POWER DESIGNS INC, 10KSB, 1996-11-15

POWER DESIGNS INC
10KSB, 1996-11-15
ELECTRONIC COMPONENTS, NEC

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549

FORM 10-KSB

(Mark One)
___
|_X_|Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (FEE REQUIRED)

For the fiscal year ended June 30, 1996

___
|___| Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (NO FEE REQUIRED)

For the fiscal year ended

Commission File No. 0-1921

POWER DESIGNS INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer as specified in its charter)

New York 11-1708714
- ------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)

250 Executive Drive, Edgewood, New York 11717
- --------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)

(516) 586-0200
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

Name of each exchange on
Title of Each Class which registered
- ------------------- ------------------------
None

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

Common Stock, $.0001 par value
- --------------------------------------------------------------------------------
(Title of class)

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

Yes No. X
- ------------ -----------

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. ____
----

State issuer's revenues for its most recent fiscal year. $ 575,429
---------

The aggregate market value of the voting stock held by non-affiliates of the
issuer cannot be estimated because there is no active market for the stock.

ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE LAST FIVE YEARS

Check whether the issuer has filed all documents and reports required to be
filed by Sections 12, 13 and 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.

Yes X No
--------- -----------

APPLICABLE ONLY TO CORPORATE REGISTRANTS

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.

2,391,493, as of November 13, 1996

Transitional Small Business Issuer Format (check one):

Yes No X
---------- -----------

DOCUMENTS INCORPORATED BY REFERENCE
Exhibits to Fiscal Year 1994 10-KSB
Exhibits to Fiscal Year 1995 10-KSB

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ITEM 1. BUSINESS

GENERAL

Power Designs Inc., the small business issuer making this report, was
organized on July 7, 1952 under the laws of the State of New York. The issuer's
common stock, $.0001 par value ("Common Stock") is registered under Section
12(g) of the Securities Exchange Act of 1934, as amended. Late in fiscal year
1995, the issuer amended its certificate of incorporation to change the par
value of its common shares from $.01 per share to $.0001 per share. This change
is reflected in the audited consolidated financial statements accompanying this
Form 10-KSB.

Since its inception the issuer has been engaged exclusively in the design
and manufacture of electronically controlled power sources used in the operation
of electronic equipment and mechanical instruments. The power sources produced
by the issuer are connected to primary sources such as commercial power lines
and serve to correct, modify or condition the source of power where instability
and electrical noises may adversely affect the proper functioning of the end
equipment. The issuer assembles its products from readily available electronic
and electrical components.

The equipment is used by industry, scientific research, and electro-medical
organizations for such applications as computers, data processors, video and
sound communications media, nuclear biological and medical research, nuclear
power generation, and other facilities where disturbances in the primary power
source for these systems may affect their accuracy and performance. These power
sources or conditioners are connected between the primary source, which may be a
commercial power line, battery, diesel, gasoline or steam-driven generator, and
the system being powered, to stabilize, eliminate surges or transient changes,
or convert the input voltages and currents to other voltage or current levels
required by the system.

The principal market for the issuer's products is users or manufacturers
who incorporate the products into their equipment. The equipment is used in
various industries, as well as organizations conducting scientific research and
electro-medical entities. The issuer's customers include private companies,
government agencies, and educational institutions.

There are approximately five hundred companies in the country who
manufacture one or more competitive products. To differentiate itself, the
issuer strives to maintain a reputation for excellent quality and reliability.
No one customer of the issuer accounts for ten percent or more of the issuer's
business.

The issuer is attempting to expand its business in "off the shelf"
products, but it continues to fabricate power supplies and power systems to
specific

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customer specifications. Off the shelf products are usually purchased on an "as
needed" basis and dollar backlog is usually quite small compared with the
issuer's annual revenues. Custom fabrication is usually contracted on a
scheduled annual or semi-annual basis.

The issuer has begun efforts to develop a new family of high voltage
products and other new products, although development has been retarded by lack
of working capital. The issuer's dollar volume backlog as of June 30, 1996 was
$87,345 and as of June 30, 1995 was $92,302.

The issuer's primary research and development activities center on the
customization and special engineering of its products. In the past two fiscal
years, it has devoted approximately five percent of its annual revenues for
these purposes, or approximately $35,000. About two employees, on the average,
over the past two fiscal years have been engaged in these efforts.

The issuer has also during the past fiscal year continued a program begun
during fiscal 1995 to upgrade its product line and develop new products in the
high-voltage area, based on pre-existing technology.

The issuer has only one line of business as stated above and there are no
material environmental effects. The number of employees of the issuer is 12.

The business is not seasonal although there are historical peaks during the
second and fourth quarters, September-December and April-June. The issuer's
principal competitive method has been product reliability and quality and until
recent years it had been able to compete with other suppliers, notwithstanding
the fact that the number of competitors is large and generally in a state of
flux.

The issuer is not dependent on any material patents, trademarks, licenses
or other agreements.

Subsequent to the end of the 1996 fiscal year, the issuer's wholly-owned
subsidiary, PDIXF Acquisition Corp., purchased the significant assets and
assumed the liabilities of two divisions of Penril Datacomm Networks, Inc. This
acquisition was reported on a Form 8-K dated October 28, 1996.

BANKRUPTCY PROCEEDINGS

Due to declining orders as a result of the reductions its customers
suffered in the volume of defense aerospace contracts, the issuer filed for
bankruptcy protection under Chapter 11 on October 16, 1992. A plan of
reorganization, under which Venture Partners, Ltd. ("Venture Partners") as agent
supplied capital to the issuer, was confirmed by the bankruptcy court in January
1994.

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Additional information as to the bankruptcy proceedings is found at Item 6
- -- "Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Bankruptcy Proceedings."

ITEM 2. PROPERTIES/FACILITIES

The issuer currently leases 6,850 square feet of office and manufacturing
space located at 250 Executive Drive, Edgewood, New York. The issuer moved to
the space in early 1993 because it was well adapted to its needs and size. The
lease runs through February 28, 1998 and provides for fixed annual rental
payments, which equal $45,382 for the fiscal year ending June 30, 1996. The
payments include base year taxes and common area maintenance charges and are
subject to adjustments.

The issuer is currently in default under the lease due to its failure to
maintain adequate insurance and its assignment, pursuant to the bankruptcy
settlement described at Item 6 below, of more than 30% of the outstanding shares
of its Common Stock. Under the terms of the lease, such assignment of the
shares was deemed an assignment of the lease.

ITEM 3. LEGAL PROCEEDINGS

In July, 1996 the issuer agreed to pay $185,000 in an out-of-court
arrangement to settle a lawsuit brought by two former directors of the issuer.
The payment will relieve a debt of $146,875 owed to a company the two former
directors controlled, plus accrued interest (see Item 6 -- "Management's
Discussion and Analysis . . . -- Liquidity and Capital Resources"). No other
litigation was pending as of the end of the fiscal year.

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

No matter was submitted during the fiscal year covered by this report to a
vote of security holders, through the solicitation of proxies, or otherwise.

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

The Common Stock has been traded over the counter in the United States.
The shares are not currently quoted regularly on any information service. The
approximate number of record holders of the securities is 750. No cash
dividends have been declared by the issuer for the two most recent fiscal years,
nor in any subsequent interim period for which financial statements are required
to be presented.

To the best of the issuer's knowledge, there has been no active market in
the stock for the last two years.

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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS

BANKRUPTCY PROCEEDINGS.

During fiscal years 1992 and 1993, the issuer's business contracted, in
large part as the result of reductions in the volume of defense aerospace
contracts, which reduced its customers' activities. The issuer could not
readily decrease production costs and overhead to match diminished revenues,
because it was required to pay cash for most material purchases, and its reduced
purchase volume resulted in increased per-unit prices for supplies.
Consequently, no investments in sales and marketing were made during this
period, thus reducing the issuer's order flow and backlog by 20% from June 30,
1991 to June 30, 1992.

Venture Partners offered to supply capital, and a plan of reorganization
was confirmed by the bankruptcy court in January 1994. Pursuant to the plan of
reorganization, on April 27, 1994 the issuer entered into a Funding Agreement
with Venture Partners under which Venture Partners as agent lent $130,500,
evidenced by a note secured by deposits, credits and property of the issuer, to
the issuer at a variable interest rate equal to 9% per year above prime rate.
Venture Partners as agent subsequently converted $25,000 of the debt into equity
representing 149,468 shares of Common Stock. Approximately $45,600 of the
principal amount is payable in monthly installments from June 1995 through May
1997 and the remaining principal is due at the June 1, 1997 maturity of the
note. Venture Partners has waived the issuer's failure to comply with a
property insurance covenant for prior periods through the fiscal year ending
June 30, 1996. The net proceeds from the Funding Agreement were applied to the
bankruptcy distributions required upon confirmation.

In accordance with the terms of the decree, unsecured creditors agreed to
accept 20% of the amount due to them for pre-petition claims (5% upon emerging
from bankruptcy and the remainder over a period of three years). Many creditors
of the issuer failed to file a claim with the court for their amounts due. The
issuer also owed liabilities to certain related parties and employees, who
waived these debts. The total cancellation of debt net of costs was $369,807.
The remaining amount due to these unsecured creditors, in addition to other
amounts and interest due to various taxing authorities, is currently due and
payable in the amount of $261,655 as of June 30, 1996. As of that date these
amounts were in default due the issuer's failure to make all required payments,
but subsequent to fiscal year end the issuer made all appropriate payments to
make these debts current. See Audited Consolidated Financial Statements, Note
6.

Pursuant to the plan of reorganization, as of April 27, 1994 the issuer
issued 810,716 restricted shares of Common Stock to Venture Partners, or about
40% of the issuer's then-outstanding shares, for a total price of $1,000.
Venture Partners also purchased 407,240 shares of Common Stock from two
shareholders for

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nominal consideration. Venture Partners thus acquired control of the issuer
through its direct beneficial ownership of 60.1% of the Common Stock.

In addition, a director of Venture Partners, Gary M. Laskowski, purchased
10,000 shares of Common Stock for $2,500 in an isolated transaction. Mr.
Laskowski and Mr. Jonathan Betts, a director of Venture Partners, are also
trustees and beneficiaries of a retirement plan that purchased 200 shares of
Common Stock, for which it paid approximately $34.00 in an isolated transaction.
Finally, as noted above, on June 22, 1995 Venture Partners as agent converted
$25,000 of the issuer's outstanding debt into equity representing 149,468 shares
of Common Stock.

On September 15, 1995 Venture Partners transferred the 810,716 restricted
shares of Common Stock, plus an additional 261,312 unrestricted shares of Common
Stock, to its affiliate Millenia Capital Holding LLC. Venture Partners also
transferred 145,928 shares of Common Stock to four investors in consideration
for loans previously made to the issuer. Subsequent to the end of the fiscal
year, Venture Partners sold its remaining 149,468 shares to its affiliate BRIL
Corporation for $25,000.

After the bankruptcy filing, the issuer was able to conclude a voluntary
foreclosure action with the mortgage holder on the property it owned and
occupied and move to a smaller, less costly facility. It also reduced personnel
in its production, engineering and office areas, and devoted more attention to
expediting shipments to reduce working capital needs for inventory finance and
improving quality and response to customers.

CURRENT DEVELOPMENTS

Because of continuing financial uncertainty, the issuer's limitations on
pursuing new marketing possibilities continued into fiscal year 1996. In
addition, significant managerial and financial resources were devoted to an
unsuccessful attempted acquisition.

At the end of fiscal year 1995, the issuer had entered into an acquisition
agreement with Cycle Transformer, Inc. ("Cycle") and the MarTek Group
("MarTek"), under which MarTek agreed to transfer its right to purchase Cycle to
the issuer for $60,000. After signing the agreement, the issuer appointed
MarTek general partners James F. Flath and Jeffrey C. Flath to the issuer's
Board of Directors, and installed Jeffrey Flath in the newly-created position of
Chief Executive Officer of the issuer. Concurrently, the issuer received a
capital infusion from the Flaths in the amount of $146,875. The acquisition of
Cycle was later abandoned, and litigation ensued. Subsequent to the end of the
fiscal year, the issuer agreed to pay MarTek, the Flaths and their
representatives $185,000 in an out-of-court settlement. The full amount was
paid on September 27, 1996.

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Nevertheless, during the fiscal year the issuer continued to use funds made
available from its principal investors to upgrade its product line and develop
new products, such as an entire family of high voltage products. The product
line was introduced gradually over the course of the fiscal year, and
contributed to a 13.5% increase in sales over fiscal year 1995.

The issuer also intensified its search for suitable acquisition candidates.
Subsequent to the end of fiscal 1996, the issuer agreed to purchase the assets
of two subsidiaries of Penril Datacomm Networks, Inc. That acquisition was
consummated on October 11, 1996, and reported on a Form 8-K dated October 28,
1996. After the transaction was completed, the issuer also began taking steps
to wind down operations at its Long Island headquarters, so that it could
consolidate its managerial and manufacturing operations at the former Penril
sites in Connecticut. As of the release of this Form 10-KSB, these moves remain
in the planning stages.

As is discussed in more detail in "Liquidity and Capital Resources" below,
at the same time as the acquisition the issuer received additional financing of
about $6.2 million. As part of the acquisition and financing, the issuer also
created a class of preferred stock, $.01 par value, which had been authorized by
vote of the shareholders in fiscal year 1995.

In early 1995, the issuer's shareholders had approved a resolution calling
for the reincorporation of the issuer under Delaware law, by merging the issuer
into a Delaware corporation also named Power Designs Inc. The merger remains
unexecuted pending approval by the New York State Department of State, Division
of Corporations.

LIQUIDITY AND CAPITAL RESOURCES.

The issuer continues to have a shortage of working capital. Lack of funds
for marketing efforts, in combination with the technical and custom production
aspects of the issuer's non-standard products, have hindered expansion of sales.
Accordingly, additional working capital must be obtained to finance raw
materials and work in progress. Furthermore, the confirmed plan of
reorganization requires the issuer to make payments to pre-bankruptcy creditors
of approximately $59,000 per year through fiscal 1997 and $49,000 from then
through fiscal 2000. The note payable to Venture Partners as agent requires
monthly payments of principal of $1,900 from June 30, 1995 through May 31, 1997,
and a single balloon payment of $84,900 at June 30, 1997. This note was repaid
in full on October 11, 1996. Finally, the issuer has capital investment
requirements of approximately $50,000 per year and deferrable capital investment
requirements of approximately $25,000 per year.

Beginning in fiscal year 1995, Venture Partners arranged for the issuer to
obtain additional capital through a Revolving Loan Agreement with a Venture

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Partners affiliate, Inverness Corporation ("Inverness"). The note under the
Loan Agreement provided for 15% annual interest and, as of July 1, 1995, a
credit line of $200,000. The maximum credit line was raised to $700,000 as of
June 30, 1996, at which point the issuer in fact owed $834,097. Accordingly,
the credit line was again raised after the end of the fiscal year, to
$1,200,000. On October 11, 1996, the note was repaid in full.

During fiscal year 1995 the issuer issued two debentures. The first, to
MarTek for $146,875, was due on June 30, 1995 and carried interest of 10% per
annum. This debt remained outstanding as of June 30, 1996, but in July 1996 the
issuer agreed to out-of-court arrangement with MarTek (see Item 3 -- "Legal
Proceedings") which will relieve the debt and accrued interest.

The second debenture was issued for $36,000 to four stockholders. On
September 15, 1995, this amount was converted into 215,235 shares of common
stock.

Subsequent to the end of the fiscal year, the issuer obtained significant
additional outside financing, totalling approximately $6.2 million. The
financing consisted of three primary components: a subordinated debt offering
of $1,087,000 to six individuals and a limited partnership; a note payable to
Inverness in the amount of $2,290,000, and short-term seller financing from
Penril of $2.75 million, due on December 31, 1996. As part of the acquisition
and financing, the issuer also created a class of preferred stock, $.01 par
value, which had been authorized by vote of the shareholders in fiscal year
1995, and issued such preferred shares to the individuals and limited
partnership.

Because of the completed acquisition of the Penril subsidiaries, the issuer
hopes to be able to supply a greater percentage of its working capital needs
through operating cash flow during the 1997 fiscal year. Nevertheless, the
issuer expects that it will be in need of additional financings through
offerings of debt or equity. The remaining capital necessary for operating
purposes and capital investment is anticipated to be supplied by financings
secured by its receivables and additional loans. It is currently exploring the
possibility either of a public offering of stock or bridge financing, but has
made no definite decisions in this regard.

The issuer currently has a deficit in shareholders' equity, meaning that
amounts owed to its creditors, including without limitation Inverness Corp.,
exceed the value of its assets. As of fiscal year end, the issuer has no plans
beyond the above to remedy the deficit in shareholders' equity.

Certain statements contained in this Item 6 regarding matters that are not
historical facts, including, among others, statements regarding the future
adequacy of the issuer's working capital, its ability to raise capital through
debt or equity offerings, its ability to maintain or improve its present cash
flow, are forward

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looking statements (as such term is defined in the Securities Act of 1933 and
the Securities Exchange Act of 1934, as amended). Such forward looking
statements are not guarantees of future performance. There remain substantial
risks that the issuer will be unable to obtain adequate financing to improve its
performance and achieve its business goals.

As a result of the issuer's net loss position, no provision has been made
for income taxes. Approximately $1,230,000 remains to reduce future taxable
income between years ended June 30, 1999 and 2008. Of that total, about
$130,000 relates to losses incurred prior to the fiscal year ended June 30,
1994, when there was a change in the ownership of the common stock. Because of
that change in ownership, the issuer may use no more than approximately $10,000
of the $130,000 net operating loss carryforward on an annual basis. There is no
annual limitation of the remaining $1,100,000 net operating loss carryforward.

RESULTS OF OPERATIONS

Fiscal 1996 versus fiscal 1995

The issuer's sales during fiscal 1996 increased by 13% over fiscal year
1995, to $575,000, and its gross profit increased by 16% over the same period.
No single factor accounts for the increase in sales, although the introduction
over the course of the year of a new product line and a new catalog encouraged
new orders. In addition, administrative costs decreased by approximately 12%, as
the issuer continued to pare costs. Overall, however, net loss widened by 8%
over fiscal year 1995, to over $570,000. The issuer's reliance on debt-financed
capital accounted for a substantial portion of this increase, as interest
expenses rose by 68% over the prior year, and total debt mounted 39%, to over
$1.2 million. Expenses associated with an abandoned acquisition compounded the
issuer's losses. Consequently, total stockholders' deficit increased by 81%, to
$1.2 million.

In continuation of events from fiscal year 1995, the issuer's management
was forced to divert attention from regular operations to litigation resulting
from the failed transaction with Cycle Transformer. A settlement was agreed
upon orally at the end of the fiscal year, and was executed on July 31, 1996.
By the end of the fiscal year, however, the issuer was in negotiations with
Penril Datacomm, Inc., to purchase the assets of two product lines (see "Current
Developments" above). These negotiations also consumed considerable resources,
but did result in an executed agreement after the close of the fiscal year.

The most important general economic trend during fiscal year 1996 was the
continued strength of the national economy, reflected in significant
improvements in the major capital markets. That strength has increased investor
confidence, which permitted the issuer to obtain necessary capital and continue
as a going concern.

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Fiscal 1995 versus fiscal 1994

The issuer continued to experience a shortage of capital resources
necessary to pursue expanded marketing and development activities. Sales
declined due to liquidity problems, which caused delays in production and
reduced marketing activities. Selling, general and administrative expenses
increased, particularly because of the attempted merger with Cycle Transformer,
which added new management but did not increase sales or profitability. The
failed merger also resulted in considerable additional non-operational expenses,
thus further contributing to an overall net loss.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Attached hereto and made a part of this filing is the audited consolidated
balance sheet and statements of income, cash flow and changes in stockholder's
equity of the issuer for its fiscal years ended June 30, 1996 and June 30, 1995.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Kostin, Ruffkess & Company was engaged as the issuer's independent
accountants on June 8, 1994, and have continued in that capacity to date. The
issuer or persons on its behalf have not consulted Kostin, Ruffkess & Company
regarding the application of accounting principles to a specific completed or
contemplated transaction or the type of audit opinion that might be rendered on
the issuer's financial statements.

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The Board of Directors as of June 30, 1996 consisted of six directors.

Positions held with the issuer and other
Name and age business experience during last five years
- ------------ ------------------------------------------

Gary M. Laskowski (43) Director, April 1994 - present, member of the
Compensation Committee; President and director,
Venture Partners Ltd. (management consultants
and advisors), January 1986 - present

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Samuel F. Occhipinti (49) Director, April 1994 - present; Chief financial
officer, I2 Technology, Inc. (electronics mfg.),
June 1994 -present; chief financial officer,
Imaging Technology, Inc. (electronics mfg.),
February 1993 - June 1994; consultant, December
1991 - January 1993; chief financial officer,
ADI Systems, August 1990 - November 1991; member
of the Compensation Committee

Melvin A. Becker (56) Chairman of the board, president and director
since 1985.

Paul A. McCullough (43) Director, April 1995 - present; President,
Madison Asset Management, August 1995 -
present;marketing director, Pension Parameters
Inc. (pension administration), August 1992 -
August 1995; marketing director, Consolidated
Capital Planners, Inc. (financial services),
June 1985 - August 1992

Jeffrey C. Flath (36) Director, April 1995 - June 1996; Principal,
MarTek Group (venture acquisitions); General
Manager, Highland Packaging Labs, Inc.
(packaging products) (a)

James R. Flath (39) Director, April 1995 - June 1996; Principal,
MarTek Group (venture acquisitions); Vice
President, ETCO Incorporated (computer
terminals) (a)

_________________________________

(a) James R. and Jeffrey C. Flath resigned in June, 1996. The dates relevant
to their prior experiences could not be confirmed.

Venture Partners filed a late amended Form 4 under Section 16(a) of the
Securities Exchange Act of 1934 (the "Exchange Act") as to a transactions
involving Common Stock owned by it, and will file a late Form 5. Millenia
Capital Holding LLC filed a late Form 3 regarding its receipt of shares from
Venture Partners, and will file a late Form 5. Jeri Fink failed to file a Form
5 for the fiscal year.

EXECUTIVE OFFICERS OF THE ISSUER

As of June 30, 1996, there were no executive officers other than the
directors identified as such above.

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ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth the annual and long-term compensation of the
chief executive officer for services in all capacities for the fiscal years
ended June 30, 1994, 1995 and 1996. No other employee's annual salary and bonus
exceeded $100,000 in any of those fiscal years. No other reportable form of
compensation was granted to any person.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION

SALARY ($) SECURITIES
UNDERLYING
NAME AND PRINCIPAL STOCK
POSITION FISCAL YEAR OPTIONS

Melvin A. Becker, 1996 88,354 -0-
President and, until 1995 95,446 121,608(a)
April 20,1995, CEO 1994 105,600 -0-
Jeffrey Flath, CEO 1996 6,000 -0-(a)
(4/20/95 - 6/30/95) 1995 12,000 -0-(a)

(a) Jeffrey Flath's employment as the issuer's CEO was terminated on September
4, 1996.

In fiscal year 1995, the issuer adopted the Employee Incentive Stock Option
Program (the "Option Program"), which provides for the issuance of up to the
lesser of 24% of the issued and outstanding Common Stock or 1,000,000 shares of
Common Stock through the grant of incentive and non-qualified stock options.
Stock options will be issued by action of the Board of Directors or its
Compensation Committee (the "Administrator") to key employees of Power Designs
as a long-term incentive.

No options were granted during fiscal year 1996.

As of June 30, 1996, and subsequent to the end of the fiscal year, no
options have been exercised.

Power Designs has no pension plan covering executives and currently
provides no benefits to executives other than life insurance coverage of $10,000
and health insurance.

During fiscal year 1996, directors did not receive any compensation for
services as directors.

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Subsequent to the end of the fiscal year, the issuer issued warrants to
certain of its directors and newly-hired officers in compensation for their
services to the issuer.

ITEM 11. OWNERSHIP OF SECURITIES BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following corporation and individuals are known to Power Designs to be
the beneficial owners of more than 5% of a class of Power Designs' voting
securities. To the knowledge of Power Designs, no other person is the holder of
more than 5% of any class of Power Designs' voting securities.

AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF OWNERSHIP OF
TITLE OF CLASS BENEFICIAL OWNER (SHARES) CLASS
- -------------- ---------------- -------- -----
Common Stock Millenia Capital Holdings, 1,221,496 60.1
LLC direct(a)
P.O. Drawer 9
Kensington, Connecticut
06037

Venture Partners Ltd. 149,468 5.8
P.O. Drawer 9 direct(a)
Kensington, Connecticut
06037

Thomas O'Grady 125,323 5.2
c/o Power Designs, Inc.
250 Executive Drive
Edgewood, New York
11717

David H. Smith II 125,323 5.2
c/o Power Designs, Inc.
250 Executive Drive
Edgewood, New York
11717

Jeri Fink 283,503 14.0
c/o Power Designs, Inc.
250 Executive Drive
Edgewood, New York
11717

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Sandra Roth 146,503 7.2
c/o Power Designs, Inc.
250 Executive Drive
Edgewood, New York
11717

___________________________________

(a) The managers of Millenia Capital Holdings LLC ("Millenia Capital") are Gary
M. Laskowski and Jonathan D. Betts, each of whom is a director of the issuer.
The concurrence of both Mr. Laskowski and Mr. Betts is necessary to direct the
voting of shares owned by Millenia Capital; disposition requires the consent of
the two members of Millenia Capital, which are the spouses of Mr. Laskowski and
Mr. Betts. Similarly, Messrs. Laskowski and Betts are the directors of Venture
Partners, and both must concur to direct the voting of shares owned by Venture
Partners. As with Millenia Capital, disposition requires the consent of the two
shareholders of Millenia Capital, which are the spouses of Mr. Laskowski and Mr.
Betts. As disclosed in the following table, Mr. Laskowski beneficially owns an
additional 10,000 shares beneficially and of record.

The following information pertains to the Common Stock of the issuer
beneficially owned, directly or indirectly, by each director and nominee and
certain executive officers individually and by all directors and executive
officers of the issuer as a group. Each person named has an address c/o Power
Designs, Inc. 250 Executive Drive, Edgewood, New York 11717.

Name Amount and
nature of
beneficial
ownership
(shares) Percent
--------

Directors and Gary M. Laskowski 1,231,696 60.6(a)
nominees for director: (shared)(a)(b) (b)
Jonathan D. Betts 1,221,696 60.1(a)
(shared)(a)
Samuel F. Occhipinti 55,258 1.5(c)
(indirect)(c)
Melvin A. Becker 13,263 0.7
Paul A. McCullough 0 0.0
James R. Flath 0 0.0
Jeffrey C. Flath 0 0.0

-14-

<PAGE>

All current directors 1,589,020 77.0
and executive officers
as a group (6):

____________________________________

(a) Mr. Laskowski and Mr. Betts share voting power over the 1,221,696 shares
that Millenia Capital owns, as described above. In addition, Mr. Laskowski and
Mr. Betts are trustees and beneficiaries of a retirement plan that owns 200
shares. Mr. Betts did not stand for reelection as a director and his term ended
on April 20, 1995.

(b) Mr. Laskowski also owns 10,000 shares individually of record and
beneficially.

(c) Owned of record by a trust in favor of Mr. Occhipinti's wife's father. Mr.
Occhipinti has no voting or investment power over the shares in trust and
disclaims beneficial ownership of these shares.

Subsequent to the end of the fiscal year, the issuer issued options and
warrants to certain of its directors and newly-hired officers in compensation
for their services to the issuer.

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Jonathan D. Betts and Gary M. Laskowski, directors of the issuer, are
officers of Venture Partners, Ltd., and of Inverness Corporation, both of which
have provided capital to the issuer under several loan agreements:

(a) The 1994 plan of reorganization included a note payable to
Venture Partners as agent, which required monthly payments of
principal of $1,900 from June 30, 1995 through May 31, 1997, and a
single balloon payment of $84,900 at June 30, 1997. This note was
repaid in full on October 11, 1996.

(b) The issuer sells its accounts receivable to Inverness at 80% of
face value, under an Agreement to Purchase Accounts dated April 27,
1994 and amended June 9, 1995.

(c) Inverness has also entered into a Revolving Loan Agreement with
the issuer. The note under the Agreement provided for 15% annual
interest and, as of July 1, 1995, a credit line of $200,000. The
maximum credit line was raised to $700,000 as of June 30, 1996, at
which point the issuer in fact owed $834,097. The credit line was
again raised after the end of the fiscal year, to $1,200,000. On
October 11, 1996, the note was repaid in full.

-15-

<PAGE>

Former directors James F. Flath and Jeffrey C. Flath are the principals of
the MarTek Group ("MarTek"), which at the end of fiscal year 1995 entered into
an acquisition agreement with the issuer and Cycle Transformer, Inc. ("Cycle").
Under the agreement MarTek agreed to transfer its right to purchase Cycle to the
issuer for $60,000. Subsequently, Jeffrey C. Flath was appointed to the
newly-created position of Chief Executive Officer of the issuer. The issuer
also issued a debenture to the Flaths in the amount of $146,875. The
acquisition of Cycle was later abandoned, and litigation ensued. Subsequent to
the end of the fiscal year, the issuer agreed to pay MarTek, the Flaths and
their representatives $185,000 in an out-of-court settlement. The full amount
was paid on September 27, 1996.

Subsequent to the end of the fiscal year, the issuer obtained outside
financing totalling approximately $6.2 million. The financing included a note
payable to Inverness in the amount of $2,290,000.

A COPY OF THIS REPORT ON FORM 10-KSB FOR FISCAL YEAR 1996 MAY BE
OBTAINED FREE OF CHARGE BY SENDING A REQUEST IN WRITING TO:

ARTHUR A. LANE, ESQ.
DE FOREST & DUER
90 BROAD STREET
NEW YORK, NY 10004

-16-

<PAGE>

ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K

(a) EXHIBIT INDEX

Page in
consecutively
Exhibit Page numbered copy
- ------- ---- -------------
FINANCIAL STATEMENTS F-1

Independent Auditors' Report F-2

Audited Consolidated Balance Sheets as F-3
of June 30, 1996 and as of
June 30, 1995

Audited Consolidated Statements of F-4
Operations for the years ended
June 30, 1996 and June 30, 1995

Audited Consolidated Statement of F-5
Changes in Stockholders' Deficit
as of June 30, 1995

Audited Consolidated Statement of Cash F-6
Flows for the years ended June 30,
1996, and June 30, 1995

Notes to the Financial Statements F-7
for the Years Ended June 30,
1996 and June 30, 1995

-17-

<PAGE>

Page in
consecutively
Exhibit Page numbered copy
- ------- ---- -------------

(3)(I) CERTIFICATE OF INCORPORATION
(INCORPORATED BY REFERENCE TO EXHIBIT
3(I) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1995)

(3)(II) BYLAWS
(INCORPORATED BY REFERENCE TO EXHIBIT
3(II-) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1995)

(4) INSTRUMENTS

(i) Commercial Term Note
(INCORPORATED BY REFERENCE TO EXHIBIT
4(I) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1994)

(ii) Term Loan Agreement
(INCORPORATED BY REFERENCE TO EXHIBIT
4(II) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1994)

(iii) 10% Debenture for $146,875.00
due June 30, 1995
(INCORPORATED BY REFERENCE TO EXHIBIT
4(III) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1995)

(iv) 10% Debenture for $36,000.00
due June 30, 1995
(INCORPORATED BY REFERENCE TO EXHIBIT
4(IV) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1995)

(10) MATERIAL CONTRACTS

(i) Plan of Reorganization
(INCORPORATED BY REFERENCE TO EXHIBIT
10(I) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1994)

-18-

<PAGE>

(ii) Final Decree
(INCORPORATED BY REFERENCE TO EXHIBIT
10(II) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1994)

(iii) Agreement to Purchase Accounts
(INCORPORATED BY REFERENCE TO EXHIBIT
10(III) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1995)

(iv) Amendment Agreement to Agreement
to Purchase Accounts
(INCORPORATED BY REFERENCE TO EXHIBIT
10(IV) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1995)

(v) Security Agreement
(INCORPORATED BY REFERENCE TO EXHIBIT
10(III) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1994)

(vi) Employee Incentive Stock Option Program

(INCORPORATED BY REFERENCE TO EXHIBIT
10(VI) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1995)

(vii) Documents related to Cycle Transformer
transactions
(INCORPORATED BY REFERENCE TO EXHIBIT
10(VII)(A)-(E) TO FORM 10-KSB FOR THE
FISCAL YEAR ENDED JUNE 30, 1995)

(viii) Revolving Loan Agreement
(INCORPORATED BY REFERENCE TO EXHIBIT
10(VIII) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1995)

(ix) Amendment Agreement to
Revolving Loan Agreement
(INCORPORATED BY REFERENCE TO EXHIBIT
10(IX) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1995)

(x) Second Amendment Agreement to
Revolving Loan Agreement
(INCORPORATED BY REFERENCE TO EXHIBIT

-19-

<PAGE>
10(X) TO FORM 10-KSB FOR THE FISCAL
YEAR ENDED JUNE 30, 1995)

(xi) Third Amendment Agreement to A-1
Revolving Loan Agreement

(xii) Fourth Amendment Agreement to B-1
Revolving Loan Agreement

(xiii) Fifth Amendment Agreement to C-1
Revolving Loan Agreement

(xiv) Settlement Agreement among Theodore D-1
D. Moskowitz, Esq., Cycle Transformer
Corp., Power Designs Inc., et al.

REPORTS ON FROM 8-K

(b) No reports on Form 8-K have been filed during the last quarter of
the period covered by this report.

-20-

<PAGE>

POWER DESIGNS, INC.

----------

Consolidated Financial Statements

June 30, 1996 and 1995

----------

F-1
<PAGE>

To The Board of Directors
Power Designs, Inc.

INDEPENDENT AUDITORS' REPORT
- ----------------------------

We have audited the accompanying consolidated balance sheets of Power Designs,
Inc. as of June 30, 1996 and 1995, and the related consolidated statements of
operations, changes in stockholders' deficit and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Power Designs, Inc.
as of June 30, 1996 and 1995 and the consolidated results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's significant operating losses
raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 12. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

West Hartford, Connecticut
November 8, 1996

F-2
<PAGE>

POWER DESIGNS, INC.

----------

Consolidated Balance Sheets

June 30, 1996 and 1995

----------
ASSETS
1996 1995
---- ----
Current assets:
Accounts receivable $ 33,395 $ 12,779
Inventories 174,486 201,507
Prepaid expenses -- 3,723
----------- -----------

Total current assets 207,881 218,009
----------- -----------
Property and equipment, less accumulated
depreciation 4,497 6,132
----------- -----------
Other assets:
Acquisition deposit 190,000 --
Investment in partnership 21,221 21,294
Security deposits 3,855 3,855
----------- -----------

215,076 25,149
----------- -----------

$ 427,454 $ 249,290
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Cash overdraft $ 5,940 $ 7,047
Accounts payable 34,147 12,592
Current portion of long-term debt 1,124,597 374,012
Payables related to reorganization including
accrued interest 261,655 244,965
Loan payable - affiliate 71,251 34,391
Accrued expenses 101,783 145,960
Accrued interest 32,573 14,583
----------- -----------

Total current liabilities 1,631,946 833,550

Long-term debt, net of current portion -- 82,700
----------- -----------

Total liabilities 1,631,946 916,250
----------- -----------

Stockholders' deficit:
Common stock; $.0001 par value, 10,000,000
shares authorized, 2,391,493 shares issued
and outstanding at June 30, 1996; 2,176,259
hares, issued and outstanding at June 30, 1995 240 218
Preferred stock; $.01 par value; 1,000,000
shares authorized; shares issued and
outstanding - none -- --
Additional paid in capital 820,732 784,754
Deficit (2,025,464) (1,451,932)
----------- -----------

Total stockholders' deficit (1,204,492) (666,960)
----------- -----------

$ 427,454 $ 249,290
=========== ===========

The accompanying notes are an integral part of the financial statements

F-3
<PAGE>

POWER DESIGNS, INC.

----------

Consolidated Statements of Operations

For The Years Ended June 30, 1996 and 1995

----------

1996 1995
---- ----

Net sales $ 575,429 $ 506,948

Cost of sales 504,173 445,845
--------- ---------

Gross profit 71,256 61,103

Selling, general and administrative expense 396,766 446,718
--------- ---------

Net loss before other income (expense) (325,510) (385,615)
--------- ---------

Other income (expense):
Investment income 1,627 4,967
Interest expense (123,597) (73,491)
Abandoned acquisition (126,052) (76,393)
--------- ---------

(248,022) (144,917)
--------- ---------

Net loss $(573,532) $(530,532)
========= =========

Net loss per share $ (.24) $ (.26)
========= =========

The accompanying notes are an integral part of the financial statements

F-4
<PAGE>
POWER DESIGNS, INC.

----------

Consolidated Statement of Changes in Stockholders' Deficit

For The Years Ended June 30, 1996 and 1995

----------
<TABLE>
<CAPTION>
Shares
Common Additional
Stock Common Paid In
Outstanding Stock Capital Deficit Total
----------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1994 2,026,791 $ 202,679 $557,293 $ (921,400) $ (161,428)

Conversion of debt to acquire
common stock 149,468 14,947 10,053 -- 25,000

Change in par value of common
stock from $.10 to $.0001 -- (217,408) (217,408) -- --

Net loss -- -- -- (530,532) (530,532)
--------- --------- -------- ----------- -----------

Balance, June 30, 1995 2,176,259 218 784,754 (1,451,932) (666,960)

Conversion of debt to acquire
common stock 215,234 22 35,978 -- 36,000

Net loss -- -- -- (573,532) (573,532)
--------- --------- -------- ----------- -----------

Balance, June 30, 1996 2,391,493 $ 240 $820,732 $(2,025,464) $(1,204,492)
========= ========= ======== =========== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements

F-5
<PAGE>

POWER DESIGNS, INC.

----------

Consolidated Statements of Cash Flows

For the Years Ended June 30, 1996 and 1995

----------

1996 1995
---- ----
Cash flows from operating activities:
Net loss $(573,532) $(530,532)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 1,635 2,762
(Increase) decrease in:
Accounts receivable (20,616) 10,753
Inventories 27,021 19,308
Other receivable -- 4,263
Prepaid expenses 3,723 (3,723)
Other assets (189,927) 11,724
Increase (decrease) in:
Accounts payable and accrued expenses (4,632) 102,544
Payables related to reorganization 16,690 5,685
--------- ---------

Cash flows used in operating activities (739,638) (377,216)
--------- ---------
Cash flows used in investing activities:
Purchase of property and equipment -- (4,929)
--------- ---------
Cash flows from financing activities:
Advances from affiliate 36,860 34,391
Cash received from long-term financing 703,885 351,212
--------- ---------

Cash flows provided by financing activities 740,745 385,603
--------- ---------

Net increase in cash 1,107 3,458

Cash overdraft, beginning of year (7,047) (10,505)
--------- ---------

Cash overdraft, end of year $ (5,940) $ (7,047)
========= =========

The accompanying notes are an integral part of the financial statements

F-6
<PAGE>

POWER DESIGNS, INC.

----------

Notes To The Consolidated Financial Statements

For The Years Ended June 30, 1996 and 1995

----------

Note 1 - Summary of Significant Accounting Policies:

Nature of business

Power Designs, Inc. is engaged in the design and manufacture of electronically
controlled power sources used in the operation of electronic equipment and
mechanical instruments. The Company was started in 1952 and has pioneered the
development of high stability, low noise power supplies. These products are used
by industry, scientific research, and electro-medical organizations for such
applications as computers, data processors, video and sound communications
media, nuclear biological and medical research, nuclear power generation, and
other facilities where disturbances in the primary power source for these
systems may affect their accuracy and performance.

The principal market for these products is users or manufacturers who
incorporate the products into their equipment. Customers include private
companies, government agencies and educational institutions throughout the
United States.

Principles of consolidation

The consolidated financial statements include the accounts of Power Designs,
Inc. and its wholly-owned subsidiary, PDIXF Acquisition Corp. This company was
organized on April 9, 1996 for the purpose of acquiring two divisions of Penril
Datacomm Networks. (See Note 12) All intercompany transactions and balances have
been eliminated in consolidation.

Presentation basis

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company has
sustained substantial operating losses in recent years and continued to incur
operating losses subsequent to June 30, 1996. The Company has used substantial
amounts of working capital in its operations. As of June 30, 1996, current
liabilities exceeded current assets by $1,424,065. However, all covenants were
cured and all notes fully paid subsequent to the end of the fiscal year. Also
subsequent to the end of the fiscal year, management effected a major
restructuring of the Company's balance sheet and operations including the
acquisition of another operating company (See Note 12). Management expects to
complete a secondary offering of stock in the next fiscal year.

In view of these matters, realization of a major portion of the assets in the
accompanying consolidated balance sheet is dependent upon continued operations
of the Company, which in turn is dependent upon the Company's ability to meet
its financing requirements, and the success of its future operations. Management
believes that actions presently being taken to increase sales revenue and to
improve the Company's operations and financial results will provide the
opportunity for the Company to continue as a going concern.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out method.

Property and equipment

Depreciation of property and equipment is provided using accelerated methods
over the estimated useful lives of the assets. Expenditures for major renewals
and betterments which extend the useful lives of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense as
incurred.

F-7
<PAGE>

KOSTIN, RUFFKESS & COMPANY, LLC

CERTIFIED PUBLIC ACCOUNTANTS

POWER DESIGNS, INC.

----------

Notes To The Consolidated Financial Statements

For The Years Ended June 30, 1996 and 1995

----------

Note 1 - Summary of Significant Accounting Policies: (Continued)

Estimates

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

Income taxes

There is no provision for income taxes due to the Company incurring a net loss.
Approximately $1,230,000 remains to reduce future taxable income, if any,
expiring between years ended June 30, 1999 and 2008, of which approximately
$130,000 relates to losses incurred prior to the fiscal year ended June 30, 1994
when there was a change in the ownership of common stock. As a result of the
change in ownership of common stock, the Company is limited to using no more
than approximately $10,000 of the $130,000 net operating loss carryforward on an
annual basis. There is no annual limitation on the remaining $1,100,000 net
operating loss carryforward.

Statement of cash flows

The Company was in a cash overdraft position as of June 30, 1996 and 1995.

For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and short-term investments maturing within 90 days. The following is
supplementary cash flows information: interest paid in 1996 and 1995 was $63,398
and $37,455, respectively. See Notes 7 and 12 for other noncash transactions.

Note 2 - Accounts Receivable:

The Company sells its accounts receivable to a related party (Inverness
Corporation) at 80% of the face value. Under the agreement, which expires in
June 1997 when the account is received, the Company is entitled to the residual
(20%) less a fee to the related party of 2%, 4% or 6% if not collected within
thirty, sixty or ninety days, respectively. If the account is not collected
within ninety days, the Company is required to purchase back the account at full
face value.

Note 3 - Inventories:
1996 1995
---- ----
At June 30, inventories consisted of the following:

Raw materials $ 99,203 $ 82,603
Work in process 58,714 65,255
Finished goods 16,569 53,649
--------- ---------

$ 174,486 $ 201,507
========= =========

F-8
<PAGE>

POWER DESIGNS, INC.

----------

Notes To The Consolidated Financial Statements

For The Years Ended June 30, 1996 and 1995

----------

Note 4 - Equipment:

Equipment is summarized by major classifications as follows:

1995 1996
---- ----
Leasehold improvements $ 2,250 $ 2,250
Machinery and equipment 34,589 34,589
Furniture and fixtures 8,811 8,811
-------- --------

45,650 45,650
Less: accumulated depreciation 41,153 39,518
-------- --------

$ 4,497 $ 6,132
======== ========
Note 5 - Operating Lease:

The Company leases its office and manufacturing facilities under an operating
lease which expires February 28, 1998.

Minimum future rental payments under this noncancelable lease are as follows:

Year ending June 30 Amount
------------------- ------
1997 $ 44,340
1998 30,529
--------

Total minimum future rental payments $ 74,869
========

Rental expense, including real estate taxes, for the years ended June 30, 1996
and 1995 was $45,382 and $41,985, respectively.

The Company is currently in default on their lease agreement due to its failure
to maintain adequate insurance coverage and, due to the order of the bankruptcy
court, the assignment of more than thirty percent of the outstanding shares of
stock, which is a deemed assignment of the lease.

Note 6 - Reorganization:

During the year ended June 30, 1994, the Company emerged from Chapter 11 of the
Federal bankruptcy court - State of New York. In accordance with the terms set
by the bankruptcy court, unsecured creditors agreed to accept twenty percent of
the amount due to them for pre-petition claims (five percent upon emerging from
bankruptcy and the remaining 15% over a period of three years).

The amounts due to these unsecured creditors, as well as other amounts due to
various taxing authorities, are due and payable with interest as follows:

June 30
-------
1996 1995
---- ----
Class VI creditors (former unsecured creditors),
payable in three annual payments of $10,207
without interest $ 30,620 $ 30,620

Class V creditors (taxing authorities and union
fees), payable in quarterly payments of $12,292
principal plus interest accruing at a rate of
nine percent through September 1998 231,035 214,345
-------- --------

$261,655 $244,965
======== ========

F-9
<PAGE>

As of June 30, 1996 and 1995, the Company is in default due to its failing to
make all appropriate payments as required by the bankruptcy court. These amounts
are, therefore, shown as current liabilities.

During October 1996, in conjunction with the acquisition and related financing,
the Company made all appropriate principal payments to make them current. (See
Note 12)

F-10
<PAGE>

POWER DESIGNS, INC.

----------

Notes To The Consolidated Financial Statements

For The Years Ended June 30, 1996 and 1995

----------

Note 7 - Long-term Debt:
1996 1995
---- ----
Installment note, originally $130,500 payable to
stockholders which requires monthly interest only
payments through May 31, 1995 at 9% per annum above
the prime rate. Principal payments were scheduled to
begin June 1, 1995 in monthly installments of $1,900
plus interest through May 31, 1997. The remaining
principal balance is due and payable June 1, 1997. On
June 22, 1995, $25,000 of this debt was converted to
equity representing 149,468 shares of common stock.
This note is secured by deposits, credits and
property of the Company. This note was paid in full
October 11, 1996. (See Note 12)

The note payable contains certain restrictive
covenants. The Company is currently not in compliance
with one of the covenants due to the fact that it has
not maintained the required insurance coverage on its
property. The stockholders have waived this
requirement for the year ended June 30, 1996 and
1995. $ 105,500 $ 105,500

Debenture payable to MarTek Group bearing interest at
10% per annum, due and payable including accrued
interest on June 30, 1995. On July 31, 1996, the
Company agreed to pay $185,000 in an out-of-court
arrangement resulting from a lawsuit brought by the
owners of MarTek Group. This settlement will relieve
the principal balance of $146,875 and accrued
interest of $19,421 at June 30, 1996. The additional
$18,704, primarily representing reimbursement of
costs claimed, is reflected as an expense in the
current year financial statements. This amount was
paid on September 27, 1996. 185,000 146,875

Revolving loan agreement payable to Inverness
Corporation, a commercial financing institution and,
affiliate of a stockholder, has a maximum borrowing
capacity of $700,000 at June 30, 1996 bearing
interest at 15%. On July 29, 1996, the maximum
borrowing was increased to $1,200,000. This note is
secured by all equipment, fixtures, inventory and
accounts receivable of the Company. This balance was
fully repaid October 11, 1996. (See Note 12) 834,097 168,337

Debenture payable to four stockholders bearing
interest at 10% per annum, due and payable including
accrued interest on June 30, 1995. On September 15,
1995, this amount was converted to 215,234 shares of
common stock. -- 36,000
--------- ---------

1,124,597 456,712

Less: current portion 1,124,597 374,012
--------- ---------

Long-term debt, net of current portion $ -- $ 82,700
========== =========

F-11
<PAGE>

POWER DESIGNS, INC.

----------

Notes To The Consolidated Financial Statements

For The Years Ended June 30, 1996 and 1995

----------

Note 8 - Stockholders' Equity:

The shareholders approved on April 20, 1995, the authorization of a class of
1,000,000 shares of blank check preferred stock with a par value of $.01. As of
June 30, 1996, none of these shares have been issued. They also approved the
authorization of an additional 7,973,209 shares of common stock.

During June 1995, the Board of Directors changed the par value of the Company's
common stock from $.10 per share to $.0001 per share, which resulted in a
decrease in the carrying value of the common stock of $217,408 and an identical
increase in paid in capital.

As of June 30, 1996, 2,391,493 shares of common stock have been issued and are
outstanding. The weighted average number of outstanding shares used in the
computation of earnings per share for the years ended June 30, 1996 and 1995
were 2,346,055 and 2,030,113, respectively.

On September 15, 1995, Venture Partners, Ltd. transferred 810,716 restricted
shares of common stock, plus an additional 261,312 unrestricted shares of common
stock, to its affiliate Millenia Capital Holding, LLC.

Note 9 - Investment in Partnership:

This amount represents a 2.2% investment as a limited partner in a real estate
partnership. The investment value is based on the equity method, which
approximates market.

Note 10 - Reincorporation:

On April 20, 1995, the stockholders approved a resolution calling for the
reincorporation of the Company under Delaware law by merging the Company into a
Delaware corporation also named Power Designs, Inc. The merger remains
unexecuted pending approval by the New York State Department of State, Division
of Corporations.

Note 11 - Stock Option Plan:

The Board of Directors adopted an incentive stock option plan (The Plan), which
provides for the issuance of up to the lesser of 24% of the issued and
outstanding common stock or 1,000,000 shares of common stock. Stock options can
be issued at the discretion of the Board of Directors. The administrator of the
plan has issued incentive stock options for 121,608 shares of common stock. The
plan was approved by vote of the stockholders on April 20, 1995.

Shares Under Option
-------------------
Outstanding June 30, 1994 --

Granted during the fiscal year 1995 121,608
-------

Outstanding at June 30, 1996 and 1995
and exercisable through April 30, 1999
(at prices ranging from $.01 to $.25
per share) 121,608
=======

At June 30, 1996, there were 878,392 shares reserved for future grants.

F-12
<PAGE>

POWER DESIGNS, INC.

----------

Notes To The Consolidated Financial Statements

For The Years Ended June 30, 1996 and 1995

----------

Note 12 - Subsequent Events:

On October 11, 1996, a wholly owned subsidiary of Power Designs, Inc. (PDIXF
Acquisition Corporation) acquired for approximately $4,430,000, the net assets
of two divisions of Penril Datacomm Networks, Inc. These two divisions,
Technipower Power, Inc. and Constant Power, Inc., are manufacturers of power
supplies, auto transformers, power line conditioners and uninterruptable power
supplies. Additionally, the Company repaid loans, notes payable and obligations
to creditors totalling approximately $1,490,000 that existed as of October 11,
1996. The Company also incurred approximately $260,000 in costs (financing and
organizational) related to the transaction.

Funding for the above transaction (approximately $6,180,000) was provided by the
following:

316,743 shares of preferred stock convertible to
common stock at a conversion rate to be determined
at a future date $ 265,000
Warrants convertible into 416,749 shares of
common stock at 87.5 cents per share 7,000
Subordinate debt from six individuals and
a limited partnership 1,087,000
Note payable to Inverness Corporation
(Due April 1, 1998) 2,290,000
Seller financing (Due 12/31/96) 2,750,000

Total sources 6,399,000

Less: cash deposited into PDIXF Corp.
for working capital (219,000)
-----------

$ 6,180,000
===========

The Company expects to do a secondary stock offering prior to December 31, 1996,
which would provide the funds to repay the seller financing provided by Penril.
Should a secondary offering not occur by this date, bridge financing will need
to be secured. The Company is simultaneously working to arrange that financing.

The following proforma condensed balance sheet gives effect to the above event
as if it had occurred on June 30, 1996 without giving effect to operating
results through this period:

F-13
<PAGE>

POWER DESIGNS, INC.

----------

Notes To The Consolidated Financial Statements

For The Years Ended June 30, 1996 and 1995

----------

Note 12 - Subsequent Events: (Continued)

Proforma Condensed Balance Sheet
At June 30, 1996

<TABLE>
<CAPTION>
As Reported Proforma
In Accompanying Adjustments for Proforma
Financial Subsequent Balance
Statements Funds Sheet
--------------- --------------- --------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash $ -- $ 219,000 $ 219,000
Accounts receivable 33,395 582,000 615,395
Inventories 174,486 1,900,000 2,074,486
----------- ----------- -----------
Total current assets 207,881 2,701,000 2,908,881
----------- ----------- -----------
Property and equipment, less
accumulated depreciation 4,497 525,000 529,497
----------- ----------- -----------
Other assets:
Acquisition deposit 190,000 (190,000) --
Investment in partnership 21,221 -- 21,221
Security deposits 3,855 -- 3,855
Goodwill -- 1,973,000 1,973,000
Financing fees and organizational
costs -- 260,000 260,000
----------- ----------- -----------
215,076 2,043,000 2,258,076
----------- ----------- -----------

$ 427,454 $ 5,269,000 $ 5,696,454
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
DEFICIT

Current liabilities:
Seller financing $ -- $ 2,750,000 $ 2,750,000
Cash overdraft 5,940 -- 5,940
Accounts payable 34,147 526,015 560,162
Current portion of long-term debt 1,124,597 (1,124,597) --
Payables related to reorganization,
including accrued interest 261,655 (120,256) 141,399
Loan payable - affiliate 71,251 (5,749) 65,502
Accrued expenses 101,783 -- 101,783
Accrued interest 32,573 (32,573) --
----------- ----------- -----------
Total liabilities 1,631,946 1,992,840 3,624,786
----------- ----------- -----------

Long-term debt:
Notes payable - affiliates -- 3,004,306 3,004,306
----------- ----------- -----------

Stockholders' deficit:
Preferred stock -- 264,854 264,854
Common stock 240 -- 240
Additional paid in capital 820,732 7,000 827,732
Deficit (2,025,464) -- (2,025,464)
----------- ----------- -----------
Total stockholders' deficit (1,204,492) 271,854 (932,638)
----------- ----------- -----------

$ 427,454 $ 5,269,000 $ 5,696,454
=========== =========== ===========
</TABLE>

F-14
<PAGE>

POWER DESIGNS, INC.

----------

Notes To The Consolidated Financial Statements

For The Years Ended June 30, 1996 and 1995

----------

Note 13 - Abandoned Acquisition:

During the year ended June 30, 1995, the Company entered into an acquisition
agreement with Cycle Transformer, Inc. ("Cycle") and the MarTek Group
("MarTek"), under which MarTek agreed to transfer its right to purchase Cycle to
the Company for $60,000. The Company negotiated for a capital infusion from
Cycle and MarTek in the amount of $146,875. Power Designs advanced a total of
approximately $76,000 to Cycle prior to June 30, 1995. This transaction was
never fully consummated, and litigation ensued. On July 31, 1996, the Company
agreed to pay Cycle, MarTek and the representative of MarTek $185,000 in an
out-of-court settlement. This amount was paid on September 27, 1996.
Additionally, the Company reimbursed an affiliate for advances made to Cycle on
behalf of the Company for approximately $82,000 and incurred legal costs of
approximately $25,000. The abandoned acquisition of $202,445 ($126,052 in 1996
and $76,393) in 1995 represents the losses incurred relative to these
transactions including reimbursement of costs claimed by MarTek of approximately
$19,000.

F-15

<PAGE>

Exhibit 10(xi)

THIRD
AMENDMENT AGREEMENT

This AMENDMENT AGREEMENT, dated as of the 14th day of December, 1995 (this
Amendment") is by and among INVERNESS CORPORATION, with a principal place of
business at Mill Crossing, Kensington, Connecticut ("Lender"), and POWER
DESIGNS, INC., a New York corporation with a principal place of business at 250
Executive Drive, Edgewood, New York ("Borrower").

On January 16, 1995, Lender made a $200,000.00 revolving credit loan (the
"Loan") to Borrower. The Loan was made pursuant to a Revolving Loan Agreement
(as amended and in effect from time to time, the "Loan Agreement"), dated
January 16. 1995, is evidenced by a Commercial Promissory Note in the original
principal amount of $100,000 (as amended and in effect from time to time the
"Note") dated January 16, 1995 and is secured pursuant to a Security Agreement
(as amended and in effect from time to time, the "Security Agreement") dated
January 16, 1995.

Borrower has requested that Lender amend the Loan Agreement in order to (i)
increase the maximum principal amount of the Loan, (ii) make other related
changes. Lender has advised Borrower that Lender is prepared to make the
amendments requested on the condition that Borrower join with Lender in this
Amendment.

In consideration of this Amendment and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Lender and Borrower hereby agree as follows:

1. DEFINITIONS. Capitalized terms used herein shall have the meanings
given to them in the Loan Agreement.

2. AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT. Section 1.1 of the
Loan Agreement is hereby deleted in its entirety and in lieu thereof the
following is substituted:

" 1.1 The Line of Credit. Pursuant to the terms of this Agreement and upon
satisfaction of the conditions precedent referred to in Section 3 hereof, the
Lender may, in its sole discretion, lend to Borrower, and the Borrower may, in
its sole discretion, borrow from Lender, advances not to exceed the principal
amount of THREE HUNDRED THOUSAND AND 00/100 DOLLARS ($300,000) (the "Line of
Credit") during the period from the date hereof to March 29, 1996 (the
"Termination Date") as evidenced by a promissory note (the "Note") in
substantially the form of Exhibit 1 hereto. Advances shall be made in such
amounts as the Lender, in its sole discretion, shall determine; however, in no
event shall the sum of any advance and the outstanding principal balance of the
loan be less than TEN THOUSAND ONE HUNDRED DOLLARS ($10,100)"

3. AMENDMENT TO EXHIBIT L OF THE LOAN AGREEMENT. Exhibit 1 of the Loan
Agreement is hereby amended in the same manner as set forth in Section 4. Below.

A-1

<PAGE>

4. AMENDMENT TO NOTE. The Revolving Credit Note, as amended, is hereby amended
(i) by deleting therefrom the words "$200,000.00" wherever they appear and
inserting in lieu thereof the words "$300,000.00", (ii) by deleting therefrom
the words "TWO HUNDRED THOUSAND" wherever they appear and inserting in lieu
thereof the words "THREE HUNDRED THOUSAND".

5. RATIFICATIONS. ETC. Except as otherwise expressly set forth herein all
terms and conditions of the Loan Agreement, Note and the Security Agreement are
ratified and shall remain in full force and effect. Nothing herein shall be
construed to be a waiver of any requirements of Loan Agreement, the Note and the
Security Agreement except as expressly set forth herein. The Guarantors hereby
ratify and confirm their respective obligations under their respective
guaranties with respect to the Note as amended hereby.

6. CONDITIONS TO EFFECTIVENESS. This Amendment shall be effective upon
its receipt by Lender, duly executed by Borrower.

7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, coach of which shall constitute an original and all of which
together shall constitute one instrument.

8. GOVERNING LAW. This Amendment shall be construed and interpreted in
accordance with the laws of the State of Connecticut

IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
date first written above.

LENDER:
INVERNESS CORPORATION

By
---------------------------------
Its
Duly Authorized

BORROWER:
POWER DESIGNS, INC.

By /s/ Melvin Becker
---------------------------------
Its President
Duly Authorized

A-2

<PAGE>

Exhibit 10(xii)

FOURTH
AMENDMENT AGREEMENT

This AMENDMENT AGREEMENT, dated as of the 29th day of January, 1996 (this
"Amendment") is by and among INVERNESS CORPORATION, with a principal place of
business at Mill Crossing, Kensington, Connecticut ("Lender"), and POWER
DESIGNS, INC., a New York corporation with a principal place of business at 250
Executive Drive, Edgewood, New York ("Borrower").

On January 16, 1995, Lender made a $200,000.00 revolving credit loan (the
"Loan") to Borrower. The Loan was made pursuant to a Revolving Loan Agreement
(as amended and in effect from time to time, the "Loan Agreement"), dated
January 16, 1995, is evidenced by a Commercial Promissory Note in the original
principal amount of $100,000 (as amended and in effect from time to time the
"Note") dated January 16, 1995 and is secured pursuant to a Security Agreement
(as amended and in effect from time to time, the "Security Agreement") dated
January 16, 1995.

In consideration of this Amendment and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Lender and Borrower hereby agree as follows:

l. DEFINITIONS. Capitalized terms used herein shall have the meanings
given to them in the Loan Agreement.

2. AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT. Section 1.1 of the
Loan Agreement is hereby deleted in its entirety and in lieu thereof the
following is substituted:

"1.1 The Line of Credit. Pursuant to the terms of this Agreement and upon
satisfaction of the conditions precedent referred to in Section 3 hereof, the
Lender may, in its sole discretion, lend to Borrower, and the Borrower may, in
its sole discretion, borrow from Lender, advances not to exceed the principal
amount of FOUR HUNDRED THOUSAND AND 00/100 DOLLARS ($400,000) (the "Line of
Credit") during the period from the date hereof to April 30, 1996 (the
"Termination Date") as evidenced by a promissory note (the "Note") in
substantially the form of Exhibit 1 hereto. Advances shall be made in such
amounts as the Lender, in its sole discretion, shall determine; however, in no
event shall the sum of any advance and the outstanding principal balance of the
loan be less than TEN THOUSAND ONE HUNDRED DOLLARS ($10,100)"

3. AMENDMENT TO EXHIBIT 1 OF THE LOAN AGREEMENT. Exhibit 1 of the Loan
Agreement is hereby amended in the same manner as set forth in Section 4. Below.

B-1

<PAGE>

4. AMENDMENT TO NOTE. The Revolving Credit Note, as amended, is hereby amended
(i) by deleting therefrom the words "$300,000.00" wherever they appear and
inserting in lieu thereof the words "$400,000.00", (ii) by deleting therefrom
the words "THREE HUNDRED THOUSAND" wherever they appear and inserting in lieu
thereof the words "FOUR HUNDRED THOUSAND".

5. RATIFICATIONS. ETC. Except as otherwise expressly set forth herein,
all terms and conditions of the Loan Agreement, Note and the Security Agreement
are ratified and shall remain in full force and effect. Nothing herein shall be
construed to be a waiver of any requirements of Loan Agreement, the Note and the
Security Agreement except as expressly set forth herein. The Guarantors hereby
ratify and confirm their respective obligations under their respective
guaranties with respect to the Note as amended hereby.

6. CONDITIONS TO EFFECTIVENESS. This Amendment shall be effective upon
its receipt by Lender, duly executed by Borrower.

7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall constitute an original and all of which
together shall constitute one instrument.

8. GOVERNING LAW. This Amendment shall be construed and interpreted in
accordance with the laws of the State of Connecticut

IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
date first written above.

LENDER:
INVERNESS CORPORATION

By /s/ Gary Laskowski
----------------------------
Its
Duly Authorized

BORROWER:
POWER DESIGNS, INC.

By /s/ Melvin Becker
----------------------------
Its President
Duly Authorized

B-2

<PAGE>

Exhibit 10(xiii)

FIFTH
AMENDMENT AGREEMENT

This AMENDMENT AGREEMENT, dated as of the 20th day of June, 1996 (this
"Amendment") is by and among INVERNESS CORPORATION, with a principal place of
business at Mill Crossing, Kensington, Connecticut ("Lender"), and POWER
DESIGNS, INC., a New York corporation with a principal place of business at 250
Executive Drive, Edgewood, New York ("Borrower").

On January 16, 1995, Lender made a $100,000.00 revolving credit loan (the
"Loan") to Borrower. The Loan was made pursuant to a Revolving Loan Agreement
(as amended and in effect from time to time, the "Loan Agreement"), dated
January 16, 1995, is evidenced by a Commercial Promissory Note in the original
principal amount of $100,000 (as amended and in effect from time to time the
"Note") dated January 16, 1995 and is secured pursuant to a Security Agreement
(as amended and in effect from time to time, the "Security Agreement") dated
January 16, 1995.

In consideration of this Amendment and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Lender and Borrower hereby agree as follows:

1. DEFINITIONS. Capitalized terms used herein shall have the meanings
given to them in the Loan Agreement.

2. AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT. Section 1.1 of the
Loan Agreement is hereby deleted in its entirety and in lieu thereof the
following is substituted:

" 1.1 The Line of Credit. Pursuant to the terns of this Agreement and
upon satisfaction of the conditions precedent referred to in Section 3 hereof,
the Lender may, in its sole discretion, lend to Borrower, and the Borrower may,
in its sole discretion, borrow from Lender, advances not to exceed the principal
amount of SEVEN HUNDRED THOUSAND AND 00/100 DOLLARS ($700,000) (the "Line of
Credit") during the period from the date hereof to December 30, 1996 (the
"Termination Date") as evidenced by a promissory note (the "Note") in
substantially the form of Exhibit 1 hereto. Advances shall be made in such
amounts as tic Lender, in its sole discretion, shall determine; however, in no
event shall tic sum of any advance and the outstanding principal balance of tic
loan be less than TEN THOUSAND ONE HUNDRED DOLLARS ($10,100)"

3. AMENDMENT TO EXHIBIT I OF THE LOAN AGREEMENT. Exhibit 1 of the Loan
Agreement is hereby amended in the same manner as set forth in Section 4. Below.

C-1

<PAGE>

4. AMENDMENT TO NOTE. The Revolving Credit Note, as amended, is hereby amended
(i) by deleting therefrom the words "$400,000.00" wherever they appear and
inserting in lieu thereof the words "$700,000.00", (ii) by deleting therefrom
the words "FOUR HUNDRED THOUSAND" wherever they appear and inserting in lieu
thereof the words "SEVEN HUNDRED THOUSAND".

6. CONDITIONS TO EFFECTIVENESS. This Amendment shall be effective upon
its receipt by Lender, duly executed by Borrower.

7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall constitute an original and all of which
together shall constitute one instrument.

8. GOVERNING LAW. This Amendment shall be construed and interpreted in
accordance with the laws of the State of Connecticut

IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
date first written above.

LENDER:
INVERNESS CORPORATION

By /s/ Gary Laskowski
------------------------------
Its
Duly Authorized

BORROWER:
POWER DESIGNS, INC.

By /s/ Melvin Becker
------------------------------
Its President
Duly Authorized

C-2

<PAGE>

Exhibit 10(xiv)

SETTLEMENT AGREEMENT

This Settlement Agreement ("Agreement"), effective as of the date it is
fully executed, is entered into by and between THEODORE D. MOSKOWITZ, ESQ.,
Assignee for the Benefit of Creditors of Cycle Transformer Corporation,
(hereinafter referred to as the "Assignee"), its predecessors, successors, and
assigns and any other persons or entities claiming rights or benefits through or
on behalf of the Assignee; CYCLE TRANSFORMER CORPORATION, a New Jersey
Corporation, (the "Assignors") its predecessors, successors, and assigns and
any other persons or entities claiming rights or benefits through or on behalf
of The Assignor and the ESTATE OF CYCLE TRANSFORMER CORPORATION (the "Estate"),
its predecessors, successors, and assigns and any other persons or entities
claiming rights or benefits through or on behalf of the Estate and INVERNESS
CORPORATION, a corporation of the State of Connecticut, (hereinafter referred
to as "Inverness"), its predecessors, successors, and assigns and any other
persons or entities claiming rights or benefits through or on behalf of
Inverness; POWER DESIGNS, INC., a corporation of the State ox Delaware
(hereinafter referred to as "Power Designs"), its predecessors, successors, and
assigns and any other persons or entities claiming rights or benefits through or
on behalf of Power Designs; VENTURE PARTNERS LTD., a corporation of the State of
Connecticut (hereinafter referred to as "Venture Partners"), its predecessors,
successors, and assigns and any other persons or entities claiming rights or
benefits through or on behalf of Venture Partners; GARY LASKOWSKI,

D-1

<PAGE>

individually, his predecessors, successors, all assigns and any other persons or
entities claiming rights or benefits through or on behalf of Gary Laskowski;
MELVIN BECKER, individually, his predecessors, successors, and assigns and any
other persons or entities claiming rights or benefits through or on behalf of
Melvin Becker; JONATHAN BETTS, individually, his predecessors, successors, and
assigns and any other persons or entities claiming rights or benefits through or
on behalf of Jonathan Betts; KATHLEEN BETTS, individually, her predecessors,
successors, and assigns and any other persons or entities claiming rights or
benefits through or on behalf of Kathleen Betts; and DEBORAH LASKOWSKI,
individually, her predecessors, successors, and assigns and any other persons or
entities claiming rights or benefits through or on behalf of Deborah Laskowski
(hereinafter referred to as "Inverness and its Assignees"; the Assignee, the
Assignor and the Estate are collectively referred to herein as the "Parties").
WHEREAS, Cycle Transformer Corp., a corporation of the State of New Jersey,
having had a principal place of business at 177 Main Street, West Orange, New
Jersey, assigned all of its assets to Theodore D. Moskowitz, Esq., as the
Assignee for the benefit of Creditors for Cycle Transformer Corp.
WHEREAS, Theodore D. Moskowitz, Esq., is an attorney of the State of New
Jersey, with offices at McCarter & English, Four Gateway Center, 100 Mulberry
Street, Newark, New Jersey, is the Assignee for the Benefit of Creditors of
Cycle pursuant to a certain Deed of Assignment which was executed on September
19, 1995

D-2

<PAGE>

and filed on September 25, 1995 in the Essex County Register's Office in Book
5384 at page 114 and with the Essex County Surrogate's Office on the same date
(the "Assignment Case").
WHEREAS, Inverness is a corporation of the State of Connecticut having a
registered office located at 470 New Britain Road, Kensington, Connecticut, a
business office at 1224 Mills Street, Kensington, Connecticut and a post office
address of P.O. Box 9, Kensington, Connecticut.
WHEREAS, Gary Laskowski is or was a principal, shareholder and/or director
of Inverness.
WHEREAS, Jonathan Betts is or was a principal, shareholder and/or director
of Inverness.
WHEREAS, Venture Partners was a corporation of the State of Connecticut
having a registered office located at 470 New Britain Road, Kensington,
Connecticut, a business office at 1224 Mills Street, Kensington, Connecticut and
a post office address of P.O. Box 9, Kensington, Connecticut, the same business
address as Inverness. Venture Partners' corporate charter was revoked on or
about July 30, 1991.
WHEREAS, Deborah Laskowski is or was a principal, shareholder and/or
director of Venture Partners, Ltd.
WHEREAS, Kathleen Betts is or was a principal, shareholder and/or director
of Venture Partners, Ltd.
WHEREAS, Power Designs is a corporation of the State of Delaware, having a
principal place of business at 250 Executive Drive, Edgewood, New York.

D-3

<PAGE>

WHEREAS, Melvin Becker is or was a principal, director and/or shareholder
of Power Designs.
WHEREAS, Gary Laskowski is or was a principal, director and/or shareholder
of Power Designs.
WHEREAS, on or about September 1, 1995, Inverness Corporation filed a
lawsuit entitled Inverness Corp. v. Cycle Transformer Corp., Docket
------------------------------------------
No. L-010788-95, Superior Court of New Jersey, Essex County, which matter was
removed to the United States District Court, District of New Jersey on November
18, 1995, Docket No. 95-6280 (MOB) against the Assignor alleging preach of a
certain factoring agreement (the "Inverness Suit");
WHEREAS, Inverness filed a claim in the Assignment Case against the Estate
dated November 18, 1995 in the amount of $65,229.09.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties hereto agree as
follows:

1. The Assignee, the Assignor end the Estate release any and all claims
against Inverness and its Affiliates.

2. Inverness and its Affiliates release any and all claims against the
Assignee, the Assignor and the Estate.

3. Inverness and its Affiliates release any all claims to accounts
receivable of Cycle Transformer Corp.

4. All accounts receivable of the Estate including G accounts receivable
held by the Assignee are turned over and released to and the Assignee
for purposes of distribution in the estate to pay claims and expenses.

5. Inverness and its Affiliates release any claimed interest in any of
the assets of the Assignor.

D-4

<PAGE>

6. Simultaneously with the execution of this Agreement, Inverness and its
Affiliates shall execute a UCC-3 Release of the UCC-1 Financing State
Instrument No. 1641612 dated June 21, 1996.

7. Upon execution of this Agreement, any and proofs of claim filed by
Inverness and its Affiliates in the Assignment Case including a
certain proof of claim dated November 18, 1995 shall be deemed
withdrawn with prejudice. Inverness and its Affiliates shall not
share in any distribution of the Estate.

8. Upon execution of the Agreement, the Assignee, Cycle, the Estate and
Inverness and its Affiliates shall execute mutual general releases.

9. This Agreement is independent of and shall not be contingent upon any
other settlements in this matter including the settlement between The
Marten Group, Power Designs and related entities.

10. This Agreement constitutes the entire Agreement between the Parties
except as expressly set forth in this Agreement.

11. This Agreement shall be interpreted under and governed my the laws of
the State of New Jersey without regard to principles of choice of law
which might otherwise call for the application of a different state's
law.

12. If any provision of this Agreement or any portion of any provision of
this Agreement is declared null and void or unenforceable by any court
or tribunal having jurisdiction, then such provision or portion of
such provision shall be considered separate and apart from the
remainder of this Agreement which shall remain in full force and
effect.

13. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

14. The Parties signing this Agreement and the Parties whose behalf such
individuals are signing hereby represent and warrant that the
Agreement is the product of informed negotiations; that all Parties
have been represented by counsel in connection with the Agreement; and
that they are empowered and authorized to sign on behalf of and bind
the party for whom they have signed.
IN WITNESS WHEREOF, the Parties have executed this Agreement

D-5

<PAGE>

by their duly authorized representatives.

INVERNESS CORPORATION
By:/s/Gary Laskowsi
------------------------------------------
Printed:Gary Laskowski
-------------------------------------
Title:President
---------------------------------------

State of Connecticut
County of Hartford
Before me, a notary public, personally appeared Gary Laskowski who, being
duly sworn, stated that he has executed the foregoing Agreement on behalf of the
Party named above and is duly authorized to do so.
Witness my hand and notarial seal this 31st day of July of 1996.
/s/ Terri Nesta
---------------
Notary Public

----------------------------------------
(Printed)

My commission expires: 1/2000

D-6

<PAGE>
<ARTICLE> 5
<LEGEND>
Power Designs, Inc. Consolidated Financial statements June 30, 1996 and 1995.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 33,395
<ALLOWANCES> 0
<INVENTORY> 174,486
<CURRENT-ASSETS> 207,881
<PP&E> 45,650
<DEPRECIATION> 41,153
<TOTAL-ASSETS> 427,454
<CURRENT-LIABILITIES> 1,631,946
<BONDS> 0
0
0
<COMMON> 240
<OTHER-SE> (1,204,732)
<TOTAL-LIABILITY-AND-EQUITY> 427,454
<SALES> 575,429
<TOTAL-REVENUES> 577,056
<CGS> 504,173
<TOTAL-COSTS> 504,173
<OTHER-EXPENSES> 646,415
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (573,532)
<INCOME-TAX> 0
<INCOME-CONTINUING> (573,532)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (573,532)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)

</TABLE>