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, 2001

                                       OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the transition period from ____________ to ____________

                         Commission file number 0-18267

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

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

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

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                                 (203) 226-4447
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              (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. / /

     The  aggregate  market  value  of the  registrant's  voting  stock  held by
nonaffiliates of the registrant was $45,724,237 million as of April 26, 2002.

     The  number of  shares  outstanding  of the  registrant's  common  stock is
434,737,308 as of April 26, 2002.

<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 with over 600 patents and patents pending in its portfolio.
Originally a developer of active noise  reduction  technology and products,  the
company over time  transitioned to the development of speech and  communications
applications  integrating noise and echo  cancellation.  NCT's strong technology
base of using sound and signal waves to electronically  reduce noise and improve
signal-to-noise  ratio led to a focus on  telecommunications.  "NCT," "company,"
"we," "our," and "us" refer to NCT Group, Inc. and its subsidiaries.

     NCT's  operating  revenues are comprised of technology  licensing  fees and
royalties,  product sales, advertising and engineering and development services.
Our total  revenues for 2001  consisted  of  approximately  53.1% in  technology
licensing fees and royalties,  43.1% in product sales, 2.6% in advertising/media
and 1.2% in  engineering  and  development  services.  Total  revenues  for 2000
consisted of  approximately  77.3% in technology  licensing  fees and royalties,
15.6% in product sales,  6.5% in  advertising/media  and 0.6% in engineering and
development services.

     As of December  31,  2001,  NCT held 644 patents and related  rights and an
extensive  library of know-how and other  non-patented  technology.  The revenue
contribution by our business  segments for 1999, 2000 and 2001 is outlined below
in E.  Existing  Products and in Note 22 - notes to our  consolidated  financial
statements.  Our patents allow us and our  subsidiaries and licensees to develop
product lines which include those listed below by our business segments.

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

Communications
--------------
o  NoiseBuster Extreme!(R)consumer headsets,
o  ClearSpeech(R)microphones, speakers, adaptive speech filters
   and other products,
o  an aviation headset for pilots,
o  an aircraft cabin quieting system,
o  ClearSpeech(R)corporate intranet telephone software,
o  voice communication web phone for integration into web sites,
o  MidPoint(R)Internet software, and

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

     NCT also licenses its proprietary  technology to third parties for fees and
royalties.  For example, of the product lines outlined above, the aircraft cabin
quieting  system  is  manufactured,  marketed  and  distributed  by one of NCT's
licensees.  Various NCT  technologies  are available  for  licensing  including:
active noise reduction;  ClearSpeech(R) noise and echo cancellation  algorithms;
microbroadcasting  technology;  MidPoint(R) software;  Java(TM) chip technology;
and Artera Turbo(TM) technology.

     Business Segments

     We operate our business  ventures out of separate  subsidiaries,  organized
into three strategic  business segments:  media,  communications and technology.
Each of our strategic business segments is targeted to the  commercialization of
its own  products  in specific  markets.  The  following  table  summarizes  our
business  segments and our ownership of the  subsidiaries  and other entities in
those segments as of December 31, 2001.

                                       1
<PAGE>

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

                          Business Segment                                  % Ownership
                                                                            ------------
                                                                     Actual Fully   Diluted (a)
                                                                     -----------    -------
<S>                                                   <C>                   <C>        <C>
Media Group
  Distributed Media Corporation International Limited ("DMCI") (c)          100       100 (b)
  Distributed Media Corporation ("DMC")                                      93        93
      DMC Cinema, Inc.                                                       84        84
      DMC HealthMedia Inc.                                                  100       100
  NCT Audio Products, Inc. ("NCT Audio")                                     98        98
  NCT Video Displays, Inc. ("NCT Video")                                    100       100
Communications Group
  NCT Hearing Products, Inc.                                                100       100
      Pro Tech Communications, Inc. ("Pro Tech")                             82        17
      NCT Medical Systems, Inc.                                              90        90
  Noise Cancellation Technologies (Europe) Ltd. ("NCT Europe") (c)          100       100
  Midcore Software, Inc. ("Midcore")                                        100       100
      Midcore Software Limited (c)                                          100       100
  Artera Group, Inc. ("Artera")                                             100        50 (d)
      Artera Group International Limited ("Artera International") (c)       100       100 (e)
  ConnectClearly.com, Inc. ("ConnectClearly")                                99        94
Technology Group/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 (c)                                                  100       100
</TABLE>

Footnotes:

(a) In addition to all of the potential dilutions described in this table, under
a December 20, 2001 promissory note of NCT Group,  Inc. in the principal  amount
of $2,014,270,  if any  subsidiary of NCT makes a public  offering of its common
stock, the holder of the note, Carole Salkind,  has the right to exchange all or
any part of the principal  amount of the note 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,  except  Pro Tech
Communications, Inc.

(b) Agreements exist for Distributed Media Corporation  International Limited to
issue an  aggregate of  $4,075,000  stated  value of its  convertible  preferred
stock.  As of March 31,  2002,  none of that  preferred  stock  has been  issued
pending  agreement  by the parties on the terms of  conversion  into DMCI common
stock and on the other rights of holders of the preferred stock.

(c) Denotes foreign subsidiaries.

(d) Assumes a $1.00 per share price for the Artera Group, Inc. common stock into
which  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  "Business  -  O.  Acquisitions  and  Acquisition
Efforts."

(e) In settlement of its  obligations  to the previous owner of a portion of its
business, Artera Group International Limited had expected to issue approximately
1,700,000  British pounds sterling stated value of its series A preferred stock.
That stock would have been convertible into Artera  International's common stock
at a 20% discount to any initial  listing  price of the common  stock.  However,
none of that  preferred  stock was issued and no agreement was reached with that
previous owner  regarding the precise terms of the preferred  stock. On April 5,
2002, Artera International ceased its Internet service provider operations,  and
it is expected to be liquidated. For more about Artera International, see Note 2
- notes to our consolidated financial statements.

                                       2
<PAGE>

     Business  operations for NCT's  material  business units during fiscal 2001
include the following:

     Distributed Media Corporation:

     Distributed Media  Corporation is a media and technology  company that uses
proprietary   digital  technology  in  combination  with  advanced   information
technology  and Internet  protocol  capabilities  to deliver  audio  advertising
messages  integrated  with  CD-quality  music to a variety  of  out-of-home  and
professional   venues  such  as  retail  stores  and  hospitals.   DMC  provides
place-based  broadcast and  billboard  advertising  through a  microbroadcasting
network  of Sight & Sound  systems.  The Sight & Sound  systems  consist of flat
panel  transducer-based  speakers (provided by NCT Audio) which serve as printed
billboards,  a  personal  computer  containing  DMC's  Sight &  Sound  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 music genre chosen by the  commercial or
professional  venue owner. DMC will develop private networks for large customers
with multiple outlets such as large fast-food chains and retail chains and plans
to deploy its Sight & Sound  microbroadcasting  systems through its subsidiaries
and through joint ventures.  DMC generates  revenue from  advertising  sales and
licensing activities.

     DMC  HealthMedia  Inc.,  a  subsidiary  of DMC,  was formed in May 2000 for
developing Sight & Sound networks in hospitals and other health care venues.  To
date, DMC  HealthMedia  has signed  contracts and letters of intent with several
hospital  partners in New York City and has completed an installation at Jamaica
Hospital  Medical  Center.  DMC continues to seek  financing  sources to provide
financing  for the  installation  of  Sight & Sound  systems  in  several  North
American hospitals.

     As a way of accelerating the growth of DMC and delivering expanded reach to
its advertisers,  DMC is supplementing its national account efforts by licensing
Sight & Sound  technology in designated  market area  territories  nationwide to
support  the  deployment  of systems to  smaller  chains as well as  independent
retail  outlets.  (These  smaller  chains  are those  with fewer than 15 outlets
contained  within a  designated  market  area.)  DMC plans to  license up to 210
designated market areas (in groups or separately).

     DMC has another subsidiary,  DMC Cinema, Inc., which was acquired in August
2000  under  the name of  Theater  Radio  Network.  DMC  Cinema  provided  audio
programming  in  cinemas,  producing  and  distributing  a content mix of music,
trivia,  public service  announcements and advertisements.  However, on February
28, 2002, DMC Cinema ceased business operations.  For more about DMC Cinema, see
Note 2 - notes to our consolidated financial statements.

     NCT Audio Products, Inc.:

     NCT Audio is engaged in the design,  development and marketing of products,
which utilize innovative flat panel transducer technology.  The products offered
by NCT Audio include the Gekko(TM) flat speaker and ArtGekko(TM)  printed grille
collection.  The Gekko flat  speaker  is  marketed  primarily  to the home audio
market,  with  potential in other  markets,  including  the  professional  audio
systems market, the automotive audio aftermarket,  the aircraft industry,  other
transportation  markets and multimedia markets.  The principal customers include
Distributed Media Corporation and end-users.

     NCT Hearing Products, Inc.:

     NCT Hearing  designs,  develops and markets active noise reduction  headset
products  to the  communications  headset and  telephony  headset  markets.  Its
product lines include the  NoiseBuster(R)  and  ProActive(R)  product lines. The
NoiseBuster  products  consist  of  the  NoiseBuster  Extreme!(TM),  a  consumer
headset,  the  NB-PCU,  a headset  used for  in-flight  passenger  entertainment
systems;  and  communications  headsets for cellular,  multimedia  and telephony
functions.  The  ProActive  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.:

     Pro Tech  Communications,  Inc.,  an  82%-owned  subsidiary  of NCT Hearing
Products, Inc. acquired in September 2000, is a provider of proprietary products
and services to call centers.  The principal activity of Pro

                                       3
<PAGE>

Tech   is   the   design,    development    and   manufacture   of   lightweight
telecommunications  headsets  and new audio  technologies  for  applications  in
fast-food,  telephone and other commercial settings.  It 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.
Pro Tech is comprised of three  business  units.  The headset  products  segment
develops,   manufactures  and  distributes  headsets  and  other  communications
products to the call center market and fast-food  markets.  Pro Tech received an
exclusive license from NCT Hearing for active noise reduction technology as well
as ClearSpeech noise and echo  cancellation  technologies for use in lightweight
cellular,  multimedia  and  telephony  headsets.  This  technology  will provide
differentiation  for Pro Tech  products.  Pro  Tech's  telecommunication  system
integration  segment sells and installs  analog,  digital and Internet  protocol
phone systems to call centers as well as to small and  medium-sized  businesses.
Its call center  operation runs a full service call center  utilizing the latest
customer relationship management technology.

     Noise Cancellation Technologies (Europe) Ltd.:

     The principal activity of Noise Cancellation  Technologies (Europe) Ltd. is
the provision of research and  engineering  services to the company in the field
of active sound control technology. NCT Europe provides research and engineering
to NCT Audio,  NCT  Hearing,  DMC and other NCT  business  units as needed.  NCT
Europe also provides a marketing  and sales  support  service to the company for
European sales.

     Midcore Software, Inc.:

     Midcore Software, Inc., a wholly-owned subsidiary of NCT acquired in August
2000, is a developer of  innovative  software-based  solutions  that address the
multitude of challenges  facing  businesses  implementing  Internet  strategies.
Midcore is the  provider  of MidPoint  Internet  infrastructure  software  which
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.  Midcore sells the MidPoint  product through a network
of  resellers  as well as on the  Internet.  The latest  version of the product,
MidPoint  5.0,  has been  enhanced  with an  integrated  ultra-secure  firewall,
SoftHost(TM)  distributed web hosting,  major additions to its integrated e-mail
server and  management  features,  improved  support for broadband  connections,
failed line detection with automatic  backup,  support for  Microsoft's  virtual
private network,  enhanced connection management for digital,  analog, cable, T1
and E1 lines,  enhanced  content  control/site  blocking  and many  more  useful
features.

     Artera Group, Inc.:

     Artera Group,  Inc.'s Artera Turbo service optimizes last mile performance,
providing  high-speed  Internet  usage to small and medium  businesses  over any
connection,  including  dial-up lines.  The service  includes all other features
necessary for optimal  Internet  usage-ultra-secure  firewall,  content control,
e-mail, usage accounting and much more.

     Artera Group, Inc. had a U.K.-based information technology subsidiary known
as Artera Group  International  Limited.  That subsidiary offered voice and data
services to the business community. On December 18, 2001, the Board of Directors
of Artera  Group  International  Limited  decided  to  suspend  under-performing
operations and reduce  employees.  On March 21, 2002, the Board decided to cease
all operations.  Cessation occurred on April 5, 2002. Artera Group International
Limited is expected to enter liquidation proceedings.

     ConnectClearly.com, Inc.:

     ConnectClearly was established for the purpose of developing technology for
the  telecommunications  market and in particular  the  hands-free  market.  The
technology    includes    ClearSpeech(R)-Acoustic    Echo    Cancellation    and
ClearSpeech(R)-Compression  and Turbo  Compression and  ClearSpeech(R)  Adaptive
Speech Filter(R). ClearSpeech-Acoustic Echo Cancellation removes acoustic echoes
in  hands-free  full-duplex   communication   systems.   Applications  for  this
technology are cellular telephony,  audio and video  teleconferencing,  computer
telephony and gaming and voice  recognition.  ClearSpeech-Compression  maximizes
bandwidth   efficiency   in  wireless,   satellite  and  intranet  and  Internet
transmissions and creates smaller,  more efficient voice files while maintaining
speech  quality.  Applications  for this  technology  are  intranet and Internet
telephony,  audio and video  conferencing,  personal  computer  voice and music,
telephone answering devices,  real-time multimedia multitasking,  toys and games
and playback devices. ConnectClearly products include the ClearSpeech-Microphone
and the ClearSpeech-Speaker. The majority of ConnectClearly's sales are in North
America.   Principal  markets  for

                                       4
<PAGE>

ConnectClearly are the telecommunications industries and principal customers are
original equipment manufacturers, system integrators and end-users.

     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 been developing 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. Potential applications consist of the next
generation home appliances and automotive applications, smartcards for a variety
of applications, hearing aids and mobile communications devices.

     On May 10, 2000, Advancel Logic Corp. entered into a license agreement with
Infinite  Technology  Corporation  whereby 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. The
agreement also granted  non-exclusive  rights to Advancel's  Java(TM) smart card
core.

B.   Business Strategy

     We sell ownership  interests in NCT and our  subsidiaries to acquire assets
and funds  needed to operate  and  finance  our  ventures.  Our  strategy  is to
leverage off our existing base of proprietary technology in order to expand into
industries  outside of traditional  active noise control such as communications,
audio and  microbroadcasting  media. Our acquisition of specified assets and all
of the intellectual property of Active Noise and Vibration Technologies, Inc. in
1994 expanded our portfolio of  intellectual  property and allowed us to license
specific,  formerly  restricted,  jointly-held  patents  to  unaffiliated  third
parties.

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

C.   Technology

     Active Noise  Reduction.  Active noise reduction  systems are  particularly
effective at reducing 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. The illustration that follows shows three sound waves: On the top is the
noise  wave,  on the  bottom is the  anti-noise  wave  created  by active  noise
reduction, and in the middle is the resulting residual wave that occurs when the
noise wave and the  anti-noise  wave meet. As can be seen,  the residual wave is
nearly flat, meaning that the unwanted noise has been nearly cancelled.

                             ACTIVE NOISE REDUCTION
        ----------------------------------------------------------------
                                [GRAPHIC OMITTED]
        ----------------------------------------------------------------

     Signal  Enhancement.  Our technology also can be used to attenuate unwanted
signals  that enter into a  communications  network,  as when  background  noise
enters telecommunications or radio systems from a telephone

                                       5
<PAGE>

receiver  or  microphone.  We  have  developed  patented  technology  that  will
attenuate  the  background  noise  in-wire,  so that the signals  carried by the
communications  network include less of the unwanted noise, allowing the speaker
to be heard more clearly over the network.  An example of an application of this
technology   is  in-wire   attenuation   of  siren  noise  over  two-way   radio
communications  between  emergency  vehicles and  dispatchers  at hospitals  and
police or fire stations.

     Silicon  Micromachined  Microphone.  In 1994,  NCT  purchased the exclusive
rights to manufacture and commercialize a 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.

     ClearSpeech(R) Adaptive Speech Filter. The ClearSpeech(R) 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.  Adaptive  speech filter
applications   include   teleconferencing   systems,   cellular  telephones  and
airphones,  telephone switches,  echo cancellers,  and communications systems in
which  background  noise is  predominant.  Adaptive  speech  filter is currently
available for use on three hardware  platforms  including personal computers and
fixed and floating digital signal processors.

     ClearSpeech(R)-Acoustic  Echo  Cancellation.   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 algorithm can
be changed to accommodate  different  audio  bandwidths and maximum echo lengths
for use in a variety of applications such as cellular telephony, audio and video
teleconferencing, computer telephony, gaming and voice recognition.

     ClearSpeech(R)-Reference  Noise Filter. Reference noise filter isolates and
removes interfering signals, such as background radio,  television,  machine and
siren noise, so communications can be heard more clearly. Reference noise filter
algorithm  was  designed  to  remove  interference  from  a  desired  signal  in
applications where a reference signal for the interference is available.

     Flat  Panel  Transducer.  Our  patented  flat panel  transducer  technology
utilizes  ceramic  actuators  mounted on flat rigid  surfaces to create a unique
wide dispersion  sound field.  Unlike  conventional  speakers that deliver sound
through air in a pistonic  fashion,  the flat panel  transducer  design delivers
sound  throughout the surface of the panel being driven.  This  distributed mode
method of delivering wide dispersion  sound is what the company has termed Sweet
Space(TM),  which  floods a room  with  sound.  Uses for flat  panel  transducer
technology   include  home  theatre,   professional,   automotive  and  aircraft
applications.

     Digital Broadcasting Station System Software.  Digital broadcasting station
system software is being utilized by DMC to deliver customized music programming
to each 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.

     MidPoint(R)  Software.  Midcore's  MidPoint  Software  manages the Internet
access of any small to medium sized office, educational institution or residence
with usage control and accounting,  faster performance,  greater reliability and
total security.  Its unique  combination of features such as routing,  firewall,
e-mail  server,   caching,   site  blocking  and  more  result  in  unparalleled
performance  for  Internet  access,   regardless  of  the  type  of  connections
available.  Development is currently  underway to  incorporate  office-to-office
connectivity  (such as Virtual  Private  Network and secure  e-mail),  audio and
speech  technologies  (including voice transmission over the Internet,  ordinary
telephony,  and NCT's  proprietary  speech-processing  algorithms),  and  unique
performance-enhancing  capabilities  for large  enterprises and Internet service
providers.

     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 the 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.

     Artera Turbo(TM). NCT subsidiary Artera Group's patent-pending  technology,
Artera Turbo(TM),  produces effective Internet broadband speeds over traditional
56k telephone lines without costly infrastructure upgrades.  Artera Turbo solves
the  problem of lack of DSL  availability  and long  installation  wait times by
enabling  businesses to use their existing dial-up connections to achieve speeds
comparable to, or even faster than, DSL.

                                       6
<PAGE>

     ViewBeam(TM)  Flat Display  Technology.  NCT subsidiary NCT Video Displays,
Inc. has acquired the exclusive,  worldwide rights to a breakthrough,  low-cost,
flat panel video display technology for use in out-of-home and place-based media
markets. In addition, NCT Video has acquired the exclusive rights to manufacture
and distribute  televisions  utilizing the technology in China.  The technology,
protected by six patents pending, is remarkably low cost--only one-tenth that of
flat plasma  displays--and  will be available in two sizes, 42" diagonal and 70"
diagonal. The display is lightweight and seamless allowing for many panels to be
stacked together to create video walls, or backlit billboards,  of virtually any
size. Unlike  competition,  the panel does not burn in, allowing for the display
of static as well as moving images, and it lasts for 100,000 hours as opposed to
10,000  hours  typical  of gas plasma  displays.  NCT Video  believes  that this
technology will revolutionize the media and television markets.

D.   NCT Proprietary Rights and Protection

     NCT  holds  a  large  number  of  patents  and  patent  applications.   Our
intellectual  property  strategy  has  been  to  build  upon  our  base  of core
technology  patents  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 original core patents. As our patent holdings increase, we
believe the  importance  of our core patents will  diminish  from a  competitive
viewpoint.

     We purchased  assets of Active Noise and  Vibration  Technologies,  Inc. in
1994,   which   included  all  of  Active  Noise  and  Vibration   Technologies'
intellectual  property  rights.  Among the material  Active Noise and  Vibration
Technologies  intellectual  property  rights were its  interest in the ten basic
Chaplin  Patents  which are now solely owned by NCT as the sole  shareholder  of
Chaplin  Patents  Holding Co., Inc.,  formerly a joint venture with Active Noise
and Vibration  Technologies.  These patents cover  inventions  made by Professor
G.B.B.  Chaplin in the late 1970s and early  1980s,  three of which have expired
and the  remaining of which expire  through the end of 2005.  The  expiration of
these patents is not expected to have a material impact on our revenue.

     The  Chaplin  Patents  form only one group of core  patents  (active  noise
control  patents used for headsets)  upon which NCT's  technology  is based.  In
March 1990, we acquired  exclusive  ownership of 10 patents  developed under the
auspices of the National Research Development  Corporation,  also known as NRDC,
an organization  sponsored by the British  Government.  Among other things,  the
NRDC patents,  of which the  Swinbanks and Ross patents are the most  important,
utilize  the  adaptive  feed  forward  approach  to active  noise  control.  The
Swinbanks  patent covers an improved  method of analyzing the incoming  noise or
vibration  through the use of a "frequency  domain"  adaptive filter that splits
the incoming  noise into different  frequency  bands for analysis and recombines
the data to generate the anti-noise  signal. The Ross patent covers the use of a
"time domain"  filter,  which uses input and error signals to enhance a system's
ability to  compensate  for feedback  from  actuators  to sensors.  Without this
filter,  the system  will  detect  and begin  canceling  its own  self-generated
anti-noise.  Four NRDC patents have expired, including the Swinbanks patent. The
remaining  NRDC patents,  including  Ross,  expire  through the end of 2005. The
expiration  of these  patents is not  expected to have a material  effect on our
revenue.

     As part of the purchase of Active Noise and Vibration Technologies' assets,
we  acquired  all the  rights to nine  inventions  previously  belonging  to the
Topexpress  Group in the United  Kingdom,  active  noise and  vibration  control
patents  used  in  headsets,   cabin  quieting  and  vibration  isolation.   The
international  patent coverage of these inventions varies but all nine have been
granted patent  protection in various  countries.  Among the other  intellectual
property  acquired  from Active  Noise and  Vibration  Technologies  are patents
relating to active auto mufflers and noise suppression headrests, several patent
applications  on advanced  algorithms,  active  noise  headsets and many related
disclosures  and various  disclosures  in other areas of active  attenuation  of
noise and  vibration.  In  addition,  we  acquired  the  rights  to three  basic
inventions  known as the Warnaka  patents.  The  Topexpress  patents expire 2005
through 2012. Other Active Noise and Vibration  Technologies  patents related to
active auto mufflers, noise suppression headrests, advance algorithms and active
noise headsets have expiration  dates ranging from 2004 through 2015 in the U.S.
and 2011 through 2014 for foreign  patents.  The Warnaka  patents expire through
the end of 2003 and their  expiration is not expected to have a material  impact
on our revenue.

     NCT has built upon these core patents with a number of advanced patents and
patent  applications.  These include the Digital  Virtual  Earth  patent,  which
covers digital feedback control,  and patents on multi-channel noise control. We
have also  applied for patents on combined  feedforward  and  feedback  control,
control  using  harmonic  filters,  filters  for signal  enhancement  and speech
filtering, control systems for noise shaping and others.

                                       7
<PAGE>

     In 1994,  we  obtained a license  for the  exclusive  rights to the silicon
micromachined   microphone   technology   developed  by  Draper  in   Cambridge,
Massachusetts.  At this time, four patents  describing the basic technology have
been  issued  and  expire in 2009,  2010 and 2014  (two  patents).  In 1995,  we
acquired  several U.S.  patents  dealing with adaptive  speech filter which were
used in our  ClearSpeech(R)  product line but which have now  expired.  However,
there are other patents  covering the ClearSpeech  technology  which expire 2015
and 2018.  NCT has patents  covering flat panel  transducer  technology  and our
Gekko products  expiring 2015 through 2019. A Sight & Sound patent regarding the
method and apparatus for covering  audiovisual  information  expires in 2018. We
have further  headset  patents  expiring 2004 through 2017.  Since 1996, we have
been granted 449 new patents.

     We hold or have rights to 323 inventions as of December 31, 2001, including
124 United States patents and over 520 corresponding foreign patents for a total
over 644 patents and related rights. We have pending 120 U.S. and foreign patent
applications. Our engineers have made 156 invention disclosures for which we are
in the process of preparing  patent  applications.  Our patents have  expiration
dates  ranging from 2002 through  2019,  with the majority  occurring  during or
after 2011.

     NCT has been granted the following trademark registrations:

          Mark                         Field of Use
         ------                        ------------
       NCT logo                        Company logo
       NoiseBuster(R)                  headsets
       NoiseEater(R)                   HVAC systems
       ClearSpeech(R)                  adaptive speech filter products
       VariActive(R)                   headsets
       ProActive(R)                    headsets
       Noisebuster Extreme!(R)         headsets
       Sight & Sound(R)                microbroadcasting

       We have also applied for 14 trademark registrations including:

         Mark                         Field of Use
        ------                        ------------
       Gekko(TM)                      flat audio speakers
       ArtGekko(TM)                   flat audio speakers
       Sweet Space(TM)                flat audio speakers
       Artera(TM)                     high speed Internet connection
       Artera Turbo(TM)               high speed Internet connection

     The Gekko(TM) and ArtGekko(TM)  trademark applications have been challenged
by another  trademark  holder on the grounds of  similarity  and  confusion in a
proceeding currently pending before the U.S. Patent and Trademark Office.

     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  applications or  applications  filed in the future will result in the
issuance of a patent or 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 in the future that would have an adverse  effect on our ability to market
our products or maintain our competitive  position with respect to our products.
Substantial  resources may be required to obtain and defend patent and trademark
rights of NCT.

                                       8
<PAGE>

     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.

     Finally,  it should be noted that  annuities and  maintenance  fees for our
extensive  patent  portfolio are a significant  portion of our annual  expenses.
Maintenance fees are charged to maintain granted U.S. patents in force;  foreign
patents and  applications are subject to an annuity fee 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, we then will have to prioritize our portfolio accordingly.

E.   Existing Products

     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 or to our third-party
warehousing and order fulfillment service provider.

     Our warehousing and order  fulfillment  service provider is 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 we discuss below are produced by NCT and its
subsidiaries  rather than our  licensees.  Revenues  recognized  for our product
lines based upon our technologies are classified in our statements of operations
as technology  licensing fees and royalties,  product sales 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
GekkoTM  flat  speakers,   frames,  ArtGekkoTM  prints  and  ancillary  products
comprised 19.1%, 1.2% and 0.7% of consolidated  revenues in 1999, 2000 and 2001,
respectively.  o  ClearSpeech(R)  microphones,  speakers  and  related  products
comprised  approximately  24.1%,  27.7% and 5.2% of our consolidated  revenue in
1999,  2000 and 2001,  respectively.  o JavaTM  microprocessor  cores  comprised
approximately  30.7%,  27.6% and 9.7% of our consolidated  revenue in 1999, 2000
and 2001, respectively.  o Pro Tech Communications' product revenue was 4.5% and
20.5% of our consolidated 2000 and 2001 revenue,  respectively, and was zero for
1999.

     Our  marketing  activities  over the last three years for our  products and
services include the following:

o  Gekko flat  speakers - Gekko  products are  currently  sold through  retail
   audio  stores  and  direct  from  NCT.  The  target  is  consumers  who are
   interested  in home  theater  surround  sound  without  bulky box  speakers
   filling the room.
o  Pro Tech headsets - These  products are currently sold through a network of
   sales reps as well as  directly  from Pro Tech.  The two main  targets  are
   fast-food restaurants and call centers.
o  MidPoint  software - MidPoint  software is sold  directly  via a website as
   well as through a network of sales reps and resellers. The target market is
   small to medium-sized businesses.
o  Artera Group services - These Internet  provider services are sold to small
   and medium businesses through a sales rep network.

     NCT Hearing Products

     NoiseBuster(R).  NCT is currently  marketing  its  NoiseBuster(R)  personal
active noise  reduction  headphone for consumers at a suggested  retail price of
$39. This active  headphone  selectively  reduces  unwanted  noise  generated by
aircraft engines,  lawnmowers,  street traffic,  household  appliances and other
annoying noise sources,  while permitting the user to hear desired sounds,  such
as human  conversation,  warning signals or music.  The product can also be used
with an aircraft's  in-flight  entertainment  system or a portable audio device.
NCT is marketing the NoiseBuster(R)  through  distribution  channels,  including
electronics retail stores, specialty catalogues and directly through a toll-free
"800"  number and on the  Internet.  Initial  product  shipments of the original

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<PAGE>

NoiseBuster(R)  were made in September  1993.  Product  shipments of the current
NoiseBuster(R) began during the first quarter of 1997.

     The  NoiseBuster(R)  line  has  been  expanded  to  include  communications
headsets for  cellular,  multimedia  and  telephony.  The products are the first
active noise  reduction  offerings  for these  applications  and improve  speech
intelligibility  in the presence of background  noise.  Product  shipments began
during the first quarter of 1998.

     NB-PCU.  NCT along with a leading  manufacturer  and  supplier  of aircraft
cabin  products  has  integrated  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 electronics.  NCT's technology electronically
reduces  aircraft  engine noise while enhancing the audibility of desired sounds
like speech, music and warning signals.  Lowering the engine drone also can help
alleviate the anxiety and fatigue often associated with flying. While the system
is in use,  passengers  inside an aircraft cabin can carry on conversations at a
comfortable  level or hear in-flight movies and music without  overamplification
and  distortion.  The system is currently  being installed in first and business
class  cabins on new  United  Airlines  aircraft  and in  cabins  of five  other
airlines.

     Pro Tech Communications

     In  September  2000,  NCT  Hearing  licensed  technologies  to Pro  Tech in
exchange  for  approximately  an 80%  equity  interest  in Pro  Tech.  Pro  Tech
currently sells high quality,  lightweight headsets to high-profile users, among
them the Boeing  Defense  and Space Group  (prime  contractor  for the  National
Aeronautics and Space Administration space program) and McDonald's,  significant
customers to Pro Tech's  business.  Boeing is a  significant  customer  because,
although the dollar value of the business is small, being a provider to the NASA
space program enhances Pro Tech's  technical and engineering  prestige which can
translate  into  sales  opportunities  with  other  customers.  McDonald's  is a
significant  customer  because of the actual and future  potential  revenues  it
represents,  approximately  9% and 12% of Pro Tech's  revenues in 2001 and 2000,
respectively. In addition, Pro Tech's arrangement with McDonald's authorizes Pro
Tech to compete for  business at  McDonald's  restaurants  worldwide  and attend
McDonald's annual international  conventions at which new business relationships
may be developed.  Pro Tech, with its current  innovative  product offerings and
planned products  incorporating  NCT's advanced  technologies,  is targeting the
call center and wireless communications markets. The following are products sold
by Pro Tech:

     The ProCom. Pro Tech's initial entry into the lightweight fast-food headset
market is the ProCom.  Weighing less than 2 ounces,  the ProCom is worn by users
over the head by means of a springsteel wire headband and a cushioned  earphone.
Attached to the  earphone,  which may be worn over either ear, is an  adjustable
boom, which connects to the ProCom's microphone.  The ProCom headset connects to
the wireless  belt-pack system with the use of various plug types offered by the
wireless belt-pack providers sold in many fast-food franchises around the world.

     The Apollo.  The Apollo  headset is Pro Tech's most  advanced,  lightweight
headset  design sold for use with  telephone  users in the call center and small
office  market.  It  incorporates  the use of the most advanced  microphone  and
speaker components and is designed for durability and comfort over long periods.
The Apollo  headset was  announced on August 1, 2001 and since its  introduction
has been sold directly  through Pro Tech's sales force and the internet.  It has
also been sold indirectly through our established distributor base in the United
States, Canada and Europe.

     The Apollo Freedom Series Headset.  A headset with the exact form factor of
the Apollo  headset,  the Apollo  Freedom  Series is made to plug  directly into
phone systems that already have amplification built into their existing handset.
Through the use of advanced circuitry,  many new phone systems have built-in the
added feature of amplification of sound inside each handset phone, therefore not
requiring another amplifier in order to use a headset with the phone system. The
Apollo  Freedom Series headset adapts to all of these newer design phone systems
using sophisticated microphone technology and a direct connect phone cord.

     The Gemini  Amplifier.  Introduced in August 2001, the Gemini  amplifier is
our latest  amplifier.  It is a full feature unit  designed to be used in nearly
all phone  and/or PC phone  configurations  in the call center and small  office
market.  The user has full  control  of receive  and  transmit  sound  levels in
addition  to  being  able  to  work   directly   with  the  latest   multi-media
configurations  employing  analog  or  digital  technologies.  This  amplifier's
circuitry  has been awarded a patent by the United  States  Patent and Trademark
Office. The Gemini amplifier was

                                       10
<PAGE>

awarded "Best of Show" in the category Best Desktop/Agent  Productivity Tools at
the 12th Annual Call Center & CRM Solutions  2002  Conference & Exposition  held
during the week of February 11, 2002.

     The USB  Adapter.  The USB adapter is an adapter  that allows the use of an
amplifier and headset in PC phone  installations.  Several new applications such
as Internet Protocol (IP) telephony,  voice recognition and auto attendant allow
for the use of telephone headsets which in most cases improve the performance of
the  application.  The USB adapter allows the use of our headsets and amplifiers
in these new market niches.

     The DSP Intelligent Microphone.  The DSP Intelligent microphone is designed
to serve those market  niches where the use of a headset is not wanted  although
the user  still  requires  the need for  headset  functionality  such as  speech
recognition  and  speech  enabling  input/output  PC gaming  applications.  This
product  allows for the  receiving  of sound to be very  focused in  addition to
eliminating all background noise. Pro Tech is currently  directing our sales and
marketing efforts towards these emerging PC markets.

     The Manager's Headset. The manager's headset is a lightweight  over-the-ear
fast-food  headset,  which  provides  improved  comfort to the  fast-food  store
manager monitoring drive-thru activity. It was introduced and favorably received
in February of 2000.  Pro Tech  continues to offer this headset in its fast-food
product line in 2002.

     The APEX.  Pro Tech  introduced  the APEX  headset for sale in 1999.  After
conducting its own market research, it was determined that there is a demand for
a headset which combines both  over-the-head  and  over-the-ear  features.  As a
result,  the APEX was  designed to  incorporate  both of these  features,  which
should  enhance Pro Tech's  ability to market the product to cellular,  personal
computer and small office telephone  users. The APEX is a commercial  adaptation
of the headset that Pro Tech has  designed  for use by the National  Aeronautics
and Space  Administration.  Boeing Defense and Space Group is a prime contractor
for NASA and has the  responsibility  to choose  components and products used in
NASA's  space  program.  The  APEX is a  smaller  design  of the  Trinity,  with
components reduced by 20% in order to create a lightweight  headset. The speaker
and microphone  positioning  can be easily  adjusted by the user for the headset
thereby  allowing the product to fit numerous  head and ear sizes.  In addition,
the APEX has a detachable  headband allowing the users the choice of wearing the
headset over the head or over the ear.

     The ASTRA.  The ASTRA headset is a variation of the APEX headset in that it
has been adapted for use directly in non-amplified phone systems. A preamplifier
circuit has been  inserted  inside the headset to allow for a direct  connection
into an automatic  call  distributor or phone system that provides this required
configuration headset.

     The  A-10  Amplifier.  The A-10  amplifier  is the  first  in a  series  of
multi-line  amplifiers  being  offered with each of Pro Tech's  headsets.  It is
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.  The size is very
small and engineered to plug and play with most phone systems.

     The  A-27  Amplifier.  The A-27  amplifier  is the  first  in a  series  of
amplifiers  specifically  designed for automatic  control  distributors or phone
systems  which use the standard  PJ-237  2-prong plug as their  interface.  This
amplifier will employ noise suppression  technology  designed by Pro Tech. Three
patent applications were filed in 2000, and we received patent approval for this
technology in 2001. The A-27 was introduced into the call-center market in 2000.

     The Active  Series  Headset.  The Active Series  Headset was  introduced in
2000.  These headsets are designed for the mobile  headset user.  Cellular phone
users  and  automobile  hands-free  kits are the  primary  market  focus of this
product.

     The Trinity. The Trinity has been designed for users in noisy environments.
Pro Tech completed the  development of this product early in 2000.  Unlike other
headsets currently available, the Trinity employs a light (1/2-ounce) acoustical
ear cup which  completely  surrounds  the user's ear. The  perimeter of this cup
rests lightly in a broad area of contact around the ear,  rather than against or
in the ear itself,  which we believe  will allow the user to wear the Trinity in
comfort for extended periods. Moreover, by enclosing the ear, the acoustical ear
cup reduces background noise,  thereby  significantly  improving the clarity and
strength of  reception  from the  earphone.  The Trinity has been  designed as a
comfortable  and  lightweight   alternative  to  the  bulky   commercial   sound
suppressant  headsets,  which are presently the only headsets available to users
operating in noisy office environments. The

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<PAGE>

Trinity headset can be worn in a single ear cup version or dual ear cup version.
Like the ProCom,  the Trinity is produced  with a choice of adapters  capable of
interfacing with the electronic  amplifiers and telephone  systems of most major
manufacturers.

     NCT Communications Products

     ClearSpeech(R)-Mic.  This is the first digital noise  reduction  microphone
system for use with  hands-free  car kits.  The  product  substantially  reduces
background  road, tire,  wind,  engine and traffic noise from hands-free  calls,
allowing the person  receiving the call to hear voice more clearly and with less
frustration and anxiety.

     ClearSpeech(R)-Speaker.  This  product  cleans  background  noise  from the
incoming  speech  signal  over a  two-way  or  mobile  radio  for the  utmost in
intelligibility.  The  system is  suitable  for use with  mobile  radios,  fleet
communication systems, marine radios and many other communication systems.

     ClearSpeech(R)-PCB  Boards.  These  boards  are  currently  being  sold for
incorporation into communication systems at drive through fast-food restaurants.
They  allow 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

     Gekko(TM)  flat speaker.  In 1998,  NCT Audio  launched the Gekko(TM)  flat
speakers and ArtGekko(TM) printed grille collection.  This was the first product
launched by NCT Audio to the consumer  audio market  utilizing  our patented FPT
technology.  With this technology,  these products deliver Sweet Space(TM) sound
that  floods  the room with  sound as opposed  to  conventional  speakers  which
deliver  sound like a  spotlight.  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. NCT Audio
also  provides  flat  speakers  for  Distributed  Media  Corporation's  Sight  &
Sound(TM)  microbroadcasting  system.  Sight & Sound is a new advertising medium
that delivers  place-based audio and billboard  advertising  messages integrated
with CD-quality music.

     DMC Sight & Sound(TM) Services

     DMC, formed as a Delaware corporation in 1998, is a media company that uses
advanced information  technology  capabilities to deliver place-based  billboard
and audio  advertising  messages  integrated with  CD-quality  music via Sight &
Sound. Using a proprietary digital network of local  microbroadcasting  systems,
Sight & Sound is an advertising  medium with flexibility in linking  advertising
messages to precisely targeted demographics.  Sight & Sound provides advertisers
with a place-based  medium in  out-of-home  commercial and  professional  venues
which is comprised  of a stationary  billboard  format and  broadcast  music and
advertisements.  The  source  of the  sound  of the DMC  system  is our  digital
broadcast  system which  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 we have  installed in the store.  The  viability of
this business is dependent on advertising placements. DMC pays the Sight & Sound
locations a percentage  of the  advertising  revenue  generated by the installed
location. To date, our advertising placements have been limited.

     A key aspect of DMC's  business is its  ability to deliver  demographically
targeted  advertising to consumers.  DMC is deploying  Sight & Sound  nationwide
through  several large retail chains and expects to have a national  presence by
the end of 2002.  The locations for Sight & Sound  installations  include music,
entertainment,  retail, and healthcare venues, among others in the U.S. DMC will
prioritize the  installation  of its Sight & Sound systems in the top designated
market areas in order to optimize  advertising sales. Sight & Sound is now being
deployed by DMC in retail stores  pursuant to five-year  contracts with Barnes &
Noble  College   Bookstores  and  Wherehouse   Entertainment.   These  represent
significant  venues  to DMC as they are  attractive  to  advertisers.  The audio
portion of the advertising is downloaded  electronically  while the print aspect
of  our   advertisements   are  sent  to   independent   agents  who  place  the
advertisements in the venues.  Typically, the term of an agreement with a retail
chain is an  initial  60-day  test  period for the retail  chain  followed  by a
five-year,  automatically renewing contract unless terminated in writing 30 days
prior to the  expiration of each five-year  term.  Barnes & Noble and Wherehouse
Music have completed the 60-day test.  DMC at its own cost and expense  installs
the Digital Broadcast System equipment in locations  selected by the store chain
owner and reasonably  approved by DMC. DMC has several  supplier sources for the
equipment  comprising  the  Sight & Sound  unit.  DMC pays to the  Sight & Sound
location a

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<PAGE>

percentage of advertising  revenues,  which DMC receives from  advertisers,  and
which  is  attributable  to the  premises'  participation  as a  Sight  &  Sound
location.  DMC will provide music to each Sight & Sound  location  during normal
business  hours at no cost to the  location.  DMC is  dependent  on  advertising
placements  to achieve  revenues.  As of December  31,  2001,  DMC has  executed
contracts  providing  for the  placement  of our  Sight & Sound  system in up to
approximately  1,900 retail store locations  throughout the U.S. and has entered
into an agreement with Interep,  the largest  U.S.-based  broadcast  media sales
firm, to sell advertising into these sites. The retail store locations are under
five-year  contracts  with three  retailers.  The  parties to the Barnes & Noble
College Bookstores contract are DMC and Barnes & Noble College  Bookstores.  The
number of Barnes & Noble College  Bookstore  locations is approximately  340 and
the geographic  reach is the U.S. The timetable for  installation of the Sight &
Sound systems is in discussion  between the contract parties.  The contract does
not require  annual  minimums for shared  revenue  payments and does not contain
cancellation  provisions relating to annual revenue minimums. As of December 31,
2001,  63 locations  are  currently  operating  systems of which 38 are Barnes &
Noble College  Bookstores and 21 are Wherehouse  Entertainment  Stores.  Of such
locations,  3 were  installed  in  1999,  52 were  installed  in 2000 and 8 were
installed in 2001.  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. including 16
sites in California,  8 sites in Massachusetts,  9 sites in New York, 4 sites in
Illinois, 3 sites in each of Michigan and Pennsylvania, four states with 2 sites
and 12 other states with one site each.

     As a way of accelerating the growth of DMC and delivering expanded reach to
its advertisers,  DMC is forming national and international  affiliate networks.
DMC enters into licensing  agreements  whereby it grants  exclusive  licenses to
third  parties to use our  digital  broadcast  system and  related  intellectual
property  within  a  limited  geographic  area  used  to  characterize  regions,
population  demographics,  reach  and so  forth  for  advertisers,  known in the
industry as a  designated  market  areas,  or DMA, or within a specified  retail
chain. We do not sell  franchises to any of the licensees of our technology.  As
such,  we do not  believe  that  federal  or  state  franchising  laws  have any
relevance in connection with our licensing agreements.  National accounts in the
U.S. are large retail  chains and national  franchises.  DMC plans to deploy its
systems  to  smaller  chains  as  well as  independent  retail  outlets  through
licensing to DMA  partners.  DMC will  establish its  nationwide  network of DMA
partners  through the licensing of up to 210 DMAs. DMC has licensed the New York
DMA to DMC New York,  Inc.  ("DMC NY") and expects to complete  licensing of the
Los Angeles DMA in 2002.  Please  refer to  "Certain  Relationships  and Related
Transactions" for a description of our reacquisition of licenses from DMC NY. We
plan to reacquire  the license  issued in March 2000 to Eagle Assets  Limited to
develop a portion of the New York microbroadcasting region and have accrued $2.0
million for such reacquisition currently being negotiated.  We incurred a charge
of $0.6  million (net of $1.3  million  reduction of deferred  revenue) for this
reacquisition  included in write downs of investment and repurchased licenses in
our consolidated statement of operations for the year ended December 31, 2001.


                                       13
<PAGE>

     Outside  of the  U.S.,  DMC  is  pursuing  a  similar  territory  licensing
strategy.  On March 30, 2000, DMC licensed Sight & Sound distribution  rights in
Israel to Brookepark Limited for $2 million ($1.65 million was collected in cash
and  $0.35   million  was  settled  by  payment  in  Pro  Tech  common   stock).
Subsequently, in March 2001, DMC agreed to reacquire this license for $2 million
upon the  determination  by our Board of Directors that the license was worth at
least that much,  and  possibly  more.  We did not  obtain a  valuation  from an
outside firm. 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. The aggregate  consideration  for this  reacquisition  is proposed to be $2
million  which we have  accrued in our  consolidated  financial  statements.  We
incurred a charge of $0.6  million  (net of $1.4  million  reduction of deferred
revenue)  for this  reacquisition  included  in write  downs of  investment  and
repurchased  licenses in our  consolidated  statement of operations for the year
ended December 31, 2001. As of April 12, 2002,  this Israel license had not been
reacquired but terms are in  negotiation.  Other  international  licenses are in
negotiation.

     Aggregate license fees recognized for DMC were $850,000 in 1999, $2,056,000
in 2000 and $222,000 in 2001. The license fees were deferred in accordance  with
our revenue recognition policy. Upon our decision to reacquire DMC licenses,  we
reduced the remaining  deferred  revenue to zero.  None of our DMC licensees has
generated  any revenue with the  technology  DMC  licensed to them.  None of the
currently  outstanding  DMC licenses  contain a performance  standard,  as such,
although  each  license  requires  that the  Sight & Sound  system  be  operated
substantially as described in DMC's business plan. The DMC licensees,  including
DMC NY, have not used the DMC licenses to distribute  the Sight & Sound systems.
No  forfeiture  provision  exists for non-use under any of the  outstanding  DMC
licenses.

     NCT Internet Protocol Products

     MidPoint(R)  Software.  In September 2000, NCT acquired  Midcore  Software,
Inc., the maker of MidPoint(R) Internet connectivity software.  MidPoint(R) is a
cost-effective,   feature-packed  Internet  connection  solution  for  small  to
medium-sized organizations. With one installation of MidPoint, any network of up
to 250  users  can  share a single  Internet  connection  and  Internet  service
provider  account,  offering  tremendous  long-term  savings  over  the  cost of
multiple phone lines and monthly  Internet service provider charges or expensive
high-speed  dedicated  connections.  Through  September 30, 2001,  approximately
3,800 units have been sold, representing up to a maximum of approximately 47,500
licensed  individual end users.  Customers may purchase  MidPoint by acquiring a
software  license - the  customer  pays a  one-time  fee for the  software.  The
customer  may  choose to  purchase  version  upgrades  (as new  releases  of the
software  become  available) and user upgrades (if the customer would like their
copy of the software to support more users on his local area network).

     MidPoint has unique capabilities  including Download DoublerTM which splits
a single request to download files or web page graphics into two requests,  each
for half the requested  file or graphic,  thereby  reducing the time it takes to
receive the download request. MidPoint also contains many other features such as
connection  teaming  (spreading  Internet  requests  across two or more Internet
connections),  SofthostTM  distributed  web hosting  (creating and maintaining a
mirror image of a company's  most  heavily-used  web sites on a local hard drive
which  allows  for rapid  delivery  to the user),  global  cache,  ultra  secure
firewall, integrated e-mail server and content control. In addition, the package
includes many features to make Internet  access more  efficient and  productive,
including  high-performance shared cache, scheduled retrievals,  content control
and usage accounting. MidPoint also features a powerful integrated e-mail server
and management  function,  which allows complete local control of e-mail.  It is
MidPoint's  combination  of all of  these  capabilities  into  a  single,  fully
integrated  product that provides its competitive  advantage over other products
which may offer only a few of these capabilities.

                                       14
<PAGE>

     Artera Products

     Artera  Turbo  is a  new  Internet  access  technology  that  improves  the
effective  performance of  communication  lines.  It does this via a proprietary
series of optimization strategies that increase efficiencies in the movement and
storage of  electronic  data. We have six patents  pending on these  performance
enhancement  techniques.  The core of the Artera Turbo  software is the MidPoint
technology  which we acquired in August  2000.  We then  combined  the  MidPoint
technology  with  performance  enhancing  technologies we invented to create the
Artera Turbo product. With Artera Turbo, traditional dial-up connections perform
at  broadband  speeds of up to 8 times the normal  speed of dial-up  lines.  The
performance  of  faster  connections  such as  cable,  DSL and  ISDN is  greatly
improved as well.  The  performance  enhancements  have been  benchmarked in our
laboratories.  We offer Artera Turbo on a subscription  basis, as software alone
or as a hardware appliance with software embedded therein.  Management  believes
that, by offering faster effective  speeds,  Artera Turbo provides a competitive
advantage over other Internet service providers and Internet access products. As
a result,  this should have a positive impact on our network services  business.
We released Version 1 of Artera Turbo in January 2002.

     Revenues

     The following  table sets forth the percentage  contribution of each of our
business segments in relation to total revenues for the years ended December 31,
1999, 2000 and 2001.

     (In thousands of dollars)

<TABLE>
<CAPTION>
                                                        For the Years Ended December 31,
                                       1999                            2000                           2001
                          ------------------------------   ---------------------------    -----------------------------
                              Amount         % of Total       Amount      % of Total          Amount        % of Total
<S>                          <C>                  <C>         <C>               <C>           <C>                <C>
Media                        $ 2,212              31.3%       $3,541            27.6%         $2,612             24.6%
Communications                 3,513              49.7%        5,911            46.0%          8,019             75.6%
Technology                     2,174              30.8%        3,550            27.6%          1,028              9.7%
Other - corporate              4,093              57.9%        6,331            49.3%         10,165             95.8%
Other - consolidating        (4,929)            (69.7%)      (6,493)          (50.5%)       (11,212)           (105.7%)
                          -----------    ---------------   ----------    -------------    -----------   ---------------
                             $ 7,063             100.0%      $12,840           100.0%        $10,612            100.0%
                          ===========    ===============   ==========    =============    ===========   ===============
</TABLE>

     Product Revenues

     The following table sets forth the percentage  contribution of the separate
classes of NCT's products to NCT's product revenues for the years ended December
31, 1999, 2000 and 2001.

     (In thousands of dollars)

<TABLE>
<CAPTION>

                                                                 For the Years Ended December 31,
                                 ------------------------------------------------------------------------------------------------
                                              1999                            2000                             2001
                                 ----------------------------    -------------------------------   ------------------------------
Products                           Amount         % of Total          Amount        % of Total           Amount        % of Total
<S>                                <C>                <C>           <C>                 <C>            <C>                  <C>
Hearing Products                  $   682             30.9%         $  1,125            56.2%          $  2,582             56.5%
Communications                        670             30.3%              462            23.1%               548             12.0%
Audio Products                        856             38.8%              318            15.9%                58              1.3%
Software Products                       -                -                96             4.8%             1,380             30.2%
                                 ------------- --------------    --------------   --------------   ---------------    -----------
                     Total        $ 2,208            100.0%         $  2,001           100.0%          $  4,568            100.0%
                                 ============= ==============    ==============   ==============   ===============    ===========
</TABLE>

     Product  revenues  were  approximately  31.3%,  15.6%  and  43.1%  of total
revenues for the years ended December 31, 1999, 2000 and 2001, respectively.

                                       15
<PAGE>

     Technology Licensing Fees and Royalty Revenues

     The following table sets forth the percentage  contribution of the separate
business segments of NCT's technology to NCT's technology  licensing and royalty
revenue for the years ended December 31, 1999, 2000 and 2001.

     (In thousands of dollars)

<TABLE>
<CAPTION>

                                                           For the Years Ended December 31,
                                    1999                                2000                              2001
                       ------------------------------       --------------------------       ------------------------------
                             Amount       % of Total           Amount       %of Total            Amount           %of Total
<S>                         <C>                <C>            <C>               <C>               <C>                <C>
Technology                  $ 1,100            31.0%          $ 3,550           35.8%             $   1,028          18.3%
Communications                1,062            29.9%            3,257           32.8%                 2,639          46.8%
Media                         1,356            38.2%            2,065           20.8%                 1,834          32.6%
Other                            34             0.9%            1,056           10.6%                   132           2.3%
                       -------------    -------------       ----------   -------------       ---------------    -----------
       Total                $ 3,552           100.0%          $ 9,928          100.0%             $   5,633         100.0%
                       =============    =============       ==========   =============       ===============    ===========
</TABLE>

     Technology licensing fees and royalties were approximately 50.3%, 77.3% and
53.1% of total  revenues for the year ended  December  31, 1999,  2000 and 2001,
respectively.  Our 2001  technology  licensing fees and royalties were primarily
attributable  to recognition  of deferred  revenues of $1.6 million from the New
Transducer 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 $2.0  million,  license to Teltran  International
Group,  Inc.  of $0.4  million  and DMC license  revenue of  approximately  $1.1
million.  Our 1999 revenue was primarily due to the revenue  recognized from the
license  to  STMicroelectronics  S.A.  and  STMicroelectronics  S.r.l.  of  $2.2
million.  See our  explanations  in  "Management's  Discussion  and  Analysis of
Financial Conditions and Results of Operations."

     Advertising Revenues

     Advertising  revenues totaled $0.8 million and $0.3 million and represented
6.5% and 2.6% of total  revenue for the year ended  December  31, 2000 and 2001,
respectively.  The  advertising  revenue  is  due  to  amounts  recognized  from
in-theater audio advertising supplied to multiplex cinemas ($0.7 million in 2000
and $0.2 million in 2001) and amounts  generated  from  broadcast  and billboard
advertising through DMC's network of Sight & Sound systems ($0.1 million in each
of 2000 and 2001).

F.     Products Under Development

     Silicon Micromachined Microphone

     Silicon  Micromachined  Microphone.  The  ability to  integrate  additional
circuitry on the silicon micromachined  microphone chip has proven attractive to
potential  users.  The silicon  micromachined  microphone's  low noise floor and
adjustable   sensitivity   improve  voice  recognition  in  high  ambient  noise
environments.  NCT is  working  with  voice  processing  and  computer  hardware
companies  to utilize  the  silicon  micromachined  microphone  to  enhance  the
performance of their systems. In the first quarter of 1996, NCT released initial
prototypes of the devices.  In December 1997, Siemens  Semiconductors of Siemens
AG, now Infineon,  licensed our silicon micromachined  microphone technology and
agreed to develop,  manufacture and market the silicon micromachined microphone.
Prototype samples were received which did not meet NCT's  specifications and are
being reworked by Infineon.

     NCT Communications

     ClearSpeech(R)  Product  Line.  NCT  continues  to enhance  the quality and
functionality  of  the  ClearSpeech(R)  Microphone  and  ClearSpeech(R)  Speaker
products to improve market penetration. NCT has both noise and echo cancellation
on a variety of digital signal processors  including  Analog-Devices'  and Texas
Instruments'  general  purpose  digital  signal  processors so that  third-party
developers may integrate the technology  into their  applications.  NCT also has
extended  the  availability  of  PC  development   tools  by  creating  software
developer's kits for noise and echo cancellation and speech compression.

                                       16
<PAGE>

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  cooperation  agreements  or  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:

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

 The Charles Stark Draper Laboratory, Inc.  July 1994        Microphones

 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)

 VLSI Technology, Inc.                      Feb. 1998        Communications

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

 Delphi Automotive Systems                  May 2000         Communications

     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).

                                       17
<PAGE>

     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  which  rely  on  this
technology  as its basis.  The patents  under this license on average  expire in
2009.  The agreement  terminates  when the last of the licensed  patents  expire
under  applicable law, unless earlier  terminated by a written  agreement of the
parties.  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. (U.K.) (known as 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 NCT will receive  royalties on
future NXT licensing  and product  revenue.  On April 15, 1997,  NXT plc and its
wholly owned  subsidiary,  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 stock.  The subject 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 revenues. 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.

     On 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 2 million  ordinary NXT shares in  consideration of the
cancellation  of  the  royalty  payable  by  NXT to NCT  Audio  under  the  1997
cross-license  agreement.  The NXT shares, upon issuance,  had a market value of
approximately  $9.2 million.  In addition,  ownership of specified  intellectual
property,  the rights to which were previously licensed to NXT, were 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 will  design a low-cost  flat panel  speaker  for use by  Distributed  Media
Corporation  International Ltd., a wholly-owned  subsidiary of NCT formed in the
United Kingdom in 2001. 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  Distributed  Media 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 -

                                       18
<PAGE>

notes to 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 (formerly  Siemens  Semiconductors,  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 3
mm 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.

     VLSI Technology, Inc. (France)

     In February  1998,  NCT and VLSI  executed a license  agreement.  Under the
terms of the agreement,  which included up-front development fees and future per
unit royalties,  VLSI licensed our  ClearSpeech(R)  noise  cancellation and echo
cancellation  algorithms  for use with  VLSI's  current  and  future  integrated
circuits  targeted to the digital cellular and personal  communications  systems
phone  market,  as  well as  emerging  computer  telephony  markets.  The  noise
cancellation  algorithm is specifically designed to remove background noise from
speech and other  transmitted  signals,  greatly improving  intelligibility  and
clarity of  communications.  The echo cancellation  algorithm cancels acoustical
echo for hands-free  telephony  operations including cellular and speakerphones.
We expect that this agreement may generate royalty revenue 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   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 a significant  amount of revenue in
1998 and 1999 and we anticipate additional royalty revenue commencing in 2002.

     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 that this royalty source may be significant in the future.

H.   Marketing and Sales

     In  addition  to  marketing  our  technology  through  strategic  licensing
agreements as described  above,  as of March 31, 2002, we had an internal  sales
and marketing force of 24 employees, 4 independent sales representatives and our
executive officers and directors. The independent sales representatives may earn
commissions  of  generally  up to 6% of  revenues  generated  from  sales of NCT
products to customers the sales  representatives  introduced to NCT and up to 5%
of research and development funding revenues provided by such customers.

     Financial  information relating to domestic and foreign sales and sales for
the years ended December 31, 1999,  2000 and 2001 is set forth in Note 23 of the
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

                                       19
<PAGE>

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.   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 20.5% of product
revenues  during 2001 and 6.9% of aggregate  gross  accounts  receivable of $1.0
million at December 31, 2001.

     (In thousands of dollars)

                                               As of December 31, 2001
                                             and For the Year then Ended
                                           ---------------------------------
                Customer                    Receivable          Revenue
   ------------------------------------    -------------    ----------------
   Muzak                                        $    47            $    521
   AM-COM                                             4                 231
   McDonalds                                         18                 185
   Sharper Image                                     36                 180
   Clever Devices                                     -                 153
   HM Electronics                                    25                  86
   All Others                                       563               3,212
                                           -------------    ----------------
        Total product                           $   693           $   4,568
                                           =============    ================

     As outlined below, our three largest technology  licensing fees and royalty
customers accounted for approximately 87.7% of technology  licensing and royalty
revenues during 2001.

     (In thousands of dollars)

                                                As of December 31, 2001
                                              and For the Year then Ended
                                             ----------------------------
             Customer                         Receivable       Revenue
---------------------------------------      -----------     ------------
Teltran International Inc.                     $     -       $   2,305
New Transducers Ltd. (NXT)                           -           1,605
Infinite Technology Corporation                      -           1,028
OKI Electronic Industry Co., Ltd.                    -             219
Ultra Electronics, Ltd.                             37             115
Brookepark Ltd.                                      -             111
Eagle Assets Ltd.                                  250             111
Sharp Corporation                                    -              75
All Others                                          34              64
                                             -----------     ------------
     Total licensing fees and royalties        $   321       $   5,633
                                             ===========     ============

     Our payment  terms are dependent on the type of revenue.  Generally,  trade
receivables  are  due 30 to 60 days  after  the  invoice  date;  joint  venture,
technology and royalty  receivables  are due 30 days after they are earned;  and
license 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  and  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. NCT primarily  maintains its cash and cash  equivalents
in six banks.

                                       20
<PAGE>

J.   Competition

     We have a number of direct competitors. Our principal competitors in active
control systems include Bose Corporation, Lord Corporation,  Matsushita Electric
Industrial Co., Ltd.,  Sennheiser  Electronic Corp. and Sony Corporation,  among
others.   Our  principal   competitors  in  speech   applications   include  IBM
Corporation, Lucent Technologies,  Inc. and Texas Instruments,  Incorporated. To
our knowledge, each of these entities is pursuing its own technology,  either on
its  own  or in  collaboration  with  others,  and  has  commenced  attempts  to
commercially  exploit such technology.  NCT also 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.

     Competition faced by our products includes:
<TABLE>
<CAPTION>

                                                                                                  Competitive
                                                                  ------------------------------------------------------------------
       Product                     Competition                                 Advantages                      Disadvantages
      ---------                    -----------                                 ----------                      -------------
<S>                             <C>                              <C>                                     <C>
NoiseBuster headphone           Koss, Sony, Bose                  High performing active                  Name recognition; limited
                                                                  noise reduction, low cost               marketing
                                                                  products

Gekko flat speakers             Sony, Aiwa, Bose, and any other   Flat wall-mounting design,              Name recognition; limited
                                speaker manufacturer              greater sound dispersion,               marketing
                                                                  wide choice of decorator facades

ClearSpeech noise cancellation  Lucent, Texas Instruments, other  High-quality noise cancellation,        Name recognition; limited
algorithm                       large communications companies    avoidance of voice                      marketing
                                                                  quality degradation

ClearSpeech echo cancellation   Lucent, Texas Instruments, other  High-quality echo cancellation,         Name recognition; limited
algorithm                       large communications companies    avoidance of voice                      marketing
                                                                  quality degradation

MidPoint software               Hardware routers, freestanding    Comprehensive software solution -       Name recognition; limited
                                firewalls                         eliminates need to purchase various     marketing
                                                                  independent software and hardware
                                                                  products and configure them to
                                                                  work together

DMC's Sight & Sound system      In-store music providers such as  Ongoing cash incentives to site         Name recognition; limited
                                Muzak: other advertising media    owners, demographically targeted        marketing
                                                                  opportunity for advertisers

Artera Group's Artera Turbo     Other Internet service providers  Delivers broadband speeds from dial-up  Name recognition; limited
technology                                                        lines and greatly improved speed        marketing
                                                                  from broadband connections such as
                                                                  DSL and cable modem
</TABLE>

K.   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 1999, 2000 or 2001.

                                       21
<PAGE>

L.   Research and Development

     NCT-sponsored  research and development  expenses  aggregated $6.2 million,
$4.4  million and $6.0 million for the years ended  December 31, 1999,  2000 and
2001, respectively. The research and development services that had been conduced
at Advancel were outsourced to Infinite Technology Corporation commencing in the
third quarter of 2000. This arrangement provides for the development by Infinite
Technology Corporation of a JavaTM-based digital signal processor  semiconductor
chip and the joint development of microprocessors or semiconductor  chips in the
future.  Our objective in outsourcing the  engineering and development  services
work previously  performed at Advancel was to lower our costs in providing those
services while retaining the microprocessor design capabilities on an outsourced
basis.  The  development  agreement  does not have a definite  expiration  date;
however,  the parties  expect that the  research  and  development  work will be
performed by Infinite  Technology  Corporation within 24 months. The development
fee will be paid with shares of our common  stock in lieu of cash  payments.  We
made an  upfront  payment  with  our  shares  of  common  stock  to  fund  ITC's
development  services  because  ITC was not  willing to commit  its own  working
capital for the development  work. See Notes 4 and 5 - notes to the consolidated
financial statements for further details.

     Infinite  Technology  Corporation is the semiconductor  original publishing
enterprise  specializing in the design,  manufacturing  and marketing of digital
signal  processing  solutions to create  system-on-chip  products  utilizing its
proprietary  RADcore(TM)  technology.   Founded  in  1991,  Infinite  Technology
Corporation  also  provides  integrated  circuit  design  services  and software
development. In May 2000, NCT's subsidiary, Advancel Logic Corporation,  entered
into a license agreement with Infinite  Technology  Corporation whereby 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. The agreement also granted non-exclusive rights
to Advancel's Java(TM) smart card core.

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

o    improvement  to  our  echo  cancellation  and  noise  filtering  algorithms
     including porting to specific hardware platforms and processor cores;
o    development of various versions of our ClearSpeech microphone technology;
o    improvements  to the active  noise  cancellation  technologies  used in our
     headset products;
o    development  of the  piezoelectric  flat panel  transducer  which forms the
     basis for the Gekko line of speaker products;
o    development of new algorithms and systems;
o    development of advertisement play verification software;
o    development  of  an  ambient  noise  compensator  for  commercial   speaker
     applications; and
o    development  of  our  echo  cancellation/noise  filtering  software  module
     appropriate for integration into an Internet telephony program.

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 87  employees  as of March 31, 2002.  The  employees  include 24 in
sales and marketing;  15 in executive and administrative  roles; 15 in the areas
of finance,  accounting,  human  resources,  legal,  information  technology and
intellectual property; and 33 in engineering, operations and production. None of
our employees is represented by a labor union.  NCT considers its  relationships
with employees to be satisfactory.

O.   Acquisitions and Acquisition Efforts

     Please refer to Note 2 - notes to our consolidated financial statements for
further  information  about  acquisitions in 2000 and 2001. In 2000, we acquired
Theater Radio Network, Inc., Midcore Software, Inc. and Pro Tech Communications,
Inc. In 2001, we acquired Artera Group International  Limited and 25% of DMC New
York, Inc. Information about other acquisition efforts in 2001 follows.

                                       22
<PAGE>

     On February 28, 2001,  our  subsidiary,  Artera Group,  Inc., and CompuHelp
Technologies,  Inc., a national  Internet service provider based in the New York
metropolitan  area,  entered into a letter of intent. By the terms of the letter
of intent,  Artera would acquire  CompuHelp by purchasing  from  CompuHelp's two
sole  shareholders  all  of  the  outstanding  capital  stock  of  CompuHelp  in
consideration  for $500,000 in cash and $1,000,000 in aggregate  stated value of
Artera  convertible  preferred  stock.  Artera  would also agree to assume up to
$90,000 of CompuHelp's bank debt. In addition,  if CompuHelp's  Internet service
provider business reached revenue and gross margin targets in the eight quarters
following  closing,  up  to  an  additional  $2,000,000  of  Artera  convertible
preferred stock would be issuable to CompuHelp's two selling  shareholders.  The
letter of intent remained  exclusive until April 30, 2001. In July 2001,  Artera
abandoned  its  effort  to  acquire  CompuHelp  and let the  letter of intent to
acquire CompuHelp expire.

     In May 2001,  we  entered  into a letter of  intent to  acquire  50% of the
capital stock of Digital Compact  Classics,  Inc. in exchange for our grant of a
license to Digital  Compact  Classics to offer Sight & Sound  distributed  media
service in the Los Angeles area.  Under the letter of intent,  Wells  Investment
Group planned to lead a group of investors to contribute  $12 million to Digital
Compact  Classics  to  develop  the  Sight & Sound  network  in the Los  Angeles
designated  market area for Distributed Media Corporation in exchange for 40% of
Digital  Compact  Classic's  equity.  We abandoned our effort to acquire Digital
Compact Classic because it ceased to be a going concern.  We have fully reserved
for  approximately  $0.2 million of short-term  notes receivable with respect to
Digital Compact Classic.

P.   Recent Financing Transactions

     Our  financing  transactions  during the year ended  December  31, 2001 are
discussed in our consolidated  financial statements.  Those transactions and the
footnote  reference  to  notes  to our  consolidated  financial  statements  are
highlighted below:

     6% Convertible Notes issued by Artera Group, Inc.           Note 10
     Private Equity Credit Agreement                             Notes 14 and 21
     NCT Secured Convertible Notes Issued to Carole Salkind      Note 10
     Other NCT Group, Inc. Convertible Notes and Notes Payable   Note 10
     Convertible Note issued by NCT Video Displays, Inc.         Note 14
     Pro Tech Series B Preferred Stock                           Note 14

     Subsequent  to  December  31,  2001,   we  have   completed  the  financing
transactions  described  in  Note  26 -  notes  to  our  consolidated  financial
statements.

Q.   Business Segments

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

R.   Available Information

     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 http://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
which 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 our  subsidiaries,  DMC and
Advancel,  and DMC's  subsidiary,  DMC HealthMedia,  and our sales and marketing
offices.  The  facility  also  housed  the  DMC  Cinema  subsidiary  until  that
subsidiary ceased operations on February 28, 2002.

                                       23
<PAGE>

     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  facility has been
closed.  Substantially  all of its  operations  have  been  consolidated  at our
Cambridge, England facility.

     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 $4,000, subject to annual
inflationary adjustments. Effective January 15, 2002, we consolidated our former
Linthicum,  MD research and technical support  operations with the activities of
this  facility.  Until it  ceased  operations  on April 5,  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.

     Effective  March 31,  2001,  DMC  Cinema  closed  its  Clearwater,  Florida
facility and  relocated  its  operations  to Westport,  Connecticut.  DMC Cinema
previously  occupied  approximately  1,400 square feet of space  located at 4900
Creekside Dr., Suite E,  Clearwater,  Florida 33760 pursuant to a month to month
rental  arrangement.  Until its relocation,  DMC Cinema  incurred  monthly lease
costs of approximately  $1,400.  Effective  February 28, 2002, DMC Cinema ceased
operations. See "Business - A. General Development of Business."

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

     Effective April 1, 2001,  Midcore's sales and product  development  offices
occupy approximately 6,100 square feet of space located at 900 Straits Turnpike,
2nd Floor,  Middlebury,  Connecticut pursuant to a five-year lease agreement for
an average monthly rental of approximately $7,800.

     Effective March 21, 2002, NCT entered into a lease for approximately  2,400
square feet of space located at 7525 Connelley Drive, Suite C, Hanover, Maryland
for a term of approximately three years at a monthly rental of $2,400.

     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 2002.

ITEM 3.     LEGAL PROCEEDINGS.

     Andrea Electronics Corp. Patent and Trademark Litigation

     By a letter dated  September 9, 1997, our  competitor,  Andrea  Electronics
Corporation, informed us that it believed NCT was improperly using the term "ANR
Ready" and  infringing  upon a  trademark  owned by Andrea.  Representatives  of
existing and/or  potential  customers also have informed us that Andrea has made
statements  claiming  that our  manufacture  and/or sale of specified  in-flight
entertainment  system  products  infringe a patent owned by the  competitor.  We
received a notice dated March 24, 1998 from Andrea  notifying us of its concerns
but not  confirming  any  intention  to file suit  against  NCT.  NCT  exchanged
correspondence  with Andrea,  but we could not come to any  resolution.  NCT was
informed by representatives  of existing and/or potential  customers that Andrea
was continuing to state or imply that NCT was infringing.

     On November 17, 1998, NCT and NCT Hearing filed a complaint  against Andrea
in the U.S.  District Court for the Eastern  District of New York. Our complaint
requested  that the court enter  judgment  in our favor as follows:  (1) declare
that the two Andrea patents at issue are invalid and  unenforceable and that our
products do not infringe upon them;  (2) declare that the two Andrea  patents at
issue are  unenforceable  due to misuse by  Andrea;  (3) award NCT  compensatory
damages of no less than $5 million  and  punitive  damages  of $50  million  for
Andrea's tortious interference with NCT's prospective contractual  arrangements;
(4) enjoin Andrea from stating or implying that NCT's  products or their use are
infringing any  Andrea-owned  patents;  and (5) award any other relief the court
deems appropriate.

     On or about  December 30, 1998,  Andrea filed its answer to our  complaint.
Andrea generally denied the above allegations and brought  counterclaims against
NCT and NCT Hearing.  These include claims that NCT has infringed the two Andrea
patents  at issue,  that NCT's use of the "ANR  Ready"  trademark  violated  the
Lanham Act and that NCT unfairly competed with Andrea by using the trademark.

                                       24
<PAGE>

     NCT and NCT Hearing have since filed a reply and  requested  that the court
dismiss the  counterclaims and enter judgment in our favor. NCT also argued that
Andrea is  prevented  from  recovering  under  various  equitable  theories  and
defenses.  Discovery in this suit  commenced in mid-1999.  No trial date has yet
been set. In January 2002, NCT's two co-counsel in this action withdrew from the
case because of NCT's untimely  payments for legal  services.  NCT is seeking to
retain new counsel in the action.

     Management  cannot assess the likelihood  that resolution of this suit will
or will not have a  material  adverse  effect  on NCT's  financial  position  or
operations.  Approximately 3% of our business depends on the patents in dispute.
However,  in the event  that the  lawsuit  does  result in a  substantial  final
judgment against NCT, the judgment could have a material effect on our quarterly
or annual operating results.

     Schwebel Capital Litigation

     On June 10,  1998,  Schwebel  Capital  Investments,  Inc.  filed  suit in a
Maryland  state court against NCT and Michael J. Parrella,  our Chief  Executive
Officer and Director.  The complaint alleges that NCT breached, and Mr. Parrella
interfered  with,  a purported  contract  entered  into in 1996  between NCT and
Schwebel Capital. Schwebel Capital claims that under the contract, NCT agreed to
pay Schwebel  Capital  commissions when NCT received capital from its investors.
The complaint further alleges that Schwebel Capital is due commissions  totaling
$1.5  million  because NCT refused to honor  Schwebel  Capital's  right of first
refusal. Schwebel Capital's complaint sought $1,673,000 in compensatory damages,
$50,000 in punitive  damages and $50,000 in attorneys' fees from NCT, as well as
$150,000 in compensatory  damages,  $500,000 in punitive  damages and $50,000 in
attorneys' fees from Mr. Parrella.  Subsequently,  the court granted a motion to
dismiss the claims against Mr.  Parrella.  On August 8, 2001, NCT entered into a
settlement  agreement with Schwebel Capital. NCT paid a nominal amount to settle
all remaining claims of Schwebel Capital against NCT. The settlement terminating
the litigation was approved by the court on or about September 7, 2001.

     NCT Audio Arbitration

     On September 16, 1999, NCT Audio filed a demand for arbitration  before the
American  Arbitration  Association in Wilmington,  Delaware,  against Top Source
Technologies,  Inc. and its subsidiary,  Top Source Automotive,  Inc., alleging,
among other things,  breach of the asset purchase  agreement by which TSA was to
sell its assets to NCT Audio,  breach of fiduciary  duties to a shareholder (NCT
Audio holds 15% of the outstanding  stock of TSA), and breach of the obligations
of good faith and fair dealing. NCT Audio seeks rescission of the asset purchase
agreement and recovery of monies paid to TST for TSA's assets. Concurrently, NCT
Audio  commenced a preliminary  injunction  proceeding in the Delaware  Court of
Chancery,  seeking to prevent TST from  selling  TSA's  assets to Onkyo  America
pending  completion  of  the  arbitration  proceeding.  NCT  Audio  subsequently
withdrew such court action. On December 8, 1999, TST and TSA filed an answer and
counterclaim in connection with the  arbitration  proceeding.  They asserted the
counterclaim 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 the  transaction;  (3) the monies and
stock owed under the  extension  agreements;  and (4)  specific  legal  expenses
incurred by them.

     The above  arbitration  arises out of an asset  purchase  agreement,  dated
August 14, 1998,  by and between  NCT, TST and TSA,  whereby NCT was granted the
exclusive option to purchase substantially all of the assets of TSA. Pursuant to
the asset purchase  agreement,  NCT became the owner of 20% of the shares of TSA
and TST owned the  remaining  80% interest in TSA. The closing date of the asset
purchase  agreement  was extended on two  occasions,  March 30, 1999 and May 25,
1999, for  substantial  additional  consideration  paid by NCT,  including NCT's
surrender  of 5% of the  shares of TSA.  One day  after  the May 25th  extension
agreement was  executed,  TST and TSA announced in a press release that they had
negotiated a competing  transaction with Onkyo America, Inc. whereby Onkyo would
purchase substantially all of the assets of TSA in the event that NCT was unable
to close by the deadline of July 15, 1999.

     As a direct result of the announcement of a competing transaction,  NCT was
unable  to  obtain  funding  to close  the  transaction  by July 15,  1999.  NCT
attempted  to enjoin  the  closing  of the  transaction  with Onkyo by way of an
application for preliminary injunction or temporary restraining order brought in
the Delaware  Chancery Court on September 16, 1999. This action sought to enjoin
TST and TSA from closing with Onkyo until a decision was rendered in  connection
with our demand for Arbitration filed with the American Arbitration  Association
on September  16, 1999. On September  17, 1999,  prior to the  scheduling of the
hearing  regarding  the  application  for

                                       25
<PAGE>

preliminary injunction or temporary restraining order, the attorney and agent of
TST and TSA orally represented to counsel for NCT that the Onkyo transaction was
not  scheduled to close for at least a month.  On that basis,  NCT agreed not to
seek an  immediate  hearing on the  application.  Less than two weeks after that
representation,  on October  1, 1999,  TST and Onkyo  closed  their  transaction
without any notice to NCT, a minority  shareholder  of TSA. Since the purpose of
the injunction  was to prohibit the sale of TSA's assets to Onkyo,  and that had
already  occurred,  NCT withdrew its application  for injunctive  relief and has
proceeded with the arbitration.

     NCT's demand for arbitration sets forth several causes of action, including
breach of the duties of good faith and fair dealing in connection with the asset
purchase  agreement,  breach  of the  exclusive  option  provision  of the asset
purchase  agreement,  breach of the  payout  provisions,  fraudulent  inducement
and/or  fraudulent  concealment  in connection  with the May 25, 1999  extension
agreement, negligent misrepresentation by failing to disclose the negotiation of
a competing  transaction  with Onkyo, and breach of the fiduciary duties owed to
minority shareholders.  The demand for arbitration requests specific performance
or rescission of the asset purchase agreement, and further claims damages due to
TST's and TSA's breaches of the duties of good faith and fair dealing,  breaches
of  the  fiduciary  duties  owed  by  the  majority   shareholders  to  minority
shareholders,  and fraudulent  misrepresentations  in connection  with the asset
purchase  agreement and the amendments  thereto.  NCT seeks recovery of the $3.5
million  invested in the asset purchase  agreement,  or recovery of its pro rata
share of the sales proceeds paid by Onkyo for TSA's assets.

     On December 8, 1999, TST and TSA brought a counterclaim  against NCT in the
arbitration action seeking the following:  the sum of $204,315 allegedly due and
owing on a promissory note issued by NCT as  consideration  for the extension of
the closing date in the asset purchase  agreement from March 31, 1999 to May 28,
1999; the monetary  equivalent of $100,000 of NCT's convertible  preferred stock
allegedly owed to TSA by NCT as consideration  for extending the closing date to
May 28, 1999; the sum of  $1,000,000,  constituting  the difference  between the
price to be paid by NCT under the asset purchase  agreement and the actual price
paid by Onkyo for TSA's assets;  reimbursement  of expenses  incurred by TST and
TSA in  connection  with the failure to close the asset  purchase  agreement  in
excess  of  $300,000;  and  recovery  of  legal  fees  in  connection  with  the
arbitration and the application for a temporary  injunction.  NCT maintains that
the promissory  note and stock were procured by fraud  perpetrated by TST and/or
TSA and otherwise denies 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.) and TSA 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'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. NCT will file a proof of claim in the bankruptcy case, for amounts owed to
it, and is  considering  whether any  non-bankruptcy  avenues of collection  may
exist.

     Theater Radio Network - InsiderStreet 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 March 26,  2002,  Theater  Radio  Network  retained new counsel to
continue  this action.  Management  believes  that at this early stage it cannot
assess the  likelihood  of a  favorable  outcome.  Further,  since the amount of
damages,  if any, DMC Cinema may

                                       26
<PAGE>

recover cannot be quantified until the legal process is complete,  no amount has
been recorded in the financial statements.

     Theater Radio Network - Esrick Litigation

     On February 5, 2001,  Steven Esrick, a former  shareholder of Theater Radio
Network, filed suit against DMC Cinema (formerly known as Theater Radio Network)
and Theater Radio Network's former Chief Executive  Officer and President in the
Circuit Court of the Sixth Judicial  Circuit for Pinellas County,  Florida.  The
plaintiff's  original  complaint  claimed that Theater Radio Network breached an
alleged  oral escrow  agreement  with the  plaintiff  arising out of the sale of
Theater  Radio   Network  stock  to  DMC  Cinema  by  Theater  Radio   Network's
shareholders  and sought  unspecified  damages.  DMC Cinema  denied the material
allegations  of this  complaint  and moved to dismiss  the case  against  it. On
November  8, 2001,  while DMC  Cinema's  motion to dismiss was  pending,  Esrick
amended his  complaint,  substituting  for his original claim the claim that DMC
Cinema breached an alleged  agreement to deliver to him 50,000 registered shares
of stock of InsiderStreet, Inc. On December 13, 2001, DMC Cinema filed an Answer
to the amended  complaint  in which it denied the  material  allegations  of the
amended  complaint.   DMC  Cinema  intends  to  vigorously  defend  the  action.
Currently,  the parties are conducting  discovery.  Management,  in consultation
with  legal  counsel,  cannot  at this  stage  determine  the  likelihood  of an
unfavorable outcome.

     Production Resource Group Litigation

     On June 6, 2001,  Production Resource Group began legal proceedings against
NCT and our subsidiary, Distributed Media Corporation, in the Superior Court for
the Judicial  District of Fairfield  County,  Connecticut.  Production  Resource
Group'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(TM)  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.  The plaintiff filed an application for pre-judgment  remedy
seeking to attach or garnish $2.25 million of our assets.  On July 26, 2001, the
court returned an order for  pre-judgment  remedy having found probable cause to
sustain the validity of Production  Resource  Group's claim and gave  Production
Resource  Group the right to attach or garnish up to $2.1  million of  specified
assets  of  NCT  and  Distributed  Media  Corporation.  As of  April  10,  2002,
approximately $78,000 in NCT's cash or cash equivalent assets have actually been
attached or garnished. On October 4, 2001, we filed an answer to the plaintiff's
complaint,  generally denying the plaintiff's allegations,  seeking dismissal of
the complaint and  counterclaiming  for breach of  Production  Resource  Group's
obligation to deliver equipment.

     On December 20, 2001,  NCT and DMC accepted an Offer of Judgment  requiring
NCT and DMC to pay  Production  Resource  Group $2.0 million.  That judgment was
entered on January 17, 2002.  Production Resource Group is currently  conducting
post-judgment  discovery regarding  enforcement of that judgment.  To the extent
that payment of the judgment is in cash,  such payment  could be material to our
cash  position.  As of December  31,  2001,  we have  recorded  all  anticipated
liability related to this judgment.

     On January 2, 2002,  outside the scope of the  judgment  entered  into with
NCT,  Production  Resource  Group  amended  its  complaint  to allege that NCT's
Chairman  and  Chief  Executive  Officer  Michael  Parrella,   in  dealing  with
Production  Resource Group on behalf of NCT,  committed  unfair trade practices,
fraud and  breaches of good faith and fair  dealing.  Mr.  Parrella has told NCT
that he intends to deny the  allegations.  To the extent that NCT may ultimately
indemnify Mr. Parrella for any liabilities  arising out of these allegations and
for  related   legal  fees,   we  believe  that  our   directors   and  officers
indemnification  insurance  (after  payment  of a $100,000  deductible)  will be
adequate to cover such payments.

     BMI Arbitrations

     On  January  11,  2002,   Broadcast  Music,   Inc.  ("BMI")  commenced  two
arbitration   proceedings  against  Theater  Radio  Network  with  the  American
Arbitration   Association,   for  the  respective  amounts  of  $153,369.51  and
$62,101.93.  These  proceedings were brought under agreements with Theater Radio
Network dated  December 11, 1998 (amended  December 22, 1998) and June 29, 2001.
BMI's  claims are for license  fees  arising out of the alleged

                                       27
<PAGE>

publication  by Theater  Radio Network of music in the BMI  repertoire.  Theater
Radio Network denied the allegations of BMI. No further actions have occurred in
these proceedings.

     Maryland Lease Litigation

     On or about  January 31,  2002,  an action was brought  against NCT by West
Nursery Land Holding  Limited  Partnership in the District Court of Maryland for
Anne Arundel  County.  This action sought  repossession of premises at 1025 West
Nursery Road, Linthicum,  MD and an award of $88,654.26 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.

     Mesa Partners Matter

     On February 21, 2002, an action was brought by Mesa Partners,  Inc. against
NCT and DMC in Supreme Court, New York,  Suffolk County for breach of an alleged
contract for financial consulting services. The complaint seeks $429,576.27 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.  NCT and DMC intend
to defend this action vigorously. At this stage, management cannot yet determine
the likelihood of success of the claims.

     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  and  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.

     None.

                                     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:

                                   2000                          2001
                      -----------------------------   --------------------------
                         High              Low            High             Low
                      ------------     ------------   ------------     ---------
1st Quarter           $1.700           $0.160         $0.265           $0.145
2nd Quarter           $1.220           $0.360         $0.295           $0.1255
3rd Quarter           $0.515           $0.295         $0.162           $0.093
4th Quarter           $0.405           $0.172         $0.114           $0.071

     On April 26, 2002, the last reported sale of NCT's common stock as reported
by the NASD OTC  Bulletin  was  $0.11.  As of  December  31,  2001,  there were
approximately  3,800 shareholders of record  representing  approximately  48,000
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.

     See  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations - Liquidity and Capital  Resources"  for a description  of
our sales of unregistered securities during the year ended December 31, 2001.

                                       28
<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 Form 10-K.

<TABLE>
<CAPTION>

(In thousands of dollars, except per share amounts)

                                                                               For the Year Ended
                                                                                  December 31,
                                                 ---------------------------------------------------------------------------
                                                        1997        1998          1999            2000             2001
                                                 ------------   -------------  ------------   -------------    -------------
<S>                                                  <C>             <C>          <C>             <C>               <C>
REVENUES:
   Technology licensing fees and royalties           $ 3,630           $ 802       $ 3,552         $ 9,928          $ 5,633
   Product sales, net                                  1,720           2,097         2,208           2,001            4,568
   Advertising/media                                       -               -             -             828              279
   Engineering and development services                  368             425         1,303              83              132
                                                 ------------   -------------  ------------   -------------    -------------
      Total revenues                                 $ 5,718         $ 3,324       $ 7,063        $ 12,840         $ 10,612
                                                 ------------   -------------  ------------   -------------    -------------
COSTS, EXPENSES AND OTHER INCOME:
   Cost of product sales                             $ 2,271         $ 2,235       $ 2,767         $ 2,127          $ 3,340
   Cost of advertising/media                               -               -             -             814              332
   Cost of engineering and development services          316             275         2,216              55                2
   Selling, general and administrative                 5,347          11,470        11,878          11,408           20,869
   Research and development                            6,235           7,220         6,223           4,412            5,966
   Other operating (income) expense, net                   -          (3,264)        7,032  (c)      2,661  (d)      33,955 (e)
                                                 ------------   -------------  ------------   -------------    -------------
      Operating costs, expenses and other income    $ 14,169        $ 17,936      $ 30,116        $ 21,477         $ 64,464
                                                 ------------   -------------  ------------   -------------    -------------
Non-operating items:
   Other (income) expense, net                             -               -           166            (162)          16,099 (f)
   Interest (income) expense, net                      1,397            (429)          552           1,849            6,127 (g)
                                                 ------------   -------------  ------------   -------------    -------------
      Total costs and expenses                        15,566          17,507        30,834          23,164           86,690

NET LOSS BEFORE CUMULATIVE EFFECT
     OF CHANGE IN ACCOUNTING PRINCIPLE                (9,848)        (14,183)      (23,771)        (10,324)         (76,078)
  Cumulative effect of change in
     accounting principle                                  -               -             -               -           (1,582)(h)
                                                 ------------   -------------  ------------   -------------    -------------
NET LOSS                                            $ (9,848)      $ (14,183)    $ (23,771)      $ (10,324)       $ (77,660)
Less:
Beneficial conversion features                         1,623           3,200        10,567           4,673              392
Preferred stock dividends                                285             485           494             113            1,252
                                                 ------------   -------------  ------------   -------------    -------------
      Loss attributable to
           common stockholders                     $ (11,756)      $ (17,868)    $ (34,832)      $ (15,110)       $ (79,304)
                                                 ============   =============  ============   =============    =============
 Weighted average number
       of common shares outstanding (a)              124,101         143,855       190,384         292,758          383,162
                                                 ============   =============  ============   =============    =============
 Basic and diluted net loss per share                $ (0.09)        $ (0.12)      $ (0.18)        $ (0.05)         $ (0.21)
                                                 ============   =============  ============   =============    =============


                                                                           As of December 31,
                                                 ---------------------------------------------------------------------------
                                                    1997            1998          1999            2000             2001
                                                 ------------   -------------  ------------   -------------    -------------
BALANCE SHEET DATA:
 Total assets                                       $ 17,361       $  15,465     $  13,377       $  39,382        $  20,009
 Total current liabilities                             2,984           5,937         7,728          23,386           56,959
 Total long term liabilities                               -               -         4,107           3,761            7,765
 Accumulated deficit                                 (93,521)       (107,704)     (131,475)       (141,799)        (219,459)
 Stockholders' equity (capital deficit) (b)           14,377           3,426          (367)          9,858          (53,463)
 Working capital (deficit)                            11,696          (1,187)       (3,281)         (9,727)         (52,636)
</TABLE>

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

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

(c)  Includes a $2.4 million  charge in connection  with NCT's write down of its
     investment in Top Source  Automotive 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 $2.2 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),
     $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); $1.3 million

                                       29
<PAGE>

     (net of $2.7 million  reduction of deferred  revenue) for  reacquisition of
     two other DMC  licenses and $1.5 million  write down of  investment  in Top
     Source Automotive.

(f)  Other   non-operating   (income)   expense   includes   $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.

(g)  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.

(h)  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.

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 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 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
business  segments that are dependent on our ability to: achieve  profitability;
achieve a competitive position in design, development, licensing, production and
distribution of electronic  systems;  produce a cost effective product that will
gain  acceptance  in  relevant  consumer  and other  product  markets;  increase
revenues  from  products;   realize  funding  from  technology  licensing  fees,
royalties,  product sales,  and engineering and development  revenues to sustain
our current level of  operation;  introduce,  on a timely  basis,  new products;
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  alliances;
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  revenues are comprised of technology  licensing  fees and
royalties,  product sales,  advertising/media  and  engineering  and development
services.  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

                                       30
<PAGE>

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.  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.  Operating  revenues  in 2001
consisted of  approximately  53.1% in technology  licensing  fees and royalties,
43.1% in product sales,  2.6% in  advertising/media  and 1.2% in engineering and
development services.

     NCT continued its practice of marketing its technology through licensing to
third  parties for fees,  generally  by obtaining  technology  license fees when
initiating  alliances  with new  partners,  and  subsequent  royalties.  We have
entered into a number of licensing  relationships 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 large 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 BE
Aerospace and Long Prosper are providing  NoiseBuster(R)  components  for United
Airlines'  and  five  other  international   carriers'  comprehensive  in-flight
entertainment and information systems.

     The  availability  of  high-quality,  low-cost  electronic  components  for
integration into our products also is critical to the  commercialization  of our
technology.  NCT is working with its  licensees  and key suppliers to reduce the
size  and  cost of our  systems,  so that  NCT  will be able to  offer  low-cost
electronics and other components suitable for high-volume production.

     Since its inception,  NCT has incurred  substantial  losses from operations
which have been recurring and amounted to $219.5  million on a cumulative  basis
through  December 31, 2001.  NCT's  internally  generated funds from its revenue
sources have not been sufficient to cover its operating costs. NCT has been able
to continue  its  operations  by raising  additional  capital to fund its future
operations. Refer to "Liquidity and Capital Resources" below. 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  negotiations  with  respect to licenses and royalty
revenues.

     As of December 31, 2001, cash and cash equivalents amounted to $0.6 million
and working  capital  (deficit) was $(52.6)  million.  Management  believes that
currently available funds will not be sufficient to sustain NCT through the next
six months.  Reducing operating expenses and capital  expenditures alone may not
be sufficient,  and  continuation as a going concern is dependent upon the level
of funding  realized from our revenue  sources:  technology  licensing  fees and
royalties,   product  sales,   advertising/media  revenue  and  engineering  and
development  services,  all of which are presently uncertain.  In the event that
cash from our  revenue  sources is not  realized  as  planned,  then  management
believes  additional  working  capital  financing  must be obtained  through the
private  placement  of  additional  equity of NCT 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.

     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, 2001 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.

                                       31
<PAGE>

     Results of Operations

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

     Total  revenues 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;  and c) other-than-temporary  losses on InsiderStreet ($2.5 million)
and Infinite Technology Corporation ($3.9 million) marketable securities.

     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,  $2.3  million  from
Teltran,  $1.0 million from Infinite  Technology  Corporation,  and $0.2 million
from two DMC licenses.  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 as compared to  approximately  three months in
2000 and Artera  International  has been included for  approximately ten months.
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. We expect this trend to continue.

     Revenue from advertising/media  decreased $0.5 million, or 62.5%, from $0.8
million in 2000 to $0.3 million in 2001.  Advertising/media revenues are derived
from  the  sale of  audio  and  visual  advertising  in the  Sight  &  Sound(TM)
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 communications
to the Sight & Sound(TM) locations.  We anticipate DMC gross profit margins will
exceed 50% once the Sight & Sound  network  is fully  installed  in  out-of-home
venues.

     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 expenses,  including legal
services;  non-cash  depreciation  and  amortization;  marketing and promotional
costs;  and travel,  among other  costs.  We expect  2002  selling,  general and
administrative expenses to decrease as a result of exiting certain activities.

     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.

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<PAGE>

     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  (see  Note  10 -  notes  to the
consolidated financial statements).  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 financial statements. Our ability to
utilize  our net  operating  loss  carryforwards  may be  subject  to an  annual
limitation.

     Year ended December 31, 2000 compared to year ended December 31, 1999.

     Total  revenues  in 2000  increased  by 80.3% to $12.8  million  from  $7.1
million  in 1999  reflecting  increases  in our  technology  licensing  fees and
royalties and our  advertising/media  revenue sources.  Total costs and expenses
during the same period  decreased by 24.9%,  or $7.7  million,  primarily due to
items  recorded  in 1999  for the  write  down of an  investment  in Top  Source
Automotive,  Inc.  of $2.4  million  (see note 9 to the  consolidated  financial
statements) and a reserve for promissory  notes due from Precision  Power,  Inc.
and related pre-acquisition costs of $1.8 million.

     Technology licensing fees and royalties increased by 175%, or $6.3 million,
to $9.9 million from $3.6 million in 1999.  The  technology  licensing  fees and
royalties for 2000 were primarily due to a $3.6 million  technology  license fee
from Infinite Technology Corporation, a $2.4 million technology license fee from
Pro Tech, a $2.0 million technology license fee from Vidikron of America,  Inc.,
$1.1 million  recognition  of deferred  revenue with respect to two DMC licenses
entered  into  in  2000  and  $0.4  million   recognition  of  deferred  revenue
attributable  to the  Teltran  license  entered  into by  Midcore  in 2000.  The
increase   compared  to  1999  is   attributable   to  the  value  of  licensing
opportunities  closed in 2000. The ITC, Pro Tech and Vidikron  license fees were
recognized in the third quarter of 2000 and comprised approximately 62% of total
revenues for 2000. In 1999,  approximately 59% of total revenues were recognized
in the first  quarter due  primarily to the timing of entering  into  technology
licensing arrangements.

     Product  sales  decreased in 2000 by 9.1% to $2.0 million from $2.2 million
in 1999 reflecting the decreased  sales of the Gekko(TM) flat speakers,  hearing
products,  including the  NoiseBuster(R)  and  ProActive(R)  product lines,  and
communication  products  including the  ClearSpeech(R)  product line,  partially
offset by increases attributable to acquired companies,  primarily Pro Tech. The
decline in our product sales in 2000 compared to 1999 was primarily attributable
to a decrease in speakers sold by NCT Audio due to a lack of promotional  effort
and lack of availability  of the appropriate  product mix. Cost of product sales
decreased 25.0% to $2.1 million in 2000 from $2.8 million in 1999, due to a more
profitable  mix of product  sales in 2000  compared to 1999.  The product  gross
profit margin improved to (6.3)% from (25.3)% in 1999.

     Advertising/media  revenues  were $0.8 million in 2000  compared to zero in
1999.  Advertising/media  revenues are derived from the sale of audio and visual
advertising  in the  Sight &  Sound(TM)  locations.  Cost  of  advertising/media
revenue was $0.8 million in 2000  compared to zero in 1999.  These costs include
the   commissions   paid  to  advertising   representatives   and  agencies  and
communications to the Sight & Sound(TM) locations.

     Revenue from  engineering  and  development  services  decreased in 2000 by
93.6% to $0.1  million  from $1.3  million in 1999,  in part due to research and
development  previously conducted at Advancel being outsourced to ITC commencing
in the third  quarter of 2000 and a  continuation  of our  reduced  emphasis  on
providing engineering and development services as a primary revenue source. Cost
of engineering and development services decreased in 2000 by 98% to $0.1 million
primarily  due to  attrition of Advancel  employees  and  completion  of ongoing
contracts. Our objective in outsourcing the engineering and development services
work previously performed at Advancel was to lower our costs while retaining the
microprocessor design capabilities on an outsourced basis.

     Selling,  general and administrative expenses in 2000 decreased by 3.3%, or
$0.4  million,  to $11.4  million from $11.8  million in 1999,  primarily due to
decreases in litigation and patent expenses and in selling and marketing related
expenses,  partially offset by higher  compensation  expenses and  depreciation,
amortization and

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<PAGE>

costs attributable to acquired companies.  For the year ended December 31, 2000,
selling,  general and administrative expenses included an $0.8 million charge to
bad debt expense  relating to the  reduction in value,  at December 31, 2000, of
the marketable  securities  included as  consideration  for the Teltran  license
transaction (see Note 9 - notes to the consolidated financial  statements).  NCT
received the  marketable  securities in January 2001.  Our selling,  general and
administrative  expenses include:  compensation,  which generally comprises from
36% to 50% of  the  total;  professional  fees  and  expenses,  including  legal
services;  non-cash  depreciation  and  amortization;  marketing and promotional
costs; and travel, among other costs.

     Research and  development  expenditures  in 2000 decreased by 29.1% to $4.4
million  from $6.2  million in 1999,  primarily  through  attrition  of Advancel
employees in 1999 and 2000.  Commencing in the third  quarter of 2000,  research
and development previously conducted at Advancel has been outsourced to Infinite
Technology  Corporation.  NCT issued  shares of its common stock having a market
value of $3.0 million to Infinite Technology Corporation as prepaid research and
engineering  costs during 2000. No expense for the  outsourcing  of research and
development  was  recorded  for the year ended  December  31,  2000 as  Infinite
Technology  Corporation  had not advised us of the  commencement of the research
and development under this agreement.

     Included in NCT's  total  costs and  expenses  were  non-cash  expenditures
including  depreciation  and  amortization  of $2.0 million for each of 2000 and
1999,  impairment  of  goodwill  of $3.1  million  in each of 2000  and 1999 and
interest  expense  of $1.0  million  in 2000 and $0.2  million  in 1999 due to a
beneficial  conversion  feature on our  convertible  notes.  The  impairment  of
goodwill is attributable to continued losses of NCT's majority-owned subsidiary,
NCT Audio.  In 1999,  NCT Audio  changed  its  business  strategy to suspend its
acquisition efforts.

     Interest  expense  increased  to $1.9  million in 2000 from $0.6 million in
1999.  The  2000  interest  expense  was  primarily  due to the  recording  of a
beneficial  conversion  feature of $1.0 million in connection with the March 27,
2000 convertible note issued to Carole Salkind,  classified as interest expense,
and  original  issue  discount  amounts  of  $0.1  million  in  connection  with
promissory notes entered into during 2000.

     NCT had net operating loss carryforwards of $104.8 million and research and
development credit carryforwards of $2.0 million for federal income tax purposes
at  December  31,  2000.  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.

     Liquidity and Capital Resources

     NCT has incurred  substantial  losses from operations  since its inception,
which have been recurring and amounted to $219.5  million on a cumulative  basis
through December 31, 2001. 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;
o    royalties;
o    product sales;
o    advertising/media revenues; and
o    engineering and development services.

     Management  believes that currently  available funds will not be sufficient
to sustain  NCT through the next six  months.  Such funds  consist of  available
cash,  marketable  securities and the funding derived from our revenue  sources:
technology licensing fees and royalties,  product sales,  advertising/media  and
engineering and development  services.  Reducing  operating expenses and capital
expenditures alone may not be sufficient, and continuation as a going concern is
dependent upon the level of funding  realized from our revenue  sources,  all of
which are presently  uncertain.  In the event that funding from our revenues are
not realized as planned,  then 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. Proceeds from sales of our
subsidiaries' securities are used for the benefit of the issuing subsidiary, and
there  are  generally  contractual  restrictions  to that  effect.  There  is no
assurance any such financing is or would become available.

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<PAGE>

     In the event that external  financing is not available or timely, NCT would
have to  substantially  reduce its level of operations.  These  reductions could
have an adverse effect on NCT's  relationships with its customers and suppliers.
Uncertainty  exists with respect to the adequacy of current funds and marketable
securities 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.  These  uncertainties  raise substantial
doubt at December 31, 2001 about NCT's ability to continue as a going concern.

     We  recently  entered  into  financing   transactions   because  internally
generated  funding sources were  insufficient to maintain our operations.  These
financing  transactions  are  described in notes to our  consolidated  financial
statements  and as  outlined  above  at  "The  Business  - P.  Recent  Financing
Transactions" include:

         6% Convertible Notes issued by Artera Group, Inc.
         Private Equity Credit Agreement
         NCT Secured Convertible Notes Issued to Carole Salkind
         Other NCT Group, Inc. Notes
         Convertible Note issued by NCT Video
         Pro Tech Series B Preferred Stock

     At December 31, 2001, cash and cash  equivalents  were $0.6 million.  NCT's
working capital deficit was $(52.6) million at December 31, 2001,  compared to a
deficit of $(9.7) million at December 31, 2000. This $42.9 million  increase was
primarily  due to the  license  reacquisition  liability  ($18.0  million),  the
issuance  of  short-term  convertible  notes and notes  payable  ($14.9  million
outstanding  as of December  31,  2001) and the  liabilities  acquired  from the
purchase of Artera Group International Limited ($4.0 million) in 2001.

     Net cash used in operating  activities for the year ended December 31, 2001
and 2000 was $12.0 million and $10.5 million, respectively.

     Our net accounts receivable  decreased to $0.7 million at December 31, 2001
from $5.4 million at December 31, 2000.  This decrease was due to the collection
of amounts due under  license  agreements  entered into in 2000 and a decline in
new technology license agreements entered into in 2001 compared to 2000.

     Our net  inventory  level  decreased  to $1.4 million at December 31, 2001,
from $2.2 million at December 31,  2000.  The decrease was due to product  sales
and an increased inventory reserve.

     Deferred revenue  aggregated $9.4 million as of December 31, 2001 and 2000.
NCT does not expect to realize additional cash from deferred revenue.

     To improve our future operating cash flow, we implemented  substantial cost
reduction plans in late 2001. These plans included the  consolidation of various
duplicate selling,  general and administrative  expenses due to the acquisitions
made in 2000 and reductions in the number of employees.

     Net cash  provided by  investing  activities  was $4.4 million for the year
ended  December  31, 2001 as compared  to $0.5  million in net cash  provided by
investing activities for the year ended December 31, 2000. The net cash provided
by investing  activities  for the year ended December 31, 2001 was primarily due
to proceeds received from  dispositions of investments in marketable  securities
of NXT, partially offset by capital expenditures and investments.

     Capital  expenditures in 2001 used $1.4 million compared to $0.3 million in
2000.  The most  significant  capital  expenditures  related to the  purchase of
property  and  equipment  and  leasehold  improvements  for Pro Tech and  Artera
International of $1.0 million.

     For the year ended  December  31, 2001,  NCT received  $6.9 million in cash
proceeds from the sale of all of the NXT ordinary  shares  received in 2001, net
of  fees  and  expenses  (see  Note  4 -  notes  to the  consolidated  financial
statements). The proceeds were used to fund working capital requirements.  Under
the new NXT  agreements,  NCT had a  requirement  to apply  at least  66% of the
proceeds  received  from the  sale of these  shares  to the  development  of the
business of Distributed Media Corporation.  We met this obligation. NCT realized
a loss of  approximately  $2.3 million from the sale of the NXT ordinary  shares
which is included in other (income) expense in NCT's  consolidated  statement of
operations for the year ended December 31, 2001.

     In addition to available cash and cash equivalents,  our available-for-sale
securities  are  additional  sources of  liquidity.  At  December  31,  2001 and
December 31, 2000, our available-for-sale securities had approximate fair market
values of $2.1 million and $5.1 million, respectively (see Notes 5 and 9 - notes
to the  consolidated  financial  statements).  The majority of these  securities
represent investments in technology companies and, accordingly,  the

                                       35
<PAGE>

fair  market  values  of these  securities  are  subject  to  substantial  price
volatility,  and, in general,  suffered a decline during 2001. In addition,  the
realizable value of these securities is subject to market and other conditions.

     Net cash provided from financing activities for the year ended December 31,
2001 was $7.0 million and was primarily  attributable to the issuance of debt as
outlined  in  Note 10 -  notes  to the  consolidated  financial  statements.  At
December 31, 2001,  NCT's debt (all classified as short-term) was $14.9 million,
net of original  issue  discounts of  approximately  $1.3  million  (principally
comprised of $13.1 million of face value of  outstanding  convertible  notes and
$3.2  million  of  outstanding  notes  payable)  compared  to  $4.6  million  of
short-term  debt at December  31,  2000.  The cash  proceeds  received  from the
issuance of debt were used for general corporate purposes. The cash proceeds for
debt we issued during 2001 includes:

o    On January 9, 2001, Artera received  aggregate net proceeds of $0.4 million
     from the  issuance  and sale of $5.0  million of 6%  convertible  notes due
     January 9, 2002. In addition,  during  December  2000, we had received $0.6
     million as an advance for these notes.
o    On February  13,  2001,  NCT received net proceeds of $0.5 million from the
     issuance of a $0.5 million  convertible note with an interest rate of prime
     due May 14, 2001.
o    On March 14, 2001, NCT received aggregate net proceeds of $0.3 million from
     the issuance and sale of $0.3 million of 8% convertible notes due March 14,
     2002.
o    On April 4, 2001,  Artera  received  aggregate net proceeds of $0.7 million
     from the  issuance  and sale of $0.9  million of 6%  convertible  notes due
     April 4, 2002.
o    On April 12, 2001, NCT received aggregate net proceeds of $0.1 million from
     the issuance and sale of $0.1 million of 8% convertible notes due April 12,
     2002.
o    On April 12, 2001, NCT Video issued a $0.5 million of 8%  convertible  note
     due December 31, 2001.  The $0.5 million had been  advanced to NCT Video in
     December 2000.
o    On May 25, 2001,  Artera  received  aggregate  net proceeds of $0.3 million
     from the issuance and sale of $0.4 million of 6% convertible  notes due May
     25, 2002.
o    On June 29, 2001, Artera received aggregate net proceeds of $0.9 million in
     cash from the issuance and sale of $1.25  million of 6%  convertible  notes
     due June 29, 2002.
o    On September  28, 2001,  NCT  received  $1.0 million net proceeds  from the
     issuance of a $2.5 million  convertible note with an interest rate of prime
     plus two due September 28, 2002.
o    On December 20,  2001,  NCT  received  $1.0  million net proceeds  from the
     issuance of an 8% convertible  note for $2.0 million due December 20, 2002.
     o On December 2 7, 2001,  NCT received  $0.4 million net proceeds  from the
     issuance and sale of a 5% promissory  note for $0.4 million due January 10,
     2002.

     From time to time in 2001,  NCT  defaulted on repayment of notes due Carole
Salkind  when due because NCT did not have the funds for  repayment.  Several of
the defaulted notes were rolled into new short-term  notes as further  described
in Note 10 of the notes to the consolidated  financial  statements.  At December
31, 2001, we are in default of $1.7 million of note  principal  issued to Carole
Salkind,  $4.4  million of note  principal  on 6% notes  issued to  investors by
Artera  Group,  Inc. and $1.0 million of note  principal  issued to Crammer Road
LLC. No demand for payment has been made.

     On July 30, 2001, Pro Tech received  aggregate net proceeds of $0.4 million
in cash from the  private  placement  of 500 shares of its series B  convertible
preferred stock and issued warrants to purchase  1,000,000  shares of its common
stock. The proceeds were used by Pro Tech for general corporate purposes.

     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 2002 on acceptable  terms
and conditions,  our  flexibility  with regard to long-term  financing  activity
could be limited by:

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.

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<PAGE>

     In April 2001, we finalized a private  equity credit  agreement,  which may
provide  us funds  for  operating  purposes.  See Notes 14 and 21 - notes to the
consolidated financial statements for further details.

     From  time to time,  to  provide  needed  cash that a  warrant  holder  has
indicated  it is  willing  to  provide,  we may  reduce  the  exercise  price of
outstanding  warrants to a range that more  closely  approximates  the then fair
value of our common stock. On October 25, 2001 and November 14, 2001, we reduced
the warrant  exercise  price for the  acquisition  of an aggregate of 10 million
shares of our common stock from $0.32 per share to $0.08 per share.  On December
20, 2001,  we reduced the warrant  exercise  prices for the  acquisition  of our
common  stock from $0.13 to $0.071 (for 500,000  shares),  from $0.093 to $0.071
(for 625,000 shares) and from $0.115 to $0.071 (for 1,000,000  shares).  Also on
December 20, 2001, we reduced the warrant exercise prices for the acquisition of
$500,000  worth of our  shares of common  stock from $0.21 to $0.071 and for the
acquisition   of  $500,000   worth  of  shares  of  common  stock  of  Pro  Tech
Communications,  Inc. from $0.44 to $0.06. These actions were not part of a plan
but  were  driven  by  our  liquidity  needs  at  the  respective  times  of the
reductions.

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

     Going Concern Risks

     There can be no  assurance  that  sufficient  funding  will be  provided by
technology licensing fees, royalties, product sales,  advertising/media revenues
and engineering and development  revenue or additional  capital.  In that event,
NCT would  have to cut back its level of  operations  substantially  in order to
conserve cash.  These reductions could have an adverse effect on NCT's relations
with  its  partners  and  customers  (see  Note 1 -  notes  to the  consolidated
financial statements for further details).

     NCT  believes  that the level of financial  resources  available to it is a
critical component in its ability to continue as a going concern.  NCT may elect
to raise additional capital, from time to time, through equity or debt financing
in order to  capitalize  on business  opportunities  and market  conditions.  We
expect  that  outstanding  short-term  debt may be  replaced  with new  short or
long-term borrowings from time to time. Although we believe that we can continue
to access the capital markets in 2002 on acceptable  terms and  conditions,  our
flexibility with regard to long-term  financing activity could be limited by the
liquidity  of our  common  stock  on the  open  market,  our  current  level  of
short-term debt, and 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 our
control. There can be no assurances that NCT will continue to have access to the
capital  markets on  favorable  terms.  NCT is in default of $7.1 million of its
convertible  notes at  December  31,  2001.  We have not  received  a demand for
payment.

     The accompanying  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,
2001 about  NCT's  ability to  continue  as a going  concern.  The  accompanying
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.

     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.

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<PAGE>

     There were no material  commitments for capital expenditures as of December
31, 2001, and no material commitments are anticipated in the near future.

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 and trade accounts  receivable  sales.  NCT does 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  expected investment  positions,  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  Richard A. Eisner & Company,  LLP
and Goldstein  Golub Kessler LLP 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 56.

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 and
Audit Committee.  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.

     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 Richard A. Eisner
& Company,  LLP ("RAE") 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  and Audit
Committee.  During the fiscal year ended  December 31, 2001,  and the subsequent
period,  neither  NCT nor any person on NCT's  behalf  consulted  RAE  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
RAE included in prior filings with the Securities and Exchange Commission.

                                       38
<PAGE>

                                    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 March 31,
2002.

Name                         Age    Positions and Offices
----                         ---    ---------------------
Michael J. Parrella          54     Chairman of the Board of Directors and
                                      Chief Executive Officer
Jay M. Haft                  66     Director
John J. McCloy II            64     Director
Samuel A. Oolie              65     Director
Irene Lebovics               49     Director, President
Cy E. Hammond                47     Senior Vice President, Chief Financial
                                      Officer, Treasurer and Assistant Secretary
Jonathan M. Charry, Ph.D.    54     Senior Vice President, Corporate Development
Irving M. Lebovics           50     Senior Vice President, Global Sales
Mark Melnick                 43     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.

     Jay M.  Haft  currently  serves  as a  director  of NCT and had  served  as
Chairman of the Board of Directors of NCT until April 21,  2000.  From  November
1994 to July 1995,  he served as  President of NCT. He also serves as a director
of our subsidiaries,  NCT Audio,  DMC,  Advancel and NCT Hearing.  Mr. Haft is a
strategic and financial  consultant for growth stage companies.  He is currently
of counsel to Reed Smith. He was previously a senior corporate partner of Parker
Duryee  Rosoff & Haft  (1989-1994)  and prior to that,  a  founding  partner  of
Wofsey, Certilman, Haft et al. (1966-1988).  Mr. Haft is active in international
corporate finance, mergers and acquisitions, as well as in the representation of
emerging growth companies.  He has actively  participated in strategic  planning
and fund raising for many high-tech  companies,  leading edge medical technology
companies and technical product,  service and marketing companies. Mr. Haft is a
director  of numerous  public and private  corporations,  including  RVSI,  Inc.
(OTC),  DCAP  Group,  Inc.  (OTC),   Encore  Medical   Corporation  (OTC),  DUSA
Pharmaceuticals, Inc. (OTC), and Oryx Technology Corp. (OTC). Mr. Haft serves as
a Director of Florida International University.

     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

                                       39
<PAGE>

was  appointed a director of NCT 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
Mondial Ltd. and Unified Waste Services. He is a director of American University
in Cairo and the Sound Shore Fund, Inc.

     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. Mr. Hammond
also serves as Acting Chief  Financial  Officer and  Treasurer  of NCT Audio,  a
position  to which he was  elected  on  September  4,  1997,  and  Acting  Chief
Financial Officer, Treasurer and Assistant Secretary for Advancel, a position to
which he was  elected on January 5, 2000.  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 is also a director of Pro Tech Communications, Inc., NCT Video Displays,
Inc., DMC New York, Inc., Artera Group International Limited, Noise Cancellation
Technologies (Europe), Inc. and ConnectClearly.com, 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.

     Irving M. Lebovics currently serves as Senior Vice President, Global Sales,
of NCT. He joined NCT in February 1998 as Vice President,  Worldwide Sales. From
January 1996 to February 1998, Mr.  Lebovics was a principal of Enhanced  Signal
Processing,   which  exclusively  sold  NCT's  technologies  to  large  original
equipment  manufacturers.  From  1993  to  1996,  Mr.  Lebovics  served  as Vice
President  of Sales for  Kasten  Chase  Applied  Research,  a wide area  network
hardware and software  provider to companies such as Dow Jones and the Paris and
Madrid stock exchanges. From 1985 to 1993, Mr. Lebovics served as Vice President
of Sales for Relay Communications,  a provider of PC-to-mainframe communications
software and Microcom,  Inc.  (which acquired Relay  Communications),  a leading
provider  of modems and local  area  network  equipment  including  bridges  and
routers. Irving M. Lebovics is the spouse of Irene Lebovics, President of NCT.

     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

                                       40
<PAGE>

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
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  and is
presently  comprised of Messrs.  McCloy and Oolie.  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.  The Audit Committee is composed of Messrs.
McCloy and Oolie and held three  meetings  during the fiscal year ended December
31, 2001.  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.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934, as amended,  requires
our  officers and  directors,  and persons who own more than 10% of a registered
class of our equity  securities,  to file  reports of  ownership  and changes in
ownership with the Securities and Exchange Commission.  Officers,  directors and
greater than 10%  shareholders are required by regulations of the SEC to furnish
us with copies of all such reports.  Based solely on its review of the copies of
such reports received by it, or written  representations  from reporting persons
that no reports were  required for those  persons,  NCT believes that all filing
requirements  applicable  to its  officers,  directors,  and  greater  than  10%
shareholders  were  complied  with  during  the period  from  January 1, 2001 to
December  31, 2001,  except that grants of options made in September  2001 under
the  1992  Plan  and the  2001  Plan to the  following  executive  officers  and
directors:  Messrs. Parrella, Haft, McCloy, Oolie, Lebovics, Hammond and Charry,
and Ms.  Lebovics,  were not timely  reported  on Form 4 as  required,  but were
subsequently reported on Form 5.

ITEM 11.     EXECUTIVE COMPENSATION.

Executive Compensation and Summary Compensation Table

     Set forth below is  information  for the three fiscal years ended  December
31, 2001,  2000 and 1999 relating to  compensation  received by: (1) NCT's Chief
Executive Officer; (2) the other four most highly compensated executive officers
of NCT whose total  annual  salary and bonus for the fiscal year ended  December
31, 2001 exceeded $100,000 who were serving as executive  officers at the end of
2001; and (3) two additional  individuals for whom  disclosures  would have been
provided but for the fact that these  individuals  were not serving as executive
officers as of December 31, 2001 (collectively the "Named Executive Officers").

                                       41
<PAGE>
<TABLE>
<CAPTION>
                                                                                               Securities
                                                                            Other Annual       Underlying                All
         Name and Principal                                                 Compensation     Options/Warrants           Other
             Position                Year     Salary ($)     Bonus ($)         ($)(a)           SARs (#)            Compensation ($)
----------------------------------  -------- -----------    ------------  ---------------  -----------------     -------------------
<S>                                  <C>     <C>             <C>            <C>                <C>                      <C>
Michael J. Parrella                  2001    $320,016        55,980         $20,688            5,324,505 (b)            $     -
   Chief Executive                   2000     136,667        63,000          20,688           20,664,634 (c)              7,198 (e)
   Officer and Chairman              1999     120,000        68,678          22,008            6,812,000 (d)              6,418 (e)
   of the Board

Irene Lebovics                       2001     200,000        78,390          12,000              800,000 (g)                  -
   President and                     2000     112,917             -          12,000            2,808,373 (h)                  -
   Director                          1999     105,000             -          12,000              250,000 (i)                  -

Cy E. Hammond                        2001     180,000        24,685          12,000              760,000 (j)                  -
   Senior Vice President,            2000     101,167        33,659          12,000            1,248,742 (k)                  -
   Chief Financial Officer,          1999      94,000        92,941          12,000              175,000 (l)                  -
   Treasurer

Jonathan M. Charry (m)               2001     200,000        32,170               -              400,000                      -
   Senior Vice President,            2000     200,000        34,539               -            1,378,049                      -
   Corporate Development

Irving M. Lebovics                   2001     150,000             -           9,000              300,000                      -
   Senior Vice President,            2000     150,000             -           9,000              411,891  (f)                 -
   Global Sales                      1999     150,000             -           9,000              100,000                      -

James A. McManus (n)                 2001     206,894             -               -              357,927                 33,287 (o)
   President and Chief               2000     197,917             -               -              275,610  (f)                 -
   Executive Officer,                1999     101,846         59,410              -              250,000                      -
   Distributed Media Corporation

Paul D. Siomkos (p)                  2001     150,000             -          12,000                    -                      -
   Senior Vice President,            2000     150,000             -          12,000              169,207  (f)                 -
   Operations                        1999     150,000             -          12,000              150,000                      -
</TABLE>

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

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

(c)  Includes  grants  subsequently  cancelled  by the  Board  of  Directors  as
     outlined in Note (f) 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.

(d)  In addition to a grant  under the 1992 Plan for the  purchase of  5,000,000
     shares,  includes  replacement  grants of warrants and options  which would
     have  otherwise  expired in 1999.  Includes a warrant to  purchase  862,500
     shares of NCT's common stock and an option  granted  under the 1987 Plan to
     purchase  250,000  shares of NCT's  common  stock as new  grants due to the
     extension  of the  expiration  dates  from 1999 to  February  1,  2004.  In
     addition,  includes  various options under the 1992 Plan to acquire 699,500
     shares  of  NCT's  common  stock  as new  grants  due to the  extension  of
     expiration dates from 1999 to February 1, 2004.

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

(f)  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; Mr. Hammond, 250,000 shares; Mr. Lebovics,  105,000 shares;
     Mr. McManus,  100,000 shares and Mr. Siomkos,  75,000 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, the shareholders

                                       42
<PAGE>

     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 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.

(g)  Includes 50,000 shares under a replacement grant of an option which 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.

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

(i)  Includes a warrant to purchase  201,250  shares of NCT's  common stock as a
     new grant due to the extension of the expiration date from 1999 to February
     1, 2004.  The exercise  price of this warrant is $0.75,  the same  exercise
     price as the replaced warrant.

(j)  Includes 10,000 shares under a replacement grant of an option which 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.

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

(l)  Includes a warrant to purchase 25,000 shares of NCT's common stock as a new
     grant due to the extension of the expiration  date from 1999 to February 1,
     2004. The exercise price of this warrant is $0.75,  the same exercise price
     as the replaced warrant.

(m)  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.  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.

(n)  On November 27, 2001, Mr. McManus resigned as President and Chief Executive
     Officer of  Distributed  Media  Corporation.  Mr.  McManus was  employed by
     Distributed  Media  Corporation  effective March 1, 1999. Prior to that and
     from May 1998,  Mr.  McManus  served as a consultant to  Distributed  Media
     Corporation.  In accordance with his letter of employment,  Mr. McManus was
     paid a salary at the rate of $120,000 per annum and a guaranteed first-year
     bonus of  $70,000.  His  compensation  was  subject to 5% annual  increases
     thereafter.  The 1999  amounts  herein  represent  payments  for the period
     employed in 1999.

(o)  Represents  a stock  award of  357,927  shares of NCT  common  stock to Mr.
     McManus  awarded on  November  27,  2001,  valued at $0.093 per share,  the
     closing bid price the day preceding the stock award.

(p)  On January  30,  2001,  Mr.  Siomkos  resigned  as Senior  Vice  President,
     Operations,  a position he had held since his  employment  by NCT effective
     March 23, 1998.

                                       43
<PAGE>

                           Stock Options and Warrants

     The following table  summarizes the Named Executive  Officers' stock option
and warrant activity during 2001:

                      Options and Warrants Granted in 2001

<TABLE>
<CAPTION>
                                                                                                  Potential Realized Value
                               Shares            Percent of                                          at Assumed Annual
                             Underlying         Total Options                                       Rates of Stock Price
                               Options          And Warrants                                      Appreciation for Option
                                 And             Granted to       Exercise                          and Warrant Term (b)
                              Warrants           Employees         Price        Expiration     -------------------------------
        Name                  Granted           in 2001 (a)      Per Share         Date             5%               10%
------------------------   ------------        -------------   -------------    -----------    -------------      ------------
<S>                            <C>                 <C>           <C>              <C>  <C>       <C>               <C>
Michael J. Parrella            824,505  (c)        55.6%         $  0.13          9/20/08        $ 51,176          $ 122,576
                             2,000,000  (c)        22.0%            0.13          9/20/08         124,138            297,333
                             2,500,000  (d)        27.5%            0.13          9/20/08         155,173            371,666

Irene Lebovics                  50,000  (e)        74.1%            0.75          2/11/04           8,081             17,404
                               750,000  (f)         8.3%            0.13          9/20/08          46,552            111,500

Cy E. Hammond                   10,000  (e)        14.8%            0.75          2/11/04           1,616              3,481
                               750,000  (f)         8.3%            0.13          9/20/08          46,552            111,500

Jonathan M. Charry             400,000  (f)         4.4%            0.13          9/20/08          24,825             59,467

Irving M. Lebovics             300,000  (f)         3.3%            0.13          9/20/08          18,621             44,600

James A. McManus    (g)              -                -               -                 -               -                  -

Paul D. Siomkos     (h)              -                -               -                 -               -                  -
</TABLE>

Footnotes:
---------
(a)  Percentages  for the grants listed above are based upon the aggregate total
     granted  under the  respective  1992  Plan or the 2001  Plan  less  amounts
     granted to consultants and non-employee  directors  (i.e.,  directors other
     than Messrs.  Haft and Parrella and Ms. Lebovics) and amounts  attributable
     to  replacement   grants.   Percentages  for  grants  attributable  to  the
     re-granting of options which had expired or would have otherwise expired in
     2001 (see Note (e) below) are  determined  based upon the  aggregate  total
     re-granted  under the applicable  plan less amounts granted to non-employee
     directors and consultants.

(b)  The dollar amounts on 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 date.  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  represent an  obligation  by the Board of
     Directors from December 2000 due to a reduction in Mr. Parrella's  December
     2000 grant because of an insufficient  number of shares available for grant
     under the 1992 Plan.  824,505 shares of this grant were under the 1992 Plan
     and  2,000,000  were granted  pursuant to the 2001 Plan.  These options are
     fully vested  because of an  acceleration  by the Board of Directors due to
     the execution of the licensing  transaction with NXT plc and its subsidiary
     New Transducers Ltd. and his formation of Artera Group,  Inc., a subsidiary
     of NCT, and conceptualization of its business strategy.

(d)  Options to acquire  these  shares were  granted  pursuant to the 2001 Plan.
     These  options  vest as  follows:  1,000,000  shares  on the  date of grant
     (September 20, 2001);  and 1,500,000  shares on completion of fund raising,
     provided,  however,  that all  shares  under  this  grant vest by the fifth
     anniversary (September 20, 2006).

(e)  Represent  replacement  grants under the 1992 Plan at the exercise price of
     the expired grant. Expiration dates for re-granted options were extended to
     expiration dates equal to the lesser of five years from the date re-granted
     or ten years from the original grant date. These options are vested.

                                       44
<PAGE>

(f)  Options to acquire these shares were granted pursuant to the 2001 Plan with
     an exercise price of $0.13 per share, a value that was slightly higher than
     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 (September 20, 2001) and
     30% on each of the first and second anniversaries of the date of grant.

(g)  Mr.  McManus  received  357,927 shares of NCT common stock as a stock award
     under the 1992 Plan.  That  award  represented  18.5% of options  and stock
     awards  granted to  employees  in 2001 under the 1992 Plan.  Such award was
     granted  November 27, 2001 in  conjunction  with Mr.  McManus's  employment
     termination agreement. The value he received was $33,287.

(h)  Per the  employment  termination  agreement  with Mr.  Siomkos,  options to
     acquire  500,000 shares of NCT common stock at an exercise price of $0.3125
     were fully  vested as of January 30,  2001.  The options  expire  April 19,
     2008. Mr.  Siomkos's right to other options that had been granted to him by
     NCT expired in 2001.

                2001 Aggregated Option and Warrant Exercises and
                   December 31, 2001 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, 2001, and the  unexercised  options and warrants held and the value
thereof at that date, by each of the Named Executive Officers.
<TABLE>
<CAPTION>
                                                               Number of Shares
                          Number of                               Underlying                 Value of Unexercised
                            Shares                           Unexercised Options             In-the-Money Options
                           Acquired                            and Warrants at                  And Warrants at
                              On            Value             December 31, 2001                December 31, 2001
                                                        --------------------------------   ------------------------------
       Name              Exercise (#)      Realized     Exercisable (#) Unexercisable (#)   Exercisable      Unexercisable
--------------------     -------------   -------------  --------------  ----------------   ---------------   ------------
<S>                                           <C>          <C>               <C>                <C>            <C>
Michael J. Parrella                 -         $     -      30,401,634        1,500,000          $     -        $     -

Irene Lebovics                      -               -       3,434,623        1,100,000                -              -

Cy E. Hammond                       -               -       1,543,741          740,000                -              -

Jonathan M. Charry                  -               -       1,149,634          628,415                -              -

Irving M. Lebovics                  -               -       1,026,891          461,524                -              -

James A. McManus    (a)             -               -               -                -                -              -

Paul D. Siomkos                     -               -         500,000                -                -              -
</TABLE>

Footnote:
--------
(a)  Mr.  McManus  received  357,927 shares of NCT common stock as a stock award
     under  the  1992  Plan.  Such  award  was  granted  November  27,  2001  in
     conjunction with Mr. McManus's employment termination agreement.  The value
     he received was $33,287,  calculated  at $0.093 per share,  the closing bid
     price of NCT common stock on the day preceding the award.

Compensation Arrangements with Certain Officers and Directors

     Mr. Haft, NCT's former Chairman of the Board of Directors, who continues as
a director,  received cash  compensation from the company in 2001, 2000 and 1999
aggregating $63,000, $64,500 and $85,000, 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
parties.  Cash override refers to NCT's payment in cash to certain  officers and
directors of amounts  that  represent a percentage  of the  transaction's  value
attributed to NCT and its subsidiaries.

     Mr.  Parrella's  incentive bonus consists of a cash override of 1.0% of the
value  derived  by NCT and its  subsidiaries,  in cash or  otherwise,  upon  the
execution of transactions with unaffiliated  parties.  Such arrangement has been
in effect since the initial award by the  Compensation  Committee on February 1,
1996.

                                       45
<PAGE>

Effective  December 1, 2000,  the  Compensation  Committee  determined  that Mr.
Parrella's  cash override would continue at the rate of 1% through May 2001 then
be reduced to a rate of 1/2% from June 2001.  In April  2001,  the  Compensation
Committee postponed the reduction.

     Effective January 1, 2001, Ms. Lebovics began participation in an incentive
bonus arrangement  comprised of a cash override of 1/3% of the value NCT and its
subsidiaries  derive upon  execution of  transactions  with  unaffiliated  third
parties.

     Mr.  Hammond  receives an incentive  bonus  comprised of a cash override of
1/2% of the value NCT and its subsidiaries derive upon execution of transactions
with  unaffiliated  third parties.  Such  arrangement has been in effect for Mr.
Hammond since September 4, 1997.  Effective  December 1, 2000, the  Compensation
Committee determined that Mr. Hammond's cash override would continue at the rate
of 1/2%  through  May 2001 then be reduced to a rate of 1/4% from June 2001.  In
April 2001, the Compensation Committee postponed the reduction.

     Effective  January 3, 2000, NCT hired Jonathan  Charry,  PhD. 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  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.

     Effective March 1, 1999, NCT hired James McManus as the President and Chief
Executive  Officer  of  NCT's  subsidiary,  Distributed  Media  Corporation.  In
conjunction  therewith,  NCT entered into a letter of employment  which provided
for a base annual salary of $120,000,  annual 5% increases of his base salary, a
guaranteed  first  year  bonus  of  $70,000  and $50  per  site  installed  with
Distributed Media Corporation's  digital  broadcasting station system during Mr.
McManus'  first year of  employment.  Although Mr.  McManus  resigned  effective
November 27, 2001, his  compensation  will continue  through February 2002 at an
annual rate of $205,800. In addition, under an employment termination agreement,
NCT granted Mr.  McManus a stock award of 357,927  shares of common  stock under
the 1992 Plan,  valued at $33,287 on the date of award. In addition,  NCT agreed
to  issue  2,142,073  shares  of NCT  common  stock  for the  common  shares  of
Distributed Media Corporation that Mr. McManus obtained upon exercise of options
on September 17, 2001.

     Effective March 23, 1998, NCT hired Paul Siomkos,  its then new Senior Vice
President of Operations.  The term of this employment  agreement was four years.
Such agreement provided for a base salary of $150,000 and that the amount of any
incentive bonus be at the sole discretion of the company.  Mr. Siomkos  received
an  automobile  allowance  of $1,000 per month.  Although Mr.  Siomkos  resigned
effective  January 30, 2001, his compensation will continue through July 2002 at
an annual rate of $162,000.

Compensation of Directors

     None of our directors  received fees, as such, for his or her services as a
director  during 2001.  Messrs.  Haft and Parrella  and Ms.  Lebovics  were paid
salaries  in 2001 by NCT.  See  above at  "Executive  Compensation  and  Summary
Compensation  Table" and  "Compensation  Arrangements  with Certain Officers and
Directors."

     During 2001,  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 2001  under the 2001 Plan were  300,000  for each of  Messrs.  Haft,
McCloy and Oolie;  4,500,000  for Mr.  Parrella  (2,000,000  of which  partially
fulfilled an obligation from 2000); and 750,000 for Ms.  Lebovics.  In addition,
Mr.  Parrella was granted an option to acquire  824,505  shares  pursuant to the
1992 Plan to partially fulfill an obligation from 2000. A grant made in December
2000  under the 1992 Plan to Mr.  Parrella,  subject to a  sufficient  number of
shares  available,  was  subsequently  reduced  by  2,824,505  shares  due to an
insufficient  number of shares  available  under the 1992 Plan. Such share award
remained an obligation to Mr.  Parrella;  the Board of Directors  fulfilled such
obligation  in 2001.  The vesting  schedule  for the  directors,  other than Mr.
Parrella,  is as  follows:  40% vest on the date of grant and 30% upon the first
and second  anniversaries  of the date of grant.  The options expire seven years
from the date of grant. The exercise price was $0.13 per share, a value slightly
higher  than the  closing  bid  price on the day  preceding  the date of  grant.
Effective September 20, 2001, the Board of Directors accelerated the vesting for
Mr.  Parrella's grant obligation of 6,000,000 shares from 2000 to 100% vested in
connection  with completion by NCT of a new licensing  transaction  with NXT plc
and Mr. Parrella's formation of and

                                       46
<PAGE>

conceptualization  of the  strategy for Artera  Group,  Inc. The vesting of that
grant had been as follows:  40% on the date of grant  (December 6, 2000) and 30%
on the first and second anniversaries of the date of grant. The vesting terms of
Mr. Parrella's 2001 grant are outlined above in footnotes to the table, "Options
and Warrants Granted in 2001."

Compensation Committee Interlocks and Insider Participation

     During the fiscal year ended  December 31, 2001,  John McCloy and Sam Oolie
served as members of the  Compensation  Committee  of NCT's Board of  Directors.
Messrs. McCloy and Oolie also served as members of the Board of Directors of NCT
Audio Products since their respective appointments in 1997.

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The  following  table  sets  forth,  as  of  March  31,  2002,  information
concerning the shares of common stock beneficially owned by (1) each person who,
to the knowledge of NCT, is the holder of 5% or more of the common stock of NCT;
(2) each person who  presently  serves as a director  of NCT;  (3) the five most
highly  compensated  executive  officers of NCT (including NCT's Chief Executive
Officer) in the fiscal year ended December 31, 2001 who were executive  officers
at the end of 2001 and (4) 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.

<TABLE>
<CAPTION>
                                                     Amount and
                                                      Nature of                     Approximate
                                                      Beneficial                     Percentage
          Name of Beneficial Owner                  Ownership (a)                   Of Class (a)
----------------------------------------------   ---------------------            -----------------
<S>                                                        <C>                                <C>
Michael J. Parrella                                        31,023,415  (b)                    6.7%
Jay M. Haft                                                 2,276,799  (c)                       *
John J. McCloy                                              2,951,906  (d)                       *
Sam Oolie                                                   1,494,721  (e)                       *
Irene Lebovics                                              4,196,482  (f)                    1.0%
Cy E. Hammond                                               1,759,507  (g)                       *
Jonathan M. Charry                                          1,149,634  (h)                       *
  Irving M. Lebovics                                        1,617,408  (i)                       *
All Executive Officers and Directors
   as a Group (9 persons)                                  45,954,355  (j)                    9.6%
Carole Salkind                                            161,948,045  (k)                   27.9%
Crammer Road LLC                                          247,530,882  (l)                   37.3%
Alpha Capital Aktiengesellschaft                           24,426,561  (m)                    5.4%
Libra Finance S.A.                                         33,991,085  (n)                    7.3%
  *      Less than one percent.
</TABLE>

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,  29,539,134  shares  issuable  upon the  exercise of
     currently  exercisable  options  and 8,888  shares  held in custody for Mr.
     Parrella's dependent children. Also includes 612,893 shares of common stock
     held by Mr. Parrella's  spouse,  shares as to which Mr. Parrella  disclaims
     beneficial ownership.

(c)  Includes 218,500 shares issuable upon the exercise of currently exercisable
     warrants,  10,000  shares from stock  awards  granted by NCT and  2,018,408
     shares issuable upon the exercise of currently exercisable options.

                                       47
<PAGE>

(d)  Includes 862,500 shares issuable upon the exercise of currently exercisable
     warrants,  5,000 shares from a stock award granted by NCT, 1,504,908 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.

(e)  Includes 20,000 shares from stock awards granted by NCT,  1,154,908  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.

(f)  Includes 201,250 shares issuable upon the exercise of currently exercisable
     warrants,   3,233,373  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 1,488,415  shares of NCT common
     stock, shares as to which Ms. Lebovics disclaims beneficial ownership.

(g)  Includes 25,000 shares issuable upon the exercise of currently  exercisable
     warrants  and  1,518,742  shares  issuable  upon the  exercise of currently
     exercisable options.

(h)  Consists of  1,149,634  shares  issuable  upon the  exercise  of  currently
     exercisable options.

(i)  Consists of  1,026,891  shares  issuable  upon the  exercise  of  currently
     exercisable options and 590,517 shares owned jointly with his spouse, Irene
     Lebovics.  Irene Lebovics is President and a director of NCT. Ms.  Lebovics
     holds  options and warrants to acquire an aggregate of 4,534,623  shares of
     NCT common  stock,  shares as to which Mr.  Lebovics  disclaims  beneficial
     ownership.

(j)  Includes  2,169,750  shares  issuable to 5  individuals  (4 directors and 3
     executive  officers)  of NCT upon the  exercise  of  currently  exercisable
     warrants,  41,220,998  shares  issuable to 9 persons  upon the  exercise of
     currently  exercisable  options, and 35,000 shares from stock awards issued
     by NCT to 3 directors.  Excludes  options to acquire  5,561,251 shares from
     NCT which are not presently exercisable but become exercisable over time by
     the 9 executive officers and directors of NCT as a group.

(k)  Ms.  Salkind's  business  address is c/o Sills,  Cummis,  Radin,  Tischman,
     Epstein & Gross, One Riverfront Plaza,  Newark, New Jersey 07102.  Includes
     114,336,469  shares  issuable upon the  conversion of  convertible  secured
     notes in aggregate  principal amount of $9,608,416 and 3,871,009 shares for
     interest  thereon through March 31, 2002,  calculated at a conversion price
     of $0.093 on $2,535,469 of convertible secured notes, at a conversion price
     of $0.12 on $1,000,000 of convertible  secured notes, at a conversion price
     of $0.071 on $2,014,270 of convertible secured notes, at a conversion price
     of $0.079 on $3,408,677 of convertible  notes and at a conversion  price of
     $0.09  on  $650,000  of  convertible  notes.   Includes  11,433,647  shares
     representing the aggregate  default penalty on the convertible  notes. Also
     includes  15,803,102  shares  issuable to Ms.  Salkind upon the exercise of
     warrants. Also includes 5,000 shares owned by Morton Salkind, Ms. Salkind's
     husband  and a former  director  of NCT,  as to which  she has no voting or
     investment power.

(l)  Crammer Road LLC's  business  address is Corporate  Center,  West Bay Road,
     Grand  Cayman.  David  Sims of  Navigator  Management  Ltd.  has voting and
     dispositive control of NCT's shares on behalf of Crammer Road LLC. Includes
     214,255,954 shares issuable pursuant to the private equity credit agreement
     minimum  commitment  amount of $17  million  calculated  at $0.12  less the
     discount per the  agreement,  and assumes NCT  commences its puts by May 1,
     2002. Also includes  250,000 shares  issuable under  currently  exercisable
     warrants.  Includes  10,344,232  shares issuable  pursuant to a convertible
     note in NCT along with accrued  interest,  calculated based upon a price of
     $0.12. Also includes  3,333,334 shares that would be issuable pursuant to a
     reset  provision  of an exchange  agreement  between NCT and Crammer  Road.
     Pursuant to a contractual restriction between NCT and Crammer Road, Crammer
     Road is  prohibited  from  holding in excess of 9.9% of our common stock at
     any given time.

(m)  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  13,467,277 shares issuable upon exchange of various Artera Group,
     Inc.  convertible  notes along with accrued  interest and 5,347,602  shares
     issuable   upon   exchange  of  series  B

                                       48
<PAGE>

     preferred stock of Pro Tech Communications, Inc. and accretion thereon, all
     calculated  at $0.12 less  applicable  discounts.  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.

(n)  Libra Finance  S.A.'s  business  address is c/o Trident Trust Company (BVI)
     Limited,  Trident Chambers,  Box 146, Road Town,  Tortorla,  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 on NCT common stock,  8,695,890 shares issuable
     upon exchange of Artera Group,  Inc. series A preferred stock and accretion
     thereon and 295,195  shares  issuable upon  conversion  of NCT  convertible
     notes and interest  thereon  dated March 14, 2001 and April 12,  2001,  all
     calculated at $0.12 less applicable discounts.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Secured Convertible Notes Issued to Carole Salkind

     Beginning  in 1999,  NCT has  issued  secured  convertible  notes to Carole
Salkind,  an accredited  investor and spouse of a former  director of NCT. As of
March 31, 2002,  the principal  balance  outstanding  of these notes  aggregated
approximately  $9.6  million.  The notes are  secured by  substantially  all the
assets of 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 our
subsidiaries. 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  (in excess of the  permitted
maximum of  $250,000)  was entered  against NCT and its  subsidiary  Distributed
Media  Corporation  (and  not  vacated,  bonded  or  stayed)  in the  action  of
Production Resource Group, LLC v. NCT, Distributed Media Corporation and Michael
Parrella  (Superior  Court of  Connecticut,  Judicial  District  of  Fairfield).
Consequently,  the outstanding  secured  convertible  notes and unpaid interest,
along with the 10% default  penalty,  are payable  immediately  upon demand.  To
date,  no such demand for  payment has been made.  The  following  outlines  our
secured convertible note transactions with Carole Salkind:

     On January 26, 1999, Carole Salkind agreed to purchase secured  convertible
notes of NCT in an  aggregate  principal  amount of $4.0  million.  The  initial
secured  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) of the note and any future
notes,  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) the fixed
conversion  price of $0.17. In no event 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  secured
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
secured  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 our 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

                                       49
<PAGE>

     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
Artera Group  International  Limited or shares of Distributed  Media Corporation
International  Limited 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 February 13, 2001, NCT issued Ms. Salkind an unsecured  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 and $0.06 per share for Pro Tech  common  stock.
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 our
common  stock (at  $0.079) or  exchangeable  for  shares of common  stock of our
subsidiaries,  Pro Tech (at $0.06),  Artera Group International  Limited (at the
initial public offering price) or Distributed  Media  Corporation  International
Limited  (at the initial  public  offering  price).  In  addition,  if any other
subsidiary of NCT makes a public  offering of its common stock,  Ms. Salkind has
the right to exchange the  principal of the note and accrued  interest into that
publicly  offered common stock at the initial public offering price thereof.  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.  The option  grants Ms.  Salkind  the right to
acquire  that number of shares of Artera  Group,  Inc.  that  constitutes  a 10%
equity  interest  in  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 commits to
purchase an equity  interest in Artera  Group,  Inc.  for payment of at least $5
million.

     On December  20,  2001,  we issued Ms.  Salkind an 8% per annum  $2,014,270
secured  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%. The

                                       50
<PAGE>

principal amount of the December 20, 2001 note is convertible into shares of NCT
common stock at a conversion price of $0.071.  The note is also exchangeable for
shares of common  stock of Pro Tech at an  exchange  price of $0.06 per share or
for shares of common stock of Artera Group International  Limited or Distributed
Media  Corporation  International  Limited  at  the  respective  initial  public
offering prices  thereof.  In addition,  if any other  subsidiary of NCT makes a
public  offering of its common stock,  Ms. Salkind has the right to exchange the
principal of the note and accrued  interest  into that publicly  offered  common
stock at the initial public offering price thereof.

     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 secured 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 Artera  International  (at the initial public offering
price),  DMCI (at the initial public offering price) or any other  subsidiary of
NCT  thatmakes  a public  offering of its common  stock (at the  initial  public
offering price thereof).  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.

     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
$827,412.26 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. This note may be converted into common stock of NCT (at $0.079) and
may be  exchanged  for  shares of common  stock of Pro Tech (at  $0.06),  Artera
International (at the initial public offering price) DMCI (at the initial public
offering  price) or any other  subsidiary of NCT that makes a public offering of
its stock (at the public offering price  thereof).  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 a 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 Pro Tech (at
$0.06), Artera International (at the initial public offering price) DMCI (at the
initial  public  offering  price) or any other  subsidiary  of NCT that  makes a
public offering of its stock (at the public offering price thereof).

     On March 27, 2002, we defaulted on repayment of the  $1,000,000  note dated
March 27,  2000.  We  received  $300,000  from Ms.  Salkind on April 1, 2002 and
$350,000  from her on April 15,  2002.  We expect  that these  proceeds  will be
rolled into a new note along with the March 27, 2000 note,  default  penalty and
accrued interest thereon.

                                       51
<PAGE>

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

                                                                  Conversion
        Issue Date          Due Date           Principal            Price
       -----------          --------          ----------          ----------
          3/27/00            3/27/02         $ 1,000,000           $ 0.120
          9/28/01            9/28/02           2,535,469             0.093
         12/20/01           12/20/02           2,014,270             0.071
          1/11/02            1/11/03           2,231,265             0.079
          1/25/02            1/25/03             650,000             0.090
          2/27/02            2/27/03             827,412             0.079
           3/1/02             3/1/03             350,000             0.079
                                              ----------
                                             $ 9,608,416
                                              ==========

     In conjunction with the issuance of convertible  notes to Ms. Salkind,  NCT
granted Ms.  Salkind  warrants to acquire  shares of our common stock.  As noted
above, we amended the exercise  prices on each of the warrants  granted prior to
December 20, 2001 to $0.071. The warrants to purchase shares of NCT common stock
granted to Ms.  Salkind as of March 31, 2002,  as amended to reduce the exercise
prices, are as follows:

                                                                 Shares
  Grant Date           Expiration Date      Exercise Price       Granted
  ----------           ---------------      --------------       -------
     2/13/01              2/13/06            $ 0.071             7,042,254  (a)
     5/14/01              5/14/06              0.071               500,000
     8/22/01              8/22/06              0.071               625,000
     9/28/01              9/28/06              0.071             1,000,000
    12/20/01             12/20/06              0.071             1,250,000
     1/11/02              1/11/07              0.079             2,789,082
     1/25/02              1/25/07              0.090               812,500
     1/25/02              1/25/07              0.090               312,500
     2/27/02              2/27/07              0.079             1,034,266
      3/1/02               3/1/07              0.079               437,500
                                                               ------------
                                                                 15,803,102
                                                               ============

Footnote:
--------
(a)  The February 13, 2001 warrant also grants Ms. Salkind, at her election, the
     right to acquire  8,333,333 shares of Pro Tech common stock ($500,000 worth
     at an amended exercise price of $0.06 per share).

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 price of our common  stock.  Shares were
issued to NCT's Chairman of the Board of Directors and Chief Executive  Officer,
Michael Parrella  (612,893),  to NCT's President and a director,  Irene Lebovics
(171,342)  and to NCT's  Senior Vice  President,  Chief  Financial  Officer,  Cy
Hammond (215,765).

     On August 22, 2001,  Carole Salkind agreed to purchase  1,000,000 shares of
NCT common stock for $93,000 in cash, or $0.093 per share,  the then fair market
value based upon the  closing bid price on August 21,  2001.  On  September  10,
2001, we received the funds from Ms. Salkind and issued the 1,000,000  shares of
common stock to her.

                                       52
<PAGE>

Indebtedness of Management

     On various dates in 2000 and 2001, 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
December 1, 2001, the borrowed  funds had not been repaid but were  consolidated
with  interest  into one  outstanding  promissory  note  due May 1,  2002 for an
aggregate  principal  amount owed to NCT of $105,301.  The due date of this note
represents an extension from December 1, 2001which itself was a product of prior
extensions  because Dr. Charry could not afford to repay NCT. NCT still believes
that incentive compensation that will be due him will offset some of the amounts
owed. The note bears interest at an annual rate of 6.0%.

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).

DMC New York, Inc.

     Pursuant  to an April 12,  2001  exchange  agreement  and an April 12, 2001
securities purchase agreement, NCT acquired a 25% interest in DMC New York, Inc.
for $4.0 million from Crammer Road LLC, the sole  stockholder  of DMC NY. DMC NY
is  the  owner  of  16  licenses  previously   purchased  from  our  subsidiary,
Distributed  Media  Corporation.  The  acquisition  resulted  in a charge 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.  The consideration  consisted
of a $1.0 million  convertible note due December 31, 2001 issued to Crammer Road
LLC,  $1.0  million in cash and $2.0  million of our  common  stock  (13,333,333
million  shares).  We intend to acquire  the  remaining  75%  interest in DMC NY
pursuant to our private  equity credit  agreement with Crammer Road. As such, we
accrued $14.0 million,  our cost of repurchasing the remaining 12 licenses under
the private equity credit agreement.  Our 2001 financial  statements  include an
aggregate  $18.0  million  charge,  included  in 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 DMC licenses held by DMC NY. Under an April 12, 2001 private equity
credit agreement  between Crammer Road and NCT, we will 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.  We  anticipate  that,  under the terms of the
private equity credit  agreement,  NCT will obtain a majority equity interest in
DMC NY by the end of 2002.  Crammer Road obtained the 16 DMC licenses from other
investors in a private transaction. 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
recognized  an aggregate  of $850,000  revenue in 1999 from the sale of these 16
licenses.  No other license fee revenue was recognized for this transaction.  We
issued  12,454  shares of our series E preferred  stock from  December  30, 1998
through April 13, 1999 for  approximately  $1.8 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.  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  purpose of the capital  contribution  of
licenses to Crammer Road was 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  a form of  liquidity,
possibly through the acquisition of DMC NY by Distributed  Media  Corporation or
NCT. 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).  We are reacquiring our New York DMC licenses because
we believe that we are obtaining  good value for an aggregate of $18 million ($1
million cash, shares of our common stock valued at $2 million, a $1 million note
and  approximately  $14 million under the private equity credit  agreement).  We
believe this

                                       53
<PAGE>

is a good  value  because  it will  result  in our  control  of the  number  one
designated market area. We did not obtain a valuation from an outside firm.

Quiet Power Systems, Inc.

     Between 1993 and 1994,  NCT entered into five  agreements  with Quiet Power
Systems, Inc. Environmental  Research Information,  Inc. owns 33% of Quiet Power
Systems,  and Jay Haft, a director of NCT and former  Chairman of NCT's Board of
Directors,  owns  another 2% of Quiet Power  Systems.  Michael  Parrella,  Chief
Executive  Officer and Chairman of the Board of  Directors  of NCT,  owns 12% of
Environmental  Research  Information  and  shares  investment  control  over  an
additional 24% of it. Jonathan  Charry,  NCT's Senior Vice President,  Corporate
Development,  owns 20% of  Environmental  Research  Information  and 3% of Quiet
Power  Systems.  In March 1995,  NCT entered into a master  agreement with Quiet
Power Systems which granted Quiet Power Systems an exclusive  worldwide  license
to  market,  sell  and  distribute  various  quieting  products  in the  utility
industry.  Subsequently,  NCT and  Quiet  Power  Systems  executed  four  letter
agreements for the primary  purpose of revising  payments terms. On December 24,
1999,  NCT  executed a final  agreement  with Quiet  Power  Systems in which NCT
agreed to write off  $239,000 of  indebtedness  owed by Quiet  Power  Systems in
exchange for the return by Quiet Power Systems to NCT of its  exclusive  license
to use NCT technology in various quieting products in the utility industry. This
amount, originally due on January 1, 1998, had been fully reserved by NCT.

                                       54
<PAGE>

                                     PART IV

ITEM 14.      EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K.

Item 14(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, 2000 and December 31, 2001

Consolidated   Statements  of   Operations   and   Consolidated   Statements  of
Comprehensive Loss for the years ended December 31, 1999, 2000 and 2001

Consolidated  Statements of Stockholders' Equity (Capital Deficit) for the years
ended December 31, 1999, 2000 and 2001

Consolidated  Statements  of Cash Flows for the years ended  December  31, 1999,
2000 and 2001

Notes to the Consolidated Financial Statements

Item 14(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 14(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 14(b)

Reports filed on Form 8-K:

     On November 8, 2001,  the company filed a report on Form 8K, dated November
7,  2001  announcing  the  issuance  of a warrant  dated  October  25,  2001 and
amendment  to the terms of a warrant  dated  October 26, 2000 to Libra  Finance,
S.A.

     On November 19, 2001, the company filed a report on Form 8K, dated November
19, 2001  announcing  amendment to the terms of a warrant dated October 26, 2000
to Libra Finance S.A.

     On February 14, 2002, the company filed a report on Form 8K, dated February
14, 2002 announcing a change in independent accountants.

                                       55
<PAGE>
<TABLE>
<CAPTION>
                        NCT GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED FINANCIAL STATEMENT INDEX

                                                                                              Page
                                                                                             -------
<S>                                                                                             <C>
Independent Auditors' Report (Richard A. Eisner & Company, LLP)                               F-1

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

Consolidated Balance Sheets as of December 31, 2000 and 2001                                  F-3

Consolidated Statements of Operations and Consolidated Statements of
Comprehensive Loss for the years ended December 31, 1999, 2000 and 2001                       F-4

Consolidated Statements of Stockholders' Equity (Capital Deficit) for the years ended         F-5
December 31, 1999, 2000 and 2001

Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001    F-6

Notes to the Consolidated Financial Statements                                                F-7

Independent Auditors' Report on Schedule II (Richard A. Eisner & Company, LLP)                F-60

Independent Auditor's Report on Schedule II (Goldstein Golub Kessler LLP)                     F-61

Schedule II                                                                                   F-62
</TABLE>

                                       56
<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,  2001,  and the related
consolidated statements of operations,  comprehensive loss, stockholders' equity
(capital  deficit) and cash flows for each of the years ended  December 31, 2001
and December 31, 1999. 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 did not audit the 1999 financial
statements of the Company's foreign  subsidiary.  This subsidiary  accounted for
revenue of approximately $4,000 for the year ended December 31, 1999, and assets
of approximately $164,000 at December 31, 1999. These statements were audited by
another  auditor  whose report has been  furnished to us, and which  contained a
paragraph  on the  subsidiary's  dependence  on NCT Group,  Inc.  for  continued
financial  support.  Our opinion,  insofar as it relates to the amounts included
for this entity, is based solely on the report of the other auditor.

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 and the report of
the other auditor provides a reasonable basis for our opinion.

In our  opinion,  based on our audits and the report of the other  auditor,  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, 2001 and the  consolidated  results of their  operations  and their
consolidated  cash  flows  for each of the years  ended  December  31,  2001 and
December 31, 1999 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 of 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 Notes 3 and 9 to the financial  statements,  the Company changed
its method of accounting for derivatives in 2001.


/s/ RICHARD A. EISNER & COMPANY, LLP
------------------------------------
    Richard A. Eisner & Company, LLP

New York, New York
April 10, 2002

                                      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,  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 (Note 3)
                                                                         (in thousands, except share data)
                                                                          December 31,       December 31,
                                                                              2000               2001
                                                                         ---------------    ---------------
ASSETS
<S>                                                                            <C>                   <C>
Current assets:
     Cash and cash equivalents                                                  $ 1,167              $ 567
     Investment in marketable securities (Note 5)                                     -                882
     Accounts receivable, net (Note 6)                                            5,414                716
     Inventories, net (Note 7)                                                    2,184              1,385
     Other current assets (Note 9)                                                4,894                773
                                                                         ---------------    ---------------
                     Total current assets                                        13,659              4,323

Property and equipment, net (Note 8)                                                688              1,844
Goodwill, net (Notes 2 and 3)                                                    11,711              7,184
Patent rights and other intangibles, net (Note 3)                                 5,330              4,088
Other assets (Note 9)                                                             7,994              2,570
                                                                         ---------------    ---------------
                                                                               $ 39,382           $ 20,009
                                                                         ===============    ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
Current liabilities:
     Accounts payable                                                           $ 4,144            $ 5,553
     Accrued expenses                                                             3,564             12,093
     Notes payable (Note 10)                                                        704              3,208
     Current maturities of convertible notes (Note 10)                            3,875             11,710
     Deferred revenue (Note 11)                                                   7,777              4,616
     Other current liabilities (Note 12)                                          3,322             19,779
                                                                         ---------------    ---------------
                     Total current liabilities                                   23,386             56,959
                                                                         ---------------    ---------------
Long term liabilities:
     Deferred revenue (Note 11)                                                   1,611              4,815
     Convertible notes  (Note 10)                                                 1,000                 -
     Other liabilities (Note 12)                                                  1,150              2,950
                                                                         ---------------    ---------------
                     Total liabilities                                            3,761              7,765
                                                                         ---------------    ---------------
Commitments and contingencies (Note 21)
Common stock subject to resale guarantee (Note 13)                                  191                 -
                                                                         ---------------    ---------------
Minority interest in consolidated subsidiaries                                    2,186              8,748
                                                                         ---------------    ---------------
Stockholders' equity (capital deficit) (Note 14):
     Preferred stock, $.10 par value, 10,000,000 shares authorized:
       Series G preferred stock, issued and outstanding, 767 and 0 shares,
       respectively (redemption amount $783,409 and $0, respectively)               574                  -
     Common stock, $.01 par value, authorized 450,000,000 and 645,000,000 shares,
       respectively:  issued 334,149,669 and 428,830,800 shares, respectively     3,341              4,288
     Additional paid-in capital                                                  154,838            164,621
     Unearned portion of compensatory stock, warrants and options                    (37)                 -
     Accumulated other comprehensive (loss) income                                (3,321)                50
     Expenses to be paid with common stock                                          (562)                 -
     Accumulated deficit                                                        (141,799)          (219,459)
     Stock subscriptions receivable                                                 (213)                 -
     Treasury stock, 6,078,065 shares of common stock, at cost                    (2,963)            (2,963)
                                                                         ---------------    ---------------
                     Total stockholders' equity (capital deficit)                  9,858            (53,463)
                                                                         ---------------    ---------------
                                                                                $ 39,382           $ 20,009
                                                                         ===============    ===============
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,
                                                                 -----------------------------------------------------------
REVENUE:                                                               1999               2000                 2001
                                                                 ------------------  ----------------   --------------------
<S>                                                                       <C>               <C>                    <C>
   Technology licensing fees and royalties                                 $ 3,552           $ 9,928                $ 5,633
   Product sales, net                                                        2,208             2,001                  4,568
   Advertising/media                                                             -               828                    279
   Engineering and development services                                      1,303                83                    132
                                                                 ------------------  ----------------   --------------------
          Total revenue                                                      7,063            12,840                 10,612
                                                                 ------------------  ----------------   --------------------
COSTS, EXPENSES AND OTHER INCOME:
   Cost of product sales                                                     2,767             2,127                  3,340
   Cost of advertising/media                                                     -               814                    332
   Cost of engineering and development services                              2,216                55                      2
   Selling, general and administrative                                      11,801            11,383                 18,734
   Research and development                                                  6,223             4,412                  5,966
   Provision for doubtful accounts                                              77                25                    249
   Reserve for promissory notes and preacquisition costs                     1,788                 -                      -
   Impairment of goodwill, net (Notes 3 and 14)                              3,125             3,073                 14,114
   Write downs of investment and repurchased licenses,
      net (Notes 2, 9 and 11)                                                2,385                 -                 20,778
   Costs of exiting activities (Note 25)                                         -                 -                  1,886
   Other operating income, net (Note 16)                                      (266)             (412)                  (937)
                                                                 ------------------  ----------------   --------------------
          Total operating costs, expenses and other income                  30,116            21,477                 64,464
                                                                 ------------------  ----------------   --------------------
Non-operating items:
   Other (income) expense, net (Note 16)                                       166              (162)                16,099
   Interest expense                                                            578             1,880                  6,170
   Interest income                                                             (26)              (31)                   (43)
                                                                 ------------------  ----------------   --------------------
          Total costs and expenses                                          30,834            23,164                 86,690
                                                                 ------------------  ----------------   --------------------
LOSS BEFORE CUMULATIVE EFFECT
  OF CHANGE IN ACCOUNTING PRINCIPLE                                        (23,771)          (10,324)               (76,078)
  Cumulative effect of change in accounting principle (Note 9)                   -                 -                 (1,582)
                                                                 ------------------  ----------------   --------------------
NET LOSS                                                                 $ (23,771)        $ (10,324)             $ (77,660)
Beneficial conversion features                                              10,567             4,673                    392
Preferred stock dividends (including penalties of $660 in 2001)                494               113                    969
                                                                 ------------------  ----------------   --------------------
LOSS ATTRIBUTABLE TO
  COMMON STOCKHOLDERS                                                    $ (34,832)        $ (15,110)             $ (79,021)
                                                                 ==================  ================   ====================
Loss per share -
   Loss before cumulative effect of change
     in accounting principle                                               $ (0.18)          $ (0.05)               $ (0.20)
   Cumulative effect of change in accounting principle                           -                 -                  (0.01)
                                                                 ------------------  ----------------   --------------------
   Basic and diluted                                                       $ (0.18)          $ (0.05)               $ (0.21)
                                                                 ==================  ================   ====================
Weighted average common shares outstanding -
   basic and diluted                                                       190,384           292,758                383,162
                                                                 ==================  ================   ====================


NCT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Note 3)
                                                                                    For the Years Ended December 31,
                                                                 -----------------------------------------------------------
                                                                        1999               2000                 2001
                                                                 ------------------  ----------------   --------------------
NET LOSS                                                                 $ (23,771)        $ (10,324)             $ (77,660)
Other comprehensive income (loss):
   Currency translation adjustment                                              20                (7)                    (8)
   Unrealized (loss)/adjustment of unrealized loss on
      marketable securities                                                      -            (3,379)                 3,379
                                                                 ------------------  ----------------   --------------------
COMPREHENSIVE LOSS                                                       $ (23,751)        $ (13,710)             $ (74,289)
                                                                 ==================  ================   ====================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

                                      F-4
<PAGE>

<TABLE>
<CAPTION>
NCT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT) (Note 3)
(in thousands)
                                                                                     Convertible Preferred Stock
                                                                       --------------------------------------------------
                                                                            Series C                 Series D
                                                                       --------------------   ---------------------------
                                                                        Shares    Amount        Shares      Amount
                                                                       --------------------   ---------------------------
<S>                                                                           <C>   <C>                       <C>
Balance at December 31, 1998                                                  1     $  702             6      $ 5,240
Sale of common stock, less expenses of $17                                    -          -             -            -
Common stock subject to reset provision                                       -          -             -            -
Conversion of preferred stock                                                (1)      (730)           (6)      (5,273)
Accretion and amortization of discount on beneficial conversion
    price to preferred shareholders                                           -         28             -           33
Discount on beneficial conversion price to preferred shareholders             -          -             -            -
Preferred stock exchanged for license fees                                    -          -             -            -
Exchange of Series A preferred stock in subsidiary                            -          -             -            -
Accretion and amortization of discount on beneficial conversion
    price to preferred shareholders                                           -          -             -            -
Sale of preferred stock                                                       -          -             -            -
Exchange of subsidiary common stock for NCT common stock                      -          -             -            -
Shares issued in consideration for patent rights                              -          -             -            -
Shares issued for settlement obligations/prepayments                          -          -             -            -
Expenses to be paid with common stock                                         -          -             -            -
Warrant issued in conjunction with convertible debt                           -          -             -            -
Beneficial conversion feature on convertible note                             -          -             -            -
Net loss                                                                      -          -             -            -
Currency translation adjustment                                               -          -             -            -
Shares issued upon exercise of warrants & options                             -          -             -            -
Compensatory stock options and warrants                                       -          -             -            -
                                                                       --------------------   ------------------------
Balance at December 31, 1999                                                  -      $   -             -       $    -
Sale of common stock, less expenses of $49                                    -          -             -            -
Common stock subject to reset provision                                       -          -             -            -
Sale of preferred stock                                                       -          -             -            -
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                            -          -             -            -
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                                                  -      $   -             -       $    -
Sale of common stock                                                          -          -             -            -
Conversion of preferred stock                                                 -          -             -            -
Dividend and amortization of discount on beneficial conversion
    price to preferred shareholders                                           -          -             -            -
Exchange of Series A preferred stock in subsidiary                            -          -             -            -
Dividend and amortization of discounts on beneficial conversion
    price to subsidiary preferred and common shareholders                     -          -             -            -
Exchange of subsidiary common stock for NCT 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 feature on convertible note                             -          -             -            -
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                                                  -      $   -             -       $    -
                                                                       ====================   ========================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>


<TABLE>
<CAPTION>
NCT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT) (Note 3)
(in thousands)
                                                                               Convertible Preferred Stock
                                                                          ----------------------------------------------
                                                                                Series E                 Series F
                                                                          ----------------------  -----------------------
                                                                            Shares     Amount          Shares     Amount
                                                                          ----------------------  -----------------------
<S>                                                                               <C>   <C>                        <C>
Balance at December 31, 1998                                                      11    $ 3,298             -      $   -
Sale of common stock, less expenses of $17                                         -          -             -          -
Common stock subject to reset provision                                            -          -             -          -
Conversion of preferred stock                                                     (4)    (2,443)           (3)    (1,652)
Accretion and amortization of discount on beneficial conversion
    price to preferred shareholders                                                -      5,929             -      5,004
Discount on beneficial conversion price to preferred shareholders                  -     (2,666)            -     (4,884)
Preferred stock exchanged for license fees                                        (9)    (3,631)           (1)      (574)
Exchange of Series A preferred stock in subsidiary                                 -          -             -          -
Accretion and amortization of discount on beneficial conversion
    price to preferred shareholders                                                -          -             -          -
Sale of preferred stock                                                            2       (487)            9      4,896
Exchange of subsidiary common stock for NCT common stock                           -          -             -          -
Shares issued in consideration for patent rights                                   -          -             -          -
Shares issued for settlement obligations/prepayments                               -          -             -          -
Expenses to be paid with common stock                                              -          -             -          -
Warrant issued in conjunction with convertible debt                                -          -             -          -
Beneficial conversion feature on convertible note                                  -          -             -          -
Net loss                                                                           -          -             -          -
Currency translation adjustment                                                    -          -             -          -
Shares issued upon exercise of warrants & options                                  -          -             -          -
Compensatory stock options and warrants                                            -          -             -          -
                                                                          ----------------------  -----------------------
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)
Conversion of preferred stock                                                      -          -            (5)    (2,865)
Accretion and amortization of discount on beneficial conversion
    price to preferred shareholders                                                -          -             -         80
Discount on beneficial conversion price to preferred shareholders                  -          -             -          -
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                                                       -      $   -             -      $   -
Sale of common stock                                                               -          -             -          -
Conversion of preferred stock                                                      -          -             -          -
Dividend and amortization of discount on beneficial conversion
    price to preferred shareholders                                                -          -             -          -
Exchange of Series A preferred stock in subsidiary                                 -          -             -          -
Dividend and amortization of discounts on beneficial conversion
    price to subsidiary preferred and common shareholders                          -          -             -          -
Exchange of subsidiary common stock for NCT 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 feature on convertible note                                  -          -             -          -
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                                                       -      $   -             -      $   -
                                                                          ======================  =======================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>


<TABLE>
<CAPTION>
NCT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT) (Note 3)
(in thousands)
                                                                       Convertible Preferred Stock
                                                                        -----------------------
                                                                               Series G                 Common Stock
                                                                        -----------------------  ---------------------------
                                                                            Shares      Amount         Shares        Amount
                                                                        -----------------------  ---------------------------
<S>                                                                                      <C>          <C>           <C>
Balance at December 31, 1998                                                     -       $   -        156,337       $ 1,563
Sale of common stock, less expenses of $17                                       -           -          4,135            41
Common stock subject to reset provision                                          -           -              -             -
Conversion of preferred stock                                                    -           -         65,701           657
Accretion and amortization of discount on beneficial conversion
    price to preferred shareholders                                              -           -              -             -
Discount on beneficial conversion price to preferred shareholders                -           -              -             -
Preferred stock exchanged for license fees                                       -           -              -             -
Exchange of Series A preferred stock in subsidiary                               -           -         11,700           117
Accretion and amortization of discount on beneficial conversion
    price to preferred shareholders                                              -           -              -             -
Sale of preferred stock                                                          -           -              -             -
Exchange of subsidiary common stock for NCT common stock                         -           -         17,738           178
Shares issued in consideration for patent rights                                 -           -              -             -
Shares issued for settlement obligations/prepayments                             -           -         13,155           132
Expenses to be paid with common stock                                            -           -              -             -
Warrant issued in conjunction with convertible debt                              -           -              -             -
Beneficial conversion feature on convertible note                                -           -              -             -
Net loss                                                                         -           -              -             -
Currency translation adjustment                                                  -           -              -             -
Shares issued upon exercise of warrants & options                                -           -              5             -
Compensatory stock options and warrants                                          -           -              -             -
                                                                        -----------------------  ---------------------------
Balance at December 31, 1999                                                     -       $   -        268,771       $ 2,688
Sale of common stock, less expenses of $49                                       -           -          2,467            25
Common stock subject to reset provision                                          -           -              -             -
Sale of preferred stock                                                          2       1,698              -             -
Conversion of preferred stock                                                   (1)     (1,159)        28,376           284
Accretion and amortization of discount on beneficial conversion
    price to preferred shareholders                                              -         762              -             -
Discount on beneficial conversion price to preferred shareholders                -        (727)             -             -
Exchange of Series A preferred stock in subsidiary                               -           -            635             6
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                             -           -          1,528            15
Expenses to be paid with common stock                                            -           -              -             -
Shares issued as deposit for acquisition                                         -           -            245             2
Shares issued for acquisition of subsidiaries                                    -           -         21,319           213
Shares issued for prepaid research and engineering costs                         -           -          9,524            95
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                                -           -          1,285            13
Valuation of available-for-sale marketable securities                            -           -              -             -
Compensatory stock options and warrants                                          -           -              -             -
                                                                        -----------------------  ---------------------------
Balance at December 31, 2000                                                     1       $ 574        334,150       $ 3,341
Sale of common stock                                                             -           -          2,000            20
Conversion of preferred stock                                                   (1)       (582)         7,218            72
Dividend and amortization of discount on beneficial conversion
    price to preferred shareholders                                              -           8              -             -
Exchange of Series A preferred stock in subsidiary                               -           -          2,976            30
Dividend and amortization of discounts on beneficial conversion
    price to subsidiary preferred and common shareholders                        -           -              -             -
Exchange of subsidiary common stock for NCT common stock                         -           -          7,832            78
Conversion of convertible debt plus inducement of $190                           -           -          4,303            43
Exchange of subsidiary convertible debt for common stock                         -           -         32,925           330
Sale of excess exchange shares of common stock net of
    Commissions of $36                                                           -           -              -             -
Shares issued for settlement obligations/prepayments                             -           -          3,838            38
Expenses to be paid with common stock                                            -           -              -             -
Shares returned for deposit of acquisition                                       -           -          (245)           (2)
Shares issued for acquisition of subsidiaries, repurchased licenses
    and exercise of option, less expenses of $237                                -           -         23,476           234
Liability for make up of value on shares issued to ITC                           -           -              -             -
Warrants issued in conjunction with convertible debt                             -           -              -             -
Beneficial conversion feature on convertible note                                -           -              -             -
Net loss                                                                         -           -              -             -
Currency translation adjustment                                                  -           -              -             -
Shares issued upon exercise of warrants                                          -           -         10,000           100
Valuation of available-for-sale marketable securities                            -           -              -             -
Compensatory common stock grants                                                 -           -            358             4
Compensatory stock options and warrants                                          -           -              -             -
                                                                        -----------------------  ---------------------------
Balance at December 31, 2001                                                     -       $   -        428,831       $ 4,288
                                                                        =======================  ===========================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>


<TABLE>
<CAPTION>
NCT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT) (Note 3)
(in thousands)
                                                                                                          Accumulated
                                                                        Additional      Accumu-             Other
                                                                        Paid-in         lated            Comprehensive
                                                                        Capital         Deficit          (Loss)/Income
                                                                       -------------  -------------   ------------------
<S>                                                                       <C>           <C>                    <C>
Balance at December 31, 1998                                              $ 107,483     $(107,704)             $     45
Sale of common stock, less expenses of $17                                      442              -                    -
Common stock subject to reset provision                                        (600)             -                    -
Conversion of preferred stock                                                 9,441              -                    -
Accretion and amortization of discount on beneficial conversion
    price to preferred shareholders                                         (10,994)             -                    -
Discount on beneficial conversion price to preferred shareholders             7,550              -                    -
Preferred stock exchanged for license fees                                    3,355              -                    -
Exchange of Series A preferred stock in subsidiary                            9,189              -                    -
Accretion and amortization of discount on beneficial conversion
    price to preferred shareholders                                             (68)             -                    -
Sale of preferred stock                                                           -              -                    -
Exchange of subsidiary common stock for NCT common stock                      2,454              -                    -
Shares issued in consideration for patent rights                                 88              -                    -
Shares issued for settlement obligations/prepayments                          2,371              -                    -
Expenses to be paid with common stock                                          (537)             -                    -
Warrant issued in conjunction with convertible debt                             446              -                    -
Beneficial conversion feature on convertible note                               204              -                    -
Net loss                                                                          -       (23,771)                    -
Currency translation adjustment                                                   -              -                   20
Shares issued upon exercise of warrants & options                                 -              -                    -
Compensatory stock options and warrants                                          41              -                    -
                                                                       -------------  -------------   ------------------
Balance at December 31, 1999                                              $ 130,865    $ (131,475)             $     65
Sale of common stock, less expenses of $49                                      426              -                    -
Common stock subject to reset provision                                         600              -                    -
Sale of preferred stock                                                           -              -                    -
Conversion of preferred stock                                                 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                              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                          1,518              -                    -
Expenses to be paid with common stock                                             -              -                    -
Shares issued as deposit for acquisition                                        123              -                    -
Shares issued for acquisition of subsidiaries                                 7,105              -                    -
Shares issued for prepaid research and engineering costs                      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                               735              -                    -
Valuation of available-for-sale marketable securities                             -              -               (3,379)
Compensatory stock options and warrants                                          88              -                    -
                                                                       -------------  -------------   ------------------
Balance at December 31, 2000                                              $ 154,838    $ (141,799)          $    (3,321)
Sale of common stock                                                            166              -                    -
Conversion of preferred stock                                                   510              -                    -
Dividend and amortization of discount on beneficial conversion
    price to preferred shareholders                                              (8)             -                    -
Exchange of Series A preferred stock in subsidiary                              267              -                    -
Dividend and amortization of discounts on beneficial conversion
    price to subsidiary preferred and common shareholders                    (1,353)             -                    -
Exchange of subsidiary common stock for NCT common stock                      1,155              -                    -
Conversion of convertible debt plus inducement of $190                          707              -                    -
Exchange of subsidiary convertible debt for common stock                      3,329              -                    -
Sale of excess exchange shares of common stock net of
    Commissions of $36                                                          164              -                    -
Shares issued for settlement obligations/prepayments                           (221)             -                    -
Expenses to be paid with common stock                                             -              -                    -
Shares returned for deposit of acquisition                                     (123)             -                    -
Shares issued for acquisition of subsidiaries, repurchased licenses
    and exercise of option, less expenses of $237                             2,138              -                    -
Liability for make up of value on shares issued to ITC                         (610)             -                    -
Warrants issued in conjunction with convertible debt                            747              -                    -
Beneficial conversion feature on convertible note                             1,748              -                    -
Net loss                                                                          -        (77,660)                   -
Currency translation adjustment                                                   -              -                   (8)
Shares issued upon exercise of warrants                                         700              -                    -
Valuation of available-for-sale marketable securities                             -              -                3,379
Compensatory common stock grants                                                 30              -                    -
Compensatory stock options and warrants                                         437              -                    -
                                                                       ----------------------------   ------------------
Balance at December 31, 2001                                              $ 164,621    $ (219,459)             $     50
                                                                       ============================   ==================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>


<TABLE>
<CAPTION>
NCT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT) (Note 3)
(in thousands)
                                                                                              Unearned
                                                                                              Portion of           Expenses
                                                                             Stock           Compensatory         to be Paid
                                                                          Subscriptions     Stock, Warrants      With Common
                                                                           Receivable        and Options             Stock
                                                                        ----------------  ------------------  --------------
<S>                                                                          <C>                 <C>                 <C>
Balance at December 31, 1998                                                 $  (4,000)          $    (238)          $    -
Sale of common stock, less expenses of $17                                            -                   -               -
Common stock subject to reset provision                                               -                   -               -
Conversion of preferred stock                                                         -                   -               -
Accretion and amortization of discount on beneficial conversion
    price to preferred shareholders                                                   -                   -               -
Discount on beneficial conversion price to preferred shareholders                     -                   -               -
Preferred stock exchanged for license fees                                            -                   -               -
Exchange of Series A preferred stock in subsidiary                                    -                   -               -
Accretion and amortization of discount on beneficial conversion                                           -
    price to preferred shareholders                                                   -                   -               -
Sale of preferred stock                                                           3,000                   -               -
Exchange of subsidiary common stock for NCT common stock                              -                   -               -
Shares issued in consideration for patent rights                                      -                   -               -
Shares issued for settlement obligations/prepayments                                  -                   -          (2,503)
Expenses to be paid with common stock                                                 -                   -           1,221
Warrant issued in conjunction with convertible debt                                   -                   -               -
Beneficial conversion feature on convertible note                                     -                   -               -
Net loss                                                                              -                   -               -
Currency translation adjustment                                                       -                   -               -
Shares issued upon exercise of warrants & options                                     -                   -               -
Compensatory stock options and warrants                                               -                 183               -
                                                                        ----------------  ------------------  --------------
Balance at December 31, 1999                                                 $  (1,000)           $    (55)       $  (1,282)
Sale of common stock, less expenses of $49                                            -                   -               -
Common stock subject to reset provision                                               -                   -               -
Sale of preferred stock                                                           1,000                   -               -
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                                    -                   -               -
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                                  -                   -            (547)
Expenses to be paid with common stock                                                 -                   -           1,267
Shares issued as deposit for acquisition                                              -                   -               -
Shares issued for acquisition of subsidiaries                                     (213)                   -               -
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                                               -                  18               -
                                                                        ----------------  ------------------  --------------
Balance at December 31, 2000                                                  $   (213)           $    (37)        $   (562)
Sale of common stock                                                                  -                   -               -
Conversion of preferred stock                                                         -                   -               -
Dividend and amortization of discount on beneficial conversion
    price to preferred shareholders                                                   -                   -               -
Exchange of Series A preferred stock in subsidiary                                    -                   -               -
Dividend and amortization of discounts on beneficial conversion
    price to subsidiary preferred and common shareholders                             -                   -               -
Exchange of subsidiary common stock for NCT 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                                                 -                   -             562
Shares returned for deposit of acquisition                                            -                   -               -
Shares issued for acquisition of subsidiaries, repurchased licenses
    and exercise of option, less expenses of $237                                   213                   -               -
Liability for make up of value on shares issued to ITC                                -                   -               -
Warrants issued in conjunction with convertible debt                                  -                   -               -
Beneficial conversion feature on convertible note                                     -                   -               -
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                                               -                  37               -
                                                                        ----------------  ------------------  --------------
Balance at December 31, 2001                                                   $     (-)            $    (-)         $   (-)
                                                                        ================  ==================  ==============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>


<TABLE>
<CAPTION>
NCT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT) (Note 3)
(in thousands)
                                                                             Treasury Stock
                                                                        -------------------------
                                                                          Shares      Amount          Total
                                                                        -------------------------  -------------
<S>                                                                          <C>       <C>              <C>
Balance at December 31, 1998                                                 6,078     $ (2,963)        $ 3,426
Sale of common stock, less expenses of $17                                       -             -            483
Common stock subject to reset provision                                          -             -           (600)
Conversion of preferred stock                                                    -             -              -
Accretion and amortization of discount on beneficial conversion
    price to preferred shareholders                                              -             -              -
Discount on beneficial conversion price to preferred shareholders                -             -              -
Preferred stock exchanged for license fees                                       -             -           (850)
Exchange of Series A preferred stock in subsidiary                               -             -          9,306
Accretion and amortization of discount on beneficial conversion
    price to preferred shareholders                                              -             -            (68)
Sale of preferred stock                                                          -             -          7,409
Exchange of subsidiary common stock for NCT common stock                         -             -          2,632
Shares issued in consideration for patent rights                                 -             -             88
Shares issued for settlement obligations/prepayments                             -             -              -
Expenses to be paid with common stock                                            -             -            684
Warrant issued in conjunction with convertible debt                              -             -            446
Beneficial conversion feature on convertible note                                -             -            204
Net loss                                                                         -             -        (23,771)
Currency translation adjustment                                                  -             -             20
Shares issued upon exercise of warrants & options                                -             -              -
Compensatory stock options and warrants                                          -             -            224
                                                                        -------------------------  -------------
Balance at December 31, 1999                                                 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                                                          -             -          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                             -             -            986
Expenses to be paid with common stock                                            -             -          1,267
Shares issued as deposit for acquisition                                         -             -            125
Shares issued for acquisition of subsidiaries                                    -             -          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                                          -             -            106
                                                                        -------------------------  -------------
Balance at December 31, 2000                                                 6,078     $ (2,963)        $ 9,858
Sale of common stock                                                             -             -            186
Conversion of preferred stock                                                    -             -              -
Dividend and amortization of discount on beneficial conversion
    price to preferred shareholders                                              -             -              -
Exchange of Series A preferred stock in subsidiary                               -             -            297
Dividend and amortization of discounts on beneficial conversion
    price to subsidiary preferred and common shareholders                        -             -         (1,353)
Exchange of subsidiary common stock for NCT 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
Shares returned for deposit of acquisition                                       -             -           (125)
Shares issued for acquisition of subsidiaries, repurchased licenses
     and exercise of option, less expenses of $237                               -             -          2,585
Liability for make up of value on shares issued to ITC                           -             -           (610)
Warrants issued in conjunction with convertible debt                             -             -            747
Beneficial conversion feature on convertible note                                -             -          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                                          -             -            474
                                                                        -------------------------  -------------
Balance at December 31, 2001                                                 6,078     $ (2,963)      $ (53,463)
                                                                        =========================  =============
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,
                                                                                 ---------------------------------------------------
                                                                                        1999             2000            2001
                                                                                 ----------------- ---------------  ----------------
<S>                                                                                    <C>              <C>             <C>
Cash flows from operating activities:
  Net loss                                                                             $ (23,771)       $ (10,324)      $ (77,660)
  Adjustments to reconcile net loss to net cash (used in) operating activities:
     Depreciation and amortization                                                         1,970            2,014           2,977
     Common stock, warrants and options issued as consideration for:
        Compensation                                                                         224              106              37
        Operating expenses                                                                   401              497             637
     Costs incurred related to convertible debt                                              102                -           5,364
     Provision for tooling costs                                                             180                -               -
     Provision for inventory                                                                 199              100             691
     Provision for doubtful accounts and uncollectible amounts                                77              803           1,249
     (Gain) loss on disposition of fixed assets                                                -              (12)             30
     Write downs of investment and repurchased licenses, net (Notes 2, 9 and 11)           2,385                -          20,778
     Preferred stock received for license fees                                              (850)               -               -
     Impairment of goodwill, net (Notes 3 and 11)                                          3,125            3,073          14,114
     Reserve for promissory note and pre-acquisition costs                                 1,788                -               -
     Costs of exiting activities (Note 25)                                                     -                -           1,886
     Beneficial conversion feature on convertible note (Note 10)                             204            1,000             946
     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
     Realized loss on fair value of warrant (Note 5)                                           -                -           1,355
     Cumulative effect of change in accounting principle (Note 5)                              -                -           1,582
     Loss on sale of NXT ordinary shares (Note 5)                                              -                -           2,301
     Forgiveness of debt                                                                       -                -             (67)
     Amortization of debt discounts                                                            -                -           3,348
     Minority interest loss                                                                    -                -            (473)
     Changes in operating assets and liabilities, net of acquisitions:
          (Increase) decrease in accounts receivable                                         401           (4,624)          2,432
          (Increase) decrease in inventories                                                 858              636             109
          (Increase) decrease in other assets                                             (1,168)          (2,072)           (680)
          Increase (decrease) in accounts payable and accrued expenses                     2,851             (886)          3,578
          Increase (decrease) in other liabilities and deferred revenue                      427            5,562          (3,784)
                                                                                -----------------  --------------- ---------------
     Net cash used in operating activities                                             $ (10,597)       $ (10,511)      $ (12,024)
                                                                                -----------------  --------------- ---------------
Cash flows from investing activities:
  Capital expenditures                                                                     $ (51)          $ (322)       $ (1,377)
   Net cash paid for Artera Group International Limited acquisition                            -                -            (100)
   (Increase) decrease  in restricted cash                                                  (667)             667               -
   Payment for shares of DMC New York (repurchased licenses)                                   -                -          (1,000)
   Proceeds from sale of capital equipment                                                     -               26              11
   Proceeds from sale of NXT ordinary shares                                                   -                -           6,858
   Cash and cash equivalents received from acquisitions                                        -               88               -
                                                                                -----------------  --------------- ---------------
     Net cash (used in) provided by investing activities                                  $ (718)           $ 459         $ 4,392
                                                                                -----------------  --------------- ---------------
Cash flows from financing activities:
  Proceeds from:
     Convertible notes and notes payable (net) (Note 10)                                 $ 4,000          $ 2,944         $ 5,695
     Sale of preferred stock (net)                                                         7,409            1,963               -
     Sale of subsidiary preferred stock (net)                                                  -            1,500             418
     Sale of subsidiary common stock                                                           -            1,000               -
     Sale of excess exchange shares                                                            -            2,275             164
     Sale of common stock                                                                    483              500             186
     Collection of subscription receivable                                                     -              995             213
     Exercise of stock options and warrants, net                                               -              748             800
     Repayment of notes                                                                        -           (1,825)           (436)
                                                                                -----------------  --------------- ---------------
     Net cash provided by financing activities                                          $ 11,892         $ 10,100         $ 7,040
                                                                                -----------------  --------------- ---------------
Effect of exchange rate changes on cash                                                     $ 20             $ (7)           $ (8)
                                                                                -----------------  --------------- ---------------
Net increase (decrease) in cash and cash equivalents                                         597               41            (600)
Cash and cash equivalents - beginning of period                                              529            1,126           1,167
                                                                                -----------------  --------------- ---------------
Cash and cash equivalents - end of period                                                $ 1,126          $ 1,167           $ 567
                                                                                =================  =============== ===============
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   (collectively  referred  to  as  the
"company,"  "NCT," "its," "we," "our" or "us") is a technology  developer with a
portfolio of patents and related rights and other  non-patented  technology.  We
specialize  in  the  development  of  speech  and  communications   applications
integrating noise and echo  cancellation  technologies that we market to various
industries, including telecommunications.

     NCT has incurred  substantial  losses from  operations  since its inception
which  cumulatively  amounted to $219.5 million through  December 31, 2001. Cash
and cash  equivalents  amounted to $0.6  million at December 31, 2001. A working
capital  (deficit) of $(52.6)  million  exists at December  31, 2001.  NCT is in
default  of  $7.1  million  of its  convertible  notes  at  December  31,  2001.
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 revenues do not generate sufficient cash,  management
believes  additional  working  capital  financing  must  be  obtained.   We  are
attempting to raise  additional  capital 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, 2001 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:

2001 Acquisitions

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,

                                      F-7
<PAGE>

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  under-performing  operations and reduce  employees.
Subsequent  to  December  31,  2001,  the Board of  Directors  of  Artera  Group
International Limited determined to cease operations (see Note 25).

DMC New York, Inc.

     On April 12, 2001,  NCT  acquired a 25% interest in DMC New York,  Inc. for
$4.0  million  from a  stockholder.  DMC New York is the  owner  of 16  licenses
previously  purchased  from us.  The  acquisition  resulted  in a charge  to our
consolidated statements of operations (see Note 14) because DMC New York has not
commenced operations.  The consideration consisted of a $1.0 million convertible
note due  December  31,  2001  issued to  Crammer  Road LLC (see Note 14),  $1.0
million  cash and $2.0 million of our common  stock (13.3  million  shares) (see
Note 14).  We intend to  acquire  the  remaining  75%  interest  in DMC New York
pursuant to our private equity credit  agreement (see Note 14). As such, we have
accrued $14.0 million,  our cost of repurchasing the remaining 12 licenses under
the private  equity credit  agreement  (see Notes 12 and 21) which resulted in a
charge  included in write downs of investment  and  repurchased  licenses in our
consolidated statement of operations.  The Board of Directors of DMC New York is
comprised of NCT officers and directors (see Note 18). The company's acquisition
of DMC New York is summarized as follows:

<TABLE>
<CAPTION>
                              DMC New York
          Date                Consideration        Shares Acquired           % Interest         Expected Fair Value
          ----                -------------        ---------------           ----------         -------------------
<S>     <C>  <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           2,000                  12.5%                $2.0 million
</TABLE>

2000 Acquisitions

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
nationwide,  through DMC Cinema, a newly formed  subsidiary of NCT's subsidiary,
Distributed Media Corporation  ("DMC"). The acquisition included our issuance of
restricted  shares of NCT common stock and a 7.5% equity interest in DMC Cinema.
The purchase  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

                                      F-8
<PAGE>

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,
2001,  approximately  $0.6 million was accrued for this earnout obligation which
is included in other  liabilities (see Note 12). 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.  To date,  no  royalties  have  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 the diminished  value
of their shares.  The issuance of the additional  shares did not affect the cost
of the acquired company.

                                      F-9
<PAGE>

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.  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's 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  1999,  2000 and 2001,  pro forma  adjustments  include  additional
amortization   expense  of  $1.5   million,   $1.4  million  and  $0.1  million,
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, 1999, January 1, 2000 and January 1, 2001:

<TABLE>
<CAPTION>

(Unaudited; in thousands, except per share data)

                                                                 Years Ended December 31,
                                                 ----------------------------------------------------
                                                        1999 (a)      2000 (a, b)         2001 (b)
                                                       ------        ------              ------
<S>                                                <C>                <C>               <C>
Net revenues                                       $     10,386       $   17,606        $  10,859
Net loss                                                (25,776)         (17,984)         (78,025)
Loss attributable to common shareholders                (40,841)         (22,815)         (79,386)
Loss per common share-basic and diluted                   (0.19)           (0.07)           (0.21)
</TABLE>

Footnotes:
(a)  Includes Theater Radio Network, Midcore and Pro Tech acquisitions.
(b)  Includes Artera Group International Limited acquisition.

                                      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.  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  in conformity  with  accounting
principles  generally  accepted in the United  States of America  requires  that
management  make  estimates and  assumptions  that affect  reported  amounts and
disclosures in the financial statements.  Actual results could differ from those
estimates  including  assumptions  used to calculate  impairment of goodwill and
other intangible assets.

Reclassifications:

     Some amounts in prior period 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 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 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 101, is
recognized  when  earned.  Revenue  from product  sales is  recognized  when the
product is shipped  and title has  passed.  Revenue  from  advertising  sales is
recognized  when the  advertisements  are  aired  and  displayed.  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, revenues 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.  Revenues recognized
under the percentage of completion  method amounted to $1.3 million for the year
ended December 31, 1999, and zero for each of 2000 and 2001.

     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

                                      F-11
<PAGE>

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).  At  December  31,  2000  and  2001,  all of  the  company's
marketable  securities  have  been  deemed  available-for-sale   securities.  At
December 31, 2000, these marketable securities are included in other assets (see
Note 5 and 9).

Inventories:

     Inventories  are stated at the lower of cost or market.  Cost is determined
on an average cost basis.  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, 2000 and 2001,  the  company's
inventory reserves were $0.1 million and $0.8 million, respectively.

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  sheet 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  five-year  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 and 2001,  the
company amortized  approximately  $0.1 million of deferred charges and wrote off
unamortized charges relating to removals of approximately $0.2 million and zero,
respectively.

Software Costs:

     It is our policy to capitalize costs incurred in connection with developing
or obtaining internal use software.  Capitalized  software costs are included in
property and  equipment  and are being  amortized  over three years.  During the
years  ended  December  31,  2000 and  2001,  $0.1  million  and  $0.2  million,
respectively, was capitalized.

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 the company upon the acquisition of some or all of the stock

                                      F-12
<PAGE>

held by minority stockholders of a subsidiary,  except where such accounting is,
in  substance,  the  purchase  of  licenses  previously  sold to  such  minority
stockholders or their affiliates.  Goodwill is amortized using the straight-line
method  over  periods  generally  ranging  from five to twenty  years.  Goodwill
amortization  expense was $1.0 million,  $1.0 million and $1.7 million for 1999,
2000 and 2001, respectively.  Accumulated goodwill amortization was $5.2 million
and $1.1 million at December 31, 2000 and 2001, respectively.

     Patent  rights and other  intangible  assets,  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  was $0.6
million,  $0.7 million and $0.4 million for 1999,  2000 and 2001,  respectively.
Accumulated  amortization of patent rights and other intangible  assets was $3.5
million and $3.9 million at December 31, 2000 and 2001, respectively.

     At each balance sheet date,  NCT evaluates  the period of  amortization  of
intangible  assets.  The factors used in evaluating  the period of  amortization
include: 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, $3.1 million and $14.1
million (net of reduction in deferred revenue of $2.1 million) in 1999, 2000 and
2001,  respectively.  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 under-performing  operations and reduce
employees.  Consequently,  the $9.8 million carrying value of the goodwill as of
that  date was  considered  fully  impaired  in  accordance  with  Statement  of
Financial  Accounting  Standards ("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.  Consequently,  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 121. No
other events have been identified that would indicate an impairment of the value
of  material  intangible  assets  recorded  in  the  accompanying   consolidated
financial statements.

Advertising:

     Advertising costs include  commissions paid to advertising  representatives
and agencies and are  expensed as  incurred.  Advertising  expense for the years
ended December 31, 1999,  2000 and 2001 was $1.2 million,  $0.3 million and $0.5
million, respectively.

Comprehensive Loss:

     The company  reports  comprehensive  loss in accordance  with SFAS No. 130,
Reporting  Comprehensive Income. The provisions for SFAS 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 (loss) income" is included on the consolidated balance sheets as a
component of stockholders' equity (capital deficit).  Due to availability of net
operating losses,  there is no tax effect associated with any component of other
comprehensive  loss.  Comprehensive  loss is  comprised  of net loss  and  other
comprehensive  (loss) income. Other comprehensive (loss) income 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-13
<PAGE>

Foreign Currency Translation:

     Local currencies are generally  considered the functional  currency for our
share of foreign investments. The company translates its share of foreign assets
and liabilities at exchange rates in effect at the balance sheet dates. Revenues
and expenses are  translated  using  average  rates for the year.  The resulting
foreign  currency  translation  adjustments  are included in  accumulated  other
comprehensive  (loss)  income as a  component  of capital  deficit.  The foreign
currency   transaction  gains  and  losses  are  included  in  the  consolidated
statements of operations and were not material for any periods presented.

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 have not
been included, as the effect would be antidilutive (see Note 15).

     However,  when  preferred  stock  is  convertible  into  common  stock at a
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,  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 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.

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 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.

Major Customers:

     The company derived a significant  portion of its revenues from three major
customers during 2000 and 2001. For the years ending December 31, 2000 and 2001,
the company  recorded  revenue of  approximately  $8.0 million and $4.9 million,
respectively,  from these  customers.  As of  December  31,  2000 and 2001,  the
company  had  approximately  $2.0  million and zero,  respectively,  of accounts
receivable resulting from revenue derived from these customers.

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,
2000 and 2001, 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,  where  available.  The fair value of convertible  notes
approximates  the

                                      F-14
<PAGE>

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,  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 (see Note 15).

Recent Accounting Pronouncements:

     In August 2001, the Financial  Accounting  Standards  Board ("FASB") issued
SFAS No. 144,  Accounting for the  Impairment or Disposal of Long-Lived  Assets.
SFAS 144 addresses  financial  accounting  and  reporting for the  impairment or
disposal of long-lived assets.  SFAS 144 is effective for fiscal years beginning
after  December 15, 2001, and interim  periods  within those fiscal years,  with
early application encouraged.  Management has not determined the effect, if any,
to our financial position or results of operations upon adoption of SFAS 144.

     In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations.  SFAS 143 requires  that the fair value of a liability for an asset
retirement  obligation  be recognized in the period in which it is incurred if a
reasonable  estimate of fair value can be made.  The  provisions of SFAS 143 are
effective for financial  statements issued for fiscal years beginning after June
15, 2002.  Management  does not anticipate that adoption of SFAS 143 will have a
material  impact on our  financial  position  or  results  of  operations  as we
currently do not have any asset retirement obligations.

     In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS
No. 142,  Goodwill  and Other  Intangible  Assets.  SFAS 141  requires  that the
purchase method of accounting be used for all business  combinations  subsequent
to June 30,  2001 and  specifies  criteria  for  recognizing  intangible  assets
acquired  in a business  combination.  Under SFAS 142,  we will be  required  to
reassess  the  goodwill  and other  intangible  assets  previously  recorded  in
connection  with prior  acquisitions,  as well as their useful  lives.  SFAS 142
requires that goodwill and  intangible  assets with  indefinite  useful lives no
longer be amortized,  but instead be tested for  impairment  at least  annually.
Whenever  there  is an  impairment  indicator,  all  acquired  goodwill  must be
assigned  to  reporting  units for  purposes of  impairment  testing and segment
reporting.  Effective  January  1, 2002,  goodwill  will no longer be subject to
amortization.  Intangible  assets with definite useful lives will continue to be
amortized over their  respective  estimated  useful lives.  NCT adopted SFAS 141
effective  July 1, 2001 and plans to adopt SFAS 142  effective  January 1, 2002.
The  adoption  of SFAS 142 may  improve our  financial  position  and results of
operations  on an  ongoing  basis  due to the  elimination  of  amortization  of
goodwill.  Conversely,  the  adoption  of  SFAS  142 may be  detrimental  to our
financial position and results of operations upon adoption because of a possible
finding of impaired  goodwill.  We are in the process of analyzing  SFAS 142 and
its  impact on the  company  and  currently  are unable to report the effect the
adoption will have on our financial position and results of operations.

     In June  2000,  the  FASB  issued  SFAS No.  138,  Accounting  for  Certain
Derivative  Instruments  - an  Amendment  of  SFAS  133.  SFAS  138  establishes
accounting and reporting  standards for derivative  instruments,  including some
derivative instruments embedded in other contracts  (collectively referred to as
derivatives).  SFAS 138 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. Derivatives must be 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 SFAS 138  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,  fair value  charges  of $1.4  million  are
included in other (income) expense.

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.

                                      F-15
<PAGE>

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, 2000 and 2001, 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 by
joint  ventures  to the  company are  recorded  as revenue  consistent  with the
company's  revenue  recognition  policy.  Total revenues recorded by the company
relating to these  strategic  relationships  for  technology  licensing fees and
royalties,  engineering  and  development  services  and  product  sales were as
follows:

     (In thousands of dollars)

<TABLE>
<CAPTION>
                                                      For the Years Ended December 31,
                                          -----------------------------------------------------
                                                1999               2000               2001
                                          ---------------     --------------     --------------
<S>                                                <C>                <C>               <C>
Ultra Electronics, Ltd.                             $ 40               $ 49              $ 114
New Transducers Ltd.                                 500                  -              1,605
STMicroelectronics S.A. &
   STMicroelectronics S.r.l                        2,156                  -                  -
Lernout & Hauspie Speech Products N.V.               800                  -                  -
Oki Electric Industry Co., Ltd                        80                269                219
Infinite Technology Corporation                        -              3,550              1,028
                                          ---------------     --------------     --------------
     Total                                       $ 3,576            $ 3,868            $ 2,966
                                          ===============     ==============     ==============
</TABLE>

     Outlined  below is a summary of the nature and terms of selected  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 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  $40,000,
$49,000 and $114,000 in royalty revenue in 1999, 2000 and 2001, 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 FPTTM  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

                                      F-16
<PAGE>

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
revenues, 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 to 10% from 6% and  increased  the royalties due NXT from
NCT Audio to 7% from 6%.  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.  NCT Audio  recorded
royalty expense of $160,000 in 1999 and a liability of $64,000 ($160,000 royalty
expense less patent expense  reimbursement of $96,000) at December 31, 1999. The
liability as of December 31, 2000 and 2001 was $64,000 and zero, respectively.

     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 DMCI,  a
wholly owned subsidiary of NCT formed in 2001. 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 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).

     STMicroelectronics  SA &  STMicroelectronics  S.r.l ("ST"). On November 16,
1998,  Advancel Logic Corporation,  a majority-owned  subsidiary acquired by the
company in September 1998, and ST executed a license agreement.  Under the terms
of the  agreement,  which  included a license fee, a minimum  royalty within two
years and future per unit  royalties,  ST licensed  Advancel's  processor  core,
tiny2J(TM)  for Java(TM) to combine it with its proven secure  architecture  and
advanced nonvolatile memory technology. Advancel recorded a $0.2 million license
fee in 1998 and recorded an  additional  $0.2 million  license fee, $0.9 million
non-refundable  royalty and $1.1 million  engineering and  development  services
funding in 1999. No revenue related to this agreement was recognized in 2000 and
2001.

     Lernout & Hauspie  Speech  Products N.V.  ("L&H").  On March 31, 1999,  the
company signed a license agreement with L&H. The agreement  provides the company
with a  worldwide,  non-exclusive,  non-transferable  license  to  selected  L&H
technology  for use in NCT's  ClearSpeech(R)  products.  The company  recorded a
prepaid  royalty of $0.9  million.  On April 12,  1999,  the  company  granted a
worldwide non-exclusive, non-transferable license to L&H. The agreement provides
L&H access to NCT's  present and future noise and echo  cancellation  algorithms
for use in  L&H's  technology.  In  consideration  of the  company's  grant of a
license to L&H,  the company  recognized  a  non-refundable  royalty fee of $0.8
million.  During 1999,  the company and L&H agreed to offset the  balances  owed
each other. Consequently,  the company's balance due L&H at each of December 31,
2000 and 2001 is $0.1 million.

     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,

                                      F-17
<PAGE>

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
$0.1 million, $0.3 million and $0.2 million in royalty revenue in 1999, 2000 and
2001, respectively.

     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 will fund specific product application  research
and engineering  development  related to microprocessor and semiconductor  chips
for which the company will 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 does not receive $2.5
million in proceeds from the sale of NCT shares,  NCT is 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  receives  $2.5
million  in  proceeds  from the sale of NCT  shares  and  there  are NCT  shares
remaining,  ITC must return the unsold share excess to NCT. At December 31, 2000
and 2001, the shortfall  based upon the current market value of our common stock
amounted  to $0.8  million  and $1.4  million,  respectively,  included in other
liabilities  (see Note 12).  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 will be recognized in expense
as these  services are performed by ITC. These costs will be billed by ITC based
on the number of hours spent by ITC personnel  developing  this chip during each
period. In addition,  the company will recognize  license fee revenue,  up to an
additional  $2.4  million,  in amounts  to match the  research  and  engineering
expense recognized. 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  represents  research  and  engineering  performed  by ITC.  The
strategic  alliance  and  technology  development  amendment  does  not  have  a
definitive  expiration  date.  The  parties  anticipate  that the  research  and
engineering work ITC will perform will be completed within 12 months.

5.   Marketable Securities:

     Investment in marketable securities includes available-for-sale  securities
at fair value.  These  securities  were included in other assets during the year
ended  December 31, 2000 (because we did not have custody over the securities at
December 31, 2000) and in investment  in  marketable  securities at December 31,
2001. The following  table sets forth the fair value,  cost basis,  and realized
and unrealized gain/(loss) of our available-for-sale securities:

                                      F-18
<PAGE>

<TABLE>
<CAPTION>

     (In thousands of dollars)

                                    December 31, 2000                                  December 31, 2001
                       ---------------------------------------    ---------------------------------------------------------------
                           Cost       Unrealized     Market         Cost            Realized        Unrealized       Market
                          Basis      Gain/(Loss)     Value          Basis         Gain/(Loss)      Gain/(Loss)       Value
                       ---------------------------------------    ---------------------------------------------------------------
Available-for-sale:
<S>                     <C>            <C>          <C>             <C>            <C>                 <C>            <C>
   ITC                  $  6,000      $    (900)    $  5,100        $  4,696         $  (3,898)        $     -        $    798
   Teltran                     -               -           -             743              (659)              -              84
   InsiderStreet           2,479         (2,479)           -           2,479            (2,479)              -               -
                       ---------------------------------------    ---------------------------------------------------------------
     Totals             $  8,479      $  (3,379)    $  5,100         $ 7,918         $  (7,036)        $     -        $    882
                       =======================================    ===============================================================
</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.  For the
year ended  December  31,  2001,  the  company  recorded  impairment  charges of
approximately  $7.0 million  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).  These securities,
at a fair value of $5.1  million,  were included in other assets at December 31,
2000  because  the  securities  were not in hand at that date.  NCT  recorded an
unrealized   loss  of  $0.9  million  at  December  31,  2000  included  on  the
consolidated balance sheet in accumulated other comprehensive (loss) income. For
the  year  ended  December  31,  2001,  NCT  recorded  as   other-than-temporary
unrealized  loss of $3.9  million  included  in other  (income)  expense  in the
consolidated statement of operations.

     The company has been  accounting for its  investment in  InsiderStreet.com,
Inc. stock (see Note 11) 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.  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  information  available at that time.
The  InsiderStreet  shares  were not  registered,  nor was there a  delivery  of
compensating  shares.  For the year ended December 31, 2001, the unrealized loss
of $2.5  million was  considered  other-than-temporary  and is included in other
(income) expense in the consolidated statement of operations.

6.   Accounts Receivable:

     (In thousands of dollars)


                                                   December 31,
                                        ----------------------------------------
                                             2000                       2001
                                        --------------             -------------
Technology license fees and royalties         $ 4,597                    $ 287
Joint ventures and affiliates                      76                       34
Other receivables                                 811                      693
                                        --------------             -------------
                                              $ 5,484                  $ 1,014
Allowance for doubtful accounts                   (70)                    (298)
                                        --------------             -------------
     Accounts receivable, net                 $ 5,414                    $ 716
                                        ==============             =============

                                      F-19
<PAGE>

7.   Inventories:

     (In thousands of dollars)

                                                        December 31,
                                               ---------------------------
                                                    2000           2001
                                               ------------    -----------
Components                                           $ 603          $ 427
Finished goods                                       1,681          1,749
                                               ------------    -----------
                                                   $ 2,284        $ 2,176
Reserve for obsolete & slow moving inventory          (100)          (791)
                                               ------------    -----------
      Inventories, net                             $ 2,184        $ 1,385
                                               ============    ===========

8.   Property and Equipment:

     (In thousands of dollars)


                                               December 31,
                                         -------------------------
                                             2000          2001
                                         ------------  -----------
Machinery and equipment                    $ 2,018       $ 3,798
Furniture and fixtures                       1,257           623
Leasehold improvements                       1,139           966
Tooling                                        462           619
Other                                          164           432
                                         ----------     ---------
                                           $ 5,040       $ 6,438
Accumulated depreciation                    (4,352)       (4,594)
                                         ----------     ---------
    Property and equipment, net              $ 688       $ 1,844
                                         ==========     =========

     Depreciation  expense for the years ended December 31, 1999,  2000 and 2001
was $0.4 million, $0.3 million and $0.9 million, respectively.

                                      F-20
<PAGE>

9.   Other Assets:

     (In thousands of dollars)
                                                             December 31,
                                                      -------------------------
                                                          2000          2001
                                                      -----------   -----------

   Notes receivable                                      $     -       $ 1,000
   Investment in warrant (Teltran)                         3,089           152
   Due from unaffiliated company                             743             -
   Due from officer (Note 18)                                 69           105
   Other                                                     993           516
                                                      -----------   -----------
                                                         $ 4,894       $ 1,773
   Reserve for uncollectible amounts                           -        (1,000)
                                                      -----------   -----------
        Other current assets                             $ 4,894       $   773
                                                      ===========   ===========

   Marketable ITC securities (Notes 4 and 5) (a)         $ 5,100       $ 1,304
   Investment in unconsolidated subsidiaries               1,500             -
   Advances and deposits                                     663           651
   Deferred charges                                          534           537
   Other                                                     197            78
                                                      -----------   -----------
        Other assets (classified as long term)           $ 7,994       $ 2,570
                                                      ===========   ===========

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

     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.  These  shares
represent 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,  2001,
Teltran has not fulfilled its registration obligation.  Teltran is also required
to pay an ongoing,  per unit royalty. The adoption of SFAS 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 year ended  December  31,  2001,  the company  recorded a loss of the
carrying  amount of this  derivative  of $1.4 million (see Note 16). At December
31,  2000,  NCT  recorded a bad debt expense of $0.8 million with respect to the
reduction  in market value of the 2.8 million  shares on that date.  At December
31,  2000,  the value of the 2.8 million  common  shares to be received  and the
original fair value of the warrant  amounted to $3.8 million and was included in
other current  assets.  At December 31, 2000 and 2001,  the company had deferred
revenue of $4.2 million and $1.9 million,  respectively,  and for the years then
ended,  recognized  $0.4 million and $2.3 million in  technology  licensing  fee
revenue,  respectively.  The  company  does not expect to realize  cash from the
deferred  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 115 as available-for-sale securities (see Note 5).

                                      F-21
<PAGE>

     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 has
fully reserved the amount collectible (see Notes 10 and 16).

     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"). The total purchase price was $10.0 million and up to an additional
$6.0 million in 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 has  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 owes NCT Audio
is in dispute;  consequently,  receipt of the funds is contingent on the outcome
of an  arbitration  proceeding  between  the  company and TST (whose name is now
Global  Technovations,  Inc.)  and  TSA,  and on  the  outcome  of  the  pending
bankruptcy  proceedings  of TST and TSA (see Note 20).  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-22
<PAGE>

10. Notes Payable and Convertible Notes:

<TABLE>
<CAPTION>
Notes Payable:

   (In thousands of dollars)
                                                                         December 31,
                                                                     -------------------
                                                                      2000         2001
                                                                      ----         ----
<S>                                                                    <C>      <C>
 Logical eBusiness Solutions Limited (f/k/a DataTec)                   $ -      $ 2,184
    Obligation of subsidiary to a prior owner of Web Factory;
    due in two installments of 750 British pounds sterling on
    August 31, 2000 and December 31, 2000; interest accrues at
    4% above the base rate of National Westminister Bank plc
 Bridge financing                                                      250          465
    $250 rolled into 8% convertible notes; $465 rolled into
    financing completed in January 2002; notes bore interest at
    rates ranging from 3% to 6%
 Note from stockholder of subsidiary                                   150          237
    Interest at 8.5% per annum payable at maturity;
    matures March 27, 2002
 Top Source Automotive                                                 204          204
    Default interest rate accrues at two times prime;
    due April 16, 1999 (see Note 20)
 Notes due former employees                                            100          118
    $100 bears interest at 8.25%, compounded annually; due
    in two equal installments on December 1, 1998 and March 1,
    1999.  $18 non-interest bearing due on demand.
                                                                     ------     --------
                                                                     $ 704      $ 3,208
                                                                     ======     ========
</TABLE>

                                      F-23
<PAGE>

<TABLE>
<CAPTION>
Convertible Notes:

   (In thousands of dollars)
                                                                                                December 31,
                                                                                       ----------------------------
                                                                                             2000             2001
                                                                                             ----             ----
<S>                                                                                       <C>              <C>
Issued to Carole Salkind (a)                                                              $ 4,000          $ 7,222
   Effective interest rate of 20.8%; secured by substantially all
   of the assets of NCT; convertible into NCT common stock
   at prices ranging from $0.071 - $0.12 or exchangeable for
   common stock of NCT subsidiaries; due as follows:
        December 22, 2001       $ 1,673
        March 27, 2002            1,000
        September 28, 2002        2,535
        December 20, 2002         2,014
Issued to Crammer Road LLC (b)                                                                  -            1,000
   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 (see Note 14)
Issued to Production Resource Group, LLC                                                      875                -
   Accrues interest at 10% per annum payable at maturity; due
   July 19, 2001; balance unpaid and included in accrued
   expenses along with lease obligations and court costs
   subsumed under a judgment against us (see Note 20)
8% Convertible Notes (c)                                                                        -              401
   Convertible into NCT common stock at 80% of the lowest
   closing bid price for the five days preceding conversion; matures:
        March 14, 2002                $267
        April 12, 2002                 134
6% Convertible Notes (d)                                                                        -            4,428
   Convertible into NCT common stock at 100% of the five-day
   average closing bid price preceding conversion; matures:
        January 9, 2002             $2,222
        April 4, 2002                  875
        May 25, 2002                    81
        June 29, 2002                1,250
                                                                                       -----------     ------------
                                                                                          $ 4,875         $ 13,051
Less: unamortized debt discounts                                                                -           (1,341)
Less: amounts classified as long term                                                      (1,000)               -
                                                                                       -----------     ------------
                                                                                          $ 3,875         $ 11,710
                                                                                       ===========     ============
</TABLE>

Footnotes:
----------
(a)  Beginning  in 1999,  NCT has  issued  secured  convertible  notes to Carole
Salkind,  an  accredited  investor  and spouse of a former  director  of NCT. We
defaulted on each of the two-year notes dated:  January 25, 1999,  June 4, 1999,
June 11, 1999,  July 2, 1999,  July 23, 1999,  August 25, 1999 and September 19,
1999 for an aggregate of $3.0  million.  The notes were rolled into new notes in
2001 along with default penalties aggregating $0.3 million (10% of the principal
in default),  accrued interest and an aggregate of $2.5 million new funding from
Carole Salkind. In addition,  we defaulted on notes rolled into short-term notes
during 2001 and not  outstanding at December 31, 2001. We recorded a discount of
$0.7  million to the notes based upon the  relative  fair values of the debt and
warrants  granted  to  Ms.  Salkind  (see  Note  15).  In  addition,  beneficial
conversion  features  totaling  $1.5 million have been recorded as a discount to
the notes.  For the year ended December 31, 2001,  $1.1 million of  amortization
related to these discounts is included in interest expense. The company recorded
beneficial conversion features of $0.2

                                      F-24
<PAGE>

million in connection  with the 1999 notes and $1.0 million in  connection  with
the 2000 notes, classified is interest expense in our consolidated statements of
operations. 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 of prime plus 5%. As of December 31, 2001,
NCT is in default of the note dated August 22, 2001 which  matured  December 22,
2001.  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 $250,000 (see
Notes 18 and 20),  an  event of  default  occurred  with  respect  to the  notes
outstanding  as of that date. To date,  demand for payment has not been made. In
addition,  because NCT had  defaulted  on repayment of the notes as they matured
during  2001,  an  aggregate  default  penalty  expense of $1.2 million has been
reflected in our  statements of operations in other income  (expense)  (see Note
16). At  December  31,  2001,  $0.7  million of accrued  default  penalties  are
included in the consolidated balance sheet, classified as accrued expenses.

(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. The company did not repay this convertible note upon maturity.  We are
obligated to register  shares issuable upon 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).

(c)  Beneficial  conversion  features  of $0.1  million  have been  included  in
interest expense in our consolidated  statement of operations for the year ended
December 31, 2001.

(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  (classified  as accounts
payable at December 31, 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 note
discounts  amounted to $2.8  million  during the year ended  December  31, 2001.
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. 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 in finance  costs  included in other  (income)
expense for the year ended  December  31, 2001 (see Note 16).  This failure also
triggered an event of default on the  aggregate  outstanding  debt.  We have not
received a demand for  payment.  The average  effective  interest  rate on these
notes  is  141.7%  due to the  amortization  of  original  issue  discounts  and
conversions of principal during 2001.

11.  Deferred Revenue:

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

                                                             December 31,
                                                ------------------------------------
                                                      2000               2001
                                                -----------------  -----------------
<S>                                                          <C>            <C>
NXT                                                      $     -            $ 6,955
Teltran                                                    4,226              1,921
InsiderStreet                                              2,125                  -
Eagle Assets                                               1,500                  -
Brookepark                                                 1,445                  -
Other                                                         92                555
                                                -----------------  -----------------
                                                         $ 9,388            $ 9,431
Less: amount classified as current                        (7,777)            (4,616)
                                                -----------------  -----------------
     Deferred revenue (classified as long term)          $ 1,611            $ 4,815
                                                =================  =================
</TABLE>

     As of December 31, 2001, NCT does not expect to realize any additional cash
from revenues that have been deferred.

                                      F-25
<PAGE>

     In 2001,  we decided to reacquire the DMC licenses held by Eagle Assets and
Brookepark.  We accrued an aggregate of $4.0 million for this reacquisition cost
(see Note 12). As a result, we incurred an aggregate charge of $1.3 million, net
of $2.7 million  reduction of deferred revenue to zero,  included in 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.

12.  Other Liabilities:

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

                                                                            December 31,
                                                                   ----------------------------
                                                                       2000           2001
                                                                   -------------  -------------
<S>                                  <C>    <C>     <C>                <C>            <C>
License reacquisition payable (Notes 2, 11, 14, and 21)                $      -       $ 18,000
Development fee payable                                                     800            800
Due to ITC (Notes 4 and 9)                                                  812              -
Royalty payable                                                             575            766
Loan advance to NCT Video by investor                                       500              -
Due to IPI on stock settlement                                              455              -
Due to L&H                                                                  100            100
Other                                                                        80            113
                                                                   -------------  -------------
    Other current liabilities                                           $ 3,322       $ 19,779
                                                                   =============  =============

Due to ITC (Notes 4 and 9)                                              $     -       $  1,422
Royalty payable                                                           1,150            958
Due to selling shareholders of Theater Radio Network (Note 2)                 -            570
                                                                   -------------  -------------
     Other liabilities (classified as long term)                         $ 1,150       $  2,950
                                                                   =============  =============
</TABLE>

     License  reacquisition  payable at December  31, 2001 is comprised of $14.0
million  required  under the private  equity credit  agreement (see Note 21) and
$4.0 million for the cost of reacquiring other DMC licenses (see Note 11).

                                      F-26
<PAGE>

     On September  29, 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 are defined as ViewBeam(TM) Display(s),  which employ the
licensed technology,  as defined in the agreement. 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 29, 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 was
valued  at $0.9  million  and $1.0  million  at  December  31,  2000  and  2001,
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 nine years, the earliest date of patent  expiration.  In
addition,  as part of this  agreement,  NCT  Video and ADT have  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
return, NCT Video agreed to pay a development fee of $0.9 million for performing
such  development  work.  At December  31, 2000 and 2001,  such $0.8 million was
included in other current liabilities.

     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  is $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 common stock.  In February 2001,
we issued  200,000  shares of NCT common  stock to settle  this  obligation  and
reduced  the patent  cost in an amount  corresponding  to our  reduction  of the
liability.  Such  liability  was $0.5  million and zero at December 31, 2000 and
2001, respectively.

     NCT had an earnout  obligation  under the 1999 stock purchase  agreement by
which NCT acquired  substantially all of the outstanding stock of Advancel Logic
Corporation. While each earnout payment may not be less than $0.3 million in any
earnout year,  there is no maximum  earnout  payment for any earnout year or for
all  earnout  years in the  aggregate.  In  connection  therewith,  the  company
recorded the minimum amounts of earnout  obligations  through December 31, 1999,
aggregating  $0.3  million.  Due to a  settlement  between NCT and the  Advancel
shareholders  (see Note 21), no earnout  payments were or will be required to be
paid.

     In  connection  with our  acquisition  of  Midcore  (see Note 2), we became
obligated  to pay some  selling  shareholders  $1.8  million  in cash based upon
earned royalties, 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, 2000 and 2001,  other
current liabilities  includes $0.6 million and $0.8 million,  respectively,  and
other   liabilities   (long term)   includes  $1.2  million  and  $1.0  million,
respectively, for this obligation on our consolidated balance sheets.

13.  Common Stock Subject to Resale Guarantee:

Vendor and Consultant Shares:

     During the year ended December 31, 2001, NCT issued 1,013,868 shares of its
common stock, with a resale guarantee  feature,  to suppliers and consultants to
satisfy obligations totaling $604,683. In connection therewith,  upon settlement
of  accounts  payable  discharged  at  amounts  less  than we had  recorded,  we
recognized

                                      F-27
<PAGE>

miscellaneous  income of approximately  $0.1 million (see Note 16). During 2001,
suppliers  and  vendors  sold  common  stock  valued at time of issuance at $0.4
million and realized $0.2 million in proceeds.

     During 2000, the company issued 2,304,571 shares of common stock to various
consultants  and  suppliers to settle  current  obligations  of $0.4 million and
future or  anticipated  obligations  of $0.5 million due to them by the company.
During the year ended December 31, 2000, suppliers and vendors sold $0.9 million
of such shares and returned 776,316 previously issued shares to us.

     Common stock subject to resale guarantee was zero at December 31, 2001. NCT
ceased  entering into such  agreements  during 2001 (see Note 21).  Common stock
subject  to resale  guarantee  was $0.2  million at  December  31,  2000,  which
represented  2,258,272  outstanding shares of common stock valued at the date of
issuance to  suppliers  and vendors.  The offset to the common stock  subject to
resale guarantee is additional paid-in capital.

Private Placement Shares:

     The company had some  contingent  obligations  under a securities  purchase
agreement,  dated as of December 27, 1999,  among the company,  Austost  Anstalt
Schaan ("Austost"),  Balmore S.A.  ("Balmore") and Nesher, Inc.  ("Nesher").  On
December 28, 1999,  we issued  3,846,155  shares of our common stock to Austost,
Balmore and Nesher for a total  purchase  price of  $500,000.  In  addition,  we
issued  288,461  shares  of our  common  stock to the  placement  agent  for the
transaction.  The price of the shares was $0.13 per share,  which was $0.03,  or
19%,  less than the closing bid price of our common stock as reported by the OTC
Bulletin Board on November 8, 1999 (the day preceding the investors' offer), and
$0.015,  or 10%, less than the closing bid price of our common stock as reported
by the OTC Bulletin Board on December 27, 1999. This per share price was subject
to decrease upon the application of a reset provision  contained in the purchase
agreement.  Due to the provision, we recorded the purchase price ($500,000) plus
the guaranteed return on investment of 20% ($100,000) as common stock subject to
resale. Under a reset provision contained in the purchase agreement, on June 26,
2000,  and again on September 25, 2000,  the company might have been required to
issue additional shares to one or more of Austost,  Balmore or Nesher if the sum
of specific  items on those dates was less than 120% of the total purchase price
paid by Austost,  Balmore and Nesher for the shares.  Those items were:  (i) the
aggregate market value of the shares held by Austost,  Balmore and Nesher (based
on the per share closing bid price on those dates); (ii) the market value of any
of these shares  transferred by Austost,  Balmore and Nesher as permitted  under
the purchase  agreement (based on the per share closing bid price on the date of
transfer);  and (iii) any amounts  realized by Austost,  Balmore and Nesher from
sales of any such shares  prior to June 26, 2000 or September  25, 2000,  as the
case may be. The number of  additional  shares of common  stock that the company
would  have been  obligated  to issue in such case  would  have been a number of
shares  having an aggregate  market  value  (based on the per share  closing bid
price on such date) that, when added to the sum of items (i), (ii) and (iii) set
forth above,  would equal 120% of the total  purchase price paid for the shares.
The 20% of the total  purchase  price paid  ($100,000)  was  deemed a  preferred
return over the initial  reset  period.  At both June 26, 2000 and September 25,
2000,  no additional  shares were  required to be issued in accordance  with the
reset  provision and the 20% of the total purchase price paid  ($100,000) was no
longer considered a preferred return.

14.  Capital Stock:

Authorized Capital Stock

     NCT has 655 million  shares  authorized,  645  million  shares of which are
$0.01 par value  common  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.  At the
annual meeting of stockholders of the company on June 24, 1999, the

                                      F-28
<PAGE>

stockholders  approved an  amendment  to increase the number of shares of common
stock the company is authorized  to issue from 255 million to 325 million.  This
amendment  became  effective  on  July  29,  1999,  when  the  company  filed  a
Certificate of Amendment to its Certificate of Incorporation  with the Secretary
of State of Delaware.

Common shares available for future issuance

     At December  31, 2001,  the shares of common stock  required to be reserved
were as follows,  calculated  at the $0.085  common stock price on that date (or
the discount  therefrom as allowed under the  applicable  exchange or conversion
agreements):

Stock options and warrants                                   103,085,251
NCT Secured Convertible Notes issued to Carole Salkind        85,771,392
8% Convertible Notes and Note issued to Crammer Road          25,767,134
NCT Audio Common Stock Exchange                                4,411,765
ConnectClearly Common Stock Exchange                           1,065,441
Pro Tech Preferred Stock Exchange                              9,860,471
6% Convertible Notes Exchange                                 69,337,139
Artera Preferred Stock Exchange                               67,597,875
Earnout and look back shares for Theater Radio Network
   and Midcore Software acquisitions                          20,014,054
DMC New York Reset Shares                                      3,333,334
Private Equity Credit Agreement                              378,098,742
                                                            -------------
                                                             768,342,598
                                                            =============

     At the December 31, 2001 common  stock price of $0.085,  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 Second Restated  Certificate of Incorporation to increase the
number of shares of common stock authorized for NCT.

Transactions with Crammer Road LLC

Private Equity Credit Agreement

     On April 12,  2001,  NCT and Crammer  Road  finalized  a new equity  credit
agreement and canceled their private equity credit agreement dated September 27,
2000. Under the new private equity credit agreement,  we are required to put $17
million of our common stock to Crammer Road in exchange for 12,000 shares of DMC
New York and cash in the  amount  of  approximately  $3.0  million  pursuant  to
monthly notices. Our monthly put notices were required to commence no later than
October 1, 2001;  however,  we have not  delivered  any put notices to date (see
Note 21). In conjunction with this transaction,  the company issued Crammer Road
a warrant for 250,000 shares of the company's common stock (see Note 15). We are
obligated to register  shares of our common stock for the private  equity credit
agreement.

     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 shares  343,604 were issued
in 2001.

DMC New York, Inc.

     NCT acquired 25% of DMC New York in 2001 (see Note 2). We intend to acquire
the  remaining  12,000 shares (75%) of DMC New York with NCT common stock shares
in  accordance  with our April 12, 2001 private  equity  credit  agreement  with
Crammer  Road and have  accrued the $14.0  million  cost of  repurchasing  those
additional  licenses (see Notes 12 and 21). DMC New York holds Distributed Media
Corporation  licenses for  operation of the Sight & Sound  technology in the New
York designated market area. Our acquisition of 25% of DMC New York (see Note 2)
and accrual of $14.0  million for the  remaining 75% of DMC New York resulted in
an $18.0 million charge  included in write downs of investment  and  repurchased
licenses in our  consolidated  statements of  operations.  Our decision to write
down our  investment  was  because  DMC New York has not  commenced  operations.
Further justification for the charge is as follows: (1) we did not obtain an

                                      F-29
<PAGE>

independent  appraisal of DMC New York, but NCT's Board of Directors  deemed the
value to be fair, (2) we are essentially  acquiring our own technology,  and (3)
the  Board  of  Directors  of DMC New York is 100%  comprised  of  officers  and
directors of NCT.

     If a  registration  statement  covering  amounts  pursuant  to an  exchange
agreement  with  Crammer  Road were not in effect by July 1, 2001,  we agreed to
acquire  1,000  shares of DMC New York 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 is  classified  in other  current
assets.

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 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 New York,  Inc. with an aggregate  value
of  $2.0  million.  In  accordance  with  the  exchange  agreement,  NCT is 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  request  acceleration  of  the  effectiveness  of  the
registration statement covering those shares is less than $0.16 per share, up to
a maximum of 3,333,334  additional  shares.  We are obligated to register  these
issued shares of common stock and the reset shares of common stock.  We incurred
a charge of $0.5 million due to  non-registration  of these  shares  included in
other (income) expense in our consolidated  statement of operations for the year
ended December 31, 2001 (see Note 16).

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 (see  Note 12).  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 is 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,  we  recorded a  beneficial  conversion
feature of $33,333 in connection with the April 12, 2001 convertible note during
the second quarter of 2001. The beneficial  conversion  feature is accounted for
as a discount to the note and is allocated to a component of additional  paid-in
capital.  The discount was  recognized as interest  expense in our  consolidated
statement of operation  for the year ended  December 31, 2001.  In October 2001,
Crammer Road  exchanged  the NCT Video note for  6,014,029  shares of our common
stock.

Shares Issued for Acquisitions

     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 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.

                                      F-30
<PAGE>

Shares Issued upon Conversion or Exchange of Indebtedness

     As noted  above,  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 issued by Artera Group,  Inc. plus interest,  was exchanged for 26,910,453
shares of NCT's  common  stock.  At December  31,  2001,  $4.4 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,  2001,  NCT  issued an  aggregate  of
3,165,495 shares of its common stock to suppliers,  consultants and an employee.
2,151,627 of these shares were issued  without a resale  guarantee  feature,  of
which 171,429 were for future  obligations  totaling  $60,000 and 1,980,198 were
for current obligations totaling $200,000. 328,717 of such shares were issued to
an employee (see Note 18).

     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).

     On June 24,  1999,  the Board of  Directors  approved the issuance of up to
15,000,000  shares  of the  company's  common  stock to be used to  settle  some
obligations of the company.  In 1999, the company  issued  13,154,820  shares of
common stock to suppliers and consultants to settle current  obligations of $1.8
million and future or anticipated obligations of $0.7 million.

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 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.  At  December  31,  2001,  63
ConnectClearly common shares are outstanding.

NCT Audio Products, Inc.

Initial Financing

     In 1997, NCT Audio sold 2,145 common shares 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

                                      F-31
<PAGE>

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). Included
in impairment  of goodwill in our  consolidated  statements  of  operations  are
charges  attributable to NCT Audio  aggregating  $3.1 million,  $3.1 million and
$2.1  million,   for  the  years  ended  December  31,  1999,   2000  and  2001,
respectively.

     Through December 31, 2001, we have issued an aggregate of 27,315,198 shares
of our common  stock in exchange  for 1,985  shares of NCT Audio  common  stock.
During the years ended December 31, 1999, 2000 and 2001, 559, 533 and 597 shares
of NCT Audio common stock, respectively, were exchanged for shares of NCT common
stock.  At December  31, 2001,  160 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 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.

                                      F-32
<PAGE>

Other Private Placements and Stock Issuances

     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, we 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 Union  Atlantic LC
("UALC"),  Pro Tech was obligated to issue 2% of its outstanding common stock to
UALC  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
UALC (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  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, 2001, 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, 2001, there are
no shares of NCT preferred stock issued and outstanding.  Between 1986 and 2000,
NCT designated seven series of preferred stock,  including series A, B, C, D, E,
F and G 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
and G  designations,  none of which are  outstanding as of December 31, 2001. In
November 2001, series C, D, E and F were eliminated.

Series C Convertible Preferred Stock

     Between  October 28, 1997 and December 11, 1997, the company entered into a
series of subscription  agreements to sell an aggregate  amount of $13.3 million
of series C  convertible  preferred  stock in a private  placement,  pursuant to
Regulation D under the Securities Act, to 32 unrelated accredited investors. The
aggregate  net  proceeds  to the  company of the  private  placement  were $11.9
million. Each share of the series C 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.  The series C preferred stock was  convertible  into shares of our common
stock at 80% of the five-day  average  closing bid price of our common stock. On
December 30, 1998,  1,700 shares of the series C preferred  stock were exchanged
for our series E preferred  stock.  As of November  30, 1999,  10,850  shares of
series C preferred stock had been converted into 20,665,000 shares of NCT common
stock  and  the  700  remaining  series  C  shares  were  subject  to  mandatory
conversion. As such, on November 30, 1999 (the mandatory conversion date), these
700 shares were converted to 1,512,000  shares of our common stock.  At December
31, 2000 and 2001, there were no outstanding shares of series C preferred stock,
and the series C preferred stock was eliminated in 2001.

Series D Convertible Preferred Stock

     On July 27, 1998, the company entered into subscription  agreements to sell
6,000  shares of its series D  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. Net proceeds of
$5.2  million  were  received  by the  company  from its  issuance  of  series D
preferred  stock.  Each share of the series D 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.

                                      F-33
<PAGE>

Each  share of series D  preferred  stock  was  convertible  into  shares of the
company's  common  stock,  subject to specific  limitations,  as determined by a
formula set forth in the  agreement.  A registration  statement  relating to the
common stock underlying the series D preferred stock became effective on October
30,  1998,  and shares of series D preferred  stock became  convertible  on that
date.  Including  shares of common stock issued for  accretion,  as of March 12,
1999, all shares of series D preferred  stock had been converted into 12,273,685
shares of NCT  common  stock.  At  December  31,  2000 and 2001,  there  were no
outstanding shares of series D preferred stock, and the series D preferred stock
was eliminated in 2001.

Series E Convertible Preferred Stock

     On December 30,  1998,  the company  entered into a series of  subscription
agreements  to sell an aggregate  stated value of up to $8.2 million of series E
convertible  preferred  stock in  consideration  of $4.0  million  in a  private
placement,  pursuant to Regulation D under the Securities Act, to six accredited
investors.  In addition, the company issued and sold an aggregate amount of $1.7
million of series E preferred  stock to three  accredited  investors in exchange
for an  aggregate  stated  value  of $1.7  million  of the  company's  series  C
preferred stock held by the three accredited investors.  The company also issued
and sold an aggregate amount of $0.7 million of series E preferred stock to four
accredited  investors  in exchange  and  consideration  for an  aggregate of 2.1
million  shares  of the  company's  common  stock  held by the  four  accredited
investors  and  received net proceeds of $1.8  million.  On April 13, 1999,  the
company  entered into a subscription  agreement to sell 1,874 shares of series E
preferred  stock,  with a stated value of up to $1.9 million in consideration of
$1.9 million to four accredited investors.  Each share of the series E 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 E preferred stock
was  convertible  into  shares  of  the  company's  common  stock,   subject  to
limitations, as determined by a formula set forth in the agreement. During 1999,
holders of 3,828  shares of series E preferred  stock  elected to convert  their
shares into 26,608,942 shares of common stock of the company.

     On March 31, 1999,  NCT signed an agreement that holders of 3,600 shares of
series E preferred stock could return those shares as consideration for four DMC
network  affiliate  licenses.  In 1999, NCT  recognized  revenue of $0.9 million
based upon the  valuation of series E preferred  stock issued during the period.
On December 15, 1999,  holders of the  remaining  5,026 shares of the  company's
series E  preferred  stock and holders of 974 shares of the  company's  series F
preferred  stock,  an aggregate  stated value of $6.0  million,  exchanged  such
shares for eight DMC network affiliate licenses. No shares of series E preferred
stock were outstanding at December 31, 2000 and 2001, and the series E preferred
stock was eliminated in 2001.

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.  In the interest of investor  relations  of the  company,  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 September 10, 1999, the company received $4.0 million for four DMC
network affiliate licenses from four accredited investors. While the investors
agreed upon the exchange of 8,500 shares of NCT's series F

                                      F-34
<PAGE>

preferred stock having aggregate stated value of $8.5 million, for consideration
of $1.0  million,  the company has treated the $4.0 million for the DMC licenses
as additional  consideration  for the series F preferred  stock. On December 15,
1999, 974 shares of NCT's series F preferred  stock,  together with 5,026 shares
of the  company's  series E  preferred  stock,  were  returned to the company as
consideration for eight DMC network affiliate licenses. 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, 2000 and 2001,  no
series F preferred  stock is  outstanding,  and the series F preferred stock was
eliminated in 2001.

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 $0.10 per share and a stated  value of $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. Such amount is included in the preferred
stock  dividend  requirement  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. At December 31, 2000 and 2001,
there were 767 and no outstanding  shares,  respectively,  of series G preferred
stock.

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  $0.10 per share and  stated  value of $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).

     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.
In 2001,  we  incurred  a charge of $0.7  million  for  non-registration  of the
underlying  shares of NCT common  stock.  This amount is  included in  preferred
stock  dividends  and  in  the  calculation  of  loss   attributable  to  common
stockholders  for the year ended  December  31,  2001.  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).

                                      F-35
<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  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.  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  proceeds  received for issuance of
convertible  series A preferred shares of $0.4 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 aggregate of $4.0 million is included in the calculation of loss
attributable to common stockholders on the consolidated  statement of operations
for the year ended December 31, 2000.

     On July 30, 2001,  Pro Tech entered  into an agreement  with Alpha  Capital
Atkiengesellschaft  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%.  In  accordance  with EITF 98-5,  as
codified in EITF 00-27,  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).  As of December 31, 2001,  $79,190 of the beneficial  conversion
feature was recognized.  In connection with this 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.  This $63,000  along with the $79,190  beneficial  conversion  feature is
included in the  calculation  of net loss  attributable  to common  stockholders
(including NCT Hearing  Products) on Pro Tech's  statement of operations for the
year ended December 31, 2001.

     During the year ended December 31, 2001,  1,450 shares of Pro Tech series A
preferred stock were converted into 4,951,873 shares of Pro Tech common stock or
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.  At  December  31,  2001,  there were 50 shares of Pro Tech's  series A
preferred stock  outstanding and 500 shares of Pro Tech series B preferred stock
outstanding.

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

                                      F-36
<PAGE>

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.

15.  Common Stock Options and Warrants:

     The company  accounts for its various employee stock option incentive plans
in accordance with APB 25 and furnishes the pro forma disclosures required under
SFAS 123. Under APB 25, no compensation  costs are recognized because the option
exercise price is equal to the fair market price of the common stock on the date
of the grant.  Under SFAS 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. Had compensation costs been determined as prescribed by
SFAS 123, the  company's net loss and net loss per share would have been reduced
to the pro forma amounts indicated below for the years ended December 31:

     (In thousands, except per share amounts)

                                            Years ended December 31,
                            ------------------------------------------------
                             1999                   2000               2001
                            ------                 ------             ------
Net loss
  As reported            $ (23,771)              $(10,324)          $(77,660)
  Pro forma                (27,442)               (17,700)           (79,207)
Loss per share
  As reported            $   (0.18)              $  (0.05)          $  (0.21)
  Pro forma                  (0.20)                 (0.08)             (0.21)

     The  weighted-average  fair  values  at date of grant for  options  granted
during 1999, 2000 and 2001 were $0.28 to $0.48,  $0.27 and $0.07,  respectively,
and were  estimated  using  the  Black-Scholes  option  pricing  model  with the
following weighted-average assumptions:


                                            Years ended December 31,
                                     ------------------------------------------
                                      1999            2000                2001
                                     ------          ------              ------
Expected life in years                    3              3                  3
Interest rate                    4.56%-6.14%    4.56%-6.56%        3.27%-5.41%
Volatility                                1           1.29                  1
Dividend yield                            0%             0%                 0%

     The company  values  options and warrants  using the  Black-Scholes  option
pricing  model and accounts for options and warrants  issued to parties that are
not employees or members of the Board of Directors as follows. The fair value of
options and  warrants  issued to general  consultants  are  recorded 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 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 an  acquisition  are
recorded as additional purchase price.

                                      F-37
<PAGE>

Stock Options:

     The following  summarizes  information  about the  company's  stock options
outstanding and exercisable at December 31, 2001:

<TABLE>
<CAPTION>

                                                             Options Outstanding                     Options Exercisable
                                             ------------------------------------------------  -------------------------------------
                                                                 Weighted
                                                                 Average
                                                                 Remaining      Weighted                        Weighted
                                                                 Contractual    Average                         Average
                           Range of            Number             Life          Exercise        Number          Exercise
     Plan               Exercise Price         Outstanding       (In Years)     Price           Exercisable     Price
    ------             ---------------        ------------       -----------   ----------       -----------    -----------
<C>                  <C>         <C>                <C>            <C>          <C>             <C>             <C>
1987 Plan            $   0.50 to $   0.63           1,350,000      2.09         $   0.51         1,350,000       $   0.51
                                               ===============                                  ===========
Non-plan             $   0.27                         100,000      2.34         $   0.27           100,000       $   0.27
                                               ===============                                  ===========
1992 Plan            $   0.10  to $  0.27           7,160,134      5.74         $   0.21         5,871,549       $   0.21
                     $   0.31  to $  0.44          21,897,551      6.43         $   0.37        19,817,943       $   0.37
                     $   0.50  to $  1.00          17,350,978      4.56         $   0.56        16,490,548       $   0.57
                                               ---------------                                  -----------
Total 1992 Plan                                    46,408,663                   $   0.42        42,180,040       $   0.42
                                               ===============                                  ===========
Directors Plan       $   0.66 to $   0.75             538,500      2.09         $   0.73           538,500       $   0.73
                                               ===============                                  ===========
2001 Plan            $   0.13                      10,387,503      6.67         $   0.13         5,355,001       $   0.13
                                               ===============                                  ===========
</TABLE>

1987 Plan

     The  company's  1987 Stock Option Plan (the "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. 1987 Plan activity is summarized as follows:

<TABLE>
<CAPTION>

                                                                            Years Ended December 31,
                                         -------------------------------------------------------------------------------------------
                                                        1999                         2000                               2001
                                         ------------------------------  ----------------------------   ----------------------------
                                                             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                           1,350,000        $  0.51              -              -                 -             -
Options exercised                                 -              -              -              -                 -             -
Options canceled, expired or forfeited   (1,350,000)       $  0.51              -              -                 -             -
                                         -----------                    -----------                    ------------
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
                                         ===========                    ===========                    ============
</TABLE>

     In February 1999, the Board of Directors granted new options under the 1987
Plan aggregating  1,350,000 shares for options that would otherwise expire.  The
exercise  prices of the new grants  were the same as options  expiring  in 1999,
prices which exceeded the February 1, 1999 stock price, and therefore, there was
no financial  statement  impact.  These options have an  expiration  date of the
shorter of five years from  February 1, 1999 or ten years from the grant date of
the expiring options.

     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.

Non-plan

     The  company's  non-plan  options  are  granted  from  time  to time at the
discretion of the Board of  Directors.  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.
Non-plan stock option activity is summarized as follows:

                                      F-38
<PAGE>

<TABLE>
<CAPTION>

                                                                                 Years Ended December 31,
                                         -------------------------------------------------------------------------------------------
                                                        1999                         2000                            2001
                                         -------------------------------  ------------------------------  --------------------------
                                                            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          4,319,449        $   0.36        4,284,000     $   0.33            4,025,000         $0.30
Options granted                                   -               -                -            -                    -             -
Options exercised                                 -               -                -            -           (3,850,000)        $0.30
Options canceled, expired or forfeited     (35,449)        $   4.86         (259,000)    $   0.70              (75,000)        $0.50
                                         -----------                      ------------                     ------------
Outstanding at end of year                4,284,000        $   0.33          4,025,000   $   0.30              100,000         $0.27
                                         ===========                      ============                     ============
Options exercisable at year-end           4,284,000        $   0.33          4,025,000   $   0.30              100,000         $0.27
                                         ===========                      ============                     ============
</TABLE>

     In 2001,  the company  issued shares to NXT plc for its options,  which NCT
had granted to NXT plc in 1997, to acquire 3,850,000 shares of NCT common stock.
This  issuance  was  in  connection  with  reorganizing  existing  cross-license
agreements between NCT and NXT plc (see Note 4).

1992 Plan

     On October 6, 1992,  the company  adopted a stock  option plan (as amended,
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 1992 Plan options 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.  The 1992 Plan
was also then amended to eliminate the automatic grant of shares of NCT's common
stock upon a non-employee  director's initial election to the Board of Directors
and thereafter upon each subsequent election. 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 under the 1992 Plan from 30,000,000 shares to 50,000,000 shares.

     In February 1999, the Board of Directors granted new options under the 1992
Plan aggregating 798,538 shares for options which expired in 1999 under the 1992
Plan. The exercise prices for these grants were the same as for options expiring
in 1999 (which  exceeded  the  February  1, 1999  price).  These  grants have an
expiration  date of the shorter of five years from February 1, 1999 or ten years
from the grant date of the expiring options.

     In January 2000, the Board of Directors  granted options to purchase shares
of the company's common stock to 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.  Such 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  and is included in
selling,  general and administrative  expenses on the consolidated statements of
operations for the year ended December 31, 2000.

     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.
Such  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 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 re-granting of these options.

                                      F-39
<PAGE>

     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
Chief  Executive  Officer and Chairman of the Board of Directors  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  (described  below).  The market price at the date the shares were
made  available  under the plans was equal to the exercise price of the options.
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.
Such  replacement  grants  under  the 1992  Plan  totaled  approximately  67,000
options.  The  exercise  price on 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 the these  options.

     From time to time, the Board of Directors accelerates the vesting schedules
of previously  granted  stock options  granted to officers and directors 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 2000 acquisitions; 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 2000  acquisitions  (Theater
Radio Network,  Midcore  Software and Pro Tech).  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.

     1992 Plan activity is summarized as follows:

<TABLE>
<CAPTION>

                                                                  Years Ended December 31,
                                         ------------------------------------------------------------------------------------------
                                                         1999                             2000                          001
                                         -------------------------------  ------------------------------  -------------------------
                                                          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         19,831,821     $   0.52         28,024,237       $   0.47       47,057,690      $   0.43
Options granted                           9,398,538     $   0.43         35,377,071       $   0.42        1,641,992      $   0.19
Options exercised                            (5,000)    $   0.27         (1,284,907)      $   0.58                -      $      -
Options canceled, expired or forfeited   (1,201,122)    $   0.60        (12,234,206)      $   0.49       (2,291,019)     $   0.55
Board action                                      -            -         (2,824,505)      $   0.33                -             -
                                         ------------                    -------------                   ------------
Outstanding at end of year               28,024,237     $   0.47         47,057,690       $   0.43       46,408,663      $   0.42
                                         ============                    =============                   ============
Options exercisable at year-end          14,751,044     $   0.55         32,330,873       $   0.47       42,180,040      $   0.42
                                         ============                    =============                   ============
</TABLE>

     In addition,  in 2001, the company  granted 357,927 common shares 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.

     As of  December  31,  2001,  no options  for the  purchase  of shares  were
available  for future  grants of  restricted  stock  awards  and for  options to
purchase common stock under the 1992 Plan.

Directors Plan

     On November 15, 1994,  the Board of Directors  adopted the NCT Group,  Inc.
Option Plan for Certain Directors (as amended,  the "Directors Plan"). 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

                                      F-40
<PAGE>

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,
                                         ------------------------------------------------------------------------------------
                                                         1999                      2000                        2001
                                         -----------------------------  ------------------------   --------------------------
                                                           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          746,000          $   0.73     538,500      $    0.73      538,500         $    0.73
Options granted                           538,500          $   0.73           -              -            -                 -
Options exercised                               -                 -           -              -            -                 -
Options canceled, expired or forfeited   (746,000)         $   0.73           -              -            -                 -
                                         ---------                    ----------                   ----------
Outstanding at end of year                538,500          $   0.73     538,500      $    0.73      538,500         $    0.73
                                         =========                    ==========                   ==========
Options exercisable at year-end           538,500          $   0.73     538,500      $    0.73      538,500         $    0.73
                                         =========                    ==========                   ==========
</TABLE>

     As of December  31, 2001,  there were  282,500  options for the purchase of
shares available for future grants under the Directors Plan.

2001 Plan

     On April 25, 2001, the Board of Directors  adopted the NCT Group, Inc. 2001
Stock and  Incentive  Plan (the  "2001  Plan")  for the  granting  of shares and
options  to  purchase  up to  18,000,000  shares  of common  stock to  officers,
employees,  consultants  and  directors.  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.  2001 Plan activity
is summarized as follows:

                                                 Year Ended December 31, 2001
                                                -----------------------------
                                                                 Weighted
                                                                 Average
                                                                 Exercise
                                                   Shares         Price
                                               --------------  ------------
   Outstanding at beginning of year                        -             -
   Options granted                                10,387,503      $   0.13
   Options exercised                                       -             -
   Options canceled, expired or forfeited                  -             -
                                               --------------
   Outstanding at end of year                     10,387,503      $   0.13
                                               ==============
   Options exercisable at year-end                 5,355,001      $   0.13
                                               ==============

     As of December 31, 2001,  there were 7,612,497  options for the purchase of
shares of common stock available for future grants under the 2001 Plan.

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.

     In February 1999, the Board of Directors  granted new warrants  aggregating
2,169,750 shares to replace warrants that expired in 1999. The exercise price of
the new grants  was the same as it had been on the  warrants  expiring  in 1999,
which  exceeded  the  February  1, 1999  stock  price.  Therefore,  there was no
financial  statement  impact  with  respect to these new warrant  grants.  These
warrants have an  expiration  date of the shorter of five years from February 1,
1999 or ten years from the grant date of the expiring warrants.

                                      F-41
<PAGE>

     In July 1999, in connection  with the  Production  Resource Group note (see
Note 10),  Production Resource Group was granted a common stock warrant equal to
either (i) the number of shares of the company's common stock  (6,666,667) which
may be  purchased  for an aggregate  purchase  price of  $1,250,000  at the fair
market  value on July 19, 1999 or (ii) the number of shares  representing  5% of
the common  stock of DMC at the  purchase  price per share equal to an aggregate
price of $1,250,000 (because a DMC qualified sale, as defined, had not closed on
or before December 31, 1999). Such warrant expires July 19, 2004.

     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 is being
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  for $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 the new private equity credit agreement,  such warrant
was canceled and replaced with another warrant for 250,000  shares,  exercisable
for $0.14 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).  On January 10, 2002,  we
granted the same placement  agent a warrant to acquire  5,000,000  shares of NCT
common  stock  as  consideration  for  advisory  services  on our  $0.6  million
financing  then  completed  (see  Note  26).  We  issued   warrants  to  outside
consultants  for the right to acquire an aggregate of 3.1 million  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).

     Warrant activity is summarized as follows:

<TABLE>
<CAPTION>

                                                                             Years Ended December 31,
                                         -------------------------------------------------------------------------------------------
                                                      1999                               2000                           2001
                                         ---------------------------   ---------------------------  --------------------------------
                                                         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           4,372,684      $   0.82     10,402,081      $    0.40    21,048,331       $    0.36
Warrants granted                           9,254,542      $   0.34     10,979,875      $    0.34    33,542,254       $    0.13
Warrants exercised                                -              -              -              -   (10,000,000)      $    0.08
Warrants canceled, expired or forfeited   (3,225,145)     $   0.82       (333,625)     $    0.89      (865,000)      $    0.40
                                         --------------                ------------                ------------
Outstanding at end of year                10,402,081      $   0.40     21,048,331      $    0.36    43,725,585       $    0.21
                                         ==============                ============                ============
Warrants exercisable at year-end          10,402,081      $   0.40     21,048,331      $    0.36    42,396,318       $    0.20
                                         ==============                ============                ============
</TABLE>

                                      F-42
<PAGE>

     The following table summarizes  information  about warrants  outstanding at
December 31, 2001:

<TABLE>
<CAPTION>
                                     Warrants Outstanding               Warrants Exercisable
                             --------------------------------------    ----------------------
                                             Weighted
                                              Average
                                             Remaining    Weighted                  Weighted
                                            Contractual   Average                   Average
              Range of          Number         Life       Exercise                  Exercise
           Exercise Price      Outstanding  (In Years)     Price         Number      Price
         -----------------   -------------- ----------   --------      -----------  --------
<S>        <C>      <C>         <C>                <C>     <C>         <C>           <C>
           $0.07 to $0.16       30,917,254         4.31    $0.12       30,917,254    $0.12
           $0.19 to $1.66       12,808,331         2.33    $0.42       11,479,064    $0.41
                                ----------                             ----------
                                43,725,585                             42,396,318
                                ==========                             ==========
</TABLE>


16.  Other (Income) Expense:

     (In thousands of dollars)

<TABLE>
<CAPTION>
                                                                                         For the Years Ended
                                                                                            December 31,
                                                                        ------------------------------------------------------------
<S>                                                                             <C>                  <C>                  <C>
                                                                                1999                 2000                 2001
                                                                                ----                 ----                 ----
Other operating (income) expense, net consisted of the following:

Forgiveness of payable                                                        $    -              $ (144)              $  (67)
Minority share of loss in subsidiary - Pro Tech                                    -                 (99)                (473)
Other                                                                           (266)               (169)                (397)
                                                                        ------------------------------------------------------------
     Total other operating income, net                                        $ (266)             $ (412)              $ (937)
                                                                        ============================================================

Non-operating Other (income) expense, net consisted of the following:

Other-than-temporary decline in value of securities
  available-for-sale (Note 5)                                                    $ -                 $ -              $ 7,036
Default penalties on debt (Notes 10 and 18)                                        -                   -                1,208
Depreciation in fair value of warrant (Note 9)                                     -                   -                1,355
Realized loss on sale of trading securities - NXT (Note 4)                         -                   -                2,301
Finance costs associated with non-registration of common shares
  and of common shares underlying convertible notes (Notes 10 and 14)              -                   -                2,318
Inducement charges (Note 14)                                                       -                   -                  190
Reserve for notes receivable (Note 9)                                              -                   -                1,000
Other                                                                            166                (162)                 691
                                                                        ------------------------------------------------------------
     Total non-operating other (income) expense, net                           $ 166              $ (162)            $ 16,099
                                                                        ============================================================
</TABLE>

                                      F-43
<PAGE>

17.  Supplemental Cash Flow Disclosures:

     (In thousands of dollars)

<TABLE>
<CAPTION>
                                                                                       For the Years Ended December 31,
                                                                                  --------------------------------------------
                                                                                      1999            2000            2001
                                                                                  --------------  -------------    -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
<S>                                                                                         <C>            <C>            <C>
   Interest                                                                             $     4       $      3        $    11
                                                                                  ==============  =============    ===========
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 4.3 million shares of common stock upon conversion of note              $     -       $      -        $   500
                                                                                  ==============  =============    ===========
    Issuance of common stock for acquisition of Midcore Software, Inc.                  $     -       $  4,818        $     -
                                                                                  ==============  =============    ===========
    Issuance of common stock for acquisition of Theater Radio Network                   $     -       $  2,500        $     -
                                                                                  ==============  =============    ===========
    Issuance of common stock in exchange for common stock of subsidiary                 $ 2,632       $  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 notes for placement services rendered                                   $     -       $      -        $   527
                                                                                  ==============  =============    ===========
    Issuance of common stock for services                                               $ 2,503       $    547        $   435
                                                                                  ==============  =============    ===========
    Issuance of common stock in exchange for convertible note of subsidiary             $     -       $      -        $ 2,477
                                                                                  ==============  =============    ===========
    Issuance of common stock in exchange for preferred stock of subsidiary              $ 9,306       $    317        $   261
                                                                                  ==============  =============    ===========
    Issuance of common stock in exchange for preferred stock                            $ 3,853       $  4,024        $     -
                                                                                  ==============  =============    ===========
    Property and equipment financed through capitalized leases and notes
    payable                                                                             $     -       $      -        $ 1,404
                                                                                  ==============  =============    ===========
    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
                                                                                  ==============  =============    ===========
    Preferred stock exchanged for license                                               $ 9,600       $      -        $     -
                                                                                  ==============  =============    ===========
    Issuance of common stock in exchange for patent rights                              $    88       $      -        $     -
                                                                                  ==============  =============    ===========
</TABLE>

18.  Related Parties:

     Beginning  in 1999,  NCT has  issued  secured  convertible  notes to Carole
Salkind,  an accredited  investor and spouse of a former  director of NCT. As of
December 31, 2001, the principal  balance  outstanding of these notes aggregated
approximately  $7.2  million.  The notes are  secured by  substantially  all the
assets of NCT. 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. 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. In
the  circumstances,  a 10% default  penalty was accrued as of December  31, 2001
(see Notes 10, 16 and 20).

     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.

                                      F-44
<PAGE>

     Between 1993 and 1994, the company  entered into five agreements with Quiet
Power Systems, Inc. ("QSI").  Environmental  Research Information,  Inc. ("ERI")
owns 33% of QSI and Jay M. Haft,  a director of the company and former  Chairman
of the Board of Directors,  owns another 2% of QSI.  Michael J. Parrella,  Chief
Executive  Officer of the company and Chairman of the Board of  Directors,  owns
12% of the  outstanding  capital of ERI and shares  investment  control  over an
additional 24% of its  outstanding  capital.  Jonathan M. Charry,  the company's
Senior Vice President, Corporate Development, hired in January 2000, owns 20% of
the outstanding  capital stock of ERI and 3% of the outstanding capital stock of
QSI. In March 1995, the company  entered into a master  agreement with QSI which
granted  QSI an  exclusive  worldwide  license  to market,  sell and  distribute
various quieting products in the utility industry. Subsequently, the company and
QSI executed  four letter  agreements,  primarily  revising  payment  terms.  On
December 24, 1999, the company  executed a final agreement with QSI in which the
company agreed to write off $0.2 million of indebtedness owed by QSI in exchange
for  the  return  by QSI to the  company  of its  exclusive  license  to use NCT
technology in various quieting  products in the utility  industry.  Such amount,
originally due on January 1, 1998, had been fully reserved by the company.

     The company's former Chairman of the Board of Directors,  who has continued
as a director,  received cash  compensation  from the company in 1999,  2000 and
2001 of $85,000, $64,500 and $63,000, respectively.

     NCT's Chairman of the Board of Directors and Chief Executive Officer,  who,
at December  31,  2001,  holds  options and warrants for the right to acquire an
aggregate  of  31,901,634  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. For the years ended December 31, 1999, 2000 and 2001,
approximately  $169,000,  $363,000 and $256,000,  respectively,  was paid by the
company in connection with this arrangement.

     The  company's  President  and a director of NCT,  who at December 31, 2001
holds  options and  warrants  for the right to acquire an aggregate of 4,534,623
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 paid
approximately $78,000 for the year ended December 31, 2001.

     The  company's  Senior Vice  President,  Chief  Financial  Officer,  who at
December  31,  2001  holds  options  and  warrants  for the right to  acquire an
aggregate of 2,283,742  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 paid approximately $93,000,  $134,000 and $125,000 for
the years ended December 31, 1999, 2000 and 2001, respectively.

     The company's Senior Vice President, Corporate Development, who at December
31, 2001 holds options for the right to acquire an aggregate of 1,778,049 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
paid  $35,000  and  $32,000  in the  years  ended  December  31,  2000 and 2001,
respectively.

     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 26).

     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,  2000,  three
promissory notes were outstanding for an aggregate  principal amount owed to the
company  of  $69,379.  The notes  bear  interest  at the prime  lending  rate as
published  in The Wall Street  Journal on the date of issuance of the notes plus
one percent,  or an annual rate of 10.5% for the notes  outstanding  at December
31, 2000. 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 matures on May 1, 2002.

     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.

                                      F-45
<PAGE>

     NCT intends to acquire the  remaining  12,000 shares of common stock of DMC
New York,  Inc. (see Notes 2, 14 and 21). The DMC New York Board of Directors is
comprised of  individuals  who are officers and directors of NCT,  specifically,
NCT's  Chairman of the Board of Directors  and Chief  Executive  Officer,  NCT's
President and a director of NCT and NCT's Senior Vice President, Chief Financial
Officer.

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, 2001, the company had available  estimated net operating loss  carryforwards
of approximately  $119.3 million and estimated  research and development  credit
carryforwards of  approximately  $2.4 million for federal income tax purposes of
which  approximately  $11.7  million  will expire  within the five years  ending
December 31, 2006 ($2.1 million expire in 2002) and approximately $110.0 million
expire at various  dates from December 31, 2007 through  December 31, 2021.  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 the  company  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 $3.3 million and $27.4 million in 2000 and 2001, respectively.  The
difference is as follows:

<TABLE>
<CAPTION>
                                                         For the Years ended December 31,
                                          ------------------------------------------------------------
                                             1999                    2000                 2001
                                          ----------------    -------------------     ----------------
<S>                                         <C>                     <C>                  <C>
Statutory rate                              (34.0)%                 (34.0)%              (34.0)%
State tax net of federal effect                 -                    (5.6)                (5.6)
Permanent differences                           -                    15.9                 11.5
Effect of adjustments to prior year net
     operating loss carryforwards               -                   (35.5)                 2.7
Other                                           -                     2.0                    -
Increase in valuation allowances             34.0                    57.2                 25.4
                                          ----------------    -------------------     ----------------
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-46
<PAGE>

     (In thousands of dollars)

                                                    December 31,
                                         --------------------------------
                                              2000              2001
                                         -------------    ---------------
Accounts receivable                          $     24           $     19
Inventory                                          34                320
Investments                                         -             11,553
Property and equipment                             68                400
Accrued expenses                                  170              2,177
Stock compensation                              3,129              4,032
Other                                             541                  -
                                         -------------    ---------------
     Total temporary differences             $  3,966           $ 18,501
Federal net operating and capital loss
     carryforwards                             35,639             48,165
Federal research and development credit         2,006              2,393
                                         -------------    ---------------
                                             $ 41,611           $ 69,059
Less:  Valuation allowance                    (41,611)           (69,059)
                                         -------------    ---------------
     Deferred taxes                          $      -           $      -
                                         =============    ===============

20.  Litigation:

     Andrea Electronics Corp. Patent and Trademark Litigation

     By a letter dated  September 9, 1997, our  competitor,  Andrea  Electronics
Corporation, informed us that it believed NCT was improperly using the term "ANR
Ready" and  infringing  upon a  trademark  owned by Andrea.  Representatives  of
existing and/or  potential  customers also have informed us that Andrea has made
statements  claiming  that our  manufacture  and/or sale of specified  in-flight
entertainment  system  products  infringe a patent owned by the  competitor.  We
received a notice dated March 24, 1998 from Andrea  notifying us of its concerns
but not  confirming  any  intention  to file suit  against  NCT.  NCT  exchanged
correspondence  with Andrea,  but we could not come to any  resolution.  NCT was
informed by representatives  of existing and/or potential  customers that Andrea
was continuing to state or imply that NCT was infringing.

     On November 17, 1998, NCT and NCT Hearing filed a complaint  against Andrea
in the U.S.  District Court for the Eastern  District of New York. Our complaint
requested  that the court enter  judgment  in our favor as follows:  (1) declare
that the two Andrea patents at issue are invalid and  unenforceable and that our
products do not infringe upon them;  (2) declare that the two Andrea  patents at
issue are  unenforceable  due to misuse by  Andrea;  (3) award NCT  compensatory
damages of no less than $5 million  and  punitive  damages  of $50  million  for
Andrea's tortious interference with NCT's prospective contractual  arrangements;
(4) enjoin Andrea from stating or implying that NCT's  products or their use are
infringing any  Andrea-owned  patents;  and (5) award any other relief the court
deems appropriate.

     On or about  December 30, 1998,  Andrea filed its answer to our  complaint.
Andrea generally denied the above allegations and brought  counterclaims against
NCT and NCT Hearing.  These include claims that NCT has infringed the two Andrea
patents  at issue,  that NCT's use of the "ANR  Ready"  trademark  violated  the
Lanham Act and that NCT unfairly competed with Andrea by using the trademark.

     NCT and NCT Hearing have since filed a reply and  requested  that the court
dismiss the  counterclaims and enter judgment in our favor. NCT also argued that
Andrea is  prevented  from  recovering  under  various  equitable  theories  and
defenses.  Discovery in this suit  commenced in mid-1999.  No trial date has yet
been set. In January 2002, NCT's two co-counsel in this action withdrew from the
case because of NCT's untimely  payments for legal  services.  NCT is seeking to
retain new counsel in the action.

     Management  cannot assess the likelihood  that resolution of this suit will
or will not have a  material  adverse  effect  on NCT's  financial  position  or
operations.  Approximately 3% of our business depends on the patents in

                                      F-47
<PAGE>

dispute.  However,  in the event that the lawsuit  does result in a  substantial
final  judgment  against NCT, the judgment  could have a material  effect on our
quarterly or annual operating results.

     Schwebel Capital Litigation

     On June 10,  1998,  Schwebel  Capital  Investments,  Inc.  filed  suit in a
Maryland  state court against NCT and Michael J. Parrella,  our Chief  Executive
Officer and Director.  The complaint alleges that NCT breached, and Mr. Parrella
interfered  with,  a purported  contract  entered  into in 1996  between NCT and
Schwebel Capital. Schwebel Capital claims that under the contract, NCT agreed to
pay Schwebel  Capital  commissions when NCT received capital from its investors.
The complaint further alleges that Schwebel Capital is due commissions  totaling
$1.5  million  because NCT refused to honor  Schwebel  Capital's  right of first
refusal. Schwebel Capital's complaint sought $1,673,000 in compensatory damages,
$50,000 in punitive  damages and $50,000 in attorneys' fees from NCT, as well as
$150,000 in compensatory  damages,  $500,000 in punitive  damages and $50,000 in
attorneys' fees from Mr. Parrella.  Subsequently,  the court granted a motion to
dismiss the claims against Mr.  Parrella.  On August 8, 2001, NCT entered into a
settlement  agreement with Schwebel Capital. NCT paid a nominal amount to settle
all remaining claims of Schwebel Capital against NCT. The settlement terminating
the litigation was approved by the court on or about September 7, 2001.

     NCT Audio Arbitration

     On September 16, 1999, NCT Audio filed a demand for arbitration  before the
American  Arbitration  Association in Wilmington,  Delaware,  against Top Source
Technologies,  Inc. and its subsidiary,  Top Source Automotive,  Inc., alleging,
among other things,  breach of the asset purchase  agreement by which TSA was to
sell its assets to NCT Audio,  breach of fiduciary  duties to a shareholder (NCT
Audio holds 15% of the outstanding  stock of TSA), and breach of the obligations
of good faith and fair dealing. NCT Audio seeks rescission of the asset purchase
agreement and recovery of monies paid to TST for TSA's assets. Concurrently, NCT
Audio  commenced a preliminary  injunction  proceeding in the Delaware  Court of
Chancery,  seeking to prevent TST from  selling  TSA's  assets to Onkyo  America
pending  completion  of  the  arbitration  proceeding.  NCT  Audio  subsequently
withdrew such court action. On December 8, 1999, TST and TSA filed an answer and
counterclaim in connection with the  arbitration  proceeding.  They asserted the
counterclaim 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 the  transaction;  (3) the monies and
stock owed under the  extension  agreements;  and (4)  specific  legal  expenses
incurred by them.

     The above  arbitration  arises out of an asset  purchase  agreement,  dated
August 14, 1998,  by and between  NCT, TST and TSA,  whereby NCT was granted the
exclusive option to purchase substantially all of the assets of TSA. Pursuant to
the asset purchase  agreement,  NCT became the owner of 20% of the shares of TSA
and TST owned the  remaining  80% interest in TSA. The closing date of the asset
purchase  agreement  was extended on two  occasions,  March 30, 1999 and May 25,
1999, for  substantial  additional  consideration  paid by NCT,  including NCT's
surrender  of 5% of the  shares of TSA.  One day  after  the May 25th  extension
agreement was  executed,  TST and TSA announced in a press release that they had
negotiated a competing  transaction with Onkyo America, Inc. whereby Onkyo would
purchase substantially all of the assets of TSA in the event that NCT was unable
to close by the deadline of July 15, 1999.

     As a direct result of the announcement of a competing transaction,  NCT was
unable  to  obtain  funding  to close  the  transaction  by July 15,  1999.  NCT
attempted  to enjoin  the  closing  of the  transaction  with Onkyo by way of an
application for preliminary injunction or temporary restraining order brought in
the Delaware  Chancery Court on September 16, 1999. This action sought to enjoin
TST and TSA from closing with Onkyo until a decision was rendered in  connection
with our demand for Arbitration filed with the American Arbitration  Association
on September  16, 1999. On September  17, 1999,  prior to the  scheduling of the
hearing  regarding  the  application  for  preliminary  injunction  or temporary
restraining  order, the attorney and agent of TST and TSA orally  represented to
counsel for NCT that the Onkyo  transaction  was not  scheduled  to close for at
least a month. On that basis, NCT agreed not to seek an immediate hearing on the
application. Less than two weeks after that representation,  on October 1, 1999,
TST and Onkyo  closed  their  transaction  without any notice to NCT, a minority
shareholder of

                                      F-48
<PAGE>

TSA.  Since the  purpose of the  injunction  was to  prohibit  the sale of TSA's
assets to Onkyo, and that had already occurred, NCT withdrew its application for
injunctive relief and has proceeded with the arbitration.

     NCT's demand for arbitration sets forth several causes of action, including
breach of the duties of good faith and fair dealing in connection with the asset
purchase  agreement,  breach  of the  exclusive  option  provision  of the asset
purchase  agreement,  breach of the  payout  provisions,  fraudulent  inducement
and/or  fraudulent  concealment  in connection  with the May 25, 1999  extension
agreement, negligent misrepresentation by failing to disclose the negotiation of
a competing  transaction  with Onkyo, and breach of the fiduciary duties owed to
minority shareholders.  The demand for arbitration requests specific performance
or rescission of the asset purchase agreement, and further claims damages due to
TST's and TSA's breaches of the duties of good faith and fair dealing,  breaches
of  the  fiduciary  duties  owed  by  the  majority   shareholders  to  minority
shareholders,  and fraudulent  misrepresentations  in connection  with the asset
purchase  agreement and the amendments  thereto.  NCT seeks recovery of the $3.5
million  invested in the asset purchase  agreement,  or recovery of its pro rata
share of the sales proceeds paid by Onkyo for TSA's assets.

     On December 8, 1999, TST and TSA brought a counterclaim  against NCT in the
arbitration action seeking the following:  the sum of $204,315 allegedly due and
owing on a promissory note issued by NCT as  consideration  for the extension of
the closing date in the asset purchase  agreement from March 31, 1999 to May 28,
1999; the monetary  equivalent of $100,000 of NCT's convertible  preferred stock
allegedly owed to TSA by NCT as consideration  for extending the closing date to
May 28, 1999; the sum of  $1,000,000,  constituting  the difference  between the
price to be paid by NCT under the asset purchase  agreement and the actual price
paid by Onkyo for TSA's assets;  reimbursement  of expenses  incurred by TST and
TSA in  connection  with the failure to close the asset  purchase  agreement  in
excess  of  $300,000;  and  recovery  of  legal  fees  in  connection  with  the
arbitration and the application for a temporary  injunction.  NCT maintains that
the promissory  note and stock were procured by fraud  perpetrated by TST and/or
TSA and otherwise denies 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.) and TSA 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'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. NCT will file a proof of claim in the bankruptcy case, for amounts owed to
it, and is  considering  whether any  non-bankruptcy  avenues of collection  may
exist.

     Theater Radio Network - InsiderStreet 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 March 26,  2002,  Theater  Radio  Network  retained new counsel to
continue  this action.  Management  believes  that at this early stage it cannot
assess the  likelihood  of a  favorable  outcome.  Further,  since the amount of
damages,  if any, DMC Cinema may

                                      F-49
<PAGE>

recover cannot be quantified until the legal process is complete,  no amount has
been recorded in the financial statements.

     Theater Radio Network - Esrick Litigation

     On February 5, 2001,  Steven Esrick, a former  shareholder of Theater Radio
Network, filed suit against DMC Cinema (formerly known as Theater Radio Network)
and Theater Radio Network's former Chief Executive  Officer and President in the
Circuit Court of the Sixth Judicial  Circuit for Pinellas County,  Florida.  The
plaintiff's  original  complaint  claimed that Theater Radio Network breached an
alleged  oral escrow  agreement  with the  plaintiff  arising out of the sale of
Theater  Radio   Network  stock  to  DMC  Cinema  by  Theater  Radio   Network's
shareholders  and sought  unspecified  damages.  DMC Cinema  denied the material
allegations  of this  complaint  and moved to dismiss  the case  against  it. On
November  8, 2001,  while DMC  Cinema's  motion to dismiss was  pending,  Esrick
amended his  complaint,  substituting  for his original claim the claim that DMC
Cinema breached an alleged  agreement to deliver to him 50,000 registered shares
of stock of InsiderStreet, Inc. On December 13, 2001, DMC Cinema filed an Answer
to the amended  complaint  in which it denied the  material  allegations  of the
amended  complaint.   DMC  Cinema  intends  to  vigorously  defend  the  action.
Currently,  the parties are conducting  discovery.  Management,  in consultation
with  legal  counsel,  cannot  at this  stage  determine  the  likelihood  of an
unfavorable outcome.

     Production Resource Group Litigation

     On June 6, 2001,  Production Resource Group began legal proceedings against
NCT and our subsidiary, Distributed Media Corporation, in the Superior Court for
the Judicial  District of Fairfield  County,  Connecticut.  Production  Resource
Group'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(TM)  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.  The plaintiff filed an application for pre-judgment  remedy
seeking to attach or garnish $2.25 million of our assets.  On July 26, 2001, the
court returned an order for  pre-judgment  remedy having found probable cause to
sustain the validity of Production  Resource  Group's claim and gave  Production
Resource  Group the right to attach or garnish up to $2.1  million of  specified
assets  of  NCT  and  Distributed  Media  Corporation.  As of  April  10,  2002,
approximately $78,000 in NCT's cash or cash equivalent assets have actually been
attached or garnished. On October 4, 2001, we filed an answer to the plaintiff's
complaint,  generally denying the plaintiff's allegations,  seeking dismissal of
the complaint and  counterclaiming  for breach of  Production  Resource  Group's
obligation to deliver equipment.

     On December 20, 2001,  NCT and DMC accepted an Offer of Judgment  requiring
NCT and DMC to pay  Production  Resource  Group $2.0 million.  That judgment was
entered on January 17, 2002.  Production Resource Group is currently  conducting
post-judgment  discovery regarding  enforcement of that judgment.  To the extent
that payment of the judgment is in cash,  such payment  could be material to our
cash  position.  As of December  31,  2001,  we have  recorded  all  anticipated
liability related to this judgment.

     On January 2, 2002,  outside the scope of the  judgment  entered  into with
NCT,  Production  Resource  Group  amended  its  complaint  to allege that NCT's
Chairman  and  Chief  Executive  Officer  Michael  Parrella,   in  dealing  with
Production  Resource Group on behalf of NCT,  committed  unfair trade practices,
fraud and  breaches of good faith and fair  dealing.  Mr.  Parrella has told NCT
that he intends to deny the  allegations.  To the extent that NCT may ultimately
indemnify Mr. Parrella for any liabilities  arising out of these allegations and
for  related   legal  fees,   we  believe  that  our   directors   and  officers
indemnification  insurance  (after  payment  of a $100,000  deductible)  will be
adequate to cover such payments.

     Litigation arising after December 31, 2001 is described in Note 26.

                                      F-50
<PAGE>

     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  and  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
                                ----------
     2002                           $ 599
     2003                             606
     2004                             514
     2005                             513
     2006                             442
     Thereafter                     1,257
                                ----------
Total minimum lease payments      $ 3,931
                                ==========

     Rent expense was $0.6 million,  $1.1 million and $1.0 million for the years
ended December 31, 1999, 2000 and 2001, respectively.

Benefit Plan Liability:

     In April 1996,  the company  established  the Noise  Cancellation  Employee
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 $1.0 million,  while combined  individual and family benefit exposure
in each Benefit Plan fiscal year is limited to $40,000. 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.  As of April 15, 2002,  the company was
not aware of any material unrecorded benefit claim liability.

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.

         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

                                      F-51
<PAGE>

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.

Minimum Royalty Commitments:

     As of December 31, 2001, the company is obligated under various  agreements
for minimum royalty payments of $60,000 for each of the years ended December 31,
2002, 2003 and 2004.

Contingencies:

     The  company  may have a  contingent  liability  arising  out of a possible
violation of Section 5 of the Securities Act 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.  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.

     On April 12, 2001, NCT and Crammer Road cancelled the private equity credit
agreement dated September 27, 2000 and finalized a new equity credit  agreement.
Under the  September  27, 2000 credit  agreement,  we received $0.5 million from
Crammer Road and issued Crammer Road 2.8 million shares of our common stock. The
new credit  agreement  provides  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 terms of the credit agreement  obligate the company
to put $17 million of our common stock,  known as the minimum commitment amount,
to Crammer Road. The minimum  commitment  amount  provides 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 and a fixed discount to market
of 10% for the  remaining  $5  million  of  committed  puts by us.  Assuming  we
commence puts on May 1, 2002, the  accelerating  discount to the market price of
our common  stock on the first $12 million of puts may exceed 44%  because  from
the initial discount of 12.5%,  the discount  increases each month after May 27,
2001 by 2%. Our required  monthly put amount may vary based upon trading  volume
of our common  stock.  In exchange for the first $17 million of our shares under
the minimum commitment  amount,  Crammer Road is obliged to deliver to us 12,000
shares  of  common  stock of DMC NY and  cash in the  aggregate  amount  of $3.0
million.  We accrued the $14.0 million cost of our  obligation to repurchase the
12 DMC  licenses.  Such  amount is included  in write  downs of  investment  and
repurchased  licenses in our consolidated  statements of operations and in other
liabilities  in our  consolidated  balance  sheets  (see Note  12).  There is no
independent  valuation to support the fair market value of DMC NY. The company's
Board of Directors has made a  determination  that the agreed upon price for DMC
NY is fair. Monthly put notices were required to have been delivered  commencing
October 1, 2001,  although NCT has made no such deliveries to date. Each monthly
put notice up to the $17 million  shall specify a put amount equal to the lesser
of $2.5 million or 150% of the weighted  average volume for the common stock for
the 20 trading days  preceding the put notice.  The terms of the new credit line
further  provide that we may elect to put up to an additional $33 million of our
common stock to Crammer Road (at a fixed  discount to market of 10%) for cash to
finance our working  capital needs.  Each put notice that we elect to deliver to
Crammer Road beyond the minimum  commitment  amount  shall  specify a put amount
equal to the lesser of $2.0 million or 150% of the weighted  average  volume for
the common stock for the 20 trading days preceding the put notice.  The issuance
and sale of our shares of common stock under this credit  agreement will have an
immediate  dilutive effect on existing  holders of our common stock. We issued a
warrant to Crammer Road for 250,000  shares of our common stock with an exercise
price of $0.14 per share. The warrant for 250,000 shares (with an exercise price
of $0.34 per share)  issued to Crammer Road under the  September 27, 2000 credit
agreement  was  cancelled.  For each $0.1 million of our

                                      F-52
<PAGE>

common  stock sold under the new credit  line,  Crammer  Road is  entitled to an
additional warrant for 1,000 shares of our common stock at an exercise price per
share equal to 100% of the average of the closing prices of our common stock for
20 trading  days prior to issuance of the  warrant.  NCT and Crammer Road are in
the process of  negotiating  an  amendment to the new equity  credit  agreement,
which  would,  among other  things,  remove the issuance of warrants on each put
closing date.  To date,  the company has not sold any shares of its common stock
under this agreement.  We are 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.  However,
because no put notices have yet been  delivered by NCT to Crammer Road,  NCT has
not  incurred  any   liability  as  a  result  of  the  passage  of  that  date.
Additionally,  if we fail to issue and deliver shares for the minimum commitment
amount  during the  commitment  period,  which  terminates  18 months  after the
commitment  period  begins,  NCT is 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.

     On September 4, 1998, the company acquired  substantially all of the issued
and  outstanding  common  stock  of  Advancel  Logic   Corporation,   a  Silicon
Valley-based  developer of  microprocessor  cores that execute Sun Microsystems'
Java(TM) code. The acquisition was pursuant to a stock purchase  agreement dated
as of August 21, 1998 among the company,  Advancel and various  shareholders  of
Advancel.  The  consideration  for the  acquisition of the Advancel common stock
consisted  of an initial  payment of $1.0  million  payable by the  delivery  of
1,786,991  million  shares of the  company's  common stock  together with future
payments,  payable in cash or in common  stock of the company at the election of
the Advancel  shareholders based on Advancel's earnings before interest,  taxes,
depreciation  and  amortization  for each of 1999, 2000, 2001 and 2002. On April
25,  2000,  the  Advancel  shareholders  and NCT  effectively  amended the stock
purchase agreement, eliminating all of NCT's earnout payment obligations.

22.  Business Segment Information:

     Management  views the  company  as being  organized  into  three  operating
business segments: Media, Communications and Technology. Reportable segment data
for the years ended  December 31, 1999,  2000 and 2001 are provided in the table
below. Information about our business segments is found following the table.

     The Other data is 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  most of the  company's  debt and related  cash,  cash
equivalents  and  related  net  interest  expense,  litigation  liabilities  and
non-operating  fixed  assets.  Also  included  in  the  components  of  revenues
attributed  to  Other-corporate  are  license  fees and  royalty  revenues  from
subsidiaries  that are offset  (eliminated) in the  Other-consolidating  column.
Other-consolidating  consists  of  items  eliminated  in  consolidation  such as
intercompany revenues.

                                      F-53
<PAGE>

<TABLE>
<CAPTION>
(In thousands of dollars)                                                        Segment
                                          -----------------------------------------------------------------------------------------
                                                                                      Total
                                                                                    Reportable     ------ Other ------        Grand
                                             Media     Communications  Technology    Segments     Corporate  Consolidating    Total
                                          -----------------------------------------------------------------------------------------
Year Ended
December 31, 2001:
<S>                                          <C>        <C>           <C>           <C>         <C>         <C>             <C>
License Fees and Royalties                   $ 1,834    $ 2,639       $ 1,028       $ 5,501     $ 10,165    $ (10,033)      $ 5,633
Other Revenue - External                         337      4,642             -         4,979            -            -         4,979
Other Revenue - Other Operating Segments         441        738             -         1,179            -       (1,179)            -
Interest (Income) Expense, net                   528      4,005            76         4,609        1,518            -         6,127
Depreciation/Amortization                      1,689      1,612           120         3,421          904       (1,348)        2,977
Loss before cumulative effect of
  accounting change                          (14,282)   (27,430)       (4,361)      (46,073)     (25,349)      (4,656)      (76,078)
Cumulative effect of accounting change             -     (1,582)            -        (1,582)           -            -        (1,582)
Net Loss                                     (14,282)   (29,012)       (4,361)      (47,655)     (25,349)      (4,656)      (77,660)
Segment Assets                                30,708     16,701         2,991        50,400       13,676      (44,067)       20,009
Capital Expenditures                             991      1,780             -         2,771           10            -         2,781

Year Ended
December 31, 2000:
License Fees and Royalties                   $ 2,065    $ 3,257       $ 3,550       $ 8,872      $ 6,331     $ (5,275)      $ 9,928
Other Revenue - External                       1,145      1,767             -         2,912            -            -         2,912
Other Revenue - Other Operating Segments         331        887             -         1,218            -       (1,218)            -
Interest (Income) Expense, net                   286         52            27           365        1,484            -         1,849
Depreciation/Amortization                        203        277            50           530        1,489           (5)        2,014
Net (Loss) Income                             (3,333)    (6,002)        2,952        (6,383)        (503)      (3,438)      (10,324)
Segment Assets                                12,786     20,355         6,610        39,751        7,381       (7,750)       39,382
Capital Expenditures                              27         75             -           102          220            -           322

Year Ended
December 31, 1999:
License Fees and Royalties                   $ 1,356    $ 1,062       $ 1,100       $ 3,518      $ 4,093     $ (4,059)      $ 3,552
Other Revenue - External                         852      1,585         1,074         3,511            -            -         3,511
Other Revenue - Other Operating Segments           4        866             -           870            -         (870)            -
Interest (Income) Expense, net                   148          1            47           196          356            -           552
Depreciation/Amortization                         14         43            16            73        1,897            -         1,970
Net (Loss) Income                            (13,418)    (5,971)       (1,956)      (21,345)       1,103       (3,529)      (23,771)
Segment Assets                                 3,191      2,852           767         6,810        6,902         (335)       13,377
Capital Expenditures                              26          5             3            34           17            -             51
</TABLE>

MEDIA:

     NCT Audio Products, Inc.:

     NCT Audio is engaged in the design,  development and marketing of products,
which  utilize  innovative  flat  panel  transducer  technology.   The  products
available  from NCT Audio  include the Gekko(TM)  flat speaker and  ArtGekko(TM)
printed grille  collection.  The Gekko(TM) flat speaker is marketed primarily to
the  home  audio  market,  with  potential  in  other  markets,   including  the
professional  audio  systems  market,  the  automotive  audio  aftermarket,  the
aircraft industry,  other  transportation  markets and multimedia  markets.  The
principal customers are DMC and end-users.

                                      F-54
<PAGE>

     Distributed Media Corporation:

     DMC provides  place-based  broadcast  and billboard  advertising  through a
microbroadcasting    network    of   Sight   &    Sound(TM)    systems    within
commercial/professional  settings. The Sight & Sound(TM) systems consist of flat
panel  transducer-based  speakers  (provided by NCT Audio), a personal  computer
containing  DMC's  Sight & Sound  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
will develop private  networks for large customers with multiple outlets such as
large fast-food chains and retail chains.

COMMUNICATIONS:

     NCT Hearing Products, Inc.:

     NCT Hearing  designs,  develops and markets active noise reduction  headset
products to the communications  headset market and the telephony headset market.
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,  the NB-PCU,  a headset  used for  in-flight
passenger  entertainment  systems;  and  communications  headsets for  cellular,
multimedia and telephony.  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.:

     The  principal  activity  of  Pro  Tech  is  the  design,  development  and
manufacture   of   light-weight   telecommunications   headsets  and  new  audio
technologies  for  applications  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.:

     The  principal  activity of NCT Europe is the  provision  of  research  and
engineering  services in the field of active  sound  control  technology  to the
company. NCT Europe provides research and engineering to NCT Audio, NCT Hearing,
DMC and other business units as needed. NCT Europe also provides a marketing and
sales support service to the company for European sales.

     Midcore Software, Inc.:

     The principal activity of Midcore is as a developer of 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  for  the  purpose  of  focusing  on  the
telecommunications   market  and  in  particular  the  hands-free   market.  The
technology    includes    ClearSpeech(R)-Acoustic    Echo    Cancellation    and
ClearSpeech(R)-Compression  and Turbo  Compression and  ClearSpeech(R)  Adaptive
Speech Filter(R).  ClearSpeech(R)-Acoustic  Echo  Cancellation  removes acoustic
echoes in hands-free full-duplex  communication  systems.  Applications for this
technology are cellular telephony,  audio and video  teleconferencing,  computer
telephony and gaming and voice recognition. ClearSpeech(R)-Compression maximizes
bandwidth   efficiency   in   wireless,   satellite   and  intra-  and  Internet
transmissions and creates smaller,  more efficient voice files while maintaining
speech  quality.  Applications  for this  technology  are  intranet and internet
telephony,  audio and video  conferencing,  personal  computer  voice and music,
telephone answering devices,  real-time multimedia multitasking,  toys and games
and

                                      F-55
<PAGE>

playback devices.  ConnectClearly products include the ClearSpeech(R)-Microphone
and the  ClearSpeech(R)-Speaker.  The majority of ConnectClearly's  sales are in
North America.  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 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,  web hosting and design,  server  collocation,  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.

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 been developing 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)

                                    As of December 31, and
                                   For the Years then Ended
                      --------------------------------------------------------
                             1999                2000                2001
                      ----------------     ---------------     ---------------
Revenues
   United States              $ 3,174            $ 11,322             $ 6,916
   Europe                       3,755               1,250                 294
   Far East                       134                 268               3,402
                      ----------------     ---------------     ---------------
     Total Revenues           $ 7,063            $ 12,840            $ 10,612
                      ================     ===============     ===============

Net Loss
   United States             $ 23,353            $ 10,133            $ 74,571
   Europe                         (86)               (117)              2,974
   Far East                       504                 308                 115
                      ----------------     ---------------     ---------------
     Total                   $ 23,771            $ 10,324            $ 77,660
                      ================     ===============     ===============

Identifiable Assets
   United States             $ 13,174            $ 39,237            $ 19,272
   Europe                         164                 145                 737
   Far East                        39                   -                   -
                      ----------------     ---------------     ---------------
     Total                   $ 13,377            $ 39,382            $ 20,009
                      ================     ===============     ===============

                                      F-56
<PAGE>

24.  Selected Quarterly Financial Data (Unaudited):

     The following  tables contain  selected  quarterly  financial data for each
quarter of 2000 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.

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

                                                                 Year Ended December 31, 2001
                                                                 ----------------------------
                                            1st Quarter      2nd Quarter          3rd Quarter      4th Quarter       Total
                                            -----------      -----------          -----------      -----------       -----

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

                                                                 Year Ended December 31, 2000
                                                                 ----------------------------
                                            1st Quarter      2nd Quarter          3rd Quarter      4th Quarter       Total
                                            -----------      -----------          -----------      -----------       -----

Net revenue                                      $   568          $   835             $ 8,009          $ 3,428         $ 12,840
Gross profit (loss)                                  (55)             467               7,127            2,305            9,844
Loss attributable to common stockholders          (7,211)          (3,284)               (319)          (4,296)         (15,110)
Loss per share - basic and diluted               $ (0.03)         $ (0.01)            $     -          $ (0.01)        $  (0.05)
</TABLE>

25.  Costs of Exiting Activities:

     On December 18, 2001, the Board of Directors of Artera Group  International
Limited decided to suspend under-performing  operations and reduce employees. In
connection  therewith,  the company has  recorded a  write-down  of $1.1 million
principally relating to equipment and other costs.

     On March 20 and 21,  2002,  the sole  shareholder  and Board of  Directors,
respectively,  of Artera Group International  Limited, a U.K.-based  subsidiary,
decided  that  corporation  should  cease  all  operations  and  be  liquidated.
Cessation of operations  occurred on April 5, 2002 and  liquidation  proceedings
are pending.

     In  December  2001,  management  decided  to close the  company's  Maryland
research facilities.  In connection therewith, the company has recorded a charge
of $0.7 million  principally  relating to lease termination and other costs. The
abandonment of this facility was completed in the first quarter of 2002.

     These costs have been included in the consolidated  statement of operations
as "costs of exiting activities."

     During the first quarter of 2002, the company  communicated its termination
to certain employees (26 Artera employees and ten Maryland facility  employees).
In  accordance  with EITF  94-3,  Liability  Recognition  for  Certain  Employee
Termination  Benefits  and  Other  Costs  to Exit an  Activity,  such  costs  of
approximately $0.3 million are to be accrued subsequent to December 31, 2001.

     On February 28, 2002, DMC Cinema,  Inc.  ceased  business  operations.  DMC
Cinema had no material operations at date of discontinuance.

26.  Subsequent Events (unaudited):

Debt Issuance

     On January 10, 2002, NCT entered into a  subscription  agreement with Alpha
Capital  Aktiengesellschaft  pursuant to a private  placement  of a $0.6 million
convertible note as consideration for $0.5 million related to curing

                                      F-57
<PAGE>

the default on bridge  financing  notes dated November 14, 2001 and December 27,
2001 and $0.1 million in cash and expenses.  The new convertible note matures on
January 10, 2004 and bears  interest at 8% per annum  payable at  maturity.  The
note is convertible into shares of our common stock at the lower of $0.07 or 80%
of the five-day average closing bid price of our stock for the five trading days
preceding  conversion.  In  conjunction  with the note, a five-year  warrant was
issued to purchase  approximately  5 million  shares of our common  stock at the
lower of $0.07 per share or the lowest  closing  bid price of the  common  stock
through June 28, 2002.  NCT is obligated to register  shares of its common stock
issuable upon conversion of this note and upon exercise of the warrant.

     On March 11, 2002,  NCT entered into a  subscription  agreement  with Alpha
Capital  Aktiengesellschaft  pursuant  to a private  placement  of its  $400,000
convertible note. The consideration  from Alpha Capital consisted of $352,500 in
cash, net of $47,500 for legal fees and finder's fees paid to a third party that
arranged for the  financing.  The note bears interest at 8% per annum payable at
maturity and matures March 11, 2004. The note is convertible  into shares of our
common  stock at the lower of $0.07 or 80% of the five-day  average  closing bid
price of our  stock  for the five  trading  days  preceding  conversion.  NCT is
obligated  to register  shares of its common  stock for the  conversion  of this
note.

Transactions with Carole Salkind

     On January  11,  2002,  NCT  issued a  convertible  note  payable to Carole
Salkind for $2.2 million as consideration for $1.9 million related to curing the
default on a  convertible  note dated  August 22, 2001 and $0.3 million in cash.
The note  matures  on January  11,  2003,  includes a right to convert  into our
common  stock,  Pro Tech  common  stock or the  common  stock of any  other  NCT
subsidiary  that has an initial  public  offering  and bears  interest at 8% per
annum.  In  conjunction  with the note,  a  five-year  warrant was issued to Ms.
Salkind to  purchase  approximately  2.8 million  shares of our common  stock at
$0.079 per share.  Ms. Salkind was also granted a five-year option to purchase a
10% equity  interest in Artera Group,  Inc.  common stock at 10% of the net book
value adjusted for any third party equity investment.

     On January 25, 2002,  NCT issued a convertible  note payable to Ms. Salkind
for $0.7 million as consideration  for $0.7 million in cash. The note matures on
January 25, 2003,  includes a right to convert into NCT common  stock,  Pro Tech
common stock or the common stock of any other NCT subsidiary that has an initial
public  offering and bears  interest at 8% per annum.  In  conjunction  with the
note, a five-year  warrant was issued to Ms.  Salkind to purchase  approximately
0.8 million shares of our common stock at $0.09 per share.

     On January 25, 2002,  NCT issued a convertible  note payable to Ms. Salkind
for $0.3  million  as  consideration  for $0.3  million  in cash  paid by Carole
Salkind,  for the benefit of NCT, into an escrow account. 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.  That note for $0.3  million was
satisfied  as to the  principal  amount due by the release of $0.3  million from
escrow to Carole Salkind.  In conjunction with the note, a five-year warrant was
issued to Ms. Salkind to purchase approximately 0.3 million shares of our common
stock at $0.09 per share.

     On  February  27,  2002,  a new note for the  default  amount  and  accrued
interest (less interest  credited on the escrow  account) due on the January 25,
2002 $0.3  million  note along with $0.8  million  loaned by Carole  Salkind was
issued by NCT.  This note matures on February 27, 2003 and bears  interest at 8%
per annum  payable at  maturity.  This note is  convertible  into  shares of NCT
common stock (at $0.079) and may be exchanged  for shares of common stock of Pro
Tech (at  $0.06) or the  common  stock of any other NCT  subsidiary  that has an
initial public offering (at the initial public offering prices).  In conjunction
with the note,  a  five-year  warrant  was  issued to Ms.  Salkind  to  purchase
approximately 1.0 million shares of our common stock at $0.079 per share.

     On March 1, 2002, NCT issued a convertible  note payable to Ms. Salkind for
$0.4 million as consideration  for $0.4 million in cash. The note is convertible
into NCT common stock, or at Ms. Salkind's  election,  exchangeable for Pro Tech
common stock or the common stock of any other NCT subsidiary that has an initial
public offering.  The note matures on March 1, 2003 and bears interest at 8% per
annum.  In  conjunction  with the note,  a  five-year  warrant was issued to Ms.
Salkind to  purchase  approximately  0.4 million  shares of our common  stock at
$0.079 per share.

                                      F-58
<PAGE>

     On March 27, 2002,  we defaulted on the  repayment of the  $1,000,000  note
dated March 27, 2000. We received $300,000 from Ms. Salkind on April 1, 2002 and
$350,000  from her on April 15,  2002.  We expect  that these  proceeds  will be
rolled into a new note along with the March 27, 2000 note,  default  penalty and
accrued interest thereon.

Litigation

     On  January  11,  2002,   Broadcast  Music,   Inc.  ("BMI")  commenced  two
arbitration   proceedings  against  Theater  Radio  Network  with  the  American
Arbitration  Association,  for the respective amounts of approximately  $153,400
and $62,100.  These proceedings were brought under agreements with Theater Radio
Network dated  December 11, 1998 (amended  December 22, 1998) and June 29, 2001.
BMI's  claims are for license  fees  arising out of the alleged  publication  by
Theater  Radio  Network of music in the BMI  repertoire.  Theater  Radio Network
denied  the  allegations  of BMI.  No further  actions  have  occurred  in these
proceedings.

     On or about  January 31,  2002,  an action was brought  against NCT by West
Nursery Land Holding  Limited  Partnership 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. Such amount is included in the company's  accruals for
costs of exiting activities (see Note 25).

     On February 21, 2002, an action was brought by Mesa Partners,  Inc. against
the company and DMC in Supreme Court, New York,  Suffolk County for breach of an
alleged  contract  for  financial  consulting  services.   The  complaint  seeks
approximately  $429,600 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. NCT and DMC intend to defend this action vigorously.

                                      F-59
<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. as of December 31, 2001 and
for each of the years ended  December  31, 2001 and December 31, 1999 taken as a
whole.  The  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/ RICHARD A. EISNER & COMPANY, LLP
------------------------------------
    Richard A. Eisner & Company, LLP

New York, New York
April 10, 2002


                                      F-60
<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-61
<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
-------------------------------------  -------------  ------------------------------------- ------------------  --------------------
                                        Balance at                           Charged to
                                        beginning      Charged in costs      other accounts-   Deductions-        Balance at end of
          Description                   of period        and expenses        Describe           Describe              period
-------------------------------------  -------------    -----------------   ---------------   ----------------    -----------------
<S>                      <C> <C>       <C>               <C>                 <C>               <C>                  <C>
Allowance for doubtful accounts:
     Year ended December 31, 1999      $   228             $   77              $  (83) (b)       $    (139)  (c)      $   83
     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
Reserve for uncollectible amounts:
     Year ended December 31, 1999            -              1,500              (1,500) (b)               -                 -
     Year ended December 31, 2000            -                  -                   -                    -                 -
     Year ended December 31, 2001            -              1,000                   -                    -             1,000
Allowance for inventory obsolescence:
     Year ended December 31, 1999          508                 21                   -                    -               529
     Year ended December 31, 2000          529                100                (529) (f)               -               100
     Year ended December 31, 2001          100                691                   -                    -               791
Accumulated depreciation:
     Year ended December 31, 1999        3,274                410                   -                    -             3,684
     Year ended December 31, 2000        4,042  (a)           334                   -                  (24)  (e)       4,352
     Year ended December 31, 2001        4,352                936                   -               (1,809)  (e)       3,479
Accumulated goodwill amortization:
     Year ended December 31, 1999           68                970                3,125 (f)               -             4,163
     Year ended December 31, 2000        4,163              1,019                   -                    -             5,182
     Year ended December 31, 2001        5,182              1,691               14,114 (f)         (19,863)  (g)       1,124
Accumulated patent amortization:
     Year ended December 31, 1999        2,293                585                   -                    -             2,878
     Year ended December 31, 2000        2,878                658                   -                    -             3,536
     Year ended December 31, 2001        3,536                350                   -                    -             3,886

</TABLE>

Attention  is  directed  to  the  foregoing  accountants'  reports  and  to  the
accompanying notes to our consolidated financial statements.

Footnotes:

(a)      Increase from prior year-end due to acquisitions.
(b)      Accounts written-off directly to expense.
(c)      Accounts previously reserved for, written-off in current year.
(d)      Apply to specific prior year-end inventory items.
(e)      Write off fixed asset dispositions against reserve.
(f)      Write down goodwill to estimated fair value.
(g)      Write off fully amortized goodwill.

                                      F-62
<PAGE>

                                 NCT Group, Inc.
                                Index to Exhibits
                                  Item 14(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.

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 (5) 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 shares of common stock
     dated  February  13,  2001,  filed as an exhibit to  Schedule  13D filed on
     February 13, 2001.

4(g) Warrant  issued to Carole  Salkind for the  purchase  of 500,000  shares of
     common stock dated May 14, 2001,  filed as an exhibit to Schedule 13D filed
     by NCT on behalf of Ms. Salkind on May 18, 2001.

4(h) Warrant  issued to Carole  Salkind for the  purchase  of 625,000  shares of
     common  stock dated  August 22,  2001,  filed as an exhibit to Schedule 13D
     filed on behalf of Carole Salkind on September 14, 2001.

4(i) Warrant  issued to Carole  Salkind for the purchase of 1,000,000  shares of
     common stock dated September 28, 2001,  incorporated herein by reference to
     Exhibit  10(an)(1) of NCT's  Pre-effective  Amendment No. 2 to Registration
     Statement on Form S-1  (Registration  No.  333-60574)  filed on November 7,
     2001.

                                       57
<PAGE>

4(j) Letter dated October 25, 2001 amending terms of October 26, 2000 warrant to
     Libra Finance, S.A.,  incorporated herein by reference to Exhibit 10(ao) of
     NCT's Pre-effective  Amendment No. 2 to Registration  Statement on Form S-1
     (Registration No. 333-60574) filed on November 7, 2001.

4(k) Warrant  dated  October  25,  2001  issued to Libra  Finance  S.A.  for the
     purchase  of  20,000,000  shares of common  stock,  incorporated  herein by
     reference  to  Exhibit  10(ap) of NCT's  Pre-effective  Amendment  No. 2 to
     Registration  Statement on Form S-1  (Registration  No. 333-60574) filed on
     November 7, 2001.

4(l) Warrant  issued to Carole  Salkind for the purchase of 1,250,000  shares of
     common stock dated December 20, 2001,  incorporated  herein by reference to
     Exhibit  10(ay)  of  the  Company's   Pre-effective   Amendment  No.  3  to
     Registration  Statement on Form S-1  (Registration  No. 333-60574) filed on
     December 21, 2001.

4(m) 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.

4(n) Option dated  January 11, 2002  granted to Carole  Salkind to acquire a 10%
     equity interest in Artera Group, Inc.

4(o) 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.

4(p) 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.

4(q) 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.

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).

                                       58
<PAGE>

*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.

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.

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<PAGE>

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)Securities  Exchange  Agreement,  dated as of October  9,  1999,  among the
     Company,  Austost  Anstalt Schaan and Balmore Funds,  S.A.  incorporated by
     reference  to Exhibit  10(a) of the  Company's  Current  Report on Form 8-K
     filed on January 12, 2000.

10(j)Registration  Rights  Agreement,  dated as of October  9,  1999,  among the
     Company,  Austost  Anstalt Schaan and Balmore Funds,  S.A.  incorporated by
     reference  to Exhibit  10(b) of the  Company's  Current  Report on Form 8-K
     filed on January 12, 2000.

10(k)Securities  Purchase  Agreement,  dated as of December 27, 1999,  among the
     Company,  Austost  Anstalt  Schaan,  Balmore Funds,  S.A. and Nesher,  Inc.
     incorporated by reference to Exhibit 10(c) of the Company's  Current Report
     on Form 8-K filed on January 12, 2000.

10(l)Registration  Rights  Agreement,  dated as of December 27, 1999,  among the
     Company,  Austost Anstalt Schaan,  Balmore Funds,  S.A..  Nesher,  Inc. and
     Libra  Finance  S.A.  incorporated  by  reference  to Exhibit  10(d) of the
     Company's Current Report on Form 8-K filed on January 12, 2000.

10(m)Amendment No. 1 to the Securities Exchange Agreement,  dated as of March 7,
     2000,  among the Company,  Austost Anstalt Schaan and Balmore Funds,  S.A.,
     incorporated by reference to Exhibit 10(ae) of the Company's  Annual Report
     on Form 10-K filed on April 14, 2000.

10(n)Strategic  Alliance and Technology License Agreement entered into as of May
     8, 2000 among NCT Group,  Inc.,  Advancel  Logic  Corporation  and Infinite
     Technology Corporation,  incorporated by reference to Exhibit 10(ag) of the
     Company's  Pre-effective  Amendment No. 1 to the Registration  Statement on
     Form S-1 filed on June 13, 2000.

10(n)(1) License Agreement Amendment dated effective September 30, 2000, between
     NCT  Group,  Inc.,  Advancel  Logic  Corporation  and  Infinite  Technology
     Corporation,  incorporated  herein  by  reference  to  Exhibit  10  of  the
     Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
     2000.

10(n)(2) Strategic Alliance and Technology Development Amendment dated effective
     June 20, 2000,  between NCT Group,  Inc.,  Advancel Logic  Corporation  and
     Infinite  Technology  Corporation,  incorporated  herein  by  reference  to
     Exhibit  10(al)  of  the  Company's   Pre-effective   Amendment  No.  1  to
     Registration  Statement on Form S-1  (Registration  No. 333-47084) filed on
     October 25, 2000.

10(o)Agreement and Plan of Merger dated August 29, 2000,  among NCT Group,  Inc,
     NCT  Midcore,  Inc.  and Midcore  Software,  Inc.,  incorporated  herein by
     reference to Exhibit 2 of the Company's Current Report on Form 8-K filed on
     September 13, 2000.

10(p)Stock  Purchase  Agreement  dated August 18, 2000 by and between NCT Group,
     Inc.,  DistributedMedia.com,  Inc.,  DMC  Cinema,  Inc.  and  Jeff  Arthur,
     LaJuanda Barrera, Robert Crisp, Steven Esrick and Alan Martin, incorporated
     herein  by  reference  to  Exhibit  10(aj) of the  Company's  Pre-effective
     Amendment No. 1 to  Registration  Statement on Form S-1  (Registration  No.
     333-47084) filed on October 25, 2000.

10(q)Securities  Purchase  and  Supplemental  Exchange  Rights  Agreement  dated
     August 10, 2000 by and among ConnectClearly.com,  Inc. NCT Group, Inc., and
     Austost  Anstalt  Schaan,  Balmore  S.A. and Zakeni  Limited,  incorporated
     herein  by  reference  to  Exhibit  10(ak) of the  Company's  Pre-

                                       60
<PAGE>

     effective   Amendment  No.  1  to   Registration   Statement  on  Form  S-1
     (Registration No. 333-47084) filed on October 25, 2000.

10(r)Securities  Purchase  and  Supplemental  Exchange  Rights  Agreement  dated
     September 29, 2000 by and among Pro Tech  Communications,  Inc., NCT Group,
     Inc., Austost Anstalt Schaan, Balmore S.A. and Zakeni Limited, incorporated
     herein  by  reference  to  Exhibit  10(am) of the  Company's  Pre-effective
     Amendment No. 1 to  Registration  Statement on Form S-1  (Registration  No.
     333-47084) filed on October 25, 2000.

10(s)Stock Purchase  Agreement between NCT Hearing  Products,  Inc. and Pro Tech
     Communications,  Inc.  dated as of  September  13,  2000,  incorporated  by
     reference to Exhibit 10(an) of the Company's  Pre-effective Amendment No. 2
     to Registration Statement on Form S-1 (Registration No. 333-47084) filed on
     December 12, 2000.

10(s)(1)  License  Agreement  between NCT Hearing  Products,  Inc.  and Pro Tech
     Communications, Inc. dated September 12, 2000, incorporated by reference to
     Exhibit  10(ao)  of  the  Company's   Pre-effective   Amendment  No.  2  to
     Registration  Statement on Form S-1  (Registration  No. 333-47084) filed on
     December 12, 2000.

10(t)Subscription Agreement between NCT Networks, Inc. and Subscribers:  Austost
     Anstalt Schaan;  Balmore,  S.A.;  Amro  International,  S.A.;  Nesher Ltd.;
     Talbiya B. Investments Ltd.; and The Gross Foundation,  Inc. (collectively,
     Holders of Convertible Notes of NCT Networks,  Inc.) dated January 9, 2001,
     incorporated  herein  by  reference  to  Exhibit  10(ap)  of the  Company's
     Pre-effective  Amendment  No.  3 to  Registration  Statement  on  Form  S-1
     (Registration No. 333-47084) filed on January 26, 2001.

10(t)(1) Form of Convertible  Note of NCT Networks,  Inc. dated January 9, 2001,
     incorporated  herein  by  reference  to  Exhibit  10(aq)  of the  Company's
     Pre-effective  Amendment  No.  3 to  Registration  Statement  on  Form  S-1
     (Registration No. 333-47084) filed on January 26, 2001.

10(t)(2)  Exchange  Rights  Agreement  among NCT  Group,  Inc.  and  Holders  of
     Convertible Notes of NCT Networks, Inc. dated January 9, 2001, incorporated
     herein  by  reference  to  Exhibit  10(ar) of the  Company's  Pre-effective
     Amendment No. 3 to  Registration  Statement on Form S-1  (Registration  No.
     333-47084) filed on January 26, 2001.

10(t)(3)  Registration  Rights  Agreement  among NCT Group,  Inc. and Holders of
     Convertible Notes of NCT Networks, Inc. dated January 9, 2001, incorporated
     herein  by  reference  to  Exhibit  10(as) of the  Company's  Pre-effective
     Amendment No. 3 to  Registration  Statement on Form S-1  (Registration  No.
     333-47084) filed on January 26, 2001.

10(u)Exchange  Agreement  dated April 12, 2001 by and between  Crammer  Road LLC
     and NCT Group, Inc.,  incorporated herein by reference to Exhibit 10(at) of
     NCT's Registration Statement on Form S-1 (Registration No. 333-60574) filed
     on May 9, 2001.

10(u)(1) NCT Group, Inc. note CR-1 in principal amount of $1,000,000 dated April
     12,  2001,  incorporated  herein by  reference  to Exhibit  10(au) of NCT's
     Registration  Statement on Form S-1  (Registration  No. 333-60574) filed on
     May 9, 2001.

10(u)(2) Registration  Rights Agreement (Exhibit A to Exchange Agreement) by and
     between NCT Group,  Inc.  and Crammer  Road LLC dated as of April 12, 2001,
     incorporated  herein by reference to Exhibit  10(av) of NCT's  Registration
     Statement on Form S-1 (Registration No. 333-60574) filed on May 9, 2001.

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<PAGE>

10(v)Subscription Agreement by and between NCT Video Displays,  Inc. and Crammer
     Road LLC dated as of April 12,  2001,  incorporated  herein by reference to
     Exhibit 10(ax) of NCT's  Registration  Statement on Form S-1  (Registration
     No. 333-60574) filed on May 9, 2001.

10(v)(1)  Exchange  Rights  Agreement  dated  April 12,  2001 by and between NCT
     Group,  Inc.  and Crammer  Road LLC,  incorporated  herein by  reference to
     Exhibit 10(aw) of NCT's  Registration  Statement on Form S-1  (Registration
     No. 333-60574) filed on May 9, 2001.

10(v)(2)  Convertible  Note of NCT Video Displays,  Inc. in principal  amount of
     $500,000  dated as of April 12, 2001,  incorporated  herein by reference to
     Exhibit 10(ay) of NCT's  Registration  Statement on Form S-1  (Registration
     No. 333-60574) filed on May 9, 2001.

10(w)Private Equity Credit  Agreement  dated as of April 12, 2001 by and between
     NCT Group, Inc. and Crammer Road LLC,  incorporated  herein by reference to
     Exhibit 10(az) of NCT's  Registration  Statement on Form S-1  (Registration
     No. 333-60574) filed on May 9, 2001.

10(w)(1)  Registration  Rights  Agreement  (Exhibit A to Private  Equity  Credit
     Agreement)  dated as of April 12, 2001 by and between NCT Group,  Inc.  and
     Crammer Road LLC,  incorporated  herein by  reference to Exhibit  10(ba) of
     NCT's Registration Statement on Form S-1 (Registration No. 333-60574) filed
     on May 9, 2001.

10(x)Framework  Agreement between NXT plc, New Transducers  Limited,  NCT Group,
     Inc. and NCT Audio Products, Inc. relating to the reorganization of certain
     existing  arrangements dated as of March 30, 2001,  incorporated  herein by
     reference  to  Exhibit  10(z) of  NCT's  Pre-effective  Amendment  No. 1 to
     Registration  Statement on Form S-1  (Registration  No. 333-60574) filed on
     September 5, 2001.

10(x)(1)  Registration  Rights Agreement dated as of March 30, 2001 by and among
     NCT Group,  Inc. and NXT plc,  incorporated  herein by reference to Exhibit
     10(z)(1) of NCT's Pre-effective  Amendment No. 1 to Registration  Statement
     on Form S-1 (Registration No. 333-60574) filed on September 5, 2001.

10(x)(2) IP Sale Agreement dated April 11, 2001 between NCT Group, Inc., NXT plc
     and New Transducers  Limited,  incorporated  herein by reference to Exhibit
     10(z)(2) of NCT's Pre-effective  Amendment No. 1 to Registration  Statement
     on Form S-1 (Registration No. 333-60574) filed on September 5, 2001.

10(x)(3) NXT General  License  between the company and New  Transducers  Limited
     dated as of April 11,  2001,  incorporated  herein by  reference to Exhibit
     10(z)(3) of NCT's Pre-effective  Amendment No. 1 to Registration  Statement
     on Form S-1 (Registration No. 333-60574) filed on September 5, 2001.

10(x)(4) Letter  dated April 11, 2001  amending  the NXT General  License  dated
     April 11, 2001,  incorporated  herein by  reference to Exhibit  10(z)(4) of
     NCT's Pre-effective  Amendment No. 1 to Registration  Statement on Form S-1
     (Registration No. 333-60574) filed on September 5, 2001.

10(x)(5) Cancellation letter between the company, NCT Audio Products,  Inc., New
     Transducers  Limited and NXT plc dated April 11, 2001  canceling the Master
     License  Agreement  dated  September  27,  1997 and the New  Cross  License
     Agreement  dated  September 27, 1997,  incorporated  herein by reference to
     Exhibit  10(z)(5) of NCT's  Pre-effective  Amendment No. 1 to  Registration
     Statement on Form S-1  (Registration  No.  333-60574) filed on September 5,
     2001.

10(x)(6)  Letter  dated  April 11,  2001  outlining  additional  services  to be
     rendered  by  NXT  plc/New   Transducers   Limited  to  Distributed   Media
     Corporation,  incorporated herein by reference of Exhibit 10(z)(6) of NCT's
     Pre-Effective  Amendment  No.  4 to  Registration  Statement  on  Form  S-1
     (Registration No. 333-60574) filed on January 30, 2002.

                                       62
<PAGE>

10(y) Subscription Agreement dated March 14, 2001 between the company and Alpha
     Capital  Aktiengesellschaft,  incorporated  herein by  reference to Exhibit
     10(bh)  of  NCT's  Registration  Statement  on Form S-1  (Registration  No.
     333-60574) filed on May 9, 2001.

10(y)(1) Form of Convertible  Note in principal  amount of $250,000 dated March
     14,  2001,  incorporated  herein by  reference  to Exhibit  10(bi) of NCT's
     Registration  Statement on Form S-1  (Registration  No. 333-60574) filed on
     May 9, 2001.

10(z)  Subscription  Agreement  dated April 4, 2001 among Artera  Group,  Inc.,
     Alpha Capital Aktiengesellschaft and Amro International, S.A., incorporated
     herein by reference to Exhibit  10(bj) of NCT's  Registration  Statement on
     Form S-1 (Registration No. 333-60574) filed on May 9, 2001.

10(z)(1) Form of Note dated April 4, 2001,  incorporated herein by reference to
     Exhibit 10(bk) of NCT's  Registration  Statement on Form S-1  (Registration
     No. 333-60574) filed on May 9, 2001.

10(z)(2) Exchange Rights Agreement by and among NCT Group, Inc. and the Holders
     identified  on Schedule A thereto  dated as of April 4, 2001,  incorporated
     herein by reference to Exhibit 10(ab)(2) of NCT's  Pre-effective  Amendment
     No. 1 to Registration  Statement on Form S-1  (Registration  No. 333-60574)
     filed on September 5, 2001.

10(z)(3)  Registration  Rights  Agreement  among NCT Group,  Inc.  and  Holders
     identified  on Schedule A thereto  dated as of April 4, 2001,  incorporated
     herein by reference to Exhibit 10(ab)(3) of NCT's  Pre-effective  Amendment
     No. 1 to Registration  Statement on Form S-1  (Registration  No. 333-60574)
     filed on September 5, 2001.

10(aa) Subscription Agreement dated April 12, 2001 between the company and Alpha
     Capital  Aktiengesellschaft,  incorporated  herein by  reference to Exhibit
     10(bl)  of  NCT's  Registration  Statement  on Form S-1  (Registration  No.
     333-60574) filed on May 9, 2001.

10(aa)(1) Form of Convertible  Note in principal  amount of $125,000 dated April
     12,  2001,  incorporated  herein by  reference  to Exhibit  10(bm) of NCT's
     Registration  Statement on Form S-1  (Registration  No. 333-60574) filed on
     May 9, 2001.

10(ab) Promissory Note in principal  amount of $500,000 dated February 13, 2001,
     filed as an exhibit to Schedule 13D filed on February 13, 2001.

10(ac) Product Development and Licensing Agreement dated May 4, 2001 between NCT
     Video Displays, Inc. and ViewBeam Technology,  L.L.C.,  incorporated herein
     by reference to Exhibit 10(bl) of NCT's  Quarterly  Report on Form 10-Q for
     the quarter ended March 31, 2001.

10(ad) Agreement dated May 11, 2001, by and among NCT Group,  Inc.,  Distributed
     Media  Corporation and Production  Resource Group,  incorporated  herein by
     reference  to  Exhibit  10(af) of NCT's  Pre-effective  Amendment  No. 1 to
     Registration  Statement on Form S-1  (Registration  No. 333-60574) filed on
     September 5, 2001.

10(ae) Stock and Asset  Purchase  Agreement by and among  Teltran  International
     Group,  Ltd.,  Internet  Protocols Ltd. and NCT Networks,  Inc. (now Artera
     Group, Inc.) dated as of January 23, 2001, incorporated by reference to the
     Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, filed on
     August 15, 2001.

10(ae)(1) Side letter dated  February  27,  2001,  amending the January 23, 2001
     Stock and Asset  Agreement,  incorporated  by  reference  to the  Quarterly
     Report on Form 10-Q for the quarter  ended June 30,  2001,  filed on August
     15, 2001.

                                       63
<PAGE>

10(ae)(2)  Stockholders'  Agreement  dated  February  27,  2001 by and among NCT
     Group, Inc., NCT Networks, Inc. and the holders of Series A Preferred Stock
     of NCT Networks,  Inc, incorporated by reference to the Quarterly Report on
     Form 10-Q for the quarter ended June 30, 2001, filed on August 15, 2001.

10(af) Secured  Convertible Note in principal amount of $1,361,615 dated May 14,
     2001,  filed as an  exhibit to  Schedule  13D filed by NCT on behalf of Ms.
     Salkind on May 18, 2001.

10(ag) Secured  Convertible  Note in principal amount of $1,673,393 dated August
     22,  2001  filed as an exhibit  to  Schedule  13D filed on behalf of Carole
     Salkind on September 14, 2001.

10(ah) Subscription  Agreement among Artera Group,  Inc. and Subscribers:  Alpha
     Capital Aktiengesellschaft and Amro International, S.A. dated as of May 25,
     2001,  incorporated  by reference to the Quarterly  Report on Form 10-Q for
     the quarter ended June 30, 2001, filed on August 15, 2001.

10(ah)(1) Form of Convertible Note dated May 25, 2001, incorporated by reference
     to the  Quarterly  Report on Form 10-Q for the quarter ended June 30, 2001,
     filed on August 15, 2001.

10(ah)(2) Exchange Rights Agreement by and among NCT Group, Inc. and the Holders
     identified on Schedule A thereto dated as of May 25, 2001,  incorporated by
     reference to the  Quarterly  Report on Form 10-Q for the quarter ended June
     30, 2001, filed on August 15, 2001.

10(ah)(3)  Registration  Rights  Agreement  among NCT Group,  Inc.  and  Holders
     identified on Schedule A thereto dated as of May 25, 2001,  incorporated by
     reference to the  Quarterly  Report on Form 10-Q for the quarter ended June
     30, 2001, filed on August 15, 2001.

10(ai) Subscription  Agreement among Artera Group,  Inc. and Subscribers:  Alpha
     Capital Aktiengesellschaft; Amro International, S.A.; The Gross Foundation,
     Inc.;  Leval Trading,  Inc.;  Nesher Ltd.; and Talbiya B.  Investments Ltd.
     dated as of June 29,  2001,  incorporated  by  reference  to the  Quarterly
     Report on Form 10-Q for the quarter  ended June 30,  2001,  filed on August
     15, 2001.

10(ai)(1)  Form of  Convertible  Note  dated  June  29,  2001,  incorporated  by
     reference to the  Quarterly  Report on Form 10-Q for the quarter ended June
     30, 2001, filed on August 15, 2001.

10(ai)(2) Exchange  Rights  Agreement  (Notes) by and among NCT Group,  Inc. and
     Holders  identified  on  Schedule  A  thereto  dated as of June  29,  2001,
     incorporated  by  reference  to the  Quarterly  Report on Form 10-Q for the
     quarter ended June 30, 2001, filed on August 15, 2001.

10(ai)(3)  Registration  Rights  Agreement  (Notes)  among NCT Group,  Inc.  and
     Holders  identified  on  Schedule  A  thereto  dated as of June  29,  2001,
     incorporated  by  reference  to the  Quarterly  Report on Form 10-Q for the
     quarter ended June 30, 2001, filed on August 15, 2001.

10(aj) Exchange Rights  Agreement  (Preferred) by and among NCT Group,  Inc. and
     Austost  Anstalt  Schaan;  Amro  International,  S.A.;  Nesher Ltd.;  Leval
     Trading, Inc.; ICT N.V.; Balmore S.A.; The Gross Foundation,  Inc.; Talbiya
     B. Investments Ltd.; United Securities  Services,  Inc.; and Libra Finance,
     S.A. dated as of June 29, 2001,  incorporated by reference to the Quarterly
     Report on Form 10-Q for the quarter  ended June 30,  2001,  filed on August
     15, 2001.

10(aj)(1)  Registration  Rights Agreement  (Preferred) among NCT Group, Inc. and
     Austost  Anstalt  Schaan;  Amro  International,  S.A.;  Nesher Ltd.;  Leval
     Trading, Inc.; ICT N.V.; Balmore S.A.; The Gross Foundation,  Inc.; Talbiya
     B. Investments Ltd.; United Securities  Services,  Inc.; and Libra Finance,
     S.A. dated as of June 29, 2001,  incorporated by reference to the Quarterly
     Report on Form 10-Q for the quarter  ended June 30,  2001,  filed on August
     15, 2001.

                                       64
<PAGE>

10(ak) Securities Purchase and Supplemental Exchange Rights Agreement dated July
     30, 2001 by and among Pro Tech  Communications,  Inc., NCT Group, Inc., and
     Alpha  Capital   Aktiengesellschaft,   incorporated  by  reference  to  the
     Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, filed on
     August 15, 2001.

10(ak)(1) Registration Rights Agreement by and between NCT Group, Inc. and Alpha
     Capital  Aktiengesellschaft  dated July 30, 2001, incorporated by reference
     to the  Quarterly  Report on Form 10-Q for the quarter ended June 30, 2001,
     filed on August 15, 2001.

10(al)  Secured  Convertible  Note  in  principal  amount  of  $2,535,469  dated
     September 28, 2001,  incorporated  herein by reference to Exhibit 10(an) of
     NCT's Pre-effective  Amendment No. 2 to Registration  Statement on Form S-1
     (Registration No. 333-60574) filed on November 7, 2001.

10(am) Letter dated October 25, 2001 amending  terms of October 26, 2000 warrant
     to Libra Finance, S.A.,  incorporated herein by reference to Exhibit 10(ao)
     of NCT's  Pre-effective  Amendment No. 2 to Registration  Statement on Form
     S-1 (Registration No. 333-60574) filed on November 7, 2001.

10(an) Letter dated November 14, 2001 amending terms of October 26, 2000 warrant
     to Libra Finance S.A.,  incorporated  herein by reference to Exhibit 10(bg)
     of NCT's Form 8-K filed November 19, 2001.

10(ao) Letter dated  November 9, 2001 to each of the  Subscribers  identified on
     Schedule A thereto (being the subscribers in Artera convertible notes dated
     January 9, 2001,  April 4, 2001,  May 25, 2001, and June 29, 2001) amending
     terms of conversion of the Artera convertible notes, incorporated herein by
     reference to Exhibit 10(ar) of the Company's  Pre-effective Amendment No. 3
     to Registration Statement on Form S-1 (Registration No. 333-60574) filed on
     December 21, 2001.

10(ap) Letter  dated  November 9, 2001 to each of the  investors  identified  on
     Schedule A thereto  amending  the terms of  exchange  of shares of Artera's
     Series A Convertible  Preferred Stock,  incorporated herein by reference to
     Exhibit  10(as)  of  the  Company's   Pre-effective   Amendment  No.  3  to
     Registration  Statement on Form S-1  (Registration  No. 333-60574) filed on
     December 21, 2001.

10(aq)  Distributed  Media  Corporation   standard  form  of  license  agreement
     conveying rights to the use of Sight & Sound systems,  incorporated  herein
     by reference to Exhibit 10(at) of the Company's Pre-effective Amendment No.
     3 to Registration  Statement on Form S-1 (Registration No. 333-60574) filed
     on December 21, 2001.

10(ar) Agreement  dated May 20, 1999 between  Barnes & Noble College  Bookstores
     and  Distributed  Media  Corporation,  incorporated  herein by reference to
     Exhibit  10(au)  of  the  Company's   Pre-effective   Amendment  No.  3  to
     Registration  Statement on Form S-1  (Registration  No. 333-60574) filed on
     December 21, 2001.

10(as)  Agreement  dated  August  4,  1999  between   TransWorld   Entertainment
     Corporation  and  Distributed  Media  Corporation,  incorporated  herein by
     reference to Exhibit 10(av) of the Company's  Pre-effective Amendment No. 3
     to Registration Statement on Form S-1 (Registration No. 333-60574) filed on
     December 21, 2001.

10(at) Agreement dated October 28, 1999 between Wherehouse  Entertainment,  Inc.
     and  Distributed  Media  Corporation,  incorporated  herein by reference to
     Exhibit  10(aw)  of  the  Company's   Pre-effective   Amendment  No.  3  to
     Registration  Statement on Form S-1  (Registration  No. 333-60574) filed on
     December 21, 2001.

                                       65
<PAGE>

10(au) Secured  Convertible  Note in the principal  amount of  $2,014,270  dated
     December 20, 2001,  incorporated  herein by reference to Exhibit  10(ax) of
     the Company's  Pre-effective  Amendment No. 3 to Registration  Statement on
     Form S-1 (Registration No. 333-60574) filed on December 21, 2001.

10(av) Letter  dated  December  20, 2001  amending  terms of  February  13, 2001
     warrant to Carole  Salkind,  incorporated  herein by  reference  to Exhibit
     10(az)  of the  Company's  Pre-effective  Amendment  No. 3 to  Registration
     Statement on Form S-1  (Registration  No.  333-60574) filed on December 21,
     2001.

10(aw) Letter dated  December 20, 2001 amending terms of May 14, 2001 warrant to
     Carole Salkind,  incorporated  herein by reference to Exhibit 10(ba) of the
     Company's  Pre-effective  Amendment No. 3 to Registration Statement on Form
     S-1 (Registration No. 333-60574) filed on December 21, 2001.

10(ax) Letter dated  December 20, 2001 amending terms of August 22, 2001 warrant
     to Carole  Salkind,  incorporated  herein by reference to Exhibit 10(bb) of
     the Company's  Pre-effective  Amendment No. 3 to Registration  Statement on
     Form S-1 (Registration No. 333-60574) filed on December 21, 2001.

10(ay) Letter dated  December  20, 2001  amending  terms of  September  28, 2001
     warrant to Carole  Salkind,  incorporated  herein by  reference  to Exhibit
     10(bc)  of the  Company's  Pre-effective  Amendment  No. 3 to  Registration
     Statement on Form S-1  (Registration  No.  333-60574) filed on December 21,
     2001.

10(az) Secured  Convertible  Note in  principal  amount of  $2,231,265.04  dated
     January 11, 2002 issued to Carole Salkind.

10(az)(1) Secured Convertible Note in principal amount of $650,000 dated January
     25, 2002 issued to Carole Salkind.

10(az)(2) Secured Convertible Note in principal amount of $250,000 dated January
     25, 2002 issued to Carole Salkind.

10(az)(3)  Secured  Convertible  Note in  principal  amount  of  $827,412  dated
     February 27, 2002 issued to Carole Salkind.

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, 2001.

23(a) Consent of Goldstein Golub Kessler LLP.

23(b) Consent of Richard A. Eisner & Company, LLP.

23(c) Consent of Peters Elworthy & Moore, Chartered Accountants.

                                       66
<PAGE>

99(a)Employment  Agreement  by  and  between  NCT  Midcore,  Inc.  (now  Midcore
     Software,  Inc.)  and  Jerrold  Metcoff,  dated  as  of  August  29,  2000,
     incorporated  by reference to the  Quarterly  Report filed on Form 10-Q for
     the quarter ended June 30, 2001, filed on August 15, 2001.

99(b)Employment  Agreement  by  and  between  NCT  Midcore,  Inc.  (now  Midcore
     Software, Inc.) and David Wilson, dated as of August 29, 2000, incorporated
     by  reference  to the  Quarterly  Report filed on Form 10-Q for the quarter
     ended June 30, 2001, filed on August 15, 2001.

99(c)Employment  Agreement  by and between  Midcore  Software  Limited and Barry
     Marshall-Johnson, dated as of August 29, 2000, incorporated by reference to
     the  Quarterly  Report  filed on Form 10-Q for the  quarter  ended June 30,
     2001, filed on August 15, 2001.

-----------------------

*    Pertains to a management contract or compensation plan or arrangement.

                                       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.

                                         NCT Group, Inc.
                                         ---------------
                                          (Registrant)

                                         By:  /s/ MICHAEL J. PARRELLA
                                              -----------------------
                                              Michael J. Parrella
                                              Chief Executive Officer and
                                              Chairman of the Board of Directors

                                         Date:  April 30, 2002
                                                --------------

<TABLE>
<CAPTION>

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

<S>                                                                                                            <C> <C>
   /s/ MICHAEL J. PARRELLA                                Chief Executive Officer and                    April 30, 2002
   ------------------------------------------
       Michael J. Parrella                            Chairman of the Board of Directors
                                                         (Principal Executive Officer)

   /s/ IRENE LEBOVICS                                       President and Director                       April 30, 2002
   ------------------------------------------
        Irene Lebovics

   /s/ CY E. HAMMOND                                       Senior Vice President and                     April 30, 2002
   ------------------------------------------
       Cy E. Hammond                                        Chief Financial Officer
                                                         (Principal Financial Officer)

   /s/ JAY M. HAFT                                                 Director                              April 30, 2002
   ------------------------------------------
       Jay M. Haft

   /s/ JOHN J. McCLOY II                                           Director                              April 30, 2002
   ------------------------------------------
       John J. McCloy II

   /s/ SAMUEL A. OOLIE                                             Director                              April 30, 2002
   ------------------------------------------
       Samuel A. Oolie

</TABLE>

                                       68