<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                   Form 10-QSB


[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 29, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 FOR THE TRANSITION PERIOD FROM _______________TO_______________

Commission File Number:  0-9856
                         ------

                             AM COMMUNICATIONS, INC.
                             -----------------------
        (Exact name of small business issuer as specified in its charter)

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

       1900 AM Drive, Quakertown, PA                        18951-2237
----------------------------------------                    ----------
(Address of principal executive offices)                    (Zip Code)
</TABLE>

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


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_  No ____

On February 4, 2002, there were 56,394,016 shares of the Registrant's Common
Stock, par value $.10 per share, outstanding.

Transitional Small Business Disclosure Format (check one):  Yes____   No __X__


<PAGE>

                             AM COMMUNICATIONS, INC.
                                   FORM 10-QSB
                     FOR THE QUARTER ENDED DECEMBER 29, 2001

                                      INDEX

<TABLE>
<CAPTION>
PART I.       FINANCIAL INFORMATION                                                         PAGE NO.
-----------------------------------                                                         --------
<S>            <C>                                                                             <C>
Item 1.       Consolidated Financial Statements

              Consolidated Balance Sheets - December 29 (Unaudited) and
              March 31, 2001                                                                    3

              Consolidated Statements of Income - Quarter and Nine Months
              Ended December 29, 2001 and December 30, 2000 (Unaudited)                         4

              Consolidated Statements of Cash Flows -- Nine Months Ended
              December 29, 2001 and December 30, 2000 (Unaudited)                               5

              Notes to Consolidated Financial Statements                                      6 - 14

Item 2.       Management's Discussion and Analysis of Operations                             14 - 21



PART II.      OTHER INFORMATION
-------------------------------

Item 6.       Exhibits and Reports on Form 8-K and 8-KA                                        22
</TABLE>


                                        2


<PAGE>

Item 1.  Financial Statements

                             AM COMMUNICATIONS, INC.
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                      December 29,        March 31,
                                                                         2001                2001
                                                                   ---------------      -------------
ASSETS                                                                         (Unaudited)
<S>                                                                        <C>                <C>
Current Assets:
   Cash                                                               $    211,000       $    350,000
   Accounts Receivable, Net of Reserves of $209,000
      at December 29 and March 31, 2001                                  8,468,000          2,654,000
   Due from Affiliate                                                      328,000             53,000
   Inventory                                                             2,724,000          2,935,000
   Prepaid Expenses and Other                                              177,000            101,000
                                                                      ------------       ------------
      Total Current Assets                                              11,908,000          6,093,000

   Equipment and Fixtures, Net                                           1,076,000            267,000
   Other Assets                                                            142,000             13,000
   Goodwill                                                              5,376,000                 --
                                                                      ------------       ------------
   Total Assets                                                       $ 18,502,000       $  6,373,000
                                                                      ============       ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Current Portion of Capital Lease Obligations                       $      1,000             $2,000
   Current Portion of Notes Payable                                        160,000             30,000
   Bank Line of Credit                                                   2,916,000          1,250,000
   Subordinated Note Payable                                             1,000,000                 --
   Accounts Payable                                                      2,082,000          1,731,000
   Due to Affiliates                                                       405,000                 --
   Deferred Revenue                                                        234,000            135,000
   Accrued Expenses                                                      2,683,000          1,044,000
                                                                      ------------       ------------
      Total Current Liabilities                                          9,481,000          4,192,000
                                                                      ------------       ------------

Capital Lease Obligations - Long Term                                           --              1,000
Notes Payable - Long Term                                                  363,000             60,000
Subordinated Note Payable - Long Term                                    2,000,000                 --
Other                                                                       10,000                 --
Senior Convertible Redeemable Preferred Stock,
   $100 Par Value, Authorized 1,000,000 Shares;
   Issued and Outstanding 19,825 Shares
   March 31, 2001                                                               --          1,983,000

Commitments and Contingencies

Stockholders' Equity:
Common Stock, $.10 Par Value, Authorized 100,000,000
   Shares at December 29 and March 31, 2001; Issued
   and Outstanding 56,394,016 Shares at December 29
   and 43,152,051 Shares at March 31, 2001                               5,640,000          4,315,000
Capital in Excess of Par                                                36,520,000         33,087,000
Accumulated Deficit                                                    (35,512,000)       (37,265,000)
                                                                      ------------       ------------
   Stockholders' Equity                                                  6,648,000            137,000
                                                                      ------------       ------------
Total Liabilities and Stockholders' Equity                            $ 18,502,000       $  6,373,000
                                                                      ============       ============
</TABLE>

              The Accompanying Notes are an Integral Part of these
                       Consolidated Financial Statements.

                                       3
<PAGE>


                             AM COMMUNICATIONS, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                    Three Months Ended                    Nine Months Ended
                                               December 29,      December 30,       December 29,      December 30,
                                                  2001              2000                2001              2000
                                             --------------     -------------      -------------     ---------------
<S>                                                <C>                <C>                <C>                <C>
Revenues                                     $   11,443,000      $  3,574,000      $  19,544,000     $   11,195,000

Cost and Expenses:
   Cost of Sales                                  6,977,000         1,725,000         10,883,000          5,482,000
   Selling, General and Administrative            1,688,000           774,000          3,723,000          2,298,000
   Research and Development                         961,000           891,000          2,878,000          2,618,000
                                             --------------      ------------      -------------      -------------

Operating Income                                  1,817,000           184,000          2,060,000            797,000
Other Income (Expense)                             (108,000)          (34,000)          (181,000)           (97,000)
                                             --------------      ------------      -------------      -------------

Income Before Income Taxes                        1,709,000           150,000          1,879,000            700,000

Income Tax Provision                                117,000                --            126,000                 --
                                             --------------      ------------      -------------      -------------

Net Income                                   $    1,592,000     $     150,000      $   1,753,000     $      700,000
                                             ==============     =============      =============     ==============

Basic Net Income Per Share                   $         0.03     $         Nil      $        0.04     $         0.02
                                             ==============     =============      =============     ==============

Diluted Net Income Per Share                 $         0.03     $         Nil      $        0.03     $         0.01
                                             ==============     =============      =============     ==============

Shares Used in Computation of Basic
   Net Income Per Share                          52,275,000        34,021,000         46,356,000         33,611,000
                                               ============        ==========      =============         ==========
Shares Used in Computation of Diluted
   Net Income Per Share                          61,689,000        53,619,000         54,372,000         52,962,000
                                               ============        ==========      =============         ==========


</TABLE>


              The Accompanying Notes are an Integral Part of these
                       Consolidated Financial Statements.

                                       4

<PAGE>
                             AM COMMUNICATIONS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                              Nine Months Ended
                                                                    --------------------------------------
                                                                      December 29,        December 30,
                                                                          2001                 2000
                                                                    ------------------  ------------------
<S>                                                                        <C>                   <C>
Cash Flows from Operating Activities:
   Net Income                                                       $  1,753,000            $  700,000
   Adjustments to Reconcile Net Income to
   Net Cash Provided By (Used in) Operating Activities:
     Depreciation and Amortization                                       172,000               130,000
     Changes in Assets and Liabilities Which
     Provided (Used) Cash:
       Accounts Receivable                                            (2,906,000)             (181,000)
       Due from Affiliate                                               (275,000)             (107,000)
       Inventory                                                         211,000              (647,000)
       Prepaid Expenses and Other                                        (76,000)              (73,000)
       Accounts Payable                                                  260,000                66,000
       Deferred Revenue                                                   99,000               (24,000)
       Accrued and Other Expenses                                        936,000              (224,000)
       Due to Affiliates                                                 405,000                    --
       Other Noncurrent Assets and Liabilities, net                     (109,000)                   --
                                                                    ------------            ----------

Net Cash Provided By (Used In) Operating Activities                      470,000              (360,000)
                                                                    ------------            ----------

Cash Flows From Investing Activities:
   Purchase of Equipment and Intangible Assets                          (245,000)             (135,000)
   Acquisition of Businesses, Net of Cash Acquired                    (1,108,000)                   --
                                                                    ------------            ----------

Net Cash (Used In) Investing Activities                               (1,353,000)             (135,000)
                                                                    ------------            ----------

Cash Flows from Financing Activities:
   Proceeds from Borrowings under Bank Line                              708,000               250,000
   Payments on Note Payable                                              (37,000)                   --
   Exercise of Stock Options                                              75,000               181,000
   Payments under Capital Lease Obligations                               (2,000)               (1,000)
                                                                    ------------            ----------
Net Cash Provided By Financing Activities                                744,000               430,000
                                                                    ------------            ----------

Net (Decrease) In Cash                                                  (139,000)              (65,000)
Cash:
   Beginning                                                             350,000                79,000
                                                                    ------------            ----------
   Ending                                                           $    211,000            $   14,000
                                                                    ============            ==========
</TABLE>

              The Accompanying Notes are an Integral Part of these
                       Consolidated Financial Statements.

                                       5

<PAGE>

                             AM COMMUNICATIONS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
          As of December 29, 2001 and for the Nine Month Periods Ended
                     December 29, 2001 and December 30, 2000


1.   The accompanying interim consolidated financial statements should be read
     in conjunction with the annual consolidated financial statements and notes
     thereto included in AM Communications, Inc.'s Annual Report for the year
     ended March 31, 2001. The Consolidated Balance Sheet as of December 29,
     2001 and the related Consolidated Statements of Income and Consolidated
     Statements of Cash Flows for the nine months ended December 29, 2001 and
     December 30, 2000 are unaudited, but in the opinion of management include
     all normal and recurring adjustments necessary for a fair statement of the
     results for such interim periods. These Financial Statements should be
     read in conjunction with the Company's Current Report on Form 8-K filed on
     October 16, 2001 and the Company's amended Report 8-KA filed on December
     14, 2001, which include the Audited Financial Statements of SRS
     Communications Corporation and EDJ Communications Inc. in connection with
     the "acquisition of assets" consummated on October 1, 2001.


2.   Consistent with the Company's plan to expand its Broadband Service Business
     Unit, the Company`s wholly-owned subsidiary, AM Broadband Services, Inc.
     acquired all the issued and outstanding common stock of SRS Communications
     Corporation and EDJ Communications, Inc. on October 1, 2001. These
     companies provide services to the television cable and wireless industry,
     their services include installation and maintenance of television lines and
     wireless systems in the Northeastern and Southeastern parts of the United
     States. Both of these companies are Connecticut corporations and are
     collectively, herein referred to as the "Sellers". The transaction provides
     for the payment of $1,150,000 in cash to the Sellers in weekly installments
     following the close of the stock acquisition. Each installment is to equal
     the cash collection of the Sellers' accounts receivable existing as of
     October 1, 2001 continuing until the total amount of such installments
     equals $1,150,000. The Company also issued a $3,000,000 subordinated
     promissory note to the Sellers. The note bears interest at the rate of 5%
     per annum. The outstanding principal balance of the note and all accrued
     interest is payable in twelve consecutive quarterly payments, payable on
     the first day of each quarter, commencing on January 1, 2002. The Company
     also issued 9,000,000 shares of its common stock to the Sellers at closing
     valued at $.30 per share which was the closing price of AM Communication's
     stock on October 1, 2001, with an aggregate value of $2,700,000. The
     transaction has been accounted for under the purchase method of accounting.
     Accordingly, the consolidated balance sheet includes the assets and
     liabilities of the Sellers at December 29, 2001. The consolidated statement
     of operations and cash flows includes the results of the Sellers from
     October 1, 2001. Excess cost over fair value of net assets acquired of
     approximately $5,376,000, has been recorded on the December 29, 2001
     balance sheet. The Company is in the process of obtaining third-party
     valuations of certain intangible assets and expects the valuations to be
     completed by year-end thus, the allocation of the purchase price is subject
     to refinement.


                                       6
<PAGE>

     The following unaudited pro forma data summarizes the results of operations
as if the above mentioned acquisition had been completed as of the beginning of
the periods presented. The pro forma information is based on the historical
financial statements of the Company and the acquired companies after giving
effect to the acquisition using the purchase method of accounting. The pro forma
data gives effect to the actual operating results prior to the acquisition and
adjustments to interest expense, income taxes and common shares outstanding. No
effect has been given to cost reductions or operating synergies in the
presentation. These pro forma amounts do not purport to be indicative of the
results that would have actually been obtained if the acquisition had occurred
as of the beginning of the periods presented or that may be obtained in the
future.
<TABLE>
<CAPTION>
                                                  Nine Months Ended            Three Months Ended
                                                        (In Thousands, Except Per Share Data)
                                             December 29,   December 30,    December 29,     December 30,
                                                 2001           2000            2001             2000
                                             -------------- -------------- ---------------- ---------------
<S>                                          <C>              <C>            <C>              <C>
Total Revenue                                $   27,524       $   19,890     $    11,443      $      7,163
Income before extraordinary items
   accounting change and taxes                    3,184              747           1,709                32
Net Income                                   $    2,799       $      731     $     1,592      $         73
Earnings per common share:
Basic                                        $      .05       $      .02     $       .03      $        Nil
Diluted                                      $      .05       $      .01     $       .03      $        Nil
</TABLE>


3. Revenue Recognition

     AM Communications, Inc. the (Company) derives its revenues principally
from sales of its products to the cable TV industry. The Company's software
revenue is recognized in accordance with the American Institute of Certified
Public Accountants Statement of Position (SOP) 97-2. As is customary in the
industry, the Company's sales are made pursuant to individual purchase orders
and are recognized upon shipment of the product. Each component of the Company's
products is sold separately and the cost of each component is listed separately
in the purchase documentation. Revenue from custom development efforts is
recognized as contractual milestones are achieved.

     Broadband Services segment derives its revenues from sales of outside-plant
services to CATV operators. Revenue is recognized as contractual tasks are
completed and billed.

                                       7
<PAGE>
<TABLE>
<CAPTION>

                                                            December 29,           March 31,
                                                                2001                 2001
                                                          ---------------       -------------
                                                             (Unaudited)          (Audited)
             <S>                                                 <C>                 <C>
4.   Inventory Comprises:
       Raw Material                                     $     2,097,000       $     3,355,000
       Work in Process                                          858,000               684,000
       Finished Goods                                           647,000               361,000
                                                        ---------------       ---------------
                                                              3,602,000             4,400,000
       Inventory Reserves                                      (878,000)           (1,465,000)
                                                        ---------------       ---------------
       Net Inventory                                    $     2,724,000       $     2,935,000
                                                        ===============       ===============



5.   Accrued Expenses Comprise:
       Accrued Compensation                             $       538,000       $       282,000
       Accrued Commissions                                      111,000                33,000
       Accrued Contracted Services                              542,000               227,000
       Accrued Interest                                          68,000                20,000
       Accrued Rent                                               9,000                89,000
       Accrued Real Estate Taxes                                 75,000                45,000
       Warranty Reserve                                         226,000               226,000
       Accrued Professional Fees                                     --                40,000
       Accrued Trade Show Costs                                  70,000                    --
       Accrued Insurance                                         71,000                    --
       Accrued Income Taxes                                      70,000                12,000
       Other                                                    200,000                70,000
                                                        ---------------       ---------------
                                                        $     2,683,000       $     1,044,000
                                                        ===============       ===============
</TABLE>

6.   Short-term Debt

     On October 1, 2001 the Company amended its credit facility with a
commercial bank. The maximum available under the credit facility was increased
to equal the lesser of (a) $3,000,000 or (b) an amount equal to (i) eighty
percent (80%) of the Company's qualified accounts receivable minus (ii) fifty
percent (50%) of the outstanding principal amount of the term loan extended by
the bank on October 1, 2001. The amount extended by the bank at that time under
the term loan was $459,000 and was used to pay off existing debt of the SRS/EDJ
acquisition. The term loan bears interest of prime rate +2% and matures on
September 30, 2005. The maturity date of the credit facility is September 30,
2002 and also bears interest at prime rate +2%. Current borrowings under the
bank line and term loan are $2,916,000 and $440,000, respectively.

7.   Income Taxes:

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

     The provision for taxes on income consisted of:
<TABLE>
<CAPTION>
                                                             Nine Months Ended
                                                       ------------------------------
                                                        December 29,     December 30,
                                                            2001             2000
                                                       --------------    ------------
          <S>                                                <C>               <C>
     Current Income Taxes                              $   126,000       $         --
     Deferred Income Taxes                                 626,000            272,000
     Change in Valuation Allowance                        (626,000)          (272,000)
                                                       -----------       ------------
     Net                                               $   126,000       $         --
                                                       ===========       ============
</TABLE>

                                       8
<PAGE>


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

<TABLE>
<CAPTION>
                                                                         Nine Months Ended
                                                                  ---------------------------------
                                                                   December 29,        December 30,
                                                                       2001               2000
                                                                  ------------       -------------
         <S>                                                            <C>                  <C>
     Federal Income Tax Provision at
        Statutory Rate                                            $    639,000       $     238,000
     State Income Taxes, Net of Federal Benefit                        124,000              46,000
     Research and Development Credits                                  (15,000)            (15,000)
     Permanent Differences                                               4,000               3,000
     Change in Valuation Allowance                                    (626,000)           (272,000)
                                                                  ------------       -------------
     Income Tax Provision                                         $    126,000       $          --
                                                                  ============       =============
</TABLE>

     The components of the net deferred tax asset as of December 29 and March 31
were as follows:
<TABLE>
<CAPTION>
                                                                    December 29,          March 31,
                                                                        2001                2001
                                                                 --------------       ---------------
        <S>                                                              <C>                  <C>
     Deferred Tax Items:
       Inventory                                                  $      388,000       $     595,000
       Accrued Expenses and Reserves                                     242,000             324,000
       Net Operating Loss Carryforwards                                7,623,000           7,975,000
       Tax Credit Carryforwards                                          758,000             743,000
       Valuation Allowance                                            (9,011,000)         (9,637,000)
                                                                  --------------        ------------
       Net Deferred Tax Assets                                    $           --        $         --
                                                                  ==============        ============
</TABLE>

       The Company has total net operating loss carryforwards available to
offset future taxable income of approximately $20 million expiring at various
times from 2002 to 2016. Due to certain statutory limitations under the Internal
Revenue Code, a portion of such carryforwards may not be available or may expire
before being utilized.

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


                                       9
<PAGE>


8.   Net Income Per Share

       The following is a reconciliation of the numerator and denominators of
the basic and diluted EPS computations:
<TABLE>
<CAPTION>
                                                   Quarter Ended                   Nine Months Ended
                                       December 29,           December 30,       December 29,       December 30,
                                             2001                2000               2001                2000
                                       --------------       -------------      -------------       --------------
<S>                                    <C>                  <C>                <C>                  <C>
Net Income                             $   1,592,000        $     150,000      $   1,753,000        $    700,000
Basic Weighted Shares
  Outstanding                             52,275,000           34,021,000         46,356,000          33,611,000
Convertible Preferred Stock,
  Warrants and Dilutive Options            9,414,000           19,598,000          8,016,000          19,351,000
                                       -------------        -------------      -------------        ------------
Diluted Shares                            61,689,000           53,619,000         54,372,000          52,962,000
Net Income (Loss) Per Common
  Share
   Basic                                         .03                  NIL                .04                0.02
   Diluted                                       .03                  NIL                .03                0.01
</TABLE>

     Net Income per share-basic for the three and nine months ended December
29, 2001 and December 30, 2000 is based on the weighted average number of shares
of common stock outstanding. The 2001 periods give effect to the shares issued
in the acquisition of a business on October 1, 2001 and the conversion of
Preferred Stock to common stock on December 28, 2001. Net Income per
share-diluted reflects the potential dilution that could occur if stock options
and warrants were exercised.


9. Supplemental Cash Flow and Comprehensive Income is as follows
<TABLE>
<CAPTION>
                                                                       Nine Months Ended
                                                                   ------------------------------
                                                                    December 29,    December 30,
                                                                        2001             2000
                                                                   --------------    ------------
         <S>                                                             <C>               <C>
Cash paid during the year for:
Interest Paid                                                      $     148,000      $    92,000
                                                                   =============      ===========
Income Taxes Paid                                                  $          --      $        --
                                                                   =============      ===========


Noncash investing and financing activities:
Common Stock issued for businesses acquired                        $  2,700,000                --
Assumed debt of acquired businesses                                   1,428,000                --
Conversion of Preferred Stock to Common                               1,983,000                --
</TABLE>


     There was no comprehensive income for the periods presented.

10.  Commitments

       On September 21, 2001, the Company signed an agreement of sale to
purchase a 46,000 square foot office building in Quakertown, Pennsylvania. The
purchase price is $2,565,000. The Company has made deposits totaling $175,000 to
secure the purchase. The Company is in the process of obtaining financing from a
commercial bank and expects to close on the purchase transaction no later than
March 29, 2002. The office building will serve as the Company's main facility.

         The lease on the Company's current facility expired on January 31,
2002. The Company completed the move to the new facility on February 2, 2002. It
is occupying the new building under a short-term lease until the purchase
transaction closes. The monthly lease commitment is $34,500.



                                       10
<PAGE>


11.  Related Party Transactions

       During fiscal 1999 and fiscal 2000, the Company experienced a significant
restructuring of its business. As part of the restructuring, the Company
undertook several major organizational changes including the election of Mr.
Javad Hassan as Chairman and the execution of a strategic development and
manufacturing relationship with NeST associated companies, under which NeST
provides a substantial portion of the Company's engineering and manufacturing
requirements. Mr. Hassan is also the Chairman and primary shareholder of NeST
Technologies, Inc. and NeSTronix, Inc., which are U.S. based technology service
providers that provide engineering development services and turn-key
manufacturing services primarily through the use of technology resources of
staff and electronic manufacturing operations located in India and controlled by
Mr. Hassan's brother, N. Jehangir. Collectively, these operations are referred
to as NeST.

     As a result of the above mentioned restructuring actions taken and other
contractual agreements between the Company and NeST, Mr. Hassan and the NeST
related companies control the voting of 14,391,837 shares of the Company's
Common Stock presently owned by the Company's majority shareholder, hold
1,000,000 shares obtained through the exercise of stock options, hold 7,862,334
shares obtained through the exercise of warrants, and hold a stock option to
purchase 4,000,000 shares of common stock at $.15 per share. The warrants were
issued by the Company as payment for $1,827,197 of engineering development
services performed by NeST during fiscal 1999 and fiscal 2000.

     Under the terms of the NeST development agreement, the Company has the
option to pay for NeST development services either in cash or by the issuance of
warrants to purchase AM Common Stock. The Company elected to issue NeST warrants
to purchase 4,234,018 shares of the Company's Common Stock, at an exercise price
of $.01 per share, in payment of $670,000 of NeST development services for the
period from November 1998 through April 3, 1999. The Company also issued
warrants to purchase 3,628,316 shares of the Company's Common Stock, at an
exercise price of $.01 per share, in payment of $1,157,197 of NeST development
services for the period from April 4, 1999 through January 1, 2000. Since
January 2, 2000, the Company has paid cash for NeST development services. As a
result of improved operations, the Company expects to pay ongoing NeST
development expenses in cash, but continues to have the option to issue warrants
up to a limit of 10 million total shares under the NeST Agreement, including the
7,862,334 shares already issued. During the quarter and first nine months of
fiscal 2002, the Company has paid $588,000 and $1.8 million respectively, for
these services compared to $554,000 and $1.6 million, respectively for the
comparable periods last year.

     The Company has negotiated favorable rates with NeST for services performed
by both the India-based and U.S.-based employees of NeST. The Company may not be
able to obtain the same negotiated rates from outside third parties.

     Pursuant to a Manufacturing Services Agreement between NESTRONIX, Inc. and
the Company, NESTRONIX agreed to manufacture the Company's products on a
turn-key basis commencing on January 2, 2000. The initial term of this
Manufacturing Agreement ends on January 2, 2003 and the Manufacturing Agreement
is automatically renewable for additional 18 month periods unless either party
gives written notice to the contrary to the other party at least 6 months prior
to the end of the then current term. The Manufacturing Agreement is also


                                       11
<PAGE>


terminable by either party upon 60 days prior written notice upon the default of
the other party or the bankruptcy or liquidation of the other party. Nothing in
the Manufacturing Agreement precludes the Company from resuming manufacturing
itself or transferring manufacturing rights to a third party. The Company
retains title to and ownership of all equipment, inventory and intellectual
property rights utilized in connection with the manufacture of its products. The
Company and NESTRONIX, Inc. jointly agree upon a "bill of materials" price for
each product manufactured pursuant to the Manufacturing Agreement. The Company
pays to NESTRONIX, Inc. for each product manufactured pursuant to the
Manufacturing Agreement, an amount equal to the actual cost of all materials
utilized to manufacture the product, plus 0.5 times the agreed upon "bill of
materials" price for the product. . During the quarter and first nine months of
fiscal 2002 the Company has paid $907,000 and $2.2 million for these services
compared to $536,000 and $1.8 million, respectively, for the comparable periods
last year.

     In June 1999, the Company entered into an agreement with its Chairman,
Javad K. Hassan, whereby Mr. Hassan agreed to provide a $500,000 line of credit
to the Company, with interest payable at 10%. Payment of all outstanding
borrowings and interest is due by December 31, 2001. No amounts have been
borrowed under this line since its inception.

     On November 1, 2001, the Company entered into an Employment Agreement with
its Chairman, Mr. Javad Hassan. In connection with the execution and delivery of
the Employment Agreement, the previous Services Agreement, dated as of October
22, 1998, between Mr. Hassan and the Company was terminated.

     Under the terms of the Employment Agreement, Mr. Hassan will serve as Chief
Executive Officer and Chairman of the Board of Directors of the Company. The
term of the Employment Agreement commenced on November 1, 2001 and expires on
October 31, 2011. However, the term of the Employment Agreement will
automatically renew for successive one year terms unless the Company or Mr.
Hassan gives a contrary written notice of termination to the other at least
ninety (90) days before the scheduled expiration date of the Employment
Agreement.

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

     In addition to his base salary, Mr. Hassan is entitled to receive an annual
bonus in an amount equal to 100% of his annual salary if the Company meets the
annual financial performance objectives established by the Board of Directors
for such year, and an annual bonus in an amount equal to 150% of his annual
salary if the Company exceeds the annual financial performance objectives
established by the Board of Directors for such year by at least 30%. Mr. Hassan
is also entitled to participate in, or enjoy the benefit of, any other fringe
benefits or prerequisites applicable to the Companys other executive officers.

<PAGE>

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

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

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

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

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

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

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

          (3) the death of Alvin Hoffman; and

          (4) Mr. Hassan's termination as Chairman of the Companys Board of
Directors.

         In accordance with the provisons of FASB Statement 123 "Accounting for
Stock Based Compensation" and FIN 44 "Accounting for Certain Transactions
Involving Stock Compensation" an interpretation of APB Opinion No. 25". The
Company recorded $34,000 of compensation expense during the third quarter.


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

12.  Equity Transactions

     During the third quarter, the Company issued 9,000,000 shares of common
stock as part of the acquisition cost for SRS Communications Corporation and EDJ
Communications, Inc. consummated on October 1, 2001. Also during the quarter the
19,825 shares of Convertible Preferred Stock was converted into 3,965,000 shares
of common stock at an exercise price of $0.50 per share.

13.  Subsequent Events

     Subsequent to the end of the third quarter of fiscal 2002, the Company's
Board of Directors authorized the Company's investment banker to raise up to
$2,000,000 in additional equity financing for the Company. The additional equity
will be raised through a private placement of restricted shares of the Company's
Series A Preferred Stock, which will bear a 10% annual cumulative dividend, at a
price of $27.00 per share. Each share of the Series A Preferred Stock can be
converted into 100 shares of the Company's Common Stock, subject to standard
anti-dilution provisions. Purchasers of each share of the Company's Series A
Preferred Stock in this offering will also be entitled to receive a warrant to
purchase up to 25 shares of the Company's Common Stock, at a price of $0.27 per
share. These warrants vest immediately and are exercisable for six years from
the date of purchase. The shares of the Series A Preferred Stock being sold in
this offering will be sold only to accredited investors, including, without
limitation certain members of the Company's Board of Directors. On January 29,
2002 the Company's Chairman and CEO purchased $1,000,000 of the shares to be
sold in this offering. It anticipated that the remaining funding in this
offering will be completed on or before April 1, 2002.
<PAGE>

     Subsequent to the end of the third quarter of fiscal 2002, the Company's
wholly-owned subsidiary, AM Broadband Services, Inc., acquired twenty percent
(20%) of the outstanding capital stock of AMC Services, Inc., a recently formed
Delaware corporation. The remaining eighty percent (80%) of the outstanding
capital stock of AMC Services, Inc. is owned by Michael N. Johnson, who was not
previously affiliated with the Company or any affiliate of the Company. Mr.
Johnson has over 30 years of experience providing construction services to the
cable television and broadband communications industry.

     The stock was issued to the Company in return for the Company's agreement
to extend a $1 million working capital loan to AMC Services, Inc. Amounts
outstanding under the loan bear interest at the rate of five percent (5%) per
annum. All outstanding principal and accrued interest on the loan is payable
upon demand of the Company. However, absent the occurrence of an event of
default, no such demand for repayment may be made prior to March 31, 2002.
Repayment of all amounts outstanding under the loan is secured by a first
priority security interest on all of the assets of AMC Services, Inc. Michael N.
Johnson has also personally guaranteed the repayment of all amounts outstanding
under the loan and his guaranty is secured by a pledge to the Company of all of
the outstanding shares of the capital stock of AMC Services, Inc. owned by Mr.
Johnson.

     AMC Services, Inc. is engaged in the business of providing construction
services to the cable television and broadband communications industry. The
Company is currently in the process of completing due diligence with respect to
the future business prospects of AMC Services, Inc. If the results of such due
diligence are satisfactory to the Company, the Company may elect to have AM
Broadband Services, Inc. purchase all of the remaining outstanding capital stock
of AMC Services, Inc. from Michael N. Johnson. The terms of any such purchase
would be subject to negotiation between the parties and the execution of
definitive purchase documents. There can be no assurances that the Company will
elect to proceed with such purchase transaction or that the parties will be able
to reach an agreement on the definitive terms of the documentation for any such
transaction.

14. Operations by Business Segment

    The Company has identified the following two business segments:

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

                                       12
<PAGE>

     The Broadband Services Business Unit (Services), formed during the third
quarter of fiscal 2001, provides a range of outside-plant services to CATV
operators which include design, installation, certification, and maintenance.
During the second quarter of 2002, AM Broadband Services a wholly owned
subsidiary of the Company, announced it was expanding this business segment with
the acquisition of SRS Communications Corporation and EDJ Communications, Inc.
The acquisition was completed on October 1, 2001. The results of the acquired
companies are included in the Services Unit from the closing date of the
acquisition.

     Summarized financial information related to the Company's business segments
for the three and nine months periods for fiscal 2002 and 2001 are shown below.
<TABLE>
<CAPTION>
                                                      Products         Services      Consolidated
                                                      --------         --------      ------------
<S>                                                      <C>              <C>             <C>
Three months ended December 29, 2001
Net Sales                                            $5,718,000       $5,725,000      $11,443,000
Operating income                                      1,072,000          745,000        1,817,000

Total Assets at December 29, 2001                   $13,030,000       $5,472,000      $18,502,000

Three months ended December 30, 2000
Net Sales                                            $3,574,000               --       $3,574,000
Operating income                                        184,000               --          184,000

Total Assets at December 30, 2000                    $5,523,000               NM       $5,523,000

Nine months ended December 29, 2001
Net Sales                                           $13,551,000       $5,993,000      $19,544,000
Operating income                                      1,663,000          397,000        2,060,000

Nine months ended December 30, 2000
Net Sales                                           $11,195,000               --      $11,195,000
Operating income                                        797,000               --          797,000

</TABLE>


15.  New Accounting Pronouncements

         In December 1999, the U.S. Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 (SAB 101). This pronouncement provides the
staff's views in applying generally accepted accounting principles to selected
revenue recognition issues. Accordingly, guidance is provided with respect to
the recognition, presentation and disclosure of revenue in the financial
statements. Adoption of SAB 101, as amended by SAB Nos. 101A and 101B, was to be
effective October 1, 2000. Adoption of SAB 101 did not have a material effect on
the Company's results from operations.

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

                                       13
<PAGE>

         SFAS 142 stipulates that goodwill and other intangible assets with
indefinite lives are no longer subject to amortization, but must be evaluated
periodically for impairment. Separable intangible assets that are not deemed to
have indefinite life will be amortized over their useful lives.

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

         In August 2001, the FASB approved the issuance of Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS 143"). SFAS 143 establishes accounting standards for the
recognition and measurement of legal obligations associated with the retirement
of tangible long-lived assts. SFAS 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002 and requires recognition
of a liability for an asset retirement obligation in the period in which it is
incurred. Management is in the process of evaluating the impact this standard
will have on the Company's financial statements.

         In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. The provisions of this
statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001. Management is in the process of evaluating
the impact this standard will have on the Company's financial statements.

Item 2.    Management's Discussion and Analysis of Operations

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

     The following discussion should be read in conjunction with the Company's
Form 10-KSB for its 2001 fiscal year ended March 31, 2001.

                                       14
<PAGE>

Overview

     The Company is a provider of high technology system level products for the
broadband communications industry, primarily for CATV monitoring and control
systems. During fiscal 1999 and fiscal 2000, the Company experienced a
significant restructuring of its business, primarily due to the cessation of
programs involving two major customers, which contributed approximately 50% of
revenues in fiscal 1998. As part of the restructuring, the Company undertook
several major organizational changes including the election of Mr. Javad Hassan
as Chairman and the execution of a strategic development and manufacturing
relationship with NeST associated companies, under which NeST provides a
substantial portion of the Company's engineering and manufacturing requirements.
Mr. Hassan is also the Chairman and primary shareholder of NeST Technologies,
Inc. and NeSTronix, Inc. which are U.S. based technology service providers that
provide engineering development services and turn-key manufacturing services
primarily through the use of technology resources of staff and electronic
manufacturing operations located in India and controlled by Mr. Hassan's
brother, N. Jehangir. Collectively, these operations are referred to as "NeST".

         As a result of the restructuring actions taken and other contractual
agreements between the Company and NeST, Mr. Hassan and the NeST related
companies control the voting of 14,391,837 shares of the Company's Common Stock
presently owned by the Company's majority shareholder, hold 1,000,000 shares
obtained through the exercise of stock options, hold 7,862,334 shares obtained
through the exercise of warrants, and hold a stock option to purchase 4,000,000
shares of common stock at $.15 per share. The warrants were issued by the
Company as payment for $1,827,197 of engineering development services performed
by NeST during fiscal 1999 and fiscal 2000.

     Using the NeST resources, the Company undertook a substantial development
program to upgrade its software and certain hardware products, which were
introduced during fiscal 2000. These products include complete new system
platforms for the Company's Omni2000 software, Scanning Ingress Monitoring
Systems, and QuickSTAT.

     During fiscal 2000, the Company experienced significant improvements in its
operations as revenue levels increased due to the improved product set and
expanded marketing activities. Operating costs decreased due to improved gross
profit margins as a result of the transition to the NeST based manufacturing
strategy and development spending declined due to the transition to more cost
effective India-based development resources. The Company can not be assured that
the above cost savings will continue in the future. The Company continues to
experience negative cash flow and has an accumulated Deficit of $35.5 million at
December 29, 2001.

     During the third quarter of fiscal 2001, the Company announced the
formation of a new strategic business unit named AM Broadband Services, Inc., a
wholly-owned subsidiary of the Company. The mission of the broadband services
unit is to provide a range of outside-plant services to CATV operators that will
include design, installation, certification and maintenance with a focus on
quality and reliability. The Company believes that quality and reliability will
be critical metrics as CATV operators battle competitive access providers in the
new unregulated communications environment. AM Broadband Services, Inc. began
operations on January 5, 2001.

    During the second quarter of fiscal 2002, AM Broadband Services, Inc.
announced the acquisition of SRS Communications Corporation and EDJ
Communications, Inc. The acquisition was completed on October 1, 2001.


                                       15
<PAGE>

    The Company and NeST Technologies, Inc. previously announced the formation
of a joint venture which was to be known as "AM Broadband Systems." During the
second quarter of fiscal 2002, management of the Company and NeST Technologies,
Inc. reached a decision to abandon this joint venture concept. This decision was
made prior to a joint venture agreement actually being executed by the parties
or any work being performed by the joint venture. The AM Broadband Systems
products and services originally planned to be provided by this separate joint
venture will now be provided by the Company's Broadband Products Business Unit,
under the direction of Group Vice President, Joseph D. Rocci, or by the
Company's Broadband Services Business Unit, under the direction of Group Vice
President, Maqbool A. Qurashi.

     As mentioned previously on October 1, 2001 the Company acquired all the
outstanding capital stock of SRS Communications Corp. and EDJ Communications
Inc. The consolidated statement of operations includes the results of these
Companies from October 1, 2001.

Results of Operations
Quarter 3 Fiscal 2002 vs. 2001
<TABLE>
<CAPTION>
                                                                 Quarter 3             Quarter 3
                                                                   2002                   2001
                                                               ------------           -----------
<S>                                                                <C>                    <C>
Revenues                                                           100.0%                 100.0%

Cost of Sales                                                       61.0                   48.3
Selling, General and Administrative                                 14.7                   21.7
Research and Development                                             8.4                   24.9

Operating Income                                                    15.9                    5.1
Other Income (Expense)                                              (0.9)                  (0.9)
                                                                 -------               --------

Income  Before Income Taxes                                         15.0                    4.2
Income Tax Provision                                                (1.0)                    --
                                                                 -------               --------

Net Income                                                          14.0%                   4.2%
                                                                 =======               ========
</TABLE>

Revenues

     Total revenues were $11.4 million and $19.5 million for the third quarter
and first nine months of fiscal 2002 ended December 29, 2001 compared to $3.6
million and $11.2 million, respectively, for the comparable periods in fiscal
2001. The increase in revenues from the comparable periods is primarily due to
the Company's Broadband Services Unit acquiring SRS Communications Corp. and EDJ
Communications, Inc. which contributed $5 million in revenue for the quarter and
nine months ended December 29, 2001. The remaining increase is due to the
Company's Broadband Products Unit expanding its direct global sales and
marketing efforts. Its multi-year agreement with Charter Communications also
contributed to the increase in revenues.

     The Broadband Products Unit revenue from OEMs (original equipment
manufacturers) and foreign distributors was 15% and 32% of its revenue in the
third quarter and first nine months of fiscal 2002, respectively, compared to
69% and 72% in the comparable periods in fiscal 2001. A greater portion of its
revenue is coming from MSOs (multiple system operators) and other direct
end-user customers as a result of the expanded direct global sales and marketing
efforts. The multi-year agreement with Charter Communications is also
contributing to a greater portion of revenue coming from MSOs and other direct
end-users.

     The Company's Broadband Products Unit maintains key strategic OEM
relationships with Motorola, Philips, Scientific-Atlanta and others, which
purchase the Company's products under private label relationships and re-sell
them primarily to their international customers. The Company's Broadband
Services Unit primarily generates its revenue through the sale of services to
MSOs.

     Three MSO customers contributed more than 10% of the Company's total
revenues in the third quarter of fiscal 2002 ended December 29, 2001 - 46%, 22%
and 17%, respectively. For the first nine months of fiscal 2002 the same
customers contributed 40%, 14% and 10%, respectively, of the Company's total
revenues. In fiscal 2001, two OEM customers contributed 29% and 25%,
respectively, of the Company's total revenues for third quarter and 30% and 23%,
respectively, for the first nine months of the fiscal year.


                                       16
<PAGE>

     Software revenues totaled $694,000 and $1,382,000 in the third quarter and
first nine months of fiscal 2002, respectively, compared to $456,000 and
$1,411,000 in the third quarter and first nine months of fiscal 2001,
respectively. All software development costs are charged to research and
development when incurred.

     Development revenues totaled $60,000 and $143,000 in the third quarter and
first nine months of fiscal 2002, respectively, compared to $50,000 and $102,000
in the third quarter and first nine months of fiscal 2001, respectively.
Development revenues primarily relate to OEM development efforts that are
recognized when defined milestones are reached, the timing of which may be
different from when the related development expenses were incurred. The related
development costs are reported as research and development expense.

     Backlog for the Company's Broadband Products Unit was $3.7 million at
December 29, 2001 down from $4.1 million a year ago. The backlog remains at $3.7
million as of February 15, 2002. One MSO customer accounts for 45% of the
current backlog. The Company's Broadband Services Unit currently has contracts
that generate approximately $400,000 a week in billings. While the Company has
identified several new customers and revenue segments, revenue growth could be
tempered due to general economic conditions and other factors that could limit
customers' rollout of new services and the associated purchases of the Company's
products and services.

 Cost of Sales

     Cost of sales includes all manufacturing costs of the Company's Broadband
Products Unit hardware products and the job costs of the Company's Broadband
Services Unit services. Cost of sales represented 61% and 56.7% of total
revenues in the third quarter and first nine months of fiscal 2002,
respectively, compared to 48.3% and 49% in the comparable periods of fiscal
2001. The increase in the cost of sales from the comparable periods is due to
the Company's expansion into broadband services that carry a lower gross margin.
Gross margin for the Company's Broadband Products unit remained strong at 53.7%
and 53.5% of revenues in the third quarter and first nine months of fiscal 2002,
respectively. The Company's gross margins are dependent on customer mix and
product mix as well as the mix of product versus service revenue.


Selling, General and Administrative

     Selling, general and administrative (S,G & A) expenses were $1.7 million
and $3.7 million in the third quarter and first nine months of fiscal 2002,
respectively, compared to $774,000 and $2.3 million in the comparable periods of
fiscal 2001. Selling expenses increased from the comparable periods as the
result of the Company's Broadband Products Unit expanding its direct global
sales and marketing efforts. Additionally, selling expenses increased due to
higher sales commissions associated with a greater percentage of revenues coming
from MSOs and other direct end-user customers. General and administrative costs
increased to support the Company's new Broadband Services Unit and its increased
business levels with the acquisition of SRS Communications Corp. and EDJ
Communications, Inc.



                                       17
<PAGE>

Research and Development

    Research and development expense were $961,000 and $2.9 million in the
third quarter and first nine months of fiscal 2002, respectively, compared to
$891,000 and $2.6 million in the comparable periods of fiscal 2001. The increase
was due to the need to support increased customer demand for more advanced
systems and software. The Company continues to spend a significant amount on
research and development related to its major development efforts to upgrade and
expand its software and hardware products. NeST development expenses incurred
during the third quarter and first nine months of fiscal 2002 were $588,000 and
$1.8 million, respectively, compared to $554,000 and $1.6 million in the
comparable periods of fiscal 2001.


Pre-Tax Income

     The Company reported pre-tax income of $1,709,000 and $1,879,000 for the
third quarter and first nine months of fiscal 2002, respectively, compared to
pre-tax income of $150,000 and $700,000 for the third quarter and first nine
months of fiscal 2001, respectively. The increase in pre-tax income was aided by
the acquisition made by the Company on October 1, 2001, which represented 56% of
pre-tax income for the current quarter and 51% year to date.

Income Taxes

     Due to its significant net operating loss carryforward, the Company is
subject to minimum income taxes, which include state income taxes and federal
income taxes based on an "alternative minimum tax" calculation.

Industry Factors

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

     Demand for CATV monitoring products has increased recently as monitoring of
cable distribution systems has become an important factor in increasing
operating efficiency and reliability. As previously noted, the Company's
operations were adversely impacted in fiscal 1999 and during the first three
quarters of fiscal 2000 by the combined impact of reduced revenues (resulting
from customers electing to cease certain programs) and the need for the Company
to upgrade its software products. The Company's operations and revenues are
driven, in large part by the timing and success of new product introductions and
the scheduling of orders by customers. The Company also continues to identify
product development needs in excess of its available development resources,
which in the past has negatively impacted its competitive position. The Company
believes its strategic relationship with NeST will allow the Company to become
more responsive to market requirements.


                                       18
<PAGE>

    During the second quarter of fiscal 2002, AM Broadband Services, Inc., a
wholly-owned subsidiary of the Company, announced that it was entering the
subscriber fulfillment services business through the acquisition of SRS
Communications Corporation and EDJ Communications, Inc. The acquisition closed
on October 1, 2001. These acquisitions contributed $5,000,000 in revenues during
the quarter ended December 29, 2001 and $956,000 in pre-tax income.

Liquidity and Capital Resources

     In the first nine months of fiscal 2002, the Company consumed net cash of
$139,000, compared to consuming net cash of $65,000 in the first nine months
of fiscal 2001. The cash components are as follows:

     Net cash provided by operating activities was $470,000 versus net cash
consumed of $360,000 in the comparable period last year. The positive cash
from operations was primarily attributable to an increase in net income of
$1,053,000 from $700,000 to $1,753,000 in the current period. The positive cash
from operations was also aided by an increase in accounts payable of $260,000,
$936,000 in accrued expenses and a reduction in inventory of $211,000. Cash from
operations was negatively affected by an increase in accounts receivable of
$2,906,000, which was due to the timing of shipments during the period.

     Net cash used in investing activities was $1,353,000 versus $135,000 in the
comparable period last year. This was due to the acquisition of businesses, net
of cash acquired of $1,108,000 consummated on October 1, 2001 and the purchases
of equipment of $245,000 primarily for the services group

     Cash flow from financing activities were $744,000 versus $430,000 in the
prior year period. The major sources of cash were bank borrowings of $708,000
during the nine months ended December 29, 2001.

     During the current quarter, the Company incurred the following liabilities
related to the aforementioned acquisition: (1) an obligation to pay the amount
of $1,150,000 to be paid out of "existing receivables" of the acquired companies
at the acquisition date. During the current quarter, the Company paid the total
amount of this obligation related to the acquisition , (2) $3,000,000 of which
was in the form of a subordinated promissory note bearing an interest rate of
five percent (5%) per annum with payments beginning on January 1, 2002.

     While the Company operated at a profit for the first nine months of fiscal
2002, the Company consumed greater net cash compared to the prior year primarily
due to an increase in accounts receivable and acquisition costs. The increase in
accounts receivable is attributable to the timing of sales during the third
quarter of fiscal 2002.


                                       19
<PAGE>

     During fiscal 1999, the Company received a $150,000 technology improvement
fund loan from the Ben Franklin Technology Center of Southeastern Pennsylvania.
The loan was for the initial phase development of the Company's Omni2000
software package. The loan principal is payable in quarterly installments of
$7,500 over five years. Interest is payable quarterly, contingent on the
commercial success of the product, in an amount equal to 3% of the product sales
for the immediately preceding quarter until a cumulative amount equal to 50% of
the loan has been repaid. The outstanding loan balance as of December 29, 2001
was $68,000.

     The Company's previous line of credit was limited to $1,250,000, which was
fully borrowed and outstanding at September 29, 2001. On October 1, 2001, the
Company amended its credit facility with a local bank. The maximum available
under the credit facility was increased to equal the lesser of (a) $3,000,000 or
(b) an amount equal to (i) eighty percent (80%) of the Company's qualified
accounts receivable, minus (ii) fifty percent (50%) of the outstanding principal
amount of the term loan extended by the bank on October 1, 2001. The amount
extended by the bank at that time was $459,336 and was used to pay off existing
debt at acquisition. The maturity date of the credit facility is September 30,
2002. Current borrowings under the credit facility and term loan are $2,916,000
and $440,000, respectively.

     In June 1999, the Company entered into an agreement with its chairman,
Javad K. Hassan, whereby Mr. Hassan agreed to provide a $500,000 line of credit
to the Company, with interest payable at 10%. Payment of all outstanding
borrowings and interest is due by December 31, 2001. No amounts has been
borrowed under this line since its inception.

     Under the terms of the NeST development agreement, the Company has the
option to pay for NeST development services either in cash or by the issuance of
warrants to purchase AM Common Stock. The Company elected to issue NeST warrants
to purchase 4,234,018 shares of the Company's Common Stock, at an exercise price
of $.01 per share, in payment of $670,000 of NeST development services for the
period from November 1998 through April 3, 1999. The Company also issued
warrants to purchase 3,628,316 shares of the Company's Common Stock, at an
exercise price of $.01 per share, in payment of $1,157,197 of NeST development
services for the period from April 4, 1999 through January 1, 2000. Since
January 2, 2000, the Company has paid cash for NeST development services. As a
result of improved operations, the Company expects to pay ongoing NeST
development expenses in cash, but continues to have the option to issue warrants
up to a limit of 10 million total shares under the NeST Agreement. During the
quarter and first nine months of fiscal 2002, the Company has paid $588,000 and
$1.8 million for these services compared to $554,000 and $1.6 million,
respectively, for the comparable periods last year.

     NeST development expenses are being billed to the Company at below market
rates. There are no assurances that such services could be procured from third
parties or performed by the Company's personnel. Termination of the development
agreement could have materalized adverse effect on the Company's financial
position and future results of operations.

     The Company has negotiated favorable rates with NeST for services perform
by both the India-based and U. S. employees of NeST. The Company may not be able
to obtain the same negotiated rates from outside third parties. Termination of
the favorable pricing found in the NeST Consulting Services Agreement may have
an adverse effect on the Company's financial condition and future results of
operations, which is not quantifiable at the current time.

     Pursuant to a Manufacturing Services Agreement between NESTRONIX, Inc. and
the Company, NESTRONIX agreed to manufacture the Company's products on a
turn-key basis commencing on January 2, 2000. The initial term of this
Manufacturing Agreement ends on January 2, 2003 and the Manufacturing Agreement
is automatically renewable for additional 18 month periods unless either party
gives written notice to the contrary to the other party at least 6 months prior
to the end of the then current term. The Manufacturing Agreement is also
terminable by either party upon 60 days prior written notice upon the default of
the other party or the bankruptcy or liquidation of the other party. Nothing in
the Manufacturing Agreement precludes the Company from resuming manufacturing
itself or transferring manufacturing rights to a third party. The Company
retains title to and ownership of all equipment, inventory and intellectual
property rights utilized in connection with the manufacture of its products. The
Company and NESTRONIX jointly agree upon a "bill of materials" price for each
product manufactured pursuant to the Manufacturing Agreement. The Company pays
to NESTRONIX, for each product manufactured pursuant to the Manufacturing
Agreement, an amount equal to the actual cost of all materials utilized to
manufacture the product, plus 0.5 times the agreed upon "bill of materials"
price for the product. During the quarter and first nine months of fiscal 2002
the Company has paid $907,000 and $2.2 million for these services compared to
$536,000 and $1.8 million, respectively for the comparable periods last year.

                                       20
<PAGE>


     The only benchmark the Company is currently using to evaluate the
cost-effectiveness of the NESTRONIX manufacturing relationship is to compare
cost of sales, which includes among other things, the manufacturing costs of the
Company's hardware products, from period to period. The termination of the
favorable pricing found in the Manufacturing Agreement may have a material
adverse effect on the Company's financial condition and future results of
operations.


     Capital expenditures totaled $245,000 in the first nine months of fiscal
2002 and $135,000 in the first nine months of fiscal 2001, which included
computers, software, manufacturing assembly and test equipment, lab equipment
and office equipment.

     The Company believes that cash from profitable operations, available
lending lines and the ability to pay for NeST development services in cash or
warrants, will provide sufficient liquidity to support its operations through
the next fiscal year. However, should operating losses re-occur, which cannot be
supported, the Company would expect to implement further actions to reduce
expenses or raise additional capital to enable continued execution of its
strategy. The Company has also announced its intention to execute certain new
strategic growth initiatives, which will require additional capital to support.
Subsequent to the end of the third quarter of fiscal 2002, the Company announced
that the Board of Directors authorized the Company's investment bankers to raise
up to $2,000,000 in additional equity financing for the Company. There can be no
assurance that additional capital, if needed, could be raised under acceptable
terms, if at all.


                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings

        The Company is not involved in any material legal proceedings,

Item 2. Changes in Securities

     The Board of Directors of the Company has adopted resolutions creating a
series of Preferred Stock to be known as the "Series A Preferred Stock" and
authorized the issuance of 74,074 shares of such Series A Preferred Stock.

     The Company seeks to obtain up to $2 million in capital to be used to
finance working capital needs, business development activities, the pursuit of
strategic growth objectives, including merger and acquisition activities, and
other purposes arising in the ordinary course of the Company's business.

     The Series A Preferred Stock bears a 10% annual cumulative dividend, at a
price of $27.00 per share. Each share of the Series A Preferred Stock can be
converted into 100 shares of the Company's Common Stock, subject to standard
anti-dulution provisions.

     Purchasers of each share of the Company's Series A Preferred Stock will
also be entitled to receive a warrant to purchase up to 25 shares of the
Company's Common Stock at a price of $0.27 per share. These warrants vest
immediately and are exercisable for six years from the date of purchase.

     The Board of Directors has authorized the Company's investment banker,
Investec PMG to raise up to $2 million in the initial offering of the 74,074
shares of Series A Preferred Stock. The Preferred Stock being sold in the
initial offering will be sold only to accreditred investors, including, without
limitation, certain members of the Company's Board of Directors.


Item 3. Defaults upon Senior Securities

        None

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

        (a) The Company's Annual Meeting of Stockholders was held on
            November 9, 2001
        (b) Directors elected at the Annual Meeting:

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

                                       21
<PAGE>
<TABLE>
<CAPTION>
                Director                                      For             Against            Abstain
                ----------------------------------------------------------------------------------------
                   <S>                                      <C>                  <C>               <C>
                R. Barry Borden                          40,873,119              630              18,325
                Jill A. Felix                            40,861,417           12,332              18,325
                Javad K. Hassan                          40,872,469            1,280              18,325
                Alvin Hoffman                            40,860,852           13,597              18,325
                Keith D. Schneck                         40,830,634           46,115              18,325
                Lemuel A. Tarshis                        40,872,234            1,515              18,325

        (c) Vote to increase Authorized Shares:

---------------------------------------------------------------------------------------------------------
                                                              For            Against             Abstain
                Increase Authorized Shares               28,656,403          598,865              29,089
</TABLE>
Item 5.  Other Information

                        AMC Services, Inc. Joint Venture

          Subsequent to the end of the third quarter of fiscal 2002, the
Company's wholly-owned subsidiary, AM Broadband Services, Inc., acquired twenty
percent (20%) of the outstanding capital stock of AMC Services, Inc., a recently
formed Delaware corporation. The remaining eighty percent (80%) of the
outstanding capital stock of AMC Services, Inc. is owned by Michael N. Johnson,
who was not previously affiliated with the Company or any affiliate of the
Company. Mr. Johnson has over 30 years of experience providing construction
services to the cable television and broadband communications industry.

         The stock was issued to the Company in return for the Company's
agreement to extend a $1 million working capital loan to AMC Services, Inc.
Amounts outstanding under the loan bear interest at the rate of five percent
(5%) per annum. All outstanding principal and accrued interest on the loan is
payable upon demand of the Company. However, absent the occurrence of an event
of default, no such demand for repayment may be made prior to March 31, 2002.
Repayment of all amounts outstanding under the loan is secured by a first
priority security interest on all of the assets of AMC Services, Inc. Michael N.
Johnson has also personally guaranteed the repayment of all amounts outstanding
under the loan and his guaranty is secured by a pledge to the Company of all of
the outstanding shares of the capital stock of AMC Services, Inc. owned Mr.
Johnson.

         AMC Services, Inc. is engaged in the business of providing construction
services to the cable television and broadband communications industry. The
Company is currently in the process of completing due diligence with respect to
the future business prospects of AMC Services, Inc. If the results of such due
diligence are satisfactory to the Company, the Company may elect to have AM
Broadband Services, Inc. purchase all of the remaining outstanding capital stock
of AMC Services, Inc. from Michael N. Johnson. The terms of any such purchase
would be subject to negotiation between the parties and the execution of
definitive purchase documents. There can be no assurances that the Company will
elect to proceed with such purchase transaction or that the parties will be able
to reach an agreement on the definitive terms of the documentation for any such
transaction.


<PAGE>

                        Stock Purchase Rights Agreements

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

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

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

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

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

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

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

                  (3) the death of Alvin Hoffman; and

                  (4) Mr. Hassan's termination as Chairman of the Company's
Board of Directors.
<PAGE>

Item 6. Exhibits and Reports on Form 8-K

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

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

          ******3-b.  (3.1) Certificate of Amendment to Certificate of
                            Incorporation of Registrant

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

                3-d   Certificate of Designation of the Company Dated
                      January 23, 2002 filed herewith

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

           *****9-a.  Voting Trust and Share Participation Agreement

                9-b.  First Amendment to Voting Trust and Share Participation
                      Agreement Dated November 30,2001 filed herein.

                9-c.  Stock Purchase Agreement dated November 30, 2001 filed
                      herein.

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

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

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

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


                                       22
<PAGE>
            ***10-e.  Warrant Agreement dated June 17, 1996.

         *****10-f.   1999 Stock Option Plan.

          *****10-g.  Fifth Amendment of Line of Credit and Term Note with
                      Progress Bank dated October 1, 2001 filed herewith.

           ****10-h.  Services Agreement between the Company and Jay Hassan.

           ****10-i.  Consulting Services Agreement between the Company
                      and NeST.

          *****10-j.  (10.1) Manufacturing Services Agreement between the
                             Company and NeSTronix.

        *******10-k.   (2) Stock Purchase Agreement between the Company, AM
                       Broadband Services, Inc., SRS Communications Corporation,
                       EDJ Communications, Inc., David P. Sylvestre, Clifford P.
                       Sylvestre, Edward L. Reynolds, Joanne Sylvestre, Donna M.
                       Sylvestre and Elizabeth D. Reynolds, dated as of
                       September 7, 2001.

        *******10-l.   (4) Registration Rights Agreement dated as of October 1,
                       2001 between the Company and David P. Sylvestre, Clifford
                       P. Sylvestre, Edward L. Reynolds, Joanne Sylvestre, Donna
                       M. Sylvestre and Elizabeth D. Reynolds.

               10-m    Agreement to Terminate the Services Agreement between the
                       Company and Javad Hassan (Executive) dated November
                       1, 2001 filed herewith.

               10-n    Executive Employment Agreement between the Company and
                       Javad Hassan date November 1, 2001 filed herewith.

               10-o    Loan between Javad Hassan ( Executive Borrower) and
                       the Company dated December 30, 2001 filed herewith.

               10-p.   Stock Purchase Rights Agreement dated December 30, 2001
                       filed herewith.

               99.1    Press Release announcing that the Company has authorized
                       the Company's Investment Bankers to raise $2 million in
                       additional equity dated February 6,2002 filed herein.

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

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

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

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

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

                                       23
<PAGE>

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

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


     (b) (1) The Company filed a report on Form 8-K on October 16, 2001
regarding the acquisition of all of the issued and outstanding common stock of
SRS Communications Corporation and EDJ Communications, Inc. by its wholly-owned
subsidiary, AM Broadband Services, Inc. On October 1, 2001, AM Broadband
Services, Inc. acquired from David P. Sylvestre ("David"), Clifford P. Sylvestre
("Clifford"), Edward L. Reynolds ("Edward"), Joanne Sylvestre ("Joanne"), Donna
M. Sylvestre ("Donna") and Elizabeth D. Reynolds ("Elizabeth") (each a "Seller"
and, collectively, the "Sellers") all of the issued and outstanding capital
stock (the "Stock") of SRS Communications Corporation, a Connecticut corporation
("SRS"), and EDJ Communications, Inc., a Connecticut corporation ("EDJ") (each a
"Company" and, collectively, the "Companies"). As a result of the acquisition of
the Stock, AM Broadband Services, Inc. acquired control of all of the Companies'
assets, including their respective inventory, equipment, customer lists,
accounts receivable, cash, and intangible assets.

         Immediately following the completion of the acquisition of the Stock,
AM Broadband Services, Inc. caused EDJ to be merged with and into SRS pursuant
to the applicable provisions of Connecticut law (the "Merger"). Immediately upon
the effectiveness of the Merger, EDJ ceased to exist as a separate legal entity
and SRS, as the surviving corporation, succeeded to all of EDJ's rights and
property, and became subject to all of EDJ's debts and liabilities, by operation
of law. As a result of the Merger, SRS is now the sole subsidiary of AM
Broadband Services, Inc.

     The following consideration was paid by AM Broadband Services, Inc. to
acquire the Stock:

         (a) $1,150,000.00 in cash, to be paid by AM Broadband Services, Inc. to
the Sellers in weekly installments following the closing of the Stock
acquisition held on October 1, 2001 (the "Closing"), each in an amount equal to
that portion of the Companies' accounts receivable existing as of the Closing
(the "Existing Receivables") which are actually collected by the Companies
during the applicable week, and continuing until the total of such installments
equals $1,150,000.00.

         (b) $3,000,000.00 in the form of a subordinated promissory note (the
"Note") delivered by AM Broadband Services, Inc. to the Sellers at the Closing.
The Note bears interest at the rate of five percent (5%) per annum. The
outstanding principal balance of the Note, and all interest accrued thereon, is
repayable in twelve (12) equal, consecutive quarterly payments, payable on the
first day of each calendar quarter, commencing on January 1, 2002. Payment of
all amounts outstanding under the Note is guaranteed by the Company.

         (c) 9,000,000 restricted shares of Common Stock of the Company, par
value $.10 per share, were delivered by AM Broadband Services, Inc. to the
Sellers at the Closing.

                                       24
<PAGE>
         The purchase price payable by AM Broadband Services, Inc. for the
Stock, as evidenced by the Note, will be reduced on a dollar-for-dollar basis if
and to the extent that the aggregate Net Book Value of the Companies (defined as
the book value of the Companies' assets minus the book value of the Companies'
liabilities), as of the Closing, is less than $1,650,000.00. The Aggregate Net
Book Value of the Companies as of the Closing shall be determined by AM
Broadband Services, Inc. within sixty (60) days of the Closing pursuant to the
procedures set forth in the Stock Purchase Agreement entered into between AM
Broadband Services, Inc., the Company, the Companies and the Sellers dated as of
September 7, 2001 (the "Purchase Agreement").

         The Company made no adjustments to the purchase price based upon the
"Net Book Value" provision mentioned above.

         Simultaneously with the Closing, the Company executed an amendment to
its existing loan documents with Progress Bank (the "Bank"). Pursuant to the
terms of such amendment, the Registrant's existing credit facility was changed
as follows:

         1. AM Broadband Services, Inc. and SRS were added as co-borrowers with
the Company.

         2. The maximum availability to the Company, SRS and AM Broadband
Services, Inc. (collectively, the "Borrowers") under the line of credit facility
extended by the Bank was increased to equal the lesser of (a) $3,000,000.00, or
(b) an amount equal to (i) eighty percent (80%) of the Borrowers' qualified
accounts receivable minus (ii) fifty percent (50%) of the then outstanding
principal amount of the term loan extended by the Bank to the Borrowers at the
Closing.

         3. The maturity date of the line of credit was extended to September
30, 2002.

         4. AM Broadband Services, Inc. pledged all of the outstanding shares of
the capital stock of SRS to the Bank as security for all amounts owed by the
Borrowers to the Bank.

         5. AM Broadband Services, Inc. and SRS granted a security interest to
the Bank in all of their respective assets as security for all amounts owed by
the Borrowers to the Bank, in addition to the security interest already granted
by the Company to the Bank in all of the Company's assets.

         6. The Company pledged all of the outstanding shares of the capital
stock of AM Broadband Services, Inc. to the Bank as security for all amounts
owed by the Borrowers to the Bank.

         7. The Bank extended a term loan to the Borrowers in the principal
amount of $459,336.30 (the "Term Loan"). The proceeds of the Term Loan were
utilized by the Borrowers at the Closing to repay in full all amounts owed by
the Companies on the date of the Closing to the U.S. Small Business
Administration.

(b) (2) On December 14, 2001, the Company amended the above mentioned Form 8-K
to provide the Financial Statements and related notes required to be provided in
connection with the "acquisition of assets" reported by the Company on Form 8-K
dated October 15, 2001.

                                       25
<PAGE>

                       Audited Financial Statements Filed
                       ----------------------------------

Combined Balance Sheets of SRS Communications Corp. and EDJ Communications, Inc.
as of June 30, 2001, December 21, 2000 and 1999.

Combined Statements of Income and Accumulated Earnings and Cash Flows for the
Six Months ended June 30, 2001 and the Years ended December 31, 2000 and 1999.

                         Pro Forma Financial Statements
                         ------------------------------

   Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2001.
   -------------------------------------------------------------------------

Unaudited Pro Forma Condensed Combined Statement of Income for the Year ended
March 31, 2001.

Unaudited Pro Forma Condensed Combined Statement of Income for the Three Months
ended June 30, 2001.


                                       26

<PAGE>



                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                 AM COMMUNICATIONS, INC.
                                        (Registrant)


Date: February 19, 2002          By:  /s/ H. Charles Wilson, III
      -----------------          ------------------------------------
                                    H. Charles Wilson, III, Chief Accounting
                                    Officer and Authorized Representative
                                    of the Registrant

                                       27