to our internal  research and development team, we have entered
into joint research and development initiatives with other companies.

     NCT-sponsored  research and development  expenses  aggregated $4.4 million,
$6.0  million and $4.7 million for the years ended  December 31, 2000,  2001 and
2002,  respectively.  We anticipate  that we will  continue to make  significant
research and development expenditures to maintain our competitive position. This
includes  improving our current  technologies  and products and developing newer
technologies and products.

     Our key  research  and  development  activities  over the last three fiscal
years include:

o    Development  of Artera Turbo software and web-based  Customer  Relationship
     Management for Artera
o    Improvement to echo cancellation and noise filtering  algorithms  including
     porting to specific hardware platforms and processor cores
o    Development of two new noise filtering algorithms, speech in noise detector
     and intelligent squelch filter
o    Development of various versions of our ClearSpeech technology
o    Improvements  to the active  noise  cancellation  technologies  used in our
     headset products
o    Development of new algorithms and systems
o    Development of advertisement play verification software
o    Development   of  echo   cancellation/noise   filtering   software   module
     appropriate for integration into an Internet telephony program

F.   Existing Products and Services
     ------------------------------

     Introduction

     NCT's  manufacturing and assembly  operations are primarily  outsourced and
handled  through  contracts  with key  suppliers  and  partners.  Typically,  we
purchase   complete   products   from   these   sub-contractors   built  to  our
specifications.  Products are then shipped either directly to our customers,  to
our  warehouse or to our  third-party  warehousing  provider.  Our employees are
responsible for the receiving, stocking,  cycle counting,  shipping and handling
of most of our products.  On occasion we may require that some  modifications or
value-added service be performed in-house or at a third-party contractor.

     Each of the existing  products and services we discuss below is produced by
NCT and its subsidiaries  rather than our licensees.  Revenue recognized for our
product lines based upon our  technologies  are  classified in our statements of
operations  as  technology   licensing  fees  and   royalties,   product  sales,
advertising  media and engineering and development  services.  Our product lines
that comprised more than 15% of our consolidated  revenue in any one of the last
three years are as follows:

o    ClearSpeech(R)microphones,   speakers   and  related   products   comprised
     approximately  27.7%,  5.2% and 6.1% of our  consolidated  revenue in 2000,
     2001 and 2002, respectively
o    JavaTM microprocessor cores comprised approximately 27.6%, 9.7% and zero of
     our consolidated revenue in 2000, 2001 and 2002, respectively

                                       10
<PAGE>


o    Pro Tech  Communications'  product revenue was 4.5%, 20.5% and 22.1% of our
     consolidated revenue in 2000, 2001 and 2002, respectively

     NCT Hearing Products

o    NoiseBuster(R).  Line of personal  active noise  reduction  headphones  and
     communications  headsets that has been marketed since 1997. The NoiseBuster
     reduces low frequency  background noise  electronically  using active noise
     reduction  technology,  while leaving speech and music clearly audible. The
     NoiseBuster headset is sold directly by NCT as well as through a network of
     resellers
o    ProActive(R).  Line of active noise reduction industrial hearing protection
     and closed back communications  headsets that has been marketed since 1996.
     The  ProActive  is ideal for use in  higher-noise  environments  consisting
     largely of  low-frequency  noise that cannot easily be reduced with passive
     methods.  Low  frequency  noise  masks the  intelligibility  of speech  and
     warning signals, which can be hazardous.  ProActive is sold directly by NCT
     as well as through a network of resellers
o    NB-PCU. Integration of NCT's active noise control technology into in-flight
     passenger entertainment systems. As a component of the system, NCT also has
     developed a low-cost  headset  specifically for in-flight use to be used in
     conjunction  with the integrated  active noise reduction  electronics.  The
     system is currently being installed in first and  business-class  cabins on
     new United Airlines' aircraft

     Pro Tech Communication Products

     Pro Tech currently sells high-quality, lightweight headsets to call centers
and the fast food industry. The following are products manufactured or assembled
by Pro Tech and sold through a network of resellers:

o    The ProCom. Lightweight fast-food headset
o    The  Apollo.  Advanced,  lightweight  headset  design  sold  for  use  with
     telephone users in the call center and small office market
o    The Apollo  Freedom  Series  Headset.  A headset made to plug directly into
     phone  systems that already have  amplification  built into their  existing
     handset
o    The Gemini  Amplifier.  A full  feature  amplifier  designed  to be used in
     nearly all phone or PC phone  configurations  in the call  center and small
     office market
o    The USB Adapter. An adapter that allows the use of an amplifier and headset
     in PC phone installations.
o    The DSP Intelligent  Microphone.  Designed to serve those markets where the
     use of a headset is not wanted but headset  functionality  is required such
     as  speech   recognition  and  speech   enabling   input/output  PC  gaming
     applications
o    The Manager's Headset. A lightweight  over-the-ear  fast-food headset which
     provides  improved  comfort  to  the  fast-food  store  manager  monitoring
     drive-through activity
o    The A-10  Amplifier.  Multi-line  amplifier  being offered with each of Pro
     Tech's headsets,  designed for the small office and home office markets and
     has been  engineered to work with over 90% of all existing phone systems in
     the world
o    The A-27 Amplifier.  Designed for automatic  control  distributors or phone
     systems which use the standard PJ-237 2-prong plug as their interface
o    The Active Series Headset. Designed for the mobile headset user
o    The Trinity. Designed for users in noisy environments

     NCT Communications Products

     ClearSpeech  algorithms are developed by NCT and licensed directly from NCT
to manufacturers for use in a wide variety of communications applications.


o    ClearSpeech(R)Adaptive    Speech   Filter.   Removes   noise   from   voice
     transmissions
o    ClearSpeech(R)-Acoustic  Echo  Cancellation.  Removes  acoustic  echoes  in
     hands-free full duplex communication systems
o    ClearSpeech(R)-Reference  Noise  Filter.  Isolates and removes  interfering
     signals, such as background radio, television,  machine and siren noise, so
     communications can be heard more clearly
o    ClearSpeech(R)-Speech  in Noise  Detector.  A  noise-robust  voice activity
     detector that  produces a binary value,  depending on whether or not speech
     is detected,  and an audio output for which  non-speech  segments have been
     muted

                                       11
<PAGE>


o    ClearSpeech(R)-Intelligent Squelch Filter. Reduces unwanted signals such as
     pops and pre-speech noise experienced in some radio communications
o    ClearSpeech(R)-Line  Echo  Cancellation.  Reduces electrical echo caused by
     2-4 wire hybrids in telephone networks
o    ClearSpeech(R)-Mic. The first digital noise reduction microphone system for
     use with hands-free communication systems, substantially reduces background
     road, tire, wind, engine and traffic noise from hands-free calls,  allowing
     the person  receiving  the call to hear voices  more  clearly and with less
     frustration
o    ClearSpeech(R)-Speaker. A loudspeaker that cleans background noise from the
     incoming   speech  signal  over  a  two-way  or  mobile  radio  for  better
     intelligibility,  suitable for use with mobile radios,  fleet communication
     systems, marine radios and many other communication systems
o    ClearSpeech(R)-PCB  Board.  Currently  being  sold for  incorporation  into
     communication systems at drive-through  fast-food  restaurants,  allows the
     system to filter background car noise so that only the voice comes through,
     cutting down on errors in the order process

     NCT Audio Products

o    Gekko(TM)flat speaker and  ArtGekko(TM)speaker  grille. Flat audio speakers
     utilizing  NCT's  patented  flat  panel  transducer  technology.  With this
     technology,  Gekko(TM)speakers deliver Sweet Space(TM)sound that floods the
     room with sound as opposed to  conventional  speakers  which  deliver sound
     like a spotlight.  Available in two sizes, the  Gekko(TM)flat  speakers are
     thin  wall  hanging  speakers  that are  designed  to accept  high  quality
     reproductions   of  the  world's  most  popular   artwork,   which  is  the
     ArtGekko(TM)line  of replacement  prints and decorative  frames. The art is
     printed on acoustically  transparent material,  which allows all sound from
     the flat  speaker to pass  freely.  Gekko(TM)flat  speakers  have been sold
     since 1998 through a network of audio  retailers.  NCT Audio also  provides
     flat   speakers   for    Distributed    Media    Corporation's    Sight   &
     Sound(R)microbroadcasting system.

     Distributed Media Corporation Advertising

o    Sight  &  Sound(R)system.  Sight  &  Sound(R)provides  advertisers  with  a
     place-based    medium   in   out-of-home    commercial   and   professional
     establishments.  The Sight &  Sound(R)unit  is  comprised  of a  stationary
     billboard format and broadcast music and advertisements.  The source of the
     sound of the  system  is our  digital  broadcast  system  that  contains  a
     computer with a hard drive, an amplifier,  sound compression unit and other
     electronic devices. The music is downloaded from the DMC home office to the
     hard drive through the Internet and then played through flat panel speakers
     installed in the store.  The system is controlled  and  monitored  remotely
     from a central site and the system is scalable to any number of sites.  The
     audio portion of the  advertising  is downloaded  electronically  while the
     print aspect of our  advertisements is sent to independent agents who place
     the advertisements in the establishments.

     The viability of this business is dependent on advertising  placements (see
discussion of advertising  revenue in I. - Revenue  below).  Because of this and
because advertisers,  especially national advertisers, require significant reach
into a market when purchasing media, an important objective of DMC is to develop
a substantial  network of establishments  as quickly as possible.  There are two
different strategies DMC has employed for building the Sight & Sound(R) network.
One strategy is for DMC to contract directly with large national retailers (such
as  Barnes  &  Noble  College  Bookstores)  and  healthcare  facilities  for the
deployment  of the Sight &  Sound(R)  music  system  and media  service in their
establishments.  Under this contract strategy,  DMC (or its designee)  provides,
installs  and operates  the Sight & Sound(R)  system at its directly  contracted
locations  and pays  the  contracted  person  (such  as  Barnes & Noble  College
Bookstores or the healthcare  facility) a percentage of the advertising  revenue
generated by its installed locations.  As contracted,  we maintain the system by
providing the music genre  selected  along with the audio  advertisements  to be
aired  and the  billboard  advertisements  to be  displayed  on the  flat  panel
speakers  at the  respective  locations.  DMC pays a portion of the  advertising
revenue  generated  (a royalty) as  compensation  for our use of the  facilities
where the Sight &  Sound(R)  system is  located  (including  the  establishments
secured by DMC's  licensees).  We believe the payment serves  several  purposes,
including:  an  inducement  for the  establishment  owner to house  the  Sight &
Sound(R) unit; and an incentive for the establishment  owner to seek and promote
advertisers to air/display advertisements at the location.

     DMC has executed the contract with Barnes & Noble College Bookstores, which
allows  for  the  placement  of  our  Sight  &  Sound(R)  system  in up  to  its
approximately  406  retail  store  locations  throughout  the U.S.  (as our cash
resources  will  allow).  As of December  31,  2002,  35 Barnes & Noble  College
Bookstores  locations are currently operating DMC digital  broadcasting  systems
primarily installed in 2000. Our installed base of operating Barnes &

                                       12
<PAGE>


Noble College  Bookstores  locations  declined by three locations in 2002 due to
lost leases and new construction by the retailer.  Our  installation  process is
contingent on having  adequate cash resources and has  progressed  slowly due to
our financial  constraints.  The operating systems are geographically  dispersed
throughout the U.S.

     A second  strategy  developed to  accelerate  the  expansion of the Sight &
Sight network is the  licensing of market areas (by  geographic  territories  or
lines of business).  As a way of  accelerating  the growth of DMC and delivering
expanded  reach to its  advertisers,  through 2000,  DMC had actively  pursued a
licensing  strategy of forming  national and  international  affiliate  networks
(generally  within  a  defined  geographical  or  market  area  such as  health,
education,  hospitality  or  fitness).  Since 2000,  DMC has  de-emphasized  its
licensing  efforts.  In the licensing  strategy,  DMC (or its designee) provides
services and equipment,  as the licensee may request,  for the deployment to and
operation of the establishments  secured by the licensee.  Upon request from the
licensee and for a fee, we maintain the system by providing  the selected  music
genre  along with the audio and  visual  advertising  scheduled  to be aired and
displayed on the behalf of the paying advertiser.  Both DMC and the licensee are
responsible for selling advertising (see discussion of DMC licensing  activities
in I. - Revenue below).

     Artera Group Products

     Artera  Turbo is a  software-based  service  that  improves  the  effective
performance  of  communication  lines for  Internet-based  applications  such as
browsing,  Web-based e-mail and Web-based file transfers.  It accomplishes these
improvements by employing a number of  patent-pending,  performance  enhancement
techniques  that  decrease the size and increase  efficiencies  in the movement,
storage and delivery of Web-based  electronic data. The core of the Artera Turbo
service is the MidPoint  technology,  which we combined  with other  performance
enhancing  technologies we invented to create Artera Turbo.  Artera Turbo offers
Internet speed improvements as follows:

     o    With  Artera  Turbo  version 1  (released  January  2002),  local area
          network-based  PC users  (typically,  businesses)  utilizing  multiple
          dial-up lines are able to achieve effective speeds of up to four times
          the normal  speed of dial-up  lines.  The  effective  speeds of faster
          connections  such as cable,  digital  subscriber  line and  integrated
          services digital network are greatly improved as well.
     o    With Artera  Turbo  version 2 (released  October  2002),  residential,
          single  PC users  with a  single  dial-up  line  are  able to  achieve
          effective  speeds  averaging five times as fast as those achieved when
          Artera Turbo is not used. The effective  speeds of faster  connections
          such as cable, digital subscriber line and integrated services digital
          network are greatly improved as well.
     o    With Artera Turbo  version 2.5  (released  January  2003),  the single
          dial-up  line,  single  PC user is able to  achieve  effective  speeds
          averaging 5.6 times as fast as those achieved when Artera Turbo is not
          used.  The  effective  speeds  of  faster  connections  such as cable,
          digital  subscriber line and integrated  services  digital network are
          greatly improved as well.

     We continue to work to improve Artera Turbo to allow even faster  effective
Internet speeds and to permit the use of the product under  additional  personal
computer and network  configurations.  While Internet  connections are generally
faster with multiple lines (requiring multiple modems and,  typically,  multiple
Internet  service  provider  accounts),  Artera Turbo achieves  effective  speed
improvements  with only one line,  modem,  Internet service provider account and
personal computer. All of the performance enhancements described above have been
benchmarked in our laboratories. We offer Artera Turbo on a monthly subscription
basis.

G.   Strategic Relationships
     -----------------------

     NCT's  establishment and maintenance of strategic  relationships with major
domestic and  international  business concerns has facilitated the licensing and
sale of its technologies and applications. In exchange for the benefits to these
companies' own products offered by our technology,  these  relationships,  under
the  terms  of  license   agreements,   provide   marketing,   distribution  and
manufacturing  capabilities  for our products and enable us to limit the expense
of our own research and development  activities.  In order to ensure  dependable
sources of supply and to maintain  quality  control and cost  effectiveness  for
components  incorporated in our applications and products,  an important element
of our  strategy  has  been  to  identify  and  enter  into  relationships  with
manufacturers  that will develop and produce  custom-made  items for NCT product
applications,  and  with  manufacturers  of  components  that  will  supply  and
integrate  components for NCT technologies.  The following  summarizes NCT's key
licensing relationships:

                                       13
<PAGE>


                                   Date Initial
                                   Relationship
      Key Licensees                Established                Applications
      -------------                ------------               ------------
Ultra Electronics Ltd.             June 1991     Aircraft Cabin Quieting Systems

The Charles Stark Draper           July 1994         Microphones
Laboratory, Inc.

New Transducers Ltd.               Mar. 1997         Flat Panel Transducers

Oki Electric Industry Co., Ltd.    Oct. 1997         Communications

Infineon Technologies AG           Dec. 1997         Microphones
 (formerly Siemens AG)

STMicroelectronics SA &            Nov. 1998         Java(TM) platform
 STMicroelectronics Srl

Delphi Automotive Systems           May 2000         Communications

Sharp Corporation                August 2001         Communications

FairPoint Broadband, Inc.       October 2002         Artera Turbo


     Ultra Electronics Ltd. (U.K.)

     Since  1991,  NCT and Ultra  (and  Ultra's  predecessor,  part of the Dowty
Group),  have been designing and developing systems to enhance passenger comfort
by  quieting  aircraft  passenger  compartments  in  specified  propeller-driven
aircraft,  which Ultra sells to the worldwide turbo-prop aircraft market. In May
1993,  Ultra and NCT signed a teaming  agreement  to produce and install the NCT
cabin quieting system on the SAAB 340 aircraft.  Deliveries under this agreement
began in 1994. In March 1995,  NCT and Ultra  amended the teaming  agreement and
concluded a licensing and royalty  agreement for $2.6 million.  The  arrangement
with Ultra  terminates  upon the  expiration  of the last  applicable  patent or
rights.  Under this  agreement  beginning in 1998 and  continuing  through 2013,
Ultra has or will pay NCT a royalty of 1.5% of sales of  products  incorporating
NCT technology (see Note 4 - notes to the consolidated  financial statements for
further  details).  Each quarter on a timely  basis,  Ultra  provides us with an
accounting of its sales of products incorporating NCT technology; however, Ultra
tends to not pay us the royalties due on a timely basis.

     The Charles Stark Draper Laboratory, Inc.

     In July 1994,  NCT and Draper of Cambridge,  Massachusetts  entered into an
agreement   whereby  NCT  became  the  exclusive   licensee  to  a  new  silicon
micromachined  microphone  developed by Draper. Under the terms of the agreement
and subsequent  agreements,  Draper  performed  engineering  services for NCT to
further develop the technology.  The silicon micromachined microphone technology
can  be  used  in a  wide  variety  of  applications  within  the  acoustic  and
communications   fields.  NCT  has  developed  sub-patents  that  rely  on  this
technology  as its basis.  The patents  under this license on average  expire in
2009. Draper notified us on September 20, 2002 that it was exercising its option
to terminate  the license  agreement,  and all licenses and rights to sublicense
thereunder,  due to NCT's  failure to pay Draper the minimum  royalties  per the
agreement.  We have commenced  discussions  with Draper  regarding  amending the
existing agreement or entering into a new technology licensing  agreement.  This
technology  provides  the  basis  of the  technology  that NCT has  licensed  to
Infineon Technologies AG outlined below.

     New Transducers Ltd. (U.K.)

     New Transducers Ltd. (NXT),  its parent,  NXT plc, a United Kingdom company
listed  on the  London  Stock  Exchange,  and  NCT  executed  a  cross-licensing
agreement  on March 28,  1997.  The term of our  license to NXT was five  years.
Under the terms of the  cross-license,  we licensed  patents and patents pending
which relate to flat panel transducer technology to NXT, and NXT licensed to us,
patents and patents pending which relate to similar technology.  We received the
use of NXT's  patents and patents  pending and the benefit of NXT's  technology,
which  also  involves  the  shaking  of  a  flat  panel  to  produce  sound.  In
consideration  of the license,  during the first quarter of 1997, NCT recorded a
$3.0 million  license fee from NXT, and expected to receive  royalties on future
NXT licensing


                                       14
<PAGE>


and product  revenue.  On April 15, 1997, NXT plc, NXT and NCT executed  several
agreements and other documents, which terminated the cross-license,  and various
related  agreements and replaced them with a new  cross-license  and new related
agreements.  The material  changes  effected by the new agreements  included the
inclusion of NXT plc as a party along with NXT and provided that the license fee
payable to NCT could be paid in ordinary  shares of NXT plc stock.  This license
fee was paid to NCT in ordinary shares of NXT plc stock, which were subsequently
sold by NCT. On  September  27, 1997,  NXT plc,  NXT, NCT Audio and NCT executed
several  agreements and other documents  terminating the new cross-license and a
related  security  deed and  replacing  them with new  agreements.  The material
changes effected by these agreements  included an expansion of the fields of use
applicable to the exclusive  licenses granted to NXT plc and NXT and an increase
in the royalties payable on future licensing and product revenue. On February 9,
1999, NCT Audio and NXT amended the cross-license  agreement dated September 27,
1997  to  increase  NXT's  fields  of use to  include  aftermarket  ground-based
vehicles and aircraft sound systems.  The amendment also increased the royalties
due NCT Audio from NXT to 10% from 6% and  increased  the royalties due NXT from
NCT Audio to 7% from 6%. In consideration for granting these expanded  licensing
rights, each party received a license fee.

     As of March 30, 2001, NCT and NXT entered into an arrangement to reorganize
the  existing  cross-license  agreements  between the  companies.  Under the new
agreements,  we received two million ordinary NXT plc shares in consideration of
the  cancellation  of the  royalty  payable  by NXT to NCT Audio  under the 1997
cross-license  agreement.  The NXT plc shares, upon issuance, had a market value
of  approximately  $9.2  million;  these shares were sold for $6.9 million after
commissions,  resulting in a loss of $2.3 million.  We used the cash proceeds in
accordance  with the revised  agreements.  In  addition,  ownership of specified
intellectual  property, the rights to which were previously licensed to NXT, was
transferred to NXT. NXT has licensed to NCT and its applicable  subsidiaries the
specified NXT intellectual  property and all of the  NCT-developed  intellectual
property.  NXT  agreed  to  design a  low-cost  flat  panel  speaker  for use by
Distributed Media  Corporation.  Also under the new agreements,  we acquired 533
shares of NCT Audio that were held by NXT and allowed NXT a cashless exercise of
an option granted in 1997 to purchase  3,850,000 shares of our common stock. NXT
is  required to assist DMC in  developing  a new flat  speaker,  and we will pay
royalties  on products  developed  by NXT and sold by us at the greater of 2% of
net sales revenue or ten cents per product developed by NXT (see Notes 4, 14 and
15 - notes to the consolidated financial statements for further details).

     Oki Electric Industry Co., Ltd. (Japan)

     In October 1997, NCT and Oki executed a license agreement.  Under the terms
of the  agreement,  which  included an up-front  license fee and future per unit
royalties,  Oki licensed NCT's ClearSpeech(R)  noise cancellation  algorithm for
integration   into   large-scale    integrated   circuits   for   communications
applications.  NCT has  granted  Oki the  right  to  manufacture,  use and  sell
products incorporating the algorithm.  The algorithm is specifically designed to
remove  background  noise from  speech and other  transmitted  signals,  greatly
improving  intelligibility  and  clarity  of  communications.  NCT is  currently
receiving  royalties  from OKI relating to the license  agreement  (see Note 4 -
notes to the consolidated financial statements).  This agreement terminates upon
the expiration of the last applicable licensed patent, unless earlier terminated
by written agreement of the parties.

     Infineon Technologies AG (as assignee of Siemens AG) (Germany)

     In December 1997, NCT and Infineon executed a license agreement.  Under the
terms of the agreement,  which  included an up-front  license fee and future per
unit royalties,  Infineon  licensed NCT's silicon  micromachined  microphone and
will  develop,  manufacture  and market such  microphones  as surface  mountable
devices.  This agreement  terminates  upon the expiration of the last applicable
patent under the  agreement  or with three  months  notice if the product is not
developed.  The silicon micromachined  microphone technology delivers microphone
technology  on a silicon chip, a  breakthrough  in the  microphone  marketplace.
Infineon  and NCT have  targeted  the silicon  micromachined  microphone  to the
multimedia,  cellular phone, wireless phone, voice recognition and other related
markets.  The silicon  micromachined  microphone's small chip dimensions of only
three  millimeters  on each side make it useful for packaging into products with
tight size  constraints,  such as noise canceling  earplugs and hearing aids. We
anticipate royalties from Infineon in the future.

     STMicroelectronics SA & STMicroelectronics Srl (France and Italy)

     In November 1998,  our  subsidiary,  Advancel,  and  STMicroelectronics  SA
executed a license agreement.  Under the terms of the agreement,  which included
the payment of a license fee, a minimum  royalty within two years and future per
unit royalties  which continue for an unspecified  term,  STMicroelectronics  SA
licensed Advancel's  tiny2J(TM) for Java(TM) (the T2J-processor core) to combine
it with its proven secure architecture and advanced


                                       15
<PAGE>


nonvolatile   memory   technology,   to  offer  a  new   generation   of  secure
microcontrollers for smartcard applications.  The T2J-processor core is designed
to accelerate the execution of Javacard(TM)-based smartcard applications such as
electronic purse credit/debit card functions,  identification cards that provide
authorized access to networks and subscriber  identification modules that secure
various  cellular  phones against fraud.  This agreement  resulted in revenue of
$0.2 million in 1998 and $2.2 million in 1999.  We  anticipate  royalty  revenue
from this source may be significant in the future.

     Delphi Automotive Systems (U.S.)

     On May 3, 2000,  Delphi  Automotive  Systems licensed NCT's  ClearSpeech(R)
noise,  acoustic  echo and live echo  cancellation  algorithms  for use in their
mobile multimedia  computing  platform for hands-free  cellular  communications.
NCT's patented  ClearSpeech  algorithm  cancels  approximately 95% of background
road,  tire,  wind,  engine and traffic  noise from  hands-free  communications,
allowing the party  receiving  the  communication  to hear speech more  clearly.
Although NCT has not  recognized  any royalty  revenue  from Delphi to date,  we
anticipate receipt of royalties in the future.

     Sharp Corporation (Japan)

     In August 2001, NCT and Sharp  executed a license  agreement for an initial
term of three years.  Under the agreement,  which included up-front  development
fees and future per unit  royalties to NCT,  Sharp  licensed our  ClearSpeech(R)
adaptive  speech  filter  algorithm  for use with  Sharp's  current  and  future
wireless  communication  products. In 2002, Sharp Japan's Communication Division
incorporated NCT's ClearSpeech(R)  adaptive speech filter algorithm into its new
line of Third  Generation  Cell Phones (3G Phones).  The adaptive  speech filter
cleans  background  noise from  transmitted  speech for improved  voice quality,
listening comfort and intelligibility. We are currently receiving royalties from
Sharp.

     FairPoint Broadband (U.S. and Canada)

     FairPoint   Broadband,   Inc.,   wholly  owned   subsidiary   of  FairPoint
Communications,  Inc.,  and Artera  executed an exclusive  marketing  license on
October  11,  2002  whereby   FairPoint  will  serve  as  the  exclusive  master
distributor  of Artera  Turbo(TM)  to certain  rural  local  exchange  carriers,
incumbent local exchange  carriers and Internet service  providers in the United
States  and  Canada and will have other  non-exclusive  rights  with  respect to
Artera  Turbo.  The terms of the  agreement  include a license  fee and per unit
royalties based upon subscribers. In conjunction with this agreement,  FairPoint
Communications,  Inc.,  was issued a five-year  warrant to purchase  2.0 million
shares of NCT common  stock at an  exercise  price of $0.15 per share.

H.   Marketing and Sales
     -------------------

     NCT markets its products and services through its subsidiaries in a variety
of ways.  Generally,  the subsidiaries take a distribution channel approach,  as
opposed to direct selling.  NCT assists each subsidiary with executing marketing
communications  programs that maximize the reach into the target  audience while
minimizing the expense. We employ public relations in addition to other targeted
direct efforts such as direct mail and e-mail marketing.  Where appropriate,  we
advertise  in industry  trade  magazines  as well as attend and exhibit at trade
shows.  As of December 31, 2002, we had an internal sales and marketing force of
14 employees.

     Financial  information relating to domestic and foreign sales and sales for
the years ended December 31, 2000, 2001 and 2002 is set forth in Note 23 - notes
to the  consolidated  financial  statements.  NCT does  not  have a  significant
foreign exchange  transaction risk because the majority of its non-U.S.  revenue
is denominated and settled in U.S. dollars. The remaining  intercompany revenue,
eliminated in  consolidation,  is in British pounds  sterling and our underlying
cost is also in pounds sterling, creating a natural foreign exchange protection.

I.   Revenue
     -------

     The following  table sets forth the percentage  contribution of each of our
operating segments in relation to total revenue for the years ended December 31,
2000, 2001 and 2002. Such revenue and percentage contribution include technology
licensing fee revenue we recognized ($1,056,000 in 2000 and $222,000 in 2001) on
licenses (in the media  business  segment)  that we  subsequently  determined to
reacquire (see below).

                                       16
<PAGE>

     (In thousands of dollars)

<TABLE>
<CAPTION>
                                                                   Years Ended December 31,
                                      ----------------------------------------------------------------------------------------------
                                                 2000                            2001                             2002
                                      -----------------------------    ----------------------------     ----------------------------
                                        Amount        % of Total         Amount        % of Total         Amount        % of Total
                                      -----------    --------------    -----------    -------------     -----------    -------------
<S>                                   <C>                 <C>          <C>                <C>           <C>                 <C>
   Communications                     $    5,911          46.0%        $    8,019         75.6%         $    5,963          81.5%
   Media                                   3,541          27.6%             2,612         24.6%              2,270          31.0%
   Technology                              3,550          27.6%             1,028          9.7%                  -             -
   Other                                    (162)        (1.2%)            (1,047)        (9.9%)              (914)        (12.5%)
                                      -----------    --------------    -----------    -------------     -----------    -------------
             Total                    $   12,840        100.0%          $  10,612        100.0%          $   7,319         100.0%
                                      ===========    ==============    ===========    =============     ===========    =============
</TABLE>


     Product Revenue

     The following table sets forth the percentage  contribution of our separate
operating  segments  in relation  to NCT's  product  revenue for the years ended
December 31, 2000, 2001 and 2002.

     (In thousands of dollars)
<TABLE>
<CAPTION>


                                                                   Years Ended December 31,
                                      ----------------------------------------------------------------------------------------------
                                                 2000                            2001                             2002
                                      -----------------------------    ----------------------------     ----------------------------
                                        Amount        % of Total         Amount         % of Total        Amount        % of Total
                                      -----------    --------------    -----------    -------------     -----------    -------------
<S>                                   <C>                <C>           <C>                <C>           <C>                <C>
   Communications                     $    1,683         84.1%         $    4,510         98.7%         $    2,631         97.6%
   Media                                     318         15.9%                 58          1.3%                 66          2.4%
   Technology                                  -            -                   -            -                   -            -
   Other                                       -            -                   -            -                   -            -
                                      -----------    --------------    -----------    -------------     -----------    -------------
             Total                    $    2,001        100.0%         $    4,568         100.0%        $    2,697         100.0%
                                      ===========    ==============    ===========    =============     ===========    =============
</TABLE>


     Product revenue were approximately  15.6%, 43.1% and 36.8% of total revenue
for the years ended December 31, 2000, 2001 and 2002, respectively.

     Technology Licensing Fees and Royalty Revenue

     The following table sets forth the percentage  contribution of the separate
operating segments in relation to NCT's technology licensing and royalty revenue
for the years ended December 31, 2000, 2001 and 2002.

     (In thousands of dollars)
<TABLE>
<CAPTION>


                                                               .   Years Ended December 31,
                                      ----------------------------------------------------------------------------------------------
                                                 2000                            2001                             2002
                                      -----------------------------    ----------------------------     ----------------------------
                                        Amount        % of Total         Amount         % of Total        Amount        % of Total
                                      -----------    --------------    -----------    -------------     -----------    -------------
<S>                                   <C>                 <C>          <C>                 <C>          <C>                 <C>
   Communications                     $    3,257          32.8%        $    2,639          46.8%        $    2,334          52.0%
   Media                                   2,065          20.8%             1,834          32.6%             2,140          47.6%
   Technology                              3,550          35.8%             1,028          18.3%                 -             -
   Other                                   1,056          10.6%               132           2.3%                19           0.4%
                                      -----------    --------------    -----------    -------------     -----------    -------------
                     Total            $    9,928         100.0%        $    5,633         100.0%        $    4,493         100.0%
                                      ===========    ==============    ===========    =============    ============    =============
</TABLE>


     Technology licensing fees and royalties were approximately 77.3%, 53.1% and
61.4% of total  revenue for the years ended  December 31,  2000,  2001 and 2002,
respectively  (attributable  to  recognition  of deferred  revenue  from license
agreements  entered  into  prior to  2002).  We do not  expect  to  receive  any
additional cash or other consideration from our deferred revenue. In some cases,
the  consideration  we  received  for  licenses  was for an amount  less than we
recorded as deferred revenue.  In addition,  our revenue include DMC licenses we
subsequently   reacquired;   the  amounts  of  such   revenue   recognized   are
approximately  $1,056,000 in 2000 and $222,000 in 2001. Our repurchased  license
cost was $19.3  million,  net of reduction of deferred  revenue in 2001 and $9.2
million  in 2002.  Our 2002  technology  licensing  fees and  royalties  of $4.6
million were primarily  attributable to recognition of deferred  revenue of $2.1
million  from the New  Transducers  Ltd.  license and $1.9  million from Teltran
International  Group,  Inc.  license.  Our 2001  technology  licensing  fees and
revenue were primarily  attributable to recognition of deferred  revenue of $1.6
million  from the New  Transducers  Ltd.  license,  $2.3  million  from  Teltran
International  Group,  Inc.  license,  $1.0  million  from  Infinite  Technology
Corporation  license and approximately $0.2 million from DMC licenses.  Our 2000
revenue  was  predominantly  due to the revenue  recognized  from the license to
Infinite  Technology  Corporation  of $3.6 million,  license to Pro Tech of $2.4
million,  license to  Vidikron  of America,  Inc.  of

                                       17
<PAGE>


$2.0 million,  license to Teltran  International Group, Inc. of $0.4 million and
DMC license revenue of approximately $1.1 million.

     Aggregate DMC license fees  recognized  were $2,056,000 in 2000 ($1 million
up-front fee from Vidikron,  approximately $500,000 and $556,000,  respectively,
from  Brookepark  Limited and Eagle  Assets  Limited  each of whom  acquired DMC
licenses  for $2  million  and  such  license  fee  had  been  deferred  and was
recognized  as license fee  revenue  over the life of the  respective  license),
$222,000  in 2001  (approximately  $111,000  for each of  Brookepark  and  Eagle
Assets) and zero in 2002. DMC had licensed the New York  designated  market area
to Eagle Assets  Limited in March 2000 and in 1999 to investors who  transferred
their  licenses  to DMC New York,  Inc.  ("DMC  NY").  Please  refer to "Certain
Relationships  and Related  Transactions" for a description of our reacquisition
of  licenses  from DMC NY for which we  incurred  charges of $18.0  million  and
approximately $9.2 million, respectively, in 2001 and 2002.

     In 2001,  we agreed to  reacquire  the  license  issued to Eagle  Assets to
develop a portion of the New York microbroadcasting region and have accrued $2.0
million for such  reacquisition  currently  being  negotiated.  Also in 2001, we
agreed to reacquire the license issued to Brookepark Limited for $2 million that
we have accrued in our consolidated financial statements.  The reacquisition was
to be 50% from  Brookepark  Limited  and 25% from each of two  transferees  from
Brookepark:  Austost Anstalt Schaan and Balmore S.A. This Israel license has not
yet been reacquired but terms are in negotiation. Upon our decision to reacquire
DMC licenses  previously  sold to Brookepark  and Eagle  Assets,  we reduced the
remaining   deferred   revenue  to  zero  (we  recorded  $1.3  million   expense
representing  our $4.0  million  reacquisition  price for the Eagle  Assets  and
Brookepark licenses, less $2.7 million reduction of deferred revenue; these were
part of the aggregate $19.3 million,  net,  repurchased license charge in 2001).
Our DMC  licensees  have not  generated  any  revenue  with the  technology  DMC
licensed to them nor have they used the DMC licenses to  distribute  the Sight &
Sound(R) systems.

     Advertising Revenue

     Advertising  revenue for the years ended  December 31, 2000,  2001 and 2002
were $828,000, $279,000 and $105,000,  respectively,  and represented 6.5%, 2.6%
and 1.4% of total revenue for the years ended December 31, 2000,  2001 and 2002,
respectively.  The  advertising  revenue  is  due  to  amounts  recognized  from
in-theater audio advertising  supplied to multiplex cinemas ($0.7 million,  $0.2
million and zero in 2000,  2001 and 2002,  respectively)  and amounts  generated
from  broadcast  and  billboard  advertising  through  DMC's  network of Sight &
Sound(R)  systems ($0.1 million in each of 2000,  2001 and 2002,  respectively).
Effective  February 28, 2002,  we ceased the business  operations  of DMC Cinema
(due to  under-performance);  consequently,  advertising revenue are expected to
decline in the short-term.  Our advertising placements have been limited because
of limited financial resources to outfit establishments, which, in turn, results
in limited  reach  available to  advertisers.  Advertising  gross profit for the
years ended December 31, 2000, 2001 and 2002 was $14,000, $(53,000) and $90,000,
respectively.

J.   Concentrations of Credit Risk
     -----------------------------

     NCT sells its products and  services to original  equipment  manufacturers,
distributors and end users in various industries  worldwide.  As outlined below,
our three largest product customers accounted for approximately 31.3% of product
revenue during 2002 and 3.4% of aggregate gross accounts  receivable at December
31, 2002.  Although our policy is to collect  receivables in cash,  from time to
time,  our revenue and accounts  receivable  may be settled in securities of the
customer's  company  or in  securities  of NCT or its  subsidiaries  held by the
customer  rather than cash,  and we may not realize cash in the amount  recorded
for the transaction.


                                       18
<PAGE>


     (In thousands of dollars)

                                                 As of December 31, 2002
                                               and For the Year then Ended
                                             ---------------------------------
                  Customer                    Receivable          Revenue
     -------------------------------         -------------    ----------------
         Muzak                                $      7           $     484
         AM-COM                                      -                 222
         McDonalds                                  13                 137
         Clever Devices                              1                 123
         HM Electronics                              9                  57
         AVSHOP                                      5                  42
         All Others                                248               1,632
                                             -------------    ----------------
            Total product                     $    283           $   2,697
                                             =============    ================

     As outlined below, our three largest technology  licensing fees and royalty
customers accounted for approximately 99.3% of technology  licensing and royalty
revenue during 2002.

     (In thousands of dollars)

                                                 As of December 31, 2002
                                              and For the Year then Ended
                                        ----------------------------------------
            Customer                        Receivable              Revenue
-------------------------------------   -----------------     ------------------
Teltran International Inc.                  $     -            $     1,921
New Transducers Ltd. (NXT)                        -                  2,140
OKI Electronic Industry Co., Ltd.                 -                    402
Ultra Electronics, Ltd.                          19                     19
Sharp Corporation                                 -                      3
All Others                                      283                      8
                                        -----------------     ------------------
 Total licensing fees and royalties         $   302            $     4,493
                                        =================     ==================

     Our payment  terms are dependent on the type of revenue.  Generally,  trade
receivables  are due 30 to 60 days after the invoice date;  royalty  receivables
are due 30 to 90 days after they are earned; and license fee receivables are due
normally upon execution of the agreement.

     NCT does not  require  collateral  or other  security  to support  customer
receivables. NCT regularly assesses the realizability of its accounts receivable
and  performs  a  detailed  analysis  of  its  aged  accounts  receivable.  When
quantifying  the   realizability   of  accounts   receivable,   NCT  takes  into
consideration  the value of past due receivables and the  collectibility of such
receivables, based on the creditworthiness of the customer.

     Financial  instruments,  which potentially  subject NCT to concentration of
credit  risk,  consist  principally  of cash  and  cash  equivalents  maintained
primarily in banks and in trade receivables.  NCT's cash equivalents  consist of
commercial paper and other  investments  that are readily  convertible into cash
and have original maturities of three months or less.

K.   Competition
     -----------

     We have a number  of  direct  competitors.  To our  knowledge,  each of our
competitors  is  pursuing  its  own   technology,   either  on  its  own  or  in
collaboration with others,  and has commenced  attempts to commercially  exploit
such technology.  NCT believes that a number of other large  companies,  such as
the  major  domestic  and  foreign  communications,   computer,  automobile  and
appliance manufacturers,  as well as aircraft parts suppliers and manufacturers,
have  research  and  development  efforts  underway  that  could be  potentially
competitive to NCT. These companies are well established and have  substantially
greater  management,  technical,  financial,  marketing and product  development
resources than NCT.


                                       19
<PAGE>


            Competition faced by our products and services includes:

<TABLE>
<CAPTION>
                                                                                    Competitive
                                                   ---------------------------------------------------------------------------------
  Product/Service            Competition                          Advantages                                  Disadvantages
  ---------------            -----------                          ----------                                  -------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
NoiseBuster headphone      Sony, Bose                    High performing active noise reduction,       Limited name recognition;
                                                         low cost product                              limited marketing and
                                                                                                       distribution; long lead times
                                                                                                       for production

Gekko(TM)flat speakers     Sony, Aiwa, and any other      Flat  wall-mounting design, greater sound    Limited name recognition;
                           speaker manufacturer           dispersion, wide choice of decorator         limited marketing; long lead
                                                          facades                                      times for production

ClearSpeech noise and      Lucent, Texas Instruments,     High-quality noise and echo  cancellation,   Limited name recognition;
echo cancellation          other large communications     minimal voice quality  degradation           limited marketing
                           companies

Sight & Sound(R) system    In-store music providers       Ongoing cash incentives to site owners,      Limited name recognition;
                           such as Muzak; other           demographically targeted opportunity for     limited marketing; limited
                           advertising media              advertisers                                  operating history

Artera Turbo service       Internet access enhancement    Better Internet access speed                 Limited name recognition;
                           services from Fourelle,        improvements than other access               limited distribution
                           Inktomi, Propel, QuickCat      enhancement services; lower cost than        compared to broadband
                           Technologies and Proxyconn;    broadband Internet access service            Internet access providers;
                           DSL, cable modem, ISDN and     providers                                    slightly higher cost than
                           other broadband Internet                                                    some Internet access
                           access service providers                                                    enhancement services
</TABLE>


L.   Government Contracts
     --------------------

     Prior to 1998, NCT acted as a government  subcontractor  in connection with
the  performance of various  engineering and  development  services.  Government
contracts provide for cancellation at the government's sole discretion, in which
event the  contractor  or  subcontractor  may recover its actual costs up to the
date  of  cancellation,   plus  a  specified  profit  percentage.   Governmental
expenditures  for defense are  subject to the  political  process and to rapidly
changing  world  events,  either  or both of which  may  result  in  significant
reductions in such  expenditures in the proximate future.  Government  contracts
are not viewed as a significant part of our business.  No such contracts were in
effect during 2000, 2001 or 2002.

M.   Environmental Regulation Compliance
     -----------------------------------

     Compliance  with  federal,   state  and  local  provisions  regulating  the
discharge  of  materials  into the  environment,  or  otherwise  relating to the
protection  of the  environment,  does  not have any  material  effect  upon our
capital expenditures, earnings or competitive position.

N.   Employees
     ---------

     NCT had 74 employees as of December 31, 2002.  The employees  include 14 in
sales and marketing;  16 in executive and administrative  roles; 13 in the areas
of finance,  accounting,  human  resources,  legal,  information  technology and
intellectual  property;  23 in engineering and development;  and 8 in operations
and  production.  None of our  employees is  represented  by a labor union.  NCT
considers its relationships with employees to be satisfactory.

O.   Acquisitions
     ------------

     Please refer to Note 2 - notes to our consolidated financial statements for
further  information about our acquisitions.  In 2000, we acquired Theater Radio
Network,  Inc. (renamed DMC Cinema,  Inc.), Midcore Software,  Inc. and Pro Tech
Communications,  Inc. In 2001, we acquired  Artera Group  International  Limited
(formerly known as Teltran Web Factory Limited) and 25% of DMC New York, Inc. In
June 2002, pursuant to an exchange


                                       20
<PAGE>


agreement, we acquired the remaining 75% of DMC New York, Inc. and $120,000 cash
from Crammer Road in exchange for 1,800 shares of our series H preferred stock.

P.   Recent Financing Transactions
     -----------------------------

     Our  financing  transactions  during the year ended  December  31, 2002 are
discussed in our consolidated  financial statements.  Those transactions and the
footnote  reference  to  notes  to our  consolidated  financial  statements  are
highlighted below:

  NCT Convertible Notes Issued to Carole Salkind                 Note 10
  8% Convertible Notes issued by Artera Group, Inc.              Note 10
  Private Equity Credit Agreement of July 25, 2002               Notes 14 and 21
  Other NCT Group, Inc. Convertible Notes and Notes Payable      Note 10
  NCT Series H Preferred Stock                                   Note 14

     Subsequent to December 31, 2002, we completed other financing  transactions
described in Note 26 - notes to our consolidated financial statements.

Q.   Operating segments
     ------------------

     For a full discussion of operating segments and geographic areas, see Notes
22 and 23 - notes to the consolidated financial statements.

R.   Available Information
     ---------------------

     For further  information  about our business,  you may visit our website at
www.NCTGroupInc.com.  We file  annual,  quarterly  and  special  reports,  proxy
statements and other  information  with the Securities and Exchange  Commission.
You may review and copy these reports at the SEC's Public  Reference Room at 450
Fifth Street, N.W.,  Washington,  DC 20549.  Information on the operation of the
Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.  Our
SEC  filings  are also  available  to the  public  from  the  SEC's  website  at
www.sec.gov.

ITEM 2. PROPERTIES

     Our principal  executive  office and corporate  headquarters are located in
Westport,  Connecticut where we lease approximately  18,700 square feet of space
that is adequate for our purposes.  The lease expires in March 2010 and provides
for monthly rental of approximately $28,000 for the first five years and $31,000
for the next five years.  This facility  also houses the corporate  headquarters
for our subsidiaries,  DMC,  Advancel,  Artera and DMC HealthMedia and our sales
and marketing offices. The facility also housed DMC Cinema until that subsidiary
ceased operations on February 28, 2002.

     Until January 15, 2002,  NCT  maintained a research and  technical  support
laboratory in Linthicum,  Maryland,  where we leased approximately 40,000 square
feet of space. The leases provided for monthly rentals of approximately $36,000,
subject to annual inflationary adjustments. The Linthicum, Maryland facility has
been closed.  Substantially  all of its operations have been consolidated at our
Cambridge,  England  facility.  Please refer to "Legal  Proceedings" for further
information on the termination of this lease.

     Effective  March 21,  2002,  NCT entered into a lease  agreement  for 2,400
square feet of space located at 7525 Connelley Drive, Suite C, Hanover, Maryland
for a term of three years,  which  expires  March 2005,  at a monthly  rental of
$2,400. This facility is used for NCT Hearing engineering.

     Since  April  1,  2001,  Pro  Tech's  executive,  sales  and  manufacturing
facilities  occupy  approximately  13,000  square feet of space  located at 4492
Okeechobee  Road,  Fort Pierce,  Florida,  pursuant to a lease  agreement  which
expires in February 2006 and provides for monthly rental of approximately $5,000
increasing to approximately $8,000 over the five-year term.

     Since April 1, 2001,  Midcore's sales offices along with Artera's sales and
product development  operations have occupied approximately 6,400 square feet of
space  located  at 900  Straits  Turnpike,  2nd Floor,  Middlebury,  Connecticut
pursuant  to a five-year  lease  agreement,  which  expires  March 2004,  for an
average monthly rental of approximately $10,600.


                                       21
<PAGE>


     Our European operations are conducted in Cambridge,  England where we lease
4,000  square  feet of space  under a lease,  which  expires  in April  2007 and
provides for a current monthly rental of approximately $5,000, subject to annual
inflationary   adjustments.   Effective   January  15,  2002,  we   consolidated
substantially all our former Linthicum,  Maryland research and technical support
operations with the activities of this facility.  Until it ceased  operations in
2002,  Artera Group  International  Limited conducted its operations in a 10,400
square foot  rented  facility in  Newcastle-under-Lyme,  Staffordshire,  England
which required a monthly rental of approximately $10,000.

     We believe our facilities  provide us with adequate space for the near term
consistent with our current business plans. We do not intend to lease additional
space during 2003.

ITEM 3. LEGAL PROCEEDINGS

     NCT Audio Arbitration and TST/TSA/GTI Bankruptcy
     ------------------------------------------------

     On September 16, 1999, NCT Audio filed a demand for arbitration  before the
American  Arbitration  Association in Wilmington,  Delaware,  against Top Source
Technologies,  Inc.  ("TST") and its subsidiary,  Top Source  Automotive,  Inc.,
("TSA")  alleging  breach of  agreement,  breach of good faith and fair dealing,
fraudulent conduct,  negligent  misrepresentation and breach of fiduciary duties
to a  shareholder  (NCT  Audio  holds  15% of the  outstanding  stock of TSA) in
connection  with an August 14, 1998  agreement by which NCT Audio was granted an
exclusive option to purchase  substantially  all of the assets of TSA, and other
agreements  among such parties related thereto.  NCT Audio sought  rescission of
the asset  purchase  agreement,  recovery of monies paid to TST for TSA's assets
and recovery of a pro rata portion of the sales  proceeds  ultimately  paid by a
third party,  Onkyo America,  for TSA's assets. On December 8, 1999, TST and TSA
filed an answer  and  counterclaim  in the  arbitration  proceeding,  seeking to
recover (1) the $1 million  differential  between the $9 million  purchase price
paid by Onkyo America for TSA's assets and the $10 million  purchase  price that
NCT Audio had been obligated to pay; (2) expenses  associated with extending NCT
Audio's time to close its  transaction;  (3) the monies and stock owed under the
extension agreements; and (4) legal expenses. NCT maintained that the promissory
note  and  stock  were  procured  by fraud  perpetrated  by TST  and/or  TSA and
otherwise  denied the  allegations of the  counterclaims.  On July 17, 2000, NCT
Audio filed a revised demand for  arbitration,  which  elaborated on the claims,
arguments  and requests for relief of the original  demand for  arbitration.  On
November 27, 2001, NCT Audio filed an amended  arbitration  claim, which further
expanded on the claims,  arguments  and  requests for relief of the original and
revised  demands for  arbitration  and which added a claim for breach by TST and
TSA of a  confidentiality  agreement  entered into with NCT Audio in  connection
with their August 14, 1998 asset purchase agreement.

     On or about December 18, 2001, while the parties were completing  discovery
with an arbitration  hearing  scheduled to begin on January 21, 2002, TST (under
its new name  Global  Technovations,  Inc.  ("GTI")),  TSA and  their  corporate
affiliates filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code
with the U.S. Bankruptcy Court for the District of Delaware.  Under federal law,
those  filings  stayed NCT  Audio's  arbitration  proceedings  with TSA and TST.
Shortly after the initial  filings,  the bankruptcy  case was transferred to the
U.S.  Bankruptcy  Court for the  Eastern  District  of  Michigan.  NCT Audio was
appointed to the creditors'  committee in the bankruptcy  case. On July 1, 2002,
NCT Audio filed proofs of claim  against TST (GTI) and TSA for amounts  believed
to be owed to NCT Audio by them. On December 18, 2002,  GTI and TSA filed a Plan
of Reorganization and Proposed Disclosure Statement relating thereto.

     Theater Radio Network - InsiderStreet (Neometrix) Litigation
     ------------------------------------------------------------

     On December 6, 2000, our subsidiary DMC Cinema  (formerly  known as Theater
Radio Network) filed suit against  InsiderStreet.com,  Inc. in the Circuit Court
of the  Thirteenth  Judicial  Circuit  for  Hillsborough  County,  Florida.  The
complaint  alleges  that  InsiderStreet  breached  a  May  5,  2000  advertising
agreement  with  Theater  Radio  Network and seeks a  declaratory  judgment  and
specific performance of the agreement.  The agreement provided that, in exchange
for advertising services performed by Theater Radio Network, InsiderStreet would
deliver to Theater  Radio  Network $3 million in common stock of  InsiderStreet,
with an  adjustment  in the  number of shares  to  ensure  that the total  stock
delivered was worth at least $2,000,000 on May 10, 2001 and with registration of
all stock delivered.  InsiderStreet  has to date made only a partial delivery of
shares and has not  registered  any of the shares  delivered.  Discovery in this
litigation has begun. On October 23, 2001,  Theater Radio Network terminated its
representation  by outside counsel in this action due to a possible  conflict of
interest.  On February  28, 2002,  Theater  Radio  Network  (DMC Cinema)  ceased
operations,  although  that does not preclude it (or an  assignee)  from further
prosecuting the Theater Radio Network claims.  On March 26, 2002,  Theater Radio
Network  retained  new  counsel  in this  action.  On or about  October 9, 2002,
InsiderStreet.com,  Inc. changed its name to Neometrix Corp.

                                       22
<PAGE>


Management  believes  that at this stage it cannot  assess the  likelihood  of a
favorable outcome.  Further,  since the amount of damages, if any, Theater Radio
Network may recover cannot be quantified until the legal process is complete, no
amount has been recorded in the financial statements.

     Production Resource Group Litigation
     ------------------------------------

     On June 6, 2001,  Production  Resource Group (PRG) began legal  proceedings
against NCT and our subsidiary,  Distributed Media Corporation,  in the Superior
Court  for  the  Judicial  District  of  Fairfield  County,  Connecticut.  PRG's
complaint  alleges that NCT and DMC breached the terms of a July 19, 1999 lease,
promissory  note and warrant  entered into in connection  with the lease of some
DMC Sight & Sound(R)  equipment.  The  complaint  also  alleges that NCT and DMC
breached a January 11, 2001  resolution  agreement  designed to settle  disputes
between the parties concerning the July 19, 1999 transactions,  that we breached
a May 11,  2001  agreement  designed  to settle  disputes  between  the  parties
concerning the July 19, 1999  transactions  and the January 11, 2001  resolution
agreement,  and that we engaged in  misrepresentations  and fraud in  connection
with these matters.  On July 26, 2001,  the court granted a pre-judgment  remedy
giving PRG the right to attach or garnish up to $2.1 million of specified assets
of NCT and DMC.  On  October  4,  2001,  we filed an answer  to the  plaintiff's
complaint,  denying  PRG's  material  allegations,   seeking  dismissal  of  the
complaint  and  counterclaiming  for  breach  of  PRG's  obligation  to  deliver
equipment.

     On December 20, 2001,  NCT and DMC accepted an Offer of Judgment  requiring
NCT and DMC to pay PRG $2.0  million.  That  judgment was entered on January 17,
2002 along  with costs of $0.2  million.  In  December  2001,  we  recorded  all
anticipated  liability  related to payment of this judgment.  As of December 31,
2002,  PRG had collected  approximately  $78,000 in NCT's and DMC's cash or cash
equivalent  assets  as a result of this  judgment  and the  pre-judgment  remedy
referred to above. PRG is currently conducting post-judgment discovery regarding
additional  enforcement of the judgment.  To the extent that further  payment of
the judgment is in cash, such payment could be material to our cash position.

     On January 2, 2002,  outside the scope of the  judgment  entered  into with
NCT, PRG amended its complaint to allege that NCT's Chairman and Chief Executive
Officer  Michael  Parrella,  in  dealing  with PRG on behalf  of NCT,  committed
breaches of good faith and fair dealing,  unfair trade practices and fraud.  NCT
has agreed to indemnify Mr. Parrella for any liabilities  (including legal fees)
he may incur as a result of the PRG claims  against him. On July 15,  2002,  Mr.
Parrella moved to strike the portions of PRG's amended complaint that pertain to
him  personally.  Mr.  Parrella  has told NCT that,  to the extent  the  amended
complaint  is  not  stricken  as to him  personally,  he  intends  to  deny  the
allegations  in the amended  complaint.  To the extent  that NCT may  ultimately
indemnify Mr. Parrella for liabilities  arising out of these allegations and for
related legal fees,  we believe that our directors and officers  indemnification
insurance  (subject to certain  exceptions  under the insurance policy and after
payment of a $100,000 deductible) will cover such payments.  Discovery as to Mr.
Parrella has begun.

     Maryland Lease Litigation
     -------------------------

     On or about January 31, 2002, West Nursery Land Holding Limited Partnership
brought an action against NCT in the District Court of Maryland for Anne Arundel
County.  This action sought  repossession of premises at 1025 West Nursery Road,
Linthicum,  Maryland and an award of  approximately  $89,000 in connection  with
NCT's shutdown of its offices at, and abandonment of, such premises. On or about
February 7, 2002,  judgment as  requested  in the  complaint  was entered by the
court.  On or about July 11, 2002, West Nursery brought an action against NCT in
the Superior Court for the Judicial  District of Fairfield  County,  Connecticut
seeking to enforce the Maryland judgment in Connecticut.  On August 5, 2002, the
Connecticut court issued a pre-judgment remedy prohibiting NCT from disposing of
its assets other than in the ordinary course of business. On September 23, 2002,
West  Nursery  moved for a default  judgment on its  Connecticut  complaint.  On
October 29, 2002, NCT filed an objection to the motion for default  judgment and
filed an answer to the complaint in which it denied the material  allegations of
the  complaint.   Through   December  31,  2002,   West  Nursery  has  collected
approximately  $27,000 on this  judgment.  On December  31,  2002,  NCT and West
Nursery  executed a settlement  agreement under which all claims of West Nursery
against NCT are being  discharged  in  consideration  of the  issuance by NCT of
1,248,170 shares of its common stock  (approximately  $56,000 in stock priced at
$.0448  per  share).  On  March 3,  2003,  the  court  approved  the  settlement
agreement.  The  issuance  of the  1,248,170  shares to West  Nursery  by NCT is
expected soon, and dismissal of the action with prejudice is expected soon after
that.


                                       23
<PAGE>


     Mesa Partners Matter
     --------------------

     On February 21, 2002, an action was brought by Mesa Partners,  Inc. against
NCT and DMC in Supreme  Court of the State of New York,  County of  Suffolk  for
breach of an alleged contract for financial consulting services. NCT and DMC had
contracted  with  Mesa  Partners  for Mesa to  develop  general,  marketing  and
financial   strategies  for  NCT,  advise   management  in   presentations   and
negotiations,  make  introductions  to Mesa's  clientele and advise on new sales
opportunities  and possible  joint ventures and strategic  partnerships.  Mesa's
complaint  sought  approximately  $430,000 plus  interest,  attorneys'  fees and
costs.  On April 22, 2002, NCT and DMC filed an answer to the complaint in which
they denied any  liability.  On December 3, 2002,  NCT, DMC and Mesa  executed a
settlement agreement,  which is subject to court approval.  Under the settlement
agreement,  all claims  against NCT and DMC in the action  would be dismissed in
consideration of the issuance by NCT to Mesa of 2,321,263 shares of NCT's common
stock  ($125,000  in stock priced at $.05385 per share).  Court  approval of the
settlement  agreement was pending as of December 31, 2002. In December  2002, we
recorded all anticipated liability related to this settlement.

     Linford Group Litigation
     ------------------------

     On May 9, 2002, an action was brought by Linford Group Limited  against NCT
in the U.S.  District Court for the District of  Connecticut.  In its complaint,
Linford  alleges that NCT guaranteed an obligation of NCT's indirect  subsidiary
Artera Group International  Limited,  said to be in the amount of $425,000 (plus
interest and late charges),  for office  refurbishment  services claimed to have
been rendered in the United  Kingdom.  On July 12, 2002,  NCT filed an answer to
the complaint in which it denied any liability. On October 17, 2002, Linford and
NCT  entered  into a  settlement  agreement  under  which all  claims of Linford
against NCT and Artera  International  were discharged in  consideration  of the
issuance by NCT of 5,938,081 shares of its common stock (approximately  $480,000
in stock priced at $.08075 per share). On or about October 17, 2002, such shares
were  issued by NCT to  Linford.  Dismissal  of the  action  with  prejudice  is
expected  shortly  after resale of these NCT shares by Linford or one year after
Linford's receipt of the shares, whichever comes first.

     Crammer Road v. NCT
     -------------------

     On or about  September  16, 2002, an action was brought by Crammer Road LLC
against NCT in the U.S.  District Court for the District of Connecticut.  In its
complaint, Crammer Road alleges that NCT breached a series of agreements entered
into by Crammer Road and NCT on April 12, 2001,  namely, a Private Equity Credit
Agreement,  a  Registration  Rights  Agreement  relating  thereto,  an  Exchange
Agreement,  a Registration  Rights Agreement  relating  thereto,  two promissory
notes and an additional side letter agreement. The aggregate amount sought under
the  complaint  was $6.9 million plus  interest and costs.  On October 30, 2002,
Crammer  Road and NCT  executed a  settlement  agreement  pursuant  to which all
claims in the lawsuit are being  dismissed in  consideration  of the issuance by
NCT to Crammer  Road of 68 million  shares of NCT common  stock  ($5.44  million
priced  at $.08 per  share).  On  December  11,  2002,  the court  approved  the
settlement  agreement.  On December  17,  2002,  NCT issued 40 million of the 68
million  shares.  The  remaining  28 million  shares are  issuable 65 days after
demand by Crammer Road, which demand has not to date been made. Dismissal of the
action with  prejudice is expected  shortly  after  issuance of the remaining 28
million shares.

     Alpha, Austost, Balmore and Libra v. NCT and Artera
     ---------------------------------------------------

     On or about  December  17,  2002,  an action was  brought by Alpha  Capital
Aktiengesellschaft,  Austost Anstalt Schaan, Balmore S.A. and Libra Finance S.A.
against NCT Group,  Inc. and Artera Group, Inc. in Supreme Court of the State of
New York, County of New York. In their complaint, plaintiffs allege that NCT and
Artera  breached  a number of  payment  and stock  registration  obligations  in
connection with the January 9, 2001  convertible  notes of Artera,  the March 2,
2001  series A  convertible  preferred  stock of  Artera,  the  March  14,  2001
convertible  notes of NCT, the April 4, 2001  convertible  notes of Artera,  the
April 12, 2001 convertible  notes of NCT, the June 29, 2001 convertible notes of
Artera,  the July 30,  2002  series B  convertible  preferred  stock of Pro Tech
Communications,  Inc., the January 10, 2002  convertible  note of Artera and the
March 11, 2002 convertible note of NCT.  Registration  rights claims are alleged
against NCT in connection  with notes and preferred stock of Artera and Pro Tech
because such notes and  preferred  stock are  exchangeable  into common stock of
NCT.  Plaintiffs  seek  damages  in the  aggregate  amount of $12.2 million plus
interest,  attorneys' fees and costs.  NCT and Artera have yet to file an answer
in this action.


                                       24
<PAGE>


     Virginia Tech Intellectual Properties v. NCT
     --------------------------------------------

     On or about  December  19,  2002,  an action was brought by  Virginia  Tech
Intellectual  Properties,  Inc.  ("Va.  Tech") in the  Circuit  Court of Fairfax
County, Virginia against NCT Group, Inc. In its complaint, Va. Tech alleged that
NCT breached a September 27, 1994 agreement under which the Center of Innovative
Technology ("CIT") licensed certain patent and related technology rights to NCT.
This  agreement  was assigned by CIT to Va. Tech on September 3, 1997.  Va. Tech
claimed to have  terminated  the  agreement  as of September  12, 2002,  and its
complaint  sought  $105,000  allegedly  owed by NCT as royalty  payments for the
period from January 1, 2001 to September  12, 2002,  plus  interest,  attorneys'
fees and costs.  On January 28,  2003,  Va. Tech and NCT  executed a  settlement
agreement  in which Va.  Tech  released  NCT from all  claims  in the  action in
consideration  of a promissory  note issued by NCT to Va. Tech on that date,  in
the  principal  amount of $101,000.  The note is payable  $20,000 by February 1,
2003 and $3,000 per month from  March 1, 2003 to May 1,  2005.  On  February  5,
2003, the action was dismissed without prejudice, pending completion of the note
payments.

     Artera International U.K. Section 214 Indemnification
     -----------------------------------------------------

     On or  about  December  5,  2002,  Michael  Parrella  (Chairman  and  Chief
Executive  Officer  and a Director  of NCT),  Irene  Lebovics  (President  and a
Director of NCT) and Cy Hammond  (Treasurer and Chief Financial  Officer of NCT)
received  letters  from the  Liquidator  of NCT's  indirect  subsidiary,  Artera
International located in the United Kingdom,  informing them that the Liquidator
is  considering  asserting  claims  against  them under  Section 214 of the U.K.
Insolvency Act. Under that provision of the Insolvency Act, individuals who were
Directors of a U.K.  corporation prior to its liquidation can be held personally
liable to the liquidation  estate,  under certain  circumstances,  for up to the
amount by which the net liabilities of the corporation increased between (i) the
time the Directors  knew or ought to have concluded that there was no reasonable
prospect that the corporation  would avoid liquidation and (ii) the commencement
of  liquidation  proceedings.  The  Liquidator  asserts that such amount in this
instance is approximately $6.3 million. Each of the recipients of the letter was
a Director of Artera  International prior to its liquidation.  NCT has agreed to
indemnify Messrs. Parrella and Hammond and Ms. Lebovics for any liabilities that
may arise  against  them from these U.K.  Section 214 claims and to provide them
with  legal  representation  with  respect  to the  claims.  NCT  does  not have
directors and officers indemnification insurance coverage for the claims.

     Artera Trademark Oppositions
     ----------------------------

     On December  17, 2002 and  December  23,  2002,  in  connection  with NCT's
pending  U.S.  trademark  registration   applications  for  "Artera  Turbo"  and
"Artera," respectively,  Altera Corporation filed oppositions to the granting of
such registrations.  The alleged basis for the oppositions is, in essence,  that
the  Artera  marks  are  confusingly  similar  to Altera  Corporation's  mark of
"Altera"  which was  registered  in a number of product and  service  categories
prior to the initial filing of NCT's "Artera  Turbo" and "Artera"  applications.
NCT intends to defend against these oppositions vigorously.

     NCT believes  there are no other patent  infringement  claims,  litigation,
matters or unasserted  claims other than the matters  discussed above that could
have a  material  adverse  effect  on  our  financial  position  or  results  of
operations.   In  the  circumstances,   based  upon  the  information  presently
available,  management believes that adequate provisions have been estimated and
included in the consolidated financial statements for these matters.

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

     No matters were submitted to a vote of securities holders during the fourth
quarter of 2002.


                                       25
<PAGE>

                                     PART II

ITEM 5. MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
        MATTERS

     Our common stock currently  trades on the NASD OTC Bulletin Board under the
symbol  "NCTI." Prior to the January 6, 1999  delisting of NCT common stock from
NASDAQ's  National Market System,  our common stock was listed on the NASDAQ/NMS
under the symbol  "NCTI." High and low closing bid price  information  for NCT's
common stock for specified quarterly periods is set forth below:


                                       25
<PAGE>


                               2001                            2002
                    ------------------------        -------------------------
                        High           Low             High            Low
                    ----------    ----------        ----------      ---------
1st Quarter           $0.265        $0.145            $0.153          $0.078
2nd Quarter           $0.295        $0.1255           $0.135          $0.079
3rd Quarter           $0.162        $0.093            $0.102          $0.059
4th Quarter           $0.114        $0.071            $0.094          $0.042

     As of January 31, 2003,  there were  approximately  4,000  shareholders  of
record  representing  approximately  38,000  beneficial  owners of NCT's  common
stock.

     The company has neither  declared  nor paid any  dividends on its shares of
common stock since inception. Any decision as to the future payment of dividends
will depend on the earnings and financial position of the company and such other
factors as the Board of Directors deems relevant.  The company  anticipates that
it  will  retain  earnings,  if  any,  in  order  to  finance  expansion  of its
operations,  and has no  intention of declaring  dividends  for the  foreseeable
future.

     We have issued stock  options and warrants to acquire  shares of our common
stock as outlined in Note 15 - notes to the consolidated financial statements.

Recent Sales of Unregistered Securities by NCT Group, Inc. and its Subsidiaries
-------------------------------------------------------------------------------

     The table below  identifies  the  unregistered  sales of our  securities to
purchasers  during the previous three years, as well as the amount and nature of
the  consideration  paid by each  purchaser.  The issuance of these  securities,
except as otherwise  indicated,  was deemed to be exempt from registration under
the  Securities  Act in  reliance  on Section  4(2) of the  Securities  Act,  or
Regulation  D  promulgated  thereunder,  as a sale by an issuer not  involving a
public offering.

<TABLE>
<CAPTION>


      SECURITY SOLD                                                  PURCHASER(S)                          CONSIDERATION
------------------------------------------------------------------------------------------------------------------------------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Date of Sale    Amount and Type                                      Name of Person/Entity to whom         Aggregate Amount and Type
                                                                     securities were sold
------------------------------------------------------------------------------------------------------------------------------------
11/99 - 10/00   2,188,635 shares of NCT common stock                 Sage Capital Investments Limited;     585 shares of NCT Audio
                                                                     Silenus Limited; Edward J. Frey, Jr.  Products, Inc. common
                                                                                                           stock
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
1/4/00 -        23,470,081 shares of NCT common stock                Series F Preferred Holders:           4,715 shares of NCT
8/21/00                                                              Atlantis Capital Fund Ltd.;           Series F Preferred Stock
                                                                     Canadian Advantage Limited
                                                                     Partnership; Dominion Capital Fund
                                                                     Limited; The Endeavour Capital
                                                                     Fund, S.A.; Sovereign Partners, LP
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
3/10/00         1,254 shares of NCT Series G Preferred Stock         Endeavour Capital Fund, S.A.          $1,000,000 Cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
3/10/00         NCT warrants to acquire 167,500 shares               Endeavour Management, Inc.;           Exercisable for cash
                                                                     Ronald Nussbaum; Samuel Krieger
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
3/27/00         $1,000,000 NCT Convertible Note                      Carole Salkind                        $1,000,000 cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
6/2/00          Distributed Media Corporation Convertible Note       Roth Bros., Inc.                      Services rendered
                ($800,000 principal amount; matures 6/3/02)                                                (installation costs of
                                                                                                           DBSS system for
                                                                                                           Distributed Media
                                                                                                           Corporation)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
6/2/00          NCT warrant for 300,000 shares of NCT common stock   Roth Bros., Inc.                      Exercisable for cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
6/22/00         750 shares of Series G Preferred Stock               Endeavour Capital Fund, S.A.          $750,000 cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
7/11/00 -       4,906,595 shares of NCT common stock                 Endeavour Capital Fund, S.A.          1,237 shares of Series G
11/2/00                                                                                                    Preferred Stock
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
8/10/00         1,000 shares of ConnectClearly.com, Inc. common      Austost Anstalt Schaan;               $1,000,000 Cash
                stock                                                Balmore S.A.;
                                                                     Zakeni Limited
--------------- ---------------------------------------------------- ------------------------------------- -------------------------

                                       26
<PAGE>


      SECURITY SOLD                                                  PURCHASER(S)                          CONSIDERATION
------------------------------------------------------------------------------------------------------------------------------------
Date of Sale    Amount and Type                                      Name of Person/Entity to whom         Aggregate Amount and Type
                                                                     securities were sold
------------------------------------------------------------------------------------------------------------------------------------
8/18/00         7,405,214 shares of NCT common stock                 5 shareholders of TRN                 Common stock of TRN
                                                                     (TRN acquisition)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
8/18/00         7.5% of common stock of DMC Cinema, Inc.             5 shareholders of TRN                 Common stock of TRN
                                                                     (TRN acquisition)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
8/29/00         13,913,355 shares of NCT common stock                15 shareholders of Midcore            Common stock of Midcore
                                                                     Software, Inc.                        Software, Inc.
                                                                     (Midcore acquisition)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/7/00          9,523,810 shares of NCT common stock                 Infinite Technology Corporation       Development Services

--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/27/00         NCT warrant for 250,000 shares of NCT common stock   Crammer Road LLC                      Exercisable at $0.34 per
                (cancelled 4/12/01)                                                                        share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/29/00         559,375 shares of Pro Tech Communications, Inc.      Union Atlantic LC                     Services rendered
                common stock
                (issued to Union Atlantic LC by NCT Hearing
                Products, Inc. and Pro Tech Communications, Inc.)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/29/00         1,500 shares of Pro Tech Communications, Inc.        Austost Anstalt Schaan;               $1,500,000 cash
                Series A Preferred Stock                             Balmore S.A.;
                                                                     Zakeni Limited
                                                                     (as a condition to the Pro Tech
                                                                     Communications, Inc. acquisition)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/29/00         Pro Tech Communications, Inc. warrant for            Austost Anstalt Schaan;               Exercisable at $0.50 per
                4,500,000 shares of Pro Tech Communications, Inc.    Balmore S.A.;                         share
                common stock                                         Zakeni Limited
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
10/26/00        NCT warrant for 10,000,000 shares of NCT common      Libra Finance S.A.                    Initially exercisable at
                stock                                                                                      $0.32 per share;
                                                                                                           exercisable at $0.08 per
                                                                                                           share per 10/25/01 and
                                                                                                           11/14/01 amendments
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
11/27/00        2,810,304 shares of NCT common stock (issued under   Crammer Road LLC                      $500,000 cash
                old 9/27/01 credit line - now terminated)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/00           4,171,098 shares of NCT common stock (issued at      Trade creditors                       Supplies and services
                various times in 2000 and 2001; authorized by
                Board in Dec. 2000)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
1/9/01          NCT Networks, Inc. Convertible Notes ($5,040,000     Austost Anstalt Schaan;               $1,000,000 cash;
                principal amount)                                    Balmore S.A.;                         $1,000,000 non-recourse
                                                                     Amro International, S.A.;             notes; 1,190,000 shares
                                                                     Nesher Ltd.;                          of Pro Tech
                                                                     Talbiya B. Investments Ltd.;          Communications, Inc.
                                                                     The Gross Foundation, Inc.;           common stock
                                                                     Libra Finance S.A. (as finder)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
2/9/01          2,863,894 shares of NCT common stock                 15 shareholders of Midcore            Fill-up provision
                                                                     Software, Inc.
                                                                     (Midcore acquisition)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
2/9/01          2,455,248 shares of NCT common stock                 5 shareholders of TRN                 Fill-up provision
                                                                     (TRN acquisition)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
2/13/01         NCT Convertible Note ($500,000 principal amount);    Carole Salkind                        $500,000 cash
                matured 4/14/01
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
2/13/01         NCT warrant to acquire $500,000 of NCT common stock  Carole Salkind                        Exercisable for cash at
                                                                                                           $0.071 per share per
                                                                                                           12/20/01 amendment
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
2/22/01 -       7,831,908 shares of NCT common stock                 Austost Anstalt Schaan, Balmore       937 shares of
4/11/01                                                              S.A., Zakeni Limited                  ConnectClearly.com, Inc.
                                                                                                           common stock
--------------- ---------------------------------------------------- ------------------------------------- -------------------------

                                       27
<PAGE>


      SECURITY SOLD                                                  PURCHASER(S)                          CONSIDERATION
------------------------------------------------------------------------------------------------------------------------------------
Date of Sale    Amount and Type                                      Name of Person/Entity to whom         Aggregate Amount and Type
                                                                     securities were sold
------------------------------------------------------------------------------------------------------------------------------------
2/27/01         8,299 shares of Artera Group, Inc. Series A          Internet Business Management          Acquisition of Teltran
                Preferred Stock                                      Limited; Four Pitt, Inc.; Teltran     Web Factory Limited
                                                                     International Group, Ltd.; Austost
                                                                     Anstalt Schaan; Amro International,
                                                                     S.A.; Balmore S.A.; Berkeley Group,
                                                                     Ltd.; ICT N.V.; Leval Trading, Inc.
                                                                     Nesher, Ltd.; Talbiya B.
                                                                     Investments Ltd.; The Gross
                                                                     Foundation, Inc.; United Securities
                                                                     Services, Inc.; Libra Finance S.A.;
                                                                     John Chalfin/Offchurch Nominees
                                                                     Limited; John Chalfin/Hillhurst
                                                                     Investments, Ltd.; Teltran
                                                                     International Ltd (Web Factory
                                                                     acquisition)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
3/14/01         NCT Convertible Notes ($267,500 aggregate            Alpha Capital Aktiengesellschaft;     $250,000 cash
                principal amount)                                    Libra Finance S.A. (as finder)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
3/16/01 -       7,218,150 shares of NCT common stock                 Endeavour Capital Fund, S.A.          767 shares of Series G
5/25/01                                                                                                    Preferred Stock
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
3/30/01         3,850,000 shares of NCT common stock                 NXT plc                               Surrender of option and
                                                                                                           532 shares of NCT Audio
                                                                                                           Products, Inc.
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
4/4/01          Artera Group, Inc. Convertible Notes ($875,000       Amro International, S.A.;             $700,000 cash
                aggregate principal amount)                          Alpha Capital Aktiengesellschaft
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
4/12/01         NCT Convertible Notes ($133,750 aggregate            Alpha Capital Aktiengesellschaft;     $125,000 cash
                principal amount)                                    Libra Finance S.A. (as finder)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
4/12/01         13,333,333 shares of NCT common stock                Crammer Road LLC                      2,000 shares of DMC New
                                                                                                           York, Inc.
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
4/12/01         NCT Convertible Note ($1 million principal           Crammer Road LLC                      1,000 shares of DMC New
                amount), maturing 12/31/01                                                                 York, Inc.
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
4/12/01         NCT Video Displays, Inc. Convertible Note            Crammer Road LLC                      $500,000 cash
                ($500,000 principal amount), maturing 12/31/01
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
4/12/01         $50,000,000 NCT common stock issuable under credit   Crammer Road LLC                      Cash and shares of DMC
                line; $17,000,000 minimum commitment amount                                                New York, Inc. common
                                                                                                           stock
4/12/01         NCT warrant for 250,000 shares of NCT common stock   Crammer Road LLC                      Exercisable for cash at
                                                                                                           $0.14 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
4/17/01-7/25/01 15,340,680 shares of NCT common stock                Austost Anstalt Schaan;               $2,015,000 Artera Group,
                                                                     Balmore S.A.;                         Inc. January 9, 2001
                                                                     Amro International, S.A.;             convertible notes
                                                                     Nesher Ltd.;
                                                                     Talbiya B. Investments Ltd.;
                                                                     The Gross Foundation, Inc.
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
5/2/01          702,045 shares of NCT common stock                   Arab Commerce Bank, Ltd.              39 shares of NCT Audio
                                                                                                           Products, Inc.
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
5/14/01         NCT warrant for 500,000 shares                       Carole Salkind                        Exercisable for cash at
                                                                                                           $0.071 per share per
                                                                                                           12/20/01 amendment
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
5/14/01         NCT Convertible Note ($1,361,615 principal amount)   Carole Salkind                        Cancellation and
                                                                                                           surrender of $1,000,000
                                                                                                           NCT Convertible Note;
                                                                                                           dated 1/26/99 accrued
                                                                                                           interest; default penalty
--------------- ---------------------------------------------------- ------------------------------------- -------------------------

                                       28
<PAGE>


      SECURITY SOLD                                                  PURCHASER(S)                          CONSIDERATION
------------------------------------------------------------------------------------------------------------------------------------
Date of Sale    Amount and Type                                      Name of Person/Entity to whom         Aggregate Amount and Type
                                                                     securities were sold
------------------------------------------------------------------------------------------------------------------------------------
5/18/01         4,302,425 shares of NCT common stock                 Carole Salkind                        Conversion of NCT
                                                                                                           Convertible Note
                                                                                                           ($500,000 principal
                                                                                                           amount issued 2/13/01)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
5/25/01         Artera Group, Inc. Convertible Notes ($375,000       Alpha Capital Aktiengesellschaft;     $300,000 cash
                principal amount), maturing 5/25/02                  Amro International, S.A.
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
6/4/01-7/19/01  2,499,576 shares of NCT common stock                 Zakeni Limited                        273 shares of Pro Tech
                                                                                                           Series A Preferred Stock
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
6/29/01         Artera Group, Inc. Convertible Notes ($1,250,000     Alpha Capital Aktiengesellschaft;     $700,000 cash and
                principal amount), maturing 6/29/02                  Amro International, S.A.; The Gross   $300,000 Subscription
                                                                     Foundation, Inc.; Leval Trading,      receivable
                                                                     Inc.; Nesher Ltd.; Talbiya B.
                                                                     Investments Ltd.
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
7/30/01         500 shares of Pro Tech Communications, Inc. Series   Alpha Capital Aktiengesellschaft      $457,000 cash, net of
                B Convertible Preferred Stock                                                              expenses
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
7/30/01         Pro Tech Communications, Inc. warrant to purchase    Alpha Capital Aktiengesellschaft      Exercisable for cash
                1,000,000 shares of common stock
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
8/7/01-10/15/01 4,510,753 shares of NCT common stock                 Austost Anstalt Schaan;               $503,500 Artera Group,
                                                                     Balmore S.A.                          Inc. January 9, 2001
                                                                     Amro International, S.A.;             convertible notes
                                                                     Nesher Ltd.;
                                                                     Talbiya B. Investments Ltd.;
                                                                     The Gross Foundation, Inc.
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
8/22/01         NCT Convertible Note ($1,673,393 principal amount)   Carole Salkind                        Cancellation and
                                                                                                           surrender of $250,000,
                                                                                                           $250,000, $500,000 and
                                                                                                           $250,000 NCT Convertible
                                                                                                           Notes; accrued interest;
                                                                                                           default penalty
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
8/22/01         NCT warrant for 625,000 shares                       Carole Salkind                        Exercisable for cash at
                                                                                                           $0.071 per share per
                                                                                                           12/20/01 amendment
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
8/22/01         612,893 shares of NCT common stock                   Michael J. Parrella                   Cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
8/22/01         171,342 shares of NCT common stock                   Irene Lebovics                        Cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
8/22/01         215,765 shares of NCT common stock                   Cy E. Hammond                         Cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
8/28/01         568,770 shares of NCT common stock                   Interep National Radio Sales          Advertising services
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/10/01         1,980,198 shares of NCT common stock                 Tycon Equity Partners LLC             Consulting services
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/10/01         1,000,000 shares of NCT common stock                 Carole Salkind                        Cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/28/01         Warrant for 1,000,000 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.071 per share per
                                                                                                           12/20/01 amendment
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/28/01         NCT Convertible Note ($2,535,469 principal amount)   Carole Salkind                        $1,000,000 cash and
                                                                                                           cancellation and
                                                                                                           surrender of $1,361,615
                                                                                                           NCT Convertible Note
                                                                                                           along with accrued
                                                                                                           interest and default
                                                                                                           penalty
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
10/11/01        192,632 shares of NCT common stock                   Zakeni Limited                        14 shares of Pro Tech
                                                                                                           Communications, Inc.
                                                                                                           Series A Preferred Stock
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
10/23/01-       6,014,029 shares of NCT common stock                 Crammer Road LLC                      NCT Video Note dated
10/29/06                                                                                                   4/12/01
--------------- ---------------------------------------------------- ------------------------------------- -------------------------

                                       29
<PAGE>


      SECURITY SOLD                                                  PURCHASER(S)                          CONSIDERATION
------------------------------------------------------------------------------------------------------------------------------------
Date of Sale    Amount and Type                                      Name of Person/Entity to whom         Aggregate Amount and Type
                                                                     securities were sold
------------------------------------------------------------------------------------------------------------------------------------
10/25/01        5,000,000 shares of NCT common stock                 Libra Finance S.A.                    $397,600 cash and
                                                                                                           settlement of $2,400 in
                                                                                                           consulting fees; warrant
                                                                                                           exercised at $0.08 per
                                                                                                           share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
10/25/01        Warrant for 20,000,000 shares of NCT common stock    Libra Finance S.A.                    Exercisable for cash at
                                                                                                           $0.09 per share; price
                                                                                                           amended January 10, 2002
                                                                                                           to the lower of $0.07 or
                                                                                                           the lowest closing bid
                                                                                                           price from 1/10/02
                                                                                                           through 6/28/02, as
                                                                                                           amended through 6/28/03
                                                                                                           (see 6/28/02 below)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
10/30/01        3,275,864 shares of NCT common stock                 Alpha Capital Aktiengesellschaft      $293,750 stated value
                                                                                                           5/25/01 Artera
                                                                                                           convertible note
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
11/7/01         283,770 shares of NCT common stock                   Zakeni Limited                        20 shares of Pro Tech
                                                                                                           Communications, Inc.
                                                                                                           series A preferred stock
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
11/27/01        357,927 shares of NCT common stock                   James McManus                         Employment termination
                                                                                                           agreement
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/6/01         5,000,000 shares of NCT common stock                 Libra Finance S.A.                    $330,500 in cash,
                                                                                                           settlement of note in
                                                                                                           amount of $65,000 and
                                                                                                           $4,500 of consulting
                                                                                                           fees; exercised at $0.08
                                                                                                           per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/20/01        Warrant for 1,250,000 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.071 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/20/01        NCT Convertible Note ($2,014,270 principal amount)   Carole Salkind                        $1,000,000 cash and
                                                                                                           cancellation and
                                                                                                           surrender of $500,000 and
                                                                                                           $250,000 NCT Convertible
                                                                                                           Notes along with accrued
                                                                                                           interest and default
                                                                                                           penalty
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/21/01-       3,783,156 shares of NCT common stock                 Austost Anstalt Schaan                $300,000 face value of
12/26/01                                                                                                   1/9/01 Artera notes
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
1/23/02         328,717 shares of NCT common stock                   Robert Crisp                          Settlement of amounts due
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
1/1/02          Warrant for 500,000 shares of NCT common stock       Piedmont Consulting, Inc.             Exercisable for cash at
                                                                                                           $0.20 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
1/2/02          300,000 shares of NCT common stock                   Piedmont Consulting, Inc.             Per consulting agreement
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
1/8/02-1/25/02  Options to acquire 8,350,000 shares of NCT common    Leben Care, Inc.                      Exercisable for cash at
                stock                                                                                      prices ranging from
                                                                                                           $0.079 to $0.13 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
1/10/02         $550,000 Convertible Note                            Alpha Capital Aktiengesellschaft      Settlement of $465,000
                                                                                                           bridge financing notes
                                                                                                           dated 11/14/01 and
                                                                                                           12/27/01 and cash of
                                                                                                           approximately $84,000
--------------- ---------------------------------------------------- ------------------------------------- -------------------------

                                       30
<PAGE>


      SECURITY SOLD                                                  PURCHASER(S)                          CONSIDERATION
------------------------------------------------------------------------------------------------------------------------------------
Date of Sale    Amount and Type                                      Name of Person/Entity to whom         Aggregate Amount and Type
                                                                     securities were sold
------------------------------------------------------------------------------------------------------------------------------------
1/10/02         Warrant for 5,000,000 shares of NCT common stock     Libra Finance S.A.                    Exercisable for cash at
                                                                                                           the lower of $0.07 or the
                                                                                                           lowest closing bid price
                                                                                                           from 1/10/02 through
                                                                                                           6/28/02, as amended
                                                                                                           through 6/28/03 (see
                                                                                                           6/28/02 below)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
1/11/02         Warrant for 2,789,082 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.079 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
1/11/02         NCT Convertible Note ($2,231,265 principal amount)   Carole Salkind                        $350,000 cash and
                                                                                                           cancellation and
                                                                                                           surrender of the August
                                                                                                           22, 2001 NCT Convertible
                                                                                                           Note along with accrued
                                                                                                           interest and default
                                                                                                           penalty
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
1/11/02         Option to acquire 10% equity interest in Artera      Carole Salkind                        New indebtedness
                Group, Inc.
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
1/25/02         NCT Convertible Note ($650,000 principal amount)     Carole Salkind                        $650,000 cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
1/25/02         NCT Convertible Note ($250,000 principal amount)     Carole Salkind                        $250,000 cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
1/25/02         Warrant for 812,500 shares of NCT common stock       Carole Salkind                        Exercisable for cash at
                                                                                                           $0.09 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
1/25/02         Warrant for 312,500 shares of NCT common stock       Carole Salkind                        Exercisable for cash at
                                                                                                           $0.09 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
1/31/02         Warrant for 104,167 shares of NCT common stock       Robert C. Lau (as designee of         Exercisable for cash at
                                                                     Clayton Dunning & Company, Inc.)      $0.13 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
2/27/02         NCT Convertible Note ($827,412 principal amount)     Carole Salkind                        $800,000 cash and accrued
                                                                                                           interest and default
                                                                                                           penalty on the 1/25/02
                                                                                                           note in principal amount
                                                                                                           of $250,000
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
2/27/02         Warrant for 1,034,226 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.079 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
2/27/02         Options to acquire 3,375,000 shares of NCT common    Stop Noise, Inc.                      Exercisable for cash at
                stock                                                                                      prices ranging from $0.79
                                                                                                           to $0.12 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
2/28/02         2,142,073 shares of NCT common stock                 James McManus                         Exchange of 6.43 common
                                                                                                           shares of DMC received
                                                                                                           upon exercise of DMC
                                                                                                           option
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
3/1/02          NCT Convertible Note ($350,000 principal amount)     Carole Salkind                        $350,000 cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
3/1/02          Warrant for 437,500 shares of NCT common stock       Carole Salkind                        Exercisable for cash at
                                                                                                           $0.079 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
3/11/02         3,930,818 shares of NCT common stock                 Swedbank Luxembourg                   Exchange for 160 common
                                                                                                           shares of NCT Audio
                                                                                                           Products, Inc.
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
3/11/02         Convertible Note ($400,000 principal amount)         Alpha Capital Aktiengesellschaft      $352,500 in cash, net of
                                                                                                           $47,500 in legal fees and
                                                                                                           finder's fees paid to a
                                                                                                           third party that arranged
                                                                                                           the financing
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
3/12/02         3,748,478 shares of NCT common stock                 Alpha Capital Aktiengesellschaft      Conversion of $250,000 8%
                                                                                                           note dated April 12, 2001
--------------- ---------------------------------------------------- ------------------------------------- -------------------------

                                       31
<PAGE>


      SECURITY SOLD                                                  PURCHASER(S)                          CONSIDERATION
------------------------------------------------------------------------------------------------------------------------------------
Date of Sale    Amount and Type                                      Name of Person/Entity to whom         Aggregate Amount and Type
                                                                     securities were sold
------------------------------------------------------------------------------------------------------------------------------------
3/12/02         1,863,204 shares of NCT common stock                 Alpha Capital Aktiengesellschaft      Conversion of $125,000 8%
                                                                                                           note dated March 4, 2001
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
5/2/02          NCT Convertible Note ($1,275,483 principal amount)   Carole Salkind                        Settlement and
                                                                                                           cancellation of
                                                                                                           $1,000,000 note dated
                                                                                                           3/27/00 along with
                                                                                                           accrued interest and
                                                                                                           default penalty
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
5/2/02          NCT Convertible Note ($1,425,000 principal amount)   Carole Salkind                        $1,425,000 in cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
5/2/02          Warrant for 3,188,708 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.094 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
5/2/02          Warrant for 3,562,500 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.094 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
5/29/02         NCT Convertible Note ($350,000 principal amount)     Carole Salkind                        $350,000 in cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
5/29/02         Warrant  for 1,500,000 shares of NCT common stock    Carole Salkind                        Exercisable for cash at
                                                                                                           $0.095 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
5/31/02         281,534 shares of NCT common stock                   Amro International, S.A.              Exchanged $25,000 Artera
                                                                                                           Group, Inc. January 9,
                                                                                                           2001 convertible note
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
6/2/02          NCT Convertible Note ($300,000 principal amount)     Carole Salkind                        $300,000 in cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
6/2/02          Warrant for 1,500,000 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.097 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
6/6/02          200,000 shares of NCT common stock (exempt under     Steven M. Esrick                      Settlement of lawsuit
                section 3(a)(10) of the Securities Act of 1933)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
6/13/02         NCT warrant to acquire 250,000 shares of common      Blue Future, Inc.                     Exercisable for cash at
                stock                                                                                      $0.16 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
6/17/02         NCT warrant to acquire 350,000 shares of common      Thomas Cotton                         Exercisable for cash at
                stock                                                                                      $0.081 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
6/17/02         NCT warrant to acquire 400,000 shares of common      Barry H. Chappel                      Exercisable for cash at
                stock                                                                                      $0.081 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
6/17/02         NCT warrant to acquire 400,000 shares of common      John M. Capozzi                       Exercisable for cash at
                stock                                                                                      $0.081 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
6/24/02         1,800 shares of Series H Convertible Preferred       Crammer Road LLC                      $120,000 cash and
                Stock                                                                                      exchange of 12,000 shares
                                                                                                           of DMC New York, Inc.
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
6/28/02         Extension of time to determine the exercise prices   Libra Finance S.A.                    Exercisable at the lower
                of two warrants previously granted to acquire                                              of $0.07 or the lowest
                shares of NCT common stock in the amount of                                                closing bid price from
                20,000,000 (10/25/01) and 5,000,000 (1/10/02)                                              6/28/02 through 6/28/03
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
7/2/02          662,167 shares of NCT common stock                   Amro International, S.A.              Exchange for $50,000
                                                                                                           Artera Group, Inc.
                                                                                                           January 9, 2001
                                                                                                           convertible note
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
7/3/02          NCT Convertible Note ($350,000 principal amount)     Carole Salkind                        $350,000 in cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
7/3/02          Warrant for 1,500,000 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.078 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
7/12/02         Warrant for 20,000,000 shares of NCT common stock    Carole Salkind                        Exercisable for cash at
                                                                                                           $0.075 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
7/15/02         NCT Convertible Note ($350,000 principal amount)     Carole Salkind                        $350,000 in cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
7/15/02         Warrant for 1,500,000 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.075 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
7/23/02         NCT Convertible Note ($525,000 principal amount)     Carole Salkind                        $525,000 in cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------

                                       32
<PAGE>


      SECURITY SOLD                                                  PURCHASER(S)                          CONSIDERATION
------------------------------------------------------------------------------------------------------------------------------------
Date of Sale    Amount and Type                                      Name of Person/Entity to whom         Aggregate Amount and Type
                                                                     securities were sold
------------------------------------------------------------------------------------------------------------------------------------
7/23/02         Warrant for 2,250,000 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.059 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
8/14/02         NCT Convertible Note ($350,000 principal amount)     Carole Salkind                        $350,000 in cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
8/14/02         Warrant for 1,500,000 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.082 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
8/26/02         694,711 shares of NCT common stock                   Amro International, S.A.              Exchange for $50,000
                                                                                                           Artera Group, Inc.
                                                                                                           January 9, 2001
                                                                                                           convertible note
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
8/29/02         NCT Convertible Note ($490,000 principal amount)     Carole Salkind                        $490,000 in cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
8/29/02         Warrant for 2,100,000 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.076 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/9/02          NCT Convertible Note ($350,000 principal amount)     Carole Salkind                        $350,000 in cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/9/02          Warrant for 1,500,000 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.077 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/18/02         480,272 shares of NCT common stock                   Nesher Ltd.                           Exchange for $37,500
                                                                                                           Artera Group, Inc.
                                                                                                           January 9, 2001
                                                                                                           convertible note
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/18/02         480,272 shares of NCT common stock                   Talbiya B. Investments Ltd.           Exchange for $37,500
                                                                                                           Artera Group, Inc.
                                                                                                           January 9, 2001
                                                                                                           convertible note
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/30/02         Warrant for 10,000,000 shares of NCT common stock    Carole Salkind                        Exercisable for cash at
                                                                                                           $0.070 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/30/02         NCT Convertible Note ($3,770,098.38 principal        Carole Salkind                        $800,000 cash and
                amount)                                                                                    cancellation and
                                                                                                           surrender of $2,535,469
                                                                                                           convertible note dated
                                                                                                           9/28/01 along with
                                                                                                           accrued interest and
                                                                                                           default penalty
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/30/02         Warrant for 16,157,565 shares of NCT common stock    Carole Salkind                        Exercisable for cash at
                                                                                                           $0.070 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
9/30/02         Option to acquire 50,000,000 shares of NCT common    Acme Associates, Inc.                 Exercisable for cash at
                stock                                                                                      $0.070 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
10/11/02        Warrant for 2,000,000 shares of NCT common stock     FairPoint Communications, Inc.        Exercisable for cash at
                                                                                                           $0.150 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
10/18/02        5,938,081 shares of NCT common stock (exempt under   Linford Group Limited                 Settlement of guarantee
                Section 3(a)(10) of the Securities Act of 1933)                                            of subsidiary's payment
                                                                                                           obligation for office
                                                                                                           refurbishment services
                                                                                                           rendered in the United
                                                                                                           Kingdom
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
11/7/02         NCT Convertible Note ($400,000 principal amount)     Carole Salkind                        $400,000 cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
11/7/02         Warrant for 1,750,000 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.072 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
11/20/02        NCT Convertible Note ($400,000 principal amount)     Carole Salkind                        $400,000 cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
11/20/02        Warrant for 1,750,000 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.054 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
11/21/02        NCT Convertible Note ($1,463,449.36 principal        Carole Salkind                        Cancellation and
                amount)                                                                                    surrender of
                                                                                                           $1,275,482.97 convertible
                                                                                                           note dated 5/2/02 along
                                                                                                           with accrued interest and
                                                                                                           default penalty
--------------- ---------------------------------------------------- ------------------------------------- -------------------------

                                       33
<PAGE>


      SECURITY SOLD                                                  PURCHASER(S)                          CONSIDERATION
------------------------------------------------------------------------------------------------------------------------------------
Date of Sale    Amount and Type                                      Name of Person/Entity to whom         Aggregate Amount and Type
                                                                     securities were sold
------------------------------------------------------------------------------------------------------------------------------------
11/21/02        Warrant for 6,271,926 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.0535 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
11/22/02        Warrant for 300,000 shares of NCT common stock       Gavin Brackenridge                    Exercisable for cash at
                                                                                                           $0.054 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/2/02         NCT Convertible Note ($350,000 principal amount)     Carole Salkind                        $350,000 in cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/2/02         Warrant for 1,500,000 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.048 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/6/02         Warrant for 1,400,000 shares of NCT common stock     Alpha Capital                         Exercisable for cash at
                                                                     Aktiengesellschaft                    the lower of $0.07 or the
                                                                                                           lowest closing bid price
                                                                                                           from 12/6/02 through
                                                                                                           12/6/03
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/6/02         Warrant for 15,000,000 shares of NCT common stock    Alpha Capital                         Excercisible for cash at
                                                                     Aktiengesellschaft                    $0.01 per share.  Vests
                                                                                                           as to 2,000,000 shares if
                                                                                                           penalty provisions
                                                                                                           associated with prior
                                                                                                           transactions are not
                                                                                                           discharged as of 4/7/03.
                                                                                                           Remainder vests if
                                                                                                           12/6/02 promissory note
                                                                                                           maturing 4/7/03 defaults.
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/11/02        Warrant for 1,250,000 shares of NCT common stock     KEQ Partners III                      Exercisable for cash at
                                                                     (as designee of Kalkines, Arky,       $0.063 per share
                                                                     Zall & Bernstein LLP, HealthNet
                                                                     Connections LLC and HNC New York
                                                                     Representatives LLC)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        NCT Convertible Note ($400,000 principal amount)     Carole Salkind                        $400,000 in cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 1,750,000 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.042 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 200,000 shares of NCT common stock       Robert L. Bernstein                   Exercisable for cash at
                                                                                                           $0.0515 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 200,000 shares of NCT common stock       Gavin Brackenridge                    Exercisable for cash at
                                                                                                           $0.0125 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 250,000 shares of NCT common stock       Gavin Brackenridge                    Exercisable for cash at
                                                                                                           $0.08 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 250,000 shares of NCT common stock       Gavin Brackenridge                    Exercisable for cash at
                                                                                                           $0.15 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 67,000 shares of NCT common stock        Dr. Henry Murray (as designee of      Exercisable for cash at
                                                                     The Murray Group)                     $0.10 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 33,000 shares of NCT common stock        Diana T. Murray (as designee of       Exercisable for cash at
                                                                     The Murray Group)                     $0.10 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 100,000 shares of NCT common stock       Dr. Henry Masur (as designee of       Exercisable for cash at
                                                                     The Murray Group)                     $0.10 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 300,000 shares of NCT common stock       Steven Keenan                         Exercisable for cash at
                                                                                                           $0.099 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 200,000 shares of NCT common stock       B. Michael Pisani/                    Exercisable for cash at
                                                                     Granite Securities Corporation        $0.10 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 200,000 shares of NCT common stock       Charles T. Lanktree                   Exercisable for cash at
                                                                                                           $0.10 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 50,000 shares of NCT common stock        Robert F. Callahan (as designee of    Exercisable for cash at
                                                                     C & C Partners, Inc.)                 $0.10 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 25,000 shares of NCT common stock        Robert F. Callahan (as designee of    Exercisable for cash at
                                                                     C & C Partners, Inc.)                 $0.25 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------

                                       34
<PAGE>


      SECURITY SOLD                                                  PURCHASER(S)                          CONSIDERATION
------------------------------------------------------------------------------------------------------------------------------------
Date of Sale    Amount and Type                                      Name of Person/Entity to whom         Aggregate Amount and Type
                                                                     securities were sold
------------------------------------------------------------------------------------------------------------------------------------
12/16/02        Warrant for 25,000 shares of NCT common stock        Robert F. Callahan (as designee of    Exercisable for cash at
                                                                     C & C Partners, Inc.)                 $0.50 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 25,000 shares of NCT common stock        Robert F. Callahan (as designee of    Exercisable for cash at
                                                                     C & C Partners, Inc.)                 $0.75 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 50,000 shares of NCT common stock        Sandy Eisemann/NRI, Inc. (as          Exercisable for cash at
                                                                     designee of C & C Partners, Inc.)     $0.10 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 25,000 shares of NCT common stock        Sandy Eisemann/NRI, Inc. (as          Exercisable for cash at
                                                                     designee of C & C Partners, Inc.)     $0.25 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 25,000 shares of NCT common stock        Sandy Eisemann/NRI, Inc. (as          Exercisable for cash at
                                                                     designee of C & C Partners, Inc.)     $0.50 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/16/02        Warrant for 25,000 shares of NCT common stock        Sandy Eisemann/NRI, Inc. (as          Exercisable for cash at
                                                                     designee of C & C Partners, Inc.)     $0.75 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/17/02        40,000,000 shares of NCT common stock and the        Crammer Road                          Settlement of lawsuit
                right to acquire 28,000,000 additional shares on
                65 days notice (exempt under Section 3(a)(10) of
                the Securities Act of 1933)
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/26/02        NCT Convertible Note ($2,381,487 principal amount)   Carole Salkind                        Cancellation and
                                                                                                           surrender of $2,014,270
                                                                                                           convertible note dated
                                                                                                           12/20/01 along with
                                                                                                           accrued interest and
                                                                                                           default penalty
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/26/02        Warrant for 10,206,373 shares of NCT common stock    Carole Salkind                        Exercisable for cash at
                                                                                                           $0.042 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/26/02        Options to acquire 23,000,000 shares of NCT common   Motorworld, Incorporated              Exercisible for cash at
                stock                                                                                      $0.042 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/30/02        NCT Convertible Note ($350,000 principal amount)     Carole Salkind                        $350,000 in cash
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/30/02        Warrant for 1,500,000 shares of NCT common stock     Carole Salkind                        Exercisable for cash at
                                                                                                           $0.041 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
12/31/02        Warrant for 250,000 shares of NCT common stock       Michael Dickerson                     Exercisable for cash at
                                                                                                           $0.10 per share
--------------- ---------------------------------------------------- ------------------------------------- -------------------------
</TABLE>


                                       35
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

     The selected  consolidated  financial  data set forth below is derived from
the  historical  financial  statements  of NCT.  The  data  set  forth  below is
qualified in its entirety by and should be read in conjunction  with  "Financial
Statements and Supplementary Data" and "Management's  Discussion and Analysis of
Financial  Condition and Results of Operations"  that are included  elsewhere in
this Annual Report on Form 10-K.

<TABLE>
<CAPTION>

     (in thousands of dollars, except per share amounts)

                                                                           For the Years Ended December 31,
                                                 -----------------------------------------------------------------------------------
                                                     1998             1999              2000             2001              2002
                                                 -------------    --------------    -------------    --------------    -------------
<S>                                                  <C>              <C>               <C>              <C>               <C>

REVENUE:
 Technology licensing fees and royalties         $       802      $      3,552  (b)  $    9,928  (b)  $     5,633  (b)  $  4,493
 Product sales, net                                    2,097             2,208            2,001             4,568          2,697
 Advertising/media                                         -                 -              828               279            105
 Engineering and development services                    425             1,303               83               132             24
                                                 -------------    --------------    -------------    --------------    -------------
   Total revenue                                 $     3,324      $      7,063       $   12,840       $    10,612       $  7,319
                                                 -------------    --------------    -------------    --------------    -------------
COSTS, EXPENSES AND OTHER INCOME:
 Cost of product sales                           $     2,235      $      2,767       $    2,127       $     3,340       $  1,279
 Cost of advertising/media                                 -                 -              814               332             15
 Cost of engineering and development services            275             2,216               55                 2              8
 Selling, general and administrative                  11,470            11,878           11,408            18,983 (f)     14,850
 Research and development                              7,220             6,223            4,412             5,966          4,711
 Other operating (income) expense, net                (3,264)            7,032  (c)       2,661  (d)       35,841 (g)     11,439 (k)
                                                 -------------    --------------    -------------    --------------    -------------
   Operating costs, expenses and other income    $    17,936      $     30,116       $   21,477       $    64,464       $ 32,302
                                                 -------------    --------------    -------------    --------------    -------------
Non-operating items:
 Other (income) expense, net                               -               166             (162)           16,099 (h)      7,411 (l)
 Interest (income) expense, net                         (429)              552            1,849             6,127 (i)      7,711
                                                 -------------    --------------    -------------    --------------    -------------
   Total costs and expenses                           17,507            30,834           23,164            86,690         47,424
                                                 -------------    --------------    -------------    --------------    -------------
Net loss before cumulative effect
 of change in accounting principle                   (14,183)          (23,771)         (10,324)          (76,078)       (40,105)
 Cumulative effect of change in accounting principle       -                 -                -            (1,582)(j)          -
                                                 -------------    --------------    -------------    --------------    -------------

NET LOSS                                             (14,183)     $    (23,771)      $  (10,324)      $   (77,660)      $(40,105)
Less:
Beneficial conversion features                         3,200            10,567            5,667 (e)           392             46
Preferred stock dividends                                485               494              113               969          2,817
                                                 -------------    --------------    -------------    --------------    -------------

Loss attributable to common stockholders         $   (17,868)     $    (34,832)      $  (16,104)      $   (79,021)      $(42,968)
                                                 =============    ==============    =============    ==============    =============

Loss per share:                                  $     (0.12)     $      (0.18)      $    (0.06)      $     (0.20)      $  (0.10)
 Loss before cumulative effect
   of change in accounting principle                       -                 -                -             (0.01)             -
                                                 -------------    --------------    -------------    --------------    -------------
 Basic and diluted net loss per share            $     (0.12)     $      (0.18)      $    (0.06)      $     (0.21)      $  (0.10)
                                                 =============    ==============    =============    ==============    =============
Weighted average common shares outstanding
   -basic and diluted (a)                            143,855           190,384          292,758           377,084        446,423
                                                 =============    ==============    =============    ==============    =============


                                                                                 As of December 31,
                                                 -----------------------------------------------------------------------------------
                                                      1998             1999              2000             2001              2002
                                                 -------------    --------------    -------------    --------------    -------------
BALANCE SHEET DATA:
 Total assets                                    $    15,465      $     13,377       $   39,382       $    20,009       $   13,569
 Total current liabilities                             5,937             7,728           23,386            56,959           53,542
 Total long term liabilities                               -             4,107            3,761             7,765            5,011
 Accumulated deficit                                (107,704)         (131,475)        (141,799)         (219,459)        (259,564)
 Stockholders' equity (capital deficit) (m)            3,426              (367)           9,858           (53,463)         (53,673)
 Working capital deficit                              (1,187)           (3,281)          (9,727)          (52,636)         (51,409)

</TABLE>

Footnotes:
---------
(a)  Excludes  shares  issuable upon the exercise of outstanding  stock options,
     warrants  and  convertible  preferred  stock,  since their  effect would be
     antidilutive.
                                       36
<PAGE>


(b)  Includes revenue recognized upon DMC licensing  activities for DMC licenses
     that we subsequently  reacquired,  or plan to reacquire, as follows: 1999 -
     $850,000; 2000 - $1,055,545; and 2001 - $222,220.

(c)  Includes a $2.4 million  charge in connection  with NCT's write down of its
     investment in Top Source  Automotive,  Inc. to its estimated net realizable
     value;  a $1.8 million  reserve for an  uncollectible  promissory  note and
     pre-acquisition  costs related to Precision Power, Inc.; and a $3.1 million
     charge for the impairment of goodwill.

(d)  Includes $3.1 million charge for the impairment of goodwill.

(e)  Includes  $1.0  million   adjustment  to  beneficial   conversion   feature
     previously reported by our 82% owned subsidiary,  Pro Tech  Communications,
     Inc.

(f)  Increase  compared to 2000 is primarily due to higher  compensation  costs,
     litigation and patent  expenses,  depreciation  and  amortization and costs
     attributable to acquired companies.

(g)  Consists  primarily of $1.9 million charge for costs of exiting  activities
     attributable to closing  facilities and certain  operations;  $14.1 million
     charge for the  impairment  of goodwill  (net of $2.1 million  reduction of
     deferred revenue),  $19.3 million,  net, for repurchased licenses (composed
     of $18.0 million write down for the  acquisition of shares of DMC New York,
     Inc.  (repurchased licenses and accrual for obligation to acquire remaining
     licenses),  and $1.3  million  (net of $2.7  million  reduction of deferred
     revenue) for  reacquisition  of other DMC licenses from two  licensees) and
     $1.5 million write down of investment in Top Source Automotive.

(h)  Other non-operating (income) expense primarily consists of $7.0 million for
     other-than-temporary  declines in value of  available-for-sale  securities;
     $2.3 million for finance costs associated with  non-registration of shares;
     $2.3  million  realized  loss on sale of  trading  securities  (NXT);  $1.4
     million  decline  in the fair  value of a  warrant;  $1.2  million  default
     penalties on debt; and $1.0 million reserve for notes receivable.

(i)  Interest  (income)  expense  includes  $3.3  million  amortization  of debt
     discounts;  $0.9 million relating to the beneficial  conversion  feature on
     convertible  debt; $0.7 million from debt issuance costs;  and $1.2 million
     interest charges on indebtedness.

(j)  Upon adoption of SFAS No. 138 effective  January 1, 2001,  the reduction in
     the fair value of  derivatives,  which  consists  of a warrant to  purchase
     common stock of a licensee,  was reported as a cumulative  effect of change
     in accounting principle.

(k)  Consists  primarily of $9.2 million charge for repurchased  licenses due to
     additional costs incurred to acquire 12,000 shares of DMC New York, Inc. in
     exchange for our series H preferred stock, $2.1 million impairment of other
     intangibles and $0.3 million for the impairment of goodwill.

(l)  Consists  primarily  of $6.1  million for  finance  costs  associated  with
     non-registration of shares; $0.8 million for other-than-temporary  declines
     in  value  of  available-for-sale  securities;  and  $0.4  million  default
     penalties on debt.

(m)  NCT has never declared nor paid cash dividends on its common stock.

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The  following   discussion   should  be  read  in  conjunction   with  our
consolidated financial statements and the notes thereto included herein.

     Caution Concerning Forward-Looking Statements
     ---------------------------------------------

     The Securities  and Exchange  Commission  encourages  companies to disclose
forward-looking  information so that investors can better understand a company's
future prospects and make informed investment  decisions.  This Annual Report on
Form 10-K contains such  "forward-looking  statements" within the meaning of the
Private  Securities  Litigation  Reform  Act of  1995.  Such  statements  can be
identified  by the  use  of  forward-looking  terminology  such  as  "believes,"
"expects," "may," "estimates," "will," "should," "plans" or "anticipates" or the
negative thereof or other variations  thereon or comparable  terminology,  or by
discussions of strategy. Readers are


                                       37
<PAGE>




cautioned that any such forward-looking  statements are not guarantees of future
performance and involve  significant  risks and  uncertainties,  and that actual
results may vary  materially from those in the  forward-looking  statements as a
result of any  number  of  factors,  many of which are  beyond  the  control  of
management.

     NCT operates in a highly  competitive and rapidly changing  environment and
operating segments that are dependent on our ability to: achieve  profitability;
achieve a competitive position in design, development, licensing, production and
distribution  of  products;  produce  a cost  effective  product  that will gain
acceptance in relevant consumer and other product markets; increase revenue from
products  and  services;   realize  funding  from  technology   licensing  fees,
royalties, product sales, and engineering and development revenue to sustain our
current  level of  operation;  introduce,  on a timely  basis,  new products and
services;  continue  its  current  level  of  operations  to  support  the  fees
associated with NCT's patent portfolio; maintain satisfactory relations with its
customers;  attract and retain key personnel;  maintain and expand our strategic
relationships;  and  protect  our  know-how,  inventions  and  other  secret  or
unprotected  intellectual property. NCT's actual results could differ materially
from  management's  expectations  because of changes in these factors.  New risk
factors can arise and it is not possible for  management to predict all of these
risk  factors,  nor can it assess the impact of all of these risk factors on the
company's 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.  Given  these  risks and  uncertainties,  investors
should not place undue reliance on forward-looking statements as a prediction of
actual results.

     Investors  should  also be aware that  while NCT might,  from time to time,
communicate  with securities  analysts,  it is against our policy to disclose to
them any non-public  information or other confidential  commercial  information.
Accordingly,  investors  should not assume that NCT agrees with any statement or
report  issued by any analyst  irrespective  of the content of the  statement or
report.  Furthermore,  NCT has a policy against issuing or confirming  financial
forecasts  or  projections  issued by others.  Thus,  to the extent that reports
issued by securities  analysts or others contain any  projections,  forecasts or
opinions,  such reports are not the  responsibility  of NCT. All  references  to
years,  unless otherwise noted, refer to our fiscal year, which ends on December
31. All references to quarters, unless otherwise noted, refer to the quarters of
our fiscal year.

     Overview
     --------

     NCT's  operating  revenue is comprised  of  technology  licensing  fees and
royalties,  product sales,  advertising/media  and  engineering  and development
services.  Operating  revenue  in  2002  consisted  of  approximately  61.4%  in
technology  licensing  fees and  royalties,  36.8%  in  product  sales,  1.4% in
advertising/media and 0.4% in engineering and development services.  Our revenue
recognition  policies are described in "Critical Accounting Policies" below. The
mix of our  revenue  sources  during  any  reporting  period may have a material
impact on our results.  In  particular,  our execution of  technology  licensing
agreements  and the  timing of the  revenue  recognized  therefrom  has not been
predictable.

     NCT continued its practice of marketing its technology through licensing to
third  parties for fees,  generally  by obtaining  technology  license fees when
initiating strategic  relationships with new partners, and subsequent royalties.
We have entered into a number of licensing agreements with established firms for
the  integration  of our technology  into products.  The speed with which we can
achieve the  commercialization of our technology depends, in part, upon the time
taken by these firms for product  testing  and their  assessment  of how best to
integrate our technology into their products and manufacturing operations. While
we work with these firms on product testing and  integration,  we are not always
able to influence how quickly this process can be completed.

     Presently,  we are  selling  products  through  several  of our  licensees,
including:  Ultra is installing production model aircraft cabin quieting systems
in the SAAB 340 turboprop aircraft; Oki is integrating  ClearSpeech(R) algorithm
into large scale integrated circuits for communications applications; and Thales
Avionics In-flight Systems (formerly known as BE Aerospace) and Long Prosper are
providing NoiseBuster(R) components for United Airlines' in-flight entertainment
and information systems.

     Going Concern Risks
     -------------------

     Since  its  inception,   NCT  has  experienced   substantial   losses  from
operations,  which  have been  recurring  and  amounted  to $259.6  million on a
cumulative basis through  December 31, 2002.  NCT's  internally  generated funds
from its revenue sources have not been sufficient to cover its operating  costs.
The  ability  of  our  revenue  sources,  especially  technology  license  fees,
royalties, product sales and advertising/media, to generate significant cash for
our operations is critical to our long-term  success.  We cannot predict whether
we will be  successful  in obtaining  market  acceptance  of our new products or
technologies or in completing our current licensing agreement  negotiations.  To

                                       38
<PAGE>


the extent our internally generated funds are not adequate,  management believes
additional  working  capital  financing  must be  obtained  through  the private
placement or public offering of additional  equity of NCT or its subsidiaries in
the form of common stock,  convertible  preferred stock and/or convertible debt.
There is no assurance any such financing is or would become available. There can
be no assurance that sufficient  funding will be provided by our revenue sources
or additional capital.

     Management  believes that currently  available funds will not be sufficient
to sustain NCT through the next six months. Such funds consist of available cash
and the funding  derived  from our revenue  sources.  Cash and cash  equivalents
amounted to $0.8 million as of December 31, 2002 and the working capital deficit
was $51.4  million.  NCT has been able to  continue  its  operations  by raising
additional capital to fund its operations. NCT has been primarily dependent upon
funding from Carole  Salkind in 2002. At December 31, 2002, NCT is in default on
$11.0  million of its  indebtedness  and has not  received a demand for payment,
except for $0.2 million of its notes payable  (repaid after  December 31, 2002).
Refer to "Liquidity  and Capital  Resources"  below.  In the event that external
financing is not available or timely, NCT would have to substantially reduce its
level of operations in order to conserve cash.  These  reductions  could have an
adverse effect on NCT's relationships with its customers and suppliers (see Note
1 - notes to the consolidated financial statements). Reducing operating expenses
and capital expenditures alone may not be adequate,  and continuation as a going
concern is dependent  upon the level of funding  realized  from our internal and
external  funding  sources,  all of which are presently  uncertain.  Uncertainty
exists with respect to the adequacy of current funds to support NCT's activities
until positive cash flow from operations can be achieved and with respect to the
availability of financing from other sources to fund any cash deficiencies.

     NCT's  consolidated  financial  statements have been prepared assuming that
NCT  will  continue  as  a  going  concern,  which  contemplates  continuity  of
operations,  realization  of  assets  and  satisfaction  of  liabilities  in the
ordinary  course of business.  The propriety of using the going concern basis is
dependent  upon,  among  other  things,  the  achievement  of future  profitable
operations and the ability to generate  sufficient cash from operations,  public
and private  financings and other funding sources to meet its  obligations.  The
uncertainties  described in the preceding  paragraphs raise substantial doubt at
December  31, 2002 about NCT's  ability to  continue as a going  concern.  NCT's
accompanying  consolidated  financial  statements do not include any adjustments
relating to the  recoverability of the carrying amount of recorded assets or the
amount of liabilities that might result from the outcome of these uncertainties.

     Critical Accounting Policies
     ----------------------------

Revenue Recognition

     Revenue is recognized when earned.  Technology licensing fees are generally
recognized  upon  execution  of the  agreement  but are  deferred  if subject to
completion of any  performance  criteria then  recognized  once the  performance
criteria have been met.  Revenue from  royalties is recognized  ratably over the
royalty period based upon periodic  reports  submitted by the royalty obligor or
based on minimum royalty requirements.  Revenue from product sales is recognized
when the product is shipped.  Revenue from advertising  sales is recognized when
the  advertisements  are  aired  or  displayed.  Revenue  from  engineering  and
development  services is  generally  recognized  and billed as the  services are
performed.  Our  preference  is to  collect  amounts  due  from  the sale of our
technologies,  services  and  products  in  cash.  However,  from  time to time,
receivables  may be settled by securities  transferred  to us by the customer in
lieu of cash payment.

     At December 31, 2002, our deferred revenue  aggregated $5.6 million.  We do
not expect to realize any additional cash in connection with recognizing revenue
from our deferred revenue.

Marketable Securities

     Marketable  securities that are bought and held principally for the purpose
of selling them in the near-term are classified as trading  securities.  Trading
securities  are  recorded at fair value,  with the change in market value during
the period included in the statements of operations.  Marketable debt securities
that NCT has the positive  intent and ability to hold to maturity are classified
as  held-to-maturity  securities and recorded at amortized cost.  Securities not
classified as either  held-to-maturity  or trading  securities are classified as
available-for-sale   securities.   Available-for-sale  securities  are  recorded
generally  at market  value,  with the change in market  value during the period
excluded  from the  statements  of  operations  unless  it is  occasioned  by an
other-than-temporary  decline  in value and  recorded  net of income  taxes as a
separate  component  of  stockholders'  equity  (capital  deficit).  NCT reviews
declines in value of its  portfolio  when general  market  conditions  change or
specific  information  pertaining to an industry or individual  company  becomes
available.   The  factors   considered   in  assessing   whether  a  decline  is

                                       39
<PAGE>


other-than-temporary  include:  our evaluation of the length of the time and the
extent to which the  market  value of the  industry  has been  depressed  or the
market value of the security  has been less than cost;  evaluation  of financial
condition and near-term  prospects of the business,  including cash  sufficiency
and new product  developments;  assessment of observable  marketplace-determined
values and trends;  and our intent and ability to retain our  investment  in the
business for a sufficient  period of time to allow for any anticipated  recovery
in market value.

     At December 31, 2002, all of NCT's  marketable  securities have been deemed
available-for-sale  securities.  Based upon the above factors, we have concluded
that the decline in value of our marketable  securities is  other-than-temporary
and recorded  approximately $0.8 million charge in 2002 included in other income
(expense), net (see Note 5 - notes to the consolidated financial statements). At
December 31, 2002 our marketable securities aggregated $0.1 million.

Goodwill, Patent Rights and Other Intangible Assets

     The  excess of the  consideration  paid over the fair  value of net  assets
acquired in business  combinations  is  recorded as  goodwill.  Goodwill is also
recorded  by NCT  upon  the  acquisition  of  some or all of the  stock  held by
minority  shareholders  of a  subsidiary,  except where such  accounting  is, in
substance,   the  purchase  of  licenses   previously   sold  to  such  minority
shareholders  or their  affiliates.  Effective  January  1, 2002,  goodwill  and
intangibles with indefinite lives are no longer  amortized.  Prior to January 1,
2002,  goodwill was amortized using the straight-line  method over the estimated
period of  benefit  (generally  ranging  from five to  twenty  years).  Goodwill
amortization  expense  for the years ended  December  31, 2000 and 2001 was $1.0
million and $1.7 million, respectively.

     Annually,  or if an event  occurs or  circumstances  change that would more
likely  than not reduce the fair value of a  reporting  unit below its  carrying
amount,  the  company  tests its  goodwill  for  impairment.  The  company  also
recognizes an impairment loss on goodwill acquired upon the acquisition of stock
held by minority  shareholders  of  subsidiaries  if the  subsidiary's  minority
interest has no carrying  value,  the subsidiary  has a capital  deficit and the
projected  future  operating   results  of  the  subsidiary  are  not  positive.
Impairment of goodwill, net for the years ended December 31, 2000, 2001 and 2002
was $3.1 million, $14.1 million and $0.3 million,  respectively. At December 31,
2002, our goodwill, net was $7.2 million.

     Patent rights and other intangible  assets with finite useful lives,  which
includes the cost to acquire rights to patents and other rights under  licenses,
are stated at cost and are  amortized  using the  straight-line  method over the
remaining  useful  lives,  ranging  from one to  seventeen  years.  Amortization
expense for the years ended  December 31, 2000,  2001 and 2002 was $0.7 million,
$0.4 million and $0.5 million, respectively.

     NCT evaluates the  remaining  useful life of intangible  assets with finite
useful lives each reporting period to determine whether events and circumstances
warrant a revision to the remaining  period of  amortization.  If the evaluation
determines that the intangible  asset's  remaining useful life has changed,  the
remaining  carrying  amount of the intangible  asset is amortized  prospectively
over that revised  remaining  useful life. The company  evaluates its intangible
assets with finite useful lives for impairment  whenever events or other changes
in circumstances  indicate that the carrying amount may not be recoverable.  The
testing for impairment  includes  evaluating the undiscounted  cash flows of the
asset and the remaining  period of amortization or useful life. The factors used
in evaluating the undiscounted cash flows include:  current  operating  results,
projected future operating results and cash flows and any other material factors
that may effect the  continuity or the  usefulness  of the asset.  If impairment
exists,  the  intangible  asset is  written  down to its fair  value  based upon
discounted  cash flows.  The fair value of our  intangible  assets was evaluated
using projected undiscounted cash flows. This evaluation determined there was an
impairment to the license granted to Pro Tech. The impairment recorded was based
on the  discounted  cash  flows  attributable  to the  products  utilizing  this
technology license.  The resulting  impairment charge to Pro Tech, our 82% owned
subsidiary and the holder of such license,  was $11.5 million.  We have recorded
an impairment in the value of other  intangible  assets with finite useful lives
of $2.1 million  representing the minority  shareholders'  portion of Pro Tech's
impairment  in our  consolidated  statement  of  operations  for the year  ended
December  31,  2002.  At  December  31,  2002,   our  patent  rights  and  other
intangibles, net were $1.5 million.

     Results of Operations
     ---------------------

Year ended December 31, 2002 compared to year ended December 31, 2001.

     Total  revenue in 2002  decreased  by $3.3  million,  or 31.1%,  from $10.6
million in 2001 to $7.3  million  in 2002  reflecting  decreases  in each of our
revenue  sources.  Total costs and expenses during the same period

                                       40
<PAGE>


decreased  by 45.3%,  or $39.3  million,  primarily  due to:  (a) $13.8  million
reduction in goodwill impairment;  (b) $11.6 million reduction in write-downs on
investments   and   repurchased   licenses;   (c)  $6.2  million   reduction  in
other-than-temporary loss in value of available-for-sale securities.

     Technology  licensing fees and royalties  decreased $1.1 million, or 19.6%,
from $5.6  million in 2001 to $4.5  million in 2002.  The  decrease is primarily
attributable  to the absence of licensing  fees  related to Infinite  Technology
Corporation  for 2002. Our  recognition of technology  licensing fee revenue for
both periods was primarily due to recognition  of deferred  revenue from NXT and
Teltran.  FairPoint  licensed Artera Turbo during the fourth quarter of 2002 and
with the growth and  development in that reporting unit, is expected to generate
future  revenue.  At December 31, 2002, our deferred  revenue related to NXT was
$4.8  million.  No additional  cash will be realized  from our deferred  revenue
related to this license.

     Product sales decreased $1.9 million,  or 41.3%,  from $4.6 million in 2001
to $2.7 million in 2002. The decrease was primarily due to $0.5 million of lower
product sales recognized by Pro Tech due to reduced  fast-food headset purchases
by major  distributors  and a $1.0 million decrease as a result of the cessation
of operations of Artera  International in March 2002. Product revenue recognized
by Artera  International  was $0.2 million for the year ended  December 31, 2002
and $1.2 million for the same period in 2001.  We  anticipate  revenue of Artera
Group, Inc. to increase during 2003.

     Gross profit on product sales,  as a percentage of product sales,  improved
to 52.6% in 2002  from  26.9%  for the same  period  in 2001.  Excluding  Artera
International's  contribution to gross profit, gross profit improved to 55% from
26.9%.

     Revenue from advertising/media  decreased $0.2 million, or 66.7%, from $0.3
million in 2001 to $0.1  million in 2002.  Advertising/media  revenue is derived
from the sale of audio and visual advertising in the Sight & Sound(R) locations.
Cost of advertising/media revenue decreased $0.3 million, or approximately 100%,
from $0.3 million in 2001 to less than $0.1 million in 2002. These costs include
the amounts due to the installed  locations (as  compensation for our use of the
facilities  where the Sight & Sound (R)  systems is located)  and  communication
expenses for the Sight & Sound(R)  locations.  These decreases are primarily due
to the  termination  of  operations  of DMC Cinema in  February  2002.  Although
constrained by our limited cash resources, we anticipate increasing revenue from
the Sight & Sound(R)  locations in health venues. At December 31, 2002,  revenue
from  health  venues was 66% of total  advertising/media  revenue as compared to
zero for the same period in 2001.

     Selling,  general  and  administrative  expenses  in  2002  decreased  $3.9
million,  or 20.9%,  to $14.8 million from $18.7 million in 2001,  primarily due
to: (i) a $1.7 million decrease in amortization  expense related to the adoption
of SFAS No. 142 effective January 1, 2002; (ii) a $1.1 million decrease in legal
and patent expenses; (iii) a $1.9 million decrease in salary and related benefit
costs as a result of a reduction in workforce; and (iv) an $0.9 million decrease
which  represents an overall  reduction in sales related costs,  such as travel,
trade shows and  commissions.  These decreases were partially offset with a $3.0
million  increase in consulting  expenses due primarily to non-cash charges from
the issuance of warrants and options.

     Research and development  expenditures  in 2002 decreased $1.3 million,  or
21.7%,  to $4.7  million  from  $6.0  million  in 2001.  This  decrease  was due
primarily to: (i) a $1.0 million decrease in product  development  costs related
to Infinite Technology  Corporation;  (ii) a $1.1 million decrease in salary and
related benefit costs related to a reduced  workforce;  and (iii) a $0.3 million
decrease in rent  related to the closing of our Maryland  facility.  The company
expects  research and development  expenditures to continue at similar levels as
those experienced during 2002.

     Included in NCT's  total  costs and  expenses  were  non-cash  expenditures
including depreciation and amortization of $1.3 million and $3.0 million in 2002
and 2001, respectively, impairment of other intangibles of $2.1 million and zero
in 2002 and 2001,  respectively,  impairment of goodwill of $0.3 million (net of
reduction in deferred revenue) and $14.1 million in 2002 and 2001, respectively,
realized loss in value of marketable securities deemed  other-than-temporary  of
$0.8 million and $7.0 in 2002 and 2001,  respectively,  and interest  expense of
$7.7  million  in 2002  and $6.2  million  in 2001  due to an  increase  in debt
financing.

     Interest  expense  increased by 24.2%, or $1.5 million,  to $7.7 million in
2002 from $6.2 million in 2001.  The 2002 interest  expense was primarily due to
the  increase  in debt  financing  during  2002 and our  issuance of warrants in
conjunction  with the debt  (see Note 10 - notes to the  consolidated  financial
statements).   Interest  includes  $2.9  million  of  amortization   related  to
discounts,   $2.3  million  of  interest   expense  on  debt,  $2.3  million  of
amortization of beneficial conversion features, and $0.1 million of amortization
of debt issuance costs.

                                       41
<PAGE>


     NCT had estimated  net  operating  loss  carryforwards  of $121.0  million,
estimated   capital  loss   carryforwards  of  $2.3  million  and  research  and
development  credit  carryforwards  of  approximately  $2.5  million for federal
income tax  purposes at December 31,  2002.  No tax benefit for these  operating
losses has been recorded in NCT's financial  statements.  Our ability to utilize
our net operating loss carryforwards may be subject to an annual limitation.

Year ended December 31, 2001 compared to year ended December 31, 2000.

     Total  revenue in 2001  decreased  by $2.2  million,  or 17.2%,  from $12.8
million in 2000 to $10.6 million in 2001 reflecting  decreases in our technology
licensing fees and royalties and our  advertising/media  revenue sources.  Total
costs and expenses during the same period increased by 274.2%, or $63.5 million,
primarily  due to items  recorded in 2001 for:  (a) the  impairment  of goodwill
related to Artera International ($9.8 million),  DMC Cinema ($1.3 million net of
$2.1  million  reduction  in deferred  revenue),  NCT Audio ($2.1  million)  and
ConnectClearly  ($0.9 million) as outlined in Notes 3 and 14 to the consolidated
financial  statements;  (b) costs to reacquire DMC New York and two DMC licenses
($19.3 million) and Top Source Automotive, Inc. ($1.5 million) included in write
downs of investment and repurchased  licenses in our  consolidated  statement of
operations; (c) other-than-temporary  losses on InsiderStreet ($2.5 million) and
Infinite Technology  Corporation ($3.9 million) marketable  securities;  and (d)
costs of exiting activities of $1.9 million.

     Technology  licensing fees and royalties  decreased $4.3 million, or 43.4%,
from $9.9 million in 2000 to $5.6 million in 2001. The technology licensing fees
and royalties for 2001 were primarily due to recognition of deferred  revenue of
$1.6 million  license fee from NXT entered into in 2001  (license fee  initially
deferred was $8.6  million),  $2.3 million from Teltran  (license fee  initially
deferred was $4.2  million) $1.0 million from  Infinite  Technology  Corporation
($2.4 million additional revenue to be recognized as ITC performs work) and $0.2
million  from two DMC  licensees  (initially  deferred $2 million for each).  No
additional cash is expected to result from our deferred revenue. Please refer to
Notes  4, 9 and  11 of  notes  to the  consolidated  financial  statements.  The
decrease  compared to fiscal 2000 is  attributable to fewer  technology  license
opportunities  closed  during 2001 and an increase in the time period over which
these licenses are recognized.

     Product sales increased $2.6 million,  or 130.0%, from $2.0 million in 2000
to $4.6 million in 2001  primarily due to the impact of  acquisitions.  Pro Tech
has been  included  for a full year (for the year ended  December  31,  2001) as
compared to approximately three months in 2000 and Artera International has been
included  for  approximately  ten  months  in  2001.  Excluding  the  effect  of
acquisitions,  product sales decreased approximately $0.3 million, or 19.6%, due
to declines in sales of communication products,  particularly the ClearSpeech(R)
product  line,  and sales of NCT Audio  products,  particularly  Gekko(TM)  flat
speakers. The decline in sales of communications  products is attributable to an
economic downturn in that sector. The decrease in speakers sold by NCT Audio was
due to a lack of  promotional  effort  and a change in focus  during  the fourth
quarter from product sales toward  technology  licensing.  Cost of product sales
increased $1.2 million,  or 57.1%,  from $2.1 million in 2000 to $3.3 million in
2001, due to the impact of  acquisitions.  Excluding the effect of acquisitions,
cost of product sales decreased approximately $0.3 million or 16.7%. The product
gross profit margin improved to 26.9% in 2001 from (6.3)% in 2000.

     Revenue from advertising/media  decreased $0.5 million, or 62.5%, from $0.8
million in 2000 to $0.3  million  in 2001.  We expect  this  trend of  declining
advertising sales to continue until we have a sufficient installed base of Sight
& Sound(R) venues.  The rollout of Sight & Sound(R) is capital intensive and has
been limited.  Further,  due to the current  economic  climate and limited reach
available to advertisers, it has been difficult to obtain advertising contracts.
Advertising/media  revenue  is  derived  from  the  sale  of  audio  and  visual
advertising in the Sight & Sound(R) locations. Cost of advertising/media revenue
decreased  $0.5  million,  or 62.5% from $0.8 million in 2000 to $0.3 million in
2001.  These costs include the commissions  paid to advertising  representatives
and agencies and the communications to the Sight & Sound(R) locations.

     Revenue from engineering and development  services was $0.1 million in 2001
and 2000, due to a continuation of our reduced emphasis on providing engineering
and development  services as a primary  revenue source.  Cost of engineering and
development services was minimal.

     Selling,  general  and  administrative  expenses  in  2001  increased  $7.3
million, or 64.0%, to $18.7 million from $11.4 million in 2000, primarily due to
higher compensation expenses,  litigation and patent expenses, and depreciation,
amortization and costs attributable to acquired companies.  Our selling, general
and administrative  expenses include:  compensation,  which generally  comprises
from 36% to 50% of the total; professional fees and

                                       42
<PAGE>



expenses,  including legal services;  non-cash  depreciation  and  amortization;
marketing and promotional costs; and travel, among other costs.

     Research and development  expenditures  in 2001 increased $1.6 million,  or
36.4%, to $6.0 million from $4.4 million in 2000,  primarily due to research and
development  expenses of $1.0 million under the Infinite Technology  Corporation
agreement.

     Included in NCT's  total  costs and  expenses  were  non-cash  expenditures
including depreciation and amortization of $3.0 million and $2.0 million in 2001
and  2000,  respectively,  impairment  of  goodwill  of  $14.1  million  (net of
reduction in deferred revenue) and $3.1 million in 2001 and 2000,  respectively,
realized  loss on  marketable  securities  deemed  other-than-temporary  of $7.0
million and zero in 2001 and 2000,  respectively,  and interest  expense of $6.2
million in 2001 and $1.9 million in 2000 due to an increase in debt financing.

     Interest expense increased by 226.3%,  or $4.3 million,  to $6.2 million in
2001 from $1.9 million in 2000.  The 2001 interest  expense was primarily due to
the increase in debt  financing  during  2001.  Interest  includes  $3.3 million
amortization  of original issue  discount,  $1.2 million of interest  expense on
debt, $0.9 million of amortization of beneficial  conversion  feature,  and $0.7
million amortization of debt issuance costs.

     NCT had estimated net operating  loss  carryforwards  of $119.3 million and
research and development credit  carryforwards of approximately $2.4 million for
federal  income tax  purposes at  December  31,  2001.  No tax benefit for these
operating losses has been recorded in NCT's consolidated  financial  statements.
Our ability to utilize our net operating loss carryforwards may be subject to an
annual limitation.

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

     Please  refer  to  "Going   Concern  Risks"  above  for  a  description  of
uncertainties  that raise  substantial  doubt at  December  31, 2002 about NCT's
ability to continue as a going concern.  NCT has experienced  substantial losses
from operations  since its inception,  which have been recurring and amounted to
$259.6 million on a cumulative  basis through  December 31, 2002.  These losses,
which  include  the costs for  development  of  technologies  and  products  for
commercial use, have been funded primarily from:

o    the sale of our and our subsidiaries' common stock;
o    the sale of our and our  subsidiaries'  preferred  stock  convertible  into
     common stock;
o    issuance  of our and  our  subsidiaries'  convertible  debt;  o  technology
     licensing fees and royalties; o product sales;
o    advertising/media revenue; and
o    engineering and development services.

     We recently entered into financing transactions because internally
generated funding sources were insufficient to maintain our operations,
including:

o    NCT Convertible Notes Issued to Carole Salkind
o    Private Equity Credit Agreement
o    Other Debt Financings
o    Series H Preferred Stock

     In 2002, we have been primarily dependent upon funding from Carole Salkind.
Although we do not have a formal  agreement  requiring  her to do so, we believe
that  Carole  Salkind  will  continue to provide  funds to NCT.  Our belief that
funding from her will continue is based, in part, upon her continued  funding of
NCT during 2002 despite NCT's  failure to repay her notes as the notes  matured.
Commencing  January 2001, upon the maturity of Ms. Salkind's initial note to NCT
dated January 1999, NCT has established a history of defaulting on the repayment
of  obligations  owed to Carole  Salkind as such  obligations  become  due.  Ms.
Salkind has allowed NCT to roll over maturing notes, along with accrued interest
and a default  penalty (10% of the  principal  in default),  into new notes that
generally  mature  from six months to one year from the date of the  rolled-over
note. In addition to the financing  provided by rolling over maturing notes, Ms.
Salkind  has  continued  to  provide  NCT with new  funds.  However,  NCT has no
assurance  that Ms.  Salkind will continue  funding NCT in the near-term or that
the amount,  timing and duration of funding from her will be adequate to sustain
our business operations.

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<PAGE>


     At December  31,  2002,  NCT's cash and cash  equivalents  aggregated  $0.8
million.  NCT's working  capital deficit was $51.4 million at December 31, 2002,
compared to a deficit of $52.6  million at December  31,  2001,  a $1.2  million
decrease in working capital deficit. Current liabilities increased primarily due
to the issuance of  convertible  notes of $6.8 million  (net of  discounts)  and
non-registration  fees of $4.0 million.  These increases in current  liabilities
were more than offset by a decrease in our current  liabilities of $14.0 million
upon the issuance of series H preferred  stock in exchange for shares of DMC New
York,  Inc.  for which we had  accrued $14 million in 2001 and a decrease in our
current   assets,   primarily   due  to  a   reduction   in  the  value  of  our
available-for-sale  securities of $0.8 million and a reduction in inventories of
$0.8 million.

     NCT is in default of an aggregate of $11.0 million of its  indebtedness  at
December 31, 2002 comprised of $2.9 million of notes payable and $8.1 million of
convertible   notes  (see  Note  10  -  notes  to  the  consolidated   financial
statements).  Of such defaults,  $7.1 million is  attributable to our failure to
repay the indebtedness upon maturity, $2.9 million is attributable to a judgment
against us in excess of the amounts  permitted  under the notes and $1.0 million
is attributable to a cross default provision. The following table summarizes our
indebtedness in default at December 31, 2002.


     (in millions)

                                                                      Total
                                    Notes        Convertible      Indebtedness
                                   Payable          Notes          In Default
                                 -----------    -------------    ---------------
Obligation to prior owner
 of Web Factory                    $    2.4 (a)     $      -          $     2.4
Top Source Automotive                   0.2 (a)            -                0.2
Former Employees / Other                0.3 (a)            -                0.3
                                 -----------    -------------    ---------------
 Subtotal                          $    2.9         $      -          $     2.9
                                 -----------    -------------    ---------------
Carole Salkind Notes               $      -         $    2.9 (b)      $     2.9
6% Notes                                  -              4.2 (a)            4.2
8% Notes                                  -              1.0 (c)            1.0
                                 -----------    -------------    ---------------
 Subtotal                          $      -         $    8.1          $     8.1
                                 -----------    -------------    ---------------
Grand Total                        $    2.9         $    8.1          $    11.0
                                 ===========    =============    ===============


          Footnotes:
          ---------
          (a)  Default due to nonpayment.

          (b)  Default due to judgment against us in excess of amounts permitted
               under the notes.

          (c)  Default due to cross default provision (default on other debt).

     Net cash used in operating  activities for the year ended December 31, 2002
was $9.7  million  primarily  due to funding  the 2002 net loss,  as adjusted to
reconcile to net cash. The operating cash flow characteristics of our technology
licensing efforts include the following:

o    Our technology licensing activities have resulted in unpredictable  streams
     of  revenue  recognition,  in  part,  due to the  unpredictable  timing  of
     executing new license agreements;
o    Significant   new  license   agreements   usually  result  only  after  the
     prospective licensee has made a lengthy review of our technologies;
o    Receipt of licensing compensation and the related revenue recognition often
     occur in different operating periods;
o    From time to time,  we accept  licensing  compensation  in forms other than
     cash, typically equity securities;
o    Assets acquired in the past, as compensation for license  agreements,  have
     lost value rapidly resulting in material write-offs;
o    Most of our licensing  agreements provide for one-time license fees and for
     long-term royalty streams; and
o    To  date,  most of our  licensing  activities  have  resulted  in  one-time
     licensing fees and insignificant long-term royalty streams.

     Our net accounts receivable  decreased to $0.2 million at December 31, 2002
from $0.7 million at December 31, 2001. The decrease in net accounts  receivable
was due to the collection of accounts receivable and lower sales volume in 2002.

     Our net inventory level decreased to $0.6 million at December 31, 2002 from
$1.4  million at December  31, 2001  primarily  due to Pro Tech's  inability  to
replenish its inventory as a result of reduced cash flows.

                                       44
<PAGE>

     To  improve  its  future  operating  cash  flow,  the  company  implemented
substantial  cost reduction and product  simplification  plans in 2001 and early
2002.  These plans  involved the evaluation and  restructuring  of  unprofitable
offerings,  including some speaker products, headset products,  Internet service
provider services and call center operations.

     Our deferred  revenue  balance at December 31, 2002 was $5.6 million,  $4.8
million  of which  was  attributed  to NXT.  We  recorded  $8.6  million  of net
defferred revenue upon the receipt of shares of NXT in connection with the March
2001 NXT  agreements.  We sold all of the NXT  shares in 2001 for  approximately
$6.9 million resulting in a loss of $2.3 million.  The net proceeds were used in
accordance with our NXT agreement.  As such, no additional cash is expected from
our NXT  deferred  revenue  balance.  From time to time,  our  deferred  revenue
balances originate at the value of securities received from our licensees, which
would not be realized in cash if the value of the underlying securities declines
before we sell such securities.

     Net cash  provided by investing  activities  was less than $0.1 million for
the year ended  December  31, 2002 due to the sale of equipment  (in  conjuction
with  exiting  activities  in  2002;  see  Note 25 - notes  to the  consolidated
financial statement).

     At   December   31,   2002   and   December   31,   2001,   the   company's
available-for-sale securities had approximate fair market values of $0.1 million
and $0.9  million,  respectively.  The  majority of these  securities  represent
investments in technology companies and, accordingly,  the fair market values of
these securities are subject to substantial price  volatility,  and, in general,
have suffered a decline.  In addition,  the realizable value of these securities
is subject to market and other conditions.

     Net cash  provided by financing  activities  was $10.2 million for the year
ended  December 31, 2002 and was  primarily  due to the issuance of  convertible
notes.

     At December 31, 2002,  the  company's  short-term  debt was $22.0  million,
presented  net of discounts of  approximately  $4.1 million on the  consolidated
balance  sheet  (principally  comprised  of  $23.3  million  of  face  value  of
outstanding  convertible  notes and $3.6 million of outstanding  notes payable),
compared  to $14.9  million  of short term debt at  December  31,  2001,  net of
discounts.  The cash proceeds from debt issued in 2002 were  primarily  used for
general corporate purposes.

     During 2002, NCT issued an aggregate of $19.6 million of convertible  notes
to Carole Salkind, as consideration for $9.6 million of cash and the rollover of
$8.5  million  in  principal  of  matured  convertible  notes,  $0.6  million of
interest,  and $0.9  million  of  default  penalties  (10% of the  principal  in
default).  Cash consideration of $0.3 million was used to fund an escrow account
with an  unrelated  third party to serve as  collateral  for a  prospective  NCT
venture that did not materialize. This note principal was paid by the release of
$0.3 million from escrow to Carole Salkind.

     On January 10, 2002, our subsidiary, Artera Group, Inc., privately placed a
$0.6 million  convertible  note with Alpha Capital  Aktiengesellschaft  for $0.1
million in cash and the  replacement  of two matured  notes (a $0.1  million NCT
promissory  note and a $0.4 million NCT  convertible  note),  along with accrued
interest.

     On March 11, 2002,  NCT privately  placed a $0.4 million  convertible  note
with  Alpha  Capital  Aktiengesellschaft  for  $0.4  million  in  cash  and  the
replacement of an approximately  $15,000 Artera Group,  Inc. matured  promissory
note, along with accrued interest.

     On June 24,  2002,  NCT issued  1,800  shares of its  series H  convertible
preferred  stock to Crammer Road LLC in exchange for $0.1 million  cash,  net of
fees, and 12,000 shares of DMC New York, Inc. common stock.

     As described  above, as of December 31, 2002, we are in default  (primarily
from non-payment) on $11.0 million of our  indebtedness,  including $2.9 million
of notes payable and $8.1 million of convertible notes.

     NCT  believes  that the level of  financial  resources  available  to it is
critical to its ability to continue as a going  concern.  From time to time, NCT
may need to raise  additional  capital through equity or debt financing in order
to sustain its operations or capitalize upon business  opportunities  and market
conditions.  NCT expects that from time to time its outstanding  short-term debt
may be replaced with new short-term  debt or long-term  borrowings.  Although we
believe that we can continue to access the capital markets in 2003 on acceptable
terms  and  conditions,  our  flexibility  with  regard to  long-term  financing
activity could be limited by:

                                       45
<PAGE>


o    the liquidity of our common stock on the open market;
o    our current level of short-term debt; and
o    our credit ratings.

     In addition,  many of the factors  that affect NCT's  ability to access the
capital  markets,  such as the liquidity of the overall  capital markets and the
current  state of the  economy,  are outside of NCT's  control.  There can be no
assurance  that NCT will  continue  to have  access to the  capital  markets  on
favorable terms.

     From time to time,  we may change the terms of  options,  warrants or other
securities. In some instances, this has been to generate cash.

     NCT has no lines of credit with banks or other  lending  institutions  and,
therefore, has no unused borrowing capacity.

Capital Expenditures

     NCT intends to continue  its  business  strategy  of working  with  supply,
manufacturing,   distribution  and  marketing   partners  to  commercialize  its
technology. The benefits of this strategy include:

o    dependable  sources of electronic and other components,  which leverages on
     their purchasing  power,  provides  important cost savings and accesses the
     most advanced technologies;
o    utilization  of the  manufacturing  capacity of our allies,  enabling us to
     integrate our technology into products with limited capital investment; and
o    access  to   well-established   channels  of  distribution   and  marketing
     capability of leaders in several market segments.

     At December 31, 2002, we have a reasonable  expectation  of installing  our
Sight & Sound(R) system within additional Barnes & Noble College Bookstores.  At
December  31,  2002,  we have 35 of the 406  Barnes & Noble  College  Bookstores
operating  our Sight & Sound(R)  system,  and as  negotiated  and as our capital
resources allow,  may install the Sight & Sound(R) system in additional  stores.
Our average cost for outfitting a store is  approximately  $18,000.  We have not
identified the source of funding to proceed with this  installation.  We have no
assurance that sufficient capital will become available.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     NCT's primary market risk exposures include  fluctuations in interest rates
and foreign exchange rates.  NCT is exposed to short-term  interest rate risk on
some of its obligations. We do not use derivative financial instruments to hedge
cash flows for such obligations.  In the normal course of business,  NCT employs
established policies and procedures to manage these risks.

     Based upon a hypothetical 10% proportionate increase in interest rates from
the average level of interest  rates during the last twelve  months,  and taking
into  consideration  commissions paid to selling agents,  growth of new business
and the expected  borrowing level of variable-rate  debt, the expected effect on
net income related to our financial instruments would be immaterial.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The reports of the  independent  auditors  Eisner LLP and  Goldstein  Golub
Kessler  LLP  (as  to  fiscal  year  2000)  and  the  financial  statements  and
accompanying  notes are filed as part of this Annual Report on Form 10-K. Please
refer to the index on page 71.

ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

     On February 12, 2002,  NCT notified its principal  independent  accountant,
Goldstein Golub Kessler LLP ("GGK"),  that the auditing services of GGK would no
longer be required.  GGK's  dismissal  was approved by NCT's Board of Directors.
GGK  originally  was selected as NCT's  independent  accountant  in July 2000 to
audit  NCT's  consolidated  financial  statements  as of and for the year  ended
December 31, 2000.

                                       46
<PAGE>


     During  NCT's fiscal year ended  December 31, 2001,  and during the interim
period preceding its dismissal as NCT's  independent  accountant,  there were no
disagreements  with GGK on any matters of  accounting  principles  or practices,
financial  statement   disclosure,   or  auditing  scope  or  procedure,   which
disagreement(s),  if not resolved to the  satisfaction of GGK, would have caused
it to make reference to the subject matter of the  disagreement(s) in connection
with its report.  The report of GGK, dated April 9, 2001, on NCT's  consolidated
financial  statements  as of and for the year ended  December  31,  2000 did not
contain an adverse  opinion and was not  qualified or modified as to audit scope
or accounting principles.

     On  February  12,  2002,  NCT  engaged  the  accounting  firm of Eisner LLP
(formerly  Richard  A.  Eisner  &  Company,  LLP)  ("Eisner")  as its  principal
independent accountant to audit the consolidated financial statements of NCT for
the fiscal year ending December 31, 2001. The engagement was authorized by NCT's
Board of  Directors.  During the fiscal year ended  December 31,  2001,  and the
subsequent  period to  February  12,  2002,  neither NCT nor any person on NCT's
behalf   consulted   Eisner  regarding  either  the  application  of  accounting
principles to a specified transaction, either completed or proposed, or the type
of  audit  opinion  that  might be  rendered  on  NCT's  consolidated  financial
statements,  except for consultations regarding NCT's responses to comments from
the  Securities  and Exchange  Commission  with respect to the December 31, 1999
financial  statements  audited  by Eisner  included  in prior  filings  with the
Securities and Exchange Commission.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth the names, ages, positions and the
offices held by each of the executive officers and directors of NCT as of
December 31, 2002.

Name                       Age     Positions and Offices
----                       ---     ---------------------

Michael J. Parrella        55      Chairman of the Board of Directors and
                                   Chief Executive Officer
John J. McCloy II          65      Director
Samuel A. Oolie            66      Director
Irene Lebovics             49      Director, President
Cy E. Hammond              48      Senior Vice President, Chief Financial
                                   Officer, Treasurer and
                                   Assistant Secretary
Jonathan M. Charry, Ph.D.  54      Senior Vice President, Corporate Development
Mark Melnick               44      Vice President, General Counsel and Secretary

     Michael  J.  Parrella  currently  serves  as Chief  Executive  Officer  and
Chairman of the Board of Directors of NCT. Mr. Parrella was elected  Chairman of
the Board of Directors of NCT on April 21, 2000,  on which date he  relinquished
the  position of  President.  From August 1995 to April 21, 2000,  Mr.  Parrella
served as NCT's  President and Chief  Executive  Officer.  From November 1994 to
July 1995,  Mr.  Parrella  served as Executive  Vice  President of NCT. Prior to
that,  from February 1988 until  November 1994, he served as President and Chief
Operating  Officer  of NCT.  He  initially  became  a  director  in  1986  after
evaluating the application potential of NCT's noise cancellation technology.  At
that time,  he formed an  investment  group to  acquire  control of the Board of
Directors  and to raise new  capital to  restructure  NCT and its  research  and
development  efforts.  Mr. Parrella also serves as Chief  Executive  Officer and
Acting President of NCT Audio Products, Inc., a subsidiary of NCT, a position to
which he was  elected on  September  4, 1997.  He became a director of NCT Audio
Products,  Inc. on August 25, 1998. On January 5, 2001, Mr. Parrella was elected
Acting Chief Executive  Officer of Advancel Logic  Corporation,  a subsidiary of
NCT.  Mr.  Parrella  is a director  of  Advancel  Logic  Corporation,  serves as
Chairman of the Board of Distributed Media Corporation, a subsidiary of NCT, and
serves as Chairman of the Board of NCT Hearing  Products,  Inc., a subsidiary of
NCT.  Mr.  Parrella  became a director  of NCT  subsidiaries  acquired  in 2000,
including Midcore Software,  Inc. and Pro Tech Communications,  Inc. In 2000 and
2001,  he  became a  director  of NCT  subsidiaries  formed  in 2000  and  2001,
including  DMC Cinema,  Inc.,  NCT Video  Displays,  Inc.,  DMC New York,  Inc.,
ConnectClearly.com,  Inc., DMC HealthMedia Inc., Artera Group, Inc., Distributed
Media Corporation International Limited and Artera Group International Limited.

     John J. McCloy II currently serves as a director of NCT. He served as Chief
Executive Officer of NCT from September 1987 to November 1994 and as Chairman of
the Board of Directors of NCT from September 1986 to November 1994. In addition,
he served as NCT's Chief  Financial  Officer from November 1990 to February 1993
and as its  Secretary-Treasurer  from October 1986 to September 1987. Mr. McCloy
was  appointed a director of NCT

                                       47
<PAGE>

Audio  on  November  14,  1997.  Since  1981,  he has  been a  private  investor
concentrating  on venture  capital  and early  stage  investment  projects  in a
variety of industries.  Mr. McCloy is the Chairman of Gravitas Technology,  Inc.
He is a director of the Sound  Shore  Fund,  Inc.,  Ashland  Management  and the
American Council on Germany.

     Sam Oolie  currently  serves as a director of NCT. Since his appointment on
September 4, 1997,  Mr. Oolie has also served as a director of NCT Audio.  He is
Chairman of NoFire  Technologies,  Inc., a manufacturer of high performance fire
retardant  products,  and has held that position  since August 1995.  Since July
1985,  he has also  served  as  Chairman  of Oolie  Enterprises,  an  investment
company. Mr. Oolie currently serves as a director of Comverse Technology, Inc.

     Irene  Lebovics  currently  serves as a director  and  President of NCT and
President  of NCT Hearing  Products,  Inc.  She served as  Secretary of NCT from
February 1999 until  September  2001. On April 25, 2001, Ms.  Lebovics  became a
director of NCT. On January 5, 2000,  Ms.  Lebovics  was  elected  Acting  Chief
Marketing Officer and Secretary of Advancel Logic Corporation. In July 1989, she
joined NCT as a Vice President and as President of NCT Medical Systems,  Inc., a
subsidiary of NCT. In January 1993,  she was appointed  Senior Vice President of
NCT. In November 1994, Ms.  Lebovics became  President of NCT Hearing  Products,
Inc. In 1999,  Ms.  Lebovics was appointed as Executive Vice  President,  and in
April 2000,  she became  President  of NCT.  She has held  various  positions in
product  marketing  with  Bristol-Myers,  a consumer  products  company,  and in
advertising  with  McCaffrey  and McCall.  Ms.  Lebovics is the spouse of Irving
Lebovics,  NCT's Senior Vice President of Global Sales. Ms. Lebovics also serves
as  director  of  various  NCT  subsidiaries,   as  follows:  Distributed  Media
Corporation,  ConnectClearly.com,  Inc., NCT Hearing  Products,  Inc., NCT Video
Displays,   Inc.,  DMC  New  York,  Inc.,  Artera  Group,   Inc.,  Artera  Group
International Limited, Midcore Software,  Inc., Advancel Logic Corporation,  Pro
Tech Communications,  Inc., Distributed Media Corporation International Limited,
DMC HealthMedia Inc. and DMC Cinema, Inc.

     Cy E. Hammond  currently  serves as Senior Vice President,  Chief Financial
Officer,  Treasurer and Assistant  Secretary of NCT. He joined NCT as Controller
in  January  1990 and was  appointed  a Vice  President  in  February  1994.  On
September 4, 1997,  Mr.  Hammond was elected to serve as Acting Chief  Financial
Officer and  Treasurer of NCT Audio  Products,  Inc. On January 5, 2000,  he was
elected to serve as Acting Chief  Financial  Officer,  Treasurer  and  Assistant
Secretary for Advancel  Logic  Corporation.  On August 20, 2002, Mr. Hammond was
elected to serve as President and Treasurer of DMC New York, Inc. He also serves
as Treasurer for the following NCT  subsidiaries:  Artera Group,  Inc.,  Chaplin
Patents Holding Company,  Inc.,  Distributed Media Corporation,  DMC HealthMedia
Inc.,  Midcore Software,  Inc., NCT Far East, Inc., NCT Hearing Products,  Inc.,
NCT Muffler, Inc. and NCT Video Displays, Inc. During 1989, he was Treasurer and
Director  of Finance for  Alcolac,  Inc.,  a  multinational  specialty  chemical
producer.  Prior to 1989 and from 1973,  Mr.  Hammond  served in several  senior
finance  positions  at the  Research  Division of W.R.  Grace & Co., the last of
which included management of the division's worldwide financial operations.  Mr.
Hammond also serves as director of various NCT subsidiaries,  as follows: Artera
Group, Inc., ConnectClearly.com, Inc., DMC Cinema, Inc., DMC New York, Inc., NCT
Video Displays, Inc., Pro Tech Communications,  Inc., Artera Group International
Limited and Noise Cancellation Technologies (Europe), Inc.

     Jonathan M.  Charry,  Ph.D.  currently  serves as Senior Vice  President of
Corporate Development, a position he has held since January 2000. Dr. Charry was
Chairman and Chief Executive  Officer of Digital Power Networks,  Inc. from 1992
to 1999 and  Chairman  and Chief  Executive  Officer of  Environmental  Research
Information,  Inc. from 1984 to 1992. He has held  appointments as a Rockefeller
Foundation Fellow and Assistant Professor at the Rockefeller University, Adjunct
Professor  in  Applied  Social  Psychology  at New York  University,  and Senior
Research  Scientist at the New York Institute of Basic Research.  He is a member
of the American Psychological Association, The Rockefeller University Chapter of
Sigma Xi, the American  Association for the Advancement of Science,  and the New
York  Academy of Sciences.  Dr.  Charry  currently  serves as  President,  Chief
Executive Officer and as a director of DMC HealthMedia Inc. and as a director of
ConnectClearly.com, Inc.

     Mark  Melnick  currently  serves as Vice  President,  General  Counsel  and
Secretary of NCT Group,  Inc.,  positions he has held since  September  2001. He
also serves as Secretary of Distributed Media Corporation, DMC Cinema, Inc., DMC
HealthMedia  Inc., NCT Audio  Products,  Inc., NCT Hearing  Products,  Inc., NCT
Medical Systems, Inc., ConnectClearly.com,  Inc., Midcore Software, Inc., Artera
Group,  Inc.,  Advancel Logic  Corporation,  NCT Muffler,  Inc., Chaplin Patents
Holding Company, Inc., NCT Far East, Inc. and NCT Video Displays, Inc. Effective
January 1, 2002, Mr. Melnick was elected  Secretary of Pro Tech  Communications,
Inc.  From 1989 to 2000,  Mr.  Melnick  was  Counsel,  Senior  Counsel  and then
Assistant General Counsel of CBS Cable and its  predecessor-in-interest  Group W
Satellite  Communications (a division of Westinghouse  Broadcasting Co.), in the
cable television  field.  From 1984 to 1988, he was an associate at the law firm
of Stults & Marshall (now known as

                                       48
<PAGE>


Balber Pickard  Battistoni  Maldonado & Van Der Tuin) in New York, NY. From 1982
to 1984,  he was an associate at the law firm of Seyfarth,  Shaw,  Fairweather &
Geraldson in New York, NY.

Committees of the Board of Directors

     Our Board of Directors  has  established  a  Compensation  Committee and an
Audit Committee.

     The Compensation  Committee,  which was appointed by the Board of Directors
on July 10, 2001, reviews and determines the compensation policies, programs and
procedures  of the  company  as they  relate  to NCT's  senior  management.  The
Compensation  Committee is presently  comprised of Messrs.  McCloy and Oolie and
held three  meetings  during  the  fiscal  year ended  December  31,  2002.  The
Compensation Committee provides for the administration of stock option plans and
addresses matters relating to the grant of warrants or options to acquire shares
of the company's common stock and other securities.

     The Audit  Committee is responsible for the review of the activities of the
company's  independent  accountants  and  for  other  aspects  of the  company's
financial reporting. The Audit Committee is composed of Messrs. McCloy and Oolie
and held five meetings during the fiscal year ended December 31, 2002. Effective
April 25, 2001, the Board of Directors  adopted a written  charter for the Audit
Committee.  In addition, the Board of Directors determined that all of the Audit
Committee members are independent.

Resignation of Director

     Mr. Jay Haft, who served on the company's  Board of Directors from 1990 and
as Chairman of the Board of  Directors  from July 17, 1996 until April 21, 2000,
resigned effective May 29, 2002.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934, as amended,  requires
directors  and  executive  officers,  and  persons  who own  more  than 10% of a
registered class of our equity securities,  to file reports of ownership of, and
transactions in, NCT's  securities with the Securities and Exchange  Commission.
Such directors, executive officers and shareholders are also required to furnish
the company with copies of all Section 16(a) forms they file.  Based solely on a
review of the copies of such forms furnished to us, and written  representations
from  certain  reporting  persons,  NCT  believes  that all filing  requirements
applicable  to its  directors,  executive  officers  and 10%  shareholders  were
complied  with during the fiscal year ended  December 31, 2002,  except for: (a)
grants  of  options  made in June and  October  2002  under the 2001 Plan to the
following directors and executive officers:  Messrs.  Parrella,  McCloy,  Oolie,
Hammond,  Charry and Melnick and Ms. Lebovics were not timely reported on Form 4
(fourteen Form 4s) as required,  but were subsequently  reported on Form 5s that
were timely filed;  (b) the sale by Mr.  McCloy of 279,498  shares of NCT common
stock on May 2, 2002 was not  timely  reported  on Form 4 as  required,  but was
subsequently reported on Form 5, timely filed; (c) Acme Associates, Inc. did not
timely file a Form 3 upon the September  2002 grant of a stock option to acquire
50 million  shares of NCT common stock  (resulting  in  beneficial  ownership of
greater than 10% of NCT), but subsequently reported this option on a Form 5 that
was not timely filed;  and (d) Carole  Salkind did not timely file twelve Form 4
reports  during  2002  for  convertible  note  and  warrant  transactions,   but
subsequently timely filed all 2002 transactions on Form 5 which Form 5 was later
amended to clarify her indirect beneficial ownership of NCT common stock.

ITEM 11. EXECUTIVE COMPENSATION

Executive Compensation and Summary Compensation Table

     Set forth below is  information  for the three fiscal years ended  December
31, 2002,  2001 and 2000 relating to  compensation  received by: (1) NCT's Chief
Executive  Officer;  and (2) the other four most  highly  compensated  executive
officers  of NCT whose total  annual  salary and bonus for the fiscal year ended
December  31,  2002  exceeded   $100,000   (collectively  the  "Named  Executive
Officers").

                                       49
<PAGE>

<TABLE>
<CAPTION>
                                                                                           Securities
                                                                                           Underlying                 All
    Name and Principal                                                 Other Annual      Options/Warrants            Other
        Position               Year    Salary ($)      Bonus ($)     Compensation($)(a)      SARs (#)             Compensation ($)
--------------------------    ------- -----------   -------------   -------------------  ----------------       -----------------

<S>                            <C>     <C>             <C>                <C>               <C>                     <C>
Michael J. Parrella            2002    $320,016       $136,473 (b)        $20,688           14,000,000 (e)          $       -
  Chief Executive              2001     320,016        299,142 (c)         20,688            5,324,505 (f)                  -
  Officer and Chairman         2000     136,667        381,434 (d)         20,688           20,664,634 (g)(i)           7,198 (h)
  of the Board

Irene Lebovics                 2002     200,000         45,036 (b)         12,000            2,350,000 (e)                  -
  President and                2001     200,000         98,717 (c)         12,000              800,000 (j)                  -
  Director                     2000     112,917              -             12,000            2,808,373 (i)(k)               -


Cy E. Hammond                  2002     180,000         68,237 (b)         12,000            1,950,000 (e)                  -
  Senior Vice President,       2001     180,000        149,571 (c)         12,000              760,000 (l)                  -
  Chief Financial Officer,     2000     101,167        136,615 (d)         12,000            1,248,742 (i)(m)               -
  Treasurer

Jonathan M. Charry (n)         2002     200,000              -                  -            1,175,000 (e)                  -
  Senior Vice President,       2001     200,000         56,170 (c)              -              400,000                      -
  Corporate Development        2000     200,000         34,539                  -            1,378,049                      -


Mark Melnick (o)               2002     166,525         13,475                  -            1,100,000 (e)                  -
  Vice President,              2001      52,206          6,525                  -              300,000                      -
  General Counsel,
  Secretary
</TABLE>

Footnotes:
---------
(a)  Other annual  compensation  is comprised of  automotive  lease  payments or
     automotive allowances paid to the Named Executive Officers.

(b)  Bonus  amounts  accrued and unpaid as of December 31, 2002 and the years in
     which the amounts were earned are as follows:


                                         Amounts Accrued And Unpaid
                                      At December 31, 2002 Relating To:
                                     ---------------------------------
                              2001               2002                Total
                         --------------   -----------------    -----------------
  Michael J. Parrella      $  61,597         $   136,473        $   198,070
  Irene Lebovics                   -              38,908             38,908
  Cy E. Hammond                5,298              68,237             73,535
  Jonathan M. Charry          24,000                   -             24,000
                         --------------   -----------------    -----------------
                           $  90,895         $   243,618        $   334,513
                         ==============   =================    =================

(c)  Bonus amounts accrued and unpaid as of December 31, 2001 were  attributable
     to amounts earned in 2001, as follows:

     Michael J. Parrella         $     61,597
     Irene Lebovics                    20,327
     Cy E. Hammond                     30,798
     Jonathan M. Charry                24,000
                                ----------------
                                 $    136,722
                                =================

(d)  Bonus amounts accrued and unpaid as of December 31, 2000 were  attributable
     to the amounts earned in 2000, as follows:  Mr.  Parrella - $18,434 and Mr.
     Hammond - $2,956.

(e)  Current  year  options  are  comprised  of two grants for each of the Named
     Executive Officers. Please refer to the table "Options and Warrants Granted
     in 2002." The options granted to the Named Executive  Officers were granted
     subject to approval by NCT shareholders of a sufficient increase in (1) the
     authorized  shares of common stock and (2) the authorized  number of shares
     under  the 2001  Plan.  At the time of such  shareholder  approval,  if

                                       50
<PAGE>


     the market value of the company's  common stock exceeds the exercise  price
     of the  subject  options,  the  company  will  incur a  non-cash  charge to
     earnings  equal to the spread  between the exercise price of the option and
     the market price, times the number of options involved.  If the increase is
     not  approved,  granted  options  will be  reduced  pro rata for the excess
     unauthorized shares.

(f)  Includes  2,824,505  shares that remained an obligation of NCT from a grant
     in 2000 as outlined in Note (g) below.

(g)  Includes  grants  subsequently  cancelled  by the  Board  of  Directors  as
     outlined in Note (i) below. In addition,  due to an insufficient  number of
     shares  available  under  the 1992  Plan in 2000,  the  Board of  Directors
     reduced  the  grant  made in  December  2000  to Mr.  Parrella  to  acquire
     6,000,000 shares of common stock by 2,824,505 shares but remained obligated
     to provide such grant.

(h)  Consists of annual  premiums for a $2.0  million  personal  life  insurance
     policy paid by NCT on behalf of Mr. Parrella.

(i)  Includes  grants from January  2000 that were  forfeited by the grantees on
     July 13, 2000 as follows:  Mr. Parrella,  6,500,000  shares;  Ms. Lebovics,
     750,000  shares;  and Mr. Hammond,  250,000 shares.  These options had been
     granted in January 2000 at an exercise price of $0.41 per share, subject to
     shareholder approval of an increase in the number of shares available under
     the 1992 Plan. On July 13, 2000,  NCT  shareholders  approved the necessary
     increase in shares available under the 1992 Plan. On that day, the price of
     NCT  common  stock  was  $0.515.   The  Board  of  Directors  accepted  the
     forfeitures of the January grants and issued new grants on July 13, 2000 at
     an  exercise  price of $0.515  per  share  with the  number of new  options
     granted  increased  to an amount  equal to the  number of shares  under the
     January 2000 grant times a factor of 1.2561.

(j)  Includes 50,000 shares under a replacement  grant of an option that expired
     in 2001. The expiration date of the new grant is February 11, 2004, and the
     exercise price is $0.75, the exercise price of the expired option.

(k)  In  addition  to a grant  subsequently  forfeited  as  outlined in Note (i)
     above,  includes  116,300 shares under  replacement  grants of options that
     would  have  otherwise  expired  in  2000.  The  expiration  dates  of  the
     replacement grants are October 6, 2002 and July 15, 2003. These grants have
     an exercise  price of $0.75,  the exercise  price of the options that would
     have expired in 2000.

(l)  Includes 10,000 shares under a replacement  grant of an option that expired
     in 2001. The expiration date of the new grant is February 11, 2004, and the
     exercise price is $0.75, the exercise of the expired option.

(m)  In  addition  to a grant  subsequently  forfeited  as  outlined in Note (i)
     above,  includes  184,718 shares under  replacement  grants of options that
     would  have  otherwise  expired  in  2000.  The  expiration  dates  of  the
     replacement grants are October 6, 2002 and July 15, 2003. These grants have
     an exercise  price of $0.75,  the exercise  price of the options that would
     have expired in 2000.

(n)  Dr.  Charry,  Senior  Vice  President,  Corporate  Development,  was  hired
     effective  January 3, 2000. In accordance with his letter of employment and
     incentive bonus arrangement, Dr. Charry was granted an initial stock option
     to acquire  500,000  shares at $0.16 per  share.  His salary is paid at the
     rate of $150,000 per annum and a guaranteed draw against future commissions
     of $50,000 per annum. In addition,  Dr. Charry is eligible for an incentive
     bonus based upon  specified  performance  milestones  and cash overrides on
     various financings and licensing or strategic alliance agreements.

(o)  Mr.  Melnick  was  hired  as  Vice  President,  General  Counsel  effective
     September 4, 2001. He became  Secretary of NCT on September  20, 2001.  The
     2001 salary  amount  reflects his  compensation  from his date of hire.  In
     accordance with his letter of employment,  Mr.  Melnick,  in the first year
     with  NCT,  received  salary  at the  rate  of  $160,000  per  annum  and a
     guaranteed  bonus of  $20,000.  Upon his hire,  Mr.  Melnick was granted an
     initial stock option to acquire  300,000 shares at $0.103 per share.  Since
     September 4, 2002, Mr. Melnick has received a salary of $180,000 per annum.

                                       51
<PAGE>


                           Stock Options and Warrants

          The following  table  summarizes the Named  Executive  Officers' stock
     option and warrant activity during 2002:

                      Options and Warrants Granted in 2002
<TABLE>
<CAPTION>

                         Shares            Percent of                                            Potential Realized Value
                       Underlying        Total Options                                              at Assumed Annual
                        Options           And Warrants                                             Rates of Stock Price
                          And              Granted to         Exercise                           Appreciation for Option
                        Warrants           Employees           Price         Expiration            and Warrant Term (b)
                        Granted           in 2002 (a)        Per Share          Date
       Name                                                                                         5%               10%
-------------------   ------------       ---------------     -----------     -----------      --------------   --------------

<S>                    <C>                    <C>            <C>               <C>   <C>        <C>               <C>
Michael J. Parrella    4,000,000 (c)          14.5%          $  0.081          06/13/09         $  131,901        $ 307,384
                      10,000,000 (d)          36.1%             0.083          10/25/09            337,893          787,435

Irene Lebovics           850,000 (e)           3.1%             0.081          06/13/09             28,029           65,319
                       1,500,000 (f)           5.4%             0.083          10/25/09             50,684          118,115

Cy E. Hammond            700,000 (e)           2.5%             0.081          06/13/09             23,083           53,792
                       1,250,000 (f)           4.5%             0.083          10/25/09             42,237           98,429

Jonathan M. Charry       425,000 (e)           1.5%             0.081          06/13/09             14,014           32,660
                         750,000 (f)           2.7%             0.083          10/25/09             25,342           59,058

Mark Melnick             350,000 (e)           1.3%             0.081          06/13/09             11,541           26,896
                         750,000 (f)           2.7%             0.083          10/25/09             25,342           59,058
</TABLE>


Footnotes:
---------
(a)  Percentages  for the grants listed above are based upon the aggregate total
     granted in 2002 under the 2001 Plan less amounts granted to consultants and
     non-employee directors (i.e., Messrs. McCloy and Oolie).

(b)  The dollar amounts in these columns are the result of  calculations  of the
     respective  exercise prices at the assumed 5% and 10% rates of appreciation
     compounded  annually through the applicable  expiration dates. Actual gains
     realized,  if any, on stock option  exercises and common stock holdings are
     dependent  on the future  performance  of NCT's  common  stock and  overall
     market conditions.

(c)  Options to acquire  these  shares were  granted  pursuant to the 2001 Plan.
     These options are subject to shareholder  approval of a sufficient increase
     in (1) the authorized  shares of common stock and (2) the authorized number
     of shares under the 2001 Plan. The options vest as follows:
     o    1,000,000 on date of grant;
     o    1,000,000 on successful fund raising or 18 months from date of grant;
     o    1,000,000 on annual profitability or 18 months from date of grant; and
     o    1,000,000 on signing first regional bell operating  company for Artera
          Group,  Inc. or 18 months from date of grant.

          The vesting requirement under all options granted prior to October 25,
          2002 was accelerated to 100% vested as of October 25, 2002.

(d)  These options were granted  under the 2001 Plan and vest as follows:  As to
     50%,  date  of  grant;  balance  prior  to the  closing  of any  one of the
     following:  (1) third party acquires the right to a 10% equity  interest in
     NCT  Group,  Inc.;  (2) third  party  acquires  the  right to a 10%  equity
     interest in NCT's subsidiary,  Artera Group, Inc.; (3) third party licenses
     NCT or subsidiary's intellectual property or commits to distribute products
     for $15  million in  aggregate  license  fee or minimum  royalties.  In any
     event,  all options vest three years from date of grant.  These options are
     subject  to  shareholder  approval  of a  sufficient  increase  in (1)  the
     authorized  shares of common stock and (2) the authorized  number of shares
     under the 2001 Plan.

                                       52
<PAGE>


(e)  Options to acquire these shares were granted pursuant to the 2001 Plan with
     an exercise  price of $0.081 per share,  a value that was equal to the fair
     market value of NCT's common stock on the date of grant. These options vest
     as follows: 40% on the date of grant (June 13, 2002) and 30% on each of the
     first  and  second   anniversaries  of  the  date  of  grant.  The  vesting
     requirement  was  accelerated  to 100%  vested on October 25,

                                       52
<PAGE>


     2002.  These  options are subject to  shareholder  approval of a sufficient
     increase  in (1)  the  authorized  shares  of  common  stock  and  (2)  the
     authorized number of shares under the 2001 Plan.

(f)  Options to acquire these shares were granted pursuant to the 2001 Plan with
     an exercise  price of $0.083 per share,  a value that was equal to the fair
     market value of NCT's common stock on the date of grant. These options vest
     as follows:  40% on the date of grant (October 25, 2002) and 30% on each of
     the first and second  anniversaries  of the date of grant. The options were
     granted subject to approval by NCT shareholders of a sufficient increase in
     (1) the authorized  shares of common stock and (2) the authorized number of
     shares under the 2001 Plan.

                2002 Aggregated Option and Warrant Exercises and
                   December 31, 2002 Option and Warrant Values

     The following table sets forth  information with respect to the exercise of
options  and  warrants  to purchase  common  stock  during the fiscal year ended
December 31, 2002, and the  unexercised  options and warrants held and the value
thereof at that date, by each of the Named Executive Officers.


<TABLE>
<CAPTION>

                                                                   Underlying                          Value of Unexercised
                        Number of                              Unexercised Options                     In-the-Money Options
                         Shares                                  and Warrants at                          And Warrants at
                        Acquired                                December 31, 2002                        December 31, 2002
                           On              Value      -------------------------------------      -------------------------------
      Name              Exercise (#)      Realized     Exercisable (#)      Unexercisable (#)     Exercisable     Unexercisable
--------------------   -------------   -------------  ----------------     ----------------      --------------   --------------

<S>                                      <C>             <C>                   <C>                 <C>              <C>
Michael J. Parrella            -         $       -       37,901,634 (a)        5,000,000           $        -       $       -

Irene Lebovics                 -                 -        5,933,323              900,000                    -               -

Cy E. Hammond                  -                 -        3,289,024              750,000                    -               -

Jonathan M. Charry             -                 -        2,503,049              450,000                    -               -

Mark Melnick                   -                 -          950,000              450,000                    -               -
</TABLE>


Footnote:
--------
(a)  In  November  2002,  Mr.  Parrella  assigned to his  children  the right to
     acquire  3,000,000  shares of NCT common stock under  options that had been
     granted to him in 2001.

Compensation Arrangements with Certain Officers and Directors

     Mr. Haft, NCT's former Chairman of the Board of Directors, who continued as
a director until his resignation on May 29, 2002, received compensation from the
company  in 2002,  2001 and  2000  aggregating  $15,750,  $63,000  and  $64,500,
respectively.

     Certain of NCT's  executive  officers are  eligible for an incentive  bonus
consisting of a cash override on the value derived by NCT and its  subsidiaries,
in cash or  otherwise,  upon the  execution of  transactions  with  unaffiliated
parities.  Cash override refers to NCT's payment in cash to certain participants
of  amounts  that  represent  a  percentage  of the  value  of the  transactions
consummated  by NCT and its  subsidiaries.  The  participants  included  in this
arrangement,  the effective date  participation  began and the  percentage  cash
overrides are as follows:

                                 Date Participation
         Participant                  Commenced              Percent
   ------------------------     ----------------------    --------------
     Michael J. Parrella           February 1, 1996             1.00%
     Irene Lebovices               January 1, 2001              0.33%
     Cy E. Hammond                 September 4, 1997            0.50%

     Effective  January 3, 2000, NCT hired Jonathan Charry,  Ph.D. as its Senior
Vice President, Corporate Development. In connection therewith, NCT entered into
a letter of employment  which provides for an annual base salary of $150,000 and
a $50,000 per annum guaranteed draw against future commissions.  Dr. Charry also
has an incentive  bonus  arrangement  based on  performance  milestones and cash
overrides  on  specified   financings   and  licensing  or  strategic   alliance
agreements.

                                       53
<PAGE>


     Effective  September 4, 2001, NCT hired Mark Melnick as its Vice President,
General  Counsel.  In  connection  therewith,  NCT agreed to pay Mr.  Melnick an
annual base salary of $160,000 and a guaranteed first-year bonus of $20,000.

Compensation of Directors

     None of our directors  received fees, as such, for his or her services as a
director  during 2002. Mr.  Parrella and Ms. Lebovics were paid salaries in 2002
by NCT.  Mr.  Haft also  received a salary in 2002 for the  period  prior to his
resignation.  See above at  "Executive  Compensation  and  Summary  Compensation
Table" and "Compensation Arrangements with Certain Officers and Directors."

     During 2002,  each director was granted  options to acquire shares of NCT's
common stock under the 2001 Plan. The shares of common stock underlying  options
granted in 2002  under the 2001 Plan  aggregated  2,000,000  for each of Messrs.
McCloy and Oolie;  14,000,000 for Mr.  Parrella and 2,350,000 for Ms.  Lebovics.
The  vesting  schedules  for the  directors,  other  than Mr.  Parrella,  are as
follows: 40% vest on the dates of grant (June 13, 2002 and October 25, 2002) and
30% upon the first and second  anniversaries  of the dates of grant. The options
were granted subject to approval by NCT shareholders of a sufficient increase in
(1) the  authorized  shares of common  stock  and (2) the  authorized  number of
shares  under the 2001 Plan.  The options  expire  seven years from the dates of
grant.  The  exercise  prices were $0.081 and $0.083 per share,  in each case, a
value  equal to the fair  market  value of NCT's  common  stock on the  dates of
grant.  Effective  October 25,  2002,  the Board of  Directors  accelerated  the
vesting  under all  options  granted  prior to  October  25,  2002 so that those
options are now 100% vested. The vesting terms of Mr. Parrella's 2002 grants are
outlined  above in  footnotes to the table,  "Options  and  Warrants  Granted in
2002."

Compensation Committee Interlocks and Insider Participation

     During the fiscal year ended  December 31, 2002,  John McCloy and Sam Oolie
served as members of the  Compensation  Committee  of NCT's Board of  Directors.
Each of  Messrs.  McCloy  and  Oolie  also  served  as  members  of the Board of
Directors of NCT Audio  Products,  Inc. since their  respective  appointments in
1997.


                                       54
<PAGE>


ITEM 12. Security Ownership of Certain Beneficial Owners and Management

     The  following  table sets forth,  as of  December  31,  2002,  information
concerning the shares of common stock beneficially owned by:

o    each person who,  to the  knowledge  of NCT, is the holder of 5% or more of
     the common stock of NCT;
o    each person who presently serves as a director of NCT;
o    the five most highly compensated executive officers of NCT (including NCT's
     Chief Executive Officer) in the fiscal year ended December 31, 2002; and
o    all executive officers and directors of NCT as a group.

     Except as otherwise  noted,  each beneficial  owner has sole investment and
voting power with respect to the listed shares.

                                              Amount and
                                               Nature of          Approximate
                                              Beneficial         Percentage of
    Name of Beneficial Owner                 Ownership (a)         Class (a)
------------------------------------      ------------------   -----------------

Michael J. Parrella                          41,696,260    (b)        8.0%
John J. McCloy                                4,724,512    (c)        1.0%
Sam Oolie                                     3,546,825    (d)           *
Irene Lebovics                                8,883,597    (e)        1.8%
Cy E. Hammond                                 3,504,789    (f)           *
Jonathan M. Charry                            2,503,049    (g)           *
Mark Melnick                                    950,000    (h)           *
All Executive Officers and Directors
  as a Group (8 persons)                     65,809,032    (i)       12.3%
Carole Salkind                              504,681,004    (j)       51.9%
Crammer Road LLC                            741,258,666    (k)       62.7%
Alpha Capital Aktiengesellschaft             85,720,959    (l)       15.1%
Acme Associates, Inc.                        50,000,000    (m)        9.4%
Libra Finance S.A.                           50,898,835    (n)        9.5%
Austost Anstalt Schaan                       49,686,552    (o)        9.4%
Balmore S.A.                                 52,368,486    (p)        9.8%

 *       Less than one percent.

Footnotes:
---------
(a)  Assumes  the  exercise  of  currently  exercisable  options or  warrants to
     purchase  shares of common  stock.  The  percentage  of class  ownership is
     calculated  separately  for each person  based on the  assumption  that the
     person listed on the table has exercised all options and warrants currently
     exercisable by that person, but that no other holder of options or warrants
     has exercised such options or warrants.

(b)  Mr. Parrella's business address is 20 Ketchum Street, Westport, Connecticut
     06880.  Includes  862,500  shares  issuable  upon the exercise of currently
     exercisable  warrants,  37,039,134 shares issuable upon the exercise of his
     currently exercisable options,  13,333 shares held by or in custody for Mr.
     Parrella's  children,  3,000,000  shares  issuable  upon  the  exercise  of
     currently  exercisable  options  transferred in 2002 by Mr. Parrella to his
     children (Mr. Parrella disclaims beneficial ownership of the shares held by
     his  children) and 168,400  shares  issuable upon the exercise of currently
     exercisable options held by his son, Michael J. Parrella,  Jr., an employee
     of the  company  (Mr.  Parrella  disclaims  beneficial  ownership  of these
     shares).  Also  includes  612,893  shares  of  common  stock  held  by  Mr.
     Parrella's  spouse,  shares as to which Mr. Parrella  disclaims  beneficial
     ownership.

(c)  Mr. McCloy's  business  address is 475 Park Avenue South,  33rd Floor,  New
     York, New York 10011. Includes 862,500 shares issuable upon the exercise of
     currently exercisable warrants,  5,000 shares from a stock award granted by
     NCT,  3,557,012 shares issuable upon the exercise of currently  exercisable
     options and 300,000  shares held by the John J. McCloy II Family  Trust for
     which the named person's  spouse serves as trustee,  shares as to which Mr.
     McCloy has no voting or investment power.

                                       55
<PAGE>


(d)  Mr. Oolie's business address is 21 Industrial  Avenue,  Upper Saddle River,
     New Jersey 07458.  Includes 20,000 shares from stock awards granted by NCT,
     3,207,012  shares  issuable  upon the  exercise  of  currently  exercisable
     options,  75,000 shares owned by the named person's spouse, as to which Mr.
     Oolie has no voting  or  investment  power,  20,000  shares  owned by Oolie
     Enterprises, and 44,313 shares held by the Oolie Family Support Foundation,
     shares as to which Mr. Oolie has no voting or investment power.

(e)  Ms. Lebovics' business address is 20 Ketchum Street, Westport,  Connecticut
     06880.  Includes  201,250  shares  issuable  upon the exercise of currently
     exercisable  warrants,  5,732,073  shares  issuable  upon the  exercise  of
     currently  exercisable  options and 590,517  shares owned  jointly with her
     spouse.  Irene Lebovics is married to Irving  Lebovics who is also employed
     by NCT and serves as its Senior Vice President,  Global Sales. Mr. Lebovics
     holds  various  options to acquire an aggregate of 2,638,415  shares of NCT
     common stock. Also includes  2,188,415 shares issuable upon the exercise of
     currently exercisable options held by Mr. Lebovics,  shares as to which Ms.
     Lebovics disclaims beneficial ownership.

(f)  Mr. Hammond's business address is 20 Ketchum Street, Westport,  Connecticut
     06880.  Includes  25,000  shares  issuable  upon the  exercise of currently
     exercisable  warrants and  3,264,024  shares  issuable upon the exercise of
     currently exercisable options.

(g)  Dr. Charry's business address is 20 Ketchum Street,  Westport,  Connecticut
     06880. Consists of 2,503,049 shares issuable upon the exercise of currently
     exercisable options.

(h)  Mr. Melnick's business address is 20 Ketchum Street, Westport,  Connecticut
     06880.  Consists of 950,000 shares  issuable upon the exercise of currently
     exercisable options.

(i)  Includes  1,951,250  shares  issuable to 4  individuals  (3 directors and 3
     executive  officers  of NCT) upon the  exercise  of  currently  exercisable
     warrants,  58,440,719  shares  issuable to 8 persons  upon the  exercise of
     currently  exercisable  options, and 25,000 shares from stock awards issued
     by NCT to 2 directors.  Excludes  options to acquire  8,500,000 shares from
     NCT which are not presently exercisable but become exercisable over time by
     the 8 executive  officers and  directors of NCT as a group.  Also  includes
     3,168,400  shares  issuable  to  children  of Michael  Parrella  upon their
     exercise of currently exercisable options,  shares as to which Mr. Parrella
     disclaims beneficial ownership.

(j)  Ms. Salkind's  address is c/o Sills,  Cummis,  Radin,  Tischman,  Epstein &
     Gross, One Riverfront Plaza, Newark, New Jersey 07102. Includes 281,808,267
     shares  issuable  upon the  conversion  of  convertible  notes in aggregate
     principal  amount of $18,063,712 and 9,132,137  shares for interest thereon
     (and default interest as applicable) through December 31, 2002,  calculated
     at the respective  conversion  prices under the  convertible  notes ranging
     from $0.0412 to $0.097.  Includes  3,546,608  shares  representing  default
     penalties  on  convertible  notes  issued  prior to February 6, 2002.  Also
     includes  106,790,174  shares  issuable to Ms. Salkind upon the exercise of
     currently  vested  warrants.  Also  includes  5,000  shares owned by Morton
     Salkind,  Ms. Salkind's husband and a former director of NCT, and currently
     exercisable  options held by Morton Salkind to acquire  2,175,000 shares of
     NCT common  stock,  as to which she has no voting or  investment  power and
     disclaims beneficial ownership. Also includes currently exercisable options
     held by Acme Associates,  Inc. to acquire  50,000,000  shares of NCT common
     stock and currently exercisable options held by Motorworld, Incorporated to
     acquire  23,000,000 shares of NCT common stock.  Carole Salkind is the sole
     shareholder  of Acme  Associates  (see footnote (m) below) and  Motorworld.
     Also includes currently exercisable options held by Leben Care, Inc. (whose
     sole  shareholder  is Carole  Salkind's  son,  Steven  Salkind)  to acquire
     8,350,000 shares of NCT common stock and currently exercisable options held
     by Stop Noise,  Inc. (whose sole  shareholder is Steven Salkind) to acquire
     3,375,000  shares of NCT common  stock,  shares as to which Carole  Salkind
     disclaims beneficial ownership.

(k)  Crammer Road LLC's business address is P.O. Box 866, George Town,  Anderson
     Square Building,  Shedden Road, Grand Cayman, Cayman Islands,  British West
     Indies.  David Sims of Navigator Management Ltd. has voting and dispositive
     control of NCT's shares on behalf of Crammer Road LLC. Includes 569,761,071
     shares issuable upon conversion of the series H preferred stock, along with
     accretion,  calculated at $0.043  (NCT's  closing bid price on December 31,
     2002) less the 25% discount per the agreement.  Includes 129,198,966 shares
     issuable pursuant to the private equity credit agreement minimum commitment
     amount  of $5  million  calculated  at  $0.043  less a 10%  discount.  Also
     includes  1,250,000 shares issuable under currently  exercisable  warrants.
     Excludes   28,000,000  shares  issuable  to  Crammer  Road  pursuant  to  a
     settlement  agreement  and  release  entered  into on October  30, 2002 and
     approved by the court on December 11, 2002  because  these are not issuable
     within 60 days but are only issuable upon 65 days' prior request by Crammer
     Road.  Pursuant to a

                                       56
<PAGE>

     contractual  restriction  between NCT and  Crammer  Road,  Crammer  Road is
     prohibited from holding in excess of 9.99% of our common stock at any given
     time.

(l)  Alpha Capital  Aktiengesellschaft's  business  address is Pradafant 7, 9490
     Furstentums,  Vaduz, Lichtenstein.  Konrad Ackermann,  Director, has voting
     and  dispositive  control  of NCT's  shares  on  behalf  of Alpha  Capital.
     Includes currently  exercisable warrants to acquire 1,400,000 shares of NCT
     common  stock,   59,068,816   shares  issuable  upon  exchange  of  various
     convertible notes issued by Artera Group, Inc. along with accrued interest,
     15,361,580 shares issuable upon exchange of series B preferred stock of Pro
     Tech  Communications,  Inc. and accretion  thereon,  and  6,583,390  shares
     issuable  upon  conversion of a NCT note along with accrued  interest,  all
     calculated  at $0.043  (NCT's  closing bid price on December 31, 2002) less
     applicable  discounts.  Excludes  a warrant to  acquire  15,000,000  shares
     because  such  warrant  is not  currently  excercisable  due to  unresolved
     contingencies.  Pursuant to contractual  restrictions between NCT and Alpha
     Capital  Aktiengesellschaft,  Alpha Capital is  prohibited  from holding in
     excess of 9.99% of our common stock at any given time.

(m)  Acme Associates,  Inc.'s business  address is 431 Route 10,  Randolph,  New
     Jersey 07102.  As noted in footnote (j) above,  Carole  Salkind is the sole
     shareholder of Acme Associates.  Consists of currently  exercisable options
     to acquire  50,000,000 shares of NCT's common stock at an exercise price of
     $0.070 per share.

(n)  Libra Finance  S.A.'s  business  address is c/o Trident Trust Company (BVI)
     Limited,  Trident  Chambers,  Box 146, Road Town,  Tortola,  British Virgin
     Islands.  Seymour Braun has voting and dispositive  control of NCT's shares
     on behalf of Libra  Finance.  Includes  currently  exercisable  warrants to
     acquire  25,000,000 shares of NCT common stock,  24,968,461 shares issuable
     upon  exchange  of series A  preferred  stock of  Artera  Group,  Inc.  and
     accretion  thereon and  930,374  shares  issuable  upon  conversion  of NCT
     convertible  notes dated  March 14,  2001 and April 12,  2001 and  interest
     thereon,  all calculated at $0.043 (NCT's closing bid price on December 31,
     2002) less applicable discounts.

(o)  Austost Anstalt Schaan's  business address is 744 Fuerstentum,  Landstrasse
     163, Lichtenstein. Thomas Hackl has voting and dispositive control of NCT's
     shares on behalf of  Austost.  Includes  26,891,033  shares  issuable  upon
     exchange of series A preferred  stock of Artera  Group,  Inc. and accretion
     thereon and 19,012,363  shares issuable upon exchange of a convertible note
     issued by Artera  Group,  Inc. and interest  thereon,  calculated at $0.043
     (NCT's closing bid price on December 31, 2002).

(p)  Balmore S.A's business address for. is c/o Trident Chambers,  P.O. Box 146,
     Roadstown  Tortola,  British Virgin Islands.  Gissela Kindle has voting and
     dispositive  control  of  NCT's  shares  on  behalf  of  Balmore.  Includes
     26,891,033  shares  issuable upon  exchange of series A preferred  stock of
     Artera Group,  Inc. and accretion  thereon and 25,477,453  shares  issuable
     upon  exchange of a  convertible  note  issued by Artera  Group,  Inc.  and
     interest thereon, calculated at $0.043 (NCT's closing bid price on December
     31, 2002).

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Secured Convertible Notes and Warrants Issued to Carole Salkind

     Beginning in 1999, NCT has issued  convertible  notes to Carole Salkind,  a
stockholder,  an accredited  investor and spouse of a former director of NCT. As
of December 31, 2002, the aggregate principal balance outstanding of these notes
was approximately $18.1 million.  The notes are secured by substantially all the
assets of NCT Group, Inc. and certain assets of NCT Video Displays, Inc. We have
sustained our operations in 2002 primarily from the funding received from Carole
Salkind and are dependent upon such funding to continue operations.  Although we
do not have a formal  agreement  requiring  her to do so, we believe that Carole
Salkind will  continue to provide funds to NCT. Our belief that funding from her
will continue is based, in part,  upon her continued  funding of NCT during 2002
despite  NCT's  failure  to repay  her notes as the  notes  matured.  Commencing
January  2001,  upon the  maturity of Ms.  Salkind's  initial  note to NCT dated
January  1999,  NCT has  established a history of defaulting on the repayment of
obligations owed to Carole Salkind as such  obligations  become due. Ms. Salkind
has allowed NCT to roll-over  maturing notes,  along with accrued interest and a
default penalty (10% of the principal in default), into new notes that generally
mature  from six months to one year from the date of the  rolled-over  note.  In
addition to the financing  provided by rolling-over  maturing notes, Ms. Salkind
has continued to provide NCT with new funds.  However, NCT has no assurance that
Ms.  Salkind  will  continue  funding NCT in the  near-term  or that the amount,
timing and duration of funding from her will be adequate to sustain NCT.

     At Ms.  Salkind's  election,  the notes are convertible  into shares of our
common  stock and are  exchangeable  for  shares  of common  stock of any of our
subsidiaries that makes a public offering of its common stock (except Pro

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Tech). The notes contain various events of default, the occurrence of any one of
which provides,  at Ms.  Salkind's  election,  that the  outstanding  principal,
unpaid  interest  and a  penalty  (10%  of  the  principal  in  default)  become
immediately  due and payable.  An event of default  occurred on February 6, 2002
when a  judgment  in the  amount of $2  million  plus  costs  (in  excess of the
permitted  maximum of  $250,000)  was entered  against  NCT and its  subsidiary,
Distributed  Media  Corporation  and was not  vacated,  bonded  or stayed in the
action of Production  Resource Group, LLC v. NCT,  Distributed Media Corporation
and Michael Parrella (see "Legal  Proceedings").  Consequently,  the convertible
notes that were outstanding on February 6, 2002 and unpaid interest,  along with
the 10% default penalty,  became payable  immediately  upon demand.  To date, no
such demand for payment has been made.

     The  following  outlines  our  convertible  note  transactions  with Carole
Salkind:

     On January 26, 1999, Carole Salkind agreed to purchase convertible notes of
NCT in an aggregate  principal amount of $4.0 million.  The initial  convertible
note for $1.0 million was issued to Ms.  Salkind on January 26,  1999.  The note
matured  on  January  25,  2001.  The note bore  interest  at the prime  rate as
published from time to time in The Wall Street Journal from the issue date until
the note was paid. Ms. Salkind had the right to convert the  outstanding  amount
of the note into shares of common stock of NCT at a conversion price (as amended
on September  19, 1999) equal to the lesser of (1) the lowest  closing price for
the common stock during September 1999 ($0.172);  (2) the average of the closing
bid price  for the  common  stock for five  consecutive  trading  days  prior to
conversion;  or (3) $0.17. In no event,  however,  could the conversion price be
less than $0.12 per share.  Prior to the amendment,  the fixed  conversion price
was $0.237 per share,  and in no event could the  conversion  price be less than
$0.15 per share.  The amendment was entered into for the purpose of  maintaining
good  investor  relations in a market in which NCT's stock price was  declining.
Ms. Salkind purchased the remaining $3.0 million principal amount of convertible
notes on various  dates  through  March 27, 2000,  and NCT issued notes with the
same terms and conditions as the note described above.

     On January 25, 2001,  NCT  defaulted  on the  repayment of the $1.0 million
convertible  note  issued to Ms.  Salkind  on  January  26,  1999.  The  default
provisions  in the note  imposed  a  default  penalty  of  $100,000  (10% of the
principal in default).  Default interest from the date of default accrued on the
principal  in default at the rate of prime plus 5%. On May 14,  2001,  NCT cured
this  default by canceling  the $1.0  million note and issuing a new  four-month
convertible note to Ms. Salkind for $1,361,615. Also on May 14, 2001, we granted
Ms. Salkind a five-year warrant for the purchase of 500,000 shares of NCT common
stock at $0.13 per share,  the fair market  value of NCT's  common  stock on the
date of grant.  On December  20,  2001,  we reduced the  exercise  price on that
warrant to $0.071 per share.  The May 14, 2001 note was convertible  into shares
of our common stock at $0.13 per share, shares of Pro Tech common stock at $0.22
per share or shares of common stock of any other public subsidiary of NCT at the
respective  initial public offering prices, at the election of Ms. Salkind.  NCT
defaulted on repayment  of the May 14, 2001 note.  The default  provision in the
note imposed a penalty of $136,161  (10% of the  principal in default).  Default
interest  from the date of default  was due on the  principal  in default at the
rate of prime plus 5%. Ms. Salkind agreed to fund another $1,000,000 and to roll
the amounts due under the note in default into a new note,  dated  September 28,
2001,  for an aggregate of  $2,535,469.  This note matures on September 28, 2002
and bears  interest  at the prime rate.  In  connection  with this new note,  we
issued Ms. Salkind a five-year warrant to acquire 1,000,000 shares of NCT common
stock at an exercise price of $0.115 per share. On December 20, 2001, we reduced
the exercise  price on that warrant to $0.071 per share.  On July 12, 2002,  Ms.
Salkind  waived her right to exchange the new note for shares of common stock of
Pro Tech.  On September  28, 2002,  we defaulted on repayment of the  $2,535,469
note dated  September  28, 2001.  On September 30, 2002, we issued a new note in
the  principal  amount of  $3,770,098  to settle the  September  28,  2001 note,
default penalty and accrued  interest  thereon and include  $800,000  additional
cash received  from Ms.  Salkind.  This note bears  interest at 8% per annum and
matures on September 30, 2003.  This note may be converted  into common stock of
NCT (at  $0.070)  and  may be  exchanged  for  shares  of  common  stock  of any
subsidiary  of NCT (other  than Pro Tech) that  makes a public  offering  of its
common tock (at the public  offering price  thereof).  In  conjunction  with the
issuance of this  September 30, 2002 note, we issued Carole  Salkind a five-year
warrant to acquire 16,157,565 shares of NCT common stock at an exercise price of
$0.070 per share.

     On February  13,  2001,  NCT issued Ms.  Salkind a  promissory  note in the
amount of $500,000  payable with accrued  interest at 7% on April 14, 2001.  The
principal and interest were convertible,  at Ms. Salkind's election,  into NCT's
common  stock at a  conversion  price of $0.21 or  exchangeable  for Pro  Tech's
common stock at an exchange  price of $0.44.  NCT  defaulted on the repayment of
this note.  In  connection  with this  transaction,  NCT  issued  Ms.  Salkind a
five-year warrant to purchase  $500,000 worth of either, at her election,  NCT's
common  stock at $0.21 per share or Pro Tech's  common stock at $0.44 per share.
We reduced the  exercise  prices on this  warrant on December 20, 2001 to $0.071
per share for NCT common  stock  (representing  the right to  acquire  7,042,254
shares of NCT common  stock) and $0.06 per share for Pro Tech common  stock.  On
July 12, 2002, Ms. Salkind waived her right to

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purchase shares of Pro Tech upon exercise of this warrant. The default provision
in the note imposed a penalty of 10% of the principal in default, or $50,000. On
May 18, 2001, Ms. Salkind  converted this $500,000 note into 4,303,425 shares of
our common stock at an agreed upon  conversion  price of $0.13 per share,  which
approximated the market price of our common stock on the conversion date.

     NCT defaulted on repayment to Ms. Salkind of each of its convertible  notes
dated June 4, 1999, June 11, 1999, July 2, 1999 and July 23, 1999,  representing
an aggregate  principal  balance of  $1,250,000.  The default  provisions in the
notes  imposed an aggregate  penalty of $125,000  (10% of principal in default).
Default  interest  from the dates of default was due on the principal in default
at the rate of prime plus 5%. On August 22,  2001,  we cured  these  defaults by
canceling these notes aggregating  $1,250,000 and issuing a new convertible note
to Ms.  Salkind for  $1,673,393.  The August 22, 2001 note bore  interest at the
prime rate and was due December 22,  2001.  On August 22, 2001,  we also granted
Ms. Salkind a five-year warrant to purchase 625,000 shares of NCT's common stock
at an exercise  price of $0.093 per share.  On December 20, 2001, we reduced the
exercise  price on that  warrant  to  $0.071  per  share.  We  defaulted  on the
repayment  of the  August  22,  2001 note and  incurred  a  penalty  (10% of the
principal in default) and accrued  interest at the default rate (prime plus 5%).
We settled the amounts due along with an additional  $350,000  received from Ms.
Salkind by issuing an 8% note on January  11,  2002 in the  principal  amount of
$2,231,265  due January 11, 2003.  This note is  convertible  into shares of NCT
common  stock (at $0.079) or  exchangeable  for shares of common stock of any of
NCT's  subsidiaries  that goes public (at the initial  public  offering  price).
Prior  to a  waiver  agreement  dated  July 12,  2002,  the  note had also  been
exchangeable for shares of Pro Tech (at $0.06). In conjunction with the issuance
of the  January 11, 2002 note,  we granted  Ms.  Salkind a five-year  warrant to
acquire 2,789,082 shares of NCT common stock at $0.079 per share and a five-year
option to acquire a 10% equity interest in our subsidiary, Artera Group, Inc. at
an exercise price of 10% of the pre-money  enterprise value attributed to Artera
Group,  Inc.  in the first  transaction  following  January 11, 2002 in which an
unrelated investor purchases or commits to purchase an equity interest in Artera
Group, Inc. for payment of at least $5 million.  In other words, Ms. Salkind may
acquire a 10% equity interest in Artera Group based upon the value attributed to
Artera Group by an unrelated investor who pays at least $5 million for an equity
interest in Artera Group. For example, if an unrelated investor pays $20 million
to purchase a 20% equity interest,  Ms. Salkind may acquire 10% equity of Artera
Group for $10 million.

     On December  20,  2001,  we issued Ms.  Salkind an 8% per annum  $2,014,270
convertible  note due  December  20,  2002 and a  five-year  warrant to purchase
1,250,000  shares of our common stock at $0.071 per share. The December 20, 2001
note includes  $1,000,000 new funding from Ms. Salkind and the settlement of two
previous  notes to Ms.  Salkind,  dated August 25, 1999 and  September 19, 1999,
representing an aggregate principal balance of $750,000,  which were in default.
The default  provisions  in these notes  imposed a default  penalty  aggregating
$75,000 (10% of the  principal in default).  Default  interest from the dates of
default  was due on the  principal  in  default at the rate of prime plus 5%. On
December 26, 2002,  the December 20, 2001 note (along with accrued  interest and
default penalty thereon) was rolled into a new note in the amount of $2,381,487.
This note matures December 26, 2003 and is convertible into shares of NCT common
stock at a conversion price of $0.042.  The note is also exchangeable for shares
of common  stock of any of NCT's  subsidiaries  that goes public (at the initial
public offering price). In connection with this rollover,  on December 26, 2002,
we issued a five-year warrant to Ms. Salkind to acquire 10,206,373 shares of NCT
common stock at an exercise price per share of $0.042.

     Also on December 20, 2001 as  indicated  above,  we amended the  respective
exercise prices of Ms. Salkind's previously granted warrants to $0.071 per share
for the  purchase of NCT common  stock.  Further,  under her  February  14, 2001
warrant,  we reduced the  exercise  price for her purchase of shares of Pro Tech
common stock from $0.44 to $0.06.

     On January 25, 2002,  NCT issued Ms.  Salkind two 8% per annum  convertible
notes in the  principal  amounts of $650,000 (due January 25, 2003) and $250,000
(due February 8, 2002). On January 25, 2002, Ms. Salkind paid $250,000,  for the
benefit of NCT, into an escrow account and NCT issued a convertible  note in the
principal  amount  of  $250,000.  The  escrow  account  was a  part  of  another
transaction in which NCT engaged with an unrelated third party. The note matured
on  February  8, 2002 and was settled on  February  27,  2002 (see  below).  Ms.
Salkind  paid NCT  $650,000  on  January  25,  2002.  The  $650,000  note may be
converted  into shares of NCT common stock (at $0.09) and may be  exchanged  for
shares of common stock of any subsidiary of NCT that makes a public  offering of
its common stock (at the initial  public  offering  price  thereof).  Prior to a
waiver agreement dated July 12, 2002, the note had been  exchangeable for shares
of Pro Tech (at $0.06) as well.  On January 25, 2002,  in  conjunction  with the
issuance of the notes, we granted Ms. Salkind two five-year  warrants to acquire
an aggregate of 1,125,000 shares of NCT common stock at $0.09 per share.

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     The January  25, 2002 note for  $250,000  (see above) was  satisfied  as to
principal by the release of $250,000 from escrow to Ms. Salkind. On February 27,
2002,  a new note was issued by NCT to Ms.  Salkind in the  principal  amount of
$827,412 for the default  amount  ($25,000) and accrued  interest (less interest
credited on the escrow  account)  due on the $250,000  note along with  $800,000
loaned to NCT by Ms.  Salkind.  This note bears interest at 8% per annum payable
at maturity (February 27, 2003). This note may be converted into common stock of
NCT (at  $0.079)  and  may be  exchanged  for  shares  of  common  stock  of any
subsidiary  of NCT that  makes a public  offering  of its  common  stock (at the
public offering price thereof). Prior to a waiver agreement dated July 12, 2002,
the note had also been  exchangeable for shares of Pro Tech (at $0.06).  Also on
February 27, 2002, in conjunction with the issuance of the note described above,
we granted Ms. Salkind a five-year  warrant to acquire  1,034,266  shares of our
common stock at an exercise price of $0.079 per share.

     On March 1, 2002, NCT issued Ms. Salkind an 8% per annum  convertible  note
in the principal amount of $350,000 due March 1, 2003 and a five-year warrant to
acquire 437,500 shares of NCT common stock at $0.079 per share. Ms. Salkind paid
NCT $350,000 on March 1, 2002.  This note may be converted  into common stock of
NCT (at  $0.079)  and  may be  exchanged  for  shares  of  common  stock  of any
subsidiary  of NCT that  makes a public  offering  of its  common  stock (at the
public offering price thereof). Prior to a waiver agreement dated July 12, 2002,
the note had also been exchangeable for shares of Pro Tech (at $0.06).

     On March 27, 2002, we defaulted on repayment of the  $1,000,000  note dated
March 27, 2000.  On May 2, 2002,  we issued a new note for  $1,275,483 to settle
the March 27, 2000 note, default penalty and accrued interest thereon. This note
bears interest at 8% per annum and matures on November 2, 2002. This note may be
converted  into common stock of NCT (at $0.094) and may be exchanged  for shares
of common  stock of any  subsidiary  of NCT that makes a public  offering of its
common stock (at the public offering price thereof). Prior to a waiver agreement
dated July 12, 2002, the note had also been  exchangeable for shares of Pro Tech
(at $0.03). In conjunction with the issuance of this May 2, 2002 note, we issued
Carole  Salkind a five-year  warrant to acquire  3,188,708  shares of NCT common
stock at an  exercise  price of $0.094  per  share.  On  November  2,  2002,  we
defaulted on repayment of the $1,275,483 note dated May 2, 2002. On November 21,
2002, we issued a new note in the  principal  amount of $1,463,449 to settle the
May 2, 2002 note, default penalty and accrued interest thereon.  This note bears
interest at 8% per annum and matures on May 21, 2003. This note may be converted
into common stock of NCT (at $0.0535) and may be exchanged  for shares of common
stock of any  subsidiary  of NCT  (other  than  Pro  Tech)  that  makes a public
offering  of its  common  tock  (at  the  public  offering  price  thereof).  In
conjunction  with the issuance of this  November 21, 2002 note, we issued Carole
Salkind a five-year  warrant to acquire  6,271,926 shares of NCT common stock at
an exercise price of $0.0535 per share.

     Also on May 2, 2002, we issued Carole  Salkind an 8%  convertible  note for
$1,425,000 due May 2, 2003, for funds we received from her as follows:  $300,000
on April 1,  2002,  $350,000  on April  15,  2002,  $350,000  on May 1, 2002 and
$425,000 on May 2, 2002. This note dated May 2, 2002 is convertible  into shares
of NCT common  stock (at $0.094) or  exchangeable  for shares of common stock of
any NCT  subsidiary  that makes a public  offering  of its common  stock (at the
public offering price thereof). Prior to a waiver agreement dated July 12, 2002,
this note had also been  exchangeable  for  shares  of Pro Tech (at  $0.03).  In
conjunction with the issuance of this May 2, 2002 note, we issued Carole Salkind
a  five-year  warrant to  acquire  3,562,500  shares of NCT  common  stock at an
exercise price of $0.094 per share.

     On May 29,  2002,  we issued  Carole  Salkind  an 8%  convertible  note for
$350,000,  for which Ms.  Salkind paid us $350,000 in cash.  The note matures on
May 29, 2003 and is convertible  into shares of NCT common stock at $0.095.  The
note is also  exchangeable  for  shares  of common  stock of any NCT  subsidiary
(other  than Pro Tech) that makes a public  offering of its stock (at the public
offering price thereof). In connection with the issuance of this note, we issued
Carole  Salkind a five-year  warrant to acquire  1,500,000  shares of NCT common
stock at an exercise price of $0.095 per share.

     On June 2,  2002,  we issued  Carole  Salkind  an 8%  convertible  note for
$300,000,  for which Ms.  Salkind paid us $300,000 in cash.  The note matures on
June 2, 2003 and is convertible  into shares of NCT common stock at $0.097.  The
note is also  exchangeable  for  shares  of common  stock of any NCT  subsidiary
(other than Pro Tech) that makes a public  offering of its common  stock (at the
public offering price thereof). In connection with the issuance of this note, we
issued Carole  Salkind a five-year  warrant to acquire  1,500,000  shares of NCT
common stock at an exercise price of $0.097 per share.

     On July 3, 2002,  we issued Carole  Salkind a note for $350,000,  for which
Ms.  Salkind paid us $350,000 in cash.  The note bears  interest at 8% per annum
and matures on July 3, 2003. The note is  convertible  into shares of NCT common
stock at $0.078. The note is also exchangeable for shares of common stock of any
NCT subsidiary

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(other than Pro Tech) that makes a public  offering of its common  stock (at the
public offering price thereof).  In conjunction with the issuance of the July 3,
2002 note, we issued  Carole  Salkind a five-year  warrant to acquire  1,500,000
shares of NCT common stock, at an exercise price of $0.078 per share.

     On  July  12,  2002,  Carole  Salkind,  NCT and Pro  Tech  entered  into an
agreement  under which Ms.  Salkind  waived her right to exchange  NCT notes for
shares of Pro Tech common stock.  In  consideration  of the waiver,  NCT granted
Carole Salkind a five-year  warrant to acquire  20,000,000  shares of NCT common
stock at $0.075 per share.

     On July 15, 2002, we issued Carole  Salkind a note for $350,000,  for which
Ms.  Salkind paid us $350,000 in cash.  The note bears  interest at 8% per annum
and matures on July 15, 2003. The note is convertible  into shares of NCT common
stock at $0.075. The note is also exchangeable for shares of common stock of any
subsidiary  (other  than Pro Tech)  that makes a public  offering  of its common
stock (at the public offering price thereof).  In conjunction  with the issuance
of the July 15,  2002 note,  we issued  Carole  Salkind a  five-year  warrant to
acquire  1,500,000 shares of NCT common stock at an exercise price of $0.075 per
share.

     On July 23, 2002, NCT issued Ms. Salkind an 8% per annum  convertible  note
in the principal amount of $525,000 due July 23, 2003 and a five-year warrant to
acquire  2,250,00  shares of NCT common stock at $0.059 per share.  Ms.  Salkind
paid NCT $525,000 on July 23, 2002. This note may be converted into common stock
of NCT (at  $0.059)  and may be  exchanged  for  shares of  common  stock of any
subsidiary  of NCT (other  than Pro Tech) that  makes a public  offering  of its
common stock (at the public offering price thereof).

     On August 14, 2002, NCT issued Ms. Salkind an 8% per annum convertible note
in the principal amount of $350,000 due August 14, 2003 and a five-year  warrant
to acquire 1,500,000 shares of NCT common stock at $0.082 per share. Ms. Salkind
paid NCT  $350,000 on August 14, 2002.  This note may be  converted  into common
stock of NCT (at $0.082) and may be exchanged  for shares of common stock of any
subsidiary  of NCT (other  than Pro Tech) that  makes a public  offering  of its
common stock (at the public offering price thereof).

     On August 29, 2002, NCT issued Ms. Salkind an 8% per annum convertible note
in the principal amount of $490,000 due August 29, 2003 and a five-year  warrant
to acquire 2,100,000 shares of NCT common stock at $0.076 per share. Ms. Salkind
paid NCT  $490,000 on August 29, 2002.  This note may be  converted  into common
stock of NCT (at $0.076) and may be exchanged  for shares of common stock of any
subsidiary  of NCT (other  than Pro Tech) that  makes a public  offering  of its
common stock (at the public offering price thereof).

     On September 9, 2002,  NCT issued Ms.  Salkind an 8% per annum  convertible
note in the  principal  amount of $350,000 due September 9, 2003 and a five-year
warrant to acquire 1,500,000 shares of NCT common stock at $0.077 per share. Ms.
Salkind paid NCT $350,000 on September 9, 2002.  This note may be converted into
common stock of NCT (at $0.077) and may be exchanged  for shares of common stock
of any  subsidiary of NCT (other than Pro Tech) that makes a public  offering of
its common stock (at the public offering price thereof).

     On September  30, 2002,  Carole  Salkind,  NCT and Pro Tech entered into an
agreement under which Ms. Salkind waived her right to acquire  $500,000 worth of
Pro Tech common stock at an amended exercise price of $0.06 per share (8,333,333
Pro  Tech  common   shares)  under  a  warrant  dated   February  13,  2001.  In
consideration for the waiver,  NCT granted Carole Salkind a five-year warrant to
acquire 10,000,000 shares of NCT common stock at $0.070 per share.

     On November 7, 2002,  we issued  Carole  Salkind a note for  $400,000,  for
which Ms.  Salkind paid us $400,000 in cash.  The note bears  interest at 8% per
annum and matures on November 7, 2003.  The note is  convertible  into shares of
NCT common stock at $0.072.  The note is also  exchangeable for shares of common
stock of any  subsidiary  (other than Pro Tech) that makes a public  offering of
its common stock (at the public offering price thereof). In conjunction with the
issuance of the  November  7, 2002 note,  we issued  Carole  Salkind a five-year
warrant to acquire  1,750,000 shares of NCT common stock at an exercise price of
$0.072 per share.

     On November 20, 2002,  NCT issued Ms.  Salkind an 8% per annum  convertible
note in the  principal  amount of $400,000 due November 20, 2003 and a five-year
warrant to acquire 1,750,000 shares of NCT common stock at $0.054 per share. Ms.
Salkind paid NCT $400,000 in cash on or about  November 20, 2002.  This note may
be  converted  into common  stock of NCT (at $0.054)  and may be  exchanged  for
shares of common stock of any subsidiary of NCT (other than Pro Tech) that makes
a public offering of its common stock (at the public offering price thereof).

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<PAGE>

     On December  2, 2002,  NCT issued Ms.  Salkind an 8% per annum  convertible
note in the  principal  amount of  $350,000.  Ms.  Salkind paid NCT cash for the
note.  The note  matures on  December 2, 2003 and may be  converted  into common
stock of NCT (at $0.048) and may be exchanged  for shares of common stock of any
subsidiary  of NCT (except Pro Tech) that makes a public  offering of its common
stock (at the public offering price thereof).  In conjunction  with the issuance
of the note,  we issued Ms.  Salkind a  five-year  warrant to acquire  1,500,000
shares of NCT common stock at an exercise price per share of $0.048.

     On December 16, 2002,  NCT issued Ms.  Salkind an 8% per annum  convertible
note in the  principal  amount of  $400,000.  Ms.  Salkind paid NCT cash for the
note.  The note matures on December  16, 2003 and may be  converted  into common
stock of NCT (at $0.042) and may be exchanged  for shares of common stock of any
subsidiary  of NCT (except Pro Tech) that makes a public  offering of its common
stock (at the public offering price thereof).  In conjunction  with the issuance
of the note,  we issued Ms.  Salkind a  five-year  warrant to acquire  1,750,000
shares of NCT common stock at an exercise price per share of $0.042.

     On December 30, 2002,  NCT issued Ms.  Salkind an 8% per annum  convertible
note in the  principal  amount of  $350,000.  Ms.  Salkind paid NCT cash for the
note.  The note matures on December  30, 2003 and may be  converted  into common
stock of NCT (at $0.0412) and may be exchanged for shares of common stock of any
subsidiary  of NCT (except Pro Tech) that makes a public  offering of its common
stock (at the public offering price thereof).  In conjunction  with the issuance
of the note,  we issued Ms.  Salkind a  five-year  warrant to acquire  1,500,000
shares of NCT common stock at an exercise price per share of $0.0412.

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<PAGE>


     Summarized  below are the  convertible  notes issued to Carole Salkind that
are outstanding as of December 31, 2002:

                                                                Conversion
      Issue Date          Due Date           Principal            Price
  -----------------    --------------     ---------------    ---------------
      01/11/02           01/11/03            2,231,265            0.0790
      01/25/02           01/25/03              650,000            0.0900
      02/27/02           02/27/03              827,412            0.0790
      03/01/02           03/01/03              350,000            0.0790
      05/02/02           05/02/03            1,425,000            0.0940
      05/29/02           05/29/03              350,000            0.0950
      06/02/02           06/02/03              300,000            0.0970
      07/03/02           07/03/03              350,000            0.0780
      07/15/02           07/15/03              350,000            0.0750
      07/23/02           07/23/03              525,000            0.0590
      08/14/02           08/14/03              350,000            0.0820
      08/29/02           08/29/03              490,000            0.0760
      09/09/02           09/09/03              350,000            0.0770
      09/30/02           09/30/03            3,770,098            0.0700
      11/07/02           11/07/03              400,000            0.0720
      11/20/02           11/20/03              400,000            0.0540
      11/21/02           05/21/03            1,463,449            0.0535
      12/02/02           12/02/03              350,000            0.0480
      12/16/02           12/16/03              400,000            0.0420
      12/26/02           12/26/03            2,381,487            0.0420
      12/30/02           12/30/03              350,000            0.0412
                                          ---------------
                                           $18,063,711
                                          ===============

     In conjunction with the issuance of convertible  notes to Ms. Salkind,  NCT
granted Ms.  Salkind  warrants to acquire  shares of NCT common stock.  As noted
above, we amended the exercise  prices on each of the warrants  granted prior to
December  20,  2001 to $0.071.  Further,  we granted  Ms.  Salkind  warrants  in
consideration  of her irrevocable  waiver of her rights to exchange  convertible
notes for,  or exercise a warrant  for,  shares of Pro Tech  common  stock.  The
warrants to purchase  shares of NCT common  stock  granted to Ms.  Salkind as of
December 31, 2002 are as follows:

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<PAGE>

                                                                       Shares
    Grant Date           Expiration Date        Exercise Price        Granted
------------------     ------------------     -----------------   --------------
     02/13/01               02/13/06              $ 0.0710          7,042,254
     05/14/01               05/14/06                0.0710            500,000
     08/22/01               08/22/06                0.0710            625,000
     09/28/01               09/28/06                0.0710          1,000,000
     12/20/01               12/20/06                0.0710          1,250,000
     01/11/02               01/11/07                0.0790          2,789,082
     01/25/02               01/25/07                0.0900            812,500
     01/25/02               01/25/07                0.0900            312,500
     02/27/02               02/27/07                0.0790          1,034,266
     03/01/02               03/01/07                0.0790            437,500
     05/02/02               05/02/07                0.0940          3,188,708
     05/02/02               05/02/07                0.0940          3,562,500
     05/29/02               05/29/07                0.0950          1,500,000
     06/02/02               06/02/07                0.0970          1,500,000
     07/03/02               07/03/07                0.0780          1,500,000
     07/12/02               07/12/07                0.0750         20,000,000
     07/15/02               07/15/07                0.0750          1,500,000
     07/23/02               07/23/07                0.0590          2,250,000
     08/14/02               08/14/07                0.0820          1,500,000
     08/29/02               08/29/07                0.0760          2,100,000
     09/09/02               09/09/07                0.0770          1,500,000
     09/30/02               09/30/07                0.0700         10,000,000
     09/30/02               09/30/07                0.0700         16,157,565
     11/07/02               11/07/07                0.0720          1,750,000
     11/20/02               11/20/07                0.0540          1,750,000
     11/21/02               11/21/07                0.0535          6,271,926
     12/02/02               12/02/07                0.0480          1,500,000
     12/16/02               12/16/07                0.0420          1,750,000
     12/26/02               12/26/07                0.0420         10,206,373
     12/30/02               12/30/07                0.0412          1,500,000
                                                                  --------------
                                                                  106,790,174
                                                                  ==============

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<PAGE>


Options Granted to Acme Associates, Inc.

     On September  30, 2002,  NCT granted to Acme  Associates,  Inc. a five-year
option to purchase 50,000,000 shares of NCT common stock at an exercise price of
$0.07 per share (an  aggregate  exercise  price of $3.5  million).  The  options
vested on the date of grant.  The  options  were  granted  in  consideration  of
consulting services provided by Acme Associates to NCT. Such consulting services
are performed by Morton Salkind,  husband of Carole Salkind, acting on behalf of
Acme  Associates.  Mr.  Salkind  provides  such  consulting  services and advice
pertaining  to NCT's  business  affairs as NCT may from time to time  reasonably
request, including assisting NCT in corporate development, evaluating merger and
acquisition  opportunities,  refining  business  plans,  evaluation of marketing
plans, strategy planning, and recruiting.  Specifically, Morton Salkind provides
us on-going consulting services and advice such as: 1) advising on the strategic
direction of the company;  2) discussing product  development issues; 3) serving
as a marketing  liaison and facilitator;  and 4)

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<PAGE>


assisting  with  various  contract  negotiations.  Carole  Salkind  is the  sole
shareholder of Acme Associates.

Options Granted to Leben Care, Inc.

     On January 25, 2002,  NCT granted to Leben Care,  Inc.  options to purchase
8,350,000  shares of NCT common stock at exercise  prices ranging from $0.079 to
$0.130 (an aggregate exercise price of $809,000). The options vested on the date
of grant.  The options expire on dates ranging from May 22, 2006 and January 24,
2007. The options were granted in consideration of consulting  services provided
by Leben Care to NCT. Such consulting  services are performed by Morton Salkind,
husband  of Carole  Salkind,  acting on behalf  of Leben  Care.  Morton  Salkind
provides  such  consulting  services  and advice  pertaining  to NCT's  business
affairs as NCT may from time to time reasonably request, including assisting NCT
in  corporate  development,  evaluating  merger and  acquisition  opportunities,
refining business plans,  evaluation of marketing plans, strategy planning,  and
recruiting.   Specifically,  Morton  Salkind  provides  us  on-going  consulting
services  and advice  such as: 1)  advising on the  strategic  direction  of the
company;  2) discussing  product  development  issues; 3) serving as a marketing
liaison and facilitator;  and 4) assisting with various  contract  negotiations.
Carole Salkind's son Steven Salkind is the sole shareholder of Leben Care.

Options Granted to Stop Noise, Inc.

     On February 27, 2002, NCT granted to Stop Noise,  Inc.  (formerly  known as
Stopnoise.com,  Inc.)  five-year  options to  purchase  3,375,000  shares of NCT
common  stock at exercise  prices  ranging  from $0.079 to $0.120 (an  aggregate
exercise  price of $312,500).  The options  vested on June 30, 2002. The options
expire on dates  ranging from June 30, 2006 to February  26,  2007.  The options
were granted in consideration of consulting  services  provided by Stop Noise to
NCT. Such consulting services are performed by Morton Salkind, husband of Carole
Salkind, acting on behalf of Stop Noise. Morton Salkind provides such consulting
services and advice pertaining to NCT's business affairs as NCT may from time to
time  reasonably  request,  including  assisting  NCT in corporate  development,
evaluating  merger  and  acquisition  opportunities,  refining  business  plans,
evaluation of marketing plans, strategy planning, and recruiting.  Specifically,
the consultant  provides us on-going  consulting services and advice such as: 1)
advising on the  strategic  direction  of the  company;  2)  discussing  product
development  issues; 3) serving as a marketing  liaison and facilitator;  and 4)
assisting  with  various  contract  negotiations.  Carole  Salkind's  son Steven
Salkind is the sole shareholder of Stop Noise.

Options Granted to Motorworld, Incorporated

     On December 26, 2002, NCT granted to  Motorworld,  Incorporated a five-year
option to purchase 23,000,000 shares of NCT common stock at an exercise price of
$0.042 per share (an aggregate  exercise price of $966,000).  The options vested
on the date of grant.  The options were granted in  consideration  of consulting
services  provided by Motorworld to NCT. Such consulting  services are preformed
by Morton Salkind,  husband of Carole  Salkind,  acting on behalf of Motorworld.
Mr. Salkind  provides such  consulting  services and advice  pertaining to NCT's
business  affairs  as NCT may from time to time  reasonably  request,  including
assisting  NCT in  corporate  development,  evaluating  merger  and  acquisition
opportunities,  refining business plans, evaluation of marketing plans, strategy
planning,  and  recruiting.  Specifically,  Morton Salkind  provides us on-going
consulting  services and advice such as: 1) advising on the strategic  direction
of the  company;  2)  discussing  product  development  issues;  3) serving as a
marketing  liaison and  facilitator;  and 4)  assisting  with  various  contract
negotiations. Carole Salkind is the sole shareholder of Motorworld.

Spyder Technologies Group, LLC

     On October 24, 2002, Artera Group,  Inc. entered into a master  distributor
agreement with Spyder Technologies Group, LLC under which Spyder will distribute
the Artera Turbo service in Puerto Rico, the U.S. Virgin Islands and a number of
countries in the Caribbean  region.  The term of the agreement is five years and
four months.  Compensation  to Spyder  consists of a commission  of 50% of gross
revenue on sales  originated by local  distributors  brought to Artera by Spyder
out of which those local  distributors are paid 30% to 40% of gross revenue as a
commission  from Spyder.  The rate of  compensation  for Spyder is comparable to
that received by similarly situated,  unrelated master  distributors.  With some
exceptions in Puerto Rico and the U.S.  Virgin  Islands,  Spyder's  distribution
rights are exclusive,  although Artera may terminate the  exclusivity  after the
first 16 months of the term if  specified  revenue  thresholds  are not met.  In
addition,  Artera  and  Spyder  are  negotiating  a  non-exclusive  distribution
agreement for the United States and Canada.  Jonathan Parrella, the son of NCT's
Chairman and Chief Executive Officer,  is President of and holds a 45% ownership
interest in Spyder. Bulldog Communications,  Inc. holds a 25% ownership interest
in  Spyder.  Bulldog  Communications,  Inc.  is  owned  20% by each  of  Michael
Parrella,  Karen Parrella,  Michael Parrella,  Jr., Jonathan Parrella and Daniel
Parrella (the Chairman and Chief  Executive  Officer of NCT, and,  respectively,
his wife and three  sons).  Michael  Parrella is also the Chairman of the Board,
and Karen Parrella is the President, of Bulldog Communications.

Indebtedness of Management

     On various dates in 2000, 2001 and 2002,  Jonathan M. Charry,  Ph.D., NCT's
Senior Vice President,  Corporate  Development,  entered into several short-term
promissory  notes to borrow funds from NCT in anticipation of cash overrides due
him  under  his   incentive   compensation   arrangement   described   above  in
"Compensation  Arrangements with Certain Officers and Directors."  Effective May
1, 2002,  the  borrowed  funds had not been  repaid but were  consolidated  with
interest  into an  outstanding  promissory  note  due  January  15,  2003 for an
aggregate  principal  amount owed to NCT of $107,960.  The due date of this note
represents  an  extension  from May 1, 2002 which  itself was a product of prior
extensions.  This note went into default on January 15, 2003.  NCT is seeking to
collect  on  the  May  1,  2002  note.  However,  NCT  believes  that  incentive
compensation  that is or will be due Dr.

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<PAGE>


Charry may offset the amount owed NCT. The note bears interest at an annual rate
of 6.0%  through its due date of January 15,  2003,  and at and at prime plus 5%
thereafter.

Management Guarantee of Indebtedness

     Michael  Parrella,  NCT's  Chairman  of the  Board of  Directors  and Chief
Executive  Officer,  personally  guaranteed  the repayment of a $400,000  bridge
financing note issued by NCT to Alpha Capital Aktiengesellschaft on December 27,
2001. The guarantee was extinguished in conjunction with new financing completed
on January 10, 2002 ($550,000 convertible note issued to Alpha Capital).

Crammer Road LLC, former owner of DMC New York, Inc.

     In June 2002,  we completed our  acquisition  of 12,000 shares (75%) of DMC
New York,  Inc.  from  Crammer  Road LLC,  a Cayman  Islands  limited  liability
company.  This was pursuant to a June 21, 2002 exchange  agreement  with Crammer
Road to acquire the  remaining  12,000  shares of DMC NY in  exchange  for 1,800
shares  of our  series H  convertible  preferred  stock  and  $120,000  in cash.
Pursuant  to an  April  12,  2001  exchange  agreement  and an  April  12,  2001
securities  purchase  agreement,  NCT acquired a 25% interest in DMC NY for $4.0
million from Crammer Road,  then the sole  stockholder of DMC NY. DMC NY was the
owner of 16 licenses previously purchased from our subsidiary, Distributed Media
Corporation. The acquisitions resulted in charges to our consolidated statements
of  operations  because  DMC NY has  not  commenced  operations.  DMC NY has not
recorded any revenue,  and apart from its New York license rights,  has no other
assets or operations.  Our 2001 financial  statements include an aggregate $18.0
million  charge,  classified  as  "write  downs of  investment  and  repurchased
licenses" in our  consolidated  statement of operations,  for the acquisition of
4,000 shares of DMC NY and our obligation to acquire the remaining 12,000 shares
of DMC NY. Our 2002 financial  statements  include an additional  charge of $9.2
million  for this  aquisition  classified  as  "write  downs of  investment  and
repurchased  licenses"  in  our  consolidated   statement  of  operations.   The
consideration  paid in 2001  consisted  of a $1.0 million  convertible  note due
December  31,  2001  issued to Crammer  Road LLC  (accruing  interest  at 2% per
month),  $1.0 million in cash and $2.0  million of our common stock  (13,333,333
million  shares).  Because we intended to acquire the  remaining 75% interest in
DMC NY  pursuant to an April 12,  2001  private  equity  credit  agreement  with
Crammer Road, we accrued $14.0  million in 2001,  our cost of  repurchasing  the
remaining  12,000 shares of DMC NY under that private  equity credit  agreement.
However,  as a result of our completion of the purchase of the remaining  12,000
shares of DMC NY pursuant to the June 2002 exchange  agreement,  our acquisition
of all 16,000  shares of DMC NY (100% of DMC NY,  representing  16 New York area
DMC licenses  which we had sold for $13.6  million in 1999) totaled an aggregate
of  approximately  $27.2  million ($1 million  cash,  shares of our common stock
valued at $2  million,  a $1 million  note,  $18 value of our series H preferred
stock and approximately $5.2 million representing the additional value resulting
from the  conversion  rate of 75% of the fair market value,  as defined,  of NCT
common  stock into  which the  series H  preferred  stock is  convertible).  The
purchase  price was arrived at in various  negotiations  between NCT and Crammer
Road.  We believe this was a reasonable  value because it results in our control
of the number one designated  market area. We did not obtain a valuation from an
outside firm.

     Crammer Road obtained the 16 DMC licenses  from other  investors in private
transactions. In 2000, five investors in our series E and F preferred stock (see
below)  contributed  their 16 New York area DMC  licenses  to Crammer  Road in a
private  transaction,  in exchange for membership interests in Crammer Road. The
investors  holding the licenses  advised NCT and DMC of plans to contribute  the
licenses to Crammer Road. NCT and DMC did not object to those contributions. The
investors who initially owned the 16 DMC licenses had paid for them in 1999 with
$4 million in cash and by  surrendering  to NCT $9.6  million in stated value of
NCT series E and F preferred  stock (9,600  shares at the stated value of $1,000
per share).  The holders of our series E and F preferred stock were the original
purchasers of the DMC licenses. These investors were not under common control at
the time of the 1999  transaction.  We  issued  12,454  shares  of our  series E
preferred stock from December 30, 1998 through April 13, 1999 for  approximately
$4.0  million  in cash,  1,700  shares of our series C  preferred  stock and 2.1
million  shares of our common stock.  On August 10, 1999, we issued 8,500 shares
of our series F  preferred  stock for  approximately  $1.0  million in cash.  On
September 10, 1999, these preferred stock investors  entered into a subscription
agreement  to acquire  four DMC  licenses  for $4  million.  Due to the  extreme
discount of the preferred stock stated value to the consideration  received, NCT
treated the $4 million cash  attributed  to the four DMC licenses as  additional
consideration  for our series F  preferred  stock as the  series F  subscription
agreement  provided that the investors may invest up to $4.0 million at a future
date and there was a proximity in time  between the two  distinct  transactions,
August 10, 1999 for the series F preferred  stock  placement  and  September 10,
1999 for the $4.0 million DMC license subscription. The purchasers of our series
E and F  preferred  stock  (except one  investor)  were the same  investors  who
contributed  the 16  licenses  to Crammer  Road.  The  capital  contribution  of
licenses to Crammer  Road was for  purposes  of  administrative  convenience  to
provide for such  contributors'  undertakings in respect of their

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<PAGE>

investment in Crammer Road. In turn, Crammer Road's purpose for contributing the
16 licenses to DMC NY was to provide it a perceived form of liquidity,  possibly
through an initial  public  offering  or through  the  acquisition  of DMC NY by
Distributed Media  Corporation or NCT. Due to a lack of capital,  DMC was unable
to execute  its  business  plan to  provide,  install  and  operate  our digital
broadcast  system at locations in the New York area.  As such,  Crammer Road did
not  perceive  that it had an  opportunity  to exploit the  licenses in a viable
business venture.  On September 27, 2000, DMC NY, pursuant to a license exchange
agreement,  issued 16,000 shares of its common stock in exchange for 16 licenses
held by Crammer Road. Certain officers and directors of NCT comprise 100% of the
Board of  Directors  of DMC New  York,  specifically,  Michael  Parrella  (NCT's
Chairman of the Board of Directors and Chief Executive Officer),  Irene Lebovics
(NCT's  President  and a director  of NCT) and Cy  Hammond  (NCT's  Senior  Vice
President, Chief Financial Officer).

     The entities that contributed  licenses to Crammer Road and the controlling
persons thereof were as follows:  Sovereign  Partners,  LP - Mr. Stephen Hicks /
Mr.  Daniel  Pickett;  Dominion  Capital Fund,  Ltd. - Mr. David Sims;  Canadian
Advantage Limited Partnership - Mr. Mark Valentine;  Atlantis Capital Fund, Ltd.
- Mr. David Sims. Mr. David Sims of Navigator  Management Limited has voting and
dispositive  control of NCT shares on behalf of Crammer Road LLC. Further,  each
of the following  entities are investors in Crammer Road LLC and were previously
investors in NCT:  Advantage  Bermuda Fund,  Ltd.;  Atlantis Capital Fund, Ltd.;
Canadian  Advantage  Limited  Partnership;  Dominion  Capital  Fund,  Ltd.;  and
Sovereign Partners,  LP. In addition, an affiliate of the prior investors in NCT
has advisory roles with respect to two of the investors in Crammer Road LLC: VMH
Management  Ltd. (an affiliate of Thomson  Kernaghan & Co., Ltd.) is the advisor
to Advantage  Bermuda  Fund,  Ltd. and Canadian  Advantage  Limited  Partnership
(these latter two funds have merged into Canadian Advantage Limited  Partnership
II).  Southridge  Capital  Management is a subadvisor to Dominion  Capital Fund,
Ltd.  and serves as a consultant  to Atlantis  Capital  Fund,  Ltd. and Canadian
Advantage Limited Partnership II.

     As noted above,  under the April 12, 2001 private  equity credit  agreement
with Crammer Road, we intended to put shares of our common stock to Crammer Road
in exchange for a combination of cash and the remaining  shares of DMC NY common
stock  but  upon  further  negotiations,  reacquired  those  12,000  shares,  in
connection  with the 2002  exchange  agreement,  in  exchange  for our  series H
preferred  stock.  The June 2002 exchange  agreement did not supersede the April
2001 private equity credit agreement although these agreements  contemplated the
same transaction.  On July 25, 2002, we entered into a new private equity credit
agreement  with Crammer Road that provides that shares of up to $50 million (the
maximum  commitment  amount)  of our common  stock may be sold to  Crammer  Road
pursuant to put notices  delivered by the company to Crammer Road. The July 2002
credit agreement  requires us to put at least $5 million (the minimum commitment
amount) of our common  stock,  in exchange for cash,  at a discount to market of
10%.  Upon our puts of shares of our common stock under this equity credit line,
the existing holders of our common stock will suffer immediate dilution of their
shares. In conjunction with the execution of the July 2002 credit agreement,  we
issued a five-year  warrant to Crammer Road for  1,000,000  shares of our common
stock exercisable at $0.07375 per share. We are obligated to register for resale
shares of our common stock for the warrant and the July 2002 credit agreement in
an amount no less than 112% of the maximum  commitment amount.  Moreover,  if we
fail to issue shares for the minimum  commitment  amount  during the  commitment
period (which terminates 24 months after  effectiveness of a resale registration
statement  relating to the shares or earlier as described in the agreement),  we
must  pay  Crammer  Road an  amount  equal  to the  product  of (i) the  minimum
commitment  amount,  less the  aggregate  shares of our  common  stock  actually
delivered  to  Crammer  Road  under  the  equity  credit  line  and (ii) the 10%
discount. This penalty provision was as negotiated and agreed to by the parties.
Crammer  Road did not  release  NCT from its  obligations  under the April  2001
private  equity credit  agreement and disagreed with NCT about what was required
under a penalty  provision  in the April  2001  agreement.  In  September  2002,
Crammer  Road  brought  an  action  against  NCT as  described  above in  "Legal
Proceedings."  On October 30, 2002, a settlement  agreement  was executed by the
parties  that  would  dismiss  all  claims  in  the  suit  by  Crammer  Road  in
consideration of the issuance by NCT to Crammer Road of 68 million shares of NCT
common  stock.  On December  11,  2002,  court  approval of the  settlement  was
obtained.  On December  17,  2002,  we issued  Crammer Road 40 million of the 68
million  shares.  The other 28 million shares are issuable on 65 days' demand by
Crammer Road, which demand has not yet been made.

Vidikron of America, Inc.

     On  September  29,  2000,  NCT and  Distributed  Media  Corporation  signed
separate  agreements  to  license  various  microbroadcasting   technologies  to
Vidikron  of  America,  Inc.  for an  aggregate  of $2  million.  Vidikron  is a
manufacturer  of high-end home theater  equipment.  Vidikron's  intention was to
develop  commercial video applications using the technology it licensed from NCT
and DMC. We recognized an aggregate of $2 million in technology  license revenue
in fiscal 2000 attributable to Vidikron. We used $1 million of the proceeds from
Vidikron  for working  capital and general  corporate  purposes and the other $1
million to acquire 1,000 shares of

                                       66
<PAGE>


common  stock of DMC NY in 2001.  Such  shares of DMC NY were  owned by  Crammer
Road.  Crammer Road's sole corporate  director is Navigator  Management Ltd. The
sole  director  of  Navigator  Management  is David  Sims.  Vidikron's  majority
shareholder  is  Markland  LLC.  Markland's  sole  corporate  director  is  also
Navigator Management Ltd.

ITEM 14. CONTROLS AND PROCEDURES

     Within 90 days of the filing of this Form 10-K,  NCT's  Chairman  and Chief
Executive Officer and NCT's Chief Financial Officer carried out an evaluation of
NCT's disclosure  controls and procedures (as defined in Rules 13a-14 and 15d-14
under the  Securities  Exchange Act of 1934).  Based upon that  evaluation,  the
Chairman and Chief Executive  Officer and Chief Financial Officer concluded that
our  disclosure  controls and  procedures  are  effective  in ensuring  that all
material  information  required to be filed in this annual  report has been made
known to them in a timely  fashion.  There have been no  significant  changes in
internal  controls  or in  factors  that  could  significantly  affect  internal
controls,  subsequent to the date the Chairman and Chief  Executive  Officer and
the Chief Financial Officer completed their evaluation.

                                     PART IV

ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

Item 15(a)(1) Financial Statements.

The following  financial  statements  are filed as part of this Annual Report on
Form 10-K:

Independent Auditors' Reports

Consolidated Balance Sheets as of December 31, 2001 and December 31, 2002

Consolidated   Statements  of   Operations   and   Consolidated   Statements  of
Comprehensive Loss for the years ended December 31, 2000, 2001 and 2002

Consolidated  Statements of Stockholders' Equity (Capital Deficit) for the years
ended December 31, 2000, 2001 and 2002

Consolidated  Statements  of Cash Flows for the years ended  December  31, 2000,
2001 and 2002

Notes to the Consolidated Financial Statements

Item 15(a)(2) Financial Statement Schedules.

Reports of Independent Auditors with Respect to Schedule II

Schedule II.  Valuation and Qualifying Accounts

Other financial statement schedules are omitted because the conditions requiring
their filing do not exist or the information required thereby is included in the
consolidated financial statements filed or notes thereto.

Item 15(a)(3) Exhibits.

The exhibits listed on the  accompanying  Index to Exhibits are filed as part of
this Annual Report on Form 10-K.

Item 15(b) Reports on Form 8-K.

No reports were filed on Form 8-K during the last quarter of 2002.


                                       67
<PAGE>


                                   SIGNATURES

         Pursuant to the requirement 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, on April 4, 2003.

                                   NCT Group, Inc.
                                   (Registrant)

                                   By: /s/ Michael J. Parrella
                                       ---------------------------------------
                                           Michael J. Parrella
                                           Chief Executive Officer and
                                           Chairman of the Board of Directors
                                           (Principal Executive Officer)


                                   By: /s/ Cy E. Hammond
                                       ---------------------------------------
                                           Cy E. Hammond
                                           Senior Vice President and
                                           Chief Financial Officer
                                           (Principal Financial Officer)


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

       Signature                      Capacity                          Date
--------------------------------------------------------------------------------

 /s/  Michael J. Parrella
 ----------------------------    Chi.ef Executive Officer and
      Michael J. Parrella     Chairman of the Board of Directors   April 4, 2003



 /s/  Irene Lebovics
 ----------------------------    President and Director            April 4, 2003
      Irene Lebovics


 /s/  John J. McCloy II
 ----------------------------          Director                    April 4, 2003
      John J. McCloy II


 /s/  Samuel A. Oolie
 ----------------------------          Director                    April 4, 2003
      Samuel A. Oolie




                                       68
<PAGE>


                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
            Pursuant to section 302 of the Sarbanes-Oxley Act of 2002

     I, Michael J. Parrella, certify that:

1.   I have reviewed this annual report on Form 10-K of NCT Group, Inc.;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;
     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and
     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and
     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:  April 4, 2003
                                              /s/ MICHAEL J. PARRELLA
                                              ----------------------------------
                                              Michael J. Parrella
                                              Chief Executive Officer and
                                              Chairman of the Board of Directors



                                       69
<PAGE>


                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
            Pursuant to section 302 of the Sarbanes-Oxley Act of 2002

     I, Cy E. Hammond, certify that:

1.   I have reviewed this annual report on Form 10-K of NCT Group, Inc.;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;
     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and
     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:  April 4, 2003
                                                         /s/ CY E. HAMMOND
                                                         ----------------------
                                                         Cy E. Hammond
                                                         Senior Vice President,
                                                         Chief Financial Officer




                                       70
<PAGE>


                        NCT GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED FINANCIAL STATEMENT INDEX
<TABLE>
<CAPTION>

                                                                                        Page
                                                                                       ------

<S>                                                                                        <C>
Independent Auditors' Report (Eisner LLP)                                                F-1

Independent Auditor's Report (Goldstein Golub Kessler LLP)                               F-2

Consolidated Balance Sheets as of December 31, 2001 and 2002                             F-3

Consolidated   Statements  of   Operations   and   Consolidated   Statements  of         F-4
Comprehensive Loss for the years ended December 31, 2000, 2001 and 2002

Consolidated  Statements of Stockholders' Equity (Capital Deficit) for the years         F-5
ended December 31, 2000, 2001 and 2002

Consolidated  Statements  of Cash Flows for the years ended  December  31, 2000,         F-6
2001 and 2002

Notes to the Consolidated Financial Statements                                           F-7

Independent Auditors' Report on Schedule II (Eisner LLP)                                 F-66

Independent Auditor's Report on Schedule II (Goldstein Golub Kessler LLP)                F-67

Schedule II                                                                              F-68

</TABLE>


                                       71
<PAGE>



INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders of
NCT Group, Inc.


We have audited the accompanying  consolidated  balance sheet of NCT Group, Inc.
and  subsidiaries  (the  "Company")  as of December  31,  2002,  and the related
consolidated statements of operations,  comprehensive loss, stockholders' equity
and cash flows for each of the years ended  December  31,  2002 and 2001.  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 audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the financial statements enumerated above present fairly, in all
material  respects,  the consolidated  financial position of NCT Group, Inc. and
subsidiaries  as of  December  31,  2002 and the  consolidated  results of their
operations  and  their  consolidated  cash  flows  for each of the  years  ended
December 31, 2002 and 2001 in conformity  with accounting  principles  generally
accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial  statements,  the Company's cash flows have been absorbed in operating
activities and it has incurred net losses from inception,  has a working capital
deficiency and is in default on certain convertible notes payable. These factors
raise  substantial  doubt  about its  ability to  continue  as a going  concern.
Management's  plans in regard to these matters are also described in Note 1. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

As  discussed  in Note 3 to the  consolidated  financial  statements,  effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets."



/s/ EISNER LLP
--------------
    Eisner LLP



New York, New York
February 20, 2003


Except with respect to Note 26, March 13, 2003.


                                      F-1
<PAGE>



                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
NCT Group, Inc. and Subsidiaries

We have audited the accompanying  consolidated  balance sheet of NCT Group, Inc.
and Subsidiaries (the "Company") as of December 31, 2000 (not presented herein),
and the related  consolidated  statements  of  operations,  comprehensive  loss,
stockholders'  equity and cash flows for the year 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 audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  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 NCT Group, Inc. and
Subsidiaries  as of December  31, 2000 and the results of their  operations  and
their  cash  flows  for the  year  then  ended  in  conformity  with  accounting
principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations,
has a working  capital  deficiency,  and continues to be dependent on public and
private  financing  to  support  its  business  efforts.   These  factors  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plan in regard to these  matters is also  described in Note 1. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.


/s/ GOLDSTEIN GOLUB KESSLER LLP
-------------------------------
    GOLDSTEIN GOLUB KESSLER LLP


New York, New York
April 9, 2001

                                      F-2
<PAGE>


<TABLE>
<CAPTION>


NCT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Notes 3 and 10)
                                                                                          (in thousands, except share data)

                                                                                           December 31,        December 31,
                                                                                               2001                2002
                                                                                           ------------        ------------
<S>                                                                                                 <C>                 <C>

ASSETS
Current assets:
  Cash and cash equivalents                                                                $        567        $        806
  Investment in available-for-sale marketable securities (Note 5)                                   882                 102
  Accounts receivable, net (Note 6)                                                                 716                 245
  Inventories, net  (Note 7)                                                                      1,385                 622
  Other current assets (Note 9)                                                                     773                 358
                                                                                           ------------        ------------
     Total current assets                                                                         4,323               2,133

Property and equipment, net (Note 8)                                                              1,844                 954
Goodwill, net (Notes 2 and 3)                                                                     7,184               7,184
Patent rights and other intangibles, net (Note 3)                                                 4,088               1,519
Other assets (Note 9)                                                                             2,570               1,779
                                                                                           ------------        ------------
                                                                                           $     20,009        $     13,569
                                                                                           ============        ============

LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
     Accounts payable                                                                      $      5,553        $      4,648
     Accrued expenses (Note 12)                                                                  12,093              16,916
     Notes payable (Note 10)                                                                      3,208               3,540
     Current maturities of convertible notes (Note 10)                                           11,710              18,460
     Deferred revenue (Note 11)                                                                   4,616               2,877
     Other current liabilities (Note 13)                                                         19,779               7,101
                                                                                           ------------        ------------
             Total current liabilities                                                           56,959              53,542
                                                                                           ------------        ------------

Long-term liabilities:
     Deferred revenue (Note 11)                                                                   4,815               2,675
     Convertible notes  (Note 10)                                                                     -                 779
     Other liabilities (Note 13)                                                                  2,950               1,557
                                                                                           ------------        ------------
             Total liabilities                                                                    7,765               5,011
                                                                                           ------------        ------------
Commitments and contingencies (Note 21)

Minority interest in consolidated subsidiaries                                                    8,748               8,689
                                                                                           ------------        ------------
Capital deficit (Note 14):
Preferred stock, $.10 par value, 10,000,000 shares authorized:
    Convertible series H preferred stock, issued and outstanding, 0 and 1,800
     share, respectively (redemption amount $0 and $18,376,767, respectively)                          -              18,377
Common stock, $.01 par value, authorized 645,000,000 shares
     issued 428,830,800 and 483,474,345 shares, respectively                                      4,288               4,835
Additional paid-in capital                                                                      164,621             180,899
Accumulated other comprehensive income (loss)                                                        50                (516)
Accumulated deficit                                                                            (219,459)           (259,564)
Shares payable, 0 and 29,248,170 shares, respectively                                                  -               2,296
Treasury stock, 6,078,065 and 0 shares, respectively,
     of common stock, at cost                                                                    (2,963)                  -
                                                                                           ------------        ------------
             Total capital deficit                                                              (53,463)            (53,673)
                                                                                           ------------        ------------
                                                                                           $     20,009        $     13,569
                                                                                           ============        ============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>

                                      F-3
<PAGE>

<TABLE>
<CAPTION>


NCT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Note 3)

                                                                                        (In thousands, except per share amounts)
                                                                                             For the Years Ended December 31,
                                                                                       -------------------------------------------
                                                                                          2000           2001             2002
REVENUE:                                                                               -----------    -----------      -----------

<S>                                                                                    <C>            <C>              <C>
   Technology licensing fees and royalties                                             $   9,928      $   5,633        $   4,493
   Product sales, net                                                                      2,001          4,568            2,697
   Advertising/media                                                                         828            279              105
   Engineering and development services                                                       83            132               24
                                                                                       -----------    -----------      -----------
          Total revenue                                                                   12,840         10,612            7,319
                                                                                       -----------    -----------      -----------
COSTS, EXPENSES AND OTHER INCOME:
   Cost of product sales                                                                   2,127          3,340            1,279
   Cost of advertising/media                                                                 814            332               15
   Cost of engineering and development services                                               55              2                8
   Selling, general and administrative                                                    11,383         18,734           14,773
   Research and development                                                                4,412          5,966            4,711
   Provision for doubtful accounts                                                            25            249               77
   Impairment of goodwill, net (Notes 3 and 14)                                            3,073         14,114              300
   Impairment of other intangibles (Note 3)                                                    -              -            2,116
   Write downs of investment and repurchased licenses, net (Notes 2, 9 and 11)                 -         20,778            9,199
   Costs of exiting activities (Note 25)                                                       -          1,886              145
   Other operating income, net (Note 16)                                                    (412)          (937)            (321)
                                                                                       -----------    -----------      -----------
          Total operating costs, expenses and other income                                21,477         64,464           32,302
Non-operating items:
   Other (income) expense, net (Note 16)                                                    (162)        16,099            7,411
   Interest expense                                                                        1,880          6,170            7,725
   Interest income                                                                           (31)           (43)             (14)
                                                                                       -----------    -----------      -----------
          Total costs and expenses                                                        23,164         86,690           47,424
                                                                                       -----------    -----------      -----------
LOSS BEFORE CUMULATIVE EFFECT
  OF CHANGE IN ACCOUNTING PRINCIPLE                                                      (10,324)       (76,078)         (40,105)
  Cumulative effect of change in accounting principle (Note 9)                                 -         (1,582)               -
                                                                                       -----------    -----------      -----------

NET LOSS                                                                              $  (10,324)     $ (77,660)       $ (40,105)

Less:  Beneficial conversion features (Notes 10 and 14)                                    5,667  (a)       392               46
       Preferred stock dividends (Note 14)                                                   113            969            2,817
                                                                                       -----------    -----------      -----------
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS                                               $ (16,104) (a) $ (79,021)       $ (42,968)
                                                                                       ===========    ===========      ===========
Loss per share attributable to common stockholders:
   Loss attributable to common stockholders before cumulative
     effect of change in accounting principle                                          $   (0.06)     $   (0.20)       $   (0.10)
   Cumulative effect of change in accounting principle                                         -          (0.01)               -
                                                                                       -----------    -----------      -----------
Basic and diluted loss per share attributable to common
     stockholders                                                                      $   (0.06)     $   (0.21)       $   (0.10)
                                                                                       ===========    ===========      ===========
Weighted average common shares outstanding -
   basic and diluted                                                                     292,758        377,084          446,423
                                                                                       ===========    ===========      ===========


NCT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Note 3)
                                                                                           For the Years Ended December 31,
                                                                                       -------------------------------------------
                                                                                           2000            2001            2002
                                                                                       -----------    -----------      -----------
NET LOSS                                                                               $ (10,324)     $ (77,660)       $ (40,105)
Other comprehensive income (loss):
   Currency translation adjustment                                                            (7)            (8)            (566)
   Unrealized (loss)/adjustment of unrealized loss on marketable securities               (3,379)         3,379                -
                                                                                       ---------      -----------      -----------
COMPREHENSIVE LOSS                                                                     $ (13,710)     $ (74,289)       $ (40,671)
                                                                                       ===========    ===========      ===========
The accompanying notes are an integral part of the consolidated financial statements.

</TABLE>

Footnote:
--------
(a) As adjusted (see Note 14 - Pro Tech Communications, Inc. Preferred Stock).

                                      F-4
<PAGE>


<TABLE>
<CAPTION>


  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT) (Note 3)
  (in thousands)

                                                                                        Convertible Preferred Stock
                                                                               Series F           Series G          Series H
                                                                           Shares    Amount  Shares     Amount    Shares    Amount
<S>                  <C> <C>                                                  <C>  <C>                <C>                  <C>
 Balance at December 31, 1999                                                 5    $ 2,790       -    $     -        -     $     -
 Sale of common stock, less expenses of $49                                   -          -       -          -        -           -
 Common stock subject to reset provision                                      -          -       -          -        -           -
 Sale of preferred stock                                                      -         (5)      2      1,698        -           -
 Conversion of preferred stock                                               (5)    (2,865)     (1)    (1,159)       -           -
 Accretion and amortization of discount on beneficial
     conversion price to preferred shareholders                               -         80       -        762        -           -
 Discount on beneficial conversion price to preferred shareholders            -          -       -       (727)       -           -
 Exchange of series A preferred stock in subsidiary                           -          -       -          -        -           -
 Exchange of subsidiary common stock for NCT common stock                     -          -       -          -        -           -
 Sale of excess exchange shares of common stock net of
    commissions of $156                                                       -          -       -          -        -           -
 Shares issued for settlement obligations/prepayments                         -          -       -          -        -           -
 Expenses to be paid with common stock                                        -          -       -          -        -           -
 Shares issued as deposit for acquisition                                     -          -       -          -        -           -
 Shares issued for acquisition of subsidiaries                                -          -       -          -        -           -
 Shares issued for prepaid research and engineering costs                     -          -       -          -        -           -
 Sale of subsidiary stock in excess of net book value                         -          -       -          -        -           -
 Liability for make up of value on shares issued to ITC                       -          -       -          -        -           -
 Beneficial conversion feature on convertible note                            -          -       -          -        -           -
 Net loss                                                                     -          -       -          -        -           -
 Currency translation adjustment                                              -          -       -          -        -           -
 Shares issued upon exercise of warrants & options                            -          -       -          -        -           -
 Valuation of available-for-sale marketable securities                        -          -       -          -        -           -
 Compensatory stock options and warrants                                      -          -       -          -        -           -
                                                                  ------------------------------------------------------------------

 Balance at December 31, 2000                                                 -    $     -       1    $   574        -     $     -
 Sale of common stock                                                         -          -       -          -        -           -
 Sale of preferred stock                                                      -          -       -          -        -           -
 Conversion of preferred stock                                                -          -      (1)      (582)       -           -
 Dividend to preferred shareholders                                           -          -       -          8        -           -
 Exchange of series A preferred stock in subsidiary                           -          -       -          -        -           -
 Dividend and amortization of discount on beneficial conversion
     price to subsidiary preferred and common shareholders                    -          -       -          -        -           -
 Exchange of subsidiary common stock for common stock                         -          -       -          -        -           -
 Conversion of convertible debt plus inducement of $190                       -          -       -          -        -           -
 Exchange of subsidiary convertible debt for common stock                     -          -       -          -        -           -
 Sale of excess exchange shares of common stock net of
    commissions of $36                                                        -          -       -          -        -           -
 Shares issued for settlement obligations/prepayments                         -          -       -          -        -           -
 Expenses to be paid with common stock                                        -          -       -          -        -           -
 Shares returned for deposit of acquisition                                   -          -       -          -        -           -
 Shares issued for acquisition of subsidiaries, repurchased
   licenses and exercise of option, less expenses of $237                     -          -       -          -        -           -
 Liability for make up of value on shares issued to ITC                       -          -       -          -        -           -
 Warrants issued in conjunction with convertible debt                         -          -       -          -        -           -
 Beneficial conversion features on convertible debt                           -          -       -          -        -           -
 Net loss                                                                     -          -       -          -        -           -
 Currency translation adjustment                                              -          -       -          -        -           -
 Shares issued upon exercise of warrants                                      -          -       -          -        -           -
 Valuation of available-for-sale marketable securities                        -          -       -          -        -           -
 Compensatory common stock grants                                             -          -       -          -        -           -
 Compensatory stock options and warrants                                      -          -       -          -        -           -
                                                                  ------------------------------------------------------------------


 Balance at December 31, 2001                                                 -    $     -       -    $     -        -     $     -
 Sale of preferred stock, net                                                 -          -       -          -        2      18,000
 Dividend to preferred shareholders                                           -          -       -          -        -         377
 Charges for the non-registration of the underlying shares of NCT
     to subsidiary preferred shareholders                                     -          -       -          -        -           -
 Dividend and amortization of discounts on beneficial conversion
     price to subsidiary preferred shareholders                               -          -       -          -        -           -
 Exchange of subsidiary common stock for common stock                         -          -       -          -        -           -
 Conversion of convertible debt                                               -          -       -          -        -           -
 Exchange of subsidiary convertible debt for common stock                     -          -       -          -        -           -
 Shares issued for settlement obligations/prepayments                         -          -       -          -        -           -
 Shares payable for settlement obligations                                    -          -       -          -        -           -
 Retirement of treasury stock                                                 -          -       -          -        -           -
 Warrants issued in conjunction with convertible debt
     and related rights                                                       -          -       -          -        -           -
 Beneficial conversion feature on convertible debt                            -          -       -          -        -           -
 Net loss                                                                     -          -       -          -        -           -
 Currency translation adjustment                                              -          -       -          -        -           -
 Compensatory stock options and warrants                                      -          -       -          -        -           -
 Expenses related to prior sale of stock                                      -          -       -          -        -           -

                                                                  ------------------------------------------------------------------
 Balance at December 31, 2002                                                 -    $     -       -    $     -        2     $18,377
                                                                  ------------------------------------------------------------------
 The accompanying notes are an integral part of the consolidated financial
 statements.


  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT) (Note 3)
  (in thousands)
                                                                                                                       Accumulated
                                                                                           Additional     Accumu-         Other
                                                                         Common Stock        Paid-in       lated       Comprehensive
                                                                      Shares     Amount      Capital      Deficit      Income/(Loss)
 Balance at December 31, 1999                                         268,771   $ 2,688    $ 130,865    $ (131,475)     $     65
 Sale of common stock, less expenses of $49                             2,467        25          426             -             -
 Common stock subject to reset provision                                    -         -          600             -             -
 Sale of preferred stock                                                    -         -            -             -             -
 Conversion of preferred stock                                         28,376       284        3,740             -             -
 Accretion and amortization of discount on beneficial
     conversion price to preferred shareholders                             -         -         (842)            -             -
 Discount on beneficial conversion price to preferred shareholders          -         -          727             -             -
 Exchange of series A preferred stock in subsidiary                       635         6          311             -             -
 Exchange of subsidiary common stock for NCT common stock                   -         -        3,124             -             -
 Sale of excess exchange shares of common stock net of
    commissions of $156                                                     -         -        2,275             -             -
 Shares issued for settlement obligations/prepayments                   1,528        15        1,518             -             -
 Expenses to be paid with common stock                                      -         -            -             -             -
 Shares issued as deposit for acquisition                                 245         2          123             -             -
 Shares issued for acquisition of subsidiaries                         21,319       213        7,105             -             -
 Shares issued for prepaid research and engineering costs               9,524        95        2,905             -             -
 Sale of subsidiary stock in excess of net book value                       -         -          950             -             -
 Liability for make up of value on shares issued to ITC                     -         -         (812)            -             -
 Beneficial conversion feature on convertible note                          -         -        1,000             -             -
 Net loss                                                                   -         -            -       (10,324)            -
 Currency translation adjustment                                            -         -            -             -            (7)
 Shares issued upon exercise of warrants & options                      1,285        13          735             -             -
 Valuation of available-for-sale marketable securities                      -         -            -             -        (3,379)
 Compensatory stock options and warrants                                    -         -           88             -             -
                                                                  ------------------------------------------------------------------

 Balance at December 31, 2000                                         334,150   $ 3,341    $ 154,838    $ (141,799)     $ (3,321)
 Sale of common stock                                                   2,000        20          166             -             -
 Sale of preferred stock                                                    -         -            -             -             -
 Conversion of preferred stock                                          7,218        72          510             -             -
 Dividend to preferred shareholders                                         -         -           (8)            -             -
 Exchange of series A preferred stock in subsidiary                     2,976        30          267             -             -
 Dividend and amortization of discount on beneficial conversion
     price to subsidiary preferred and common shareholders                  -         -       (1,353)            -             -
 Exchange of subsidiary common stock for common stock                   7,832        78        1,155             -             -
 Conversion of convertible debt plus inducement of $190                 4,303        43          707             -             -
 Exchange of subsidiary convertible debt for common stock              32,925       330        3,329             -             -
 Sale of excess exchange shares of common stock net of
    commissions of $36                                                      -         -          164             -             -
 Shares issued for settlement obligations/prepayments                   3,838        38         (221)            -             -
 Expenses to be paid with common stock                                      -         -            -             -             -
 Shares returned for deposit of acquisition                              (245)       (2)        (123)            -             -
 Shares issued for acquisition of subsidiaries, repurchased
   licenses and exercise of option, less expenses of $237              23,476       234        2,138             -             -
 Liability for make up of value on shares issued to ITC                     -         -         (610)            -             -
 Warrants issued in conjunction with convertible debt                       -         -          747             -             -
 Beneficial conversion features on convertible debt                         -         -        1,748             -             -
 Net loss                                                                   -         -            -       (77,660)            -
 Currency translation adjustment                                            -         -            -             -            (8)
 Shares issued upon exercise of warrants                               10,000       100          700             -             -
 Valuation of available-for-sale marketable securities                      -         -            -             -         3,379
 Compensatory common stock grants                                         358         4           30             -             -
 Compensatory stock options and warrants                                    -         -          437             -             -
                                                                  ------------------------------------------------------------------


 Balance at December 31, 2001                                         428,831   $ 4,288    $ 164,621    $ (219,459)     $     50
 Sale of preferred stock, net                                               -         -        5,309             -             -
 Dividend to preferred shareholders                                         -         -         (377)            -             -
 Charges for the non-registration of the underlying shares of NCT
     to subsidiary preferred shareholders                                   -         -            -             -             -
 Dividend and amortization of discounts on beneficial conversion
     price to subsidiary preferred shareholders                             -         -       (2,486)            -             -
 Exchange of subsidiary common stock for common stock                   6,073        61          409             -             -
 Conversion of convertible debt                                         5,611        56          348             -             -
 Exchange of subsidiary convertible debt for common stock               2,599        26          193             -             -
 Shares issued for settlement obligations/prepayments                  46,438       465        3,260             -             -
 Shares payable for settlement obligations                                  -         -            -             -             -
 Retirement of treasury stock                                          (6,078)      (61)      (2,902)            -             -
 Warrants issued in conjunction with convertible debt
     and related rights                                                     -         -        4,492             -             -
 Beneficial conversion feature on convertible debt                          -         -        3,422             -             -
 Net loss                                                                   -         -            -       (40,105)            -
 Currency translation adjustment                                            -         -            -             -          (566)
 Compensatory stock options and warrants                                    -         -        4,747             -             -
 Expenses related to prior sale of stock                                    -         -         (137)            -             -

                                                                  ------------------------------------------------------------------
 Balance at December 31, 2002                                         483,474   $ 4,835    $ 180,899    $ (259,564)     $   (516)  $
                                                                  ------------------------------------------------------------------
 The accompanying notes are an integral part of the consolidated financial
 statements.



  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT) (Note 3)
  (in thousands)


                                                                                   Unearned
                                                                                   Portion   Expenses
                                                                                   Compen-   to be Paid
                                                                      Shares       satory      with
                                                                     Receivable    Option/    Common    Treasury Stock
                                                                      Payable      Warrant     Stock    Shares     Amount   Total
 Balance at December 31, 1999                                       $ (1,000)      $ (55)   $ (1,282)    6,078  $ (2,963)   $  (367)
 Sale of common stock, less expenses of $49                                -           -           -         -         -        451
 Common stock subject to reset provision                                   -           -           -         -         -        600
 Sale of preferred stock                                               1,000           -           -         -         -      2,693
 Conversion of preferred stock                                             -           -           -         -         -          -
 Accretion and amortization of discount on beneficial
     conversion price to preferred shareholders                            -           -           -         -         -          -
 Discount on beneficial conversion price to preferred shareholders         -           -           -         -         -          -
 Exchange of series A preferred stock in subsidiary                        -           -           -         -         -        317
 Exchange of subsidiary common stock for NCT common stock                  -           -           -         -         -      3,124
 Sale of excess exchange shares of common stock net of                                             -
    commissions of $156                                                    -           -           -         -         -      2,275
 Shares issued for settlement obligations/prepayments                      -           -        (547)        -         -        986
 Expenses to be paid with common stock                                     -           -       1,267         -         -      1,267
 Shares issued as deposit for acquisition                                  -           -           -         -         -        125
 Shares issued for acquisition of subsidiaries                          (213)          -           -         -         -      7,105
 Shares issued for prepaid research and engineering costs                  -           -           -         -         -      3,000
 Sale of subsidiary stock in excess of net book value                      -           -           -         -         -        950
 Liability for make up of value on shares issued to ITC                    -           -           -         -         -       (812)
 Beneficial conversion feature on convertible note                         -           -           -         -         -      1,000
 Net loss                                                                  -           -           -         -         -    (10,324)
 Currency translation adjustment                                           -           -           -         -         -         (7)
 Shares issued upon exercise of warrants & options                         -           -           -         -         -        748
 Valuation of available-for-sale marketable securities                     -           -           -         -         -     (3,379)
 Compensatory stock options and warrants                                   -          18           -         -         -        106
                                                                    ----------------------------------------------------------------

 Balance at December 31, 2000                                       $   (213)      $ (37)    $  (562)    6,078  $ (2,963)   $ 9,858
 Sale of common stock                                                      -           -           -         -         -        186
 Sale of preferred stock                                                   -           -           -         -         -          -
 Conversion of preferred stock                                             -           -           -         -         -          -
 Dividend to preferred shareholders                                        -           -           -         -         -          -
 Exchange of series A preferred stock in subsidiary                        -           -           -         -         -        297
 Dividend and amortization of discount on beneficial conversion
     price to subsidiary preferred and common shareholders                 -           -           -         -         -     (1,353)
 Exchange of subsidiary common stock for common stock                      -           -           -         -         -      1,233
 Conversion of convertible debt plus inducement of $190                    -           -           -         -         -        750
 Exchange of subsidiary convertible debt for common stock                  -           -           -         -         -      3,659
 Sale of excess exchange shares of common stock net of
    commissions of $36                                                     -           -           -         -         -        164
 Shares issued for settlement obligations/prepayments                      -           -           -         -         -       (183)
 Expenses to be paid with common stock                                     -           -         562         -         -        562
 Shares returned for deposit of acquisition                                -           -           -         -         -       (125)
 Shares issued for acquisition of subsidiaries, repurchased
   licenses and exercise of option, less expenses of $237                213           -           -         -         -      2,585
 Liability for make up of value on shares issued to ITC                    -           -           -         -         -       (610)
 Warrants issued in conjunction with convertible debt                      -           -           -         -         -        747
 Beneficial conversion features on convertible debt                        -           -           -         -         -      1,748
 Net loss                                                                  -           -           -         -         -    (77,660)
 Currency translation adjustment                                           -           -           -         -         -         (8)
 Shares issued upon exercise of warrants                                   -           -           -         -         -        800
 Valuation of available-for-sale marketable securities                     -           -           -         -         -      3,379
 Compensatory common stock grants                                          -           -           -         -         -         34
 Compensatory stock options and warrants                                   -          37           -         -         -        474
                                                                    ----------------------------------------------------------------


 Balance at December 31, 2001                                       $      -       $   -           -     6,078  $ (2,963) $ (53,463)
 Sale of preferred stock, net                                              -           -           -         -         -     23,309
 Dividend to preferred shareholders                                        -           -           -         -         -         -
 Charges for the non-registration of the underlying shares of NCT
     to subsidiary preferred shareholders                                  -           -           -         -         -         -
 Dividend and amortization of discounts on beneficial conversion
     price to subsidiary preferred shareholders                            -           -           -         -         -     (2,486)
 Exchange of subsidiary common stock for common stock                      -           -           -         -         -        470
 Conversion of convertible debt                                            -           -           -         -         -        404
 Exchange of subsidiary convertible debt for common stock                  -           -           -         -         -        219
 Shares issued for settlement obligations/prepayments                      -           -           -         -         -      3,725
 Shares payable for settlement obligations                             2,296           -           -         -         -      2,296
 Retirement of treasury stock                                              -           -           -    (6,078)    2,963         -
 Warrants issued in conjunction with convertible debt
     and related rights                                                    -           -           -         -         -      4,492
 Beneficial conversion feature on convertible debt                         -           -           -         -         -      3,422
 Net loss                                                                  -           -           -         -         -    (40,105)
 Currency translation adjustment                                           -           -           -         -         -       (566)
 Compensatory stock options and warrants                                   -           -           -         -         -      4,747
 Expenses related to prior sale of stock                                   -           -           -         -         -       (137)

                                                                    ----------------------------------------------------------------
 Balance at December 31, 2002                                          2,296       $   -           -         -       $ -  $ (53,673)
                                                                    ----------------------------------------------------------------
 The accompanying notes are an integral part of the consolidated financial
 statements.

</TABLE>

                                      F-5
<PAGE>


<TABLE>
<CAPTION>

NCT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Notes 3 and 17)
                                                                                                   (In thousands)
                                                                                           For the Years Ended December 31,
                                                                                       ----------------------------------------
                                                                                           2000          2001          2002
                                                                                       ------------  ------------  ------------
<S>                                                                                     <C>           <C>           <C>

Cash flows from operating activities:
  Net loss                                                                              $ (10,324)    $ (77,660)    $ (40,105)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization                                                           2,014         2,977         1,305
    Common stock, warrants and options issued as consideration for:
    Compensation                                                                              106            37           169
    Operating expenses                                                                        497           637         4,792
    Costs incurred related to convertible debt                                                  -         5,364         5,970
    Provision for inventory                                                                   100           691            76
    Provision for doubtful accounts and uncollectible amounts                                 803         1,249           239
    (Gain) loss on disposition of fixed assets                                                (12)           30             5
    Write downs of investment and repurchased licenses, net (Notes 2,9 and 11)                  -        20,778         9,199
    Impairment of goodwill, net (Notes 3 and 11)                                            3,073        14,114           300
    Impairment of other intangibles (Note 3)                                                    -             -         2,116
    Costs of exiting activities (Note 25)                                                       -         1,886           145
    Beneficial conversion feature on convertible note (Note 10)                             1,000           946         2,305
    Common stock received for license fee                                                  (6,000)            -             -
    Common stock and warrants to be received for license fee                                 (384)            -             -
    Convertible note induced conversion expense                                                 -           190             -
    Realized loss on available-for-sale securities (Note 5)                                     -         7,036           765
    Realized loss on fair value of warrant (Note 9)                                             -         1,355           151
    Cumulative effect of change in accounting principle (Note 9)                                -         1,582             -
    Loss on sale of NXT ordinary shares (Note 4)                                                -         2,301             -
    Forgiveness of debt                                                                         -           (67)            -
    Amortization of debt discounts                                                              -         3,348         2,888
    Minority interest loss                                                                      -          (473)         (458)
    Changes in operating assets and liabilities, net of acquisitions:
      (Increase) decrease in accounts receivable                                           (4,624)        2,432           132
      Decrease in inventories                                                                 636           109           331
      (Increase) decrease in other assets                                                  (2,072)         (680)          971
      Increase (decrease) in accounts payable and accrued expense                            (886)        3,578         3,164
      Increase (decrease) in other liabilities and deferred revenue                         5,562        (3,784)       (4,140)
                                                                                       ------------  ------------  ------------
  Net cash used in operating activities                                                 $ (10,511)    $ (12,024)    $  (9,680)
                                                                                       ------------  ------------  ------------
Cash flows from investing activities:
    Capital expenditures                                                                $    (322)    $  (1,377)    $      (3)
    Net cash paid for Artera Group International Limited acquisition                            -          (100)            -
    Decrease in restricted cash                                                               667             -             -
    Payment for shares of DMC New York (repurchased licenses)                                   -        (1,000)            -
    Proceeds from sale of equipment                                                            26            11            11
    Proceeds from sale of NXT ordinary shares                                                   -         6,858             -
    Cash and cash equivalents received from acquisitions                                       88             -             -
                                                                                       ------------  ------------  ------------
  Net cash provided by investing activities                                             $     459     $   4,392     $       8
                                                                                       ------------  ------------  ------------
Cash flows from financing activities:
  Proceeds from:
    Issuance of convertible notes and notes payable, net (Note 10)                      $   2,944     $   5,695     $  10,609
    Sale of preferred stock, net                                                            1,963             -             -
    Sale of subsidiary preferred stock, net                                                 1,500           418           110
    Sale of subsidiary common stock                                                         1,000             -             -
    Sale of excess exchange shares                                                          2,275           164             -
    Sale of common stock                                                                      500           186             -
    Collection of subscription receivable                                                     995           213             -
    Exercise of stock options and warrants, net                                               748           800             -
    Repayment of notes                                                                     (1,825)         (436)         (497)
                                                                                       ------------  ------------  ------------
  Net cash provided by financing activities                                             $  10,100     $   7,040     $  10,222
                                                                                       ------------  ------------  ------------
Effect of exchange rate changes on cash                                                 $      (7)    $      (8)    $    (311)
                                                                                       ------------  ------------  ------------
Net increase (decrease) in cash and cash equivalents                                           41          (600)          239
Cash and cash equivalents - beginning of period                                             1,126         1,167           567
                                                                                       ------------  ------------  ------------
Cash and cash equivalents - end of period                                               $   1,167     $     567     $     806
                                                                                       ============  ============  ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

                                      F-6

<PAGE>



                        NCT GROUP, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.     Background:

     NCT  Group,  Inc.  and  subsidiaries   (collectivley  referred  to  as  the
"company,"  "NCT,"  "we,"  "our"  or  "us")  is a  technology  developer  with a
portfolio of patents and related rights and other non-patented  technology.  Our
technology  allows us to develop  products,  services and  applications  that we
market to various  industries,  including  telecommunications.  NCT  operates in
three segments:  communications,  media and technology. Product offerings of our
communications  segment  include:  our  communications,  consumer and industrial
headsets;  ClearSpeech(R)  microphones,  speakers, and a suite of noise and echo
cancellation  algorithms;  an aircraft cabin quieting  system;  and Artera Turbo
Internet  speed  enhancement  service.  Product  offerings of our media  segment
include Sight & Sound(R)  place-based  audio and  billboard  media and Gekko(TM)
flat  speakers,   prints  and  subwoofers.   Our  technology   segment  provides
Java(TM)-language based microprocessor cores.

     NCT has experienced substantial losses from operations since its inception,
which  cumulatively  amounted to $259.6 million through  December 31, 2002. Cash
and cash  equivalents  amounted to $0.8  million at December 31, 2002. A working
capital  deficit of $51.4 million exists at December 31, 2002. NCT is in default
of $2.9 million of its notes payable and $8.1 million of its  convertible  notes
at December 31, 2002.  Management  believes that currently  available funds will
not be sufficient to sustain NCT at present levels. NCT's ability to continue as
a going  concern  is  dependent  on  funding  from  several  sources,  including
available cash and cash equivalents and cash inflows  generated from its revenue
sources, particularly technology licensing fees and royalties and product sales.
The level of  realization  of  funding  from the  company's  revenue  sources is
presently  uncertain.  If anticipated revenue does not generate sufficient cash,
management  believes  additional working capital financing must be obtained.  We
are attempting to raise additional capital through debt and equity financings in
order to fund operations (see Note 26). There is no assurance any such financing
is or would become available.

     In the event that funding from internal sources is insufficient,  NCT would
have to substantially  cut back its level of spending which could  substantially
curtail its  operations.  These  reductions  could have an adverse effect on the
company's  relations with its existing and  prospective  customers.  Uncertainty
exists about the adequacy of current  funds to support  NCT's  activities  until
positive cash flow from operations can be achieved, and uncertainty exists about
the  availability of external  financing  sources to fund any cash  deficiencies
(see Note 14).

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming that the company will continue as a going concern,  which  contemplates
continuity of operations,  realization of assets and satisfaction of liabilities
in the ordinary  course of business.  The  propriety of using the going  concern
basis  is  dependent  upon,  among  other  things,  the  achievement  of  future
profitable   operations  and  the  ability  to  generate  sufficient  cash  from
operations,  public and private financings and other funding sources to meet its
obligations.  The  uncertainties  described in the  preceding  paragraphs  raise
substantial  doubt at December 31, 2002 about the company's  ability to continue
as a going concern.  The accompanying  consolidated  financial statements do not
include any adjustments relating to the recoverability and classification of the
carrying  amount  of  recorded  assets  or  the  amount  and  classification  of
liabilities  that might  result  should the  company be unable to  continue as a
going concern.

2.   Acquisitions:

DMC New York, Inc.

     In June  2002,  we  acquired  the  remaining  12,000  shares  (75%)  of the
outstanding capital stock of DMC New York, Inc. ("DMC NY") in exchange for 1,800
shares of our  series H  preferred  stock and $0.1  million  net  proceeds  from
Crammer  Road LLC (see Notes 14 and 18). We had accrued  $14.0  million for this
75%  interest in the second  quarter of 2001 (see Note 13). DMC NY was the owner
of 16 licenses  previously  purchased  from our  subsidiary,  Distributed  Media
Corporation  ("DMC") in 1999.  The purchase of the  remaining  75% of DMC NY has
been valued at the estimated  fair value of the NCT common stock  underlying our
series  H  preferred  stock of $23.2  million  ($18  million  stated  value  and
approximately $5.2 million representing the additional fair value resulting from
the conversion rate of 75% of the fair market value,  as defined,  of NCT common
stock into which the series H preferred  stock is  convertible).  Because DMC NY
has not commenced operations, we recorded an aggregate charge of $9.2

                                      F-7
<PAGE>

million for this  acquisition for the year ended December 31, 2002 classified on
our  consolidated  statement  of  operations  as write downs of  investment  and
repurchased  licenses,  net.  DMC NY has not recorded any revenue and apart from
its  New  York  metropolitan  area  license  rights,  has  no  other  assets  or
operations.  We had acquired a 25% interest in DMC NY on April 12, 2001 for $4.0
million.  The  consideration  consisted of a $1.0 million  convertible  note due
December 31, 2001 issued to Crammer Road,  $1.0 million cash and $2.0 million of
our common stock (13.3 million shares) (see Note 14). Our consolidated statement
of operations for the year ended December 31, 2001 includes an aggregate  charge
of $18.0  million for this  acquisition  classified as write downs of investment
and repurchased  licenses,  net. The aggregate cost for our acquisition of these
16,000  shares  (25% in 2001 and 75% in 2002) was $27.2  million.  The  purchase
price was arrived at in various  negotiations  between NCT and Crammer Road. The
acquisition resulted in our control of the number one designated market area. We
did not obtain an independent valuation.  The company's acquisition of DMC NY is
summarized as follows:


<TABLE>
<CAPTION>
                                                    DMC New York
  Date      Consideration                          Shares Acquired       % Interest       Expected Fair Value
  ----      -------------                          ---------------       ----------       -------------------
<S>   <C>   <C>                                          <C>                 <C>             <C>
 4/12/01    $1.0 million cash                            1,000               6.25%           $1.0 million
 4/12/01    $1.0 million note                            1,000               6.25%           $1.0 million
 4/12/01    13.3 million shares common stock             2,000              12.50%           $2.0 million
 6/24/02    1,800 shares series H preferred stock       12,000              75.00%          $23.2 million
</TABLE>


Artera Group International Limited

     Our wholly-owned subsidiary,  Artera Group, Inc., entered into an agreement
with  Teltran  International,  Inc.  to  acquire  all of the  capital  stock  of
Teltran's  subsidiary,  Teltran  Web  Factory  Limited,  and  the  communication
equipment assets of Teltran's subsidiary, Internet Protocol Ltd. The Web Factory
was  a  U.K.-based  full  service  information  technology  solutions  provider,
offering Internet provider services,  web hosting,  domain hosting,  consulting,
web design  and  installation  services  to  businesses.  Artera  completed  its
acquisition  of the Web Factory on March 2, 2001,  and renamed the Web  Factory,
Artera Group International  Limited.  The aggregate purchase price, as adjusted,
was $3.1 million comprised of $350,000 in cash and $3.3 million of Artera Group,
Inc. series A preferred stock with a stated value of $6.6 million (see Note 14).
This  preferred  stock was valued  based  upon 6%  convertible  notes  issued in
January 2001 (see Note 10). The  acquisition  was  accounted  for as a purchase,
resulting  in  initial  goodwill  of   approximately   $6.2  million  which  was
subsequently  written  off (see  Note 3).  On June 29,  2001,  the  terms of the
preferred  stock were modified as to $4.3 million  stated value of this stock to
allow  conversion  of the  preferred  stock into shares of NCT. As a result,  an
additional $3.9 million of  consideration  and goodwill was recorded as purchase
price which was  subsequently  written off (see Note 3). A summary of the assets
acquired and liabilities assumed, at estimated fair market value, is as follows:

     (In thousands of dollars)

       Current assets                                       $      484
       Property, plant and equipment                               467
       Goodwill                                                 10,095
       Current liabilities                                      (4,031)
       Other liabilities                                           (45)
                                                            -----------
       Fair market value of acquired entity                  $   6,970
                                                            ===========

     On December 18, 2001, the Board of Directors of Artera Group  International
Limited decided to suspend  underperforming  operations and reduce the number of
employees.   On  March  21,  2002,  the  Board  of  Directors  of  Artera  Group
International Limited determined to cease operations (see Note 25).

Theater Radio Network, Inc.

     On August 18, 2000, we acquired from the five sole  stockholders of Theater
Radio  Network,  Inc.  100% of the  outstanding  capital  stock of Theater Radio
Network,  a provider of  in-theater  audio  advertising  in  multiplex  cinemas,
through DMC Cinema,  a newly formed  subsidiary  of NCT's  subsidiary,  DMC. The
acquisition included our issuance of restricted shares of NCT common stock and a
7.5% equity interest in DMC Cinema. The purchase

                                      F-8
<PAGE>

agreement provided that a specified amount of $2,395,000 in shares of NCT common
stock  would be issued to the selling  shareholders.  NCT had an  obligation  to
register the shares  represented  by this  specified  amount.  In the event that
NCT's  trailing  twenty-day  closing  bid price  declined  before NCT  requested
effectiveness  of its  registration  statement  from the Securities and Exchange
Commission  ("SEC"),  NCT was required to issue additional shares to the selling
shareholders to provide them the specified amount. We refer to this provision as
the fill-up provision.  We initially issued 7,405,214 shares of NCT common stock
based upon a trailing  twenty-day closing bid price of $0.3376.  Of such shares,
311,019  shares  were  issued to the  placement  agent for the  transaction  for
services rendered,  aggregating $105,000.  The placement agent's shares were not
subject to the  fill-up  provision.  Due to the fill-up  provision,  in February
2001,  we issued  2,455,248  additional  shares of NCT common  stock to the five
selling  shareholders  based upon a  trailing  twenty-day  closing  bid price of
$0.2508 to make-up for the diminished  value.  The acquisition was accounted for
as a purchase and resulted in goodwill of  approximately  $2.8 million (see Note
3).  The  issuance  of the  additional  shares  did not  affect  the cost of the
acquired company.

     Additional NCT shares may be required to be issued as an earnout based upon
cumulative  revenue of Theater  Radio  Network  (now DMC  Cinema).  The  selling
shareholders  have demand  registration  rights for these  earnout  shares.  The
earnout provides that if DMC Cinema has accrued revenue of at least $3.3 million
between  August 1, 2000 and  December 31, 2001, a number of shares of NCT common
stock  having a value of  $1.25  million,  based  upon the  trailing  twenty-day
closing  bid  price  on  December  31,  2001,  will  be  issued  to the  selling
shareholders  and the placement agent. If the accrued revenue for this period is
less than $3.3  million,  then the  number of shares of NCT  common  stock to be
issued  would be prorated  to the number  (based  upon the  trailing  twenty-day
closing bid price on December  31,  2001) equal to the product of $1.25  million
multiplied  by a fraction  which is the actual  accrued  revenue for such period
divided by $3.3 million.  Further, if DMC Cinema has accrued revenue of at least
$4.7 million  between August 1, 2000 and June 30, 2002, an additional  number of
shares of NCT  common  stock  having a value of $1.25  million,  based  upon the
trailing  twenty-day  closing bid price on June 30, 2002, will be issued. If DMC
Cinema's  accrued  revenue for such period is less than $4.7  million,  then the
number of shares to be issued  will be  prorated to that number of shares of NCT
common  stock having a value  (based upon the  trailing  twenty-day  closing bid
price on June 30, 2002) equal to the product of $1.25  million  multiplied  by a
fraction  which is the actual  accrued  revenue for such period  divided by $4.7
million.  The issuance of additional  NCT shares of common stock pursuant to the
earnout provision would increase our cost of the acquisition. As of December 31,
2002,  approximately  $0.6 million was accrued for this earnout obligation which
is included in other  liabilities (see Note 13). This accrual increased our cost
of the acquisition (see Note 3).

Midcore Software, Inc.

     On August 29, 2000, NCT acquired 100% of the  outstanding  capital stock of
Midcore  Software,  Inc.,  a provider of Internet  infrastructure  software  for
business networks, through a merger with Midcore Software, Inc., a newly formed,
wholly-owned  subsidiary of NCT. In connection therewith, we initially issued to
Midcore's selling shareholders  13,913,355 restricted shares of our common stock
based upon a 10-day  volume-weighted  average  closing bid price of $0.34626 per
share,  for an  aggregate  value of $4.8  million.  In  addition,  the  purchase
consideration  includes $1.8 million to be paid by NCT in cash,  over 36 months,
the timing of which is based upon earned royalties. If after 36 months the total
royalty  has not  been  earned,  or if  earned  but not  fully  paid,  then  the
recipients may elect at their  discretion  either to continue to receive payment
of the royalties in accordance with the merger agreement,  or receive the unpaid
balance in the form of NCT's common  stock.  We recorded the entire $1.8 million
obligation as a liability.  Through December 31, 2002,  approximately $29,000 of
this  liability has been paid. We are  obligated to issue  additional  shares of
common  stock if the  value of  shares  issued  at the  closing  which  were not
registered  is less than $1.5 million on the third  anniversary  of the closing.
The  acquisition  was  accounted  for as a purchase  and resulted in goodwill of
approximately $6.4 million.

     The merger  agreement  provided that NCT had an obligation to register with
the SEC a specified amount of $2,467,639 in shares of NCT common stock issued to
the  Midcore  selling   shareholders  at  closing.   In  the  event  that  NCT's
volume-weighted,  average trailing ten-day closing bid price declined before NCT
requested effectiveness of its registration statement, NCT was required to issue
additional  shares to the selling  shareholders  to provide  them the  specified
amount. We refer to this price guaranty provision as the fill-up  provision.  Of
the shares  initially  issued,  7,126,548  shares of NCT common stock were to be
registered  based upon a  volume-weighted,  average trailing ten-day closing bid
price of $0.34626. Due to the fill-up provision,  on February 9, 2001, we issued
2,863,894  additional  shares of NCT common  stock to the  selling  shareholders
based upon the closing bid price of $0.2470 to make-up for

                                      F-9
<PAGE>


the diminished value of their shares.  The issuance of the additional shares did
not affect the cost of the acquired company.

Pro Tech Communications, Inc.

     On September 12, 2000, our wholly-owned  subsidiary,  NCT Hearing Products,
Inc., granted an exclusive license to Pro Tech  Communications,  Inc. for rights
to specified NCT  technologies for use in lightweight  cellular,  multimedia and
telephony headsets. In exchange, NCT Hearing received 23.4 million shares of Pro
Tech's  common stock,  net of shares used to  compensate an outside  consultant,
representing  approximately  83% of Pro Tech's  common  shares  then  issued and
outstanding.  The  acquisition  was  accounted for as a purchase and resulted in
negative  goodwill  of  approximately  $0.1  million.  The  purchase  price  was
approximately $2.6 million,  determined by the market value of the shares of Pro
Tech common stock  received by NCT Hearing.  NCT recognized  approximately  $2.5
million of license fee revenue  with respect to this  transaction,  which amount
represents  the  license  fee  revenue   applicable  to  the  minority  interest
shareholders.  Pro Tech sells high quality, lightweight headsets to high-profile
users, including Muzak and McDonald's.  Pro Tech's common stock currently trades
under the symbol "PCTU" on the NASD OTC Bulletin Board. As a condition precedent
to the transaction,  NCT Hearing had identified, and introduced to Pro Tech, the
investors who agreed to provide $1.5 million in equity financing to Pro Tech for
1,500 shares of series A convertible  preferred stock of Pro Tech (see Note 14).
The  investors  paid $1.5 million in cash which was used by Pro Tech for working
capital.

     Based upon our 2000 acquisitions of Theater Radio Network,  Midcore and Pro
Tech, a summary of the assets  acquired and  liabilities  assumed,  at estimated
fair market value, is as follows:

     (In thousands of dollars)

       Current assets                                              $   1,484
       Property, plant and equipment                                     272
       Goodwill                                                        9,100
       Other assets                                                    2,750
       Current liabilities                                            (2,726)
       Other liabilities                                              (1,350)
                                                                   ----------
       Fair market value of acquired entities                      $   9,530
                                                                   ==========

     The results of  operations  of the acquired  entities are included in NCT's
consolidated  statements of operations from the respective dates of acquisition.
The pro forma results listed below are unaudited and reflect purchase accounting
adjustments  assuming the  acquisitions had occurred at each of the beginning of
the year acquired and the beginning of the  immediately  preceding year. For the
years  ended  2000,  2001 and 2002,  pro forma  adjustments  include  additional
amortization expense of $1.4 million, $0.1 million and zero,  respectively.  The
pro forma  results are  presented  for  informational  purposes only and are not
necessarily indicative of the future results of operations of the company or the
results of operations of the company had the acquisitions occurred on January 1,
2000, January 1, 2001 and January 1, 2002:

(Unaudited; in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                 Years Ended December 31,
                                               -------------------------------------------------------------
                                                2000 (a,b,c)          2001 (b,c)             2002 (c)
                                                ------------          ----------             --------
<S>                                            <C>                    <C>                    <C>
Net revenue                                    $   17,606             $  10,859              $  7,462
Net loss                                          (17,984)              (78,025)              (40,105)
Loss attributable to common stockholders          (23,764)              (79,386)              (42,968)
Loss per common share - basic and diluted           (0.08)                (0.21)                (0.10)
</TABLE>



Footnotes:
---------
(a)  Includes Theater Radio Network, Midcore and Pro Tech acquisitions.
(b)  Includes Artera Group International Limited acquisition.
(c)  Includes DMC NY acquisition  that did not have any effect on the pro forma
     results.

                                      F-10
<PAGE>


3.   Summary of Significant Accounting Policies:

Basis of Presentation:

     The consolidated  financial  statements include the accounts of the company
and  its  majority-owned  subsidiaries  after  elimination  of  all  significant
intercompany  transactions  and  accounts.  We include  losses from our majority
owned  subsidiaries in our  consolidated  statements of operations  exclusive of
amounts  attributable to minority  shareholders' common equity interests only up
to the basis of such minority shareholders' interests.  Losses in excess of that
amount are bourne by NCT.  Such amounts from our Pro Tech  Communications,  Inc.
subsidiary  bourne by NCT for the year ended  December 31, 2002 amounted to $2.0
million.   Future  earnings  of  our  majority  owned   subsidiaries   otherwise
attributable  to minority  shareholders'  interests  will be allocated  again to
minority  shareholders  only after future earnings are sufficient to recover the
cumulative  losses  previously  absorbed  by  NCT.   Investments  in  less  than
majority-owned  affiliates  over which we  exercise  significant  influence  are
accounted for under the equity method.  All other  investments in affiliates are
carried at cost.

Estimates:

     The  preparation  of  financial   statements  and  related  disclosures  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,  the disclosure of contingent assets
and  liabilities  at the  date of the  financial  statements,  and  revenue  and
expenses  during the period  reported.  These  estimates  include  assessing the
collectability of accounts receivable,  the use and recoverability of inventory,
useful  lives  for  depreciation  and  amortization   periods  of  tangible  and
intangible  assets  and the  assumptions  underlying  projections  of cash  flow
regarding  testing for  impairment  of  long-lived  assets.  The markets for the
company's products and services are characterized by intense competition,  rapid
technological  development,  evolving  standards,  all of which could impact the
future  realizability  of the company's  assets.  Estimates and  assumptions are
reviewed  periodically  and the effects of revisions are reflected in the period
that they are determined to be necessary. Actual results could differ from those
estimates.

Reclassifications:

     Some amounts in prior years' financial statements have been reclassified to
conform to the current year's presentation.

Income Taxes:

     Deferred  income  taxes  are  provided  for the  tax  effect  of  temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes.

Cash and cash equivalents:

     Cash and cash  equivalents  include  all  highly  liquid  investments  with
original maturities at acquisition of three months or less.

Revenue Recognition:

     In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue  Recognition  in  Financial  Statements,"  which we  adopted  effective
January 1, 2000.  The adoption of SAB No. 101 did not have a material  effect on
our financial  statements,  and therefore,  no cumulative  effect of a change in
accounting  principle  has been  recorded.  SAB No. 101  addresses,  among other
items,  when revenue relating to various license fees should be recognized.  The
company  performs a detailed  analysis  of its  license  fee revenue and records
deferred revenue and associated expenses.  These deferred amounts are recognized
over the life of each  specific  license  when no other  performance  conditions
exist.

     Revenue, other than license fee revenue accounted for under SAB No. 101, is
recognized  when  earned.  Revenue  from product  sales is  recognized  when the
product is shipped  and title has  passed.  Revenue  from

                                      F-11
<PAGE>

advertising sales is recognized when the  advertisements are aired and displayed
(see Note 21).  Revenue from  engineering and development  services is generally
recognized  and  billed  as  the  services  are  performed.  However,  for  some
engineering and development services contracts,  revenue is recognized using the
percentage of completion method after 10% of the total estimated costs have been
incurred.  Under the percentage of completion  method,  revenue and gross profit
are recognized as work is performed  based on the  relationship  of actual costs
incurred to total estimated costs at completion.  Estimated  losses are recorded
when  identified.  No revenue was recognized  under the percentage of completion
method for the years ended December 31, 2000, 2001 and 2002.

     For  technology  licensing  fees  paid by  joint  venturers,  co-venturers,
strategic  partners  or other  licensees  which are  nonrefundable,  revenue  is
recognized  upon  execution  of the  license  agreement  unless it is subject to
completion of any performance criteria specified within the agreement,  in which
case it is  deferred  until such  performance  criteria  is met.  Royalties  are
frequently  required  pursuant  to license  agreements  or may be the subject of
separately  executed  royalty  agreements.  Revenue from royalties is recognized
ratably over the royalty  period based upon  periodic  reports  submitted by the
royalty obligor or based on minimum royalty requirements.

Marketable Securities:

     Marketable  securities that are bought and held principally for the purpose
of selling them in the near-term are classified as trading  securities.  Trading
securities  are  recorded at fair value,  with the change in market value during
the period included in the statements of operations.

     Marketable  debt securities that NCT has the positive intent and ability to
hold to maturity are classified as  held-to-maturity  securities and recorded at
amortized cost. Securities not classified as either  held-to-maturity or trading
securities are classified as available-for-sale  securities.  Available-for-sale
securities  are recorded at market value except as described in Note 9, with the
change in market  value  during  the  period  excluded  from the  statements  of
operations unless it is occasioned by an  other-than-temporary  decline in value
and recorded net of income taxes as a separate component of stockholders' equity
(capital  deficit).  The company reviews declines in value of its portfolio when
general  market  conditions  change or  specific  information  pertaining  to an
industry or individual  company  becomes  available.  The factors  considered in
assessing whether a decline is other than temporary  include:  our evaluation of
the length of the time and the extent to which the market  value of the industry
has been  depressed or the market value of the security has been less than cost;
evaluation  of financial  condition  and  near-term  prospects of the  business,
including  cash  sufficiency  and  new  product   developments;   assessment  of
observable  marketplace-determined values and trends; and our intent and ability
to retain our  investment  in the business  for a  sufficient  period of time to
allow for any  anticipated  recovery in market  value.  At December 31, 2001 and
2002,   all  of  the   company's   marketable   securities   have  been   deemed
available-for-sale securities.

Derivative Instruments:

     Derivatives  are reported at their fair values at each  reporting date with
any gains or losses  reported in the  company's  statements of  operations.  Our
adoption  of  Statement  of  Financial   Accounting   Standards   ("SFAS")  138,
"Accounting  for Certain  Derivative  Instruments  - an  Amendment of SFAS 133,"
effective January 1, 2001,  resulted in a $1.6 million charge which is reflected
as  cumulative  effect of change in  accounting  principle  on the  consolidated
statements of  operations  for the year ended  December 31, 2001.  For the years
ended  December 31, 2001 and 2002,  fair value  charges of $1.4 million and $0.2
million, respectively, are included in other (income) expense (see Note 16).

Inventories:

     Inventories  are stated at the lower of cost or market.  Cost is determined
using the first-in,  first-out (FIFO) method.  NCT assesses the realizability of
inventories by  periodically  conducting a physical  inventory and reviewing the
movement of inventory to determine  the value of items which are slow moving and
obsolete.  The  potential  for  near-term  product  engineering  changes  and/or
technological   obsolescence  and  current   realizability   are  considered  in
determining the adequacy of inventory  reserves.  At December 31, 2001 and 2002,
the   company's   inventory   reserves  were  $0.8  million  and  $0.4  million,
respectively.

                                      F-12
<PAGE>

Property and Equipment:

     Property and  equipment are stated at cost.  Depreciation  is computed over
the estimated  useful lives of the  depreciable  assets using the  straight-line
method.  Leasehold  improvements  are  amortized  over the shorter of the useful
lives or the related lease term.

Deferred Charges:

     Deferred  charges,  included on the  consolidated  balance  sheets in other
assets,  primarily  represent  costs  related  to the  installation  of  digital
broadcast station systems at customer locations. Such installation costs consist
of labor costs  attributable to contractor  installation and outside  management
fees and benefit the future.  The company  amortizes such deferred  charges over
the lesser of the estimated  useful life or the life of the site  agreement.  In
the event a site is removed,  the unamortized  deferred charges relating to that
site are then  expensed  in full.  In each of 2000,  2001 and 2002,  the company
amortized   approximately  $0.1  million  of  deferred  charges  and  wrote  off
unamortized charges relating to removals of approximately $0.2 million, zero and
$0.1 million, respectively, included in research and development expenses on the
consolidated  statements of operations.  At December 31, 2001 and 2002, deferred
charges were $0.5 million and $0.4 million, respectively (see Note 9).

Software Costs:

     It is our  policy  to  capitalize  costs in  connection  with the  internal
development  or  purchase of computer  software  products to be sold,  leased or
otherwise  marketed  after  technological   feasibility  has  been  established.
Capitalized  software costs are included in property and equipment and are being
amortized  over the  products  estimated  useful  life.  During the years  ended
December  31, 2001 and 2002,  $0.2 million and zero,  respectively,  of software
costs were capitalized.

Goodwill and Intangible Assets with Indefinite Useful Lives:

     The  excess of the  consideration  paid over the fair  value of net  assets
(including  indentifiable  intangibles)  acquired  in business  combinations  is
recorded  as  goodwill.  Goodwill  is also  recorded  by the  company  upon  the
acquisition  of some or all of the  stock  held by  minority  shareholders  of a
subsidiary,  except  where such  accounting  is, in  substance,  the purchase of
licenses previously sold to such minority shareholders or their affiliates.

     NCT adopted SFAS No. 142, "Goodwill and Other Intangible Assets," effective
January  1,  2002.  Under  SFAS No.  142,  we  ceased  amortizing  goodwill  and
intangible  assets with indefinite  useful lives and test them for impairment at
least  annually  and whenever  there is an  impairment  indicator.  All acquired
goodwill and  intangible  assets with  indefinite  useful lives were assigned to
reporting  units (an  operating  segment or a component of an operating  segment
that  constitutes  a  business  for  which  discrete  financial  information  is
available)  for  purposes  of  impairment  testing and  segment  reporting.  Our
reporting units with goodwill consist of Advancel Logic  Corporation  within the
technology operating segment, and NCT Hearing and Midcore Software,  Inc./Artera
Group, Inc., both of which are within the communications  operating segment.  We
have no intangible  assets with indefinite  useful lives.  The carrying value of
our goodwill by operating segment follows:

     (in thousands)


                        Media       Communications     Technology
                       Segment         Segment          Segment          Total
                      -----------    -----------      -----------    -----------
Balance as of
 January 1, 2002       $    -         $  6,845         $   339        $  7,184
Goodwill acquired         300                -               -             300
Impairment losses        (300)               -               -            (300)
                      -----------    -----------      -----------    -----------
Balance as of
 December 31, 2002     $    -         $  6,845         $   339        $  7,184
                      ===========    ===========      ===========    ===========



     Goodwill impairment is evaluated at the reporting unit level, comparing the
carrying value of the reporting unit with its estimated fair value.  If the fair
value exceeds its carrying value,  no impairment is recognized.  If the carrying
value of the reporting  unit exceeds its fair value,  then the carrying value of
the goodwill is compared to the

                                      F-13
<PAGE>


implied  fair value of the  goodwill.  If the implied fair value of the goodwill
exceeds its carrying value,  no impairment is recognized.  If the carrying value
of the goodwill  exceeds its implied fair value then impairment is recognized to
the extent of the excess. We have recognized no impairment upon adoption of SFAS
No.  142 with  respect  to our  goodwill.  If SFAS No. 142 had been in effect at
January 1, 2000, the adjusted net loss  attributable to common  stockholders and
loss per share would have been as follows:

     (in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                          For the Years Ended December 31,
                                                                 -------------------------------------------------

                                                                       2000             2001              2002
                                                                 --------------    --------------   --------------
<S>                                                                <C>               <C>              <C>

Loss attributable to common stockholders before
 cumulative effect of change in accounting principle               $ (16,104)        $ (77,439)       $ (42,968)
Cumulative effect of change in accounting principle                        -            (1,582)               -
Add back:  Goodwill amortization                                       1,019             1,691                -
                                                                 --------------    --------------   --------------
Adjusted net loss attributable to common stockholders              $ (15,085)        $ (77,330)       $ (42,962)
                                                                 ==============    ==============   ==============

Basic and diluted earnings per share
Loss per share attributable to common stockholders before
 cumulative effect of change in accounting principle               $   (0.06)        $   (0.20)       $   (0.10)
Cumulative effect of change in accounting principle                        -             (0.01)               -
Goodwill amortization                                                    0.1              0.01                -
                                                                 --------------    --------------   --------------
Adjusted loss per share                                            $   (0.05)        $   (0.20)       $   (0.10)
                                                                 ==============    ==============   ==============
</TABLE>


     Prior to the  adoption  of SFAS No. 142 on January  1, 2002,  goodwill  was
amortized using the  straight-line  method over the estimated period of benefita
(ranging  from five to twenty  years).  Goodwill  amortization  expense was $1.0
million and $1.7 million for 2000 and 2001, respectively.  We also evaluated the
carrying value and period of  amortization of our goodwill at each balance sheet
date. The factors used in the evaluation  included:  current operating  results,
projected future operating  results,  and any other material factors that effect
the  continuity of the business.  The company  recognized  impairment  loss from
goodwill of $3.1 million, $14.1 million (net of reduction in deferred revenue of
$2.1 million) and $0.3 million in 2000,  2001 and 2002,  respectively  (see Note
14). On June 29, 2001, in connection  with  additional  rights  granted  certain
preferred  shareholders of Artera Group,  Inc., the preferred stock was recorded
at its stated value which  resulted in additional  goodwill of $3.9 million.  On
December 18, 2001, the Board of Directors of Artera Group International  Limited
decided  to  suspend  underperforming   operations  and  reduce  the  number  of
employees.  Consequently,  the $9.8 million carrying value of the goodwill as of
that date was  considered  fully  impaired  in  accordance  with  SFAS No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." Further,  in December 2001, NCT decided to cease the operations
of DMC  Cinema  due to its  inability  to meet  operating  goals.  As a  result,
approximately $1.3 million consisting of the carrying value of $3.4 million, net
of  reduction  in  deferred  revenue  of $2.1  million,  was fully  impaired  in
accordance  with SFAS No. 121. No other events have been  identified  that would
indicate  an  impairment  of the value of  material  goodwill as recorded in the
accompanying consolidated financial statements.

Patent Rights and Other Intangible Assets with Finite Useful Lives:

     Under the guidelines in SFAS No. 142 and SFAS No. 144,  "Accounting for the
Impairment  or Disposal of  Long-Lived  Assets,"  intangible  assets with finite
lives are  tested for  impairment  whenever  events or changes in  circumstances
indicate that its carrying amount may not be  recoverable.  We are also required
to evaluate  the useful  lives each  reporting  period.  We test our  intangible
assets with finite useful lives for  impairment  by using the  estimated  future
cash flows directly  associated with, and that are expected to arise as a direct
result of, the use of the  intangible  asset.  We do so by projecting the future
estimated revenue and costs and comparing the resultant  undiscounted cash flows
to the carrying  amount of the intangible  asset. If the carrying amount exceeds
the undiscounted cashflows, an impairment may be indicated.  The carrying amount
is then compared to the discounted cash flows,  and if there is an excess,  such
amount is recorded as an impairment.

     Patent  rights  and other  intangible  assets,  which  include  the cost to
acquire  rights to patents and other rights under  licenses,  are stated at cost
and are amortized using the  straight-line  method over the remaining  estimated
useful lives, ranging from one to seventeen years. Amortization expense was $0.7
million,  $0.4 million and $0.5 million for 2000,  2001 and 2002,  respectively.
Accumulated  amortization of patent rights and other intangible  assets was $3.9
million and $4.3 million at December 31, 2001 and 2002, respectively.  The other
intangibles  subject to amortization  are categorized  below with an estimate of
the amortization  expense for the next five years.

                                      F-14
<PAGE>

     (in thousands)

<TABLE>
<CAPTION>
                                                                 December 31, 2002
                                                 --------------------------------------------------
                                                 Gross Carrying    Accumulated        Carrying
                                                     Amount        Amortization         Value
                                                 --------------  ---------------   ----------------
<S>                                                 <C>             <C>               <C>
Amortized intangible assets
 Patents                                            $   4,147       $   (3,691)       $     456
 Licensed technology                                    1,332             (269)            1063
                                                 --------------  ---------------   ----------------
Total                                               $   5,479       $   (3,960)       $   1,519
                                                 ==============  ===============   ================
</TABLE>

Estimated amortization expense for the years ending:
------------------------------------------------
December 31, 2003                                   $     240
December 31, 2004                                   $     241
December 31, 2005                                   $     207
December 31, 2006                                   $     206
December 31, 2007                                   $     206



     Prior to the  adoption  of SFAS No. 142, at each  balance  sheet date,  NCT
evaluated the period of amortization  of other  intangible  assets.  The factors
used in  evaluating  the  period  of  amortization  include:  current  operating
results,  anticipated future operating  results,  and any other material factors
that  effect  the  continuity  of the  business.  Based on our  evaluaton  as of
December 31, 2002, we  determined an impairment  was present with respect to the
license granted to Pro Tech. The resulting impairment charge to Pro Tech, on its
accounting records, was $11.5 million.  Upon consolidation of Pro Tech's results
of operations in our financial statements, we have recorded an impairment in the
carrying  value of other  intangible  assets with finite  lives of $2.1  million
representing the minority shareholder interest portion of this impairment in our
consolidated statement of operations for the year ended December 31, 2002.

Other Assets:

     Other  long-lived  assets are reviewed for  impairment  whenever  events or
changes in  circumstances  indicate that the carrying amount of an asset may not
be  recoverable.  Recoverability  of assets to be held and used is measured by a
comparison of the carrying  amount of an asset to  undiscounted  future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying  amount or fair value less
the costs to sell the assets. There were no such impairments for the years ended
December 31, 2000, 2001 and 2002.

Advertising:

     Advertising    expenses    include    commissions   paid   to   advertising
representatives and agencies and are expensed as incurred.  Advertising expenses
for the years ended  December 31, 2000,  2001 and 2002 were $0.3  million,  $0.5
million and $0.1 million, respectively, and are included in selling, general and
administrative expenses.

Comprehensive Loss:

     The company  reports  comprehensive  loss in accordance  with SFAS No. 130,
"Reporting  Comprehensive  Income." The  provisions for SFAS No. 130 require the
company to report the changes in stockholders' equity (capital deficit) from all
sources  during the period other than those  resulting  from  investments by and
distributions  to  shareholders.  Accordingly,  the  consolidated  statements of
comprehensive  loss  are  presented,   while  the  caption   "accumulated  other
comprehensive income (loss)" is included on the consolidated balance sheets as a
component of stockholders' capital deficit. Due to availability of net operating
losses and the deferred tax benefit  resulting  therefrom  being fully reserved,
there is no tax effect  associated  with any  component  of other  comprehensive
loss. Comprehensive loss is comprised of net loss and other comprehensive income
(loss).   Other   comprehensive   income  (loss)  includes  certain  changes  in
stockholders'  equity  (capital  deficit)  that are  excluded  from net  income,
including unrealized gains and losses on our  available-for-sale  securities and
foreign currency translation adjustments.

                                      F-15
<PAGE>


Foreign Currency Translation:

     Local currencies are generally  considered the functional  currency for our
foreign subsidiaries.  The company translates its foreign assets and liabilities
at the exchange rates in effect at each balance sheet date. Revenue and expenses
are translated using average rates for the year. The resulting  foreign currency
translation  adjustments are included in accumulated other comprehensive  income
(loss) as a component of  stockholders'  equity (capital  deficit).  The foreign
currency   transaction  gains  and  losses  are  included  in  the  consolidated
statements of operations  and were not material for the years ended December 31,
2000 and 2001.  The  foreign  currency  loss of $0.6  million for the year ended
December 31, 2002 is related to our United Kingdom operations.

Loss per Common Share:

     The company  reports loss per common share in accordance with SFAS No. 128,
"Earnings Per Share." The per share  effects of potential  common shares such as
warrants, options, convertible debt and convertible preferred stock, aggregating
1,668,778,650   shares,   have  not  been   included  as  the  effect  would  be
antidilutive (see Notes 10 and 15).

     However,  when  preferred  stock is  convertible  into  common  stock at an
effective  conversion  rate that  represents  a discount  from the common  stock
market  price at the time of  issuance,  the  discounted  amount  is an  assured
incremental yield, the "preferred stock dividend  requirement," to the preferred
shareholders  and  is  accounted  for  as  an  embedded  dividend  to  preferred
shareholders.  In addition,  when warrants are issued in  conjunction  with such
convertible securities, the fair value of warrants is determined by applying the
Black-Scholes  option pricing  model.  In accordance  with Emerging  Issues Task
Force  ("EITF") Issue No. 96-13,  as codified in EITF 00-19,  these warrants are
considered  permanent equity instruments since they may only be actually settled
with the  issuance  of the  company's  stock.  The  proceeds  received  from the
transaction  are  allocated  in  accordance  with EITF 98-5 and EITF 00-27.  The
allocated fair value is deemed to be a "preferred stock  beneficial  conversion"
feature and is accounted for as a component of additional  paid-in capital.  The
company has reflected such  beneficial  conversion  feature and preferred  stock
dividend  requirement as a preferred  stock dividend and as an adjustment to the
net loss attributable to common stockholders (see Note 14).

Concentrations of Credit Risk:

     Financial   instruments,   which   potentially   subject   the  company  to
concentration  of credit risk,  consist of cash and cash  equivalents  and trade
receivables.  The company  maintains cash and cash  equivalents in accounts with
various  financial  institutions in amounts which, at times, may be in excess of
the FDIC insurance  limit.  The company has not  experienced  any losses on such
accounts and does not believe it is exposed to any significant risk with respect
to cash and cash equivalents.

     The company sells its products and services to  distributors  and end users
in  various   industries   worldwide.   The  company   regularly   assesses  the
realizability of accounts receivable and also takes into consideration the value
of past due accounts receivable and the collectibility of such receivables based
on credit worthiness.  The company does not require collateral or other security
to support  customer  receivables.  The  company's  preference is to collect its
receivables in cash. However,  from time to time,  receivables may be settled by
securities transferred to the company by the customer in lieu of cash payment.

Significant Customers:

     In each of the years  ended  December  31,  2000,  2001 and  2002,  revenue
derived  from  certain  customers  comprised  more than 10% of our  consolidated
revenue ("significant  customers").  In 2000, three customers accounted for $3.6
million,  $2.4  million  and $2.0  million,  respectively,  of our  consolidated
revenue. In 2001 and 2002, we had two significant customers (different customers
than our significant  customers in 2000).  One of these customers  accounted for
$2.3 million and $1.9 million and the other customer  accounted for $1.6 million
and $2.1 million,  respectively, of our consolidated revenue for the years ended
December 31, 2001 and 2002. As of December 31, 2001 and 2002, the company had no
accounts receivable due from its significant customers.

                                      F-16
<PAGE>

Fair Value of Financial Instruments:

     The company's  financial  instruments consist of cash and cash equivalents,
short-term  investments,   accounts  receivable,  other  receivables,   accounts
payable, accrued expenses, notes payable and other liabilities.  At December 31,
2001 and 2002, the fair value of these instruments  approximated  their carrying
value (carried at cost) because of the short maturity of the  instruments.  Fair
values of other  investments  classified as  available-for-sale  were  estimated
based on  market  prices.  The fair  value of  notes  payable  approximates  the
carrying  value  based on interest  rates that are  currently  available  to the
company for issuance of debt with similar terms and remaining maturities.

Stock-Based Compensation:

     The company has adopted the  disclosure  only  provisions  of SFAS No. 123,
"Accounting  for  Stock-Based   Compensation,"  as  amended  by  SFAS  No.  148,
"Accounting  for  Stock-Based  Compensation  - Transition and  Disclosure,"  and
continues  to  apply  Accounting   Principles  Board  ("APB")  Opinion  No.  25,
"Accounting  for Stock  Issued to  Employees,"  and related  interpretations  in
accounting  for  its  stock-based  compensation  plans.  Under  APB No.  25,  no
compensation  costs are  recognized if the option  exercise price is equal to or
greater than the fair market price of the common stock on the date of the grant.
Under  SFAS  No.  123,  stock  options  are  valued  at  grant  date  using  the
Black-Scholes option pricing model and compensation costs are recognized ratably
over the vesting period. No stock-based employee  compensation cost is reflected
in our net loss  attributable to common  stockholders,  as options granted under
our plans have an exercise  price equal to or greater  than the market  value of
the underlying  common stock on the date of grant. Had  compensation  costs been
determined as prescribed by SFAS No. 123, the company's net loss attributable to
common stockholders and net loss per share would have been the pro forma amounts
indicated below:


     (In thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                         For the Years Ended December 31,
                                                            --------------------------------------------------------
                                                                  2000               2001               2002
                                                            -----------------  -----------------  ------------------

<S>                                                            <C>                <C>                <C>
Net loss attributable to common stockholders                   $    (16,104)      $    (79,021)      $     (42,968)
Total stock-based employee compensation
  expense determined under fair value based
  method for all awards, net of related tax effects                  (7,438)            (1,701)             (1,090)
                                                            -----------------  -----------------  ------------------
Pro forma net loss attributable to common stockholders         $    (23,542)      $    (80,722)      $     (44,058)
                                                            =================  =================  ==================
Net loss per common share (basic and diluted):
  As reported                                                  $      (0.06)      $      (0.21)      $       (0.10)
                                                            =================  =================  ==================
  Pro forma                                                    $      (0.08)      $      (0.21)      $       (0.10)
                                                            =================  =================  ==================
</TABLE>


     The  weighted-average  fair  values  at date of grant for  options  granted
during 2000, 2001 and 2002 were $0.27, $0.07 and $0.06,  respectively,  and were
estimated  using the  Black-Scholes  option  pricing  model  with the  following
weighted-average assumptions:


                                          Years ended December 31,
                               -------------------------------------------------
                                    2000           2001              2002
                                    ----           ----              ----
Expected life in years                 3              3               3.5
Interest rate                 4.56%-6.56%    3.27%-5.41%       2.50%-3.61%
Volatility                          1.29              1                 1
Dividend yield                         0%             0%                0%



Recent Accounting Pronouncements:

     In April 2002, the Financial  Accounting  Standards  Board ("FASB")  issued
SFAS No. 145,  "Rescission of FASB  Statements  No. 4, 44, and 64,  Amendment of
FASB Statement No. 13, and Technical  Corrections."  The recinded SFAS No. 4 had
required all gains and losses from extinguishments of debt to be aggregated and,
if material,  classified as an  extraordinary  item,  net of related  income tax
effect. Upon adoption of SFAS No. 145,

                                      F-17
<PAGE>

companies  will be  required  to apply  the  criteria  in 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" in determining the  classification of gains and losses
resulting from the extinguishments of debt. SFAS No. 145 is effective for fiscal
years  beginning  after May 15, 2002.  We believe  adoption of SFAS No. 145 will
have no material effect on our financial statements.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to
recognize  costs  associated  with  exit or  disposal  activities  when they are
incurred  rather than at the date of a commitment  to an exit or disposal  plan.
SFAS No.  146 is to be  applied  prospectively  to exit or  disposal  activities
initiated after December 31, 2002. We believe SFAS No. 146 will have no material
effect on our financial statements.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation  - Transition  and  Disclosure."  SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based  Compensation,"  to provide  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for  stock-based  employee  compensation.  In addition,  SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee  compensation and the effect of the method used on reported
results.  SFAS No. 148 is effective  for fiscal years ending after  December 15,
2002. We have applied the additional disclosure  requirements of SFAS No. 148 as
they relate to options granted to employees (see Stock Based  Compensation above
and Note 15).

4.   Strategic Relationships:

     NCT has entered into  agreements to establish  joint ventures and strategic
alliances  related  to  the  design,  development,  manufacture,  marketing  and
distribution of its  technologies  and products  containing  such  technologies.
These agreements  generally provide that NCT license technology and contribute a
nominal  amount  of  initial   capital  and  that  the  other  parties   provide
substantially all of the funding to support the venture or alliance. The support
funding may  include  amounts  paid or services  rendered  for  engineering  and
development. In exchange for this funding, the other parties generally receive a
preference in the distribution of cash and/or profits from the joint ventures or
royalties from these alliances until such time that the support funding (plus an
interest factor in some instances) is recovered.  At December 31, 2001 and 2002,
there were no preferred  distributions due to joint venture partners from future
profits of the joint ventures.

     Technology  licensing fees and engineering and development services paid to
the company in  connection  with joint  ventures  are recorded as revenue to the
extent appropriate in accordance with the company's revenue  recognition policy.
Total revenue recorded by the company relating to these strategic  relationships
for  technology  licensing  fees  and  royalties,  engineering  and  development
services and product sales was as follows:

     (In thousands of dollars)



<TABLE>
<CAPTION>

                                                               For the Years Ended December 31,
                                                    ---------------------------------------------------------
                                                          2000                2001               2002
                                                    -----------------   -----------------  ------------------
<S>                                                             <C>                <C>                  <C>
Ultra Electronics, Ltd.                                         $ 49               $ 114                $ 19
New Transducers Ltd.                                               -               1,605               2,140
Oki Electric Industry Co., Ltd                                   269                 219                 402
FairPoint Broadband, Inc.                                          -                   -                   -
Infinite Technology Corporation                                3,550               1,028                   -
                                                    -----------------   -----------------  ------------------
     Total                                                   $ 3,868             $ 2,966             $ 2,561
                                                    =================   =================  ==================
</TABLE>

Outlined  below is a summary  of the  nature  and  terms of the above  strategic
relationships:

     Ultra Electronics Ltd. ("Ultra")  (formerly Dowty Maritime Limited) and the
company entered into a teaming  agreement in May 1993 and  subsequently  amended
such agreement and entered into a licensing and royalty

                                      F-18
<PAGE>

agreement commencing in 1998. Such teaming agreement calls for the collaboration
on the design,  manufacture and  installation of products to reduce noise in the
cabins of various  types of aircraft.  In  accordance  with the  agreement,  the
company provided informational and technical assistance relating to the aircraft
quieting  system and Ultra  reimbursed  the  company  for  expenses  incurred in
connection  with such  assistance.  Ultra was  responsible for the marketing and
sales  of  the  products.  The  company  was to  supply  Ultra  with  electronic
components  required for the aircraft  quieting system, at a defined cost, to be
paid by Ultra.  Such  licensing  and  royalty  agreement,  among  other  things,
included  a future  royalty  of 1.5% of sales  commencing  in  1998.  Under  the
agreement,  Ultra also acquired the company's active aircraft  quieting business
based in  Cambridge,  England,  leased a portion of the  Cambridge  facility and
employed  some of the  company's  employees.  The  company  recognized  $49,000,
$114,000 and $19,000 in royalty revenue in 2000, 2001 and 2002, respectively.

     New  Transducers  Ltd.  ("NXT"),  a  wholly-owned  subsidiary  of  NXT  plc
(formerly,  Verity  Group  plc)  and the  company  executed  a  cross  licensing
agreement on March 28, 1997. Under the terms of the  cross-license,  the company
licensed  patents and patents  pending which relate to flat panel  technology to
NXT,  and NXT  licensed  patents and patents  pending  which  relate to parallel
technology to the company. The company also executed a security deed in favor of
NXT which  granted  NXT a  conditional  assignment  in the  patents  and patents
pending  licensed  to NXT under the  cross-license  in the event a default  in a
specified  payment to be made by the company under the  cross-license  continued
beyond fifteen days.  Concurrently with the  cross-license,  the company and NXT
plc  executed  agreements  granting  each  an  option  for a  four-year  period,
commencing on March 28, 1997, to acquire a specified  number of shares of common
stock of the other, subject to some conditions and restrictions.  NCT granted an
option  to  NXT  plc  to  acquire  3.8  million   shares  of  NCT  common  stock
(approximately  3.4% of the then issued and  outstanding  common  stock) and NCT
executed a  registration  rights  agreement  covering such shares.  Five million
ordinary shares  (approximately 2.0% of the then issued and outstanding ordinary
shares) of NXT plc were  covered by the  option  granted by NXT plc to NCT.  The
exercise price under each option was the fair value of a share of the applicable
stock on March 28, 1997, the date of grant.  On April 15, 1997, NXT plc, NXT and
the company executed several new agreements and other documents  terminating and
replacing some of the old agreements.  The material  changes effected by the new
agreements  were the  inclusion of NXT plc as a party along with NXT,  providing
that the license fee payable to NCT could be paid in ordinary  shares of NXT plc
stock,  and reducing the exercise  price under the option  granted to NXT plc to
purchase  shares of the company's  common stock to $0.30 per share.  The license
fee was paid to NCT in ordinary  shares of NXT plc stock which NCT  subsequently
sold.  On September 27, 1997,  NXT plc, NXT, NCT Audio and the company  executed
several  agreements and other  documents,  terminating and replacing some of the
old agreements with other  agreements.  The material  changes  effected by these
replacement  agreements were an expansion of the fields of use applicable to the
exclusive  licenses  granted to NXT plc and NXT, an  increase  in the  royalties
payable on future  licensing and product  revenue,  cancellation of the security
deed covering the patents  licensed by NCT and the  acceleration  of the date on
which the parties could exercise their respective stock options to September 27,
1997.  On  February  9,  1999,  NCT Audio  and NXT  expanded  the  cross-license
agreement  dated  September 27, 1997 to increase  NXT's fields of use to include
aftermarket  ground-based vehicles and aircraft sound systems, and increased the
royalties  due NCT Audio from NXT and  increased  the royalties due NXT from NCT
Audio. In consideration for granting NXT these expanded  licensing  rights,  NCT
Audio  received a $0.5 million  license fee. Also on February 9, 1999, NCT Audio
and NXT  amended  the master  license  agreement  to include a one time  minimum
royalty payment of $160,000 which was paid by the company.

     On March 30, 2001,  NXT plc,  NXT,  NCT Audio and the company  entered into
several agreements  terminating the cross-license  agreement dated September 27,
1997. Under the new agreements, NCT received 2.0 million ordinary NXT plc shares
in  consideration  for the  cancellation of the 6% royalty payable by NXT to NCT
Audio.  The NXT plc shares  issued had a value of  approximately  $9.2  million.
Additionally,  ownership of certain intellectual  property,  the rights to which
had been  previously  granted to NXT, were  transferred to NXT. NXT has licensed
NCT and its  subsidiaries  with certain NXT and all  NCT-developed  intellectual
property.  NXT will design a low-cost  flat panel speaker for use by DMC. A side
letter with NXT was entered into on or about March 30, 2001,  whereby NCT agreed
to pay NXT $0.6  million as a  non-refundable  design fee  related to  Gekko(TM)
loudspeakers.  The  design  fee was a  prepayment  of  royalties  due  under the
four-year term of this side letter.  We offset the $9.2 million  license fee due
NCT with the $0.6  million  design fee owed to NXT  resulting in $8.6 million of
deferred  revenue.  The  deferred  revenue  balance  is  being  recognized  on a
straight-line basis over the specific performance period of four years (see Note
11). In addition, NXT transferred its 4.8% equity holding in NCT Audio to NCT in
settlement of the exercise price  otherwise  payable upon exercise of the option
that NXT had on 3.8 million shares of our

                                      F-19
<PAGE>

common  stock (see Note 15). We sold the 2.0  million NXT plc shares  during the
year ended December 31, 2001 for aggregate proceeds of $6.9 million and realized
a net loss of $2.3 million  included in our  statements of operations  (see Note
16).

     Oki Electric Industry Co., Ltd.  ("Oki").  In October 1997, the company and
Oki  executed  a license  agreement.  Under the  terms of the  agreement,  which
included an up-front license fee and future per unit royalties, Oki licensed the
company's  ClearSpeech(R)  noise  cancellation  algorithm for  integration  into
large-scale integrated circuits for communications applications. The company has
granted Oki the right to manufacture,  use and sell products  incorporating  the
algorithm.  The algorithm is specifically  designed to remove  background  noise
from speech and other transmitted signals, greatly improving intelligibility and
clarity of communications. The company recognized $0.3 million, $0.2 million and
$0.4 million in royalty revenue in 2000, 2001 and 2002, respectively.

     FairPoint  Broadband,  Inc.  ("FairPoint"),  a wholly owned  subsidiary  of
FairPoint  Communications,  Inc.,  and  Artera  executed  a  ten-year  exclusive
marketing  license on  October  11,  2002  whereby  FairPoint  will serve as the
exclusive master distributor of Artera Turbo(TM) to certain rural local exchange
carriers,  incumbent local exchange  carriers and Internet service  providers in
the United  States and Canada  and will have  other  non-exclusive  rights  with
respect to Artera Turbo.  The terms of the  agreement  include a license fee and
per unit  royalties  based upon  subscribers.  The  license fee revenue is being
recognized  over the ten-year term of the agreement.  In  conjunction  with this
agreement,  FairPoint  Communications,  Inc., was issued a five-year  warrant to
purchase 2.0 million  shares of NCT common  stock at an exercise  price of $0.15
per share.  The fair value of this warrant was  approximately  $0.1 million.  We
have recorded $50,400 as a reduction of license fee revenue to zero for the year
ended  December  31,  2002  in our  consolidated  statement  of  operations  (in
accordance  with EITF 01-9).  The  remainder of the warrant fair value is offset
against  FairPoint  deferred  revenue at December  31, 2002 an our  consolidated
balance sheet (see Note 11).

     Infinite  Technology  Corporation  ("ITC").  On May  8,  2000,  as  amended
effective  June 30, 2000,  Advancel  entered into a license  agreement with ITC.
Under the  agreement,  Advancel  granted ITC exclusive  rights to create,  make,
market,  sell  and  license  products  and  intellectual   property  based  upon
Advancel's   Java(TM)   Turbo-JTM   technology.   Advancel   also   granted  ITC
non-exclusive rights to Advancel's Java(TM) smartcard core. In consideration for
this  license,  the company  received  1.2 million  shares of ITC's common stock
valued at $6.0  million  determined  using the quoted  price of the stock on the
date the shares were received and on-going unit royalties. With the exception of
specific rights granted to  STMicroelectronics  in 1998, the license granted ITC
an exclusive,  irrevocable  worldwide  license to design,  make, use,  transfer,
market and sell products and intellectual  property  incorporating or based upon
Advancel's TJ and t2J technology.

     Effective June 30, 2000, in conjunction with this license  agreement,  NCT,
Advancel and ITC entered into a strategic  alliance and  technology  development
amendment pursuant to which NCT would fund specific product application research
and engineering  development  related to microprocessor and semiconductor  chips
for which the company would pay ITC $2.5 million.  The company issued  9,523,810
shares of its  common  stock  having a market  value of $3.0  million  to ITC as
prepaid  research and  engineering  costs. In the event ITC did not receive $2.5
million in proceeds from the sale of NCT shares, NCT was required to make up any
shortfall in cash or return to ITC a  sufficient  number of ITC shares of common
stock received by NCT as outlined above. The value NCT would receive upon return
of the ITC shares would be the agreed value of $5.00 per share, the market value
of the ITC shares when NCT  received  them.  Conversely,  if ITC  received  $2.5
million  in  proceeds  from the sale of NCT  shares  and there  were NCT  shares
remaining,  ITC would have to return the unsold share excess to NCT. At December
31,  2001 and 2002,  the  shortfall  based  upon the sales of our  common  stock
reported to us by ITC amounted to $1.4  million,  included in other  liabilities
(see Note 13).  Although the license  agreement and the  strategic  alliance and
technology development  amendment,  both with ITC, are separate and unrelated it
has been determined  that they should be accounted for as a single  transaction,
thereby, both agreements are combined for financial reporting purposes.  Prepaid
research and engineering costs have been recognized in expense as these services
are  performed  by ITC.  These  costs were  billed by ITC based on the number of
hours  spent by ITC  personnel  developing  this chip  during  each  period.  In
addition,  the  company  recognized  license fee revenue in amounts to match the
research  and  engineering  expense  recognized.   The  strategic  alliance  and
technology development amendment does not have a definitive expiration date. For
the year ended December 31, 2000, the company recognized $3.6 million of license
fee revenue which represents the net of the two transactions. For the year ended
December 31, 2001,  the company  recognized  $1.0 million of license fee revenue
and $1.0 million of research and engineering  expenses which

                                      F-20
<PAGE>

represents  research  and  engineering  performed  by ITC.  For the  year  ended
December 31, 2002, the company did not recognize license fee revenue or research
and engineering expenses related to ITC.

5.   Marketable Securities:

     Investment in marketable securities comprises available-for-sale securities
at fair market value. The following table sets forth the market value,  carrying
value, and realized and unrealized loss of our available-for-sale securities:


<TABLE>
<CAPTION>


     (In thousands of dollars)


                                     December 31, 2001                              December 31, 2002
                             --------------------------------         ------------------------------------------------
                                Cost     Realized     Market             Cost      Realized     Unrealized     Market
                               Basis       Loss       Value             Basis        Loss          Loss        Value
                             ---------  ----------  ---------         ---------  -----------   -----------   ---------
<S>                          <C>        <C>           <C>               <C>         <C>            <C>         <C>

Available-for-sale:
  ITC                        $ 4,696    $ (3,898)     $ 798             $ 798       $ (689)        $ (15)      $  94
  Teltran                        743        (659)        84                84          (76)            -           8
  InsiderStreet                2,479      (2,479)         -                 -            -             -           -
                             ---------  ----------  ---------         ---------  -----------   -----------   ---------
    Totals                   $ 7,918    $ (7,036)     $ 882             $ 882       $ (765)        $ (15)      $ 102
                             =========  ==========  =========         =========  ===========   ===========   =========
</TABLE>


     The company reviews declines in the value of its investment  portfolio when
general  market  conditions  change or  specific  information  pertaining  to an
industry or an individual company becomes available. NCT considers all available
evidence to evaluate the realizable  value of its  investments  and to determine
whether the decline in realizable value may be  other-than-temporary,  including
observable   marketplace-determined  values  and  trends  and  company  specific
developments  and cash  viability  prospects  among others.  For the years ended
December  31,  2001  and  2002,  the  company  recorded  impairment  charges  of
approximately  $7.0  million  and  $0.8  million,   respectively,   representing
other-than-temporary  declines in the value of marketable  securities  (see Note
16).

     In  consideration  of  the  license  agreement  with  Infinite   Technology
Corporation  (see Note 4), the  company  received  1.2  million  shares of ITC's
common  stock valued at $6.0  million  determined  using the quoted price of the
stock on the date the shares  were  received  ($5.00 per  share).  For the years
ended  December 31, 2001 and 2002,  NCT recorded  other-than-temporary  realized
losses of $3.9 million and $0.7 million  included in other  (income)  expense in
the consolidated statement of operations (see Note 16).

     The company has been  accounting for its  investment in  InsiderStreet.com,
Inc.,  (now known as  Neometrix  Corp.) stock as  available-for-sale  securities
valued at fair value,  with  unrealized  gains and losses excluded from earnings
but reported in a separate  component of stockholders'  equity (capital deficit)
until they are sold (see Note 11). At December 31, 2000, the company recorded an
unrealized loss of $2.5 million  included on the  consolidated  balance sheet as
part of accumulated  other  comprehensive  (loss)  income.  The market price per
share of InsiderStreet shares on August 18, 2000 (date of acquisition of Theater
Radio Network) was $8.125;  at December 31, 2000, the market price had decreased
to $0.13 per share.  At December 31, 2000, the company  considered  whether this
decline  in  the  value  of its  available-for-sale  marketable  securities  was
temporary or  other-than-temporary  and concluded that the loss on InsiderStreet
shares   was   temporary   at   December   31,   2000   based   upon   the  best
marketplace-determined  information  available at that time. Such conclusion was
based on information that was included in the original advertising agreement and
disclosed in  InsiderStreet's  Form 10-KSB filed with the SEC on March 26, 2001,
as follows:  (a) the  original  contract  with  InsiderStreet  contains a makeup
provision  whereby  if the  value of  InsiderStreet's  shares  is less than $2.0
million on May 10, 2001,  InsiderStreet will deliver  compensating shares to the
company by May 31,  2001 to  increase  the total  value to $2.0  million at that
time; (b) management of InsiderStreet is focusing its business efforts on one of
its  subsidiaries.  This subsidiary had reported  revenue of  approximately  $13
million in 1999 and $14 million in 2000.  Net income  (loss) of this  subsidiary
was  reported  as  approximately  ($88,000)  and  $102,000  in  1999  and  2000,
respectively.  Internal financial  statements of this subsidiary as disclosed to
us for January and February 2001 showed continuing  operations and revenue;  and
(c) NCT  management  met with  management of  InsiderStreet  in the beginning of
2001, and was assured by management of InsiderStreet  that  InsiderStreet  had a
profitable  future based on reasonable  forecasting of its business  operations.

                                      F-21
<PAGE>

InsiderStreet  shares were not registered by the agreed April 30, 2001 date, nor
was there a delivery of compensating shares by the agreed May 31, 2001 date. For
the year ended December 31, 2001 (second  quarter of 2001),  the holding loss of
$2.5 million was  considered  other-than-temporary  due to the  longevity of the
economic  downturn in the industry sector and company specific  prospects and is
included in other (income) expense in the consolidated statement of operations.

6.   Accounts Receivable:

     (In thousands of dollars)


                                                       December 31,
                                           -------------------------------------
                                                  2001                2002
                                           -----------------   -----------------
Technology license fees and royalties                 $ 287               $ 268
Joint ventures and affiliates                            34                  34
Other receivables                                       693                 283
                                           -----------------   -----------------
                                                    $ 1,014               $ 585
Allowance for doubtful accounts                        (298)               (340)
                                           -----------------   -----------------
   Accounts receivable, net                           $ 716               $ 245
                                           =================   =================


7.   Inventories:

     (In thousands of dollars)




                                                           December 31,
                                                 -------------------------------
                                                     2001              2002
                                                 -------------     -------------
Components                                        $      427        $      227
Finished goods                                         1,749               799
                                                 -------------     -------------
                                                  $    2,176        $    1,026
Reserve for obsolete and slow moving inventory          (791)             (404)
                                                 -------------     -------------
  Inventories, net                                $    1,385        $      622
                                                 =============     =============


8.   Property and Equipment:

     (In thousands of dollars)


                                                           December 31,
                                                 -------------------------------
                                                     2001              2002
                                                 -------------     -------------
Machinery and equipment                           $    3,786        $    2,027
Furniture and fixtures                                   623               642
Leasehold improvements                                   966               972
Tooling                                                  631               631
Other                                                    432               478
                                                 -------------     -------------
                                                  $    6,438        $    4,750
Accumulated depreciation                              (4,594)           (3,796)
                                                 -------------     -------------
  Property and equipment, net                     $    1,844        $      954
                                                 =============     =============


     Depreciation expense for the years ended December 31, 2000, 2001 and
2002 was $0.3 million, $0.9 million and $0.9 million, respectively.

                                      F-22
<PAGE>


9.   Other Assets:

     (In thousands of dollars)


                                                           December 31,
                                                 -------------------------------
                                                     2001              2002
                                                 -------------     -------------

Notes receivable                                  $    1,000        $    1,000
Investment in warrant (Teltran)                          152                 1
Due from unaffiliated company                             90                 -
Due from officer (Note 18)                               105               108
Other                                                    426               249
                                                 -------------     -------------
                                                  $    1,773        $    1,358
Reserve for uncollectible amounts                     (1,000)           (1,000)
                                                 -------------     -------------
  Other current assets                            $      773        $      358
                                                 =============     =============


Marketable ITC securities (Notes 4 and 5) (a)     $    1,304        $    1,320
Due from unaffiliated company                            563                 -
Advances and deposits                                     88                75
Deferred charges                                         537               353
Other                                                     78                31
                                                 -------------     -------------
  Other assets (classified as long term)          $    2,570        $    1,779
                                                 =============     =============



Footnote:
--------
(a)  Valued at agreed amount of $5.00 per share  returnable to ITC in settlement
     of obligation at December 31, 2001 and 2002.

     On October 26, 2000, Midcore executed a license agreement with Teltran. The
license  agreement  expires when patent or other rights expire under  applicable
law unless  terminated  earlier by written  agreement.  As consideration for the
license,  Teltran  agreed to issue Midcore 2.8 million  shares of Teltran common
stock and a warrant to purchase 6.0 million  shares of Teltran  common stock for
$0.125 per share as a  non-refundable  up-front license fee. At that time, these
shares represented  approximately 12% ownership interest in Teltran.  The shares
underlying the warrant represent  beneficial ownership of approximately 23%. The
warrant was valued using the Black-Scholes  option pricing model resulting in an
aggregate  fair value of $3.1 million.  The Teltran shares were valued at market
based upon the October 26, 2000  agreement  date at an  aggregate  value of $1.5
million. Teltran agreed to register the issued common stock and the common stock
underlying  the warrant on or before June 26,  2001.  As of December  31,  2002,
Teltran had not fulfilled its registration obligation. Teltran was also required
to pay an ongoing,  per unit  royalty.  The  adoption of SFAS No. 138  effective
January 1, 2001,  resulted in a reduction to the carrying  value of this warrant
of  approximately  $1.6  million,  and that charge is  classified  as cumulative
effect of change in  accounting  principle  on the  consolidated  statements  of
operations.  During the years  ended  December  31,  2001 and 2002,  the company
recorded a loss of the carrying  amount of this  derivative  of $1.4 million and
$0.2 million,  respectively  (see Note 16). At December 31, 2000, 2001 and 2002,
the  company  had  deferred  revenue of $4.2  million,  $1.9  million  and zero,
respectively,  and for the years  then  ended,  recognized  $0.4  million,  $2.3
million and $1.9 million,  respectively,  in  technology  licensing fee revenue.
Effective  January 10, 2001, the date the 2.8 million common shares were issued,
the company accounted for its investment in Teltran's common stock in accordance
with SFAS No.  115,  "Accounting  for  Certain  Investments  in Debt and  Equity
Securities," as available-for-sale securities (see Note 5).

     On January 9, 2001,  Artera  Group,  Inc.  accepted  an  aggregate  of $1.0
million of  non-recourse,  non-interest  bearing notes receivable due January 2,
2002, as partial consideration for its January 9, 2001 convertible notes payable
to the same six accredited  investors.  As of December 31, 2001, the company had
fully reserved the amount  collectible (see Notes 10 and 16). As of December 31,
2002, the notes remain unpaid.

     On August 14,  1998,  NCT Audio,  a  majority-owned  subsidiary,  agreed to
acquire substantially all of the assets of Top Source Automotive,  Inc. ("TSA"),
an automotive audio system supplier and a subsidiary of Top Source Technologies,
Inc.  ("TST")  for a  total  purchase  price  was  $10.0  million  and  up to an
additional $6.0 million in

                                      F-23
<PAGE>


possible future cash contingent  payments.  NCT Audio paid TST $3.5 million. NCT
Audio had an exclusive right, as extended, to purchase the assets of TSA through
July 15, 1999. Under the terms of the original agreement, NCT Audio was required
to pay TST $6.5 million on or before March 31, 1999 to complete the  acquisition
of TSA's assets.  As consideration  for an extension of its exclusive right from
March  31,  1999 to May 28,  1999,  NCT  Audio  agreed  to pay TST a fee of $0.4
million,  consisting  of $20,685 in cash,  $0.1 million of NCT Audio's  minority
interest in TSA  earnings,  and a $0.2  million note payable due April 16, 1999.
Due to the  non-payment  of the note by April 30,  1999,  (a) the note  began to
accrue  interest  on April  17,  1999 at the  lower of the rate of two times the
prime rate or the  highest  rate  allowable  by law;  (b) the  $20,685  and $0.1
million portion of the extension fee would no longer be credited toward the $6.5
million  purchase price due at closing;  and (c) the $0.2 million portion of the
extension fee would no longer be credited toward the $6.5 million closing amount
due. To date, NCT Audio has not paid the note. The  outstanding  balance of $0.2
million is included in notes  payable on the  consolidated  balance  sheets.  In
addition, due to NCT Audio's failure to close the transaction by March 31, 1999,
NCT Audio was  required to pay a penalty  premium of $0.1 million of NCT Audio's
preferred stock. Since NCT Audio failed to close the contemplated transaction by
May 28, 1999,  NCT Audio  forfeited its minority  earnings in TSA for the period
June 1, 1999  through May 30, 2000.  In exchange  for an extension  from May 28,
1999 to July  15,  1999,  NCT  Audio  relinquished  25% of its  minority  equity
ownership in TSA  resulting in a 15% minority  interest in TSA. On or about July
15,  1999,  NCT Audio  determined  it would not proceed with the purchase of the
assets of TSA, as  structured,  due  primarily to its  difficulty in raising the
requisite cash consideration. Consequently, NCT Audio reduced its net investment
in TSA to $1.5 million, representing its 15% minority interest, net of the above
noted-penalties,  and recorded a $2.4 million  charge in the quarter  ended June
30, 1999 for the  write-down of its  investment to its estimated net  realizable
value. On September 30, 1999, Onkyo America  purchased  substantially all of the
assets of TSA and defined assets of TST used in TSA's  operations.  NCT Audio is
claiming  and  seeks  its pro  rata  share  of the  consideration  paid by Onkyo
America,  less the penalties  described above. The amount which TST and TSA owed
NCT  Audio  was in  dispute,  and  receipt  of the  funds  by NCT  Audio  is now
contingent on the outcome of the pending  bankruptcy  proceedings of TST and TSA
(see Notes 20 and 26). In December 2001, NCT reduced its investment to zero as a
result of the  bankruptcy  filing and recorded a charge of $1.5 million which is
included  in  write  downs  of  investment  and  repurchased   licenses  in  the
consolidated statements of operations.

                                      F-24
<PAGE>


10.  Notes Payable and Convertible Notes Payable:

<TABLE>
<CAPTION>

(In thousands of dollars)
                                                                                                December 31,
                                                                                           ----------------------------
                                                                                               2001           2002
                                                                                           -------------  -------------
<S>                                                                                         <C>            <C>
Logical eBusiness Solutions Limited (f/k/a DataTec) (a)                                     $   2,184      $   2,414
  Obligation of subsidiary to a prior owner of Web Factory;
  past due; payable in 1,500,000 British Pounds Sterling;
  interest accrues at 4% per annum above the base rate
  of National Westminister Bank plc
Note due investor                                                                                   -            385
  Interest at 8% per annum payable at maturity;  Effective interest rate
  of 68.1% per annum related to the issuance of warrants; due April 7, 2003
Bridge financing                                                                                  465              -
  $465 rolled into financing completed in January 2002;
  notes bore interest at rates ranging from 3% to 5% per annum
Note from stockholder of subsidiary                                                               226            171
  Interest at 8.5% per annum payable at maturity;
  matured March 27, 2002; Subsequent maturities rolled into
  note which matures June 27, 2003
Top Source Automotive (a)                                                                         204            204
  Default interest rate accrues at two times prime;
  past due (see Note 20)
Notes due former employees                                                                        118            116
  $100 bears interest at 8.25% per annum, compounded annually;
  past due (a).  Remainder bears interest at 12% per annum, due on demand.
Other financings                                                                                   11            284
  Interest ranging from 7% to 9% per annum;  $220 matured
  November 1, 2002 (a); $35 due July 15, 2003; $29 all other
                                                                                           -------------  -------------
                                                                                            $   3,208      $   3,574
Less: unamortized debt discounts                                                                    -            (34)
                                                                                           -------------  -------------
                                                                                            $   3,208      $   3,540
                                                                                           =============  =============
</TABLE>


Footnote:
--------
(a)  Notes payable are in default due to nonpayment.

                                      F-25
<PAGE>


<TABLE>
<CAPTION>


     (In thousands of dollars)
                                                                                         December 31,
                                                                                  -------------------------
                                                                                      2001          2002
                                                                                  ------------  -----------
<S>                                           <C>

Issued to Carole Salkind (a)                                                       $   7,222     $ 18,064
  Weighted average effective interest rate of 41% per annum; accrues
  interest 8% per annum; collateralized by substantially all of the
  assets of NCT; convertible into NCT common stock at prices ranging
  from $0.0412 - $0.097 or exchangeable for common stock of NCT
  subsidiaries except for Pro Tech; maturing by quarter as follows:
    March 31, 2003       $ 4,059
    June 30, 2003          3,538
    September 30, 2003     6,185
    December 31, 2003      4,282
Issued to Crammer Road LLC (b)                                                         1,000            -
  Weighted average effective interest rate of 30.3% per annum; accrues
  interest at 2% per month from May 27, 2001 payable at maturity;
  convertible at 93.75% of average five-day closing bid price for the five
  trading days preceding conversion; due December 31, 2001
8% Convertible Notes (c)                                                                 401          976
  Weighted average effective interest rate of 25% per annum;
  convertible into NCT common stock at various rates; matures:
    March 14, 2002       $    17
    April 12, 2002             9
    January 10, 2004         550
    March 11, 2004           400
6% Convertible Notes (d)                                                               4,428        4,228
  Weighted average effective interest rate of 85.8% per annum;
  convertible into NCT common stock at 100% of the five-day average
  closing bid price preceding conversion; past due:
    January 9, 2002      $ 2,022
    April 4, 2002            875
    May 25, 2002              81
    June 29, 2002          1,250
                                                                                  ------------  -----------
                                                                                   $  13,051     $ 23,268
Less: unamortized debt discounts                                                      (1,341)      (4,029)
Less: amounts classified as long term                                                      -         (779)
                                                                                  ------------  -----------
                                                                                   $  11,710     $ 18,460
                                                                                  ============  ===========
</TABLE>

Footnotes:
---------

(a)  NCT has issued  convertible notes  collaterized by substantially all of the
     assets of NCT to Carole Salkind, a stockholder,  an accredited investor and
     spouse of a former director of NCT, since 1999.  During 2002, NCT issued an
     aggregate of $19.6 million of convertible  notes as consideration  for $9.6
     million of cash and  rollover  of $8.5  million in  principal  for  matured
     convertible  notes  (includes all of the notes  outstanding at December 31,
     2001), $0.6 million of interest, and $0.9 million of default penalties.  We
     paid one note during the year of  approximately  $0.3 million.  We recorded
     original  issue  discounts  of $2.8  million  to the notes  based  upon the
     relative fair values of the debt and warrants  granted to Ms.  Salkind (see
     Note 15). We recorded  discounts  of $1.6  million for  warrants  issued as
     consideration  for  irrevocable  waivers  relating to Pro Tech common stock
     whereby the original instrument was a convertible note or warrant issued in
     conjunction with a convertible note (see Note 15). In addition,  beneficial
     conversion  features totaling $3.1 million have been recorded as a discount
     to the notes.  These  discounts  are being  amortized  over the term of the
     related  notes.  For the years  ended  December  31,  2000,  2001 and 2002,
     respectively,  $1.0 million,  $1.1 million and $4.9 million of amortization
     related  to these  discounts  is  classified  as  interest  expense  in our
     consolidated  statements  of  operations.  Unamortized  discounts  of  $1.2
     million  and  $3.9  million  have  been  reflected  as a  reduction  to the
     convertible

                                      F-26
<PAGE>

     notes in our  consolidated  balance sheet as of December 31, 2001 and 2002,
     respectively. The default provisions in these notes impose a penalty of 10%
     of the principal  payments in default and default interest from the date of
     default on the principal in default at the rate stated in the note plus 5%.
     On February 6, 2002,  due to a judgment  in an  unrelated  case having been
     entered  against  NCT and DMC in excess of the  permitted  maximum of $0.25
     million  (see Note 20), an event of default  occurred  with  respect to the
     notes outstanding as of that date. As of December 31, 2002, $2.9 million of
     the  notes  remain in  default  as a result of this  event.  No demand  for
     repayment  has  been  made.  In  addition,  because  NCT had  defaulted  on
     repayment  of all of the notes as they  matured  during  2001 and 2002,  an
     aggregate  default  penalty  expense  of $1.2  million  and  $0.4  million,
     respectively,  has been  reflected in our statements of operations in other
     income (expense) (see Note 16). At December 31, 2001 and 2002, $0.7 million
     and $0.3  million of accrued  default  penalties  are  included  in accrued
     expenses (see Note 12).

(b)  A beneficial  conversion  feature of $67,000 has been  included in interest
     expense in our  consolidated  statement  of  operations  for the year ended
     December 31, 2001.  We were  obligated to register  shares  underlying  the
     conversion  of this note. In 2001, we incurred a charge of $0.2 million due
     to non-registration of the underlying securities included in other (income)
     expense (see Note 16). The company did not repay this convertible note upon
     maturity but settled with the holder as outlined in Note 14.

(c)  Notes with principal totaling  approximately $26,000 are convertible at 80%
     of the lowest closing bid price for the five days preceding  conversion;  a
     note totaling $0.6 million is  convertible  at the lower of $0.07 per share
     or 80% of the  lowest  closing  bid  price  for  the  five  days  preceding
     conversion;  and a note totaling $0.4 million is convertible at $0.0647 per
     share.  On  January  10,  2002,  substantially  all  of the  assets  of our
     subsidiary, Artera Group, Inc., were made collateral for a holder of a $0.6
     million note.  Beneficial  conversion  features  totaling $0.3 million have
     been recorded as a discount to the notes and are being  amortized  over the
     term of the related  notes.  For each of the years ended  December 31, 2001
     and 2002,  $0.1  million  of  amortization  related to these  discounts  is
     classified  as  interest   expense  in  our   consolidated   statements  of
     operations.  Unamortized discounts of $0.2 million have been reflected as a
     reduction to the convertible notes in our consolidated  balance sheet as of
     December 31, 2002.  Notes  aggregating $0.4 million were converted into NCT
     common  stock (see Note 14).  The company did not repay  convertible  notes
     aggregating  approximately  $26,000 upon maturity and has recorded  default
     interest  at 18% from the dates of default.  In  addition,  on  convertible
     notes  aggregating  $0.9 million,  we are in default due to a cross default
     clause.

(d)  The cash  consideration  for the 6%  convertible  notes  issued to multiple
     investors  by Artera  Group,  Inc.  aggregated  $2.9  million,  net of $0.1
     million in  expenses,  of which $0.6  million was  received in 2000.  Other
     consideration consisted of Pro Tech common stock valued at $0.5 million and
     non-recourse  notes receivable of $1.0 million (see Note 9). Original issue
     discounts  aggregating $3.0 million due to the difference  between the face
     amount  of the  notes  and the  consideration  received  were  recorded  as
     discounts to the notes.  These  discounts  are being  amortized to interest
     expense over the term of the respective notes. Amortization of $2.8 million
     and $0.2  million  related to these  discounts  is  classified  as interest
     expense in our  consolidated  statements of operations  for the years ended
     December  31, 2001 and 2002,  respectively.  Unamortized  discounts of $0.2
     million have been reflected as a reduction to the convertible  notes in our
     consolidated  balance  sheet as of December 31, 2001.  On January 10, 2002,
     substantially all of the assets of our subsidiary, Artera Group, Inc., were
     made collateral for three holders of notes with principal  aggregating $3.1
     million.  We were obligated to register  additional shares at various dates
     during 2001, which despite our best efforts,  we were unable to accomplish.
     As a result,  we have recorded  charges of $1.6 million and $1.6 million in
     finance  costs  included  in other  (income)  expense  for the years  ended
     December 31, 2001 and 2002 (see Note 16).  This  failure also  triggered an
     event of default on the aggregate  outstanding  debt We have not received a
     demand for payment.

                                      F-27
<PAGE>

11.  Deferred Revenue:

     (In thousands of dollars)


                                                      December 31,
                                               ---------------------------------
                                                     2001               2002
                                               --------------     --------------
NXT                                              $     6,955         $    4,815
FairPoint                                                  -                143
Teltran                                                1,921                  -
Other                                                    555                594
                                               --------------     --------------
                                                 $     9,431          $   5,552
Less: amount classified as current                    (4,616)            (2,877)
                                               --------------     --------------
  Deferred revenue (classified as long term)     $     4,815          $   2,675
                                               ==============     ==============

     As of December 31, 2002, NCT does not expect to realize any additional cash
from revenue that has been deferred.

     In 2001,  we decided to  reacquire  the DMC  licenses  held by Eagle Assets
Limited and Brookepark Limited. We accrued an aggregate of $4.0 million for this
reacquisition  cost (see Note 13). As a result,  we incurred an aggregate charge
of $1.3 million,  net of $2.7 million  reduction of deferred revenue  previously
recorded from the sale of licenses, classified as write downs of investment  and
repurchased licenses in our consolidated statement of operations.  Concurrently,
we ceased recognition of revenue on these DMC licenses.

     On May 5, 2000,  Theater Radio  Network,  Inc. (see Note 2) entered into an
advertising  agreement with  InsiderStreet.com,  Inc. The advertising  agreement
required,  among other things,  Theater  Radio  Network to play  InsiderStreet's
commercials  in a minimum  of 8,500  theater  screens  at a cost of  $20.58  per
theater screen per month, as further described in the agreement. The term of the
agreement was two years  commencing on June 19, 2000. At the date of acquisition
of Theater  Radio  Network by DMC Cinema,  Theater  Radio  Network had remaining
475,595 shares of the originally  issued 575,595 shares of  InsiderStreet  which
were valued at $2.5 million.  Such value  reflected a discount of  approximately
35%  against the gross  market  value of the shares  because  the  InsiderStreet
shares were unregistered on the date of acquisition.  InsiderStreet  agreed that
if the value of the  original  shares  issued were less than $2.0 million on May
10, 2001,  InsiderStreet would deliver additional compensating shares to Theater
Radio Network on or before May 31, 2001 to increase the total value of the stock
received to $2.0 million at that time.  It was  determined  by both parties that
the airtime purchased by InsiderStreet had an actual value of $4.2 million.  The
agreement  also required that the  InsiderStreet  shares issued to Theater Radio
Network  be  registered  on or  before  April  30,  2001.  At  the  time  of the
transaction,  approximately  $2.9 million was recorded as deferred  revenue that
was  expected  to be  recognized  as  revenue  over  the  two-year  term  of the
advertising  agreement.  For the years ended  December  31,  2000 and 2001,  the
company  recognized $0.5 million and zero,  respectively,  in  advertising/media
revenue with  respect to this  transaction.  Subsequent  to our  acquisition  of
Theater Radio Network, we received notification that InsiderStreet was canceling
the advertising  arrangement.  We continued  providing  services for a period of
time after the  termination.  InsiderStreet  agreed that DMC Cinema could retain
the shares. For the year ended December 31, 2001, the company wrote off deferred
revenue of $2.1 million,  presented as a reduction to the impairment of goodwill
(see Note 3) included in our consolidated statements of operations.

                                      F-28
<PAGE>


12.  Accrued Expenses:

     (In thousands of dollars)


                                                     December 31,
                                              ---------------------------
                                                  2001           2002
                                              ------------   ------------
Non-registration fees                           $  2,978       $  7,005
Interest                                           1,048          2,214
Judgments                                          2,150          2,124
Default penalties                                    722            288
Other                                              5,195          5,285
                                              ------------   ------------
 Accrued Expenses                               $ 12,093       $ 16,916
                                              ============   ============


13.  Other Liabilities:

     (In thousands of dollars)


<TABLE>
<CAPTION>
                                                                            December 31,
                                                                   ----------------------------
                                                                       2001           2002
                                                                   -------------  -------------
<S>                                  <C>    <C>     <C>              <C>             <C>
License reacquisition payable (Notes 2, 11, 14, and 21)              $  18,000       $  4,000
Development fee payable                                                    800            650
Royalty payable                                                            766          1,695
Due to selling shareholders of Theater Radio Network (Note 2)                -            557
Due to L&H                                                                 100            100
Loan advance by investor                                                     -             65
Other                                                                      113             34
                                                                   -------------  -------------
 Other current liabilities                                           $  19,779       $  7,101
                                                                   =============  =============

Due to ITC (Notes 4 and 9)                                           $   1,422       $  1,422
Royalty payable                                                            958              -
Due to selling shareholders of Theater Radio Network (Note 2)              570              -
Other                                                                        -            135
                                                                   -------------  -------------
 Other liabilities (classified as long term)                         $   2,950       $  1,557
                                                                   =============  =============
</TABLE>


     License  reacquisition  payable at December  31, 2002 is  comprised of $4.0
million  for the cost of  reacquiring  other DMC  licenses  (see  Note  11).  At
December 31, 2001, license  reaquisition payable was comprised of $14 million to
acquire the  remaining  12,000 shares of DMC NY,  representing  12 DMC licenses,
(see Note 14) and $4.0 million for the cost of reaquiring other DMC licenses.

     On September  28, 2000,  NCT Video  Displays,  Inc.  entered into a product
development  and license  agreement  with  Advanced  Display  Technologies,  LLC
("ADT").  Under the agreement,  NCT Video was granted by ADT exclusive right and
license to make, have made, use, sell, lease, license, or otherwise commercially
dispose of all licensed  products and  components,  as defined in the agreement.
Such licensed products include certain  electronic  outdoor  billboard  displays
that utilize a laser or light beam  scanning  methodology.  On May 4, 2001,  NCT
Video and ADT (by then known as  ViewBeam  Technology,  L.L.C.)  entered  into a
product  and  development   agreement  that  modified  the  September  28,  2000
agreement.  Some of the provisions of the original  agreement  remain in effect.
The agreement does not  materially  modify or change the  development  fee to be
paid by NCT Video but does modify the  specifications  of the product design and
the field of use to which the September 28, 2000 exclusive  license was granted.
Such license had a carrying  amount of $0.9 million and $0.8 million at December
31,  2001 and  2002,  respectively.  The  amount  represents  our cost for ADT's
completion  of  this  product  development  and  resultant  license  rights  and
subsequent modification and is being amortized over the estimated useful life of
nine years. In addition,  as part of this  agreement,  NCT Video and ADT entered
into a product development arrangement whereby work is to be performed by ADT in
developing the prototype and  production  design for the licensed  products.  In

                                      F-29
<PAGE>

return, NCT Video agreed to pay a development fee of $1.0 million for performing
such  development  work.  At December  31, 2001 and 2002,  $0.8 million and $0.7
million, respectively, was included in other current liabilities.

     In  connection  with our  acquisition  of  Midcore  (see Note 2), we became
obligated to pay some of the Midcore selling  shareholders  $1.8 million in cash
based upon royalties to be earned,  as defined in the Midcore merger  agreement,
over 36 months. If after 36 months, the total royalty has not been earned, or if
earned but not paid,  the  recipients  have the right to collect  the  remaining
unpaid  balance  through the issuance of NCT common stock.  At December 31, 2001
and 2002,  other  current  liabilities  includes  $0.8 million and $1.7 million,
respectively,  and other liabilities (long term) includes $1.0 million and zero,
respectively, for this obligation on our consolidated balance sheets.

14.  Capital Stock:

Authorized Capital Stock
------------------------

     NCT has 655 million  shares  authorized,  645  million  shares of which are
$0.01  par  value  common  stock  and 10  million  of which  are $0.10 par value
preferred stock. On July 10, 2001 at the NCT annual meeting of shareholders, the
stockholders  approved an  amendment  to increase the number of shares of common
stock the company is authorized  to issue from 450 million to 645 million.  Such
amendment became effective on July 12, 2001 when the company filed a Certificate
of Amendment to its Restated  Certificate of Incorporation with the Secretary of
State  of  Delaware.  On  July  13,  2000 at the  company's  annual  meeting  of
shareholders,  the stockholders  approved an amendment to increase the number of
shares of common  stock the company is  authorized  to issue from 325 million to
450 million.  Such amendment  became effective on July 18, 2000 when the company
filed a Certificate of Amendment to its Restated  Certificate  of  Incorporation
with the Secretary of State of Delaware.

Common shares available for future issuance

     At December  31, 2002,  the shares of common stock  required to be reserved
were as follows,  calculated  at the $0.043  common stock price on that date (or
the discount  therefrom as allowed under the  applicable  exchange or conversion
agreements):

   NCT Preferred Stock (a)                                         854,641,606
   Stock options and warrants                                      341,350,817
   NCT Convertible Notes issued to Carole Salkind                  294,487,012
   8% Convertible Notes                                             32,123,492
   ConnectClearly Common Stock Exchange                              2,106,105
   Pro Tech Preferred Stock Exchange                                20,256,164
   6% Convertible Notes Exchange                                   150,304,856
   Artera Preferred Stock Exchange                                 138,794,683
   Earnout and look back shares for Theater Radio Network
      and Midcore Software acquisitions                             37,642,916
   Shares payable for settlement obligations                        29,248,170
   Private Equity Credit Agreement                                 161,498,708
                                                                ----------------
                                                                 2,062,454,529
                                                                ================

     Footnote:
     --------
     (a) We are required to reserve  100,000,000  shares of our common stock for
     the  conversion  of series H preferred  stock until  additional  authorized
     shares of common  stock are  approved  by  stockholders  at the next annual
     shareholder  meeting (that meeting was expected  before  October 31, 2002).
     Although our annual stockholder  meeting has not taken place as of December
     31, 2002, we have presented the entire calculated  reserve  requirement for
     our preferred stock.

     At the December 31, 2002 common  stock price of $0.043,  our common  shares
issued and required to be reserved  for  issuance  exceeded the number of shares
authorized  at that date.  As such,  NCT will seek  shareholder  approval  of an
amendment to NCT's Restated  Certificate of Incorporation to increase the number
of shares of common stock authorized for NCT.

                                      F-30
<PAGE>


Transactions with Crammer Road LLC
----------------------------------

2002 Exchange Agreement

     On June 21, 2002, NCT entered into an exchange  agreement with Crammer Road
to acquire the remaining 12,000 shares of DMC NY in exchange for 1,800 shares of
our series H convertible preferred stock and $120,000 in cash (see discussion of
preferred stock below and discussion of Crammer Road in Note 18).

Private Equity Credit Agreements

     On July 25, 2002,  we entered into a new private  equity  credit  agreement
with Crammer Road. The July 2002 credit agreement  provides that shares of up to
$50 million (the maximum  commitment  amount) of our common stock may be sold to
Crammer Road  pursuant to put notices  delivered by the company to Crammer Road.
The terms of the  agreement  require us to put at least $5 million  (the minimum
commitment  amount) of our common stock,  in exchange for cash, at a discount to
market of 10%. In connection  with the  execution of this private  equity credit
agreement, we issued a five-year warrant to Crammer Road for 1,000,000 shares of
our common stock with an exercise  price of $0.07375 per share (see Note 15). We
are  obligated to register for resale shares of our common stock for the warrant
and the  credit  agreement  in an  amount  no  less  than  112%  of the  maximum
commitment  amount. If we fail to issue shares for the minimum commitment amount
during the commitment period (which terminates 24 months after  effectiveness of
a resale  registration  statement relating to the shares or earlier as described
in the agreement),  we must pay Crammer Road, in immediately available funds, an
amount  equal to the  product of (i) the  minimum  commitment  amount,  less the
aggregate  shares of our common stock  actually  delivered to Crammer Road under
the equity credit line and (ii) the 10% discount.

     On April 12,  2001,  we executed a private  equity  credit  agreement  that
provided  that  shares of up to $50  million of our common  stock may be sold to
Crammer Road  pursuant to put notices  delivered by the company to Crammer Road.
The April 2001 private  equity  credit  agreement  replaced the  September  2000
private equity credit  agreement.  In  conjunction  with this  transaction,  the
company issued Crammer Road a warrant for 250,000 shares of the company's common
stock.  The terms of that  credit  agreement  obligated  the  company to put $17
million of our common stock (the minimum commitment amount) to Crammer Road. The
minimum commitment amount provided for the sale of NCT's common stock to Crammer
Road at an accelerating  discount to the market price of our common stock on the
first $12 million of puts (the initial  discount of 12.5%  increased  each month
after  May  27,  2001  by 2%)  and a fixed  discount  to  market  of 10% for the
remaining  $5 million of  committed  puts by us. In  exchange  for the first $17
million of our shares  under the minimum  commitment  amount,  Crammer  Road was
obliged to deliver to us 12,000 shares of common stock of DMC NY and cash in the
aggregate amount of $3.0 million. Monthly put notices were required to have been
delivered to Crammer Road commencing October 1, 2001. We were required to file a
registration  statement on Form S-1  registering for resale no less than 125% of
the  number of shares of our  common  stock that are  issuable  pursuant  to the
minimum  commitment  amount  under the  credit  line.  The  resale  registration
statement  covering these credit line shares was required to have been effective
by September 15, 2001. A penalty for late  effectiveness was provided for in the
agreement. In addition, if we failed to issue and deliver shares for the minimum
commitment  amount of $17  million  during the  commitment  period,  which would
terminate 18 months after the commitment  period began, NCT was obligated to pay
Crammer Road in  immediately  available  funds an amount equal to the product of
(i) the minimum  commitment  amount,  less the aggregate  value of shares of our
common stock  actually  delivered to Crammer Road under the credit line and (ii)
the then applicable discount. NCT and Crammer Road had a disput about the amount
due  under the  penalty  provision  of the  April  2001  private  equity  credit
agreement (see settlement with Crammer Road below).

     We delivered a put notice to Crammer  Road in November  2000 under the then
existing  private equity credit  agreement for $0.5 million and issued 2,810,304
shares of our common stock to Crammer Road, of which 343,604  shares were issued
in 2001.

2001 Exchange Agreement and Reset Shares

     On April 12,  2001,  NCT entered  into an exchange  agreement  with Crammer
Road.  Pursuant to the  exchange  agreement,  NCT issued to Crammer  Road a $1.0
million convertible note in exchange for 1,000 shares of

                                      F-31
<PAGE>

common  stock of DMC New York,  Inc.  (see Note 10).  Further,  pursuant  to the
exchange agreement,  the company issued to Crammer Road 13,333,333 shares of NCT
common  stock in  exchange  for 2,000  shares of common  stock of DMC NY with an
aggregate value of $2.0 million. In accordance with the exchange agreement,  NCT
was also  obligated to issue  Crammer Road  additional  NCT common shares (reset
shares) if the closing bid price of the NCT common  stock for the five  business
days prior to the day before we requested  acceleration of the  effectiveness of
the registration  statement covering those shares was less than $0.16 per share,
up to a maximum of 3,333,334  additional  shares.  We were obligated to register
these issued  shares of common stock and the reset  shares.  For the years ended
December  31,  2001 and 2002,  we  incurred  charges  of $0.5  million  and $3.4
million, respectively, due to non-registration of these shares included in other
(income) expense in our  consolidated  statement of operations (see Note 16). In
2002,  we settled  our  obligation  to Crammer  Road for the reset  shares  (see
settlement with Crammer Road below).

DMC New York, Inc.

     NCT acquired 75% of DMC NY in 2002 and 25% in 2001.  Our aggregate  cost of
the DMC NY shares was approximately $27.2 million (see Note 2).

     If a registration statement covering amounts pursuant to the April 12, 2001
exchange  agreement  with  Crammer  Road were not in effect by July 1, 2001,  we
agreed to acquire  1,000  shares of DMC NY common stock for $1.0 million in cash
or other marketable securities on July 1, 2001. We paid $100,000 to Crammer Road
in September 2001 toward this  commitment  which was classified in other current
assets at December  31,  2001 and was zero at December  31,  2002.  In 2002,  we
settled our obligation to Crammer Road under this agreement (see settlement with
Crammer Road below).

Convertible Note issued by NCT Video Displays, Inc.

     On April 12, 2001, NCT Video, our wholly owned  subsidiary,  entered into a
subscription agreement with Crammer Road whereby NCT Video issued a $0.5 million
convertible note to Crammer Road for $0.5 million in cash. NCT Video received an
advance of this amount in December  2000. The NCT Video note matured on December
31,  2001  and  bore  interest  at 8%  per  annum,  payable  at  maturity.  Such
convertible note was convertible into shares of NCT Video common stock.  Because
NCT Video's common stock is not publicly tradable on any market or exchange, NCT
and Crammer Road entered into an exchange rights agreement whereby the NCT Video
note would be  exchangeable  for shares of NCT common stock at an exchange price
per share of 93.75% of the average closing bid price of NCT common stock for the
five  trading  days prior to the  exchange.  In  accordance  with EITF 98-5,  as
codified in EITF 00-27, in 2001, we recorded a beneficial  conversion feature of
approximately  $33,000 in connection with this convertible  note. The beneficial
conversion feature was accounted for as a discount to the note and was allocated
to a component of additional  paid-in  capital.  For the year ended December 31,
2001,  the  discount  was  recognized  as interest  expense in our  consolidated
statement of operation.  In October 2001,  Crammer Road  exchanged the NCT Video
note for 6,014,029 shares of our common stock.

Settlement with Crammer Road

     In September  2002,  Crammer  Road brought a legal action  against NCT (see
Note 20).  On October 30,  2002,  a  settlement  agreement  was  executed by the
parties and  approved by the court on December 11,  2002.  Under the  settlement
agreement, all claims in the suit by Crammer Road are dismissed in consideration
of the issuance by NCT to Crammer Road of 68 million shares of NCT common stock.
On  December  17,  2002,  we issued  Crammer  Road 40  million of the 68 million
shares.  The other 28 million shares are issuable on 65 days' demand by Cranmmer
Road.

Shares Issued for Acquisitions
------------------------------

     As noted  above,  on April 12, 2001,  we issued  Crammer Road shares of our
common stock in exchange for shares of DMC NY.

     NCT issued shares of its common stock to  consummate  the  acquisitions  of
Theater Radio Network and Midcore  Software (see Note 2). We issued an aggregate
of 21,318,569 shares upon the closings of these  acquisitions

                                      F-32
<PAGE>

in August  2000.  In  February  2001,  due to fill-up  provisions,  we issued an
aggregate  of  5,319,142  shares for these  acquisitions.  We have a  contingent
obligation to issue additional  shares of our common stock to satisfy an earnout
provision for the Theater Radio Network acquisition. Further, we may be required
to issue additional NCT shares if the value of 4,332,005 of the shares we issued
at the Midcore  Software closing (look back shares) is less than $1.5 million on
the third anniversary of the closing (August 29, 2003).

Shares Issued upon Conversion or Exchange of Indebtedness

     During the year ended December 31, 2002, $0.4 million of our 8% convertible
notes  plus interest were converted into 5,611,682 shares of NCT's
common stock.

     As noted  above,  in October  2001,  we issued  Crammer  Road shares of our
common stock upon Crammer Road's exchange of the NCT Video note.

     During the year ended December 31, 2001, $2.5 million of the 6% convertible
notes plus interest were exchanged for 26,910,453  shares of NCT's common stock.
During the year ended  December  31, 2002,  $0.2  million of the 6%  convertible
notes plus interest were  exchanged for 2,598,956  shares of NCT's common stock.
At December 31, 2002, $4.2 million of the 6% convertible note principal remained
that could be exchanged for NCT common stock.

     On May 18,  2001,  Carole  Salkind  converted a 60-day  $500,000  note into
4,303,425  shares of our common stock at an agreed upon price of $0.13,  a price
which  approximated the market price of our common stock on the conversion date.
NCT had  defaulted  on the  repayment of this note.  NCT reduced the  conversion
price  from  $0.21 to $0.13 to induce  conversion  of the note  resulting  in an
inducement  charge of  approximately  $0.2  million  included in other  (income)
expense (see Note 16).

Shares Issued to Infinite Technology Corporation, Vendors and Others

     During the year ended December 31, 2002, we recorded  charges totaling $0.5
million  for the  issuance of  6,438,081  shares of our common  stock.  Of these
shares,  5,938,081 were valued at approximately  $0.5 million and were issued to
settle a legal matter (see Note 20). In addition, 200,000 of the total number of
shares  were  issued to settle a legal  matter and were valued at less than $0.1
million  (based upon the closing  bid price on the date of the  settlement).  In
addition,  300,000 of the total  number of shares  were valued at less than $0.1
million and were issued for a partial payment of consulting services (based upon
the closing bid price on the date of the agreement).

     During  the year ended  December  31,  2001,  NCT  issued an  aggregate  of
3,165,495 shares of its common stock to suppliers,  consultants and an employee.
Of  these  shares  2,994,066  were for  current  obligations  totaling  $804,683
(328,717 of such shares were issued to an employee) and 171,429  shares were for
future obligations totaling $60,000.

     On September 7, 2000,  the company  issued  9,523,810  shares of its common
stock having a market value of $3.0 million to Infinite  Technology  Corporation
with respect to the strategic alliance and technology development amendment with
ITC (see Note 4).

ConnectClearly.com, Inc. Initial Financing
------------------------------------------

     On August 10, 2000,  NCT entered into an  agreement  with three  accredited
investors    for   the   financing   of   NCT's    majority-owned    subsidiary,
ConnectClearly.com,   Inc.   In   connection   with  the   initial   funding  of
ConnectClearly,  NCT issued 1,000 shares of ConnectClearly common stock to these
investors in consideration for $0.5 million in cash and conversion of promissory
notes  payable,  due to  two of the  investors,  totaling  $0.5  million.  These
ConnectClearly common shares are exchangeable for shares of NCT common stock any
time on or after the 180th day following issuance of the  ConnectClearly  common
stock at 80% of the five-day closing bid average of the NCT common stock for the
five-day  period  immediately  preceding  the  exchange.  During  the year ended
December 31, 2000, no shares of ConnectClearly  were exchanged for shares of NCT
common  stock.   During  the  year  ended  December  31,  2001,  937  shares  of
ConnectClearly  common stock were exchanged for 7,831,908 shares of NCT's common
stock.  We incurred a $0.3 million charge to additional  paid-in  capital.  This
amount is included in

                                      F-33
<PAGE>

beneficial  conversion  features and in the calculation of loss  attributable to
common  stockholders for the year ended December 31, 2001.  Because NCT obtained
the ConnectClearly common shares upon exchange, NCT accounted for this as a step
acquisition for which NCT recorded an increase to its goodwill in ConnectClearly
and an increase to its additional  paid-in capital of $0.9 million.  At December
31,  2001,  as  a  result  of  ConnectClearly's  failure  to  achieve  operating
objectives,  goodwill  was reduced to zero  resulting  in a goodwill  impairment
charge of $0.9  million.  During the year ended  December 31, 2002, no shares of
ConnectClearly  were  exchanged for shares of NCT common stock.  At December 31,
2002, 63 ConnectClearly common shares are outstanding.

Distributed Media Corporation
-----------------------------

     During 2001, employees of DMC exercised options and were issued 7.06 shares
of DMC common  stock.  On February 28, 2002, we issued  2,142,073  shares of our
common stock in exchange  for 6.435  shares of DMC common  stock  pursuant to an
employment termination  agreement.  We recorded a charge based on the fair value
of our common  stock at that date of $0.2 million  included in our  consolidated
statement of  operations  for the year ended  December 31, 2002,  classified  as
selling, general and administrative expense.

NCT Audio Products, Inc.
------------------------

Initial Financing

     NCT Audio sold 2,145 common shares in 1997 for  approximately  $4.0 million
in a private  placement  under  Regulation D of the  Securities Act of 1933 (the
"Securities  Act"). The terms of the sale allow purchasers of NCT Audio's common
stock to  exchange  their  shares  for NCT common  stock at 80% of the  five-day
average  closing  bid price of NCT  common  stock for the five days  immediately
preceding  the  exchange.  The NCT share  exchanges  are  accounted  for as step
acquisitions of NCT Audio. Through the fourth quarter of 1999, we had pursued an
acquisition  strategy for NCT Audio.  In connection  with financing  efforts for
that  acquisition  strategy,  we had access to an  independent  appraisal of NCT
Audio  performed  for a  prospective  lender.  In 1999,  we changed the business
strategy to suspend NCT Audio's  acquisition  effort.  Based upon that change in
strategy and the then current  valuation,  we began impairing goodwill resulting
from step acquisitions. In 2001, due to the continuing inability of NCT Audio to
generate positive cash flows from operations,  we reduced the NCT Audio goodwill
balance to zero  (representing $1.5 million of the 2001 impairment to goodwill).
In 2002, $0.3 million of goodwill resulting from a step acquisition was impaired
because of NCT Audio's continuing inability to generate positive cash flows from
operations. Included in our consolidated statements of operations are impairment
charges  aggregating  $3.1 million,  $2.1 million and $0.3 million for the years
ended December 31, 2000, 2001 and 2002, respectively.

     Through December 31, 2002, we have issued an aggregate of 31,239,483 shares
of our common  stock in exchange  for 2,145  shares of NCT Audio  common  stock.
During the years ended December 31, 2000, 2001 and 2002, 533, 597 and 160 shares
of  NCT  Audio  common  stock,  respectively,   were  exchanged  for  3,611,111,
4,824,068,  and 3,930,818  shares of NCT common stock.  At December 31, 2002, no
shares of NCT Audio common stock subject to exchange are outstanding.

Shares Issued to NXT plc

     On March 30, 2001, NCT issued  3,850,000  shares of its common stock to NXT
attributable  to  new  agreements  that   reorganized   existing   cross-license
agreements  between the companies  (see Note 4). Under the new  agreements,  NXT
transferred  its 533 shares of NCT Audio  common  stock to NCT in payment of the
exercise price for an option held by NXT to purchase  3,850,000  shares of NCT's
common stock (see Note 15). NXT had  purchased  those shares of NCT Audio common
stock in 1997 for $1.0 million.

Exchange Shares

     The  company  had  contingent   obligations  under  a  securities  exchange
agreement,  dated  October  9, 1999  among the  company,  Austost  and  Balmore.
Pursuant to the  exchange  agreement,  on October 26, 1999 the company  issued a
total of  17,333,334  shares to Austost and Balmore (the  "Exchange  Shares") in
exchange  for 532  shares  of  common  stock of NCT Audio  held by  Austost  and
Balmore.  The  effective  per share  price of the  Exchange  Shares  received by
Austost and Balmore was $0.06 per share  (representing  the total purchase price
originally  paid by

                                      F-34
<PAGE>

Austost  and  Balmore  for the NCT  Audio  shares  of $1.0  million  divided  by
17,333,334).  This effective per share price was $0.115, or 65.7%, less than the
closing bid price of the company's  common stock as reported by the OTC Bulletin
Board on  October  25,  1999.  This  effective  per share  price was  subject to
increase upon the application of an exchange ratio  adjustment  provision in the
exchange agreement on February 15, 2000 (or an earlier date agreed to by all the
parties) and was subject to decrease upon the  application of a reset  provision
in the exchange agreement. Under the exchange ratio adjustment provision and the
reset  provision,  NCT could have  received  shares back or had an obligation to
issue additional shares if the value of the shares issued to Austost and Balmore
on the measurement date differed from $2.6 million.  No adjustment to the number
of shares was  required.  On March 7, 2000,  some  terms and  conditions  of the
exchange  agreement  were  amended.  Under the exchange  agreement,  Austost and
Balmore were  obligated to return to NCT  13,671,362  shares of NCT common stock
("Excess Exchange  Shares").  This amendment was agreed to in order to (i) allow
Austost and Balmore to retain  3,611,111  Excess Exchange Shares in exchange for
an additional 533 shares of NCT Audio common stock from a third party  investor,
which  Austost  and  Balmore  would  deliver to NCT,  and (ii)  substitute  cash
payments  by  Austost  and  Balmore  to the  company  in lieu of  Austost's  and
Balmore's  obligation  to return the  remaining  Excess  Exchange  Shares to the
company pursuant to the exchange  agreement.  Austost and Balmore would agree to
pay the company up to $1.0 million in cash subject to monthly  limitations  from
proceeds  Austost and  Balmore  would  realize  from their  disposition  of such
remaining  Excess  Exchange  Shares.  Austost  and Balmore  would  realize a 10%
commission  on the proceeds  from the sale of NCT shares.  During the year ended
December 31, 2000, the company received  proceeds,  net of commissions,  of $2.3
million for the sale of  approximately 10 million Excess Exchange Shares sold by
Austost and Balmore, which funds were used to repay notes payable ($0.8 million)
and for  working  capital  purposes.  In 2001,  NCT  received  proceeds,  net of
commissions,  of $0.2 million  upon the sale of the  remaining  Excess  Exchange
Shares.

Other Private Placements and Stock Issuances
--------------------------------------------

     On June  5,  1998,  Interactive  Products,  Inc.  ("IPI")  entered  into an
agreement  with the company  granting the company a license to, and an option to
purchase a joint ownership interest in, patents and patents pending which relate
to IPI's speech recognition  technologies,  speech compression  technologies and
speech  identification and verification  technology.  The aggregate value of the
patented  technology  was $1.3  million,  which was paid by a $0.2  million cash
payment and delivery of 1.3 million shares of the company's  common stock valued
at  $0.65625  per share on June 5,  1998.  At such time as IPI sells any of such
shares,  the proceeds thereof will be allocated  towards a fully paid-up license
fee for the technology  rights noted above.  In the event that the proceeds from
the sale of shares are less than the $1.1  million,  the  company  will record a
liability  representing  the cash payment due. On July 5, 1998, the company paid
IPI  $50,000,  which was held in escrow as security for the  fulfillment  of the
company's  obligations,  toward the liability.  The company recorded a liability
representing the difference  between the company's  payment  obligations and the
IPI net  proceeds  from its sale of shares of NCT's  common  stock.  In February
2001, we issued 200,000 shares of NCT common stock to settle this obligation and
reduced the patent cost by $0.4 million  corresponding  to our  reduction of the
liability.

     On or about August 22, 2001,  2.0 million shares of NCT common stock issued
with a restrictive  legend were sold in a private  placement,  at current market
value. The proceeds consisted of approximately  $0.2 million in cash,  including
approximately  $0.1 million from certain NCT  directors  and officers  (see Note
18).

Transactions Affecting Common Stock of Pro Tech Communications, Inc.
--------------------------------------------------------------------

     In 2001, NCT received  1,190,476 shares of Pro Tech common stock as partial
consideration  for the  January 9, 2001 6%  convertible  notes  issued by Artera
Group,  Inc. (see Note 10). We received an aggregate of 2,563,636  shares of Pro
Tech  common  stock  valued at $1.4  million  in partial  payment of  technology
license fees receivable from two DMC customers.

     Pursuant to a consulting agreement dated March 15, 1999, as amended June 1,
1999 and modified  July 29, 1999,  between Pro Tech and the outside  consultant,
Pro  Tech was  obligated  to issue  2% of its  outstanding  common  stock to the
consultant upon the consummation of the Pro Tech acquisition by our wholly-owned
subsidiary,  NCT Hearing (see Note 2). As such,  Pro Tech issued  279,688 shares
and NCT Hearing transferred 279,687 shares of its Pro Tech's common stock to the
consultant  (an  aggregate  of  559,375   shares)  in  full  settlement  of  all
obligations  under the  consulting  agreement.  The  shares  were  valued at the
closing bid price as of the date of issue. Pro Tech

                                      F-35
<PAGE>


treated this as a charge against the stock issued,  and NCT Hearing  recorded it
as a reduction in its investment in Pro Tech.

     At December 31, 2002, NCT Hearing  Products,  Inc. had  approximately  27.1
million  shares of Pro Tech common stock,  comprising  approximately  82% of the
issued and outstanding shares of Pro Tech common stock.

NCT Group, Inc. Preferred Stock
-------------------------------

     Our  Board  of  Directors  is  authorized  to issue 10  million  shares  of
preferred  stock,  par value $0.10 per share. As of December 31, 2002, there are
1,800 shares of NCT preferred  stock issued and  outstanding.  Through 2002, NCT
designated eight series of preferred stock, including series A, B, C, D, E, F, G
and H preferred  stock.  Series A and B were  eliminated  in 1992  without  ever
having been issued.  We have issued preferred stock under our series C, D, E, F,
G and H designations. In November 2001, series C, D, E and F were eliminated. As
of December 31, 2002,  there are 1,800 shares of series H preferred stock issued
and outstanding.

Series F Convertible Preferred Stock

         On August 10, 1999, the company entered into a subscription agreement
to sell an aggregate stated value of up to $12.5 million (12,500 shares) of
series F preferred stock in a private placement, pursuant to Regulation D under
the Securities Act, to five unrelated accredited investors. On August 10, 1999,
the company received $1.0 million for the sale of 8,500 shares of series F
preferred stock having an aggregate stated value of $8.5 million. At the
company's election, the investors may invest up to an additional $4.0 million in
cash or in kind at a future date. Each share of the series F preferred stock had
a par value of $0.10 and a stated value of $1,000 with an accretion rate of 4%
per annum on the stated value. Each share of series F preferred stock was
convertible into shares of the company's common stock, subject to specified
limitations, as determined by a formula in the agreement. The conversion terms
of the series F preferred stock also provided that in no event would the company
be obligated to issue more than 35 million shares of its common stock in the
aggregate in connection with the conversion of up to 12,500 shares of series F
preferred stock. Subsequently, the maximum number of conversion shares was
increased to 77 million shares of the company's common stock. The company
registered an aggregate of 25,744,000 shares of common stock issuable upon
conversion and payment for accretion. In connection with the series F preferred
stock, the company may have been obligated to redeem the excess of the stated
value over the amount permitted to be converted into common stock. Such
additional amounts would have been treated as obligations of the company.

     On December  15, 1999,  974 shares of NCT's  series F preferred  stock were
returned to the company as partial consideration for eight DMC network affiliate
licenses.  During  2000,  we issued  23,470,081  shares of our common stock upon
conversion  of the  remaining  4,715 shares of series F preferred  stock.  As of
December  31,  2000,  7,526  shares of NCT's  series F preferred  stock had been
converted into 48,776,638 shares of NCT's common stock. At December 31, 2001, no
series F preferred stock was outstanding.

Series G Convertible Preferred Stock

     On January 25, 2000,  the Board of  Directors of NCT  designated a series G
convertible  preferred  stock.  The series G preferred  stock  consists of 5,000
designated  shares,  par value of $0.10 per share and a stated  value $1,000 per
share with a  cumulative  dividend of 4% per annum on the stated  value  payable
upon  conversion  in either cash or common  stock.  On September  26, 2000,  the
company's  Board of Directors  approved an amendment to the Series G Certificate
of  Designations,  Rights and Preferences to increase the maximum share issuance
amount  thereunder  from 10 million shares to 24 million  shares.  The amendment
became  effective  on  September  27,  2000 when the  company  filed it with the
Secretary of State of Delaware. On March 6, 2000, as amended March 10, 2000, NCT
and an  accredited  investor  entered into an agreement  under which NCT sold an
aggregate  stated  value of $2.0  million  (2,004  shares) of series G preferred
stock, in a private placement pursuant to Regulation D under the Securities Act,
for an  aggregate  of $1.75  million.  The  company  received  proceeds,  net of
expenses, of $1.7 million. Each share of series G preferred stock is convertible
into  shares of NCT  common  stock at the  lesser of (i) 20% below the  five-day
average  closing bid price of common stock  immediately  prior to  conversion or
(ii) $0.71925.  In connection with the series G preferred stock transaction,  on
March 6, 2000, the company granted a five-year warrant for 150,000 shares of NCT
common stock at an exercise price of $0.71925.  In accordance with SFAS 123, the
company estimated the fair market value of this warrant to be $0.1 million using
the Black-Scholes option pricing model. An aggregate of

                                      F-36
<PAGE>

$0.7  million  for the  discounted  conversion  price and warrant is included in
beneficial conversion features for the year ended December 31, 2000. The company
filed a  registration  statement on April 20, 2000 (amended on June 13, 2000) to
register  such  shares  of  common  stock  for the  conversion  of the  series G
preferred  stock and the related  warrant.  During the year ended  December  31,
2000, the company issued 4,906,595 shares of the company's common stock upon the
conversion of 1,237 shares of the  company's  series G preferred  stock.  During
2001,  we issued  7,218,150  shares of our common stock upon  conversion  of the
remaining 767 shares of series G preferred stock. As of December 31, 2001, 2,004
shares of NCT's  series G preferred  stock had been  converted  into  12,124,745
shares of NCT's  common  stock.  At  December  31,  2001 and  2002,  no series G
preferred stock was outstanding.

Series H Convertible Preferred Stock

     In June 2002, NCT designated  series H preferred stock  consisting of 1,800
designated  shares with a par value $0.10 per share,  a stated  value of $10,000
per share and a cumulative  dividend of 4% per annum on the stated value payable
upon conversion in either cash or common stock, at NCT's election.  The series H
preferred  stock is senior  in rank to our  common  stock and has a  liquidation
value equal to the dividends  plus the stated value in the case of  liquidation,
dissolution  or winding up of NCT.  The holders of our series H preferred  stock
have no voting rights (except as may be required by law). Each share of series H
preferred stock is convertible  into shares of the company's common stock at 75%
of the average closing bid price of common stock for the five-day trading period
immediately preceding conversion.  The holder of the series H preferred stock is
subject to a limitation on the percentage ownership of outstanding common shares
of the company, as defined.  The series H preferred stock is redeemable by us in
cash at any time at a  redemption  price that is a function of the time  between
the date  the  series H was  originally  issued  and the  redemption  date.  The
redemption  price  ranges  from 85% of  stated  value  (within  three  months of
issuance) to 120% of stated value (after nine months from issuance). On June 24,
2002,  we issued  1,800  shares  ($18  million  stated  value)  of our  series H
preferred  stock to Crammer Road LLC for $120,000  cash and 12,000 shares of DMC
New York,  Inc.  (see Note 2). For the year ended  December  31,  2002,  we have
included $0.4 million representing preferred stock dividends on the consolidated
statement  of  operations.  As of December  31,  2002,  1,800 shares of series H
preferred stock are issued and outstanding and no series H preferred shares have
been converted.

Artera Group, Inc. Preferred Stock
----------------------------------

     On  February  21,  2001,  the  Board of  Directors  of Artera  Group,  Inc.
designated  a series A  convertible  preferred  stock  which  consists of 30,000
designated  shares,  par value of $0.10 per share and  stated  value  $1,000 per
share with a  cumulative  dividend of 4% per annum on the stated  value  payable
upon conversion in either cash or common stock of Artera. Each share of series A
convertible preferred stock is convertible into shares of Artera common stock on
and after the  earlier of two years  after  issuance  or ten days  after  Artera
becomes  publicly  traded,  at a conversion  price equal to the average  closing
price for the five trading days prior to the  conversion  date. We amended these
rights as to $4.3 million stated value of Artera preferred stock that was issued
in  conjunction  with our  acquisition  of Artera  (see Note 2). For each of the
years ended  December 31, 2001 and 2002,  the dividends are  approximately  $0.3
million.  These amounts represent  preferred stock dividends on the consolidated
statement of operations for the years then ended.

     On June 29, 2001,  NCT entered into an exchange  rights  agreement with ten
accredited  investors who hold $4.3 million in aggregate  stated value of Artera
Group, Inc. series A preferred stock. Each of the ten holders of Artera series A
preferred  stock is entitled to exchange the Artera series A preferred stock for
shares of NCT common stock from and after November 30, 2001 at an exchange price
per share of 100% of the average closing bid price of NCT's common stock for the
five  trading  days prior to the  exchange  date.  NCT is  obligated to register
shares of its common stock for the exchange of Artera series A preferred  stock.
For the years ended  December  31,  2001 and 2002,  we incurred a charge of $0.7
million and $2.1 million,  respectively,  for non-registration of the underlying
shares of NCT common  stock.  These  amounts  are  included in  preferred  stock
dividends on the consolidated  statement of operations for the years then ended.
Pursuant to the  exchange  rights  agreement,  NCT has the option at any time to
redeem any outstanding Artera series A preferred stock by paying the holder cash
equal to the aggregate stated value of the Artera series A preferred stock being
redeemed  (together with accrued and unpaid dividends  thereon).  As of December
31,  2002,  8,299  shares of Artera  series A  preferred  stock are  issued  and
outstanding and no shares have been converted.

                                      F-37
<PAGE>

Pro Tech Communications, Inc. Preferred Stock
---------------------------------------------

     On  September  29, 2000,  Pro Tech  entered into a securities  purchase and
supplemental  exchange rights agreement with the company,  Austost,  Balmore and
Zakeni Limited to consummate the $1.5 million financing  arranged by the company
for Pro Tech in  connection  with its sale of 1,500  shares of Pro Tech series A
convertible  preferred  stock to the investors.  The Pro Tech series A preferred
stock  consists  of 1,500  designated  shares,  par value  $0.01 per share and a
stated value of $1,000 per share with a cumulative dividend rate of 4% per annum
on the stated  value.  Each share of such  stock is  exchangeable  for shares of
NCT's  common  stock based upon the lowest  average of the  average  closing bid
price for a share of our common stock for any consecutive five-day period out of
15 trading  days  preceding  the date of  exchange,  less a discount  of 20%. In
addition,  each share of this preferred stock is convertible  into shares of the
Pro  Tech's  common  stock  at a  discount  from the  quoted  market  value.  In
connection  with the  execution  of the  securities  purchase  and  supplemental
exchange rights agreement,  Pro Tech issued three-year  warrants to the Pro Tech
investors to acquire 4.5 million  shares of Pro Tech's common stock  exercisable
at $0.50 per share. Pro Tech estimated the fair value of this warrant to be $3.6
million  determined using the  Black-Scholes  option pricing model. In addition,
the  excess  of the  quoted  market  value of the  common  stock  assumed  to be
converted over the net allocable  proceeds  received for issuance of convertible
series A preferred shares (the beneficial conversion feature) of $1.4 million is
considered a preferred  dividend with this  difference  being  accreted over the
period beginning with the issuance of the preferred stock to the date the shares
are eligible for conversion.  The beneficial  conversion  feature had originally
been calculated at $0.4 million.  The  calculation of the beneficial  conversion
feature has been adjusted to reflect the correct discount from the quoted market
price of the common stock, which resulted in an adjusted  beneficial  conversion
feature of $1.4 million. The aggregate of $5.0 million, as adjusted, is included
in beneficial  conversion features on the consoilidated  statement of operations
for the year ended December 31, 2000 (see Note 3).

     On July 30, 2001,  Pro Tech entered  into an agreement  with Alpha  Capital
Aktiengesellschaft  to  issue  500  shares  of  Pro  Tech  series  B  redeemable
convertible  preferred  stock having an aggregate  stated value of $0.5 million.
Upon  issuance,  Pro Tech received  approximately  $0.4 million in cash,  net of
expenses and fees,  which was used for working  capital  purposes.  The Pro Tech
preferred stock is convertible  into Pro Tech common,  and is  exchangeable  for
shares of NCT common stock (as to 50% from and after six months,  and as to 100%
from and after one year,  from the issue date) at an exchange  rate which is the
lowest average of the average  closing bid price for a share of NCT common stock
for any  consecutive  five trading days out of the 15 trading days preceding the
date of  exchange,  less a  discount  of 20%.  Pro Tech  recorded  a  beneficial
conversion  feature of $125,000 in connection  with the issuance of its series B
preferred stock which resulted in a reduction to the outstanding  balance of the
preferred stock and an increase to additional  paid-in  capital.  The beneficial
conversion  feature is to be recognized  as an increase to Pro Tech's  preferred
stock and a decrease to additional paid-in capital over the period from the date
of issuance (July 30, 2001) to the date of earliest  conversion  (50% on January
30, 2002 and 50% on July 30,  2002).  For the years ended  December 31, 2001 and
2002, $79,000 and $46,000,  respectively,  of the beneficial  conversion feature
was  recognized.  In connection  with this 2001  transaction,  Pro Tech issued a
three-year  warrant  to  purchase  1.0  million  shares  of  its  common  stock,
exercisable  at $0.13  per  share.  Pro Tech  estimated  the fair  value of this
warrant to be  approximately  $63,000  using the  Black-Scholes  option  pricing
model.  The  aggregate  of  $142,000  and  $46,000  is  included  in  beneficial
conversion  features on the  consolidated  statement of operations for the years
ended December 31, 2001 and 2002, respectively.

     For the  years  ended  December  31,  2000,  2001 and 2002,  the  aggregate
dividends  for Pro Tech series A and B are  approximately  $21,000,  $24,000 and
$22,000, respectively.  These amounts represent preferred stock dividends on the
consolidated statement of operations for the years then ended.

     During the year ended December 31, 2001,  1,162 shares of Pro Tech series A
preferred  stock were converted  into 4,951,873  shares of Pro Tech common stock
and 288 shares of Pro Tech series A preferred stock were exchanged for 2,975,978
shares of NCT common stock. In connection  with the issuance of NCT shares,  NCT
recorded a decrease in the minority  interest in  subsidiary  and an increase to
additional paid-in capital of approximately $0.2 million.  During the year ended
December 31, 2002, there were no conversions or exchanges. At December 31, 2002,
there were 50 shares of Pro Tech's series A preferred stock  outstanding and 500
shares of Pro Tech series B preferred stock outstanding.

                                      F-38
<PAGE>


NCT Audio Products, Inc. Preferred Stock
----------------------------------------

     On July 27, 1998, NCT Audio entered into subscription agreements to sell 60
shares of NCT Audio's series A convertible  preferred  stock having an aggregate
stated value of $6.0 million in a private  placement,  pursuant to  Regulation D
under the  Securities  Act, to six  unrelated  accredited  investors.  NCT Audio
received  net  proceeds  of $5.2  million  from the sale of NCT  Audio  series A
preferred stock.  Each share of the NCT Audio series A preferred stock has a par
value of $0.10 and a stated value of $100,000  with an accretion  rate of 4% per
annum on the stated value.  Each share of NCT Audio series A preferred stock was
exchangeable  for NCT's series D preferred stock and convertible  into shares of
NCT common stock as determined by a formula set forth in the agreement. On March
30, 1999,  holders of 57 shares of NCT Audio series A preferred  stock exercised
this election and converted their shares into 11,699,857  shares of NCT's common
stock.  On January 10, 2000,  the  remaining  three shares of NCT Audio series A
preferred  stock were  converted  into 634,915  shares of the  company's  common
stock.  As of December 31, 2000, 60 shares of NCT Audio series A preferred stock
had been converted into 12,334,772 shares of NCT's common stock. At December 31,
2000, no NCT Audio series A preferred stock was outstanding.

Treasury Stock
--------------

     On March 1,  2002,  NCT  retired  and  cancelled  all  6,078,065  shares of
treasury stock.

15.  Common Stock Options and Warrants:

     The company  values  options and warrants  using the  Black-Scholes  option
pricing model and accounts for options and warrants issued to those that are not
employees  or members of the Board of  Directors  as outlined  herein.  The fair
value of options and  warrants  issued to general  consultants  are  recorded as
consulting  expense  and  classified  as  selling,  general  and  administrative
expenses.  The relative fair value of options and warrants  issued in connection
with indebtedness are amortized as interest expense over the term of the related
indebtedness.  The  allocated  fair  value of  options  and  warrants  issued in
conjunction   with  preferred   stock  are  accreted  as  an  increase  in  loss
attributable to common  stockholders in the net loss per share  computation over
the vesting period of the related options or warrants. The fair value of options
and warrants issued in connection with  acquisitions  are recorded as additional
purchase price.

Stock Options:

     The  company  has stock  option  plans  under  which  directors,  officers,
employees and  consultants  may be granted  options to purchase  common stock or
other  equity-based  awards.  The  company's  stock  option plans that have been
approved  by  shareholders  are as  follows:  1987 Stock  Option Plan (the "1987
Plan");  the NCT Group,  Inc. 1992 Stock  Incentive  Plan (as ameded,  the "1992
Plan");  the NCT Group, Inc. Option Plan for Certain Directors (as amended,  the
"Directors  Plan");  and the NCT Group,  Inc. 2001 Stock and Incentive Plan (the
"2001 Plan"). In addition, options outside the option plans have been granted.

     The following  summarizes  information  about the  company's  stock options
outstanding and exercisable at December 31, 2002:


<TABLE>
<CAPTION>

                                                  Options Outstanding                         Options Exercisable
                                      ---------------------------------------------      --------------------------------
                                                           Weighted
                                                           Average
                                                           Remaining       Weighted                              Weighted
                                                          Contractual      Average                               Average
                     Range of              Number             Life         Exercise          Number              Exercise
Plan               Exercise Prices       Outstanding       (In Years)        Price         Exercisable            Price
--------------    ----------------    ----------------    -----------      --------      --------------         ---------
<C>               <C>       <C>           <C>                 <C>           <C>             <C>                 <C>
1987 Plan         $ 0.50 to $ 0.63        1,350,000           1.09          $  0.51         1,350,000           $  0.51
                                      ================                                   ==============

1992 Plan         $ 0.10 to $ 1.00       44,022,537           4.70          $  0.42        44,022,537           $  0.42
                                      ================                                   ==============

Directors Plan    $             -                  -             -          $     -                 -           $     -
                                      ================                                   ==============

2001 Plan         $ 0.081 to 0.13        41,485,358 (i)       6.86          $  0.10        30,080,358(i)        $  0.11
                                      ================                                   ==============

Non-plan          $ 0.042 to $0.27       84,825,000           4.69          $  0.07        84,825,000           $  0.07
                                      ================                                   ==============
</TABLE>

                                      F-39
<PAGE>


     (i)  29,400,000  of the number  outstanding  and  19,995,000  of the number
exercisable  under the 2001 Plan are subject to the  approval  by the  company's
stockholders  of a  sufficient  increase  (1) in the  number of shares of common
stock  authorized  and (2) in the number of shares  covered by the 2001 Plan. At
the time of such  shareholder  approval,  if the market  value of the  company's
common stock exceeds the exercise price of the subject options, the company will
incur a non-cash  charge to earnings  equal to the spread  between the  exercise
price of the option and the market price,  times the number of options involved.
If shareholder  approval of the increase is not obtained at the next shareholder
meeting,  options  granted will be reduced pro rata for the excess  unauthorized
shares.

1987 Plan
---------

     The company's 1987 Plan provides for the granting of up to 4 million shares
of common stock as either incentive stock options or nonstatutory stock options.
Options to purchase shares may be granted under the 1987 Plan to persons who, in
the case of incentive stock options, are full-time employees (including officers
and directors) of the company;  or, in the case of  nonstatutory  stock options,
are employees or  non-employee  directors of the company.  The exercise price of
all  incentive  stock options must be at least equal to the fair market value of
such shares on the date of grant and may be exercisable  over a ten-year  period
as determined by the Board of Directors.  The exercise price and duration of the
nonstatutory  stock options are  determined by the Board of Directors.  In 2000,
the Board of  Directors  determined  that no future  grants of  options  for the
purchase of shares would be made under the 1987 Plan.  Thus,  no options for the
purchase of shares are available for future grant under the 1987 Plan.

     1987 Plan activity is summarized as follows:

<TABLE>
<CAPTION>

                                                               Years Ended December 31,
                                   ---------------------------------------------------------------------------------
                                              2000                        2001                       2002
                                   -------------------------   -------------------------  --------------------------
                                                   Weighted                    Weighted                    Weighted
                                                   Average                     Average                     Average
                                                   Exercise                    Exercise                    Exercise
                                      Shares        Price         Shares        Price        Shares        Price
                                   ------------  -----------   -----------  ------------  -----------  -------------
<S>                                  <C>           <C>          <C>            <C>         <C>              <C>
Outstanding at beginning of year     1,350,000     $  0.51      1,350,000      $  0.51     1,350,000       $  0.51
Options granted                              -           -              -            -             -             -
Options exercised                            -           -              -            -             -             -
Options canceled, expired or                 -           -              -            -             -             -
forfeited                          ------------                -----------                -----------
Outstanding at end of year           1,350,000     $  0.51      1,350,000      $  0.51     1,350,000       $  0.51
                                   ============                ===========                ===========
Options exercisable at year-end      1,350,000     $  0.51      1,350,000      $  0.51     1,350,000       $  0.51
                                   ============                ===========                ===========
Options available for grant at               -                          -                          -
year-end                           ============                ===========                ===========
</TABLE>


1992 Plan
---------

     On October 6, 1992,  the company  adopted the 1992 Plan for the granting of
shares and  options  to  purchase  up to  10,000,000  shares of common  stock to
officers,  employees,  consultants and directors.  The exercise price of options
granted  under the 1992 Plan must be at least equal to the fair market  value of
such  shares  on  the  date  of the  grant.  1992  Plan  options  are  generally
exercisable  over a five to  ten-year  period  as  determined  by the  Board  of
Directors.  Vesting schedules of 1992 Plan options vary from (i) fully vested at
the date of grant to (ii) multiple year apportionment of vesting,  as determined
by the Board of Directors.  On October 20, 1998,  the  stockholders  approved an
amendment to the 1992 Plan to increase the aggregate  number of shares of common
stock reserved for grants of restricted  stock and grants of options to purchase
shares of common stock to 30,000,000  shares. On July 13, 2000, the stockholders
approved an  amendment  to the 1992 Plan to  increase  the  aggregate  number of
shares of NCT's  common stock  reserved for issuance  upon the exercise of stock
options granted and restricted  stock awards under the 1992 Plan from 30,000,000
shares to 50,000,000 shares.

     In January 2000, the Board of Directors  granted options to purchase shares
of the company's common stock to directors, officers, employees and consultants,
subject to the approval by the company's  stockholders of (1) an increase in the
number of shares of common stock authorized and (2) an increase in the number of
shares covered by the 1992 Plan. Those options were granted at or above the fair
market value of the company's  common stock on the date of grant. The fair value
of the options  granted to  consultants  amounted to $0.1  million  (included in
selling,  general and administrative  expenses on the consolidated statements of
operations for the year ended December 31,

                                      F-40
<PAGE>


2000).  After  shareholder  approval  of  increases  in July 2000,  the Board of
Directors canceled 9.9 million options it had granted in January 2000. The Board
of  Directors  granted 12.4 million new options at the then fair market value of
the common  stock,  a higher  exercise  price than had been in effect in January
2000.  There was no financial  statement  impact with respect to the granting of
these new options.

     On April 21, 2000,  the Board of  Directors  approved  the  re-granting  to
employees of options to replace options that would otherwise expire in 2000. The
replacement  grants under the 1992 Plan totaled  approximately  315,000 options.
The price on these new grants was  substantially  the same as the exercise price
of the replaced grants, and therefore,  there was no financial  statement impact
with respect to these options.

     In December 2000, the Board of Directors  granted  options to directors and
employees to acquire  11,325,000  shares of common stock  subject to  sufficient
remaining shares under the 1992 Plan. These grants exceeded the number of shares
available under the 1992 Plan by 2,824,505.  As such, the grant to the company's
Chairman of the Board of Directors  and Chief  Executive  Officer was reduced by
this amount, but this award remained an obligation  pending future  availability
under  the 1992  Plan or  adoption  of a new  stock  option  plan.  The Board of
Directors  fulfilled  this  obligation  in 2001 by  granting  options to acquire
824,505 shares under the 1992 Plan and options to acquire 2,000,000 shares under
the 2001 Plan.  The exercise  price of the options was equal to the market price
at the date the shares  were made  available  under the plans.  Accordingly,  no
compensation was recognized.

     On April 25, 2001,  the Board of  Directors  approved  the  re-granting  to
employees of options to replace options that would otherwise expire in 2001. The
replacement grants under the 1992 Plan totaled approximately 67,000 options. The
exercise  price of these new  grants was the same as the  exercise  price of the
replaced  grants,  and all exercise prices exceeded the fair value of our common
stock on the date of grant.  Therefore,  there was no financial statement impact
with respect to these options. In addition, in 2001, the company granted 357,927
shares of common  stock under the 1992 Plan to a former  employee in  connection
with his  employment  termination  agreement.  The company  recorded a charge of
approximately  $33,000 in connection  with this grant,  representing  the market
price at the date of termination.

     From time to time, the Board of Directors accelerates the vesting schedules
of previously  granted stock options so that the right to acquire the underlying
shares  becomes  100%  vested.  The  vesting  schedules  on grants made to NCT's
Chairman of the Board of Directors and Chief Executive  Officer were accelerated
in each of 2000 and 2001, but the exercise prices were not modified, as follows:
(a) his April 13, 1999 grant to acquire  5,000,000  shares became vested on July
13,  2000 due to DMC and fund  raising;  (b) his July 13,  2000 grant to acquire
8,164,634  shares  became 100% vested on December 6, 2000 due to  completion  of
acquisitions  in 2000;  and (c) his December 6, 2000 grant to acquire  6,000,000
shares  became 100% vested on  September  20,  2001 due to  formation  of Artera
Group,  Inc.  and  conceptualization  of its  strategy.  The Board of  Directors
accelerated  the vesting of July 13, 2000 grants (the  exercise  prices were not
modified) to NCT's  President and a director (to acquire  942,073 shares) and to
its Senior Vice President,  Chief Financial  Officer (to acquire 314,024 shares)
due to the completion of  acquisitions  in 2000 (Theater Radio Network,  Midcore
Software and Pro Tech).  On October 25, 2002, the Board of Directors  deemed all
options granted before that date as fully vested.  Although the  acceleration of
vesting  schedules  was a  modification  of the  original  grants,  there was no
accounting   consequence  because  the  market  prices  on  the  dates  of  such
modification were lower than the original exercise prices of the grants.

                                      F-41
<PAGE>

           1992 Plan activity is summarized as follows:
<TABLE>
<CAPTION>


                                                                   Years Ended December 31,
                                     -------------------------------------------------------------------------------------
                                                2000                        2001                          2002
                                     ---------------------------  -------------------------    ---------------------------
                                                      Weighted                    Weighted                      Weighted
                                                      Average                     Average                       Average
                                                      Exercise                    Exercise                      Exercise
                                        Shares         Price        Shares         Price         Shares          Price
                                     -------------  ------------  ------------   ----------    ------------  -------------
<S>                                    <C>            <C>          <C>            <C>           <C>             <C>
Outstanding at beginning of year       28,024,237     $   0.47     47,057,690     $   0.43      46,408,663      $   0.42
Options granted                        35,377,071     $   0.42      1,641,992     $   0.19               -      $      -
Options exercised                      (1,284,907)    $   0.58              -            -               -             -
Options canceled, expired or          (12,234,206)    $   0.49     (2,291,019)    $   0.55      (2,386,126)     $   0.44
forfeited
Board action                           (2,824,505)    $   0.33              -            -               -             -
                                     -------------                 ------------                ------------
Outstanding at end of year             47,057,690     $   0.43     46,408,663     $   0.42       44,022,537     $   0.42
                                     =============                 ============                ============
Options exercisable at year-end        32,330,873     $   0.47     42,180,040     $   0.42       44,022,537     $   0.42
                                     =============                 ============                ============
Options available for grant at                  -                           -                             -
year-end                             =============                 ============                ============
</TABLE>


Directors Plan
--------------

     On November 15, 1994,  the Board of Directors  adopted the  Directors  Plan
which was  approved by  shareholders  at the annual  meeting  held in July 1996.
Under the Directors Plan,  options to purchase 821,000 shares have been approved
by the Board of Directors for issuance.  The options granted under the Directors
Plan have exercise  prices equal to the fair market value of the common stock on
the grant dates and expire five years from date of grant.  Options granted under
the Directors Plan are fully vested at the grant date.

         Directors Plan activity is summarized as follows:

<TABLE>
<CAPTION>

                                                            Years Ended December 31,
                                 --------------------------------------------------------------------------------
                                          2000                        2001                       2002
                                 ------------------------   -------------------------  --------------------------
                                               Weighted                   Weighted                    Weighted
                                               Average                    Average                     Average
                                               Exercise                   Exercise                    Exercise
                                   Shares        Price        Shares        Price        Shares         Price
                                 ----------  ------------   ----------  -------------  -----------  -------------
<S>                                <C>         <C>            <C>         <C>            <C>          <C>
Outstanding at beginning of year   538,500     $   0.73       538,500     $   0.73       538,500      $   0.73
Options granted                          -            -             -            -             -             -
Options exercised                        -            -             -            -             -             -
Options canceled, expired or             -            -             -            -      (538,500)     $   0.73
forfeited
                                 ----------                 ----------                 -----------
Outstanding at end of year         538,500     $   0.73       538,500     $   0.73             -      $      -
                                 ==========                 ==========                 ===========
Options exercisable at year-end    538,500     $   0.73       538,500     $   0.73             -      $      -
                                 ==========                 ==========                 ===========
Options available for grant at     282,500                    282,500                    821,000
year-end                         ==========                 ==========                 ===========

</TABLE>


2001 Plan
---------

     On April 25,  2001,  the Board of  Directors  adopted the 2001 Plan for the
granting of shares and options to  purchase  up to  18,000,000  shares of common
stock to  directors,  officers,  employees  and  consultants.  The 2001 Plan was
approved by the  stockholders at the company's  annual meeting on July 10, 2001.
The  exercise  price of all 2001 Plan options must be at least equal to the fair
market value of our common stock on the date of grant,  and the term and vesting
schedules of 2001 Plan options are determined by the Board of Directors. On June
3, 2002,  June 13, 2002 and October 25,  2002,  the Board of  Directors  granted
seven-year options to purchase shares of NCT common stock to directors, officers
and  employees in the aggregate  amount of 430,000,  10,575,000  and  20,675,000
shares,  respectively,   at  exercise  prices  of  $0.081,  $0.081  and  $0.083,
respectively,  the  fair  market  value of  shares  of NCT  common  stock on the
respective  dates of grant.  The June 13, 2002 grants to directors  and officers
and the October 2002 grants to directors,  officers and all employees  were made
subject to the approval by the company's  stockholders of a sufficient  increase
(1) in the number of shares of common stock  authorized and (2) in the number of
shares covered by the 2001 Plan. At the time of such  shareholder  approval,  if
the market value of the company's common stock exceeds the exercise price of the
subject  options,  the company will incur a non-cash charge to earnings equal to
the spread between the exercise price of the option and the market price,  times
the number of options involved.  If shareholder  approval of the increase is not
obtained at the next shareholder meeting, options

                                      F-42
<PAGE>

granted will be reduced pro rata for the excess unauthorized  shares. On October
25,  2002,  the Board of  Directors  deemed all  options  granted to  directors,
officers and employees  before that date as fully vested pending the approval as
noted above.  Although the acceleration of vesting  schedules was a modification
of the original grants,  there was no accounting  consequence because the market
price on the date of the modification was lower than the original exercise price
of the grants.

         2001 Plan activity is summarized as follows:

<TABLE>
<CAPTION>
                                                                  Years Ended December 31,
                                               --------------------------------------------------------------
                                                           2001                            2002
                                               -----------------------------  -------------------------------
                                                                 Weighted                         Weighted
                                                                  Average                          Average
                                                                 Exercise                         Exercise
                                                   Shares          Price          Shares            Price
                                               ---------------  ------------  ---------------    ------------
<S>                                                                               <C>               <C>
       Outstanding at beginning of year                     -             -       10,387,503        $   0.13
       Options granted                             10,387,503      $   0.13       31,680,000 (i)    $   0.08
       Options exercised                                    -             -                -               -
       Options canceled, expired or forfeited               -             -        (582,145)        $   0.13
                                               ---------------                ---------------
       Outstanding at end of year                  10,387,503      $   0.13       41,485,358        $   0.10
                                               ===============                ===============

       Options exercisable at year-end              5,355,001      $   0.13       30,080,358 (i)    $   0.11
                                               ===============                ===============
       Options available for grant at               7,612,497                              -        $      -
       year-end                                ===============                ===============

</TABLE>


     (i)  Of the  31,680,000  options  granted,  29,400,000  options  and of the
30,080,358 options  exercisable,  19,995,000 options are subject to the approval
by the  company's  stockholders  of a  sufficient  increase (1) in the number of
shares of common stock authorized and (2) in the number of shares covered by the
2001 Plan.

Non-plan
--------

     From time to time at the  discretion  of the Board of  Directors,  non-plan
options are granted. The exercise price of non-plan options generally must be at
least  equal  to the fair  market  value of such  shares  on the date of  grant.
Non-plan  options  generally are  exercisable  over a five to ten-year period as
determined by the Board of Directors. Vesting schedules of non-plan options vary
from (i) fully vested at the date of grant to (ii) multiple  year  apportionment
of vesting, as determined by the Board of Directors. In 2001, the company issued
3,850,000  shares of NCT  common  stock to NXT plc for an  option  which NCT had
granted to NXT plc in 1997.  This issuance was in connection  with  reorganizing
existing cross-license agreements between NCT and NXT plc (see Note 4). In 2002,
the Board of Directors  granted  non-plan options to acquire NCT common stock to
consulting entities in which Carole Salkind or her son were the sole shareholder
(see Note 18). The fair value of these consulting options  (determined using the
Black-Scholes  option  pricing  model)  resulted in an  aggregate  $4.1  million
charege  included in our selling,  general and  administrative  expenses for the
year ended December 31, 2002.


         Non-plan stock option activity is summarized as follows:

<TABLE>
<CAPTION>

                                                             Years Ended December 31,
                                 ---------------------------------------------------------------------------------
                                          2000                       2001                         2002
                                 ------------------------  --------------------------  ---------------------------
                                               Weighted                    Weighted                       Weighted
                                               Average                     Average                        Average
                                               Exercise                    Exercise                       Exercise
                                   Shares       Price        Shares         Price        Shares            Price
                                 -----------  -----------  ------------   -----------  ------------     -------------
<S>                               <C>           <C>          <C>            <C>             <C>           <C>
Outstanding at beginning of year  4,284,000     $   0.33     4,025,000      $   0.30        100,000       $   0.27
Options granted                           -            -             -             -    100,225,000       $   0.07
Options exercised                         -            -    (3,850,000)     $   0.30              -              -
Options canceled, expired or       (259,000)    $   0.70       (75,000)     $   0.50    (15,500,000)      $   0.08
forfeited                        -----------               ------------                ------------
Outstanding at end of year        4,025,000     $   0.30       100,000      $   0.27     84,825,000       $   0.07
                                 ===========               ============                ============
Options exercisable at year-end   4,025,000     $   0.30       100,000      $   0.27     84,825,000       $   0.07
                                 ===========               ============                ============
</TABLE>

                                      F-43
<PAGE>


Warrants:

     The company's  warrants are granted from time to time at the  discretion of
the Board of  Directors.  The exercise  price of warrants  generally  must be at
least equal to the fair  market  value of the  underlying  shares on the date of
grant. Generally,  warrants are exercisable over a three to seven-year period as
determined by the Board of Directors and vest on the grant date.

     During  2000,  warrants to acquire an  aggregate  of  10,979,875  shares of
common  stock were  issued.  Warrants to acquire  167,500  shares were issued in
connection  with the series G  preferred  stock  transaction  (see Note 14).  In
connection  with an  installation  arrangement  with a third party,  we issued a
warrant to acquire  300,000 shares of common stock. In accordance with SFAS 123,
we  estimated  the fair  value of this  warrant  to be $0.1  million  which  was
amortized to interest expense over the related two-year term of the installation
agreement.  In September 2000, the company issued warrants for 10 million shares
of common stock, exercisable at $0.32 per share, to the placement agent for some
of the company's  2000 equity  transactions  (including  ConnectClearly  initial
financing and Pro Tech series A preferred  stock).  Since these warrants were in
connection with equity financings, the fair value of this warrant did not impact
the consolidated statement of stockholders' equity (capital deficit). In 2001 to
encourage the exercise of this warrant,  we reduced the exercise  price to $0.08
per share and realized  $800,000 upon exercise of the warrant.  On September 27,
2000, in connection with the execution of a private equity credit agreement, NCT
issued a warrant for 250,000  shares of its common stock,  exercisable  at $0.34
per share.  Since these  warrants  were in  connection  with the private  equity
credit agreement, the fair value of this warrant did not impact the consolidated
statements of  stockholders'  equity (capital  deficit) at December 31, 2000. In
2001, in conjunction with a replacement  private equity credit  agreement,  that
warrant was  canceled  and replaced  with  another  warrant for 250,000  shares,
exercisable  at $0.14 per share.  In 2002, in  connection  with the execution of
another  private  equity credit  agreement,  NCT issued a five-year  warrant for
1,000,000 shares of its common stock, exercisable at $0.0738 per share.

     During 2001, in  conjunction  with the issuance of convertible  notes,  NCT
granted Carole Salkind warrants to acquire an aggregate of 10,417,254  shares of
its common stock at exercise prices ranging from $0.071 to $0.21 per share.  The
fair  value  of  these   warrants  was  $0.7  million   (determined   using  the
Black-Scholes  option pricing model).  We reduced the exercise price on warrants
granted to her before December 20, 2001 to $0.071 per share.  The fair value due
to the repricing of these warrants as determined using the Black-Scholes  option
pricing  model was $0.3  million.  Thus,  the company  valued the  warrants  and
repricings at $1.0 million using the Black-Scholes  option pricing model.  Based
upon  allocation of the relative fair values of the  instruments,  we recorded a
discount of $0.7 million to the convertible  notes issued to Carole Salkind.  On
October 25, 2001, NCT granted a placement agent a warrant to acquire  20,000,000
shares  of NCT  common  stock  at an  exercise  price  of  $0.09  per  share  as
consideration  for advisory  services with respect to equity  placements  during
2001 (including Pro Tech series B preferred  stock). In January 2002, we reduced
the exercise price of this warrant from $0.09 per share to an exercise price, as
amended as of June 28,  2002,  to the lesser of $0.07 or the lowest  closing bid
price  between  January  10,  2002 and June 28,  2003.  During  2001,  we issued
warrants  to  outside  consultants  for the right to  acquire  an  aggregate  of
3,125,000  shares of our common stock at exercise  prices ranging from $0.093 to
$0.59 per share.  For the year ended December 31, 2001, we recorded a charge for
consulting services of $0.4 million  (determined using the Black-Scholes  option
pricing model).

     During 2002, in  conjunction  with the issuance of convertible  notes,  NCT
granted Carole Salkind five-year  warrants to acquire an aggregate of 96,372,920
shares of its common stock  (including  30,000,000  warrants for her irrevocable
wavier to  rights to  exchange  her notes and a warrant  for  shares of Pro Tech
common  stock) at exercise  prices  ranging  from $0.041 to $0.097 per share,  a
weighted average exercise price of $0.069.  The fair value of these warrants was
$5.0 million  (determined using the Black-Scholes  option pricing model).  Based
upon  allocation of the relative fair values of the  instruments,  we recorded a
discount of $4.4  million to the  convertible  notes  issued to Carole  Salkind.
During 2002, we issued warrants to outside  consultants for the right to acquire
an aggregate of 10,854,167 shares of our common stock at exercise prices ranging
from $0.054 to $0.75 per share, a weighed average exercise price of $0.099.  For
the year ended December 31, 2002, we recorded a charge for  consulting  services
of $0.6 million  (determined  using the  Black-Scholes  option  pricing  model).
Included in these shares,  as consideration for advisory services by a placement
agent, was a five-year  warrant to acquire  5,000,000 shares of our common stock
at an exercise  price, as amended as of June 28, 2002, of the lesser of $0.07 or
the lowest closing bid

                                      F-44
<PAGE>


price  between  January  10, 2002 and June 28,  2003.  In  conjunction  with the
execution of a license  agreement with FairPoint  Broadband,  Inc. (see Note 4),
NCT issued a  five-year  warrant  for  2,000,000  shares of its common  stock to
FairPoint Communications, Inc. exercisable at $0.15 per share. The fair value of
this warrant was approximately $0.1 million  (determined using the Black-Scholes
option  pricing  model)  which is being  recorded as a reduction  of license fee
revenue in accordance with EITF 01-9 for the year ended December 31, 2002 in our
consolidated  statement  of  operations  (see  Note 4). In  connection  with the
issuance  of a  promissory  note on December  6, 2002,  we issued two  five-year
warrants to the note holder,  one for 1,400,000 shares of NCT common stock at an
exercise  price per share of the lesser of $0.07 or the lowest closing bid price
of NCT  common  stock for the  period  from the  grant  date  through  the first
anniversary.  The  fair  value  of  the  warrant  was  less  than  $0.1  million
(determined using the Black-Scholes option pricing model) which we recorded as a
discount to the related note payable based upon  allocation of the relative fair
values of the  instruments.  The other  warrant is for  15,000,000  shares at an
exercise price of $0.01 per share,  subject to certain conditions.  This warrant
vests and becomes  exercisable in its entirety as of the date, if any, that both
of the following  events have  occurred:  (a) NCT has failed to pay when due and
payable  (April 7,  2003) any  amount  owed by it to the note  holder  under the
promissory  note,  dated December 6, 2002, in the principal  amount of $385,000,
and (b) NCT has  failed,  as of the date that the note  becomes  due and payable
(April  7,  2003),  to pay any  amount  owed by NCT under  certain  registration
penalty   provisions  and  such  payment   obligation  has  not  been  otherwise
discharged.  If the event described in clause (b) occurs but the event described
in clause (a) does not occur, then this warrant vests and becomes exercisable as
to 2,000,000  shares only.  No charge was incurred for this warrant for the year
ended December 31, 2002 due to the unresolved contingencies.

         Warrant activity is summarized as follows:

<TABLE>
<CAPTION>

                                                               Years Ended December 31,
                                   ----------------------------------------------------------------------------------
                                             2000                        2001                        2002
                                   -------------------------   --------------------------  --------------------------
                                                  Weighted                     Weighted                   Weighted
                                                  Average                      Average                     Average
                                                  Exercise                     Exercise                   Exercise
                                     Shares        Price          Shares        Price        Shares         Price
                                   ------------  -----------   -------------  -----------  ------------  ------------
<S>                                 <C>            <C>           <C>            <C>         <C>            <C>
Outstanding at beginning of year    10,402,081     $  0.40       21,048,331     $  0.36     43,725,585     $  0.207
Warrants granted                    10,979,875     $  0.34       33,542,254     $  0.13    126,627,087     $  0.066
Warrants exercised                           -           -      (10,000,000)    $  0.08              -            -
Warrants canceled, expired or         (333,625)    $  0.89         (865,000)    $  0.40       (684,750)    $  0.621
forfeited                          ------------                -------------               ------------
Outstanding at end of year          21,048,331     $  0.36       43,725,585     $  0.21    169,667,922     $  0.091
                                   ============                =============               ============
Warrants exercisable at year-end    21,048,331     $  0.36       42,396,318     $  0.20    168,788,705     $  0.090
                                   ============                =============               ============
</TABLE>

     The following table summarizes  information  about warrants  outstanding at
December 31, 2002:

<TABLE>
<CAPTION>

                                         Warrants Outstanding                      Warrants Exercisable
                             ----------------------------------------------    -----------------------------
                                             Weighted
                                              Average
                                             Remaining
                                            Contractual      Weighted                          Weighted
              Range of          Number         Life           Average                           Average
           Exercise Prices     Outstanding  (In Years)    Exercise Price          Number    Exercise Price
         -----------------   -------------- ----------    --------------       -----------  --------------
<S>       <C>       <C>         <C>                <C>        <C>               <C>             <C>
          $0.010 to $0.063      43,178,299         4.92       $0.035            43,178,299      $0.035
          $0.070 to $0.100     110,211,875         3.90       $0.075           110,211,875      $0.075
          $0.110 to $0.500      11,117,592         2.42       $0.197            10,588,425      $0.193
          $0.510 to $1.000       4,914,031         1.61       $0.663             4,563,981      $0.671
          $1.010 to $1.500         246,125         0.12       $1.031               246,125      $1.031
                             --------------                                    ------------
                               169,667,922                                     168,788,705
                             ==============                                    ============
</TABLE>


Stock Options and Warrants of Pro Tech Communications, Inc.:

     On March 5, 1998,  the Pro Tech Board of  Directors  adopted the 1998 Stock
Option  Plan (the "1998  Plan")  for the  benefit  of its  directors,  officers,
employees and consultants. This plan originally authorized the issuance of up to
500,000  shares of common stock and was increased to 2 million  shares of common
stock on August 11, 2000. The authorized  shares for this plan were increased to
30 million on April 12, 2002 at Pro Tech's annual meeting of stockholders.

                                      F-45
<PAGE>

     On November 28, 2000, Pro Tech issued options to purchase 500,000 shares of
common  stock at $0.4375 per share  under the 1998 Plan,  which vest as follows:
125,000 immediately, 125,000 on November 28, 2001, 125,000 on November 28, 2002,
and 125,000 on November 28, 2003. The options expire on November 28, 2007.

     On June 1, 2001, Pro Tech issued options to its Chief Executive  Officer to
purchase up to 540,000  shares at an exercise price of $0.17 per share under the
1998 Plan, which options vested  immediately upon issuance and expire on June 1,
2008.  The exercise price of these options was equal to the fair market value of
the common stock on the grant date.  On February 1, 2002,  Pro Tech modified the
540,000  options to exclude the clause under which the options would expire upon
termination of employment.  Although the change in the termination  clause was a
modification of the original grant, there was no accounting  consequence because
the market  price on the date of such  modification  was lower than the exercise
price of the grant. On June 1, 2001, Pro Tech issued options to two employees to
purchase up to 400,000  shares at an exercise price of $0.17 per share under the
1998 Plan,  which options vested or vest as follows:  160,000  immediately  upon
issuance;  120,000 on June 1, 2002; and 120,000 on June 1, 2003. In January 2002
employment of these two employees was  terminated  and,  according to the option
agreement,  such granted  options  expired in April 2002.  The exercise price of
these  options  was equal to the fair  market  value of the common  stock on the
grant date.

     On February 1, 2002,  Pro Tech issued  options to its Chairman of the Board
of Directors to purchase up to 250,000  shares at an exercise price of $0.06 per
share under the 1998 Plan,  which options vested  immediately  upon issuance and
expire on February 1, 2009. The exercise price of these options was equal to the
fair market value of the common stock on the grant date.

     As of December 31, 2002, Pro Tech's outstanding stock options have exercise
prices  ranging  from  $0.06  to  $0.4375  and  a  weighted  average   remaining
contractual life of approximately  4.7 years. The following table summarizes Pro
Tech's stock option activity:


<TABLE>
<CAPTION>


                                         Period Ended                         Years Ended December 31,
                               --------------------------------   ------------------------------------------------------------------
                                      December 31, 2000                         2001                              2002
                               --------------------------------   -------------------------------   --------------------------------
                                                   Weighted                           Weighted                           Weighted
                                                   Average                            Average                            Average
                                   Shares        Exercise Price       Shares       Exercise Price       Shares        Exercise Price
                               ---------------  ---------------   --------------- ---------------   ---------------  ---------------
<S>                              <C>               <C>              <C>              <C>              <C>               <C>
Options outstanding,
  beginning of the period        1,028,000         $  0.442         1,528,000        $  0.440         1,740,000         $  0.283
Options granted                    500,000            0.438           940,000           0.170           250,000            0.060
Options exercised                        -                -                 -               -                 -                -
Options expired                          -                -          (728,000)         (0.468)         (617,500)          (0.259)
                               ---------------  ---------------   --------------- ---------------   ---------------  ---------------
Options outstanding,
  end of period                  1,528,000         $  0.440         1,740,000        $  0.283         1,372,500         $  0.253
                               ===============  ===============   =============== ===============   ===============  ===============
Options exercisable,
  end of period                  1,103,000         $  0.444         1,187,500        $  0.265         1,235,000         $  0.232
                               ===============  ===============   =============== ===============   ===============  ===============
</TABLE>


     In connection  with issuance of Pro Tech's  series A preferred  stock,  Pro
Tech provided warrants to purchase  4,500,000 shares of Pro Tech's common stock.
The warrants are  exercisable at $0.50 per share and expire on October 28, 2003.
We have the right to require the warrant  holders to exercise upon a call by Pro
Tech under the following conditions:  (1) one-third of the warrants are callable
if the closing bid price of the common  stock for each of the  previous  fifteen
days equals or exceeds  $0.68 per share and the  average  daily  trading  volume
during such period is at least 150,000  shares;  (2)  two-thirds of the warrants
are  callable  if the  closing  bid  price of the  common  stock for each of the
previous  fifteen days equals or exceeds  $0.94 per share and the average  daily
trading volume during such period is at least 150,000 shares; and (3) all of the
warrants  are  callable if the closing bid price of the common stock for each of
the  previous  fifteen  days equals or exceeds  $1.135 per share and the average
daily trading volume during such period is at least 150,000 shares.

     In connection with Pro Tech's series B preferred  stock,  Pro Tech issued a
warrant  to  purchase  1,000,000  shares of its  common  stock.  The  warrant is
exercisable  at $0.13 per share and expires on July 30,  2004.  Pro Tech

                                      F-46
<PAGE>


has the right to require the warrant  holder to exercise upon a call by Pro Tech
under the following conditions:  (1) one-third of the warrant is callable if the
closing  bid price of the common  stock for each of the  previous  fifteen  days
equals or exceeds  $0.177 per share and the average daily trading  volume during
such  period is at least  150,000  shares;  (2)  two-thirds  of the  warrant  is
callable if the closing bid price of the common  stock for each of the  previous
fifteen days equals or exceeds  $0.244 per share and the average  daily  trading
volume during such period is at least 150,000 shares; and (3) the entire warrant
is  callable  if the  closing  bid  price of the  common  stock  for each of the
previous  fifteen days equals or exceeds  $0.295 per share and the average daily
trading volume during such period is at least 150,000 shares.

     We estimated the fair value of the warrants  issued in connection  with our
issuance of Pro Tech  preferred  stock using the  Black-Scholes  option  pricing
model (see Pro Tech preferred stock discussion in Note 14).

     As of December 31, 2002,  the  outstanding  Pro Tech warrants have exercise
prices ranging from $0.13 to $0.50 and a weighted average remaining  contractual
life of  approximately 1 year. The following table summarizes Pro Tech's warrant
activity:


<TABLE>
<CAPTION>


                                   Period Ended                             Years Ended December 31,
                           ------------------------------     -----------------------------------------------------------------
                                December 31, 2000                          2001                             2002
                           ------------------------------     -----------------------------     -------------------------------
                                              Weighted                          Weighted                          Weighted
                                              Average                           Average                           Average
                              Shares       Exercise Price         Shares     Exercise Price        Shares        Exercise Price
                           -------------  ---------------     -------------- --------------     -------------   ---------------
<S>                          <C>             <C>                 <C>           <C>                <C>              <C>
Warrants outstanding,
     beginning of period     4,500,000       $   0.500           4,500,000     $   0.500          5,500,000        $   0.433
Warrants granted                     -               -           1,000,000         0.130                  -                -
Warrants terminated                  -               -                   -             -                  -                -
                           -------------  ---------------     -------------- --------------     -------------   ---------------
Warrants outstanding,
     end of period           4,500,000       $   0.500           5,500,000     $   0.433          5,500,000        $   0.433
                           =============  ===============     ============== ==============     =============   ===============
</TABLE>


16.      Other (Income) Expense, operating and non-operating:

     (In thousands of dollars)

                                      F-47
<PAGE>


<TABLE>
<CAPTION>


                                                                                                 For the Years Ended
                                                                                                      December 31,
                                                                                   ----------------------------------------------
                                                                                        2000            2001           2002
                                                                                        ----            ----           ----
<S>                                                                                <C>             <C>             <C>

Other operating (income) expense, net consisted of the following:
  Forgiveness of payable                                                           $    (144)      $     (67)      $      -
  Write-down of prepaid royalty                                                            -               -            563
  Minority share of loss in subsidiary - Pro Tech                                        (99)           (473)          (458)
  Other                                                                                 (169)           (397)          (426)
                                                                                   --------------- --------------- --------------
    Total other operating income, net                                              $    (412)      $    (937)      $   (321)
                                                                                   =============== =============== ==============

Non-operating Other (income) expense, net consisted of the following:

  Finance costs associated with non-registration of common shares and
    of common shares underlying convertible notes (Notes 10 and 14)                $       -       $   2,318       $  6,070
  Other-than-temporary decline in value of available-for-sale
    securities (Note 5)                                                                    -           7,036            765
  Default penalties on debt (Notes 10 and 18)                                              -           1,208            441
  Depreciation in fair value of warrant (Note 9)                                           -           1,355            151
  Realized loss on sale of trading securities - NXT                                        -           2,301              -
  Inducement charge                                                                        -             190              -
  Reserve for notes receivable (Note 9)                                                    -           1,000              -
  Other                                                                                 (162)            691            (16)
                                                                                   --------------- --------------- --------------
    Total non-operating other (income) expense, net                                $    (162)      $  16,099       $  7,411
                                                                                   =============== =============== ==============
</TABLE>


17.      Supplemental Cash Flow Disclosures:

     (In thousands of dollars)

                                      F-48
<PAGE>

<TABLE>
<CAPTION>

                                                                                        For the Years Ended December 31,
                                                                                  ---------------------------------------------
                                                                                       2000            2001            2002
                                                                                  --------------  --------------  -------------
<S>                                                                               <C>             <C>             <C>

Supplemental disclosures of cash flow information:
Cash paid during the year for:
  Interest                                                                        $           3   $          11   $         17
                                                                                  ==============  ==============  =============
Supplemental disclosures of non-cash investing and financing activities:
  Investment in DMC New York and repurchase of licenses                           $           -   $      21,000   $          -
                                                                                  ==============  ==============  =============
  Receipt of NXT shares for license fee                                           $           -   $       9,160   $          -
                                                                                  ==============  ==============  =============
  Settlement of liability as offset against patent                                $           -   $         405   $          -
                                                                                  ==============  ==============  =============
  Unrealized holding loss on available-for-sale securities                        $      (3,379)  $           -   $          -
                                                                                  ==============  ==============  =============
  Issuance of series H preferred stock in exchange for previously accrued
  acquisistion of subsidiary                                                      $           -   $           -   $     14,000
                                                                                  ==============  ==============  =============
  Issuance of common stock upon conversion of principal portion of convertible
  notes                                                                           $           -   $         500   $        375
                                                                                  ==============  ==============  =============
  Issuance of common stock for acquisition of Midcore Software, Inc.              $       4,818   $           -   $          -
                                                                                  ==============  ==============  =============
  Issuance of common stock for acquisition of Theater Radio Network, Inc.         $       2,500   $           -   $          -
                                                                                  ==============  ==============  =============
  Issuance of common stock in exchange for common stock of subsidiary             $       3,124   $         984   $          -
                                                                                  ==============  ==============  =============
  Issuance of common stock in exchange for prepaid research and engineering
  expenses                                                                        $       3,000   $           -   $          -
                                                                                  ==============  ==============  =============
  Receipt of Pro Tech common shares in lieu of cash to settle accounts
  receivable                                                                      $           -   $       1,350   $          -
                                                                                  ==============  ==============  =============
  Issuance of preferred stock of subsidiary, Artera Group, Inc.                   $           -   $       7,799   $          -
                                                                                  ==============  ==============  =============
  Issuance of common stock for services                                           $         547   $         435   $         19
                                                                                  ==============  ==============  =============
  Issuance of notes for placement services rendered                               $           -   $         527   $          -
                                                                                  ==============  ==============  =============
  Issuance of options and warrants for services                                   $           -   $         438   $          -
                                                                                  ==============  ==============  =============
  Issuance of common stock upon exchange of principal portion of convertible
  notes of subsidiary                                                             $           -   $       2,477   $        200
                                                                                  ==============  ==============  =============
  Issuance of common stock in exchange for preferred stock of subsidiary          $         317   $         261   $          -
                                                                                  ==============  ==============  =============
  Issuance of common stock in exchange for preferred stock                        $       4,024   $           -   $          -
                                                                                  ==============  ==============  =============
  Property and equipment financed through capitalized leases and notes payable    $           -   $       1,404   $         15
                                                                                  ==============  ==============  =============
  Receipt of Pro Tech common shares for payment of license                        $       2,430   $           -   $          -
                                                                                  ==============  ==============  =============
  Receipt of non-recourse notes as partial consideration for convertible note
  of subsidiary                                                                   $           -   $       1,000   $          -
                                                                                  ==============  ==============  =============
  Receipt of Pro Tech common shares as partial consideration of convertible note
  of subsidiary                                                                   $           -   $         500   $          -
                                                                                  ==============  ==============  =============
</TABLE>


18.  Related Parties:

Carole Salkind

     Beginning in 1999, NCT has issued  convertible  notes to Carole Salkind,  a
stockholder,  an accredited  investor and spouse of a former director of NCT. As
of  December  31,  2002,  the  principal  balance  outstanding  of  these  notes
aggregated   approximately   $18.1   million   (see  Note  10).  The  notes  are
collateralized  by substantially  all the assets of NCT Group,  Inc. and certain
assets of NCT Video  Displays,  Inc. At Ms.  Salkind's  election,  the notes are
convertible  into shares of our common stock and may be exchanged  for shares of
common stock of our subsidiaries  except for Pro Tech. The notes contain various
events of default, the occurrence of any one of which provides, at Ms. Salkind's
election,  that the outstanding principal,  unpaid interest and a penalty become
immediately  due and  payable.  As a result of the  February  6,  2002  event of
default,  a 10% default penalty of $0.3 million is included in accrued  expenses
as of December 31, 2002 (see Notes 10, 12 and 16).

Consulting Agreements

     On January 25, 2002,  NCT granted to Leben Care,  Inc.  options to purchase
8,350,000  shares of NCT common stock at exercise  prices ranging from $0.079 to
$0.130 (an aggregate exercise price of $809,000). The options vested on the date
of grant.  The options  expire on dates ranging from May 22, 2006 to January 24,
2007. The options were granted in consideration of consulting  services provided
by  Leben  Care  to  NCT.  Carole  Salkind's  son  Steven  Salkind  is the  sole
shareholder  of Leben Care.  We have  recorded a charge of $545,000 for the fair
value

                                      F-49
<PAGE>


(see Notes 3 and 15) of the options and a $120,000  consulting fee as called for
under the agreement for  consulting  expenses  included in selling,  general and
admisitrative  expenses in our consolidated statement of operations for the year
ended December 31, 2002.

     On February 27, 2002, NCT granted to Stop Noise,  Inc.  (formerly  known as
Stopnoise.com,  Inc.)  five-year  options to  purchase  3,375,000  shares of NCT
common  stock at exercise  prices  ranging  from $0.079 to $0.120 (an  aggregate
exercise  price of $312,500).  The options  vested on June 30, 2002. The options
expire on dates  ranging from June 30, 2006 to February  26,  2007.  The options
were granted in consideration of consulting  services  provided by Stop Noise to
NCT. Carole  Salkind's son Steven Salkind is the sole shareholder of Stop Noise.
We recorded an  aggregate  charge for the fair value (see Notes 3 and 15) of the
options as called for under the agreement of approximately $187,000 for the year
ended December 31, 2002.

     On September  30, 2002,  NCT granted to Acme  Associates,  Inc. a five-year
option to purchase 50,000,000 shares of NCT common stock at an exercise price of
$0.07 per share (an  aggregate  exercise  price of $3.5  million).  The  options
vested on the date of grant.  The  options  were  granted  in  consideration  of
consulting  services  provided by Acme  Associates to NCT. Carole Salkind is the
sole  shareholder  of Acme  Associates.  We  recorded a charge of  approximately
$2,650,000  for the fair value (see Notes 3 and 15) of the options and a $25,000
consulting fee as called for under the agreement for the year ended December 31,
2002.

         On December 26, 2002, NCT granted to Motorworld, Incorporated a
five-year option to purchase 23,000,000 shares of NCT common stock at an
exercise price of $0.042 per share (an aggregate exercise price of $966,000).
The options vested on the date of grant. The options were granted in
consideration of consulting services provided by Motorworld to NCT. Carole
Salkind is the sole shareholder of Motorworld Incorporated. We recorded an
aggregate charge for the fair value (see Notes 3 and 15) of the options as
called for under the agreement of approximately $724,000 for the year ended
December 31, 2002.

Spyder Technologies Group, LLC

     On July 16, 2002, Artera entered into a master  distributor  agreement with
Spyder  Technologies  Group,  LLC under which Spyder will  distribute the Artera
Turbo service in the U.S. The rate of  compensation  for Spyder is comparable to
that received by similarly situated, unrelated master distributors.

     On October 24, 2002,  Artera  entered into a master  distributor  agreement
with Spyder  Technologies  Group,  LLC under which  Spyder will  distribute  the
Artera Turbo  service in Puerto Rico,  the U.S.  Virgin  Islands and a number of
countries in the Caribbean  region.  The term of the agreement is five years and
four months.  Compensation  to Spyder  consists of a commission  of 50% of gross
revenue on sales  originated by local  distributors  brought to Artera by Spyder
out of which those local  distributors are paid 30% to 40% of gross revenue as a
commission  from Spyder.  The rate of  compensation  for Spyder is comparable to
that received by similarly situated,  unrelated master  distributors.  With some
exceptions in Puerto Rico and the U.S.  Virgin  Islands,  Spyder's  distribution
rights are exclusive,  although Artera may terminate the  exclusivity  after the
first 16 months of the term if  specified  revenue  thresholds  are not met.  In
addition,  Artera  and  Spyder  are  negotiating  a  non-exclusive  distribution
agreement for the United States and Canada.

     Jonathan  Parrella,  the son of NCT's Chairman and Chief Executive Officer,
is  President  of  and  holds  a  45%  ownership  interest  in  Spyder.  Bulldog
Communications,   Inc.  holds  a  25%  ownership  interest  in  Spyder.  Bulldog
Communications,  Inc. is owned 20% by each of Michael Parrella,  Karen Parrella,
Michael  Parrella,  Jr., Jonathan Parrella and Daniel Parrella (the Chairman and
Chief  Executive  Officer of NCT, and,  respectively,  his wife and three sons).
Michael  Parrella is also the Chairman of the Board,  and Karen  Parrella is the
President,  of Bulldog  Communications.  The amounts paid under these agreements
were negligible for the year ended December 31, 2002.

                                      F-50
<PAGE>

Private Placement and Issuance of NCT Common Stock

     On August 22, 2001, three individuals,  NCT directors and officers,  agreed
to  purchase  in a  private  placement  an  aggregate  of  1,000,000  shares  of
restricted  common  stock.  The  aggregate  value of the shares was $93,000,  or
$0.093 per share, the then fair market value based upon the closing bid price on
August 21, 2001.  Shares were issued to NCT's Chairman of the Board of Directors
and  Chief  Executive  Officer  (612,893),  to NCT's  President  and a  director
(171,342) and to NCT's Senior Vice President, Chief Financial Officer (215,765).

     On August 22, 2001,  Carole Salkind agreed to purchase  1,000,000 shares of
NCT common  stock for $93,000  cash,  or $0.093 per share,  the then fair market
value.  On September 10, 2001, we received the funds from Ms. Salkind and issued
the 1,000,000 shares of common stock to her.

     We issued  328,717  shares of NCT common  stock to the former  president of
Theater Radio Network (who had become an employee of DMC Cinema).  This issuance
was in settlement of amounts owed him aggregating  approximately $25,000 that he
had advanced to the company.

Compensation of Director

     The company's former Chairman of the Board of Directors, who continued as a
director until his resignation on May 29, 2002,  received  compensation from the
company in 2000, 2001 and 2002 of $64,500, $63,000 and $15,750, respectively.

Incentive Compensation of Management

     NCT's Chairman of the Board of Directors and Chief Executive Officer,  who,
at December  31,  2002,  holds  options and warrants for the right to acquire an
aggregate  of  42,901,634  shares of the  company's  common  stock,  received an
incentive  bonus equal to a 1% cash override on the value derived by the company
upon the execution of agreements or other documentation  evidencing transactions
with unaffiliated parties.  Under this arrangement,  the company has included in
selling,  general and administrative costs approximately $381,000,  $299,000 and
$136,000 for the years ended December 31, 2000, 2001 and 2002, respectively.

     The  company's  President  and a director of NCT,  who at December 31, 2002
holds  options and  warrants  for the right to acquire an aggregate of 6,833,323
shares of the company's common stock, had an incentive bonus  arrangement  equal
to 1/3% cash override on the value derived from transactions entered into by the
company with  unaffiliated  parties.  Her  participation in this incentive bonus
commenced  effective  January  2001.  Under this  arrangement,  the  company has
included in selling,  general and administrative costs approximately $99,000 and
$45,000 for the years ended December 31, 2001 and 2002, respectively.

     The  company's  Senior Vice  President,  Chief  Financial  Officer,  who at
December  31,  2002  holds  options  and  warrants  for the right to  acquire an
aggregate of 4,039,024  shares of the company's  common stock,  had an incentive
bonus  arrangement  equal  to 1/2%  cash  override  on the  value  derived  from
transactions entered into by the company with unaffiliated  parties.  Under this
arrangement,  the company has  included in selling,  general and  administrative
costs approximately $137,000,  $150,000 and $68,000 for the years ended December
31, 2000, 2001 and 2002, respectively.

     The company's Senior Vice President, Corporate Development, who at December
31, 2002 holds options for the right to acquire an aggregate of 2,953,049 shares
of the company's common stock, has an incentive bonus arrangement under which he
receives cash  compensation  for  completion of specified  events and receives a
cash  override  equal  to 1% of  the  value  of  specific  subsidiary  financing
transactions  and 1/2% of the value of licensing  agreements  and joint  venture
alliances in which he was directly involved. Under this arrangement, the company
has  included in  selling,  general and  administrative  expenses  approximately
$35,000,  $56,000 and zero for the years ended December 31, 2000, 2001 and 2002,
respectively.

                                      F-51
<PAGE>

Guarantee of Indebtedness by Management

     NCT's  Chairman  of the  Board of  Directors  and Chief  Executive  Officer
personally  guaranteed  the repayment of a $0.4 million  bridge  financing  note
issued  by  NCT  on  December  27,  2001.  The  guarantee  was  extinguished  in
conjunction with new financing completed on January 10, 2002 (see Note 10).

Indebtedness of Management

     On various  dates in 2000 and 2001,  the company's  Senior Vice  President,
Corporate Development entered into several short-term promissory notes to borrow
funds from the company in anticipation of cash overrides due under the incentive
compensation   arrangement  described  above.  As  of  December  31,  2001,  one
promissory note was  outstanding  for a principal  amount owed to the company of
$105,301.  The note bears interest at 6.0% and matured on May 1, 2002. Effective
May 1, 2002, the borrowed funds had not been repaid but were  consolidated  with
interest  into an  outstanding  promissory  note  due  January  15,  2003 for an
aggregate  principal amount owed to NCT of $107,960.  The note bears interest at
an annual rate of 6.0%  through its due date of January 15,  2003,  and at prime
plus 5%  thereafter.  The note went into  default on January  15,  2003.  NCT is
seeking to collect on the May 1, 2002 note. However, NCT believes that incentive
compensation  that is or will be due Dr.  Charry may offset the amount owed NCT.
At December 31, 2002, $24,000 was due Dr. Charry.

Crammer Road LLC

     The company has  executed a number of  transactions  with Crammer Road (see
Note 14) and settled a legal  action  brought in 2002 by Crammer  Road (see Note
20).  Crammer Road was the sole  stockholder of DMC NY, the owner of 16 licenses
previously purchased from Distributed Media Corporation.  We acquired 25% of DMC
NY in 2001 and 75% in 2002 (see Note 2). We intended to put shares of our common
stock to Crammer Road in exchange for a  combination  of cash and the  remaining
shares of DMC NY common  stock under the April 12, 2001  private  equity  credit
agreement  with  Crammer  Road,  but  reacquired  those  12,000 DMC NY shares in
exchange for our series H preferred  stock.  The purchase  price paid for DMC NY
aggregated   approximately   $27.2   million  and  was  arrived  at  in  various
negotiations between NCT and Crammer Road. We did not obtain a valuation from an
outside firm.  Crammer Road obtained the 16 DMC licenses from other investors in
private  transactions.  In 2000,  five investors in our series E and F preferred
stock  contributed  their 16 New York area DMC  licenses  to  Crammer  Road in a
private  transaction,  in exchange for membership interests in Crammer Road. The
investors  holding the licenses  advised NCT and DMC of plans to contribute  the
licenses to Crammer Road. NCT and DMC did not object to those contributions. The
investors who initially owned the 16 DMC licenses had paid for them in 1999 with
$4 million in cash and by surrendering to NCT $9.6 million of NCT series E and F
preferred  stock  (9,600  shares at the stated  value of $1,000 per share).  The
holders of our series E and F preferred  stock were the original  purchasers  of
the DMC licenses.  The purchasers of our series E and F preferred  stock (except
one investor) were the same investors who contributed the 16 licenses to Crammer
Road. The capital  contribution  of licenses to Crammer Road was for purposes of
administrative  convenience to provide for such  contributors'  undertakings  in
respect of their investment in Crammer Road. In turn, Crammer Road's purpose for
contributing  the 16 licenses  to DMC NY was to provide it a  perceived  form of
liquidity,   possibly   through  an  initial  public  offering  or  through  the
acquisition of DMC NY by DMC or NCT. Due to a lack of capital, DMC was unable to
execute its business plan to provide,  install and operate our digital broadcast
system at locations in the New York area. As such, Crammer Road did not perceive
that it had an opportunity to exploit the licenses in a viable business venture.
On  September  27,  2000,  DMC NY issued  16,000  shares of its common  stock in
exchange  for 16 licenses  held by Crammer Road  pursuant to a license  exchange
agreement.  Certain  officers and directors of NCT comprise 100% of the Board of
Directors of DMC NY.

Vidikron of America

     On  September  29,  2000,  NCT and  Distributed  Media  Corporation  signed
separate  agreements  to  license  various  microbroadcasting   technologies  to
Vidikron  of  America,  Inc.  for an  aggregate  of $2  million.  Vidikron  is a
manufacturer  of high-end home theater  equipment.  Vidikron's  intention was to
develop  commercial video applications using the technology it licensed from NCT
and DMC. We recognized an aggregate of $2 million in technology  license revenue
in fiscal 2000 attributable to Vidikron. We used $1 million of the proceeds from
Vidikron  for working  capital and general  corporate  purposes and the other $1
million to acquire  1,000 shares of common stock of DMC New York,  Inc. in 2001.
Such shares of DMC NY were owned by Crammer Road LLC.

                                      F-52
<PAGE>


Crammer Road's sole  corporate  director is Navigator  Management  Ltd. The sole
director of Navigator Management is David Sims.  Vidikron's majority shareholder
is Markland LLC. Markland's sole corporate director is also Navigator Management
Ltd.

19.  Income Taxes:

     The company  provides  for income  taxes in  accordance  with SFAS No. 109,
"Accounting for Income Taxes." Accordingly,  deferred tax assets and liabilities
are established for temporary  differences  between tax and financial  reporting
bases of assets and liabilities.  A valuation  allowance is established when the
company  determines  that it is more likely  than not that a deferred  tax asset
will not be realized.  The company's temporary differences primarily result from
depreciation related to machinery and equipment and compensation expense related
to warrants, options and reserves.

     The company files consolidated  federal and state tax returns.  At December
31, 2002, the company had available  estimated net operating loss  carryforwards
of approximately  $121.0 million,  estimated capital loss  carryforwards of $2.3
million  and  estimated  research  and  development   credit   carryforwards  of
approximately   $2.5   million  for  federal   income  tax   purposes  of  which
approximately  $16.1 million will expire  within the five years ending  December
31, 2007 ($2.0 million expire in 2003) and  approximately  $104.9 million expire
at various dates from December 31, 2008 through December 31, 2022. The company's
ability to utilize its net  operating  loss  carryforwards  may be subject to an
annual limitation.  In addition,  the net operating losses of acquired companies
prior to their related  acquisitions by NCT have not been included above.  These
net operating  losses may be severely  limited under Section 382 of the Internal
Revenue Code.

     The  difference  between the  statutory  tax rate of 34% and the  company's
effective  tax rate of 0% is  primarily  due to the  increase  in the  valuation
allowance of $27.4 million and $6.5 million in 2001 and 2002, respectively.  The
difference is as follows:


<TABLE>
<CAPTION>


                                                     For the Years Ended December 31,
                                                ----------------------------------------------
                                                     2000             2001            2002
                                                --------------  --------------   -------------
<S>                                                 <C>              <C>             <C>
Statutory rate                                      (34.0)%          (34.0)%         (34.0)%
State tax net of federal effect                      (5.6)            (5.6)           (5.6)
Permanent differences                                15.9             11.5            13.8
Effect of adjustments to prior year
  net operating loss carryforwards                  (35.5)             2.7               -
Other                                                 2.0                -               -
Increase in valuation allowances                     57.2             25.4            25.8
                                                --------------  --------------   -------------
  Effective tax rate                                    - %              - %             - %
                                                ==============  ==============   =============
</TABLE>


     In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some  portion or all of the deferred tax
assets will not be realized.  The ultimate realization of deferred tax assets is
dependent  upon the  generation  of future  taxable  income during the period in
which those temporary  differences become deductible.  Management  considers the
scheduled reversal of deferred tax liabilities,  projected future taxable income
and tax planning strategies in making this assessment.

     Deferred income taxes reflect the net tax effects of temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the company's deferred tax assets and liabilities are as follows:

                                      F-53
<PAGE>

     (In thousands of dollars)



<TABLE>
<CAPTION>

(In thousands of dollars)
                                                                        December 31,
                                                            ---------------------------------
                                                                 2001             2002
                                                            ---------------  ----------------
<S>                                                              <C>               <C>
Accounts receivable                                              $      19         $      36
Inventory                                                              320               159
Investments                                                         11,553            16,398
Property and equipment                                                 400               173
Accrued expenses                                                     2,177             1,456
Stock compensation                                                   4,032             5,997
                                                            ---------------  ----------------
   Total temporary differences                                   $  18,501         $  24,219
Federal net operating and capital loss carryforwards                48,165            48,818
Federal research and development credits                             2,393             2,492
                                                            ---------------  ----------------
                                                                 $  69,059         $  75,529
Less:  Valuation allowance                                         (69,059)          (75,529)
                                                            ---------------  ----------------
   Deferred taxes                                                $       -         $       -
                                                            ===============  ================
</TABLE>


20.  Litigation:

          NCT Audio Arbitration and TST/TSA Bankruptcy
          --------------------------------------------

     On September 16, 1999, NCT Audio filed a demand for arbitration  before the
American  Arbitration  Association in Wilmington,  Delaware,  against Top Source
Technologies,  Inc.  ("TST") and its subsidiary,  Top Source  Automotive,  Inc.,
("TSA")  alleging  breach of  agreement,  breach of good faith and fair dealing,
fraudulent conduct,  negligent  misrepresentation and breach of fiduciary duties
to a  shareholder  (NCT  Audio  holds  15% of the  outstanding  stock of TSA) in
connection  with an August 14, 1998  agreement by which NCT Audio was granted an
exclusive option to purchase  substantially  all of the assets of TSA, and other
agreements  among such parties related thereto.  NCT Audio sought  rescission of
the asset  purchase  agreement,  recovery of monies paid to TST for TSA's assets
and recovery of a pro rata portion of the sales  proceeds  ultimately  paid by a
third party,  Onkyo America,  for TSA's assets. On December 8, 1999, TST and TSA
filed an answer  and  counterclaim  in the  arbitration  proceeding,  seeking to
recover (1) the $1 million  differential  between the $9 million  purchase price
paid by Onkyo America for TSA's assets and the $10 million  purchase  price that
NCT Audio had been obligated to pay; (2) expenses  associated with extending NCT
Audio's time to close its  transaction;  (3) the monies and stock owed under the
extension agreements; and (4) legal expenses. NCT maintained that the promissory
note  and  stock  were  procured  by fraud  perpetrated  by TST  and/or  TSA and
otherwise  denied the  allegations of the  counterclaims.  On July 17, 2000, NCT
Audio filed a revised demand for  arbitration,  which  elaborated on the claims,
arguments  and requests for relief of the original  demand for  arbitration.  On
November 27, 2001, NCT Audio filed an amended  arbitration  claim, which further
expanded on the claims,  arguments  and  requests for relief of the original and
revised  demands for  arbitration  and which added a claim for breach by TST and
TSA of a  confidentiality  agreement  entered into with NCT Audio in  connection
with their August 14, 1998 asset purchase agreement.

     On or about December 18, 2001, while the parties were completing  discovery
with an arbitration  hearing  scheduled to begin on January 21, 2002, TST (under
its new name  Global  Technovations,  Inc.  ("GTI")),  TSA and  their  corporate
affiliates filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code
with the U.S. Bankruptcy Court for the District of Delaware.  Under federal law,
those  filings  stayed NCT  Audio's  arbitration  proceedings  with TSA and TST.
Shortly after the initial  filings,  the bankruptcy  case was transferred to the
U.S.  Bankruptcy  Court for the  Eastern  District  of  Michigan.  NCT Audio was
appointed to the creditors'  committee in the bankruptcy  case. On July 1, 2002,
NCT Audio filed proofs of claim  against TST (GTI) and TSA for amounts  believed
to be owed to NCT Audio by them. On December 18, 2002,  GTI and TSA filed a Plan
of Reorganization and Proposed Disclosure  Statement relating thereto.  See Note
26 for additional information.

                                      F-54
<PAGE>

     Theater Radio Network - InsiderStreet (Neometrix) Litigation
     ------------------------------------------------------------

     On December 6, 2000, our subsidiary DMC Cinema  (formerly  known as Theater
Radio Network) filed suit against  InsiderStreet.com,  Inc. in the Circuit Court
of the Thirteenth Judicial Circuit for Hillsborough County,

Florida.  The  complaint  alleges  that  InsiderStreet  breached  a May 5,  2000
advertising  agreement  with  Theater  Radio  Network  and  seeks a  declaratory
judgment and specific performance of the agreement. The agreement provided that,
in  exchange  for  advertising  services  performed  by Theater  Radio  Network,
InsiderStreet  would deliver to Theater Radio Network $3 million in common stock
of InsiderStreet,  with an adjustment in the number of shares to ensure that the
total stock  delivered  was worth at least  $2,000,000  on May 10, 2001 and with
registration  of all  stock  delivered.  InsiderStreet  has to date  made only a
partial  delivery of shares and has not registered any of the shares  delivered.
Discovery  in this  litigation  has begun.  On October 23, 2001,  Theater  Radio
Network terminated its representation by outside counsel in this action due to a
possible conflict of interest.  On February 28, 2002, Theater Radio Network (DMC
Cinema) ceased  operations,  although that does not preclude it (or an assignee)
from further  prosecuting the Theater Radio Network  claims.  On March 26, 2002,
Theater Radio Network  retained new counsel in this action.  On or about October
9, 2002, InsiderStreet.com,  Inc. changed its name to Neometrix Corp. Management
believes  that at this stage it cannot  assess  the  likelihood  of a  favorable
outcome. Further, since the amount of damages, if any, Theater Radio Network may
recover cannot be quantified until the legal process is complete,  no amount has
been recorded in the financial statements.

     Production Resource Group Litigation
     ------------------------------------

     On June 6, 2001,  Production  Resource Group (PRG) began legal  proceedings
against NCT and our subsidiary,  Distributed Media Corporation,  in the Superior
Court  for  the  Judicial  District  of  Fairfield  County,  Connecticut.  PRG's
complaint  alleges that NCT and DMC breached the terms of a July 19, 1999 lease,
promissory  note and warrant  entered into in connection  with the lease of some
DMC Sight & Sound(R)  equipment.  The  complaint  also  alleges that NCT and DMC
breached a January 11, 2001  resolution  agreement  designed to settle  disputes
between the parties concerning the July 19, 1999 transactions,  that we breached
a May 11,  2001  agreement  designed  to settle  disputes  between  the  parties
concerning the July 19, 1999  transactions  and the January 11, 2001  resolution
agreement,  and that we engaged in  misrepresentations  and fraud in  connection
with these matters.  On July 26, 2001,  the court granted a pre-judgment  remedy
giving PRG the right to attach or garnish up to $2.1 million of specified assets
of NCT and DMC.  On  October  4,  2001,  we filed an answer  to the  plaintiff's
complaint,  denying  PRG's  material  allegations,   seeking  dismissal  of  the
complaint  and  counterclaiming  for  breach  of  PRG's  obligation  to  deliver
equipment.

     On December 20, 2001,  NCT and DMC accepted an Offer of Judgment  requiring
NCT and DMC to pay PRG $2.0  million.  That  judgment was entered on January 17,
2002 along  with costs of $0.2  million.  In  December  2001,  we  recorded  all
anticipated  liability  related to payment of this judgment.  As of December 31,
2002,  PRG had collected  approximately  $78,000 in NCT's and DMC's cash or cash
equivalent  assets  as a result of this  judgment  and the  pre-judgment  remedy
referred to above. PRG is currently conducting post-judgment discovery regarding
additional  enforcement of the judgment.  To the extent that further  payment of
the judgment is in cash,  such payment  could be material to our cash  position.
See Note 26 for additional information.

     On January 2, 2002,  outside the scope of the  judgment  entered  into with
NCT, PRG amended its complaint to allege that NCT's Chairman and Chief Executive
Officer  Michael  Parrella,  in  dealing  with PRG on behalf  of NCT,  committed
breaches of good faith and fair dealing,  unfair trade practices and fraud.  NCT
has agreed to indemnify Mr. Parrella for any liabilities  (including legal fees)
he may incur as a result of the PRG claims  against him. On July 15,  2002,  Mr.
Parrella moved to strike the portions of PRG's amended complaint that pertain to
him  personally.  Mr.  Parrella  has told NCT that,  to the extent  the  amended
complaint  is  not  stricken  as to him  personally,  he  intends  to  deny  the
allegations  in the amended  complaint.  To the extent  that NCT may  ultimately
indemnify Mr. Parrella for liabilities  arising out of these allegations and for
related legal fees,  we believe that our directors and officers  indemnification
insurance  (subject to certain  exceptions  under the insurance policy and after
payment of a $100,000 deductible) will cover such payments.  Discovery as to Mr.
Parrella has begun. See Note 26 for additional information.

     Maryland Lease Litigation
     -------------------------

     On or about January 31, 2002, West Nursery Land Holding Limited Partnership
brought an action against NCT in the District Court of Maryland for Anne Arundel
County.  This action sought  repossession of premises at 1025 West Nursery Road,
Linthicum,  Maryland and an award of  approxmately  $89,000 in  connection  with
NCT's shutdown of

                                      F-55
<PAGE>


its offices at, and abandonment of, such premises. On or about February 7, 2002,
judgment as requested  in the  complaint  was entered by the court.  On or about
July 11, 2002,  West Nursery brought an action against NCT in the Superior Court
for the Judicial  District of Fairfield County,  Connecticut  seeking to enforce
the Maryland  judgment in Connecticut.  On August 5, 2002, the Connecticut court
issued a pre-judgment  remedy prohibiting NCT from disposing of its assets other
than in the ordinary  course of business.  On September  23, 2002,  West Nursery
moved for a default judgment on its Connecticut complaint.  On October 29, 2002,
NCT filed an objection to the motion for default judgment and filed an answer to
the  complaint in which it denied the  material  allegations  of the  complaint.
Through December 31, 2002, West Nursery has collected  approximately  $27,000 on
this judgment.  On December 31, 2002, NCT and West Nursery executed a settlement
agreement  under  which  all  claims  of West  Nursery  against  NCT  are  being
discharged in  consideration  of the issuance by NCT of 1,248,170  shares of its
common stock  (approximately  $56,000 in stock priced at $.0448 per share). This
amount is included in shares  payable on our  consolidated  balance  sheet as of
December 31, 2002.

     Mesa Partners Matter
     --------------------

     On February 21, 2002, an action was brought by Mesa Partners,  Inc. against
NCT and DMC in Supreme  Court of the State of New York,  County of  Suffolk  for
breach of an alleged contract for financial consulting services. NCT and DMC had
contracted  with  Mesa  Partners  for Mesa to  develop  general,  marketing  and
financial   strategies  for  NCT,  advise   management  in   presentations   and
negotiations,  make  introductions  to Mesa's  clientele and advise on new sales
opportunities  and possible  joint ventures and strategic  partnerships.  Mesa's
complaint  sought  approximately  $430,000 plus  interest,  attorneys'  fees and
costs.  On April 22, 2002, NCT and DMC filed an answer to the complaint in which
they denied any  liability.  On December 3, 2002,  NCT, DMC and Mesa  executed a
settlement agreement,  which is subject to court approval.  Under the settlement
agreement,  all claims  against NCT and DMC in the action  would be dismissed in
consideration of the issuance by NCT to Mesa of 2,321,263 shares of NCT's common
stock  ($125,000  in stock priced at $.05385 per share).  Court  approval of the
settlement  agreement was pending as of December 31, 2002. In December  2002, we
recorded all anticipated liability related to this settlement.

     Linford Group Litigation
     ------------------------

     On May 9, 2002, an action was brought by Linford Group Limited  against NCT
in the U.S.  District Court for the District of  Connecticut.  In its complaint,
Linford  alleges that NCT guaranteed an obligation of NCT's indirect  subsidiary
Artera Group International  Limited,  said to be in the amount of $425,000 (plus
interest and late charges),  for office  refurbishment  services claimed to have
been rendered in the United  Kingdom.  On July 12, 2002,  NCT filed an answer to
the complaint in which it denied any liability. On October 17, 2002, Linford and
NCT  entered  into a  settlement  agreement  under  which all  claims of Linford
against NCT and Artera  International  were discharged in  consideration  of the
issuance by NCT of 5,938,081 shares of its common stock (approximately  $480,000
in stock priced at $.08075 per share). On or about October 17, 2002, such shares
were  issued by NCT to  Linford.  Dismissal  of the  action  with  prejudice  is
expected  shortly  after resale of these NCT shares by Linford or one year after
Linford's receipt of the shares, whichever comes first.

     Crammer Road v. NCT
     -------------------

     On or about  September  16, 2002, an action was brought by Crammer Road LLC
against NCT in the U.S.  District Court for the District of Connecticut.  In its
complaint, Crammer Road alleges that NCT breached a series of agreements entered
into by Crammer Road and NCT on April 12, 2001,  namely, a Private Equity Credit
Agreement,  a  Registration  Rights  Agreement  relating  thereto,  an  Exchange
Agreement,  a Registration  Rights Agreement  relating  thereto,  two promissory
notes and an additional side letter agreement. The aggregate amount sought under
the  complaint  was $6.9 million plus  interest and costs.  On October 30, 2002,
Crammer  Road and NCT  executed a  settlement  agreement  pursuant  to which all
claims in the lawsuit are being  dismissed in  consideration  of the issuance by
NCT to Crammer  Road of 68 million  shares of NCT common  stock  ($5.44  million
priced  at $.08 per  share).  On  December  11,  2002,  the court  approved  the
settlement  agreement.  On December  17,  2002,  NCT issued 40 million of the 68
million  shares.  The  remaining  28 million  shares are  issuable 65 days after
demand  therefor by Crammer Road,  which demand has not to date been made.  $2.2
million is included in shares  payable on our  consolidated  balance sheet as of
December 31, 2002.  Dismissal of the action with  prejudice is expected  shortly
after issuance of

                                      F-56
<PAGE>


the remaining 28 million shares.

     Alpha, Austost, Balmore and Libra v. NCT and Artera
     ---------------------------------------------------

     On or about  December  17,  2002,  an action was  brought by Alpha  Capital
Aktiengesellschaft,  Austost Anstalt Schaan, Balmore S.A. and Libra Finance S.A.
against NCT Group,  Inc. and Artera Group, Inc. in Supreme Court of the State of
New York, County of New York. In their complaint, plaintiffs allege that NCT and
Artera  breached  a number of  payment  and stock  registration  obligations  in
connection with the January 9, 2001  convertible  notes of Artera,  the March 2,
2001  series A  convertible  preferred  stock of  Artera,  the  March  14,  2001
convertible  notes of NCT, the April 4, 2001  convertible  notes of Artera,  the
April 12, 2001 convertible  notes of NCT, the June 29, 2001 convertible notes of
Artera,  the July 30,  2002  series B  convertible  preferred  stock of Pro Tech
Communications,  Inc., the January 10, 2002 convertible  notes of Artera and the
March 11, 2002 convertible note of NCT.  Registration  rights claims are alleged
against NCT in connection  with notes and preferred stock of Artera and Pro Tech
because such notes and  preferred  stock are  exchangeable  into common stock of
NCT.  Plaintiffs  seek damages in the aggregate  amount of $12.2 plus  interest,
attorneys'  fees and costs.  NCT and  Artera  have yet to file an answer in this
action.  The company believes the amounts recorded under  non-registration  fees
and interest  included in accrued expenses on our consolidated  balance sheet at
December 31, 2002 are sufficient for this matter.

     Virginia Tech Intellectual Properties v. NCT
     --------------------------------------------

     On or about  December  19,  2002,  an action was brought by  Virginia  Tech
Intellectual  Properties,  Inc.  ("Va.  Tech") in the  Circuit  Court of Fairfax
County, Virginia against NCT Group, Inc. In its complaint, Va. Tech alleged that
NCT breached a September 27, 1994 agreement under which the Center of Innovative
Technology ("CIT") licensed certain patent and related technology rights to NCT.
This  agreement  was assigned by CIT to Va. Tech on September 3, 1997.  Va. Tech
claimed to have  terminated  the  agreement  as of September  12, 2002,  and its
complaint  sought  $105,000  allegedly  owed by NCT as royalty  payments for the
period of January 1, 2001 to September 12, 2002, plus interest,  attorneys' fees
and costs. On January 28, 2003, Va. Tech and NCT executed a settlement agreement
in which Va. Tech released NCT from all claims in the action in consideration of
a  promissory  note  issued by NCT to Va.  Tech on that date,  in the  principal
amount of $101,000.  The note is payable  $20,000 by February 1, 2003 and $3,000
per month from March 1, 2003 to May 1, 2005. On February 5, 2003, the action was
dismissed without prejudice, pending completion of the note payments.

     Artera International U.K. Section 214 Indemnification
     -----------------------------------------------------

     On or  about  December  5,  2002,  Michael  Parrella  (Chairman  and  Chief
Executive  Officer  and a Director  of NCT),  Irene  Lebovics  (President  and a
Director of NCT) and Cy Hammond  (Treasurer and Chief Financial  Officer of NCT)
received  letters  from the  Liquidator  of  NCT's  indirect  subsidiary  Artera
International  in the United  Kingdom,  informing  them that the  Liquidator  is
considering  asserting  claims  against  them  under  Section  214 of  the  U.K.
Insolvency Act. Under that provision of the Insolvency Act, individuals who were
Directors of a U.K.  corporation prior to its liquidation can be held personally
liable to the liquidation  estate,  under certain  circumstances,  for up to the
amount by which the net liabilities of the corporation increased between (i) the
time the Directors  knew or ought to have concluded that there was no reasonable
prospect that the corporation  would avoid liquidation and (ii) the commencement
of  liquidation  proceedings.  The  Liquidator  asserts that such amount in this
instance is approximately $6.3 million. Each of the recipients of the letter was
a Director of Artera  International prior to its liquidation.  NCT has agreed to
indemnify Messrs. Parrella and Hammond and Ms. Lebovics for any liabilities that
may arise  against  them from these U.K.  Section 214 claims and to provide them
with  legal  representation  with  respect  to the  claims.  NCT  does  not have
directors and officers indemnification insurance coverage for the claims.

     Artera Trademark Oppositions
     ----------------------------

     On December  17, 2002 and  December  23,  2002,  in  connection  with NCT's
pending  U.S.  trademark  registration   applications  for  "Artera  Turbo"  and
"Artera," respectively,  Altera Corporation filed oppositions to the granting of
such registrations.  The alleged basis for the oppositions is, in essence,  that
the  Artera  marks  are  confusingly  similar  to Altera  Corporation's  mark of
"Altera"  which was  registered  in a number of product and  service  categories
prior to the initial filing of NCT's "Artera  Turbo" and "Artera"  applications.
NCT intends to

                                      F-57
<PAGE>


 defend against these oppositions vigorously.

     See Note 26 for litigation activity occurring after December 31, 2002.

     NCT believes  there are no other patent  infringement  claims,  litigation,
matters or unasserted  claims other than the matters  discussed above that could
have a  material  adverse  effect  on  our  financial  position  or  results  of
operations.   In  the  circumstances,   based  upon  the  information  presently
available,  management believes that adequate provisions have been estimated and
included in the consolidated financial statements for these matters.

21.  Commitments and Contingencies:

Leases:

     The company is obligated for minimum annual rentals under operating  leases
for offices,  warehouse space and laboratory space,  expiring through March 2010
with various renewal options, as follows:

     (In thousands of dollars)




Year ending December 31,                   Amount
-----------------------------          ---------------
     2003                                  $      650
     2004                                         550
     2005                                         526
     2006                                         447
     2007                                         431
     Thereafter                                   831
                                       ---------------
Total minimum lease payments               $    3,435
                                       ===============


     Rent expense was $1.1 million,  $1.0 million and $0.7 million for the years
ended December 31, 2000, 2001 and 2002, respectively.

Benefit Plan Liability:

     In April 1996, the company  established  the NCT Group,  Inc.  Benefit Plan
(the "Benefit Plan") which provides,  among other coverage,  various health care
benefits to employees and directors of the company's  United States  operations.
The company  administers  this  modified  self-insured  Benefit  Plan  through a
commercial  third-party  administrative  health  care  provider.  The  company's
maximum  aggregate  benefit exposure in each Benefit Plan fiscal year is limited
to $0.7 million,  while individual  benefit exposure in each Benefit Plan fiscal
year is limited to  $45,000.  Benefit  claims in excess of these  individual  or
maximum  aggregate  stop loss  limits  are  covered  by a  commercial  insurance
provider  to which  the  company  pays a  nominal  premium  for such  stop  loss
coverage.  The company  records benefit claim expense in the period in which the
benefit claim is incurred.  The company  believes it has sufficient  accruals to
meet its obligation at December 31, 2002.

Employment Contracts:

     In connection with the Midcore acquisition on August 29, 2000 (see Note 2),
the  company  entered  into  employment  agreements  with  the  three  principal
shareholders of the acquired  company.  These  agreements are each for a term of
three years.  Compensation  and benefits  called for in the  agreements  for two
individuals  are an annual base salary of $100,000,  an annual bonus of at least
$50,000,  subject to the achievement of specified  bonus  criteria,  and, at the
discretion of the Board of Directors of NCT, incentive stock options to purchase
common shares of NCT.  Compensation and benefits under the agreement for another
individual  are  annual  base  salary  of  52,236 in  British  pounds  sterling,
commissions  of 5% of the face  amount  of  purchase  orders  for  Midcore's  or
affiliates' products or services derived from a predetermined  territory and, at
the  discretion  of the Board of Directors of NCT,  incentive  stock  options to
purchase common shares of NCT.

                                      F-58
<PAGE>

     On August 24, 2000, DMC Cinema entered into employment  agreements with the
former Chief Executive Officer and shareholder of Theater Radio Network, and the
former president and shareholder of Theater Radio Network. These agreements have
a term expiring on September 30, 2003. For the former CEO,  compensation per the
agreement is an annual base salary of $135,000,  with an incentive cash award of
up to 75% of his salary based upon the  satisfaction  of targets  established by
management  and  approved  by the DMC  Cinema  Board of  Directors  on or before
January 31 of each year for such year.  For the former  president,  compensation
per the agreement is an annual base salary of $120,000,  with an incentive  cash
award as negotiated and sales commissions equal to 5% of the gross amount of all
advertising  procured by him and 3% of the gross  amount of all other DMC Cinema
advertising.  In  addition,  on  August  24,  2000,  in  exchange  for  industry
knowledge,  DMC Cinema agreed to grant "Founder's" stock equal to 4.0625% of DMC
Cinema's  outstanding common stock to each.  Further,  stock options to purchase
common shares of DMC may also be granted to each, at the discretion of the Board
of Directors of DMC. On July 31, 2001, the former CEO resigned from DMC Cinema.
On April 30, 2002, the former president's employment was terminated.

Advertising Commitments:

     As of December  31, 2002,  the company is obligated  under Sight & Sound(R)
technology and services  agreements to pay up to 25% of  advertising  revenue to
the  locations  airing and  displaying  advertisements.  The amounts under these
agreements were negligible at December 31, 2002.

Contingencies:

         Under the July 25, 2002 private equity credit agreement with Crammer
Road, we are required to put at least $5 million (the minimum commitment amount)
of our common stock, in exchange for cash, at a discount to market of 10% (see
Note 14). This credit agreement provides that shares of up to $50 million (the
maximum commitment amount) of our common stock may be sold to Crammer Road
pursuant to put notices delivered by the company to Crammer Road. The company is
obligated to register for resale no less than 112% of the maximum commitment
amount. If we fail to issue shares for the minimum commitment amount during the
commitment period (which terminates 24 months after effectiveness of a resale
registration statement relating to the shares or earlier as described in the
agreement), we must pay Crammer Road, in immediately available funds, an amount
equal to the product of (i) the minimum commitment amount, less the aggregate
shares of our common stock actually delivered to Crammer Road under the equity
credit line and (ii) the 10% discount.

     Under the April 2001 private equity credit agreement (see Note 14), we were
required to put $17 million of our common  stock to Crammer Road in exchange for
12,000  shares of DMC NY and cash in the amount of  approximately  $3.0  million
pursuant to monthly  notices.  We have been realeased from our obligation  under
this agreement (see Note 20).

     The  company  may have a  contingent  liability  arising  out of a possible
violation of Section 5 of the Securities Act of 1933, as amended,  in connection
with the issuance of shares of its common stock to satisfy  payment  obligations
to some of its service  providers,  vendors and other third  parties.  We ceased
this  practice   during  2001  and  the  passage  of  time  will  mitigate  this
contingency.  Should  a  court  determine  that a  violation  of  Section  5 has
occurred, each such recipient of our shares may have a right for a period of one
year from the date of the purchase to obtain recovery of the consideration given
in connection  with their  purchase of common shares offered in violation of the
Securities  Act or, if they have already sold the stock,  to sue the company for
damages  resulting  from their  purchase of common  shares to the extent the net
proceeds they received were  insufficient to cover the company's  obligations to
them.  We  believe  that at  December  31,  2002,  the  company  has no  further
contingent liability relating to this matter.

22.  Segment Information:

     Management  views the  company as being  organized  into  three  reportable
operating  segments:  Communications,  Media and Technology.  Reportable segment
data as of  December  31,  2000,  2001 and 2002 and for the years then ended are
provided in the table below.  Information about our operating  segments is found
following the table.  Information  about the goodwill and related  impairment of
our operating segments is found in Note 3.

                                      F-59
<PAGE>

     The Other data columns are used to reconcile the reportable segment data to
the  consolidated  financial  statements and is segregated  into two categories,
Other-corporate  and  Other-consolidating.  Other-corporate  consists  of  items
maintained  at the  company's  corporate  headquarters  and not allocated to the
segments.  This  includes  mostof the  company's  debt and  related  cash,  cash
equivalents and net interest expense,  litigation  liabilities and non-operating
fixed  assets.  Also  included  in  the  components  of  revenue  attributed  to
Other-corporate  are license fees and royalty revenue from subsidiaries that are
offset  (eliminated)  in  the  Other-consolidating  column.  Other-consolidating
consists of items eliminated in consolidation such as intersegment revenue.


<TABLE>
<CAPTION>


 (In thousands of dollars)
                                         -------------------------------------------------------------------------------------------
                                                                                    Total
                                                                                  Reportable   --------- Other ---------     Grand
                                          Communications   Media     Technology    Segments    Corporate     Consolidating   Total
                                         -------------------------------------------------------------------------------------------

<S>                                         <C>            <C>         <C>        <C>           <C>          <C>          <C>

 2002:
  License Fees and Royalties - External     $   2,334      $  2,140    $     -    $  4,474      $     19     $       -    $  4,493
  Other Revenue - External                      2,655           171          -       2,826             -             -       2,826
  Revenue - Other Operating Segments              974           (41)         -         933       (10,141)        9,208           -
  Interest (Income) Expense, net                1,922         1,575       (186)      3,311         4,400             -       7,711
  Depreciation/Amortization                     1,107         2,026        115       3,248           198        (2,141)      1,305
  Net Loss                                    (10,836)       (8,520)      (797)    (20,153)      (16,334)       (3,618)    (40,105)
  Segment Assets                               21,865        25,579      2,383      49,827        14,730       (50,988)     13,569
  Capital Expenditures                             18             -          -          18             -             -          18


 2001:
  License Fees and Royalties - External     $   2,639      $  1,834    $ 1,028    $  5,501      $    132     $       -    $  5,633
  Other Revenue - External                      4,642           337          -       4,979             -             -       4,979
  Revenue - Other Operating Segments              738           441          -       1,179        10,033       (11,212)          -
  Interest (Income) Expense, net                4,005           528         76       4,609         1,518            26       6,153
  Depreciation/Amortization                     1,612         1,689        120       3,421           904        (1,348)      2,977
  Loss before cumulative effect of
   accounting change                          (27,430)      (14,282)    (4,361)    (46,073)      (25,349)       (4,656)    (76,078)
  Cumulative effect of accounting change       (1,582)            -          -      (1,582)            -             -      (1,582)
  Net Loss                                    (29,012)      (14,282)    (4,361)    (47,655)      (25,349)       (4,656)    (77,660)
  Segment Assets                               16,701        30,708      2,991      50,400        13,676       (44,067)     20,009
  Capital Expenditures                          1,780           991          -       2,771            10             -       2,781


 2000:
  License Fees and Royalties - External     $   3,257      $  2,065    $ 3,550    $  8,872      $  1,056     $       -    $  9,928
  Other Revenue - External                      1,767         1,145          -       2,912             -             -       2,912
  Revenue - Other Operating Segments              887           331          -       1,218         5,275        (6,493)          -
  Interest (Income) Expense, net                   52           286         27         365         1,484             -       1,849
  Depreciation/Amortization                       277           203         50         530         1,489            (5)      2,014
  Net (Loss) Income                            (6,002)       (3,333)     2,952      (6,383)         (503)       (3,438)    (10,324)
  Segment Assets                               20,355        12,786      6,610      39,751         7,381        (7,750)     39,382
  Capital Expenditures                             75            27          -         102           220             -         322
</TABLE>


     COMMUNICATIONS:

     NCT Hearing Products, Inc.:

          NCT Hearing  designs,  develops  and markets  active  noise  reduction
     headset products to the audio headphone and communications headset markets.
     The  product  lines  include  the  NoiseBuster(R)   product  line  and  the
     ProActive(R)  product  line.  The  NoiseBuster(R)  products  consist of the
     NoiseBuster  Extreme!(TM),  a consumer  headset,  and the NB-PCU, a headset
     used  for  in-flight  passenger  entertainment  systems.  The  ProActive(R)
     products consist of noise reduction  headsets and  communications  headsets
     for noisy industrial environments.  The majority of NCT Hearing's sales are
     in North America. Principal customers consist of end-users,  retail stores,
     original equipment manufacturers and the airline industry.

     Pro Tech Communications, Inc.:

                                      F-60
<PAGE>

     Pro Tech designs, develops and manufactures light-weight telecommunications
headsets and new audio  technologies  for use in fast-food,  telephone and other
commercial  applications.  It  currently  has  marketing  agreements  with major
companies in the fast-food  industry and catalog and Internet site  distributors
of telephone equipment, primarily in North America.

     Noise Cancellation Technologies (Europe) Ltd.:

     NCT Europe  provides  research  and  engineering  services  in the field of
active  sound  control  technology  to NCT  Audio,  NCT  Hearing,  DMC and other
business  units as needed.  NCT Europe also  provides  technical  sales  support
services to the company for European sales.

     Midcore Software, Inc.:

     Midcore  develops  innovative  software  based  solutions  that address the
challenges facing businesses  implementing  Internet strategies.  Midcore is the
provider of MidPoint Internet infrastructure software that allows multiple users
to share one  Internet  connection  without  degrading  efficiency  and provides
on-demand  connections,  a software  router,  a  high-performance  shared cache,
content  control,  scheduled  retrieval  of  information  and  e-mail  and usage
accounting. Midcore sales are derived from North America and Europe.

     ConnectClearly.com, Inc.:

     ConnectClearly   was   established   to   focus  on  the   development   of
Internet-telephony-based voice applications targeted to the e-commerce and e-CRM
(electronic  customer  relationship   management)  markets.   NCT's  proprietary
Internet  telephony  software would be the basis for developing a  user-friendly
"click to talk"  application  for  improving  the  completion  rate of  Internet
transactions  by  allowing  for  real-time  customer  service  access by a user.
Principal markets for ConnectClearly are the  telecommunications  industries and
principal customers are original equipment manufacturers, system integrators and
end-users.

     Artera Group, Inc.:

     Artera  Group  provides  residential  customers,   small  and  medium-sized
enterprises,   as  well  as  remote  workers  and  branch   locations  of  large
corporations,  with a comprehensive range of highly-reliable and scalable global
Internet access and networking services including backbone connection  services,
high-speed  broadband  access,  virtual private  networks,  e-commerce and other
enhanced services.  Artera's broadband communications technology,  Artera Turbo,
improves the  effective  performance  of  communication  lines via a proprietary
series of optimization strategies that increase efficiencies in the movement and
storage of electronic data.

MEDIA:

     NCT Audio Products, Inc.:

     NCT Audio is engaged in the design,  development and marketing of products,
which utilize flat panel transducer technology.  The products available from NCT
Audio include the Gekko(TM)  flat speaker and the  ArtGekko(TM)  printed  grille
collection.  The Gekko(TM) flat speaker's  primary  external  market is the home
audio market. The principal customers are DMC and end-users.

     Distributed Media Corporation:

     DMC  provides  location  based  broadcast  and  billboard-type  advertising
through  a  microbroadcasting   network  of  Sight  &  Sound(R)  systems  within
commercial and  professional  settings.  The Sight & Sound(R) systems consist of
flat  panel  transducer-based  speakers  (provided  by NCT  Audio),  a  personal
computer  containing  DMC's Sight & Sound(R)  software,  telephone access to the
Internet, amplifiers and related components. The software schedules advertisers'
customized broadcast messages,  which are downloaded via the Internet,  with the
respective music genre choice to the commercial/professional establishments. DMC
intends develop private  networks for large customers with multiple outlets such
as large fast-food chains and retail chains.

                                      F-61
<PAGE>

TECHNOLOGY:

     Advancel Logic Corporation:

     Advancel is a participant in the native  Java(TM)  (Java(TM) is a trademark
of Sun Microsystems,  Inc.) embedded  microprocessor  market. The purpose of the
Java(TM) platform is to simplify application development by providing a platform
for the same  software to run on many  different  kinds of  computers  and other
smart devices.  Advancel has developed a family of processor  cores,  which will
execute  instructions  written in both Java(TM) bytecode and C/C++ significantly
enhancing  the  rate  of  instruction   execution,   which  opens  up  many  new
applications.  The potential for  applications  consists of the next  generation
home  appliances  and  automotive  applications,  smartcards  for a  variety  of
applications, hearing aids and mobile communications devices.

23.  Geographical Information (by country of origin) - Total Segments:

     (In thousands of dollars)


<TABLE>
<CAPTION>


                                                              As of December 31, and
                                                              For the Years then Ended
                                              --------------------------------------------------------
                                                    2000                2001               2002
                                              -----------------   -----------------  -----------------
<S>                                                   <C>                 <C>                <C>

Revenue
 United States                                        $ 11,322            $  6,916           $  4,460
 Europe                                                  1,250               3,402              2,453
 Far East                                                  268                 294                406
                                              -----------------   -----------------  -----------------
   Total Revenue                                      $ 12,840            $ 10,612           $  7,319
                                              =================   =================  =================

Identifiable Assets
 United States                                        $ 39,237            $ 19,272           $ 13,464
 Europe                                                    145                 737                105
 Far East                                                    -                   -                  -
                                              -----------------   -----------------  -----------------
   Total                                              $ 39,382            $ 20,009           $ 13,569
                                              =================   =================  =================
</TABLE>


24.  Selected Quarterly Financial Data (Unaudited):

     The following  tables contain  selected  quarterly  financial data for each
quarter of 2002 and 2001.  The company  believes that the following  information
reflects all normal recurring  adjustments  necessary for a fair presentation of
the information for the periods presented. The operating results for any quarter
are not necessarily indicative of results for any future periods.

                                      F-62
<PAGE>

     (Unaudited; in thousands, except per share data)


<TABLE>
<CAPTION>



                                                                  Year Ended December 31, 2002
                                                 ------------------------------------------------------------------
                                                  1st Quarter  2nd Quarter   3rd Quarter   4th Quarter    Total
                                                 -----------   -----------  -----------   -----------   -----------

<S>                                               <C>          <C>           <C>           <C>           <C>
Net revenue                                       $  2,014     $   2,055     $  1,713      $  1,537      $  7,319
Gross profit (loss)                                  1,507         1,646        1,419         1,445         6,017
Loss attributable to common stockholders            (6,879)      (14,365)     (11,961)       (9,763)      (42,968)
Loss per share - basic and diluted                $  (0.02)    $   (0.03)    $  (0.03)     $  (0.02)     $  (0.10)


                                                                  Year Ended December 31, 2001
                                                 ------------------------------------------------------------------
                                                  1st Quarter  2nd Quarter   3rd Quarter   4th Quarter    Total
                                                 -----------   -----------  -----------   -----------   -----------

Net revenue                                       $  2,130     $   2,950     $  2,871      $  2,661      $ 10,612
Gross profit (loss)                                  1,310         2,385        2,229         1,014         6,938
Loss attributable to common stockholders            (8,881)      (28,123)      (8,520)      (33,497)      (79,021)
Loss per share - basic and diluted                $  (0.03)    $   (0.07)    $  (0.02)     $  (0.09)     $  (0.21)
</TABLE>



25.  Costs of Exiting Activities:

     On December 18, 2001, the Board of Directors of Artera Group  International
Limited decided to suspend  underperforming  operations and reduce employees. In
connection therewith,  the company has recorded a write-down of $1.1 million for
the year ended  December 31, 2001  principally  relating to equipment  and other
costs yet to be incurred at December 31, 2001.  For the year ended  December 31,
2002 the company  has  recorded a  write-down  of $0.4  million  relating to the
remainder of the net assets.

     On March 21, 2002,  the Board of  Directors  of Artera Group  International
Limited,  a U.K.-based  subsidiary,  decided that  corporation  should cease all
operations and be liquidated. Cessation of operations was formalized on April 5,
2002 and liquidation proceedings are pending (see Notes 20 and 26).

     In  December  2001,  management  decided  to close the  company's  Maryland
research facilities.  In connection therewith, the company has recorded a charge
for the year ended  December  31, 2001 of $0.8 million  principally  relating to
lease  termination  and other costs yet to be incurred at December 31, 2001. The
abandonment of this facility was completed in the first quarter of 2002. For the
year ended  December 31, 2002, we recorded  employee  termination  costs of $0.3
million along with an adjustment  relating to the lease  termination and lawsuit
settlement (see Note 20) of $(0.6) million.

     These costs have been included in the consolidated  statement of operations
as "costs of exiting activities."

     On February 28, 2002, DMC Cinema,  Inc. ceased business  operations and had
no material operations at date of discontinuance.

26.  Subsequent Events:

Transactions with Carole Salkind

     On January 15, 2003,  NCT issued a convertible  note payable to Ms. Salkind
for approximately  $0.5 million as consideration for approximately  $0.5 million
in cash. The note matures on January 15, 2004 and bears interest at 8% per annum
payable at maturity.  The note is convertible into shares of our common stock at
$0.041 per share and may be  exchanged  for shares of common  stock of any other
NCT  subsidiary  except Pro Tech that has an  initial  public  offering  (at the
initial  public  offering  price  thereof).  In  conjunction  with the  note,  a
five-year  warrant was issued to Ms.  Salkind to purchase 2.0 million  shares of
our common stock at an exercise price of $0.041 per share.

                                      F-63
<PAGE>

     On January 23, 2003,  NCT issued a convertible  note payable to Ms. Salkind
for $2.7 million as consideration for $2.7 million related to curing the default
on a convertible  note dated  January 11, 2002.  The note matures on January 23,
2004 and  bears  interest  at 8% per  annum  payable  at  maturity.  The note is
convertible  into  shares  of our  common  stock at $0.04  per  share and may be
exchanged for shares of common stock of any other NCT subsidiary except Pro Tech
that has an initial  public  offering  (at the  initial  public  offering  price
thereof).  In conjunction  with the note, a five-year  warrant was issued to Ms.
Salkind to purchase  approximately 11.8 million shares of our common stock at an
exercise price of $0.04 per share.

     On January 30, 2003,  NCT issued a convertible  note payable to Ms. Salkind
for approximately  $0.4 million as consideration for approximately  $0.4 million
in cash. The note matures on January 30, 2004 and bears interest at 8% per annum
payable at maturity.  . The note is convertible  into shares of our common stock
at $0.041 per share and may be exchanged for shares of common stock of any other
NCT  subsidiary  except Pro Tech that has an  initial  public  offering  (at the
initial  public  offering  price  thereof).  In  conjunction  with the  note,  a
five-year  warrant was issued to Ms.  Salkind to purchase 1.5 million  shares of
our common stock at an exercise price of $0.041 per share.

     On February 11, 2003, NCT issued a convertible  note payable to Ms. Salkind
for $1.3 million as consideration for $0.8 million related to curing the default
on a convertible note dated January 25, 2002 and  approximately  $0.5 million in
cash.  The note matures on February 11, 2004 and bears  interest at 8% per annum
payable at maturity.  The note is convertible into shares of our common stock at
$0.04 per share and may be exchanged for shares of common stock of any other NCT
subsidiary  except Pro Tech that has an initial public  offering (at the initial
public  offering  price  thereof).  In  conjunction  with the note,  a five-year
warrant was issued to Ms.  Salkind to purchase 5.5 million  shares of our common
stock at an exercise price of $0.04 per share.

     On March 4, 2003, NCT issued a convertible  note payable to Ms. Salkind for
approximatley  $0.5 million as consideration for  approximately  $0.5 million in
cash.  The note  matures  on March 4,  2004 and bears  interest  at 8% per annum
payable at maturity.  The note is convertible into shares of our common stock at
$0.035 per share and may be  exchanged  for shares of common  stock of any other
NCT  subsidiary  except Pro Tech that has an  initial  public  offering  (at the
initial  public  offering  price  thereof).  In  conjunction  with the  note,  a
five-year  warrant was issued to Ms.  Salkind to purchase 2.0 million  shares of
our common stock at an exercise price of $0.035 per share.

     On March 13, 2003, NCT issued two convertible  notes payable to Ms. Salkind
for an aggregate  $1.8  million as  consideration  for $1.4  million  related to
curing the defaults on two  convertible  notes dated February 27, 2002 and March
1, 2002 and  approximately  $0.5 million in cash.  The notes mature on March 13,
2004 and bear  interest  at 8% per annum  payable at  maturity.  These notes are
convertible  into  shares of our  common  stock at  $0.031  per share and may be
exchanged for shares of common stock of any other NCT subsidary  except Pro Tech
that has an initial  public  offering  (at the  initial  public  offering  price
thereof).  In conjunction with the notes, two five-year  warrants were issued to
Ms.  Salkind to purchase an aggregate of 8.0 million  shares of our common stock
at an exercise price of $0.031 per share.

Litigation

     NCT Audio Arbitration and TST/TSA Bankruptcy
     --------------------------------------------

     In the  bankruptcy  proceedings  of GTI (TST) and TSA, on January 17, 2003,
NCT  Audio  objected  to the  GTI/TSA  Plan  of  Reorganization  and  Disclosure
Statement on the ground that the Plan was  detrimental to NCT Audio in ways that
are unlawful.  On January 21, 2003, on the date scheduled for a bankruptcy court
hearing on NCT Audio's  objection and other  aspects of the Plan and  Disclosure
Statement,  NCT Audio and GTI/TSA reached a settlement of NCT Audio's  objection
motion  and  all  other  matters  in  dispute  between  them.  Pursuant  to  the
settlement,  NCT Audio (i)  withdrew its  objection  to the Plan and  Disclosure
Statement;  (ii) reduced its claim in the  bankruptcy to  $1,500,000;  and (iii)
released the debtors and their officers and directors from all claims other than
this claim in the bankruptcy.  In consideration thereof, the Plan was amended to
(x)  provide  that  NCT  Audio  will be paid  $125,000  from the  assets  of the
bankruptcy  estate upon  confirmation  of the Plan; (y) elevate NCT Audio's (now
$1,500,000)  claim in the  bankruptcy  from a "contested"  claim to an "allowed"
(i.e.,  uncontested)  claim;  and (z) provide that NCT Audio will be entitled to
payments,  if  any,  on  its  $1,500,000  bankruptcy  claim  in  the  course  of
administration  of the estate under a formula set forth in the Plan. The Plan as
amended also provides for a $1,000,000  litigation fund for the estate's efforts
to enforce a number of claims it  believes  it has against  third  parties,

                                      F-64
<PAGE>

the proceeds of which efforts  would,  under the formula in the Plan, be used to
pay the claims of NCT Audio and the other creditors of the bankruptcy estate. On
February 18, 2003, the bankruptcy court confirmed the Plan as so amended.

     Production Resource Group Litigation
     ------------------------------------

     In the portion of the case  against NCT and DMC, on or about  February  14,
2003,  PRG served  papers on NCT  seeking to enforce the  judgement  in the case
against  the shares of stock of NCT Audio  owned by NCT.  In the  portion of the
case against NCT Chairman and Chief Executive  Officer  Michael  Parrella (as to
which NCT has agreed to indemnify Mr. Parrella), on February 25, 2003, the court
granted in part Mr. Parrella's July 15, 2002 motion,  striking those portions of
the PRG amended  complaint  that allege a breach of an  obligation of good faith
and fair  dealing,  but  declining to strike those  portions  that allege unfair
trade practices and fraud.

Options

     On January  23,  2003,  NCT granted to Inframe,  Inc.  non-plan  options to
purchase 23 million  shares of our common  stock at an exercise  price of $0.042
per share. The five-year options vest  immediately.  The options were granted in
consideration  of a consulting  agreement for services.  We will record a charge
for the  estimated  fair value of this  option of  approximately  $0.7  million.
Carole Salkind is the sole shareholder of Inframe, Inc.

     On February  11,  2003,  NCT granted to Avant  Interactive,  Inc.  non-plan
options to purchase 7.0 million  shares of our common stock at an exercise price
of $0.04 per share.  The five-year  options vest  immediately.  The options were
granted in consideration of a consulting agreement for services.  We will record
a charge for the  estimated  fair  value of this  option of  approximately  $0.2
million. Carole Salkind is the sole shareholder of Avant Interactive, Inc.

     On March 12, 2003, NCT granted to Avant Interactive,  Inc. non-plan options
to purchase  13.5  million  shares of our common  stock at an exercise  price of
$0.031 per share.  The  five-year  options  vest  immediately.  The options were
granted in consideration of an amendment to a consulting agreement for services.
We will  record  a  charge  for the  estimated  fair  value  of this  option  of
approximately  $0.3 million.  Carole  Salkind is the sole  shareholder  of Avant
Interactive, Inc.

                                      F-65
<PAGE>


INDEPENDENT AUDITORS' REPORT ON SCHEDULE II


Board of Directors and Stockholders of
NCT Group, Inc.

Our audits  were  conducted  for the  purpose of forming an opinion on the basic
consolidated  financial  statements of NCT Group,  Inc. and  subsidiaries  as of
December  31,  2001 and 2002 and for each of the  years  then  ended  taken as a
whole.  The 2001 and 2002  information  included on Schedule II is presented for
purposes  of  additional  analysis  and  is not a  required  part  of the  basic
consolidated  financial  statements.  Such information has been subjected to the
auditing  procedures applied in the audits of the basic  consolidated  financial
statements  and, in our opinion,  is fairly  stated in all material  respects in
relation to the basic consolidated financial statements taken as a whole.


/s/ EISNER LLP
--------------
    Eisner LLP



New York, New York
February 20, 2003

                                      F-66
<PAGE>


INDEPENDENT AUDITOR'S REPORT ON SCHEDULE II

Board of Directors
NCT Group, Inc.

We have audited the basic consolidated  financial  statements of NCT Group, Inc.
and  Subsidiaries  for the year ended December 31, 2000. Our audit was conducted
for the purpose of forming an opinion on those financial  statements  taken as a
whole.  The  information  included  on  Schedule  II is  the  responsibility  of
management,  and although not considered  necessary for a fair  presentation  of
financial  position,  results of  operations,  and cash flows is  presented  for
additional analysis and has been subjected to the auditing procedures applied in
the audit of the basic consolidated  financial  statements.  In our opinion, the
information included on Schedule II relating to the year ended December 31, 2000
is fairly stated in all material respects, in relation to the basic consolidated
financial  statements taken as a whole.  Also, such schedule presents fairly the
information  set forth  therein in  compliance  with the  applicable  accounting
regulations of the Securities and Exchange Commission.


/s/ GOLDSTEIN GOLUB KESSLER LLP
--------------------------------
Goldstein Golub Kessler LLP

New York, New York
April 9, 2001

                                      F-67
<PAGE>


<TABLE>
<CAPTION>


                                                                  SCHEDULE II
NCT GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands of dollars)

---------------------------------------------------------------------------------------------------------------------------
               Column A                     Column B              Column C                   Column D          Column E
---------------------------------------------------------------------------------------------------------------------------
                                                           Charged        Charged to
                                           Balance at      in costs         other                              Balance at
                                           beginning         and          accounts -        Deductions -         end of
              Description                  of period       expenses        Describe         Describe            period
---------------------------------------------------------------------------------------------------------------------------
<S>                   <C> <C>              <C>             <C>            <C>                <C>                <C>

Allowance for doubtful accounts:
  Year ended December 31, 2000             $   102  (a)    $   803        $   (800) (b)      $    (35) (c)      $    70
  Year ended December 31, 2001                 103  (a)        249             (46) (b)            (8) (c)          298
  Year ended December 31, 2002                 298              77             (29) (b)            (6) (c)          340

Reserve for uncollectible amounts:
  Year ended December 31, 2000                   -               -               -                  -                 -
  Year ended December 31, 2001                   -           1,000               -                  -             1,000
  Year ended December 31, 2002               1,000               -               -                  -             1,000

Allowance for inventory obsolescence:
  Year ended December 31, 2000                 529             100            (529) (d)             -               100
  Year ended December 31, 2001                 100             691               -                  -               791
  Year ended December 31, 2002                 791             239               -               (626) (c)          404

Accumulated depreciation:
  Year ended December 31, 2000               4,042  (a)        334               -                (24) (c)        4,352
  Year ended December 31, 2001               4,352             936           1,115  (e)        (1,809) (c)        4,594
  Year ended December 31, 2002               4,594             852             186  (f)        (1,836) (c)        3,796

Accumulated goodwill amortization:
  Year ended December 31, 2000               4,163           1,019               -                  -             5,182
  Year ended December 31, 2001               5,182           1,691          16,239  (g)       (21,988) (h)        1,124
  Year ended December 31, 2002               1,124               -               -                  -             1,124

Accumulated patent and other
intangibles amortization:
  Year ended December 31, 2000               2,878             658               -                  -             3,536
  Year ended December 31, 2001               3,536             350               -                  -             3,886
  Year ended December 31, 2002               3,886             453           2,116 (g)         (2,495) (h)        3,960

Attention  is  directed  to  the  foregoing  accountants'  reports  and  to  the
accompanying notes to our consolidated financial statements.
</TABLE>

Footnotes:
---------
     (a)  Increases from prior year-end due to acquistions.
     (b)  Accounts written-off directly to expense.
     (c)  Accounts previously reserved for, written off or sold in current year.
     (d)  Apply to specific prior year-end inventory items.
     (e)  Write down for exiting business, charged to other expense.
     (f)  Currency translation adjustments.
     (g)  Write down intangibles to estimated fair value.
     (h)  Write off fully amortized intangibles.

                                      F-68
<PAGE>


                                 NCT Group, Inc.
                                Index to Exhibits
                                  Item 15(a)(3)

Exhibit
Number    Description of Exhibit
------    -------------------------

3(a)      Second Restated  Certificate of Incorporation of NCT Group, Inc. filed
          in the Office of the  Secretary  of State of the State of  Delaware on
          August 15, 2001.

3(b)      By-laws of NCT Group, Inc., as amended to date.

3(c)      Certificate  of  Designation,  Preferences  and  Rights  of  Series  H
          Convertible  Preferred Stock of NCT Group, Inc. as filed in the office
          of the  Secretary  of State of the State of Delaware of June 21, 2002,
          incorporated   herein  by   reference   to   Exhibit   3(c)  of  NCT's
          Pre-effective  Amendment No. 5 to  Registration  Statement on Form S-1
          (Registration No. 333-60574) filed on August 9, 2002.

4(a)      Warrant  #BW-1-R to  purchase  862,500  shares of common  stock of the
          Company at a purchase price of $.75 per share issued to John J. McCloy
          II,  incorporated herein by reference to Exhibit 4(b) to the Company's
          Annual  Report on Form 10-K for the  fiscal  year ended  December  31,
          1996.

4(b)      Warrant  #BW-2-R to  purchase  862,500  shares of common  stock of the
          Company  at a  purchase  price of $.75 per share  issued to Michael J.
          Parrella,  incorporated  herein by  reference  to Exhibit  4(c) to the
          Company's  Annual  Report  on Form  10-K  for the  fiscal  year  ended
          December 31, 1996.

4(c)      Warrant  #BW-4-R to  purchase  201,250  shares of common  stock of the
          Company  at a  purchase  price  of $.75  per  share  issued  to  Irene
          Lebovics,  incorporated  herein by  reference  to Exhibit  4(d) to the
          Company's  Annual  Report  on Form  10-K  for the  fiscal  year  ended
          December 31, 1996.

4(d)      Warrant  #BW-9-R and  #BW-46-R to  purchase  218,500  shares of common
          stock of the Company at a purchase  price of $.75 per share  issued to
          Jay M. Haft,  incorporated  herein by reference to Exhibit 4(e) to the
          Company's  Annual  Report  on Form  10-K  for the  fiscal  year  ended
          December 31, 1996.

4(e)      Secretary's  Certificate  dated  February  1, 1999,  as to a five-year
          extension of the expiration  dates of the Warrants  described in 4(a),
          (b), (c) and (d) above.

4(f)      Warrant issued to Carole Salkind for the purchase of 2,789,082  shares
          of common stock at an exercise price of $0.079 per share dated January
          11,  2002,  incorporated  herein by  reference  to Exhibit 4(m) to the
          Annual Report on Form 10-K for the year ended December 31, 2001, filed
          on April 30, 2002.

4(g)      Option dated  January 11, 2002 granted to Carole  Salkind to acquire a
          10% equity  interest  in Artera  Group,  Inc,  incorporated  herein by
          reference  to Exhibit  4(n) to the Annual  Report on Form 10-K for the
          year ended December 31, 2001, filed on April 30, 2002.

4(h)      Warrant  dated  January  25,  2002  issued to Carole  Salkind  for the
          purchase of 812,500 shares of NCT common stock at an exercise price of
          $0.09 per share,  incorporated  herein by reference to Exhibit 4(o) to
          the Annual  Report on Form 10-K for the year ended  December 31, 2001,
          filed on April 30, 2002.

4(i)      Warrant  dated  January  25,  2002  issued to Carole  Salkind  for the
          purchase of 312,500 shares of NCT common stock at an exercise price of
          $0.09 per share,  incorporated  herein by reference to Exhibit 4(p) to
          the Annual  Report on Form 10-K for the year ended  December 31, 2001,
          filed on April 30, 2002.

                                      II-1
<PAGE>


4(j)      Warrant  dated  February  27,  2002  issued to Carole  Salkind for the
          purchase of 1,034,226  shares of NCT common stock at an exercise price
          of $0.079 per share,  incorporated herein by reference to Exhibit 4(q)
          to the  Annual  Report on Form 10-K for the year  ended  December  31,
          2001, filed on April 30, 2002.

4(k)      Warrant dated January 1, 2002 issued to Piedmont Consulting,  Inc. for
          the purchase of 500,000 shares of NCT common stock at a purchase price
          of $0.20 per share,  incorporated  by reference to Exhibit 4(a) to the
          Quarterly  Report  filed on Form 10-Q for the quarter  ended March 31,
          2002, filed on May 15, 2002.

4(l)      Warrant  dated  January 10, 2002 issued to Libra  Finance S.A. for the
          purchase of 5,000,000  shares of NCT common stock at a purchase  price
          of the lower of: $0.07 per share or the lowest  closing bid price from
          January 10, 2002 through June 28, 2002,  incorporated  by reference to
          Exhibit  4(b) to the  Quarterly  Report  filed  on Form  10-Q  for the
          quarter ended March 31, 2002, filed on May 15, 2002.

4(m)      Repricing of Warrant  dated  October 25, 2001 issued to Libra  Finance
          S.A. for the purchase of 20,000,000  shares of NCT common stock from a
          purchase  price of $0.09 per share to the lower of: $0.07 per share or
          the lowest  closing bid price from  January 10, 2002  through June 28,
          2002,  incorporated  by  reference  to Exhibit  4(c) to the  Quarterly
          Report filed on Form 10-Q for the quarter ended March 31, 2002,  filed
          on May 15, 2002.

4(n)      Warrant dated January 31, 2002 issued to Robert C. Lau (as designee of
          Clayton Dunning & Company, Inc.) for the purchase of 104,167 shares of
          NCT common stock at a purchase price of $0.13 per share,  incorporated
          by  reference to Exhibit  4(d) to the  Quarterly  Report filed on Form
          10-Q for the quarter ended March 31, 2002, filed on May 15, 2002.

4(o)      Warrant dated March 1, 2002 issued to Carole  Salkind for the purchase
          of 437,500  shares of NCT common  stock at a purchase  price of $0.079
          per share,  incorporated by reference to Exhibit 4(e) to the Quarterly
          Report filed on Form 10-Q for the quarter ended March 31, 2002,  filed
          on May 15, 2002.

4(p)      Warrant dated May 2, 2002 issued to Carole Salkind for the purchase of
          3,188,708 shares of NCT common stock at a purchase price of $0.094 per
          share,  incorporated  by reference  to Exhibit  4(f) to the  Quarterly
          Report filed on Form 10-Q for the quarter ended March 31, 2002,  filed
          on May 15, 2002.

4(q)      Warrant dated May 2, 2002 issued to Carole Salkind for the purchase of
          3,562,500 shares of NCT common stock at a purchase price of $0.094 per
          share,  incorporated  by reference  to Exhibit  4(g) to the  Quarterly
          Report filed on Form 10-Q for the quarter ended March 31, 2002,  filed
          on May 15, 2002.

4(r)      Warrant  dated May 29, 2002 issued to Carole  Salkind for the purchase
          of 1,500,000  shares of NCT common stock at a purchase price of $0.095
          per share,  incorporated  herein by reference to Exhibit 4(y) of NCT's
          Pre-effective  Amendment No. 5 to  Registration  Statement on Form S-1
          (Registration No. 333-60574) filed on August 9, 2002.

4(s)      Warrant  dated June 2, 2002 issued to Carole  Salkind for the purchase
          of 1,500,000  shares of NCT common stock at a purchase price of $0.097
          per share,  incorporated  herein by reference to Exhibit 4(z) of NCT's
          Pre-effective  Amendment No. 5 to  Registration  Statement on Form S-1
          (Registration No. 333-60574) filed on August 9, 2002.

                                      II-2
<PAGE>


4(t)      Warrant  dated July 3, 2002 issued to Carole  Salkind for the purchase
          of 1,500,000  shares of NCT common stock at a purchase price of $0.078
          per share,  incorporated herein by reference to Exhibit 4(aa) of NCT's
          Pre-effective  Amendment No. 5 to  Registration  Statement on Form S-1
          (Registration No. 333-60574) filed on August 9, 2002.

4(u)      Warrant dated July 12, 2002 issued to Carole  Salkind for the purchase
          of 20,000,000 shares of NCT common stock at a purchase price of $0.075
          per share,  incorporated herein by reference to Exhibit 4(ab) of NCT's
          Pre-effective  Amendment No. 5 to  Registration  Statement on Form S-1
          (Registration No. 333-60574) filed on August 9, 2002.

4(v)      Warrant dated July 15, 2002 issued to Carole  Salkind for the purchase
          of 1,500,000  shares of NCT common stock at a purchase price of $0.075
          per share,  incorporated herein by reference to Exhibit 4(ac) of NCT's
          Pre-effective  Amendment No. 5 to  Registration  Statement on Form S-1
          (Registration No. 333-60574) filed on August 9, 2002.

4(w)      Warrant  dated  June 13,  2002  issued to Blue  Future,  Inc.  for the
          purchase of 250,000  shares of NCT common stock at a purchase price of
          $0.16 per share,  incorporated herein by reference to Exhibit 4(ad) of
          NCT's Pre-effective  Amendment No. 5 to Registration Statement on Form
          S-1 (Registration No. 333-60574) filed on August 9, 2002.

4(x)      Warrant  dated June 17, 2002 issued to Thomas  Cotton for the purchase
          of 350,000  shares of NCT common  stock at a purchase  price of $0.081
          per share,  incorporated herein by reference to Exhibit 4(ae) of NCT's
          Pre-effective  Amendment No. 5 to  Registration  Statement on Form S-1
          (Registration No. 333-60574) filed on August 9, 2002.

4(y)      Warrant  dated  June 17,  2002  issued  to Barry  H.  Chappel  for the
          purchase of 400,000  shares of NCT common stock at a purchase price of
          $0.081 per share, incorporated herein by reference to Exhibit 4(af) of
          NCT's Pre-effective  Amendment No. 5 to Registration Statement on Form
          S-1 (Registration No. 333-60574) filed on August 9, 2002.

4(z)      Warrant dated June 17, 2002 issued to John Capozzi for the purchase of
          400,000  shares of NCT common stock at a purchase  price of $0.081 per
          share,  incorporated  herein by  reference  to Exhibit  (4ag) of NCT's
          Pre-effective  Amendment No. 5 to  Registration  Statement on Form S-1
          (Registration No. 333-60574) filed on August 9, 2002.

4(aa)     Option  granted to Leben  Care,  Inc.  dated  January  25, 2002 for an
          aggregate of 8,350,000  shares of NCT common stock at exercise  prices
          ranging  from  $0.079  to $0.13  per  share,  incorporated  herein  by
          reference to Exhibit 4(ah) of NCT's  Pre-effective  Amendment No. 5 to
          Registration  Statement on Form S-1 (Registration No. 333-60574) filed
          on August 9, 2002.

4(ab)     Option  granted to Stop Noise,  Inc.  dated  February  27, 2002 for an
          aggregate of 3,375,000  shares of NCT common stock at exercise  prices
          ranging  from  $0.079  to $0.12  per  share,  incorporated  herein  by
          reference to Exhibit 4(ai) of NCT's  Pre-effective  Amendment No. 5 to
          Registration  Statement on Form S-1 (Registration No. 333-60574) filed
          on August 9, 2002.

4(ac)     Warrant issued to Carole Salkind for the purchase of 2,250,000  shares
          of common stock dated July 23, 2002,  incorporated herein by reference
          to  Exhibit   4(aj)  of  NCT's   Pre-effective   Amendment  No.  6  to
          Registration  Statement on Form S-1 (Registration No. 333-60574) filed
          on November 4, 2002.

4(ad)     Warrant issued to Carole Salkind for the purchase of 1,500,000  shares
          of  common  stock  dated  August  14,  2002,  incorporated  herein  by
          reference to Exhibit 4(ak) of NCT's  Pre-effective  Amendment No. 6 to
          Registration  Statement on Form S-1 (Registration No. 333-60574) filed
          on November 4, 2002.

                                      II-3
<PAGE>


4(ae)     Warrant issued to Carole Salkind for the purchase of 2,100,000  shares
          of  common  stock  dated  August  29,  2002,  incorporated  herein  by
          reference to Exhibit 4(al) of NCT's  Pre-effective  Amendment No. 6 to
          Registration  Statement on Form S-1 (Registration No. 333-60574) filed
          on November 4, 2002.

4(af)     Warrant issued to Carole Salkind for the purchase of 1,500,000  shares
          of common  stock  dated  September  9,  2002,  incorporated  herein by
          reference to Exhibit 4(am) of NCT's  Pre-effective  Amendment No. 6 to
          Registration  Statement on Form S-1 (Registration No. 333-60574) filed
          on November 4, 2002.

4(ag)     Warrant  issued to  Carole  Salkind  for the  purchase  of  10,000,000
          shares of Common Stock dated Septmber 30, 2002, incorporated herein by
          reference to Exhibit 4(an) of NCT's  Pre-effective  Amendment No. 6 to
          Registration  Statement on Form S-1 (Registration No. 333-60574) filed
          on November 4, 2002.

4(ah)     Warrant  issued to  Carole  Salkind  for the  purchase  of  16,157,565
          shares of common stock dated September 30, 2002,  incorporated  herein
          by reference to Exhibit 4(ao) of NCT's  Pre-effective  Amendment No. 6
          to Registration  Statement on Form S-1  (Registration  No.  333-60574)
          filed on November 4, 2002.

4(ai)     Option  granted to Acme  Associates,  Inc.  dated as of September  30,
          2002 for an aggregate of  50,000,000  shares of NCT common stock at an
          exercise price of $0.070 per share (prior options to Acme  Associates,
          Inc,  were  cancelled  by this  new  grant),  incorporated  herein  by
          reference to Exhibit 4(ap) of NCT's  Pre-effective  Amendment No. 6 to
          Registration  Statement on Form S-1 (Registration No. 333-60574) filed
          on November 4, 2002.

4(aj)     Warrant  dated  October 11, 2002 issued to  FairPoint  Communications,
          Inc.  for the  purchase of  2,000,000  shares of NCT common stock at a
          purchase price of $0.15 per share.

4(ak)     Warrant  dated  November  7, 2002  issued to  Carole  Salkind  for the
          purchase of 1,750,000  shares of NCT common stock at a purchase  price
          of $0.072 per share, incorporated by reference to Exhibit 4(af) of the
          company's Quarterly Report on Form 10-Q filed November 14, 2002.

4(al)     Warrant  dated  November  20,  2002  issued to Carole  Salkind for the
          purchase of 1,750,000  shares of NCT common stock at a purchase  price
          of $0.054 per share.

4(am)     Warrant  dated  November  21,  2002  issued to Carole  Salkind for the
          purchase of 6,271,926  shares of NCT common stock at a purchase  price
          of $0.0535 per share.

4(an)     Warrant dated November 22, 2002 issued to Gavin  Brackenridge  for the
          purchase of 300,000  shares of NCT common stock at a purchase price of
          $0.054 per share.

4(ao)     Warrant  dated  December  2, 2002  issued to  Carole  Salkind  for the
          purchase of 1,500,000  shares of NCT common stock at a purchase  price
          of $0.048 per share.

4(ap)     Warrant  dated  December  16,  2002  issued to Carole  Salkind for the
          purchase of 1,750,000  shares of NCT common stock at a purchase  price
          of $0.042 per share.

4(aq)     Warrant dated  December 16, 2002 issued to Robert L. Bernstein for the
          purchase of 200,000  shares of NCT common stock at a purchase price of
          $0.0515 per share.

4(ar)     Warrant dated December 16, 2002 issued to Gavin  Brackenridge  for the
          purchase of 200,000  shares of NCT common stock at a purchase price of
          $0.125 per share.

4(as)     Warrant dated December 16, 2002 issued to Gavin  Brackenridge  for the
          purchase of 250,000  shares of NCT common stock at a purchase price of
          $0.08 per share.

                                      II-4
<PAGE>


4(at)     Warrant dated December 16, 2002 issued to Gavin  Brackenridge  for the
          purchase of 250,000  shares of NCT common stock at a purchase price of
          $0.150 per share.

4(au)     Warrant  dated  December  16,  2002  issued to Dr.  Henry  Murray  (as
          designee of The Murray Group) for the purchase of 67,000 shares of NCT
          common stock at a purchase price of $0.100 per share.

4(av)     Warrant  dated  December  16,  2002  issued  to  Diana T.  Murray  (as
          designee of The Murray Group) for the purchase of 33,000 shares of NCT
          common stock at a purchase price of $0.100 per share.

4(aw)     Warrant  dated  December  16,  2002  issued  to Dr.  Henry  Masur  (as
          designee of The Murray  Group) for the  purchase of 100,000  shares of
          NCT common stock at a purchase price of $0.100 per share.

4(ax)     Warrant  dated  December  16,  2002  issued to Steven  Keenan  for the
          purchase of 300,000  shares of NCT common stock at a purchase price of
          $0.099 per share.

4(ay)     Warrant dated  December 16, 2002 issued to B. Michael Pisani / Granite
          Securities  Cooperation  for the  purchase  of  200,000  shares of NCT
          common stock at a purchase price of $0.100 per share.

4(az)     Warrant dated  December 16, 2002 issued to Charles T. Lanktree for the
          purchase of 200,000  shares of NCT common stock at a purchase price of
          $0.100 per share.

4(ba)     Warrant dated  December 16, 2002 issued to Sandy  Eisemann / NRI, Inc.
          (as designee for C&C Partners, Inc.) for the purchase of 50,000 shares
          of NCT common stock at a purchase price of $0.100 per share.

4(bb)     Warrant dated  December 16, 2002 issued to Sandy  Eisemann / NRI, Inc.
          (as designee for C&C Partners, Inc.) for the purchase of 25,000 shares
          of NCT common stock at a purchase price of $0.250 per share.

4(bc)     Warrant dated  December 16, 2002 issued to Sandy  Eisemann / NRI, Inc.
          (as designee for C&C Partners, Inc.) for the purchase of 25,000 shares
          of NCT common stock at a purchase price of $0.500 per share.

4(bd)     Warrant dated  December 16, 2002 issued to Sandy  Eisemann / NRI, Inc.
          (as designee for C&C Partners, Inc.) for the purchase of 25,000 shares
          of NCT common stock at a purchase price of $0.750 per share.

4(be)     Warrant  dated  December  16,  2002 issued to Robert F.  Callahan  (as
          designee for C&C Partners,  Inc.) for the purchase of 50,000 shares of
          NCT common stock at a purchase price of $0.100 per share.

4(bf)     Warrant  dated  December  16,  2002 issued to Robert F.  Callahan  (as
          designee for C&C Partners,  Inc.) for the purchase of 25,000 shares of
          NCT common stock at a purchase price of $0.250 per share.

4(bg)     Warrant  dated  December  16,  2002 issued to Robert F.  Callahan  (as
          designee for C&C Partners,  Inc.) for the purchase of 25,000 shares of
          NCT common stock at a purchase price of $0.500 per share.

4(bh)     Warrant  dated  December  16,  2002 issued to Robert F.  Callahan  (as
          designee for C&C Partners,  Inc.) for the purchase of 25,000 shares of
          NCT common stock at a purchase price of $0.750 per share.

4(bi)     Warrant  dated  December  26,  2002  issued to Carole  Salkind for the
          purchase of 10,206,373  shares of NCT common stock at a purchase price
          of $0.041 per share.

                                      II-5
<PAGE>


4(bj)     Warrant  dated  December  30,  2002  issued to Carole  Salkind for the
          purchase of 1,500,000  shares of NCT common stock at a purchase  price
          of $0.041 per share.

4(bk)     Warrant  dated  December 31, 2002 issued to Michael  Dickerson for the
          purchase of 250,000  shares of NCT common stock at a purchase price of
          $0.100 per share.

4(bl)     Warrant   dated   December   6,   2002   issued   to   Alpha   Capital
          Aktiengesellschaft  for the purchase of 1,400,000 shares of NCT common
          stock at a  purchase  price of the  lower  of $0.07  per  share or the
          lowest closing bid price per share from 12/6/02 through 12/6/03.

4(bm)     Warrant   dated   December   6,   2002   issued   to   Alpha   Capital
          Aktiengesellschaft for the purchase of 15,000,000 shares of NCT common
          stock at a purchase price of $0.01 per share.

4(bn)     Option dated December 26, 2002 issued to Motorworld,  Incorporated for
          the  purchase of  23,000,000  shares of NCT common stock at a purchase
          price of $0.042 per share.

4(bo)     Option  granted  to  Inframe,  Inc.  dated  January  23,  2003  for an
          aggregate  of  23,000,000  shares of NCT common  stock at an  exercise
          price of $0.042 per share.

4(bp)     Option granted to Avant Interactive,  Inc. dated February 11, 2003 for
          an aggregate  of  7,000,000  shares of NCT common stock at an exercise
          price of $0.04 per share.

4(bq)     Option granted to Avant Interactive,  Inc. dated March 12, 2003 for an
          aggregate  of  13,500,000  shares of NCT common  stock at an  exercise
          price of $0.031 per share.

10(a)     Patent Assignment  Agreement,  dated as of June 21, 1989, among George
          B.B. Chaplin, Sound Alternators Limited, the Company, Active Noise and
          Vibration  Technologies,  Inc. and Chaplin  Patents Holding Co., Inc.,
          incorporated  herein by reference to Exhibit 10(aa) to Amendment No. 2
          on Form  S-1 to the  Company's  Registration  Statement  on Form  S-18
          (Registration No. 33-19926).

*10(b)    Noise  Cancellation  Technologies,  Inc.  Stock  Incentive  Plan (as
          adopted  April  14,  1993,  and  amended  through  August  16,  1996),
          incorporated  herein  by  reference  to  Exhibit  4 to  the  Company's
          Registration  Statement  on Form  S-8  filed  with  the  Securities  &
          Exchange Commission on August 30, 1996 (Reg. No. 333-11213).

10(c)     Asset Purchase  Agreement,  dated  September 16, 1994,  between Active
          Noise and Vibration Technologies,  Inc. and the Company,  incorporated
          herein by reference to Exhibit 2 to the  Company's  Current  Report on
          Form 8-K filed September 19, 1994.

*10(d)    Noise  Cancellation  Technologies,  Inc.  Option  Plan  for  Certain
          Directors (as adopted November 15, 1994 and amended through August 16,
          1996),  incorporated herein by reference to Exhibit 4 to the Company's
          Registration  Statement  on Form S-8 filed  with the SEC on August 30,
          1996 (Reg. No. 333-11209).

10(e)     Variation   of   Teaming   Agreement   between   Noise    Cancellation
          Technologies,  Inc. and Ultra Electronics Limited dated April 6, 1995,
          incorporated  herein by  reference to Exhibit  10(c) of the  Company's
          Current Report on Form 8-K filed August 4, 1995.

10(e)(1)  Agreement  for  Sale and  Purchase  of Part of the  Business  and
          Certain  Assets among Noise  Cancellation  Technologies,  Inc.,  Noise
          Cancellation  Technologies (UK) Limited and Ultra Electronics  Limited
          dated April 6, 1995, incorporated herein by reference to Exhibit 10(d)
          of the Company's Current Report on Form 8-K filed August 4, 1995.

                                      II-6
<PAGE>


10(e)(2)  Patent License  Agreement among Noise  Cancellation  Technologies,
          Inc.,  Noise   Cancellation   Technologies   (UK)  Limited  and  Ultra
          Electronics  Limited  dated  April 6,  1995,  incorporated  herein  by
          reference to Exhibit 10(e) of the Company's Current Report on Form 8-K
          filed August 4, 1995.

10(e)(3)  License  Agreement  between  Chaplin Patents Holding Co., Inc. and
          Ultra Electronics Limited dated April 6, 1995,  incorporated herein by
          reference to Exhibit 10(f) of the Company's Current Report on Form 8-K
          filed August 4, 1995.

10(e)(4)  Patent   Sub-License    Agreement   among   Noise   Cancellation
          Technologies,  Inc., Noise Cancellation  Technologies (UK) Limited and
          Ultra Electronics  Limited dated May 15, 1995,  incorporated herein by
          reference to Exhibit 10(g) of the Company's Current Report on Form 8-K
          filed August 4, 1995.

10(f)     License Agreement dated September 4, 1997,  between Noise Cancellation
          Technologies,  Inc.  and NCT Audio  Products,  Inc.,  incorporated  by
          reference to Exhibit 10(d) to the Company's  Quarterly  Report on Form
          10-Q for the quarter ended September 30, 1997.

10(g)     License  Agreement  dated July 15,  1998,  between the Company and NCT
          Hearing Products, Inc., incorporated by reference to Exhibit 10 of the
          Company's Quarterly Report on Form 10-Q for the period ended September
          30, 1998.

10(h)     License Agreement dated January 25, 1999,  between NCT Group, Inc. and
          DistributedMedia.com, Inc., incorporated by reference to Exhibit 10 to
          the  Company's  Quarterly  Report on Form 10-Q for the  quarter  ended
          September 30, 1999.

10(i)     Secured  Convertible Note in principal  amount of $2,231,265.04  dated
          January 11, 2002 issued by the Company to Carole Salkind, incorporated
          herein by  reference  to Exhibit  10(az) to the Annual  Report on Form
          10-K for the year ended December 31, 2001, filed on April 30, 2002.

10(i)(1)  Secured  Convertible  Note in principal  amount of $650,000  dated
          January 25, 2002 issued by the Company to Carole Salkind, incorporated
          herein by reference to Exhibit  10(az)(1) to the Annual Report on Form
          10-K for the year ended December 31, 2001, filed on April 30, 2002.

10(i)(2)  Secured  Convertible  Note in principal  amount of $250,000  dated
          January 25, 2002 issued by the Company to Carole Salkind, incorporated
          herein by reference to Exhibit  10(az)(2) to the Annual Report on Form
          10-K for the year ended December 31, 2001, filed on April 30, 2002.

10(i)(3)  Secured  Convertible  Note in principal  amount of $827,412  dated
          February  27, 2002 issued to Carole  Salkind,  incorporated  herein by
          reference to Exhibit  10(az)(3) to the Annual  Report on Form 10-K for
          the year ended December 31, 2001, filed on April 30, 2002.

10(j)     Subscription  Agreement dated January 10, 2002,  between Artera Group,
          Inc. and Alpha Capital  Aktiengesellschaft,  incorporated by reference
          to Exhibit  10(a) to the  Quarterly  Report filed on Form 10-Q for the
          quarter ended March 31, 2002, filed on May 15, 2002.

10(k)     Security  Agreement dated January 10, 2002, between Artera Group, Inc.
          and Alpha  Capital  Aktiengesellschaft,  incorporated  by reference to
          Exhibit  10(b) to the  Quarterly  Report  filed  on Form  10-Q for the
          quarter ended March 31, 2002, filed on May 15, 2002.

10(l)     Secured  Convertible  Note in the principal  amount of $550,000  dated
          January  10,  2002,  between  Artera  Group,  Inc.  and Alpha  Capital
          Aktiengesellschaft,  incorporated by reference to Exhibit 10(c) to the
          Quarterly  Report  filed on Form 10-Q for the quarter  ended March 31,
          2002, filed on May 15, 2002.

                                      II-7
<PAGE>


10(m)     Funds  Escrow  Agreement  dated  January  10,  2002,  issued by Artera
          Group,  Inc.  to Alpha  Capital  Aktiengesellschaft,  incorporated  by
          reference to Exhibit 10(d) to the Quarterly  Report filed on Form 10-Q
          for the quarter ended March 31, 2002, filed on May 15, 2002.

10(n)     Secured  Convertible  Note in principal amount of $350,000 dated March
          1, 2002  issued by the  Company  to Carole  Salkind,  incorporated  by
          reference to Exhibit 10(e) to the Quarterly  Report filed on Form 10-Q
          for the quarter ended March 31, 2002, filed on May 15, 2002.

10(o)     Subscription  Agreement dated March 11, 2002,  between the Company and
          Alpha Capital Aktiengesellschaft, incorporated by reference to Exhibit
          10(f) to the Quarterly Report filed on Form 10-Q for the quarter ended
          March 31, 2002, filed on May 15, 2002.

10(p)     Funds Escrow  Agreement dated March 11, 2002,  between the Company and
          Alpha Capital Aktiengesellschaft, incorporated by reference to Exhibit
          10(g) to the Quarterly Report filed on Form 10-Q for the quarter ended
          March 31, 2002, filed on May 15, 2002.

10(q)     Secured  Convertible  Note in the principal  amount of $400,000  dated
          March   11,   2002,   issued   by  the   Company   to  Alpha   Capital
          Aktiengesellschaft,  incorporated by reference to Exhibit 10(h) to the
          Quarterly  Report  filed on Form 10-Q for the quarter  ended March 31,
          2002, filed on May 15, 2002.

10(r)     Secured  Convertible Note in principal  amount of $1,275,482.97  dated
          May 2, 2002 issued by the Company to Carole  Salkind,  incorporated by
          reference to Exhibit 10(i) to the Quarterly  Report filed on Form 10-Q
          for the quarter ended March 31, 2002, filed on May 15, 2002.

10(s)     Secured  Convertible  Note in principal amount of $1,425,000 dated May
          2, 2002  issued by the  Company  to Carole  Salkind,  incorporated  by
          reference to Exhibit 10(j) to the Quarterly  Report filed on Form 10-Q
          for the quarter ended March 31, 2002, filed on May 15, 2002.

10(t)     Secured  Convertible  Note in principal  amount of $350,000  dated May
          29, 2002 issued by the Company to Carole Salkind,  incorporated herein
          by reference to Exhibit 10(bk) of NCT's Pre-effective  Amendment No. 5
          to Registration  Statement on Form S-1  (Registration  No.  333-60574)
          filed on August 9, 2002.

10(u)     Secured  Convertible  Note in principal  amount of $300,000 dated June
          2, 2002 issued by the Company to Carole Salkind,  incorporated  herein
          by reference to Exhibit 10(bl) of NCT's Pre-effective  Amendment No. 5
          to Registration  Statement on Form S-1  (Registration  No.  333-60574)
          filed on August 9, 2002.

10(v)     Exchange  Agreement  between the Company and Crammer Road LLC dated as
          of June 21, 2002,  incorporated  herein by reference to Exhibit 10(bm)
          of NCT's  Pre-effective  Amendment No. 5 to Registration  Statement on
          Form S-1 (Registration No. 333-60574) filed on August 9, 2002.

10(v)(1)  Registration Rights Agreement (Exhibit B to the Exchange Agreement
          dated as of June 21,  2002)  dated as of June  21,  2002  between  the
          company and Crammer  Road LLC,  incorporated  herein by  reference  to
          Exhibit   10(bm)(1)  of  NCT's   Pre-effective   Amendment  No.  5  to
          Registration  Statement on Form S-1 (Registration No. 333-60574) filed
          on August 9, 2002.

10(w)     Secured  Convertible  Note in principal  amount of $350,000 dated July
          3, 2002 issued by the Company to Carole Salkind,  incorporated  herein
          by reference to Exhibit 10(bn) of NCT's Pre-effective  Amendment No. 5
          to Registration  Statement on Form S-1  (Registration  No.  333-60574)
          filed on August 9, 2002.

10(x)     Secured  Convertible  Note in principal  amount of $350,000 dated July
          15, 2002 issued by the Company to Carole Salkind,  incorporated herein
          by reference to Exhibit 10(bo) of NCT's Pre-effective  Amendment No. 5
          to Registration  Statement on Form S-1  (Registration  No.  333-60574)
          filed on August 9, 2002.

                                      II-8
<PAGE>


10(y)     Agreement  dated July 12, 2002  relating to Pro Tech  Exchange  Rights
          among the Company, Pro Tech Communications,  Inc., and Carole Salkind,
          incorporated   herein  by  reference   to  Exhibit   10(bp)  of  NCT's
          Pre-effective  Amendment No. 5 to  Registration  Statement on Form S-1
          (Registration No. 333-60574) filed on August 9, 2002.

10(z)     Private Equity Credit  Agreement dated as of July 25, 2002 between NCT
          Group, Inc. and Crammer Road LLC,  incorporated herein by reference to
          Exhibit 10(bq) of NCT's Pre-effective  Amendment No. 5 to Registration
          Statement on Form S-1  (Registration No. 333-60574) filed on August 9,
          2002.

10(z)(1)  Registration  Rights Agreement (Exhibit A to Private Equity Credit
          Agreement)  dated as of July 25,  2002  between  NCT Group,  Inc.  and
          Crammer  Road  LLC,   incorporated  herein  by  reference  to  Exhibit
          10(bq)(1)  of NCT's  Pre-effective  Amendment  No.  5 to  Registration
          Statement on Form S-1  (Registration No. 333-60574) filed on August 9,
          2002.

10(aa)    Secured  Convertible Note in principal amount of $525,000 dated July
          23, 2002 issued by the Company to Carole Salkind,  incorporated herein
          by reference to Exhibit 10(br) of NCT's Pre-effective  Amendment No. 6
          to Registration  Statement on Form S-1  (Registration  No.  333-60574)
          filed on November 4, 2002.

10(ab)    Secured  Convertible  Note in  principal  amount of  $350,000  dated
          August 14, 2002 issued by the Company to Carole Salkind,  incorporated
          herein by reference to Exhibit 10(bs) of NCT's Pre-effective Amendment
          No.  6  to  Registration  Statement  on  Form  S-1  (Registration  No.
          333-60574) filed on November 4, 2002.

10(ac)    Secured  Convertible  Note in  principal  amount of  $490,000  dated
          August 29, 2002 issued by the Company to Carole Salkind,  incorporated
          herein by reference to Exhibit 10(bt) of NCT's Pre-effective Amendment
          No.  6  to  Registration  Statement  on  Form  S-1  (Registration  No.
          333-60574) filed on November 4, 2002.

10(ad)    Secured  Convertible  Note in  principal  amount of  $350,000  dated
          September   9,  2002  issued  by  the   Company  to  Carole   Salkind,
          incorporated   herein  by  reference   to  Exhibit   10(bu)  of  NCT's
          Pre-effective  Amendment No. 6 to  Registration  Statement on Form S-1
          (Registration No. 333-60574) filed on November 4, 2002.

10(ae)    Secured  Convertible Note in principal amount of $3,770,098.38 dated
          September   30,  2002  issued  by  the  Company  to  Carole   Salkind,
          incorporated   herein  by  reference   to  Exhibit   10(bv)  of  NCT's
          Pre-effective  Amendment No. 6 to  Registration  Statement on Form S-1
          (Registration No. 333-60574) filed on November 4, 2002.

10(af)    Agreement  dated  September  30, 2002  relating to Pro Tech Exchange
          Rights among the Company,  Pro Tech  Communications,  Inc., and Carole
          Salkind,  incorporated  herein by reference to Exhibit 10(bw) of NCT's
          Pre-effective  Amendment No. 6 to  Registration  Statement on Form S-1
          (Registration No. 333-60574) filed on November 4, 2002.

10(ag)    Settlement  Agreement and Release dated October 30, 2002 made by and
          between Crammer Road LLC and NCT,  incorporated herein by reference to
          Exhibit 10(bx) of NCT's Pre-effective  Amendment No. 6 to Registration
          Statement on Form S-1  (Registration  No. 333-60574) filed on November
          4, 2002.

10(ah)    Master Distribution Agreement dated October 24, 2002, between Artera
          Group, Inc. and Spyder Technologies Group, LLC, incorporated herein by
          reference to Exhibit 10(by) of NCT's Pre-effective  Amendment No. 6 to
          Registration  Statement on Form S-1 (Registration No. 333-60574) filed
          on November 4, 2002.

                                      II-9
<PAGE>


10(ai)    Secured  Convertible  Note in  principal  amount of  $400,000  dated
          November 7, 2002 issued by the Company to Carole Salkind, incorporated
          by reference to Exhibit  10(af) of the company's  Quarterly  Report on
          Form 10-Q filed November 14, 2002.

10(aj)    License  Agreement dated October 1, 2002 between NCT Group, Inc. and
          Stop Noise, Inc.

10(ak)    Secured  Convertible  Note in  principal  amount of  $400,000  dated
          November 20, 2002 issued by the company to Carole Salkind.

10(al)    Secured  Convertible Note in principal amount of $1,463,449.36 dated
          November 21, 2002 issued by the company to Carole Salkind.

10(am)    Consulting  Agreement  dated  January 20, 1999 between NCT and Leben
          Care, Inc. along with corespondence  dated January 8, 2002,  amendment
          and extension thereof and three amendments thereto.

10(an)    Consulting  Agreement dated July 1, 2001 between NCT and Stop Noise,
          Inc.  along with an  addendem  thereto  dated  October 9, 2001 and two
          amendments thereto.

10(ao)    Consulting  Agreement  dated September 30, 2002 between NCT and Acme
          Associates, Inc.

10(ap)    Secured  Convertible  Note in  principal  amount of  $350,000  dated
          December 2, 2002 issued by the company to Carole Salkind.

10(aq)    Secured  Convertible  Note in  principal  amount of  $400,000  dated
          December 16, 2002 issued by the company to Carole Salkind.

10(ar)    Secured  Convertible  Note in principal  amount of $2,381,487  dated
          December 26, 2002 issued by the company to Carole Salkind.

10(as)    Secured  Convertible  Note in  principal  amount of  $350,000  dated
          December 30, 2002 issued by the company to Carole Salkind.

10(at)    Secured  Convertible  Note in  principal  amount of  $450,000  dated
          January 15, 2003 issued by the company to Carole Salkind.

10(au)    Secured  Convertible  Note in principal  amount of $2,747,635  dated
          January 23, 2003 issued by the company to Carole Salkind.

10(av)    Secured  Convertible  Note in  principal  amount of  $350,000  dated
          January 30, 2003 issued by the company to Carole Salkind.

10(aw)    Secured  Convertible  Note in principal  amount of $1,252,592  dated
          February 11, 2003 issued by the company to Carole Salkind.

10(ax)    Secured Convertible Note in principal amount of $450,000 dated March
          4, 2003 issued by the company to Carole Salkind.

10(ay)    Secured Convertible Note in principal amount of $980,802 dated March
          13, 2003 issued by the company to Carole Salkind.

10(az)    Secured Convertible Note in principal amount of $864,616 dated March
          13, 2003 issued by the company to Carole Salkind.

                                     II-10
<PAGE>


10(ba)    Consulting  Agreement  dated  December  26,  2002  between  NCT and
          Motorworld, Incorporated.

16        Change  in   certifying   accountants,   dated   February   12,  2002,
          incorporated  herein by reference to the company's  current  report on
          Form 8-K filed on February 14, 2002.

21        Subsidiaries as of December 31, 2002.

23(a)     Consent of Eisner LLP (formerly Richard A. Eisner & Company, LLP).

23(b)     Consent of Goldstein Golub Kessler LLP.

99(a)     Certification  of Form 10-K for the period  ended  December  31,  2002
          pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
          of the Sarbanes-Oxley Act of 2002.

-----------------------
*         Pertains to a management contract or compensation plan or arrangement.


                                     II-11
<PAGE>