<TABLE>
SYSTEMS TECHNOLOGY ASSOCIATES, INC.
BALANCE SHEETS
MAY 31, 1996 AND 1995
<CAPTION>
<S> <C> <C> <C> <C>
1996 1995
A S S E T S
CURRENT ASSETS:
Cash $24,859 $35,263
Accounts Receivable 89,252 127,964
Costs and Estimated
Earnings in Excess of
Billings on Uncompleted
Contracts (Note 1) 42,348 180,526
Inventory (Note 1) 43,309 313,809
Prepaid Expenses and
Miscellaneous 25 5,319
Total Current Assets $199,793 $662,881
PROPERTY AND EQUIPMENT - NET OF
ACCUMULATED DEPRECIATION OF $8,298
AND $440,232 FOR MAY 31, 1996 AND
1995, RESPECTIVELY (Notes 1 and 3) 14,294 30,055
TOTAL ASSETS $214,087 $692,936
See accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
Exhibit A
<CAPTION>
<S> <C> <C> <C>
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Related Parties Notes Payable -
Current Portion (Note 4) $37,950 $38,850
Other Notes Payable -
Current Portion (Note 4) 12,500 33,500
Advance from Customers - 17,882
Accounts Payable - Trade 10,841 101,968
Payroll Taxes Payable (Note 5) 2,946 1,304
Accrued Expenses 24,934 81,841
Total Current Liabilities $89,171 $275,345
LONG-TERM LIABILITIES:
Related Parties Notes Payable
(Note 4) $154,233 $164,233
Other Notes Payable (Note 4) 14,208 32,392
Accounts Payable 63,650 77,205
Accrued Expenses 68,366 88,567
Total Long-term Liabilities $300,457 $362,397
Total Liabilities $389,628 $637,742
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 6 and 7):
Redeemable Preferred Stock,
$50 Par Value, 2,000 Shares
Authorized, Issued and
Outstanding ($200,000
Aggregate Liquidation
Preference) $100,000 $100,000
Common Stock, $.50 Par
Value, 8,000,000 Shares
Authorized, 3,425,269
Shares Issued, and
3,420,363 and 3,424,363
Shares Outstanding,
Respectively 1,712,635 1,712,635
Capital in Excess of Par
Value 2,330,162 2,330,162
Retained Earnings (Deficit) (4,317,770) (4,087,553)
____________ ___________
$(174,973) $55,244
Treasury Stock, at Cost (568) (50)
____________ ___________
Total Stockholders' Equity (Deficit) $(175,541) $55,194
TOTAL LIABILITIES AND STOCKHOLDERS' __________ __________
EQUITY $214,087 $692,936
</TABLE>
<TABLE>
<CAPTION>
Exhibit B
SYSTEMS TECHNOLOGY ASSOCIATES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994
<S> <C><C> <C> <C> <C>
1996 1995 1994
REVENUES:
Contract Revenues Earned $902,520 $1,000,021 $1,085,534
Cost of Revenues Earned 676,474 681,518 743,516
Gross Profit $226,046 $318,503 $342,018
Operating Expenses:
Research and Development
Costs $- $15,187 $47,304
Inventory Markdown 252,179 10,024 -
Interest Expense 17,902 27,940 22,940
Rent Expense (Note 9) 40,000 54,000 54,000
Selling, General and
Administrative
Expenses 183,538 129,979 115,149
Total Operating Expenses $493,619 $237,130 $239,393
Operating Income (Loss) $(267,573) $81,373 $102,625
Other Revenue:
Interest $- $- $960
Other Income 35,356 - -
Income Before Provision
for Income Taxes and
Extraordinary Items $(232,217) $81,373 $103,585
Provision for Income Tax
(Note 10) - - -
Income Before
Extraordinary Items $(232,217) $81,373 $103,585
Extraordinary Items
(Notes 4 and 11):
Forgiveness of Debt 2,000 219,356 119,106
NET INCOME (LOSS) $(230,217) $300,729 $222,691
Primary Earnings per Share:
Net Income (Loss) Before
Extraordinary Item $(0.07) $0.02 $0.03
Extraordinary Item - 0.07 0.03
__________ _________ ________
NET INCOME (LOSS) $(0.07) $0.09 $0.06
Weighted Average Number
of Shares Outstanding 3,422,363 3,424,363 3,424,363
See accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Exhibit C
SYSTEMS TECHNOLOGY ASSOCIATES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994
<S> <C> <C> <C> <C> <C>
Capital In
COMMON STOCK PREFERRED STOCK Excess of
Shares Amount Shares Amount Par
Balance, June 1,
1993 3,425,269 $1,712,635 2,000 $100,000 $2,311,412
Net Income - - - - -
_________ __________ _________ __________ ___________
Balance, May 31,
1994 3,425,269 $1,712,635 2,000 $100,000 $2,311,412
Purchase of
Treasury Stock - - - - -
Issuance of
Treasury Stock - - - - 18,750
Net Income - - - - -
__________ __________ __________ _________ ___________
Balance, May 31,
1995 3,425,269 $1,712,635 2,000 $100,000 $2,330,162
Net Loss - - - - -
Purchase of
Treasury Stock - - - - -
___________ __________ __________ _________ ___________
BALANCE, MAY 31,
1996 3,425,269 $1,712,635 2,000 $100,000 $2,330,162
Retained Total
Earnings Treasury Stock Stockholders'
(Deficit) Shares Amount Equity (Deficit)
Balance, June 1,
1993 (4,610,973) 906 $(50) $(406,976)
Net Income 222,691 - - -
___________ ___________ __________ ___________
Balance, May 31,
1994 $(4,388,282) 906 $(50) $(264,285)
Purchase of
Treasury Stock - 100,000 (6,250) (6,250)
Issuance of
Treasury Stock - (100,000) 6,250 25,000
Net Income 300,729 - - 300,729
___________ ___________ __________ _________
Balance, May 31,
1995 $(4,087,533) 906 $(50) $55,194
Net Loss (230,217) - - (230,217)
Purchase of
Treasury Stock - 4,000 (518) (518)
____________ ___________ ___________ ___________
BALANCE, MAY 31,
1996 $(4,317,770) $4,906 $(568) $(175,541)
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
Exhibit D
Sheet 1
SYSTEMS TECHNOLOGY ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
OPERATING ACTIVITIES:
Net Income (Loss) (230,217) 300,729 222,691
Adjustments to Reconcile Net
Income (Loss) to Net Cash
Provided by Operating
Activities:
Depreciation and
Amortization 10,831 9,461 7,078
Forgiveness of Debt (2,000) (219,356) (119,106)
Loss on Sale of Assets 5,193 - -
Decrease (Increase)
in Assets:
Accounts Receivable 38,712 (18,533) 84,588
Costs and Estimated
Earnings in Excess
of Billings on
Uncompleted Contracts 138,178 (62,367) (97,370)
Inventory 270,500 (58,927) 15,157
Prepaid Expenses and
Miscellaneous 5,294 7,313 493
Deposits - 6,305 (4,650)
Increase (Decrease) in
Liabilities:
Advance from Customers (17,882) 4,382 13,500
Accounts Payable -
Trade (104,682) 82,586 (71,279)
Payroll Taxes Payable 1,642 (36,879) (10,864)
Accrued Expenses (56,907) 27,891 (7,873)
_____________ ______________ ____________
Net Cash Provided by
Operating
Activities $58,662 $42,605 $32,365
INVESTING ACTIVITIES:
Acquisition of Property and
Equipment $(1,188) $(9,611) $(8,895)
Proceeds from Sale of Equipment 925 - -
______________ _____________ ___________
Net Cash (Used in) Investing
Activities $(263) $(9,611) $(8,895)
See accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Exhibit D
Sheet 2
SYSTEMS TECHNOLOGY ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994
<S> <C> <C> <C>
1996 1995 1994
FINANCING ACTIVITIES:
Proceeds from Additional
Borrowings $- $92,500 $80,000
Repayment of Related Parties
Notes Payable (10,900) (6,150) (6,000)
Repayment of Other Notes
Payable (37,184) (113,291) (28,144)
Purchase of Treasury Stock (518) (6,250) -
Net Decrease in Long-term
Accrued Expenses (20,201) (19,240) (33,222)
Net Cash Provided by
(Used in) Financing
Activities $(68,803) $(52,431) $12,634
______________ _____________ ___________
Net Increase (Decrease) in Cash $(10,404) $(19,437) $36,104
Cash - Beginning of Year 35,263 54,700 18,596
______________ _______________ ____________
CASH - END OF YEAR $24,859 $35,263 $54,700
Supplemental Disclosure of
Cash Flow Information:
Cash Paid During the Year
for Interest $54,879 $26,286 $30,321
Noncash Transactions:
<CAPTION>
Accrued interest payable totaling $95,921 of the First Union Bank
note was reclassified from notes payable to accrued expenses to
reflect the status of the liability at May 31, 1994.
As part of the Coherent Communications Systems Corporations
(Coherent) agreement to acquire shares fo the Corporations stock,
Coherent contributed $6,400 in inventory, $13,600 in property and
equipment and $5,000 in prepaid expenses for no additional
consideration (see Note 11). Accordingly, capital in excess of par
value was increased by $18,750 for these items, and treasury stock was
reduced by $6,250.
See accompanying Notes to Financial Statements.
</TABLE
SYSTEMS TECHNOLOGY ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Corporation's Activities
Systems Technology Associates, Inc.
(the "Corporation") provides services and equipment in
the telecommunications, data systems, and automated
instrumentation fields to governments and the public
sector.
The following is a summary of significant
accounting policies followed in the preparation and
presentation of the accompanying financial
statements. These policies conform to generally
accepted accounting principles.
Accounts Receivable
Accounts receivable are reviewed
periodically for consideration as to their collectibility. An
allowance for doubtful accounts is established on
those accounts deemed uncollectible. For the years
ended May 31, 1996, 1995 and 1994, the Corporation
charged $17,245, $6,732, and $4,704, respectively,
against earnings to recognize those accounts whose
collection was doubtful.
Inventory
Inventory is comprised of computer
components and electronic equipment materials used
in the manufacture of telephone system devices and is
valued at the lower of cost or market with cost
determined on a first-in, first-out (FIFO) basis. During
the years ended May 31, 1996, 1995 and 1994, the
Corporation marked down its inventory by $252,179,
$10,024, and $-0-, respectively, as a result of
obsolescence and lower of cost or market adjustment
of certain items. Inventory is pledged as security
against the outstanding bank loan.
Property and Equipment
Property and equipment are stated at
cost. Depreciation is provided over the five year
estimated useful lives of the assets under a method
which approximates straight-line.
Use of Estimates
Management uses estimates and
assumptions in preparing these financial statements in
accordance with generally accepted accounting
principles. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the
reported revenues and expenses.
Revenue and Cost Recognition
Revenues on sales contracts are
recognized under the percentage of completion
method, measured by the percentage of costs incurred
to date to estimated total costs for each contract. That
method is used because management considers total
cost to be the best available measure of progress on
the contracts. All of the Corporation's sales contracts
are for a fixed price. The percentage of completion on
each sales contract is reviewed periodically for a
determination as to the revenue to be recognized.
Because of inherent uncertainties in estimating costs, it
is at least reasonably possible that the estimates will
change in the near term.
Contract costs include all direct material
and labor costs and those indirect costs related to
contract performance, such as indirect labor, supplies,
tools, repairs, and depreciation. Selling, general, and
administrative costs are charged to expense as
incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which
Revenue and Cost Recognition (Continued)
such losses are determined. Changes in job
performance, job conditions, and estimated profitability
may result in revisions to costs and income and are
recognized in the period in which the revisions are
determined. The asset, "Costs and estimated earnings
in excess of billings on uncompleted contracts,"
represents revenues recognized in excess of amounts
billed.
Fair Values of Financial Instruments
The carrying amounts reflected in the
balance sheet for cash, accounts receivable, accounts
payable and payroll taxes payable approximate the
respective fair values due to the short maturities of
those instruments. The fair value for notes payable is
based on the current rates the Company is paying for
similarly secured or unsecured notes with similar
maturities. The amounts reflected in the financial
statements do not differ significantly from their fair
values.
NOTE 2 - UNCERTAINTY
The Corporation incurred operating
losses of approximately $4.3 million between 1986
and 1991. Current management took control in
December 1991 when the Corporation had severe
financial problems. Management has demonstrated
its ability to operate the Corporation profitably by
reflecting both operating income and net income in
three of the past four years. The combination of
earnings, debt reductions negotiated with former
management, and renegotiation of bank debt has
reduced the Corporations stockholders deficit from
approximately $729,000 at December 31, 1991,
NOTE 2 - UNCERTAINTY (Continued)
to approximately $175,000 at May 31, 1996. During
late summer of 1996, the Corporation hired a new
President and Chief Operating Officer who has
significant experience in the telecommunications
industry. His responsibilities will include expanding
the Corporations product line and enhancing sales
and earnings. However, in spite of the Corporations
greatly improved financial condition, there is no
assurance that management will continue to be
successful in both meeting its remaining debt
obligations and continuing to fund current operations.
The financial statements do not include any
adjustments pertaining to the recoverability or
classification of recorded assets or the amounts or
classification of liabilities if such plans are not
sufficient to fund operating cash requirements
NOTE 3 - PROPERTY AND EQUIPMENT
A summary of property and equipment
as of May 31, 1996 and 1995, is as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
Furniture and Fixtures $ 2,038 $ 84,089
Laboratory Equipment 20,554 386,198
Total Cost $ 22,592 $ 470,287
Less Accumulated
Depreciation 8,298 440,232
Book Value $ 14,294 $ 30,055
</TABLE>
Depreciation expense for the years
ended May 31, 1996, 1995 and 1994, was $10,830,
$9,461, and $7,078, respectively. The property and
equipment are pledged as security against the
outstanding bank loan.
NOTE 4 - NOTES PAYABLE
Related parties and other notes payable
as of May 31, 1996 and 1995, consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
Related Parties Notes:
Metrology, Inc. 25,000 25,000
Marvin S. Friedland 51,000 51,000
June Benning 10,733 10,733
Walter Benning 40,000 40,000
Daniel N. Carter 21,300 23,500
Edward P. Myers 7,300 8,500
Terry A. Scott 24,550 30,850
John D. Sanders 5,000 5,000
John F. Erickson 7,300 8,500
$ 192,183 203,083
Other Notes:
Tysons National Bank $ 26,708 $ 39,209
Michael S. Juhasz - 4,683
Avnet, Inc. - 22,000
__________ _________
$ 26,708 $ 65,892
Total Notes Payable $218,891 268,975
</TABLE>
Terms of the notes payable are as
follows:
Tysons National Bank - $50,000 note
payable dated October 7, 1994. Interest is variable and
payable monthly at prime plus 2.25%. Principal
payments of $1,042 are due monthly beginning
November 1994, with payment in full due October
1998. The note is guaranteed by Mr. Terry A. Scott, an
1999. officer of the Corporation, and is collateralized by
2000. all business assets of the Corporation.
Metrology, Inc. and Friedland Notes
Metrology, Inc. - $25,000 unsecured
demand note payable, issued December 1987,
originally bearing interest at 10%. Metrology, Inc. is
controlled by Mr. Friedland, formerly an officer and
director of the Corporation.
Marvin S. Friedland - $20,000, $25,000
and $6,000 unsecured demand notes payable, issued
September - October 1989, originally bearing interest
at 15%. Mr. Friedland was formerly an officer and
director of the Corporation.
In October 1993, the Corporation entered
into an agreement regarding these notes whereby the
interest rate from date of issuance was reduced to 2%
per annum. Accrued interest from the date of issuance
was reduced through a $2,000 payment at the time of
the modification and continued monthly payments of
$1,000 beginning February 1994 until paid in full. For
the years ended May 31, 1996 and 1995, no principal
payments were made. Interest accrues at 2% from
September 1, 1993, until the outstanding balance due
to IRS (see Note 5) is satisfied and then at 8% until the
notes are paid in full. Principal payments will be made
monthly at $2,000 beginning one month after the
balance due to IRS is satisfied. Payments will be
allocated between the Friedland and Metrology notes
in proportion to the dollar values of the notes due each
party.
See Note 12 for subsequent events
affecting these notes.
June Benning - $10,733 unsecured note
payable, originally accruing interest at 15%. On May 5,
1993, an agreement was signed whereby interest prior
to January 1, 1993, was forgiven; interest accrues at
10% after that date. Principal payments of no less than
$1,000 per month will begin no later than one month
after satisfaction of the balance due to IRS (Note 5).
Mrs. Benning is the wife of a former officer and director
of the Corporation.
Walter Benning - $40,000 unsecured
note payable, originally accruing interest at 15%. On
May 5, 1993, an agreement was signed whereby
interest will accrue at 8% beginning July 1, 1994;
interest prior to that date is forgiven. Principal
payments of not less than $1,000 per month will begin
in the month following payoff of the balance due to IRS
(Note 5) and payoff of the balance due to June
Benning. Mr. Benning is a former officer and director of
the Corporation.
Daniel N. Carter - $15,000 and $10,000
unsecured notes payable dated May 20, 1994, and
October 1, 1994, respectively. Interest is payable
monthly at 8% and 10% per annum, respectively;
principal payments of $500 per month are due on the
$15,000 note beginning September 30, 1994, with
payment in full due May 20, 1995, and October 1,
1996, respectively. For the year ended May 31, 1996,
$2,200 in principal payments were made.
Edward P. Myers - $10,000 unsecured
note payable dated May 24, 1994. Interest is payable
monthly at 8% per annum; principal payments of $500
per month are due beginning September 30, 1994,
with payment in full due May 20, 1995. For the year
ended May 31, 1996, $1,200 in principal payments
were made. Mr. Myers is a director of the Corporation.
Terry A. Scott - $10,000, $12,500 and
$10,000 unsecured notes payable dated May 24,
1994, October 7, 1994, and October 7, 1994. Interest
is payable monthly at 8%, 10% and 10% per annum;
principal payments of $500 per month are due
beginning September 30, 1994, with payment in full
due May 20, 1995, October 7, 1996, and October 7,
1995. For the year ended May 31, 1996, $6,300 in
1996. principal payments were made. Mr. Scott is an
1997. officer of the Corporation
John D. Sanders - $5,000 unsecured
note payable, modified March 30, 1994, so that no
interest will accrue until the outstanding balance due to
IRS (Note 5) is satisfied. Interest will then accrue at
prime plus 2% and reasonable efforts are to be made
to pay off the loan and accrued interest as soon as
possible. Mr. Sanders is a shareholder and former
director of the Corporation.
Michael S. Juhasz - $18,600 unsecured
note payable dated October 1, 1992, with principal
originally due December 31, 1992, was orally modified
so that monthly principal payments of $250 will be
made until the entire debt is satisfied. Interest accrues
at 5% on this debt. This note was paid in full during the
year ended May 31, 1996.
Avnet, Inc. - $45,000 payable in
settlement of a judgment against the Corporation was
established in November 1993. After an initial $5,000
payment in November 1993, monthly payments of
$1,000 will be due through November 1995; monthly
payments of $2,000 will be due through July 1996.
Liability is secured by a lien on all assets of the
Corporation. In February 1996, the Corporation paid
the judgment after Avnet agreed to forgive $2,000.
John F. Erickson - $10,000 unsecured
note payable. Interest is payable monthly at 8% per
annum; principal payments of $500 per month are due
beginning September 25, 1994, with full payment due
May 24, 1995. For the year ended May 31, 1996,
$1,200 in principal payments were made. Mr. Erickson
is a shareholder of the Corporation.
Interest expense on related party notes
amounted to approximately $11,000 for each of the
years ended May 31, 1996, 1995 and 1994,
respectively. Accrued interest to related parties at May
31, 1996 and 1995, was $14,563 and $44,897,
respectively, and is included in accrued expenses.
The principal maturities of related parties
and notes payable for the subsequent five years are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Related Parties Other Total
1997 $ 37,950 12,500 $ 50,450
1998 - 12,500 12,500
1999 - 1,708 1,708
2000 - - -
2001 154,233 - 154,233
________________ _______________ ____________
$ 192,183 $ 26,708 $218,891
</TABLE>
NOTE 5 - PAYROLL TAX OBLIGATION
In October 1992, the Corporation
signed an installment agreement with the Internal
Revenue Service to pay delinquent payroll taxes and
related penalties and interest. The Corporation is to
make monthly payments of $3,000 for 36 months
beginning October 1992, after which time the
Corporation's financial circumstances will be
reevaluated. In September 1995, the Internal Revenue
Service ruled that the Corporation was to make
monthly payments of $3,000 until all taxes, penalties
and interest are paid in full. In March 1996, the Internal
Revenue Service agreed to reduce the monthly
payments to $1,000.
In March 1993, the Corporation and the
Commonwealth of Virginia agreed upon a payment
plan regarding delinquent payroll taxes and related
penalties and interest. At May 31, 1996, all payroll
taxes, penalties and interest were paid in full.
NOTE 6 - STOCK OPTIONS
The Corporation has issued stock
options to various directors, an officer and a lender.
Under the terms of the options, also discussed in Note
11, options for 30,000, 30,000 and 77,500 shares are
outstanding and exercisable at $.125, $.10 and $.25
per share, respectively.
A summary of stock option activity as of
May 31, 1996 and 1995, is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
Options Outstanding, Beginning of Year 107,500 65,000
Options Granted at $.125 per Share 30,000 -
Options Granted at $.25 per Share - 42,500
Options Exercised at:
$.10 per Share - -
$.125 per Share - -
$.25 per Share - -
Options Outstanding, End of Year 137,500 107,500
NOTE 7 - STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock - The Corporation has
issued 2,000 shares of preferred stock, $50 par value.
The stock is nonvoting, may pay noncumulative
dividends not to exceed $6 per annum, as set by the
Board of Directors, and is redeemable at any time at
the option of the Corporation at $100 per share.
Dividends on preferred stock shall be payable out of
retained earnings prior to the payment of any dividends
on common stock. In the event of any corporate
liquidation or dissolution, the preferred shareholders
are entitled to be paid $100 per share of preferred
stock, together with any declared but unpaid dividends
on such shares, prior to any payment or distribution of
assets to the common shareholders.
Treasury Stock - During the year ended
May 31, 1995, the Corporation purchased 100,000
shares of its common stock from a former officer and
director at $.0625 per share. This block of stock was
then reissued to Coherent Communication System
Corporation (Coherent) in exchange for inventory of
$6,400, equipment for $13,600 and prepaid expenses
of $5,000. The difference between the acquisition price
($6,250) and the subsequent sales price ($25,000) has
been reflected as capital in excess of par value. During
the year ended May 31, 1996, the Corporation
purchased 4,000 shares of its stock at $.125. At May
31, 1996 and 1995, the Corporation owned 4,906 and
906 shares, respectively, with a carrying value of $568
and $50, respectively.
NOTE 8 - SEGMENT DATA
The Corporation classifies its operations
into one industry segment, telecommunications
equipment and systems. International export sales
were $819,037, $990,887 and $1,085,534 for 1996,
1995 and 1994, respectively. Export sales by
geographic area as of May 31, 1996, 1995 and 1994,
are as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
Asia $184,315 $299,152 $358,763
Africa 236,285 247,010 289,150
Europe 81,896 51,381 363,254
Middle East 3,016 44,726 30,139
South America 313,525 348,618 44,228
__________ ____________ _____________
Total Export Sales $ 819,037 $ 990,887 $ 1,085,534
Domestic Sales 83,483 9,134 -
Total Sales $902,520 $1,000,021 $1,085,534
Sales to any particular customer were not significant.
</TABLE>
NOTE 9 - OPERATING LEASE
The Corporation leases its facilities under
a month-to-month operating lease. Minimum annual
rents for the years ended May 31, 1996, 1995 and
1994, were $40,000, $54,000 and $54,000,
respectively. In November 1995, the Corporation
reduced its space by approximately 50%, with a
proportionate decrease in minimum monthly rent.
NOTE 10 - INCOME TAXES
The Corporation has available net
operating loss carryforwards approximating $4 million
to apply against future taxable income. These
carryforwards will expire over the years 2001 to 2011.
The Financial Accounting Standards
Boards released a statement on the method of
accounting for income taxes, SFAS 109, which
addresses the accounting problems faced when
revenues, expenses, gains or losses are included in
taxable income of an earlier or later year than the year
in which they are recognized for financial statement
purposes. The amounts of current taxes payable or
refundable and deferred tax liabilities or assets to be
recognized at the date of the financial statements are
the amounts which result from all events which have
been recognized in the financial statements or tax
returns as measured by the provisions of currently
enacted tax laws. The Corporation's management has
implemented this new standard effective June 1, 1993.
There was no cumulative effect of the change in
accounting principle to be recorded in determining net
income for the year ended May 31, 1994, as a net
operating loss carryforward was the only item which
would have created a deferred tax asset to be
recognized, and projected future net income was not
considered realizable to offset the loss carryforward.
The provision for income taxes
attributable to continuing operations consists of the
following components:
<TABLE>
<CAPTION>
<S> <C> <C>
May 31,
1996 1995
Income Tax Expense $ (81,500) $19,200
Benefit of Operating Loss
Carryforward - ( 19,200)
Valuation Allowance 81,500 -
_________________ _________________
$ - $ -
</TABLE>
The provision for income taxes
attributable to extraordinary items consists of the
following components:
<TABLE>
<CAPTION>
<S> <C> <C>
May 31,
1996 1995
Income Tax Expense (Benefit) $- $92,400
Benefit of Operating Loss Carryforward - ( 92,400)
___________ ___________
$ - $ -
</TABLE>
The net deferred tax benefits in the
accompanying balance sheets include the following
components:
<TABLE>
<CAPTION>
<S> <C> <C>
May 31,
1996 1995
Deferred Tax Assets $ 1,517,700 $ 1,201,700
Deferred Tax Asset Valuation Allowance (1,517,700) ( 1,201,700)
______________ _____________
Net Deferred Tax Asset $- $-
</TABLE>
NOTE 11 - RELATED PARTIES TRANSACTIONS
Under an agreement dated October 25,
1993, the Corporation has an agreement with two
shareholders whereby the Corporation or its designate
has a three- year option to purchase the 636,213
shares held by the shareholders at $.0625 per share
and an option for the following two years to purchase
the shares at $.10 per share. The Corporation must
exercise its option in blocks of 10,000 or more shares.
As discussed in Note 7, the Corporation purchased
100,000 of its shares from a former officer and director
at $.0625 per share.
The Corporation entered into a License
Agreement effective June 1, 1994, with Coherent
whereby the Corporation acquired nonexclusive rights
to use technology in connection with the manufacture
and sale of telecommunications products. In
consideration for these rights and the acquisition of
certain inventory and equipment, the Corporation
facilitated the transfer (through the exercise of options
by Coherent as the Corporation's designate), of
100,000 common shares held by a shareholder to
Coherent. In addition, the Corporation also paid
Coherent $45,000 for various inventory items acquired
as part of the exchange.
In consideration for the advancement of
funds under various promissory note agreements with
an officer, a director and a vendor, options regarding
the purchase of stock were granted to the lenders. The
options grant the right to purchase a total of 77,500
shares of stock at $.25 per share for a two-year period
ending October 1996.
In July 1993, the Board authorized the
issuance of options to purchase a total of 30,000
shares at $.10 per share to three Directors.
In December 1995, the Board authorized
the issuance of options to purchase a total of 30,000
shares at $.125 per share to three Directors
As further described in Note 4, various
related parties have loaned funds to the Corporation.
A corporation controlled by a former
officer and director of the Corporation forgave a claim
in the amount of $112,500 during the year ended May
31, 1994.
NOTE 12 - SUBSEQUENT EVENTS
In July 1996, the Corporation was named
as a defendant in a lawsuit arising in the ordinary
course of business. Plaintiff is seeking $112,500 in
sales commissions and related installation costs in
connection with the sale of the Corporations products.
Management has recorded commission expense
amounting to approximately $20,000 in prior years for
this matter, with $6,500 being due as of May 31, 1996.
The Corporation intends to vigorously contest this
matter. While the outcome of this lawsuit cannot be
predicted with certainty, management does not expect
this matter to have a material adverse effect on the
financial position and results of operations of the
Corporation.
On July 29, 1996, the Corporation entered into
an agreement with Marvin S. Friedland and Metrology,
Inc. to restructure the notes described in Note 4 above.
The Friedland note was settled for $50,000 cash plus a
$1,000 note payable in four installments. The
Metrology, Inc. note was settled for a new $25,000
noninterest-bearing note of the Corporation due $500
per month for 50 months. As additional consideration,
Friedland agreed to sell 611,753 shares back to the
Corporation and to forgive $24,304 of accrued interest
on the notes. Metrology, Inc. agreed to sell 24,500
common shares and 2,000 preferred shares of the
Corporation back to the Corporation and to forgive
$12,163 of accrued interest on its notes.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-1-1995
<PERIOD-END> MAY-31-1996
<CASH> 24,859
<SECURITIES> 0
<RECEIVABLES> 89,252
<ALLOWANCES> 17,245
<INVENTORY> 43,3093
<CURRENT-ASSETS> 199,793
<PP&E> 14,294
<DEPRECIATION> 440,232
<TOTAL-ASSETS> 214,087
<CURRENT-LIABILITIES> 89,171
<BONDS> 0
0
100,000
<COMMON> 1,712,635
<OTHER-SE> (1,988,176)
<TOTAL-LIABILITY-AND-EQUITY> 214,087
<SALES> 902,520
<TOTAL-REVENUES> 937,876
<CGS> 676,474
<TOTAL-COSTS> 676,474
<OTHER-EXPENSES> 493,619
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,902
<INCOME-PRETAX> (232,217)
<INCOME-TAX> 0
<INCOME-CONTINUING> (267,573)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,000
<CHANGES> 0
<NET-INCOME> (230,217)
<EPS-PRIMARY> (0.070)
<EPS-DILUTED> (0.070)
</TABLE>
