LINKON CORP, 10KSB, 1997-05-01

LINKON CORP
10KSB, 1997-05-01
BUSINESS SERVICES, NEC

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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB
(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended January 31, 1997

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from
_______________ to _____________

Commission file Number 0-19705

LINKON CORPORATION
------------------
(Name of small business issuer in its charter)

NEVADA 13-3469932
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

140 Sherman Street, Fairfield, CT 06430
- --------------------------------- -----
(Address of principal executive offices) (Zip Code)

(203) 319-3175
- ---------------------------------
(Issuer's telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act: None

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

Common Stock, $.001 par value
-----------------------------------------
(Title of Class)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such
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filing requirements for the past 90 days. Yes X No
--- ---

Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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. $4,405,316.
----------

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked price of such stock, as of a specified date within the past 60
days. $21,740,004
-----------

Number of shares outstanding of the registrant's common stock, as of April
28, 1997 was 10,870,002.

DOCUMENTS INCORPORATED BY REFERENCE: None

Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---

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Item 1. Description of Business
-----------------------

General Business
- ----------------

Linkon Corporation (hereafter referred to as "Linkon" or the "Company"), a
Nevada corporation, designs, assembles and markets modular computer hardware and
software components primarily for the computer telephony and the voice and fax
processing industries. The Company also designs, assembles and markets system
platforms for voice and fax processing equipment end-users, VARs, and OEMs. The
voice processing industry encompasses the hardware and software that allow
telephone network-based communications to be initiated, answered, routed and/or
processed by a computer-based system rather than a live person, and enables such
applications as automated attendant/call processing, voice mail, interactive
voice response (IVR), audiotext, fax-on-demand, speech recognition and
text-to-speech. Each of these application areas is supported by a related market
segment.

Increasingly, however, the distinctions between these market segments are
being blurred. Unified Messaging applications have been developed which present
the user with a single interface to access and process multiple media messages
such as voice, fax and email, as well as to convert messages into a preferred
format, such as converting fax to text and/or speech. Systems are increasingly
integrating new speech technologies, such as voice recognition, text-to-speech
and speaker verification, into the mix. The Internet is also becoming an
important medium, as the appearance of World Wide Web-browser enabled unified
messaging solutions are creating the equivalent of a multimedia messaging inbox
that is completely standards-based and platform independent.

System platforms that are using multiple resources to provide multiple
applications (as opposed to systems that are dedicated to single applications
such as fax or speech recognition) are growing significantly faster than the
overall market, and are being added to the product lines of most existing
companies. In a few years, the majority of voice processing systems will follow
the unified messaging paradigm, as well as support communications over the
Internet. Linkon's products are specifically designed to meet the diverse needs
of application and system developers targeting this fast growing, multi-function
segment of the market.

Products
- --------

Linkon currently has two board level products: the FC3000 series
Communications Boards, which Linkon continues to ship in order to support the
installed base, and the fourth-generation Maestro(TM) System, which began
shipping in October 1995. Linkon's Digital Signal Processor-based FX4000(TM)
board and companion API software toolkit products can support a full-range of
Computer Telephony, Voice Processing, Call Center, Internet Fax and Internet
Telephony applications.

The Maestro(TM) System FX4000(TM) boards are available in a variety of
analog and digital configurations, with support for ISA/EISA and Sbus (Sun
Microsystems) computer buses, and

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support for a variety of operating systems, including various versions of Unix,
such as Solaris, SCO, Interactive Unix, and Unixware, as well as IBM's AIX. The
Maestro(TM) System's universal port capability allows Linkon to offer a wide
range of communications algorithms "on-board" - all in a single computer slot -
including CELP voice compression, fax, modem, speech recognition, text-to-
speech, speaker verification, Internet Phone and Internet Fax.

Maestro(TM) System-based ISA-bus CTI servers are scaleable up to 96 ports,
while Sbus-based servers can grow up to 192 ports. And as a customer's
requirements grow, Linkon offers the most advanced software upgrade procedure in
the industry. New software upgrades can be achieved by the distribution of
floppy disk or tape, or downloaded to the system via modem. This method reduces
or eliminates the need to perform expensive direct hardware upgrades to
installed systems, and systems can be upgraded while they are "on-line",
dramatically reducing system downtime for mission critical applications.

All board-level products are supported by comprehensive applications
development software tools, TeraVox(R) and Link O/S(TM). TeraVox(R) is a set of
UNIX extensions and utilities which simplifies application development. Link O/S
is a board level operating system which removes the complexity of dealing with
board level resource allocation, control and management during system
development.

Linkon board and software products combine to create an open architecture
development environment. Linkon's boards can operate on virtually any standard
computer system bus and are designed to work with three of the major
communications buses: PEB, MVIP and SCSA. This allows Linkon's products to be
utilized in virtually any system environment.

Design Overview
---------------

The primary difference between Linkon's products and those of other
component suppliers is that the same hardware, with no modification, can be used
for all applications, including speech recognition, fax, modem, text-to-speech,
DTMF(Touch Tone) recognition, speaker verification, voice compression, etc. Each
of these features is enabled by loading the appropriate algorithm into the board
level memory. Because no specialized hardware is required for the different
algorithms, system resources can be dynamically reallocated as required to allow
the board to adapt to changing user demands for voice, fax and other features. A
communications channel that on a previous session was running voice-only can run
a combination of speech recognition and fax on its next session. A single board
that is responding to 48 simultaneous voice-only channels in one moment may be
handling a combination of voice only, fax, text-to-speech and speech recognition
in the next moment - providing unparalleled flexibility with a single
communications board. In an S-bus expansion chassis, up to 192 channels of call
processing can potentially be achieved on a single Sparc computer, thereby
providing the industry's highest density.

This is in marked contrast to the historical industry "shared resource"
architecture comprised of individual, specialized boards for each capability.
For example, using one

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competitor's basic architecture to design a system of four ports of fax and
voice mail, utilizing speech recognition and text-to-speech requires four
separate boards and four PC computer slots. Linkon can provide this system on
one computer board in one PC slot.

Some competitors' products need as many as 10 boards to perform the same
tasks as one Linkon board. Confirming the appeal of this type of architecture, a
competitor recently introduced a new board which allows a few algorithms to run
on-board. Although the concept is similar to Linkon's, this competitor offers
relatively few algorithms compared to Linkon. This is the competitor's first
product that allows multiple applications to run on a single board and does not
provide the hardware flexibility, bus independence or other improvements that
Linkon has developed and implemented on its Maestro(TM) System through customer
feedback and subsequent redesign of its earlier products. Using fewer
components, the Maestro(TM) design lowers costs for the end-user. The
competitor's offerings, when fully equipped, tend to be significantly more
expensive on a per-port basis.

Hardware-independent Architecture
---------------------------------

Another unique feature of the Maestro(TM) system is its bus-independent
design, which permits hardware flexibility on the part of system developers.
Linkon produces feature modules (similar in concept to PC-based "daughter
cards") about one fourth the size of a full-size PC board. These modules contain
the DSP and RAM resources required to perform the various voice, speech and call
processing applications. These modules are "plugged" into a foundation card
(similar in concept to a PC-based "motherboard") which is computer bus specific.

This hardware architecture accomplishes several important goals:

1. It Lowers costs. By providing all the complex elements in a single
standardized module, Linkon does not have to inventory a variety of application
or bus specific cards to meet changing customer needs. In addition,
manufacturing costs are lower because of the higher unit volume of a
standardized part.

2. It Provides an Easy Upgrade Path. Future upgrades to algorithms (changes and
retrofit of existing systems) are accomplished with software only. ROM swap outs
or board redesign are not required.

3. It Allows Rapid Product Development. In order to take advantage of advances
in DSPs and memory, Linkon only has to redesign its feature modules. Linkon's
competitors have to do a redesign of their entire product line (more than 30
boards in the case of the competitor mentioned above). This is a profound
competitive advantage because it allows Linkon to dramatically shorten its time
to market.

4. It Provides Access to Additional Markets. Linkon's customer base is expanded
to alternative bus markets, most notably Sun MicroSystems. Interest in using Sun
based platforms

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for call processing applications has expanded dramatically with the rapid growth
of the Internet.

5. It Permits An Easy Change in Form Factor. Producing a prototype of a new
foundation card to accomodate a different bus - compact PCI, for example - is
mainly a function of some CAD/CAM work and takes only a few weeks.

Platform Flexibility
--------------------

The bus specific foundation card contains the bus interface logic for both
the system bus as well as the communications bus. Linkon currently offers
foundation cards for EISA/ISA and SBus. VME Bus, PCI bus, and compact PCI bus
foundation cards are planned. New foundation cards are relatively simple because
the processing and telephony electronics reside on the modules described above.
This allows Linkon to address proprietary bus systems seeking to develop or
augment call processing capabilities on a custom basis. Other third-party
component suppliers have all their capability designed and built specifically
for standard buses, and thus do not generally provide capabilities for
proprietary systems.

The foundation cards also work with three of the dominant call processing
bus architectures: PEB; the standard originally promoted by Dialogic which is
now migrating to SCSA; and the MVIP standard promoted by Natural MicroSystems.

Linkon offers the EISA/ISA PC bus configuration as a standard feature with
both MVIP and PEB connections on the same board. A separate SCSA-based board has
also been developed. This capability allows developers to work with other
vendor's products (particularly the established industry leaders) in a single
system.

The capability to work on virtually any system bus combined with the
industry standard communication buses gives Linkon a degree of hardware
independence unmatched by any other third-party board supplier in the industry.
When the hardware independence is combined with the software capabilities,
Linkon's design approach becomes the most flexible approach to system
integration on the market.

Applications Algorithms
-----------------------

Call processing functions are shipped on disks with the FX4000(TM) series
boards. Customers only pay for those algorithms (voice, for example) which are
required for their current system application. These algorithms are loaded onto
the system hard drive and downloaded to the board's RAM on power up. Later, if
the application developer needs additional capabilities, the developer can pay
an incremental licensing fee and the additional algorithms can be delivered on
an additional diskette or downloaded via modem connection. No system hardware
changes are required. Linkon encourages third party developers to develop
additional algorithms for its platform. The FX4000(TM) series also allows sales
of high

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margin software algorithms separately from hardware and provides the potential
for increasing margins if the Company can gain a sufficient installed base of
its equipment.

System-level Software
---------------------

On a systems-level basis, Linkon provides TeraVox(R), which is a set of
UNIX extensions written in the "C" programming language. TeraVox(R) controls the
interaction of the host computer and the Maestro(TM) System communications
boards. TeraVox(R) provides system developers with the tools to create rapidly
any call processing application rapidly. TeraVox(R) is available and is
supported under a number of operating systems, including various versions of
UNIX.

Board-level Software
--------------------

Link O/S(TM) is a board level operating system with a powerful API
(Applications Programming Interface) that, combined with TeraVox(R), manages
board and system level resource allocation. Link O/S(TM) supports dynamic
allocation of applications software functions to any port or channel. Each
channel can support any technology feature present in a given system, providing
a universal port for every call session. Because system developers do not have
to write low level drivers and code, development time for implementing new
features is significantly reduced. Also, Link O/S insulates developers from the
specifics of different algorithms within each algorithm class. For example, an
application written for Lernout & Hauspie's speech recognition algorithm will
also run Syrinx's and all other speech recognition algorithms with no
application software modifications.

Application Development Software
--------------------------------

Application software packages are programs which provide the computer with
a particular desired functionality necessary to satisfy the needs of an end
user. Linkon provides a variety of application specific software toolkits. This
high-level software is delivered in source code form and permits a VAR, system
integrator or OEM to easily write its own custom applications.

Third-Party Development Software
--------------------------------

In addition, Linkon has worked with several independent software
development companies, such as Aumtech and Voicetek, to develop application
generator software packages which permit software application development to be
performed at the end-user level by an individual having limited experience with
software development.

Custom Engineering
------------------

The Company also provides customized software services for highly
specialized applications with sufficient commercial potential. Custom
engineering charges apply to all such

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projects. Several of the current customers for the Company's products began
their relationship with the Company as custom engineering customers.

The ESCAPE(TM) Platform
-----------------------

Linkon's ESCAPE(TM) Voice Response Unit (IVR System) utilizes Linkon's
Maestro(TM) System universal-port, DSP-based CTI boards and third-party
application generation software, including Aumtech's ARC and Voicetek's
Generations. This hardware/software combination, built upon a fully
open-architected, telco-grade computer platform, provides unparalleled
flexibility in integrating previously disparate systems and emerging
technologies.

With ESCAPE(TM), customers acquire a middleware system that applies not
just to current technologies, but also to emerging ones. ESCAPE(TM) enables the
exchange of information with other systems, regardless of whether they are old,
new, in-house, or third party. This allows a business to protect their existing
investments while reducing the costs associated with expanding services.

ESCAPE(TM) Platform Description
-------------------------------

Linkon's ESCAPE(TM) Platform utilizes its Maestro(TM) CTI architecture,
which enables the system to support either multiple channels of DTMF per DSP, or
"Universal Port" functionality supporting DTMF, Fax, Speech Recognition, CELP
(Code-book Excited Linear Prediction principle) voice compression, modem, and/or
Text-To-Speech.

Linkon's use of the Maestro(TM) boards in these VRU's offers significant
advantages over competitive products. According to Computer Telephony Magazine,
"Maestro(TM) delivers the best price performance while maintaining Linkon's
reputation of producing the telecom market's 'most powerful' board."

In addition to the Maestro(TM) Boards and application generator software,
each ESCAPE(TM) System is built upon a Pentium based Industrial Rack Mounted
Computer. This computer provides redundant power supplies, remote monitoring and
optional RAID disk storage capability.

ESCAPE(TM) Platform Capabilities
--------------------------------

The ESCAPE(TM) Platform provides an extremely cost-effective platform for
multi-function applications. The ESCAPE(TM) Platform's "universal port"
capability enables applications to dynamically support Voice, Fax, Text-to-
Speech, Speech Recogniton, CELP voice compressions and other algorithms. Such
universal application access simplifies the engineering and administration of
application interfaces. System engineers no longer need to dedicate a fixed
percentage of the Telecom Server resources to a specific application. In other
words, it is not necessary to dedicate each incoming voice channel to either
Voice, Fax, Speech Recognition, Text-to-Speech or Modem applications. The full
range can be used in a single application

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without adding extra boards. As a result, engineers only need to determine the
number of channels/ports required to handle the aggregate volume of calls to a
certain application. They will not have to engineer all the machine slots and
network access points on the basis of call types.

ESCAPE(TM) Platforms will retain their value longer than other hardware
based architecture. Configuration planning is simplified because software rather
than hardware is dynamically altered when capacity limits are reached.

Although "universal ports" are ideal for implementations that require
advanced speech technologies on a single port, the ESCAPE(TM) VRU also provides
the flexibility to provide extremely cost-effective, high-density DTMF in cases
where advanced technologies are required on a limited basis. Depending on a
customer's requirements, the ESCAPE(TM) VRU can supply the desired feature-set
today, or sometime in the future.

Research and Development
- ------------------------

The nature of the computer hardware and software industries is such that
research and development is deemed mandatory by management in order to ensure
competitiveness. The Company incurred research, development and software costs
of approximately $705,053 and $862,406 for the fiscal years ended January 31,
1997 and 1996 respectively. The Company's research and development activities
seek to maintain market competitiveness by designing and developing advanced
hardware products (communications boards) and more efficient software products
to operate them.

Presently, communications processing applications that are integrated with
voice, fax, modem and speech technologies such as speech recognition are forcing
the creation of more complex hardware configurations to meet increasing demand.
The Company's technical research and development center is based in Fairfield,
Connecticut, where it is performing research on expanding the levels of
performance of its communications board technology.

Linkon's product strategy is to design its products with an "OPEN"
architecture. This permits them to interface with all existing competitive
hardware and software and permits Linkon to market software replacement and
upgrades as new products are developed.

Linkon's R&D strategy is to have strong in-house design and engineering
capability, but to utilize state-of-the-art technology houses to develop long
lead-time leading edge technology. Some examples are Linkon's arrangements with
Lernout & Hauspie, a algorithm development firm in the Speech Recognition and
Text to Speech areas, and Syrinx Speech Products, an Australian firm, to port
their speech recognition algorithms to the Maestro(TM) System Communications
Boards.

Prior to the fiscal year ended January 31, 1993, the Company expensed all
software development costs as research and development for new products prior to
the capitalization

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point under Paragraph 4 of "Statement of Financial Auditing Standards 86". While
the exact moment of transition of costs cannot be precisely quantified, starting
at approximately the beginning of the fiscal year ended January 31, 1994,
significant portions of employees' time has been spent on coding and testing
after technological feasibility has been established. As these products were
first shipped in the fiscal year ended January 31, 1993, and have been accepted
by customers, it appears that both technological feasibility and potential
marketability has been established. Costs related to the conceptual formulations
and design of licensed programs are expensed as research and development.

Costs incurred subsequent to establishment of technological feasibility to
produce the finished product are generally capitalized.

Technology Relationships
- ------------------------

Linkon's strong technology and quality product design have led to several
technology relationships over the last few years. The more significant
relationships are outlined below. Given Linkon's limited size and resources, it
has relied in part on these other parties to develop technology for the Company
that the Company can then utilize for its products. While the Company benefits
from these relationships, and would be adversely affected if it had to develope
all technology utilized in its products internally, it does not believe that any
one of these relationships individually is material, as alternative technology
is available from other sources. None of the following technology relationships
are subject to contracts, and each of them can be terminated at any time by the
Company or the other party.

Aumtech
-------

AumTech is a provider of application generation software for the ESCAPE(TM)
Platform, having ported its software product to Linkon's Maestro(TM) System CTI
boards. Aumtech, founded in 1989, has a workforce that is highly skilled in the
areas of software development, systems engineering, marketing and sales. From
1992-1995, Aumtech was the sole design and development contractor for AT&T
Network System's Information Services Platform (ISP). ISP is a suite of software
products designed to provide network-based telecommunications solutions. Under
its development contract with AT&T Network Systems, Aumtech retained full rights
and ownership of the ISP Release 2.1 product. In January, 1996, Aumtech assumed
full responsibility for ISP and the existing customer installations. In May,
1996, Aumtech introduced ISP Release 2.2, providing improved efficiency, true
open architecture and Workstation/Internet support.

Sun Microsystems Computer Company
---------------------------------

Linkon is the only computer telephony board-level company currently
shipping a communications board for the S-bus, making it compatible with Sun's
SPARCserver systems. As a result, developers of call processing applications for
Sun systems are using Linkon's products. Sun is making an increased sales effort
into the computer telephony and

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call-processing industry, enlarging this opportunity. To concentrate on these
efforts, Linkon recently created a Sun business unit with its own dedicated
manager. In March 1996, Sun introduced a CTI server utilizing Linkon technology.

Syrinx Speech Systems Pty Ltd
-----------------------------

Syrinx, based in Sydney, Austrialia, is a developer and supplier of highly
advanced Speech Recognition technologies that support speaker independent
recognition of continuous spoken telephone-based speech. Syrinx has ported their
technology to Linkon's Maestro(TM) System CTI boards - enabling the provision of
"0 to 9" digit recognition and well as "yes" and "no" word recognition as a
basic, standard board function - the first and only offering of "no upcharge"
speech recognition in the industry. Continuous speech recognition is also
available as an option. Focusing on the Voice Processing and CTI markets, Syrinx
has developed a unique set of tools and professional services that allow its
core technologies to be adapted and optimized to meet a customer's specific
applications and linguistic needs. Syrinx methodologies not only produce an
optimized speech recognition solution for the customer, but they also enable
customers to confirm service usability and caller satisfaction - a fundamental
requirement for successful deployment of new telephone services. Current Syrinx
products include SyCon continuous speech recognition, and SyWoz aned SyVoc
development tools.

Voicetek
--------

Voicetek is one of the leading suppliers of Unix-based interactive voice
response application generator software programs. Voicetek is a provider of
application generation software for the Sbus version of Linkon's ESCAPE(TM)
Platform, having ported their flagship GENERATIONS software product to Linkon's
Maestro(TM) System Sbus boards. GENERATIONS, running on the Linkon ESCAPE(TM)
Platform, provides IVR application developers' with a popular, GUI-based
development environment capable of supporting everything from a single
application on a dozen ports up to thousands of geographically dispersed ports
running numerous applications.

IBM
---

Linkon supports IBM's AIX operating system, allowing the Maestro System CTI
boards to functionally operate in IBM's flagship RS/6000 Telecom Server product.
The marriage of Linkon's Maestro System Boards and IBM's RS/6000 Telecom Server
creates a powerful and highly scaleable platform for creating computer telephony
enhanced services, such as fax-on-demand and other leading voice and fax
processing applications, including voice dialing, unified messaging, speech
controlled interactive voice response, email reading, and Internet Telephony/Fax
Gateways. The IBM RS/6000 is one of the world's leading servers with an
installed base of over 500,000 units worldwide.

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Marketing
- ---------

To date the Company has marketed its products via sales to independent
distributors, original equipment manufacturers ("OEM") and value added resellers
("VAR"). In addition, the Company's marketing program consists of the following:
advertising in the trade press; exhibiting at trade shows; speaking engagements
and presentations by Linkon personnel at leading industry conferences and
seminars; demonstrations of Linkon technology with companies who are key
prospects for strategic relationships; and direct mail campaigns.

Although Linkon's products have received industry wide recognition,
commercial success with previous generations has been moderate because of the
high price point (on a per port basis) for voice-only applications. Pricing
issues have been addressed with the Maestro(TM) System series products. The
Company's product design and feature set were ahead of the market trend towards
more complex multimedia applications and larger systems. As the market for
systems has become more competitive, and differentiation is increasingly feature
based, demand is rapidly rising for high port count and multi-feature systems
which the Company's product line addresses.

Sales
- -----

Through the Company's sales force, and its analysis of the sales volume, market
specialization and financial status of potential customers, the Company
predetermines potential customers deemed qualified for its products and makes
direct telephone or written contact with the appropriate representatives
thereof. The Company is directly targeting the Call Center market for sales of
the ESCAPE(TM) IVR platform. The primary sales targets for the Company's
component level products are VARs, Systems Integrators ("SI"), OEMs and
telephone companies.

Distributors
------------

The Company is seeking to develop relationships with independent firms to
carry the Company's products both domestically and internationally. The Company
currently has relationships with distributors in the United States and the
United Kingdom.

OEM Sales
---------

The Company seeks to establish agreements with OEM companies with large
customer bases which intend to modify the Company's hardware, operating systems
and/or utilities for marketing by the OEM under its own name. It is contemplated
that these arrangements will involve training, volume discounts and minimum
purchase commitments. As of the date hereof, the Company sells to several OEM's.

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Direct Sales
------------

The Company sells directly to a number of accounts, including AT&T. As
awareness of the technological advantages of the Company's ESCAPE(TM) IVR
Platform and Maestro(TM) System products grow in the market, it is expected that
the percentage of direct sales vs. OEM/VAR and SI sales will grow significantly
in proportion.

Key Customers
- -------------

Three of the Company's customers accounted for approximately 85% of revenues for
the year ended January 31, 1997. Management believes that sales will continue to
come from:

1. Direct sales of the ESCAPE(TM) IVR platform into the Call Center
environment.

2. VARs, SIs and OEMs who will develop or private label their own platforms
using Linkon technology, and, in essence, will resell the Company's
products to end users.

AT&T Customer Care
------------------

The AT&T Customer Care call center operations, which service AT&T's 800#
customers, is a major customer of Linkon's ESCAPE(TM) IVR Platform. AT&T's call
center application consists of the upgradeable ESCAPE(TM) Platform supporting
over 2900 lines of telephone service. The installation includes significant
revenue opportunities for Linkon through follow on sales of hardware as service
capacities increase, as well as from sales of software as the call centers begin
to employ the enhanced services supported by the product. In fiscal 1997, AT&T
purchased approximately $2.7M of this product from Linkon. Linkon currently has
a backlog of approximately $815,000 of this product for AT&T, which is planned
to ship during the first and second quarter of fiscal 1998.

Airtouch/ CMA
-------------

CMA (for Customer Management Automation) is a Sun Microsystems value added
reseller and system integrator based in Dallas, Texas. CMA is a pioneer in the
deployment of networked computer telephony integration applications for major
telecommunications companies such as Cellular One and Airtouch. In December of
1996, Linkon entered into a $1.5 million volume purchase agreement with CMA, by
which CMA would receive improved pricing if it purchased this amount of products
from Linkon. CMA is not, however, under any obligation to purchase Linkon's
products pursuant to this agreement. In fiscal 1997, CMA purchased approximately
$442,000 of this product from Linkon. Linkon currently has a backlog of
approximately $23,000 of this product for CMA, which is planned to ship during
the second quarter of fiscal 1998.

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Cat Technologies
----------------

Cat Technologies is a leading developer of customer management solutions
using computer telephony integration technology. Cat is a Linkon VAR, and has
incorporated Linkon Maestro(TM) System CTI boards in its enhanced telephony and
Internet/Intranet applications platform, which are then sold to customers such
as Bell South. In fiscal 1997, Cat Technologies purchased approximately $289,000
of this product from Linkon. Linkon currently has no backlog from this customer.

Lucent Technologies/Aumtech
---------------------------

In late 1993, AT&T's Network Systems Division announced a new product
called the Information Services Platform (ISP), developed in part using hardware
and software designed and supplied by Linkon. Due to the breakup of AT&T, the
relationship and contracts Linkon had with AT&T in this area have been assigned
to Lucent Technologies. In 1996, Lucent extended these relationships with
Linkon. The ISP platform 2.X has been deployed in Europe and the United States
and the related technology has been acquired by Aumtech, a technology company
that has been integrally involved with AT&T in its development of the ISP
platform. In fiscal 1997, Lucent Technologies purchased approximately $375,000
of this product from Linkon. Linkon currently has no current backlog from this
customer.

Backlog
- -------

Linkon did not have material backlog orders as of either January 31, 1996
or January 31, 1997. However, as of late April of 1997, Linkon has a backlog of
approximately $955,000 for product to be shipped during the first and second
quarter of fiscal 1998.

Customer Support and Warranty
- -----------------------------

The Company offers a two year warranty on all products and services.
Customers are entitled to receive telephone hotline access, field support and
periodic software updates. Customers return defective product for repair to
Linkon. Costs incurred as a result of "In Warranty" repairs and returns have not
been material in the past.

Competition
- -----------

The Company has many competitors. At the component level (ie: voice
processing boards and software), Dialogic Corporation, Rhetorex, a division of
Octel Corporation, Brooktrout Technology, Inc. and Natural Microsystems, Inc.,
among others, are substantial hardware competitors of the Company. At the IVR
System Level, Conversant, a division of Lucent Technologies, Brite Voice,
Intervoice, Periphonics, and Syntellect manufacture IVR systems.

14
<PAGE>

Management believes that its communications board and its Maestro(TM)
System are superior to similar products presently being manufactured or sold in
that the Company's products are able to run all functionality on a single board,
compared to multiple boards for the Company's competitors, the Company's
products can run compression software in conjuction with other modalities and
the Company's software is scalable to the highest density. However, given the
competitive nature of the industry, no assurance can be given that the Company
can achieve a commercially successful market for its products or that its
competitors will not develop similar or better products than the Company's
present line in the future. The Company does not presently possess a meaningful
market share in the voice processing industry.

Patents, Trademarks & Copyrights
- --------------------------------

The Company's computer board design and code are proprietary and a trade secret.
There are currently no patents or copyrights on any of the Company's products.

The Company has obtained registration of its TERAVOX(R) trademark from the U.S.
Patent and Trademark Office and intends to seek source code copyright protection
on future operating systems and utilities.

Employees
- ---------

The Company employs 24 persons on a full-time basis: 5 executive, 10
technical, 5 sales and marketing, 3 manufacturing and 1 administrative. There is
no union contract relating to employees nor does the Company anticipate there to
be unionization of its employees. The Company believes that its relationship
with its employees is generally good.

Item 2. Properties
- -------

In December, 1995, the Company closed down its facility in New York City,
NY and consolidated its operations into its Fairfield, CT location. The lease on
the New York location was terminated by the Company during fiscal 1997. The
Company currently leases approximately 5,000 square feet of office and
laboratory space in Fairfield, Connecticut, pursuant to a five-year lease
expiring on August 31, 1997 at an annual rental of $87,437. The facility has
capacity for expansion and is deemed sufficient for the Company's foreseeable
needs. The Company has not yet determined, however, whether it desires to renew
this lease upon its expiration in the current fiscal year.

Item 3. Legal Proceedings
- -------

None

15
<PAGE>

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

An Annual Meeting of the stockholders of the Company (the "Annual Meeting")
was held on March 25 and 26, 1997. At the Annual Meeting, each of the Company's
five directors was reelected to the Company's Board of Directors by the
following vote:

Director Votes For Votes Withheld
-------- --------- --------------
<S> <C> <C>
Joao Manuel Da M.V. Carvalho 9,351,314 73,300
Charles Castelli 9,352,314 72,300
Lee W. Hill 9,352,314 72,300
Patrick J. Kane 9,151,464 273,150
Daniel Zwiren 9,352,314 72,300
</TABLE>

Also at the Annual Meeting, the Company's stockholders adopted a resolution
authorizing and approving an amendment and restatement of the Company's Articles
of Incorporation to (i) authorize for issuance 1,000,000 shares of serial (or
"blank-check") preferred stock, and (ii) empower the Board of Directors to
confer upon the holders of the Company's debentures, bonds or other debt
instruments any of the rights of stockholders under Chapter 78 of the Nevada
Revised Statutes, including the power to vote in respect of the corporate
affairs and management of the Company, as determined by resolution of the
Company's Board of Directors. The vote on the resolution was 5,690,638 shares in
favor, 477,235 shares against, 242,410 shares abstaining and 3,014,331 broker
non-votes.

In addition, at the Annual Meeting the Company's stockholders adopted the
1996 Stock Option and Performance Inventive Plan of the Company, pursuant to
which up to 1,000,000 shares of the Company's Common Stock may be awared to
employees of the Company and its subsidiaries. The vote on this resolution was
5,892,648 shares in favor, 493,175 shares against, 24,460 shares abstaining and
3,014,331 broker non-votes.

Part II

Item 5. Market For Registrant's Common Equity and Related Stockholder Matters.
- -------

The Company's shares are listed on the National Quotations Bureau "Bulletin
Board". Various market dealers make the market of the Company's stock and trades
are made through what is commonly known as the "pink sheets."

The following table sets forth, for the periods indicated, the quarterly
high and low representative bid quotations for the Company's Common Stock as
reported by the National Quotations Bureau. Quotations reflect inter-dealer
prices, without retail mark-ups, mark-downs, or commissions, and may not
necessarily represent actual transactions.

16
<PAGE>

<TABLE>
<CAPTION>
Fiscal Year Ending January 31,
------------------------------

1997 1996
---- ----

High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st quarter 1 5/8 5/8 2 1/4 7/8

2nd quarter 1 5/16 23/32 1 5/8 1 1/8

3rd quarter 3 1/8 3/4 2 3/16 1 3/8

4th quarter 2 13/16 1 3/4 1 3/4 11/16
</TABLE>

As of April 28, 1997, there were 637 shareholders of record of the Common
Stock of the Company. The Company estimates, based on prior shareholder
mailings, that holdings in "street name" represents approximately 4,100
additional beneficial shareholders.

The Company has not declared any dividends since its inception and, due to
its anticipated needs for all revenue generated by the Company's operations to
be used to operate the Company's business, has no intention of paying any cash
dividends in the immediate future. The Company's rights to pay dividends are
also restricted pursuant to the terms of a Securities Purchase Agreement, dated
October 27, 1994, between the Company and IBJS Capital Corporation (the
"Debentureholder"), the holder of the Company's $1,000,000 10% Senior Secured
Convertible Debenture (the "Debenture"). Pursuant to such agreement, until such
time as at least two thirds of the original principal amount of the Debenture
has been repaid or converted into common stock, the Company may not, without the
consent of the Debentureholder, pay any dividends on the Common Stock, except
out of earned surplus at a time when the Company is in compliance with certain
specified contractual provisions (including being current on the payment of
interest on the Debenture).

Unregistered Sales of the Company's Securities during Fiscal 1997
- -----------------------------------------------------------------

The following is a list of transactions in which the Company sold its
securities during the fiscal year ended January 31, 1997, without registering
the offer and sale under the Securities Act of 1933, as amended (the "1933
Act").

On April 30, 1996, Linkon issued to an aggregate of eighteen employees
options to purchase an aggregate of 582,400 shares of Common Stock at a price of
$0.75 per share under the Company's 1996 Stock Option and Performance Incentive
Plan (the "Plan"), subject to approval of the Plan by the Company's stockholders
at their next annual meeting. The Company's stockholders approved the Plan, and
the aforesaid option grants became definitive, on March 25, 1997. The Company
did not receive any consideration from the

17
<PAGE>

option recipients for the options, except that four of the option recipients
received an aggregate of 237,500 of such options specifically in return for
entering into employment agreements with the Company. The options were granted
pursuant to exemptions from registration afforded by Section 4(2) of and
Regulation D under the 1933 Act. The Company intends, however, to register the
offer and sale by the Company of shares of its Common Stock pursuant to such
options granted under the Plan prior to the time that any of said options are
actually exercised.

Also on April 30, 1996, the Company issued to four employees options not
under the Plan to purchase up to an aggregate amount of 340,000 shares of Common
Stock at a price of $0.75 per share. These options were issued in return for the
recipients surrendering for cancellation previously issued options to purchase
the same number of shares of Common Stock at a price of $2.00 per share. These
options were issued pursuant to exemptions from registration afforded by Section
4(2) of and Regulation D under the 1933 Act.

On April 30, 1996 and June 8, 1996, respectively, the Company issued to the
two directors who comprise the Compensation Committee of the Board of Directors
50,000 and 75,000 non-Plan options to purchase Common Stock at a price of $0.75
per share. On July 31, 1996, September 16, 1996, December 13, 1996 and January
20, 1997, respectively, the Company granted four employees non-Plan options to
purchase 2,500, 1,250, 2,500 and 10,000, respectively, shares of Common Stock at
a price of $0.75 per share. The 10,000 options were issued pursuant to an
employment agreement. All of these non-Plan options were issued in transactions
exempt from the registration requirements of the 1933 Act by virtue of the
exemptions provided by Section 4(2) thereof and Regulation D thereunder.

On November 6, 1996, the Company allowed Piers M. MacDonald, the holder of
more than 5% of the Company's outstanding Common Stock, and certain of his
affiliates to exercise outstanding warrants to purchase 113,000 shares of
Common Stock at an exercise price of $1.50 per share rather than at the original
exercise price of $3.50 per share. The issuance of such shares of Common Stock
was exempt from the registration requirements of the 1933 Act by virtue of
Section 4(2) thereof and Regulation D promulgated thereunder.

Finally, on November 14, 1996, the Company issued IBJS Capital Corporation
("IBJS") warrants to purchase up to 60,000 shares of Common Stock at an exercise
price (subject to adjustment upon the occurrence of certain events) of $1.50 per
share. These warrants were issued to IBJS in consideration of IBJS providing the
Company with a $720,000 short-term senior secured revolving credit facility.
These warrants were issued pursuant to an exemption from registration afforded
by Section 4(2) of the 1933 Act.

Item 6. Management's Discussion and Analysis or Plan of Operations.

Net Income (Loss)
- -----------------

The Company reported a net loss of $677,526 for fiscal 1997 as compared to
a net loss of $2,796,488 for the prior fiscal year. This improvement in the net
loss reported by the Company was due to the following factors:

1. During the quarter ending July 31, 1996 the Company sold its stock
investment in Concentric Network Corporation for $1,020,000 and recognized a
gain of $679,909, which has been included in net income.

18
<PAGE>

2. Revenues for the fiscal year ended January 31, 1997 were $4,405,315 as
compared to $1,418,432 for the prior year. This represented an increase in
revenues of 211%. The additional revenue generated a $1,305,444 contribution to
the gross margin, reducing net loss by that amount.

Revenues
- --------

For the year ended January 31, 1997, revenues increased approximately
$2,986,884 from the year ended January 31, 1996, an increase of 211%. This
increase was due mainly to a $2.7M contract from AT&T received during the third
fiscal quarter for the ESCAPE/TM/ System. The Company completed this contract
during the fourth quarter of fiscal 1997. In April of 1997 the Company received
a follow on order of $815,000 from AT&T, which the Company expects to ship by
June 30, 1997.

The Company continues to concentrate on developing and expanding its
customer base and is currently working on several new projects for other major
customers which it anticipates will diversify its customer base and increase
revenues in the near and long-term. While the certainty of these new projects
becoming future revenues for the Company cannot be measured at this point in
time, the management of the Company is encouraged by the enquiries it is
receiving concerning its products.

Cost of Goods Sold
- ------------------

Cost of goods sold for products, consisting of parts, supplies and
manufacturing costs for the Company's hardware and software products, including
software amortization, were $2,547,505 and $866,062 for the years ended January
31, 1997 and 1996 respectively. This constituted approximately 58% and 61% of
revenues for the years ended January 31, 1997 and 1996 respectively. Management
attributes the change in cost of goods sold to the changes in the mixture of its
hardware and software products sold, and to highly competitive pricing
associated with the $2.7M AT&T purchase order. The cost of goods sold varies
with each product line, with software having little or no material cost
(approximately 5-10%). The primary costs incurred by the Company are for
materials and equipment relating to its hardware products, which also carry
lower profit margins than the Company's software products. The Company
manufactures and assembles all hardware through contracted third party suppliers
under the direct supervision of the Company's management.

The Company anticipates that its cost of goods sold will be reduced to the
50-55% of revenues range during the next 6 months. While management continues to
believe that its products can eventually be sold with a less than 50% cost of
goods sold, management also realizes the need to gain market share for its
products and will, for the near term, be aggressive in its pricing policy.
However, management also believes that the cost of sales will go down as
customers begin to order enhanced software features which carry significantly
lower costs than the company's hardware products, and as a result of research
and development projects aimed at increasing efficiency while reducing cost.

19
<PAGE>

Selling, General and Administrative Expenses
- --------------------------------------------

Selling, general and administrative expenses for the fiscal years ended
January 31, 1997 and 1996 were $2,400,660 and $2,385,255 respectively. This
constituted approximately 54% and 168% of revenues for the fiscal years ended
January 31, 1997 and 1996 respectively.

Research, Development and Software
- ----------------------------------

The Company incurred research, development and software costs of
approximately $705,053 and $862,406 for the fiscal years ended January 31, 1997
and 1996 respectively. The decrease was primarily due to the Company's
determination to reduce these costs in fiscal 1997 in light of the anticipated
delay in the acceptance into the marketplace of the Company's Maestro(TM) System
products. These amounts consist of internal salaries, outside consulting
services, equipment and fixed overhead costs. The Company expects research,
development and software costs to increase in future periods.

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

To date, the Company has funded operations from the receipt of proceeds
from private placements of debt and equity, including the exercise of warrants,
interest earned from the investment of such proceeds in interest earning assets,
and revenues from operations. During the fiscal year ended January 31, 1997 the
Company received $169,439 in net proceeds, after payment of offering related
expenses, from exercises of warrants and from the sale of its common stock,
which amount was primarily used in operations. During the fiscal year ended
January 31, 1996 the Company received $2,148,402 in net proceeds, after payment
of offering related expenses, from the sale of its common stock. These funds
were primarily utilized to fund operations.

On June 6, 1996, the Company sold its investment in Concentric Network
Corporation for $1,020,000, resulting in cash proceeds of such an amount and a
capital gain in the Company's second quarter of $679,909. The sale of this
investment provided the Company with additional liquidity from which to fund its
operations during fiscal 1997.

During the first half of its fiscal year 1997, the Company's cash flow and
liquidity was severely impaired due primarily to a delay in the release of the
Company's Maestro(TM) System. This product, which was expected to be ready for
general commercial distribution during the early part of 1995, was in fact
unavailable until October, 1995. This delay caused the Company to generate lower
than anticipated earnings during the first two quarters of fiscal 1997, thereby
adversely affecting the Company's cash flow and liquidity. Upon production,
distribution and customer acceptance of these products in the market, revenues

20
<PAGE>

have increased materially since the third quarter of fiscal 1997. While the
Company continued to lose money (although at a slower pace) during the fourth
quarter of fiscal 1997, the Company's management believes that in the immediate
future the Company will be cash flow positive from its operations as the Maestro
System's products continue to gain acceptance and popularity in the marketplace.

During fiscal 1997, net cash used by operating activities was approximately
$900,000. As a result, on January 31, 1997, the Company held cash and cash
equivalents of approximately $630,000, up from approximately $523,000 as of
January 31, 1996, and had a working capital surplus (current assets less current
liabilities) of approximately $910,000 down from a working capital surplus of
approximately $1,056,000 as of January 31, 1996. Based on the foregoing, as well
as events occurring during the first quarter of fiscal 1998, the Company's
management believes that it has sufficient resources available to meet its
liquidity needs over the next twelve months.

Based primarily on the strength of its purchase orders with AT&T and other
major customers, the Company has begun to be able to finance its operations
through receivables financing, secured by purchase orders from creditworthy
customers. In November of 1996, the Company was able to consummate a receivables
debt financing with IBJS Capital Corporation, secured primarily by the
Company's rights under the $2.7M purchase orders from AT&T. The financing was
established specifically for this AT&T purchase order. Linkon completed the AT&T
order and has fulfilled its obligations, and this particular financing
arrangement with IBJS Capital Corporation has subsequently been terminated. The
Company is pursuing alternative financiers to factor and/or finance future
orders from other customers when and if required (although no such arrangement
is in place as of this date).

Provided the Company's Maestro(TM) System continues to gain market
acceptance, the Company believes that it will be able to rely for its long-term
liquidity needs less on private equity financings and the exercise of warrants
by existing warrant holders and more on cash flow generated from revenues from
increased hardware and software sales to fund its continued operations. Due to
the planned introduction of new and improved products, and the anticipated
growth due to, among other things, the manufacturing of hardware and software
products and the expansion of operations, management anticipates that there will
be a continued need for cash resources from sources other than operations to
meet, among other things, anticipated commitments for raw materials, increased
marketing activities, and personnel.

The Company does not currently contemplate any significant capital
expenditures during fiscal 1998. The Company does not believe that there are any
contingencies which would have a material adverse effect on the Company's
financial condition, future operating results or liquidity.

21
<PAGE>

Statements throughout this report that state the Company's or its
management's intentions, beliefs, expectations or predictions of the future are
forward looking statements. It is important to note that the Company's actual
results could differ materially from those projected in such forward looking
statements.

Item 7. Financial Statements and Supplementary Data.
- -------

The financial statements are included herein following the signature page
of this Annual Report on Form 10-KSB commencing on Page F-1.

Item 8. Changes in and Disagreements with Accountants on Accounting and
- -------
Financial Disclosure.

There were no changes in, or disagreements with, the Company's certified
public accountants during the fiscal years ended January 31, 1997 and 1996.

22
<PAGE>

Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
Held Position
Name Age Office(s) Since(1)(2)
---- --- --------- -----------
<S> <C> <C> <C>
Charles Castelli 53 Chairman of the July 1990
Board of
Directors, Chief
Technology Officer

Jon Carvalho 56 Director July 1990

Thomas V. Cerabona 45 Vice President March 1996
of Operations,
Secretary

Lee W. Hill 53 President and March 1993
Chief Executive
Officer, Director

Patrick J. Kane 47 Director July 1990

James E. Linley 44 Vice President March 1991
of Engineering

Mark O'Brien 49 Vice President September 1993
of International

Daniel Zwiren 41 Director June 1996
</TABLE>

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

(1) Represented only since the Company was reorganized in July, 1990.

(2) Each director of the Company has been elected to serve until the next
annual meeting of stockholders of the Company and until such director's
successor shall have been

23
<PAGE>

duly elected and shall have qualified. Each executive officer of the
Company has been elected to serve until the next organizational meeting of
the Company's Board of Directors and until such officer's successor shall
have been duly elected and shall have qualified.

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

Jon Carvalho has served as a director of the Company since June, 1990. Mr.
Carvalho has been the President of Union Commercial Services, Ltd., an offshore
investment company with holdings in the United States, Africa and Europe since
April, 1990. He is also the President of Unicar Industrial e Commercial, Lda.
(also known as Uniao Commercial de Automoveis, Ltd.), a distributor and service
provider for American and European automotive, motorcycle, agricultural and
industrial machine manufacturers and finance companies. Mr. Carvalho has held
this position since April, 1990. He is also the President of Joao Carvalho,
Lda., a real estate investment and development company and operations management
company since 1978. For the past three years, Mr. Carvalho has also served as
President of Unicom International of Florida, Inc.

Charles Castelli founded Linkon Delaware, Inc. ("Linkon Delaware"), which
was engaged in consulting and research and development of computer hardware and
software products for the telecommunications industry and which merged with the
Company in June, 1990. He is presently the Company's Chief Technology Officer
("CTO") and Chairman of the Board of Directors. He has served as Chairman and as
a Director since June, 1990. He served as the Company's President from June,
1990 until March, 1993, when he became the CTO.

Thomas V. Cerabona has served as the Company's Vice President, Operations
since March, 1996, and became Secretary of the Company in March, 1997. From 1994
through 1995, Mr. Cerabona served as the Vice President of Operations of Paragon
Networks, a data communications equipment company located in Southbury,
Connecticut. From 1986 through 1994 Mr. Cerabona held various management
positions, including Vice President and General Manager, with Cobotyx
Corporation, a voice processing equipment company located in Danbury,
Connecticut. Mr. Cerabona was responsible for the financial operations of such
corporation and in such capacity, was responsible for commencing a
reorganization of Cobotyx Corporation pursuant to Chapter 11 of the Bankruptcy
Code of 1986, as amended. This bankruptcy proceeding was commenced on May 5,
1993 and culminated in a successful reorganization and a subsequent sale of
Cobotyx's operating assets.

Lee W. Hill currently serves as the Company's President and Chief Executive
Officer, and has served as such since March, 1993. Mr. Hill also serves as a
director of the Company, a position he has held since September, 1996. From
December, 1990 until joining the Company, Mr. Hill was the founder and sole
principal of Affluence, Inc., a management consulting firm located in Greenwich,
Connecticut. From 1985 to 1990, Hill was with Wild-Leitz U.S.A., Inc., the
Swiss-German high tech equipment and measuring

24
<PAGE>

instrument maker. There he served as President of the IMS Division and as Vice
President, Corporate Development. From 1971 to 1985 Hill was with Bausch & Lomb,
where his last position was Vice President of Worldwide Marketing and Sales for
a consumer products division.

Patrick J. Kane currently serves as a director of the Company. Since
August, 1996, he has served as a Vice President of Newnet Corporation
("Newnet"), located in Shelton, Connecticut. Prior to that time, Mr. Kane served
as the Company's Secretary and Treasurer from 1990 through March of 1997 and as
the Company's Chief Operating Officer from 1990 through July, 1996. Newnet
manufactures intelligent network telecommunication products, including software,
for global computer intelligent networks.

James E. Linley currently serves as the Company's Vice President of
Engineering, a position he has held since March, 1991. In such capacity, he
manages the research and development, software development and technical support
areas for the Company. He was previously employed with Citicorp POS Information
Services (1988 to 1990) as a software engineer. Prior thereto he was with Target
Technologies, Norwalk, Connecticut for more than ten years as chief engineer and
partner. Target Technologies is a firm specializing in research and development
and in the design of computer based voice processing applications. He also held
management positions in systems engineering at Texas Instruments, National CSS
and Wright Investors Services.

Mark O'Brien currently serves as the Company's Vice President of
International Operations, a position he has held since September, 1993. From
June, 1992 until he joined the Company, Mr. O'Brien was the President of
Universal/Univis, an optical products supplier. From September, 1991 until June,
1992, Mr. O'Brien was Executive Vice President and General Manager of Hydro
Systems Incorporated.

Daniel Zwiren has served as a director of the Company since June, 1996.
Since December 15, 1996, Mr. Zwiren has served as a Senior Vice President of
Euro Bankers, an investment banking firm located in New York City. From 1989
until December of 1996, Mr. Zwiren served as Chief Executive of Interest Rates
of Lasser Marshall & Co., an investment banking firm located in New York City,
New York.

Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors, executive officers and 10% beneficial owners of the Company's Common
Stock to file certain reports concerning their ownership of the Company's equity
securities. Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recently completed fiscal year, and
Forms 5 and amendments thereto furnished to the Company with respect to its most
recently completed fiscal year, the directors, executive officers and beneficial
owners of 10% or more of the Company's Common Stock who failed to make the
requisite filings on a timely basis are set forth below.

25
<PAGE>

Jon Carvalho failed to file a Form 4 to report his acquisition of an option
to purchase 50,000 shares of Common Stock on April 30, 1996. Lee Hill failed to
file a Form 4 to report the surrender for cancellation on April 30, 1996 of
250,000 warrants to purchase Common Stock at a price of $2.00 per share in
exchange for 250,000 options to purchase Common Stock at a price of $0.75 per
share. Mark O'Brien failed to file a Form 4 to report the surrender for
cancellation on April 30, 1996 of 20,000 options to purchase Common Stock at a
price of $2.00 per share in exchange for 20,000 options to purchase Common Stock
at a price of $0.75 per share. Ken Weiner, a former executive officer, failed to
file a Form 4 to report the surrender for cancellation on April 30, 1996 of
50,000 options to purchase Common Stock at a price of $2.00 per share in
exchange for 50,000 options to purchase Common Stock at a price of $0.75 per
share, and also failed to file a Form 5 to report the expiration on December 31,
1996 of both the aforesaid 50,000 options and an additional 4,200 options under
the Company's Plan. Daniel Zwiren failed to file a Form 3 reporting that he
became a director of the Company during the current fiscal year, and that he
received an option to purchase 75,000 shares of Common Stock at a price of $0.75
per share on June 8, 1996. Messrs. Hill, Castelli, Cerabona and O'Brien failed
to file Forms 5 reporting the granting to them of Plan Options to purchase
150,000, 162,000, 75,000 and 105,000, respectively, shares of Common Stock.

Item 10. Executive Compensation.
--------------------------------

The following table sets forth the compensation for the years ended January
31, 1997, 1996 and 1995 paid to the Company's Chief Executive Officer and other
named executive officers whose compensation is required to be disclosed pursuant
to Item 402(a)(2) of Regulation S-B promulgated under the Securities and
Exchange Act of 1934, as amended:

26
<PAGE>

SUMMARY COMPENSATION TABLE
---------------------------

<TABLE>
<CAPTION>
Annual Compensation
---------------------------

Long Term Compensation Awards
Name and Fiscal Other Annual Shares of Common Stock
Principal Position Year Salary($) Bonus($) Compensation Underlying Options/SARs(#)
- ------------------ ---- --------- -------- ------------ --------------------------
<S> <C> <C> <C> <C> <C>
Lee W. Hill, 1997 $150,000 $25,000 $7349 (1) 400,000/0 (2)
President and Chief 1996 $150,000 $25,000 $6360 (1) 0
Executive Officer 1995 $118,000 $25,000 $6360 (1) 0

Charles Castelli 1997 $96,000 $ 0 $8400 (3) 162,000/0
Chairman 1996 $96,000 $ 0 $8400 (3) 0
Chief Technology Officer 1995 $96,000 $ 0 $8400 (3) 0

Mark O'Brien, 1997 $128,478 $ 0 $6000 (4) 125,000/0 (5)
Vice President 1996 $106,174 $ 0 $6000 (4) 0
of International 1995 $100,000 $ 0 $6000 (4) 0

Thomas V. Cerabona 1997 $89,250(6) $11,500 $6000 (7) 75,000/0 (8)
Vice President of
Operations
</TABLE>

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

(1) Mr. Hill has received an automobile allowance from the Company for
fiscal year 1997 of $612 per month, and for fiscal years 1995 and 1996
of $530 per month.

(2) In May 1996, options exercisable to purchase 250,000 shares of Common
Stock were repriced from an exercise price of $2.00 per share to $0.75
per share.

(3) Mr. Castelli has received an automobile allowance from the Company for
the last three fiscal years of $700 per month.

(4) Mr. O'Brien has received an automobile allowance from the Company for
the last three fiscal years of $500 per month.

(5) In May 1996, options exercisable to purchase 20,000 shares of Common
Stock were repriced from an exercise price of $2.00 per share to $0.75
per share.

(6) Represents the portion of Mr. Cerabona's base salary of $102,000 per
annum for the portion of fiscal 1997 for which Mr. Cerabona was
employed by the Company.

27
<PAGE>

(7) Mr. Cerabona has received an automobile allowance from the Company for
the last fiscal year of $500 per month.

(8) Of these options, options to purchase 25,000 shares of Common Stock
will vest either upon the completion by Mr. Cerabona of one year of
employment with the Company or upon the sale, merger or acquisition of
the Company to or by a third party.

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

Options/SAR Grants in Last Fiscal Year
Individual Grants
-----------------

Number of Shares % of Total
of Common Stock Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year(1) Price($/Share) Date
- ---- ---------------- -------------- ---------------- ----------
<S> <C> <C> <C> <C>
Lee W. Hill 400,000/0 (2) 39.6% $0.75 April 30, 2001

Charles Castelli 162,000/0 (3) 16.1% $0.75 April 30, 2001

Mark O'Brien 125,000/0 (4) 12.4% $0.75 April 30, 2001

Thomas V. Cerabona 75,000/0 (5) 7.4% $0.75 April 30, 2001
</TABLE>

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

(1) Assumes full vesting of options. Includes options exercisable to
purchase 340,000 shares of Common Stock as to which the exercise price
per share was lowered from $2.00 to $0.75.

(2) In May 1996 options exercisable to purchase 250,000 shares of Common
Stock were repriced from an exercise price of $2.00 per share to $0.75
per share.

(3) Options exercisable to purchase 100,000 shares of Common Stock do not
vest until the Company realizes a net profit for two consecutive
quarters.

(4) In May 1996 options exercisable to purchase 20,000 shares of Common
Stock were repriced from an exercise price of $2.00 per share to $0.75
per share. Options exercisable to purchase 25,000 shares of Common
Stock do not vest until the Company achieves positive net income for
two consecutive quarters.

(5) Options to purchase 25,000 shares of Common Stock vested immediately,
options to purchase an additional 25,000 shares of Common Stock vested
upon the completion by Mr. Cerabona of one year of employment with the
Company and options to purchase the remaining 25,000 shares of Common
Stock vest upon the sale, merger, or acquisition of the Company to or
by a third party.

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

28
<PAGE>

Aggregated Option/SAR Exercises in Last
Fiscal Year and FY-End Option/SAR Values
----------------------------------------

Number of Shares
of Common Stock
Underlying Value of Unexercised
Unexercised Options/ In-the-Money Options/
SARs at FY-end (#) SARs at FY-End (#)
Name Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ---- ------------------------- ----------------------------
<S> <C> <C>
Lee W. Hill 400,000 Options Exercisable/ $892,000/$0
0 Options Unexercisable $138,260/$0

Charles Castelli 62,000 Options Exercisable/ $223,000/$0
100,000 Options Unexercisable

Mark O'Brien 100,000 Options Exercisable/ $223,000/$0
0 Options Unexercisable

Thomas V. Cerabona 50,000 Options Exercisable/ $111,500/$55,750
25,000 Options Unexercisable
</TABLE>

(1) Based on average of bid and asked prices per share of the Company's Common
Stock on January 31, 1997.
------------------------
Employment Agreements
- ---------------------

On March 1, 1993, the Company entered into an employment agreement with Mr.
Lee W. Hill. The agreement provides for an annual salary of $96,000 for the
first year of the agreement, $120,000 for the second year of the agreement and
$150,000 for the third and fourth years of the agreement. In addition, the
agreement provides for an annual bonus of not less than $25,000 for each year of
the agreement. Mr. Hill was also granted options to purchase up to 250,000
shares of Common Stock of the Company at an exercise price equal to $2.00 per
share. By letter (the "Letter Amendment") dated May 1, 1996, Mr. Hill and the
Company agreed to extend his employment agreement for two additional years, with
certain modifications. The Letter Amendment provides for an annual salary of
$150,000 per year, until such time as the Company has positive operating income
for at least two consecutive fiscal quarters, at which time Mr. Hill's annual
salary will be increased to $175,000. In addition, at such time as the Company
has positive net income for at least two consecutive fiscal quarters, Mr. Hill's
annual salary will be increased to $200,000 per year. This bonus provision of
the Letter Agreement replaces the salary compensation provision contained in Mr.
Hill's original employment agreement. In consideration of entering into the
Letter Amendment, the Company granted Mr. Hill 75,000 options to purchase Common
Stock at an exercise price equal to $0.75 per share. This exercise price was
based on the market price of the Company's Common Stock at the close of business
on April 30, 1996, which was $0.75 per share.

29
<PAGE>

On May 1, 1996, the Company and Mr. Charles Castelli, the Company's
Chairman and CTO, entered into an employment agreement. This agreement provides
for an annual salary of $102,000 during each of the two years of the term
thereof, unless the Company has positive operating income for two consecutive
fiscal quarters, in which case Mr. Castelli's annual salary is increased to
$120,000 per year. In addition, at such time as the Company has positive net
income for at least two consecutive fiscal quarters, Mr. Castelli's annual
salary will be increased to $200,000 per year. Mr. Castelli is also entitled to
an annual performance bonus, which is determined by the Company's Board of
Directors based on certain performance criteria. Moreover, Mr. Castelli was
granted 100,000 options to purchase Common Stock at an exercise price equal to
$0.75 per share (subject to the Company achieving a net profit for two
consecutive fiscal quarters) as further consideration for entering into his
employment agreement. This exercise price was based on the market price of the
Company's Common Stock at the close of business on April 30, 1996, which was
$0.75 per share.

On March 15, 1996, the Company and Mr. Thomas V. Cerabona, the Company's
Vice President of Operations, entered into an employment agreement. This
Agreement provides for an annual salary of $102,000 per year. Mr. Cerabona is
also entitled to an annual performance bonus, which is determined by the Company
based on certain performance criteria. Mr. Cerabona was granted 75,000 options
to purchase Common Stock at an exercise price of $0.75 per share as further
consideration for entering into his employment agreement. The exercise of 25,000
of these options is conditioned upon the Company being sold, merged or acquired
by a third party,

On May 1, 1996, the Company and Mr. Mark O'Brien, the Company's Vice
President of International Operations, entered into an employment agreement.
This Agreement provides for an annual salary of $84,000 per year during each of
the two years of the term thereof. In addition, Mr. O'Brien is entitled to
receive a sales commission of two percent (2%) of sales of product from certain
designated accounts, paid quarterly. Mr. O'Brien is also entitled to an annual
performance bonus, which is determined by the Company based on certain
performance criteria. Mr. O'Brien was granted 62,500 options to purchase Common
Stock at an exercise price of $0.75 per share were granted to Mr. O'Brien as
further consideration for entering into his employment agreement. This exercise
price was based on the market price of the Company's Common Stock at the close
of business on April 30, 1996, which was $0.75 per share. In addition,
Mr. O'Brien was granted 25,000 additional options to purchase Common Stock at an
exercise price of $0.75 per share, such options only vesting if during the term
of his employment agreement the Company has positive net income for at least two
consecutive fiscal quarters.

Directors are not compensated in their capacities as directors but are
reimbursed reasonable expenses in connection with attendance at meetings.

30
<PAGE>

Compensation Committee Report on Repricing of Options

The Compensation Committee approved the repricing as of April 30, 1996 of
existing stock options with exercise prices of $2.00 per share previously
granted to Messrs. Hill and O'Brien and to Mr. Ken Weiner (who was then the
Company's Chief Financial Officer) to $0.75 per share. The market price per
share at such time was $0.75.

Prior to such repricing, due to the fact that the exercise prices of such
options were so far above the market price, the Compensation Committee concluded
that such options were no longer effectively acting as incentives to Messrs.
Hill, O'Brien and Weiner. The Compensation Committee determined that in order to
ensure that such options acted as incentives to such employees, it would reprice
such options to the market price at such time.

Item 11. Security Ownership of Certain Beneficial Owners and Management.
- --------

Security Ownership of Certain Beneficial Owners. To the knowledge of the
Company, the following table lists those parties (other than Messrs. Castelli,
Kane and Linley, each of whose beneficial ownership is disclosed in the
immediately following table) who beneficially owned more than 5% of the
Company's Common Stock outstanding as of April 21, 1997:

<TABLE>

Common Stock $0.001 par value
-----------------------------
Name and Address of Amount of Beneficial Approximate Percentage
Beneficial Owner Ownership of Class
- ------------------- -------------------- ----------------------
<S> <C> <C>
IBJS Capital Corporation 896,746 (1) 7.6%
One State Street
New York, NY 10004

Mr. Piers M. MacDonald 777,400 (2)(3) 7.2%
c/o Gulfstream Partners,
L.P.
Two Greenwich Plaza, Ste.
100
Greenwich, CT 06830
</TABLE>
- ------------------

(1) Comprised of (i) 617,665 shares of Common Stock currently acquirable upon
the conversion of a $1,000,000 Senior Secured Convertible Debenture, (ii)
219,081 shares of Common Stock currently acquirable upon the exercise of
warrants to purchase Common Stock at an exercise price equal to $1.83 per share,
and (iii) 60,000 shares of Common Stock currently acquirable upon the exercise
of warrants to purchase Common Stock at an exercise price equal to $1.50 per
share.

31
<PAGE>

(2) Includes 367,000 shares of Common Stock owned by Gulfstream Partners, L.P.
("Gulfstream"), a limited partnership of which Mr. MacDonald is managing general
partner.

(3) Includes 321,000 shares of Common Stock which are owned jointly by Mr.
MacDonald and his wife, Bonner MacDonald.

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

Security Ownership of Management. The following table sets forth, as of
April 21, 1997, the number of outstanding shares of the Common Stock
beneficially owned by each director and each executive officer referred to in
the immediately preceding table (together, the "Executive Officers")
individually, and by all current directors and executive officers as a group
without naming them. Except as otherwise indicated, each of the following
persons has sole voting and investment power with respect to the shares
beneficially owned by him.

32
<PAGE>

<TABLE>
<CAPTION>
Common Stock $0.001 par value
----------------------------------------
Name and Address of Beneficial Approximate Percentage
Beneficial Owner Ownership of Class
------------------- ------------- ----------------------
<S> <C> <C>
Jon Carvalho 120,000 (1) 1.3%
R. Sapateiros 219-E-DE,
1100 Lisbon, Portugal
17.0%
Charles Castelli 1,862,000 (2)
141 E. Central Boulevard
Palisades Park, New Jersey

Thomas V. Cerabona 50,000 (3) * %
3061 Dahlia Court
Yorktown Heights, New York

Lee W. Hill 400,000 (4) 3.7%
62 Arch Street
Riverside, Connecticut

Patrick J. Kane 850,000 (5) 7.8%
66 Pearl Street, Apt. 309
New York, New York

James E. Linley 609,600 (6) 5.6%
210 Banks Road
Easton, Connecticut

Mark O'Brien 100,000 (7) * %
485 Camp Fuller Road
Wakefield, Rhode Island
</TABLE>

33
<PAGE>

<TABLE>
<CAPTION>
Common Stock $0.001 par value
----------------------------------------
Name and Address of Beneficial Approximate Percentage
Beneficial Owner Ownership of Class
------------------- ------------- ----------------------
<S> <C> <C>
Daniel Zwiren 204,999 (8) 1.9%
100 Warren St., Apt 1908
Jersey City, New Jersey

Executive Officers and
Directors as a Group (8 4,196,599 (9) 33.8%
persons)
</TABLE>

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

(1) Includes of 50,000 shares currently acquirable upon the exercise of 50,000
options to purchase Common Stock of an exercise price equal to $1.00 per share.

(2) Includes 62,000 shares currently acquirable upon the exercise of options to
purchase Common Stock at an exercise price equal to $0.75 per share.

(3) Comprised of 50,000 shares currently acquirable upon the exercise of options
to purchase Common Stock at an exercise price equal to $0.75 per share.

(4) Comprised of 400,000 shares currently acquirable upon the exercise of
options to purchase Common Stock at an exercise price equal to $0.75 per share.

(5) Includes 50,000 shares currently acquirable upon the exercise of options to
purchase Common Stock at an exercise price equal to $0.75 per share.

(6) Includes 9,600 shares currently acquirable upon the exercise of options to
purchase Common Stock at an exercise price equal to $0.75 per share, 3,100 of
which options are held by Anna Linley, his wife, who is also an employee of the
Company.

(7) Comprised of 100,000 shares currently acquirable upon the exercise of
options to purchase Common Stock at an exercise price equal to $0.75 per share.

34
<PAGE>

(8) Includes 171,666 shares currently acquirable upon the exercise of 13,333
Warrants to purchase Common Stock at an exercise price equal to $1.50 per share,
33,333 Warrants to purchase Common Stock at an exercise price equal to $1.00 per
share, 75,000 options to purchase Common Stock at an exercise price equal to
$0.75 per share and 50,000 shares of Common Stock currently acquirable upon
conversion of a Subordinated Convertible Debenture, having a conversion rate of
$2.00 per share.

(9) Includes 1,186,466 shares currently acquirable upon the exercise of warrants
or options to purchase Common Stock at an exercise price equal to $0.75 per
share and 360,000 shares currently acquirable upon the exercise of warrants or
options to purchase Common Stock at an exercise price equal to $2.00 per share.

*Represents less than one percent (1%) of the Company's issued and outstanding
Common Stock.

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

Item 12. Certain Relationships and Related Transactions.
- --------

On May 26, 1995, the Company entered into a Stock Purchase Agreement with
Gulfstream Partners, L.P. ("Gulfstream") and the other "Purchasers" named
therein, pursuant to which the Company sold to Gulfstream and such Purchasers
(i) 600,000 shares of Common Stock, and (ii) warrants (the "Gulfstream
Warrants") to subscribe for an additional 60,000 shares of the Company's Common
Stock at an initial exercise price of $3.00 per share1, in consideration of
$600,000 or $1.00 per share. Both the price at which such Common Stock was sold
to Gulfstream and the exercise price for the Gulfstream Warrants were the result
of negotiations between Gulfstream and the Company. The exercise price of the
Gulfstream Warrants is subject to adjustment upon the occurrence of (i)
subdivision or Common Stock dividend on the outstanding Common Stock, (ii) a
combination of outstanding Common Stock or (iii) a reclassification,
reorganization or consolidation of the outstanding Common Stock or, in certain
instances, the merger or consolidation of the Company with or into another
person or a sale of all or substantially all of the assets of the Corporation.
The Gulfstream transaction caused the initial conversion rate of the $1,000,000
10% Senior Secured convertible Debenture issued to IBJS Capital Corporation
("IBJS") on October 27, 1994 (the "Debenture") to be adjusted to $1.711, thereby
increasing the number of shares of the Company's Common Stock into which the
Debenture may be converted to 584,454. Likewise the initial exercise price of
the 200,000 warrants to purchase the Company's Common Stock with an initial
exercise price of $2.00 per share issued by the Company to IBJS in connection
with the issuance of the Debenture (the "IBJS Warrants") was decreased to
$1.948, thereby increasing the number of

- ------------------
/1/ The market price of the Company's Common Stock at the close of business
on May 26, 1995 was $1.31 per share.

35
<PAGE>

shares of the Company's Common Stock issuable upon exercise of the IBJS Warrants
to 205,339. No adjustment to the exercise price of the Gulfstream Warrants has
occurred.

During the summer of 1995, the Company offered and sold 70 "Units" to
accredited investors in a private placement, each Unit consisting of 18,500
shares of Common Stock and 4,625 warrants to purchase Common Stock at an
exercise price equal to $3.50 per share, and having a term of five years. All
Units were sold to accredited investors for an aggregate purchase price equal to
$1,424,500. The consummation of this transaction caused the then effective
conversion rate of the Debenture to be decreased to $1.651, thereby increasing
the number of shares of Common Stock into which the Debenture may be converted
to 605,693 shares. The exercise price of the IBJS Warrant was also decreased to
$1.865, thereby increasing the number of shares of the Company's Common Stock
issuable upon exercise of the IBJS Warrants to 214,500 shares of Common Stock.

On August 10, 1995, the Company consummated a transaction with existing
securities holders of the Company, whereby such persons exercised all or a
portion of their then outstanding warrants to purchase Common Stock at a
discounted exercise price equal to $1.00. The then current exercise price of the
Warrants was $3.00 per share. In addition, the Company issued to each such
security holder new Warrants to purchase Common Stock at a price of $1.00 per
share in an amount equal to the number of Warrants that were then exercised by
such security holder. Two of the security holders in this transaction were
Messrs. Zwiren and Carvalho, both current directors of the Company. Mr. Zwiren
exercised 33,333 Warrants (and received 33,333 new Warrants) and Mr. Carvalho
exercised 20,000 Warrants (and received 20,000 new Warrants).

On April 30, 1996, Linkon issued an aggregate amount of 340,000 options to
purchase Common Stock, each having an exercise price of $0.75 per share, to four
employees, in exchange for the surrender for cancellation by such employees of
an equal number of previously-issued warrants to purchase Common Stock at a
price of $2.00 per share. Lee Hill exchanged 250,000 options as aforesaid, Mark
O'Brien exchanged 20,000 options as aforesaid and Ken Weiner exchanged 50,000
options as aforesaid.

In November of 1996, the Company was able to consummate a receivables debt
financing with IBJS, secured primarily by the Company's rights under the $2.7M
purchase orders from AT&T. The financing was established specifically for this
AT&T purchase order. Linkon completed the AT&T order and has fulfilled its
obligations, and this particular financing arrangement with IBJS has
subsequently been terminated. In connection with this financing, Linkon granted
IBJS a warrant to purchase up to 60,000 shares of the Company's Common Stock at
an initial exercise price, subject to adjustment upon the occurrence of certain
events, of $1.50 per share. In addition, Linkon and IBJS entered into an
Amendment No. 1 to the October 27, 1994 Securities Purchase Agreement pursuant
to which IBJS acquired the Debenture. The amendment, among other things, allows
Linkon to enter into customary types of revolving credit and factoring
arrangements without needing IBJS's consent. Also in November of 1996,
Gulfstream and certain of the other purchasers, with the consent of the Company,
exercised 113,000 warrants purchased by them in the summer of 1995, and having
an exercise price of $3.50 per share, for an exercise price of $1.50 per share.

36
<PAGE>

Based upon the securities issuances described in the three immediately
preceding paragraphs, the exercise price of the IBJS Warrant was decreased to
$1.83, thereby increasing the number of shares of Common Stock acquirable upon
the exercise of the IBJS Warrant to 219,081, and the conversion rate of the
Debenture held by IBJS was reduced to $1.62, thereby increasing the number of
shares of Common Stock that IBJS could acquire upon the conversion of the
Debenture to 617,665.

Item 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------

(a)(1) Financial Statements.

The following financial statements are included in Part II, Item 7:
<TABLE>
<S> <C>
Index to Financial Statements and Schedules F-1

Report of Independent Certified Public Accountants F-2

Consolidated Balance Sheets - January 31, 1997 and 1996 F-3

Consolidated Statements of Operations - Two years ended F-4
January 31, 1997 and 1996

Consolidated Statements of Cash Flows - Two years ended F-5
January 31, 1997 and 1996

Consolidated Statements of Stockholders' Equity - Two years ended F-6
January 31, 1997 and 1996

Notes to Financial Statements F-7
</TABLE>

(b) Reports on Form 8-K

None.

3.1 Amended and Restated Articles of Incorporation (incorporated by reference
to Exhibit A to the Company's Proxy Statement regarding the Annual Meeting
of Stockholders held on March 25, 1997).

37
<PAGE>

3.2 Amended and Restated By-laws (filed herewith).

4.1 10% Senior Secured Convertible Debenture Purchase Agreement, dated October
27, 1994, between the Company and IBJS Capital Corporation, including forms
of the Company's Senior Debentures and Warrant Certificates issued on
October 27, 1994 (incorporated by reference to Exhibit 4.1 to the Company's
Form 10-KSB for the fiscal year ended January 31, 1995).

4.2 Amendment No. 1 to Securities Purchase Agreement, dated as of November 14,
1996, between the Company and IBJS Capital Corporation (filed herewith).

4.3 Convertible Subordinated Debenture Purchase Agreement, dated July 29, 1994,
between the Company and the purchasers of subordinated debentures set forth
therein, including forms of the Company's Subordinated Debentures and
Warrant Certificates issued on July 29, 1994 and the October 27, 1994
agreement between said parties amending the same (incorporated by reference
to Exhibit 4.2 to the Company's Form 10-KSB for the fiscal year ended
January 31, 1995).

4.4 Placement Agent Agreement, dated January 14, 1994, between the Company and
Sloan Securities Corp., including forms of the Company's Warrant
Certificates, issued on January 28, 1994, February 28, 1994 and April 30,
1994 and the October 27, 1994 agreement between said parties amending the
same (incorporated by reference to Exhibit 4.3 to the Company's Form 10-KSB
for the fiscal year ended January 31, 1995).

4.5 Employment Agreement dated March 1, 1993 between the Company and Mr. Lee W.
Hill (incorporated by reference to Exhibit 4.4 to the Company's Form 10-KSB
for the fiscal year ended January 31, 1995).

4.6 Employment Agreement Extension dated May 1, 1996 between the Company and
Mr. Lee W. Hill (filed herewith).

4.7 Employment Agreement dated May 1, 1996 between the Company and Mr. Charles
Castelli (filed herewith).

4.8 Employment Agreement dated March 15, 1996 between the Company and Mr.
Thomas V. Cerabona (filed herewith).

4.9 Employment Agreement dated May 1, 1996 between the Company and Mr. Mark
O'Brien (filed herewith).

38
<PAGE>

4.10 Lease Agreement dated March 19, 1991 between the Company and Sherman Street
Limited Partnership (incorporated by reference to Exhibit 12 (xiii) to the
Company's Registration Statement on Form S-1 (File Number 33-44506) which
became effective on August 20, 1992).

4.11 Linkon Corporation 1996 Stock Option and Performance Incentive Plan
(incorporated by reference to Exhibit B to the Company's Proxy Statement
regarding the Annual Meeting of Stockholders held on March 25, 1997).

27 Financial Data Schedule (submitted herewith).

39
<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
executed on this 28th day of April, 1996.

LINKON CORPORATION

By: /s/ Lee W. Hill
--------------------------------------
Lee W. Hill, Chief Executive
Officer, President and Director

By: /s/ Thomas V. Cerabona
--------------------------------------
Thomas V. Cerabona, Vice President
of Operations and Secretary

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant in the capacities and on the
dates indicated.

<TABLE>

Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Charles Castelli Director April 28, 1997
- -------------------------
Charles Castelli

/s/ Lee W. Hill Director April 28, 1997
- -------------------------
Lee W. Hill

/s/ Daniel Zwiren Director April 28, 1997
- -------------------------
Daniel Zwiren
</TABLE>
<PAGE>

INDEX TO FINANCIAL STATEMENTS
-----------------------------
AND SCHEDULES
-------------
<TABLE>
<CAPTION>

LINKON CORPORATION Page
- ------------------ ----
<S> <C>
Index to Financial Statements and Schedules F-1

Report of Independent Certified Public Accountants F-2

Consolidated Balance Sheets - January 31, 1997 and 1996 F-3

Consolidated Statements of Operations - Two years ended F-4
January 31, 1997 and 1996

Consolidated Statements of Cash Flows - Two years ended F-5
January 31, 1997 and 1996

Consolidated Statements of Stockholders' Equity - Two years ended F-6
January 31, 1997 and 1996

Notes to Consolidated Financial Statements F-7
</TABLE>

F-1
<PAGE>

To the Board of Directors
and Stockholders
Linkon Corporation
Fairfield, Connecticut

We have audited the accompanying consolidated balance sheet of Linkon
Corporation as of January 31, 1997 and 1996 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
two years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Linkon Corporation as of
January 31, 1997 and 1996 and the results of its operations and its cash flows
for the two years then ended in conformity with generally accepted accounting
principles.

/s/ Feldman Radin & Co., P.C.

Feldman Radin & Co., P.C.
Certified Public Accountants
New York, New York
April 21, 1997

F-2
<PAGE>
LINKON CORPORATION
CONSOLIDATED BALANCE SHEETS
JANUARY 31,
<TABLE>
<CAPTION>
ASSETS
------

1997 1996
---- ----
<S> <C> <C>
Current Assets
- --------------
Cash and Cash Equivalents ( Note 3 ) : $630,726 $522,569
Certificate of Deposit ( Note 3 ) : -- 63,934
Accounts Receivable ( Note 3 ) : 433,498 611,387
Notes Receivable 51,000 51,000
Other Receivables 3,359 51,213
Inventory (Note 3 ) : 628,498 888,655
Prepaid Expenses 58,513 27,406

-------------- --------------
Total Current Assets 1,805,594 2,216,164
-------------- --------------

Machinery & Equipment ( Note 3 ) :
- ----------------------------------
Machinery & Equipment, at cost 1,262,341 1,046,008
Equipment under Capital Leases 123,156 156,965
-------------- --------------
1,385,497 1,202,973
Less: Accumulated Depreciation (869,902) (696,283)
-------------- --------------

Machinery & Equipment, Net 515,595 506,690
-------------- --------------

Other Assets
- ------------
Software - Net ( Note 3 ) : 990,668 928,148
Investments, at cost 34,613 375,182
Prepaid Financing Costs 28,756 39,213
Security Deposits 8,195 19,931
-------------- --------------
1,062,232 1,362,474
-------------- --------------
$3,383,421 $4,085,328
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>

Liabilities and Stockholders Equity
-----------------------------------

<S> <C> <C>
Accounts Payable $656,127 $1,004,125
Bank Loan Payable -- 30,230
Taxes Payable ( Notes 5 and 8 ) : 5,000 18,108
Interest Payable ( Note 7 and 8 ) : 86,111 100,000
Accrued Expenses 148,132 7,272
-------------- --------------
Total Current Liabilities 895,370 1,159,735
-------------- --------------

Long - Term Debt ( Note 7 ) : 1,291,810 1,251,265
-------------- --------------

Commitments ( Note 6 ) : -- --
- ------------------------

Stockholders Equity ( Note 4 ) :
- --------------------------------
Common Stock. $.001 Par Value,
25,000,000 shares authorized,
10,866,252 shares issued and
outstanding (1997)
10,753,252 shares issued and
outstanding (1996) 10,867 10,754
Capital in Excess of Par Value 9,329,296 9,129,970
Accumulated Deficit (8,143,922) (7,466,396)
-------------- --------------
Total Stockholders Equity 1,196,241 1,674,328
-------------- --------------
$3,383,421 $4,085,328
-------------- --------------
</TABLE>

The accompanying footnotes are an integral part of these financial statements

<PAGE>
LINKON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JANUARY 31,
<TABLE>
<CAPTION>

1997 1996
---- ----
<S> <C> <C>
Revenues (Note 2): $4,405,315 $1,418,432

Cost of Goods Sold
Product 2,210,835 638,532
Software amortization (Notes 3 and 9): 336,670 227,530
--------------- -------------

Gross Margin On Sales 1,857,810 552,370
--------------- -------------

Selling, General and
Administrative Expenses 2,400,660 2,385,255

Research and Development 305,864 425,856

Provision for Doubtful Accounts 271,216 392,000
--------------- -------------
2,977,740 3,203,111
--------------- -------------

Operating Loss (1,119,930) (2,650,741)
--------------- -------------

Other Income (Expense)
- ----------------------
Interest Income 6,661 13,248
Interest Expense (233,152) (157,960)
Gain (Loss) on Foreign Currency
Translation (491) 536
Gain (Loss) on Sale of Securities 679,909 --
--------------- -------------
452,927 (144,176)
--------------- -------------

Loss Before Income Taxes (667,003) (2,794,917)
Income Taxes 10,523 1,571
--------------- -------------
Net Loss ($677,526) ($2,796,488)
=============== =============

Loss Per Share (Note 3): ($0.06) ($0.30)
=============== =============

Weighted Average Number of Shares
Outstanding 10,781,502 9,470,186
=============== =============
</TABLE>

The accompanying footnotes are an integral part of these financial statements

LINKON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JANUARY 31,

1997 1996
---- ----
Cash Flows From Operating Activities:
- -------------------------------------
<S> <C> <C>
Net Loss ($677,526) ($2,796,488)
Add : Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Depreciation & Amortization 546,019 395,547
Less : Gain on Sale Marketable Securities (679,909) --

Changes in Assets and Liabilities:
- ----------------------------------
(Increase) Decrease in Certificate of Deposit 63,934 (3,934)
(Increase) Decrease in Accounts Receivable 177,889 315,680
(Increase) Decrease in Other Receivables 47,854 46,046
(Increase) Decrease in Inventory 260,157 225,554
(Increase) Decrease Prepaid Expenses (31,107) (15,960)
(Increase) Decrease in Software (399,190) (435,914)
(Increase) Decrease in Deferred Offering Costs -- 29,019
(Increase) Decrease in Security Deposits 11,736 5,749
Decrease in Prepaid Financing Costs 10,457 13,072
Increase (Decrease) in Accounts Payable (347,998) 203,896
Increase (Decrease) in Interest Payable (13,889) 56,241
Increase (Decrease) in Taxes Payable (13,108) 5,913
Increase (Decrease) in Accrued Expenses 140,860 (60)
------------- --------------
Net Cash Used in Operating Activities ($903,821) ($1,955,639)
------------- --------------

Cash Flows From Investing Activities:
- -------------------------------------
Cash Paid to Purchase Equipment (147,710) (216,433)
Investment in Non-Marketable Securities 479 (357)
Proceeds from Sale of Marketable Securities 1,020,000 --
------------- --------------

Net Cash Provided by (Used in) Investing Activities 872,769 (216,790)
------------- --------------
Cash Flows from Financing Activities:
- -------------------------------------
Proceeds from Sale of Common Stock 169,439 2,148,402
Principal Payments on Debt -- (39,281)
Repayment of Bank Debt - net (30,230) --
Principal Payments Under Capital Lease Obligations -- (6,583)
------------- --------------
Net Cash Provided by Financing Activities 139,209 2,102,538
------------- --------------
Net Increase (Decrease) in Cash 108,157 (69,891)

Cash and Cash Equivalents at Beginning of Year 522,569 592,460
------------- --------------
Cash and Cash Equivalents at End of Period $630,726 $522,569
============= ==============
</TABLE>

The accompanying footnotes are an integral part of these financial statements

<PAGE>

LINKON CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1997 AND 1996

Common Stock Capital in
Excess of Accumulated
Shares Amount Par Value Deficit Totals
------ ------ ---------- ----------- ------
<S> <C> <C> <C> <C>
Balances
January 31, 1995 8,599,919 8,600 $6,983,722 ($4,669,908) $2,322,414

Issuance of Common
Stock, Net of Expenses 2,153,333 2,154 2,146,248 -- 2,148,402

Net Loss for Year
Ended January 31, 1996 -- -- -- (2,796,488) (2,796,488)

--------------------------------------------------------------------------------------------
Balances
January 31, 1996 10,753,252 10,754 9,129,970 (7,466,396) 1,674,328

Issuance of Warrants -- -- 30,000 -- 30,000

Issuance of Common
Stock, Net of
Expenses 113,000 113 169,326 -- 169,439

Net Loss for Year
Ended January 31, 1997
-- -- -- (677,526) (677,526)
--------------------------------------------------------------------------------------------

Balances
January 31, 1997 10,866,252 10,867 $9,329,296 ($8,143,922) $1,196,241
============================================================================================
</TABLE>

The accompanying footnotes are an integral part of these financial statements
<PAGE>

LINKON CORPORATION
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JANUARY 31, 1997
----------------

NOTE 1 - BUSINESS DESCRIPTION
--------------------

The Company operates principally in the industry segment which includes the
business of manufacturing and marketing computer peripheral hardware and
software products for the automated voice response, telecommunications, computer
and multimedia communications industries.

NOTE 2 - ECONOMIC DEPENDENCY
-------------------

During the fiscal year ended January 31, 1997 two of the Company's major
customers accounted for approximately 70% and 10% or $3,084,415 and $447,296
respectively of revenues. The Company's largest customer accounted for
approximately 20%, or $277,000 of revenue for the year ended January 31, 1996.

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
-------------------------------

Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.

Use of 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 disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Revenue Recognition
- -------------------
Sales of production are recorded upon shipment. An allowance for estimated
returns is provided if appropriate.

Fair Value of Financial Instruments
- -----------------------------------
Effective January 31, 1996, the company adopted SFAS No. 107 Disclosures about
Fair Value of Financial Instruments. The statement requires disclosure about the
fair value of financial instruments for which it is practicable to estimate that
value. Accordingly, the company has determined that the carrying amount of its
financial instruments reported in the balance sheet including Cash, Accounts
Receivable, Notes Receivable, Other Receivables, Accounts Payable, Accrued
Expenses, and Interest Payable approximate fair value based on the short term
maturity of these instruments.

The company has estimated that its long term debt reported on the balance sheet
approximates fair value based on the stated rate of interest and the risk
associated with this instrument.

Accounting for Long Lived Assets
- --------------------------------
Under the requirements of SFAS No. 121 Accounting for Long-Lived-Assets and for
Long-Lived-Assets to be Disposed of, the company is obligated to recognize an
impairment loss on its machinery and equipment whenever the sum of the expected
future cash flows resulting from the use of the machinery and equipment is less
than its carrying amount. As of January 31, 1997 no impairment exists with
respect to the company's long-lived-assets.

Method of Accounting
- --------------------
The Company utilizes the accrual basis method of accounting for both financial
reporting and income tax purposes. Accordingly, revenues are recognized when
earned, rather than when received and expenses are recorded when incurred,
rather than when paid.

Cash and Cash Equivalents
- -------------------------
The Company considers all short-term debt securities purchased with an original
maturity of three months or less to be cash equivalents.

Accounts Receivable
- -------------------
The Company believes all receivable are collectible unless information to the
contrary is obtained. In the event such information is received the Company
establishes an allowance for uncollectible portions. At January 31, 1997 the
allowance was $ 282,298, and at January 31, 1996 the allowance was $ 412,000.
<PAGE>

LINKON CORPORATION
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JANUARY 31, 1997
----------------

Inventory
- ---------
Inventory is valued at the lower of cost or market value, using the first-in,
first-out (FIFO) method, and consists of:

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Raw Materials $ 173,955 $ 130,830
Work in Process 62,874 241,311
Finished Goods 641,669 666,514

Less : Allowance Account (250,000) (150,000)
=========== ============
$ 628,498 $ 888,655
=========== ============
</TABLE>

Machinery and Equipment and Capital Leases
- ------------------------------------------
Machinery and equipment are stated at cost. Capital leases are stated at the
lesser of the present value of the minimum lease payments or the fair market
value of the leased property. Property, equipment and capital leases are
comprised predominantly of computer equipment. Expenditures for maintenance and
repairs are charged to operations as incurred. Depreciation and amortization are
provided for utilizing the straight-line method over the estimated useful lives
of the property and equipment. Depreciation expense for the years ended January
31, 1997 and 1996 was $ 193,612 and $ 168,017, respectively.

NOTE 3 - (CONTINUED)
-----------

Capitalized Software Costs
- --------------------------
Costs related to the conceptual formulation and design of licensed programs are
expensed as research and development. Costs incurred subsequent to the
establishment of technological feasibility to produce the finished product are
generally capitalized. The Company has capitalized software costs included in
Other Assets in the Consolidated Balance Sheet. Amounts capitalized were
$399,190 and $ 435,914 for the years ended January 31,1997 and 1996,
respectively. Amortization of prior years capitalized software costs are
included in the Cost of Goods Sold section of the Consolidated Statements of
Operations and amounted to $336,670 and $227,530 for the years ended January 31,
1997 and 1996, respectively.

Income Taxes
- ------------
The Company has adopted Financial Accounting Standards Board Statement No.109,
"Accounting for Income Taxes", which requires an asset and liability approach to
accounting for income taxes. Deferred income taxes are recorded for temporary
differences between taxable income and pretax financial income and the tax bases
of assets or liabilities and their reported amounts in the financial statements.

Loss Per Share
- --------------
Loss per share is based on the number of shares outstanding. No effect has been
given to outstanding warrants as the result would be antidilutive.

NOTE 4 - CAPITAL CONTRIBUTION
--------------------

Employee Stock Options
- ----------------------
During the year ended January 31, 1997, the Board of Directors of the Company
adopted, subject to stockholder approval, the Linkon Corporation 1996 Stock
Option and Performance Incentive Plan (the "Option Plan"). This plan provides
for awards of up to 1,000,000 shares of Common Stock to employees of the Company
and its subsidiaries during the term of the Option Plan. These shares have been
reserved by the Board of Directors from the Company's authorized but unissued
shares of Common Stock.
On April 30, 1996 the Company granted 582,400 incentive stock options to
employees and directors. These options are exercisable at $0.75 per share until
April 30, 2006 and subject to the approval of the Stock Option Plan, will
qualify for incentive stock option treatment under the Internal Revenue Code of
1986. There is no compensation recorded as a result of the grant of these
options as the Company is following accounting prescribed in APB Opinion #25 and
the stock price at the time of the grant was $0.75 per share.
On March 25, 1997, at the Company's Annual Stockholders' Meeting, the "Option
Plan" was approved by a majority of the stockholders of the Company.

During the year ended January 31, 1997 the Company retired 340,000 options at an
exercise price of $2.00 per share held by key employees of the Company, and
reissued these options to the same employees on April 30, 1996 at an exercise
price of $0.75 per share. No compensation was recorded on the reissuance of
these options as the exercise price granted on April 30, 1996 was equal to the
common stock market price.

Options and warrants to purchase 2,568,682 shares of the Company's common stock
were exercisable at prices ranging from $0.75 to $3.50 per share at January 31,
1997. Outstanding options and warrants expire at various dates through April,
2006.
<PAGE>

LINKON CORPORATION
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JANUARY 31, 1997
----------------

NOTE 4 - (CONTINUED)
-----------

The following table summarizes the changes in options and warrants outstanding
and the related price ranges for shares of the Company's common stock.

<TABLE>
<CAPTION>
Stock Options and Warrants
--------------------------
Shares Price
<S> <C> <C>
Outstanding at
January 31, 1995 1,627,401 $0.75 to $3.00
Granted 640,316 $1.50 to $3.50
Exercised (258,333) $2.00
Expired -- --
Retired -- --
----------------

Outstanding at
January 31, 1996 2,009,384 $0.75 to $3.50
Granted 1,152,298 $0.75 to $2.50
Exercised (113,000) $1.50
Expired (140,000) $0.75 to $2.05
Retired (340,000) $2.00
----------------

Outstanding at
January 31, 1997 2,568,682 $0.75 to $3.50
================
</TABLE>

The Company has adopted the disclosure only provisions of SFAS 123 Accounting
for Stock Based Compensation. Accordingly, no compensation cost has been
recognized for the Plan. Had compensation cost for the Company's option plans
been determined based on fair value at the grant date for the awards in 1997
consistent with the provisions of SFAS 123, the Company's net loss and net loss
per share would have been increased to $807,151 and $.07 for the year ended
January 31, 1997.
The fair value of each option grant is estimated based on the date of grant
using the Black - Scholes option pricing model with the following assumptions
used for grants: No dividend yield; expected volatility of 68%; risk free
interest rate of 6.5%; and expected lives of 3 years.

NOTE 5 - INCOME TAXES
------------

As of January 31, 1997, the Company had net operating loss carryforwards of
approximately $7,900,00, for both book and tax purposes, expiring from 2005 to
2012. These carryforwards are subject to possible limitations on annual
utilization if there are "equity structural shifts" or "owner shifts" involving
"5% shareholders" (as these terms are defined in Section 382 of the Internal
Revenue Code), which result in a more than 50 percentage point change in
ownership.

At this time, the Company does not believe it can reliably predict profitability
beyond the current fiscal year. Accordingly, the deferred tax asset applicable
to operations subsequent to January 31, 1997 has been reduced in its entirety by
the valuation allowance. For the period ending January 31, 1997, the provision
for taxes is comprised only of appropriate state income taxes.

Reconciliation of income taxes shown in the financial statements and amounts
computed by applying the Federal income tax rate of 34% for the years ended
January 31, 1997 and 1996, respectively is as follows:

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Loss Before Income Taxes ($677,526) ($2,796,488)
=========== =============
Computed expected tax benefit 230,359 951,000
Operating loss for which no benefits were provided (230,359) (951,000)
Benefit provided by net operating loss carryforward
Reduction of Deferred Federal Tax
Provision for alternative minimum tax
State and local tax provision (10,523) (1,571)
----------- -------------
Provision for income taxes ($10,523) ($1,571)
=========== =============
</TABLE>
<PAGE>

LINKON CORPORATION
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JANUARY 31, 1997
----------------

NOTE 6 - COMMITMENTS AND CONTINGENCIES
-----------------------------
Leases
- ------
The Company is obligated for approximately 5000 square feet of office space
under non-cancelable operating leases. Minimum annual lease payments as of
January 31, 1997 were $49,511. Rent expense charged to operations was $106,975
and $185,899 for the years ending January 31, 1997 and 1996, respectively. The
Company is currently negotiating to renew its lease for office space.

Royalty Agreements
- ------------------
The Company acquires the rights to certain software algorithims from various
developers under renewable contracts of varying terms. Royalties are based on a
per unit charge based on sales of products utilizing such algorithims.

Warranties
- ----------
The Company warrants that all equipment manufactured by it will be free from
defects in material and workmanship under normal use for a period of one year
from the date of shipment. The Company's' expenses in connection with such
warranties have been minimal.

NOTE 7 - LONG TERM DEBT
--------------

During the year ended January 31, 1995, the Company issued $1,350,000 in
principal amount of convertible debentures. The debentures bear interest at a
rate of 10% per annum, payable quarterly. The first interest payment was not due
until October 31, 1995. The debentures are accompanied by detachable warrants to
purchase 316,664 shares of the Company's' common stock at an exercise price of
$2.00 per share. The warrants will expire on October 31, 2001. Such warrants
were valued at $93,103. The unamortized discount is carried as a reduction of
long-term debt on the balance sheet. The Company's rights to issue dividends are
restricted under this agreement. At January 31, 1997 interest amounting to
$86,111 has been accrued on these debentures. The following table shows the
maturities, at January 31, 1997 of the remaining principal less the discount
still to be amortized in future periods.

<TABLE>
<S> <C> <C>
Year ending January 31, 1997 --
1998 $ 350,000
1999 --
2000 1,000,000
Less Unamortized Discount @ January 31, 1997 (58,190)

================
Total $ 1,291,810
================
</TABLE>

NOTE 8 - SUPPLEMENTAL CASH FLOWS DISCLOSURES
-----------------------------------

Cash flows from operating activities for the year ended January 31, 1997
reflects interest paid of $ 217,635, interest earned of $6661 and taxes paid of
$5,523. The year ended January 31, 1996 reflected interest paid of $101,719,
interest earned of $13,248 and taxes paid of $1,571.

There were no noncash investing or financing activities during the years ended
January 31, 1997 and 1996.

NOTE 9 - RECLASSIFICATION OF THE AMORTIZATION OF CAPITALIZED SOFTWARE COSTS:
------------------------------------------------------------------

During the year ended January 31, 1997 the Company reclassified amortization of
capitalized software costs from Research and Development to the Cost of Goods
Sold. The prior year financial statements have been restated to reflect this
reclassification. This reclassification had no effect on net loss for the years
ended January 31, 1997 and 1996.
<PAGE>

Exhibit
No. Description of Document
- ------- -----------------------

3.1 Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit A to the Company's Proxy Statement
regarding the Annual Meeting of Stockholders held on March 25,
1997).

3.2 Amended and Restated By-laws (filed herewith).

4.1 10% Senior Secured Convertible Debenture Purchase Agreement,
dated October 27, 1994, between the Company and IBJS Capital
Corporation, including forms of the Company's Senior Debentures
and Warrant Certificates issued on October 27, 1994
(incorporated by reference to Exhibit 4.1 to the Company's Form
10-KSB for the fiscal year ended January 31, 1995).

4.2 Amendment No. 1 to Securities Purchase Agreement, dated as of
November 14, 1996, between the Company and IBJS Capital
Corporation (filed herewith).

4.3 Convertible Subordinated Debenture Purchase Agreement, dated
July 29, 1994, between the Company and the purchasers of
subordinated debentures set forth therein, including forms of
the Company's Subordinated Debentures and Warrant Certificates
issued on July 29, 1994 and the October 27, 1994 agreement
between said parties amending the same (incorporated by
reference to Exhibit 4.2 to the Company's Form 10-KSB for the
fiscal year ended January 31, 1995).

4.4 Placement Agent Agreement, dated January 14, 1994, between the
Company and Sloan Securities Corp., including forms of the
Company's Warrant Certificates, issued on January 28, 1994,
February 28, 1994 and April 30, 1994 and the October 27, 1994
agreement between said parties amending the same (incorporated
by reference to Exhibit 4.3 to the Company's Form 10-KSB for the
fiscal year ended January 31, 1995).

4.5 Employment Agreement dated March 1, 1993 between the Company
and Mr. Lee W. Hill (incorporated by reference to Exhibit 4.4 to
the Company's Form 10-KSB for the fiscal year ended January 31,
1995).

4.6 Employment Agreement Extension dated May 1, 1996 between the
Company and Mr. Lee W. Hill (filed herewith).

4.7 Employment Agreement dated May 1, 1996 between the Company
and Mr. Charles Castelli (filed herewith).

4.8 Employment Agreement dated March 15, 1996 between the Company
and Mr. Thomas V. Cerabona (filed herewith).

<PAGE>

Exhibit
No. Description of Document
- ------- -----------------------
<S> <C>
4.9 Employment Agreement dated May 1, 1996 between the
Company and Mr. Mark O'Brien (filed herewith).

4.10 Lease Agreement dated March 19, 1991 between the Company
and Sherman Street Limited Partnership (incorporated by
reference to Exhibit 12 (xiii) to the Company's
Registration Statement on Form S-1 (File Number 33-44506)
which became effective on August 20, 1992).

4.11 Linkon Corporation 1996 Stock Option and Performance
Incentive Plan (incorporated by reference to Exhibit B to
the Company's Proxy Statement regarding the Annual
Meeting of Stockholders held on March 25, 1997).

27 Financial Data Schedule (submitted herewith).
</TABLE>

<PAGE>
EXHIBIT 3.2

LINKON CORPORATION

* * * * *

B Y - L A W S

* * * * *

ARTICLE I

OFFICES
Section I. The principal office shall be in the Town of Fairfield,
State of Connecticut, in the County of Fairfield or at such other location as
the Board of Directors may determine from time to time.

Section 2. The corporation may also have offices at such other places
both within and without the State of Nevada as the board of directors may from
time to time determine or the business of the corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1. All meetings of the stockholders (annual or special) shall
be held at such times, dates and places, within or without the State of Nevada
as shall be determined by the Board and as stated in the notice of meeting or in
waivers of notice thereof or as otherwise set forth in these by-laws.

Section 2. Annual meetings of stockholders, shall be held on such
date after the close of the corporation's fiscal year as the Board may determine
from time to time.
<PAGE>

Section 3. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the articles of
incorporation, may be called by the president, and shall be called by the
president or secretary at the request in writing of a majority of the members of
the board of directors, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.

Section 4. Notices of meetings shall be in writing and signed by the
president or a vice president, or the secretary, or an assistant secretary, or
by such other person or persons as the directors shall designate. Such notice
shall state the purpose or purposes for which the meeting is called and the time
when, and the place, which may be within or without this state, where it is to
be held. A copy of such notice shall be either delivered personally to or shall
be mailed, postage prepaid, to each stockholder of record entitled to vote at
such meeting not less than ten nor more than sixty days before such meeting. If
mailed, it shall be directed to a stockholder at his address as it appears upon
the records of the corporation and upon such mailing of any such notice, the
service thereof shall be complete, and the time of the notice shall begin to run
from the date upon which such notice is deposited in the mail for transmission
to such stockholder. Personal delivery of any such notice to any officer of a
corporation or association, or to any member of a partnership shall

2
<PAGE>

constitute delivery of such notice to such corporation, association or
partnership. In the event of the transfer of stock after delivery or mailing of
the notice of and prior to the holding of the meeting it shall not be necessary
to deliver or mail notice of the meeting to the transferee.

Section 5. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.

Section 6. A majority of the stockholders, holding shares of stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the articles of incorporation. If, however, such quorum shall not
be present or represented by proxy at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally notified.

Section 7. When a quorum is present or represented by proxy at any
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of the statutes or

3
<PAGE>

of the articles of incorporation a different vote is required, in which case
such express provision shall govern and control the decision of such question.

Section 8. Every stockholder of record of the corporation shall be
entitled at each meeting of stockholders to one vote for each share of stock
standing in his name on the books of the corporation.

Section 9. At any meeting of the stockholders, any stockholder may be
represented and vote by a proxy or proxies represented by an instrument in
writing. In the event that any such instrument in writing shall designate two
or more persons to act as proxies, a majority of such persons present at the
meeting, or, if only one shall be present, then that one shall have and may
exercise all of the power conferred by such written instrument upon all of the
persons so designated unless the instrument shall otherwise provide. No such
proxy shall be valid after the expiration of six months from the date of its
execution, unless coupled with an interest, or unless the person executing it
specifies therein the length of time for which it is to continue in force, which
in no case shall exceed seven years from the date of its execution. Subject to
the above, any proxy duly executed is not revoked and continues in full force
and effect until an instrument revoking it or a dully executed proxy bearing a
later date is filed with the secretary of the corporation.

Section 10. Any action, except election of directors, which may be
taken by the vote of the stockholders at a meeting, may be

4
<PAGE>

taken without a meeting if authorized by the written consent of stockholders
holding at least a majority of the voting power, unless the provisions of the
statutes or of the articles of incorporation require a greater proportion of
voting power to authorize such action in which case such greater proportion of
written consents shall be required.

ARTICLE III

DIRECTORS

Section 1. The number of directors shall be neither more than nine
nor less than three, the exact number thereof to be fixed from time to time by
action of a majority of the directors then in office. Except as set forth in
Section 2. of this Article III, directors shall be elected at the annual meeting
of the stockholders, and otherwise each director elected shall hold office until
his successor is elected and qualified. Directors need not be stockholders.

Section 2. Vacancies, including those caused by an increase in the
number of directors, may be filled by a majority of the remaining directors
though less than a quorum. When one or more directors shall give notice of his
or their resignation to the board, effective at a future date, the board shall
have power to fill such vacancy or vacancies to take effect when such
resignation or resignations shall become effective, each director so appointed
to hold office during the remainder of the term of office of the resigning
director or directors.

5
<PAGE>

Section 3. The business of the corporation shall be managed by its
board of directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the articles of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.

Section 4. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Nevada.

MEETINGS OF THE BOARD OF DIRECTORS

Section 5. The first meeting of each newly elected board of directors
shall be held promptly following (but on the same date and at the same place)
each annual meeting of stockholders at such place and on such date thereof and
no notice of such meeting shall be necessary to the newly elected directors in
order legally to constitute the meeting, provided a quorum shall be present.

Section 6. Regular meetings of the board of directors may be held
without notice at such time and place as shall from time to time be determined
by the board.

Section 7. Special meetings of the board of directors may be called
by the president or secretary on the written request of two directors. Written
notice of special meetings of the board of directors shall be given to each
director before the date of the meeting.

Section 8. A majority of the board of directors, at a meeting duly
assembled, shall be necessary to constitute a quorum for the transaction of
business and the act of a majority of the directors

6
<PAGE>

present at any meeting at which a quorum is present shall be the act of the
board of directors, except as may be otherwise specifically provided by statute
or by the articles of incorporation. Any action required or permitted to be
taken at a meeting of the directors may be taken without a meeting if a consent
in writing, setting forth the action so taken, shall be signed by all of the
directors entitled to vote with respect to the subject thereof.

COMMITTEES OF DIRECTORS

Section 9. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation, which, to the extent
provided in the resolution, shall have and may exercise the powers of the board
of directors in the management of the business and affairs of the corporation,
and may have power to authorize the seal of the corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
board of directors.

Section 10. The committees shall keep regular minutes of their
proceedings and report the same to the board when required.

COMPENSATION OF DIRECTORS

Section 11. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall

7
<PAGE>

preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees shall
be allowed like compensation for attending committee meetings.

CERTAIN RIGHTS OF HOLDERS OF DEBENTURES

Section 12. Notwithstanding any provision to the contrary, holders
("Holders") of the 10% Senior Secured Convertible Debenture, dated October 27,
1994 (the "Debenture"), shall collectively and voting separately as one (1)
class, on an as-converted basis, have the exclusive and special right to: (i)
elect one (1) director at all times prior to the satisfaction in full of the
Debenture; (ii) elect one (1) additional director (two (2) directors in total)
at all times duing a Penalty Deferral Period (as such term is defined in the
Debenture); and (iii) elect an additional director (three (3) directors in
total) at all times during a Default Penalty Period (as such term is defined in
the Debenture). Upon the occurrence of a Penalty Deferral Period, the number of
directors constituting the Board of Directors shall be automatically increased
by one (1). Upon the occurrence of a Default Penalty Period, the number of
directors constitutuing the Board of Directors shall be automatically increased
by an additional one (1). If at any time after the occurrence of a Penalty
Deferral Period or a Default Penalty Period, the events or conditions having
given rise to such Penalty Deferral Period or Default Penalty Period, as the
case may be, shall have been cured, then the Holders shall be divested of the
special voting rights

8
<PAGE>

relating to such Penalty Deferral Period or Default Penalty Period, as the case
may be, upon the later to occur of the condition causing the same or the first
anniversary of the commencement of the same. Upon the termination of any special
voting rights as hereinabove provided, the number and membership of the Board of
Directors shall automatically and without any director or shareholder action
revert to the number in effect immediately prior to the increase in the size of
the Board of Directors pursuant to the foregoing provisions and the election of
Directors by the Holders to fill the vacancies created by such increase in size.

ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in writing
and delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.

Section 2. Whenever all parties entitled to vote at any meeting,
whether of directors or stockholders, consent, either by a writing on the
records of the meeting or filed with the secretary, or by presence at such
meeting and oral consent entered on the minutes, or by taking part in the
deliberations at such meeting without objection, the doings of such meeting
shall be as valid as if at a meeting regularly called and noticed, and at such

9
<PAGE>

meeting any business may be transacted which is not excepted from the written
consent or to the consideration of which no objection for want of notice is made
at the time, and if any meeting be irregular for want of notice or of such
consent, provided a quorum was present at such meeting, the proceedings of said
meeting may be ratified and approved and rendered likewise valid and the
irregularity or defect therein waived by a writing signed by all parties having
the right to vote at such meetings; and such consent or approval of stockholders
may be by proxy or attorney, but all such proxies and powers of attorney must be
in writing.

Section 3. Whenever any notice whatever is required to be given under the
provisions of the statutes, of the articles of incorporation or of these by-
laws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.

ARTICLE V
OFFICERS

Section 1. The officers of the corporation shall be chosen by the
board of directors and shall be a president, a vice president, a secretary and a
treasurer. Any person may hold two or more offices.

Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a president, a

10
<PAGE>

vice president and a secretary, none of whom need be a member of the board.

Section 3. The board of directors may appoint a treasurer, additional
vice presidents, and assistant secretaries and assistant treasurers and such
other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the board.

Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.

Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation by death, resignation, removal or otherwise shall be filled by the
board of directors.

THE PRESIDENT

Section 6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation, and shall see that all orders and resolutions of the board of
directors are carried into effect.

Section 7. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation,

11
<PAGE>

except where required or permitted by law to be otherwise signed and executed
and except where the signing and execution thereof shall be expressly delegated
by the board of directors to some other officer or agent of the corporation.

THE VICE PRESIDENT

Section 8. The vice president shall, in the absence or disability of the
president, perform the duties and exercise the powers of the president and shall
perform such other duties as the board of directors may from time to time
prescribe.

THE SECRETARY

Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall keep in safe custody
the seal of the corporation and, when authorized by the board of directors,
affix the same to any instrument requiring it and, when so affixed, it shall be
attested by his signature or by the signature of the treasurer or an assistant
secretary.

12
<PAGE>

THE TREASURER

Section 10. He shall disburse the funds of the corporation as may be
ordered by the board of directors taking proper vouchers for such disbursements,
and shall render to the president and the board of directors, at the regular
meetings of the board, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.

Section 11. If required by the board of directors, he shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.

ARTICLE VI
CERTIFICATES OF STOCK

Section 1. Every stockholder shall be entitled to have a certificate,
signed by the president or a vice president and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by him in the corporation. When the
corporation is authorized to issue shares of more than one class or more than
one series of any class, there shall be set forth upon the face or back of the
certificate, or the certificate shall have a statement that

13
<PAGE>

the corporation will furnish to any stockholders upon request and without
charge, a full or summary statement of the designations, preferences and
relative, participating, optional or other special rights of the various classes
of stock or series thereof and the qualifications, limitations or restrictions
of such rights, and, if the corporation shall be authorized to issue only
special stock, such certificate shall set forth in full or summarize the rights
of the holders of such stock.

Section 2. Whenever any certificate is countersigned or otherwise
authenticated by a transfer agent or transfer clerk, and by a registrar, then a
facsimile of the signatures of the officers or agents of the corporation may be
printed or lithographed upon such certificate in lieu of the actual signatures.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall have been used on, any such certificate or
certificates shall cease to be such officer or officers of the corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be the officer or officers of such corporation.

14
<PAGE>

LOST CERTIFICATES

Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates heretofore
issued by the corporation alleged to have been lost or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost or destroyed. When authorizing such issue of a new certificate
or certificates, the board of directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall required and/or give the corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost or destroyed.

TRANSFER OF STOCK

Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence or succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.

CLOSING OF TRANSFER BOOKS

Section 5. The directors may prescribe a period not exceeding sixty days
prior to any meeting of the stockholders during which no transfer of stock on
the books of the corporation may be made, or

15
<PAGE>

may fix a day not more than sixty days prior to the holding of any such meeting
as the day as of which stockholders entitled to notice of and to vote at such
meeting shall be determined, and only stockholders of record on such day shall
be entitled to notice or to vote at such meeting.

REGISTERED STOCKHOLDERS

Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Nevada.

ARTICLE VII

GENERAL PROVISIONS

DIVIDENDS

Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the articles of incorporation, if any, may be declared by the
board of directors at any regular or special meeting pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the articles of incorporation.

16
<PAGE>

Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserves in the
manner in which it was created.

CHECKS

Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.

FISCAL YEAR

Section 4. The fiscal year of the corporation shall be fixed by resolution
of the board of directors.

SEAL

Section 5. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its incorporation and the words "Corporate Seal,
Nevada."

17
<PAGE>

ARTICLE VIII

AMENDMENTS

Section 1. These by-laws may be altered or repealed at any regular meeting
of the stockholders or of the board of directors or at any special meeting of
the stockholders or of the board of directors if notice of such alternation or
repeal be contained in the notice of such special meeting.

<PAGE>

EXHIBIT 4.2

AMENDMENT NO.1
TO
SECURITIES PURCHASE AGREEMENT
DATED
OCTOBER 27, 1994,
BETWEEN
LINKON CORPORATION
AND
IBJS CAPITAL CORPORATION

This AMENDMENT NO. 1 to Securities Purchase Agreement (this "Agreement"),
is made as of this 14th day of November, 1996, by and between Linkon
Corporation, a Nevada corporation ("Linkon"), and IBJS Capital Corporation, a
Delaware corporation ("IBJS"). Linkon and IBJS are referred to collectively
herein as the "Parties."

RECITALS
--------

Linkon and IBJS have entered into a Securities Purchase Agreement, dated as
of October 27, 1994 (the "Purchase Agreement"). It is the desire of the Parties
to amend certain provisions of the Purchase Agreement and certain ancillary
instruments and agreements contemplated therein as set forth herein.

ACCORDINGLY, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:

AGREEMENT
---------

1. All capitalized terms used herein but not otherwise defined herein shall
have the meanings ascribed thereto in the Purchase Agreement.

2. Section 4 of the $1,000,000.00 Linkon Corporation 10% Senior Secured
Convertible Debenture, dated October 27, 1994 (the "Debenture"), issued by
Linkon to IBJS in connection with the transactions contemplated by the Purchase
Agreement, is hereby amended to provide, in its entirety, as follows:

SECTION 4. Prepayment. The Corporation shall be entitled to prepay
----------
any or all principal amounts outstanding under this Debenture prior to
the stated maturity date thereof at any time and from time to time as
follows (and only as follows):

<PAGE>

(a) As set forth in Section 5.2(a), Section 5.2(b) and/or Section
5.2(c) of this Debenture with respect to certain conversion; and

(b) Upon twenty days prior written notice; provided, however, that
with respect to prepayments made under this Section 4(b): (i)
prepayments shall be in amounts equal to no less than the lesser of
$50,000 or the remaining principal amount hereunder, and (ii)
simultaneously with any such prepayment, the Corporation shall issue to
the holder of this Debenture warrants, substantially in the form of
Annex I hereto, to purchase that number of shares of Common Stock (as
hereinafter defined) equal to the quotient obtained by dividing the
principal amount then being prepaid by the Conversion Price (as
hereinafter defined) then in effect, and having a Warrant Price (as
defined in Annex I hereto) equal to the Conversion Price then in effect.

3. The Debenture is hereby amended by making Annex I hereto Annex I
thereto.

4. Upon Linkon's request in connection with the issuance of any Prepayment
Warrants, IBJS agrees to remake to Linkon, in writing, such of the
representations and warranties set forth in clauses (b) through (g) of Section 5
of the Purchase Agreement as Linkon may reasonably request.

5. Section 7.3(a)(iii) of the Purchase Agreement is hereby amended to
provide, in its entirety, as follows:

(iii) sell, lease or otherwise dispose of its properties or assets
(other than (x) sales of products in the ordinary course of business,
and (y) sales of accounts receivables in customary factoring agreements
on ordinary commercial terms to entities engaged in factoring for
working capital purpose) or merge or consolidate with or into any other
corporation, corporations, entity or entities;

6. Section 7.3(a)(vi) of the Purchase Agreement is hereby amended to
provide, in its entirety, as follows:

(vi) incur any indebtedness for borrowed money or guarantee any
obligation of any other person other than (A) the Debentures, (B)
indebtedness from a lending institution for working capital purposes
secured solely by Liens on inventory and accounts receivable of the
Corporation and (C) indebtedness which by its terms is subordinated in
right of payment and performance to the Debentures in an aggregate
amount less than $5.0 million

2
<PAGE>

(provided, however, that nothing in this Section 7.3(a)(vi) shall
prohibit the type of factoring arrangements contemplated by Section
7.3(a)(iii) above);

7. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
wholly therein. This Agreement may be executed in any number of counterparts,
and each such counterpart hereof shall be deemed to be an original instrument,
but all such counterparts together shall constitute but one agreement. Facsimile
counterpart signatures to this Agreement shall be acceptable. EXCEPT AS
EXPRESSLY AMENDED HEREBY, THE PROVISIONS OF THE PURCHASE AGREEMENT, THE
DEBENTURE AND ALL OTHER AGREEMENTS AND INSTRUMENTS DELIVERED IN ACCORDANCE
THEREWITH ARE, AND WILL REMAIN, IN FULL FORCE AND EFFECT AND NOTHING IN THIS
AMENDMENT WILL BE CONSTRUED AS A WAIVER OF ANY OF THE RIGHTS OR OBLIGATIONS OF
THE PARTIES UNDER ANY OF THE ABOVE LISTED DOCUMENTS.

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

LINKON CORPORATION

By:/s/ Thomas V. Cerabona
----------------------
Name: Thomas V. Cerabona
Title: Vice President, Operations

IBJS CAPITAL CORPORATION

By:/s/ Rick Krueger
---------------------
Name: Rick Krueger
Title: Vice President

<PAGE>

EXHIBIT 4.6

May 1, 1996

Lee W. Hill
President and Chief Executive Officer
Linkon Corporation
140 Sherman Street
Fairfield, CT 06430

EMPLOYMENT AGREEMENT EXTENSION
------------------------------

Dear Mr. Hill:

We are now in the fourth year of your Employment Agreement with Linkon
Corporation to serve as President and Chief Executive Officer of Linkon
Corporation. As we have discussed Linkon Corporation would like to extend and
update our current Agreement.

As consideration for this Agreement Extension, Linkon Corporation will:

1.) Provide you with seventy five thousand options to purchase Linkon
Corporation common stock at a purchase price equal to the closing price of
Linkon stock for the day that this Agreement Extension is signed. These
options will vest immediately and will be identical in form to those you
currently possess.

The changes, additions and deletions to our Employment Agreement follow here as
Addendum A.

Should you agree to these terms, please sign this letter and the Addendum and
return a signed copy to me.

Sincerely,

/s/ Charles Castelli

Charles Castelli
Chairman of the Board and Chief Technology Officer

enclosure (1)

I concur with these terms,

/s/ Lee W. Hill 5/1/96
------------------------------- ------------
Lee W. Hill Date
<PAGE>

Addendum A
----------

Changes, additions and deletions to EMPLOYMENT AGREEMENT between Linkon
Corporation and Lee W. Hill dated March 1, 1993.

I..) Opening paragraph:
Update addresses to reflect changes:

Linkon Corporation's new address is 140 Sherman Street,
Fairfield, CT 06430.
Lee W. Hill's new address is 62 Arch Street, Riverside, CT
06878.

II.) Paragraph 2.) TERM:
----
Replace entire paragraph with:

The term of this renewed Agreement shall commence on the
date of the signing of this Agreement Extension and
shall continue for two years or until otherwise
terminated as provided in this Agreement.

III.) Paragraph 3.) COMPENSATION:
------------
Replace entire paragraph with:

The company agrees to pay Hill a minimum annual salary
of one hundred and fifty thousand dollars ($150,000) per
year. Once, the company achieves profitability at the
operating income level for at least two consecutive
quarters, this annual salary shall be a minimum annual
salary of $175,000 per year. Upon achievement of
profitability at the net income level for at least two
consecutive quarters, the salary shall be a minimum
annual salary of $200,000 per year.

IV.) Paragraph 14.) GOVERNING LAW:
--------------
Delete:
"....County of New York, State of New York."

Replace with
"Fairfield County, State of Connecticut."

For Linkon Corporation:

/s/ Charles Castelli 5/1/96
-------------------------------------------------- -------------------
Charles Castelli Date
Chairman of the Board and Chief Technology Officer

/s/ Lee W. Hill 5/1/96
-------------------------------------------------- -------------------
Lee W. Hill Date

<PAGE>

EXHIBIT 4.7

May 1, 1996

Charles Castelli
141 E. Central Avenue
Palisades Park, NJ 07650

Employment Agreement
--------------------

Dear Mr. Castelli:

The purpose of this letter is to summarize the terms of our agreement for your
employment as Chairman and Chief Technology Officer (CTO) of Linkon Corporation.
As CTO, this full time position reports to me as President and CEO and is
located in our Fairfield, CT office. Following are the terms of employment:

1.) Responsibility
- ------------------

You will be responsible for the strategic direction of Linkon's product
offerings. You will survey the technical, trade and financial literature and
make recommendations on products or companies Linkon Corporation should create,
use or acquire. Attachment 1 to this letter provides a more detailed
definition of duties.

2.) Compensation
- ----------------

A monthly base salary of $8,500 which will be reviewed annually. Once
the company achieves profitability at the operating income level for at
least two consecutive quarters, this monthly base salary shall be
$10,000. And upon the company achieving profitability for at least two
consecutive quarters at the net income level, this monthly base salary
shall be 12,500 per month.

A performance bonus of $25,000 paid annually based upon achievement of
goals as defined in Attachment 2 of this letter.

Participation in our "Executive Incentive Compensation Plan" upon its
implementation.

3.) Options
- -----------

You will participate in the Linkon stock option plan.
You will receive in any event, 100,000 fully vested options provided
Linkon Corporation shows a net profit for two consecutive quarters.

4.) Benefits
- ------------

Linkon has health and life insurance programs for which you are
eligible.
Linkon has a 401K program for which you are eligible.
You will be entitled to one month vacation.
You will receive an auto allowance of $600 per month.

<PAGE>

Term
- ----

The term of this employment agreement shall commence on the day of the signing
of this employment agreement and shall continue for two years or until otherwise
terminated in this agreement.

5.) Termination
- ---------------

In the event you are terminated for cause, you will receive no
compensation. "Cause" is defined as: (i) Violation of any rule or
regulation of any regulatory organization or Governmental agency
which is injurious to Linkon. (ii) Your conviction of a felony.
(iii) Your conviction of any crime involving moral turpitude. (iv)
A finding that you sexually harassed or discriminated against any
company employee. (v) A material breach of the terms of this offer.
Should Linkon terminate you, you will receive a severance payment equal
to one year salary plus any bonus earned and benefits.
In the event, Linkon undergoes a sales, merger or acquisition to a 3rd
Party resulting in your termination, you will receive a severance
payment equal to one year base salary plus any bonus earned and
benefits.

6.) Indemnification
- -------------------

Linkon will indemnify you for any and all claims, suits, proceedings, damages,
losses or liabilities incurred by you and arising out of any acts or decisions
done or made by Linkon from the signing of this agreement. Linkon agrees to pay
your reasonable expenses, including reasonable attorney's fees, actually
incurred by you in connection with the defense of any such action, suit or
proceedings and in connection with any appeal thereon including the cost of
court settlements if such settlement is agreed to by Linkon. Nothing contained
herein shall entitle you to indemnification by Linkon in excess of that
permitted by applicable law.

7.) Non-Competition
- -------------------

You agree that in consideration for Linkon's agreement contained in this offer,
you will not, directly or indirectly, be employed by, manage, operate, control
or acquire an interest in, or otherwise engage or participate in any business
which is in competition with the business of Linkon.

Please sign this letter as an indication of your acceptance of these terms of
employment.

Sincerely,

/s/ Lee W. Hill

Lee W. Hill
President and CEO

2
<PAGE>

enclosure (2) I accept the terms of this employment agreement,

/s/ Charles Castelli 5/1/96
------------------------------- -----------------
Charles Castelli Date

<PAGE>

EXHIBIT 4.8

March 15, 1996

Thomas V. Cerabona
3061 Dahlia Court
Yorktown Heights, NY 10598

Offer of Employment
-------------------

Dear Tom:

Linkon Corporation is pleased to offer you the opportunity to join our firm as
Vice President, Operations. This full time position reports to me as President
and CEO and is located in our Fairfield, CT office. Following are the elements
of our offer:

1.) Responsibility
- ------------------

You will be responsible for the manufacturing, quality assurance, distribution,
sales administration, customer support and finance departments. Attachment 1 to
this letter provides a more detailed definition of duties.

2.) Compensation
- ----------------

A monthly base salary of $8,500 which will be reviewed in six months.
A performance bonus of $23,000 paid semi-annually based upon achievement
of goals as defined in Attachment 2 of this letter.
Participation in our "Executive Incentive Compensation Plan" upon its
implementation.

3.) Options
- -----------

You will be provided 50,000 non-qualified restricted options to purchase
Linkon stock. 25,000 of these options will vest upon your acceptance
of this offer of employment and the remaining 25,000 will vest either
upon the completion of one year of service with our firm or upon the
sales, merger or acquisition of Linkon to or by a 3/rd/ Party.
You will receive an additional 25,000 fully vested options provided
Linkon Corporation shows a net profit for the month of January, 1997
or upon the sales, merger or acquisition of Linkon to or by a 3/rd/
Party.

4.) Benefits
- ------------

Linkon has health and life insurance programs for which you are
eligible.
Linkon has a 401K program for which you are eligible.
You will be entitled to a two week vacation.
You will receive an auto allowance of $500 per month following three
months of service.

5.) Termination
- ---------------
<PAGE>

Should Linkon terminate you within six months of your hire date, you
will receive a severance payment equal to 3 month's salary plus any
bonus earned and benefits. If after six months of your hire date, you
will receive a severance payment equal to 6 month's salary plus any
bonus earned and benefits.

In the event, Linkon undergoes a sales, merger or acquisition to a 3rd
Party resulting in your termination, you will receive a severance
payment equal to six month's base salary plus any bonus earned and
benefits.

6.) Indemnification
- -------------------

Linkon will indemnify you for any and all claims, suits, proceedings, damages,
losses or liabilities incurred by you and arising out of any acts or decisions
done or made by Linkon prior to your joining Linkon Corporation. Linkon agrees
to pay your reasonable expenses, including reasonable attorney's fees, actually
incurred by you in connection with the defense of any such action, suit or
proceedings and in connection with any appeal thereon including the cost of
court settlements if such settlement is agreed to by Linkon. Nothing contained
herein shall entitle you to indemnification by Linkon in excess of that
permitted by applicable law.

7.) Non-Competition
- -------------------

Please sign this letter and return it to me as an indication of your acceptance
of our offer of employment.

Sincerely,

/s/ Lee W. Hill

Lee W. Hill
President and CEO

cc: Charles Castelli, Chairman and Chief Technology Officer
enclosure (2)

2
<PAGE>

I accept this offer of employment,

/s/ Thomas V. Cerabona 3/15/96
---------------------------------------- --------------
Thomas V. Cerabona Date

<PAGE>

EXHIBIT 4.9

May 1, 1996

Mark O'Brien
485 Camp Fuller Road
Wakefield, RI 02879

Employment Agreement
--------------------

Dear Mr. O'Brien:

The purpose of this letter is to summarize the terms of our agreement for your
employment as Vice President of Linkon Corporation. Following are the terms of
employment:

1.) Responsibility
- ------------------

You will be responsible for the profitability of Linkon's international business
as well as the management of certain other named multi- national accounts. You
will create, implement and manage an annual plan for Linkon's activities
internationally and in the named accounts. Attachment 1 to this letter provides
a more detailed definition of duties.

2.) Compensation
- ----------------

A monthly base salary of $7,000 which will be reviewed annually.
A sales commission of 2% on all designated accounts paid quarterly.
A performance bonus of $15,000 paid annually based upon achievement of
goals as defined in Attachment 2 of this letter.
Participation in our "Executive Incentive Compensation Plan" upon its
implementation.

3.) Options
- -----------

You will receive sixty two thousand five hundred (62,500) fully vested
options to purchase Linkon common stock at the closing price of Linkon
common stock on the date of the signing of this agreement.
You will receive, 25,000 fully vested options provided Linkon
Corporation shows a net profit for two consecutive quarters.

4.) Benefits
- ------------

You will receive $500 per month as reimbursement of your health and life
insurance programs.
Linkon eligible to participate in Linkon's 401K plan.
You are eligible for three weeks vacation time.
You will receive an auto allowance of $500 per month.
<PAGE>

Term
- ----

The term of this agreement shall commence on the day of the signing of this
agreement and shall continue for two years or until otherwise terminated as per
the terms of this agreement.

5.) Termination
- ---------------

In the event you are terminated for cause, you will receive no
compensation. "Cause" is defined as: (i) Violation of any rule or
regulation of any regulatory organization or Governmental agency which
is injurious to Linkon. (ii) Your conviction of a felony. (iii) Your
conviction of any crime involving moral turpitude. (iv) A finding that
you sexually harassed or discriminated against any company employee.
(v) A material breach of the terms of this agreement.
Should Linkon terminate you, you will receive a severance payment equal
to six months salary plus any commissions or bonus earned.
In the event, Linkon undergoes a sales, merger or acquisition to a third
Party resulting in your termination, you will receive a severance
payment equal to one year base salary plus any commissions or bonus
earned.

6.) Indemnification
- -------------------

7.) Non-Competition
- -------------------

Please sign this letter as an indication of your acceptance of these terms of
employment.

Sincerely,

/s/ Lee W. Hill

Lee W. Hill
President and CEO

cc: Charles Castelli, Chairman and Chief Technology Officer

2
<PAGE>

enclosure (2) I accept the terms of this employment agreement,

/s/ Mark O'Brien 5/1/96
------------------------------ ------------
Mark O'Brien Date

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET DATED AS OF JANUARY 31, 1997, AND THE COMPANY'S
STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED JANUARY 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE
NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 630,726
<SECURITIES> 0
<RECEIVABLES> 770,155
<ALLOWANCES> 282,298
<INVENTORY> 628,498
<CURRENT-ASSETS> 1,805,594
<PP&E> 1,385,497
<DEPRECIATION> 869,902
<TOTAL-ASSETS> 3,383,421
<CURRENT-LIABILITIES> 895,370
<BONDS> 1,291,810
0
0
<COMMON> 10,867
<OTHER-SE> 1,185,374
<TOTAL-LIABILITY-AND-EQUITY> 3,383,421
<SALES> 4,405,315
<TOTAL-REVENUES> 4,405,315
<CGS> 2,547,505
<TOTAL-COSTS> 2,547,505
<OTHER-EXPENSES> 2,947,740
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 233,152
<INCOME-PRETAX> (667,003)
<INCOME-TAX> 10,523
<INCOME-CONTINUING> (677,526)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (677,526)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)

</TABLE>