CODED COMMUNICATIONS CORP /DE/, 10-K, 1997-03-27

CODED COMMUNICATIONS CORP /DE/
10-K, 1997-03-27
RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT

Previous: STELAX INDUSTRIES LTD, 8-K, 1997-03-27

Next: ENEX 88 89 INCOME & RETIREMENT FUND SERIES 3 L P, 10KSB, 1997-03-27

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

FORM 10-KSB
(Mark One)

[x] Annual Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934 (Fee Required)

For the fiscal year ended December 31, 1996

[ ] Transition Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)

For the transition period from to ________

Commission file number 0-17574

CODED COMMUNICATIONS CORPORATION
(Name of Small Business Issuer in Its Charter)

Delaware 33-0580412
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S.Employer Id. No.)

1939 Palomar Oaks Way, Carlsbad, California 92009
(Address of Principal Executive Offices) (Zip Code)

(619) 431-1945
(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, $.01 par value
___________________(Title of class)____________________________

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

Check if there is no 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. [ ]

The Registrant's revenues for its most recent fiscal year were
$11,310,000.

As of February 28, 1997, the aggregate value of common stock held
by non-affiliates of the Registrant was $5,801,000 based on the closing
bid price as reported by the NASD OTC Electronic Bulletin Board. The
number of shares of common stock outstanding on March 1, 1997 was
75,984,812.

DOCUMENTS INCORPORATED BY REFERENCE

The following document is incorporated by reference into Part III of
this Annual Report on Form 10-KSB: Definitive Proxy Statement for the
1997 Annual Meeting of Shareholders

CODED COMMUNICATIONS CORPORATION
1996 FORM 10-KSB ANNUAL REPORT

TABLE OF CONTENTS

PART I

Page

Item 1. Description of Business 3

Item 2. Description of Property 14

Item 3. Legal Proceedings 15

Item 4. Submission of Matters To A Vote of Security Holders 15

PART II

Item 5. Market for Common Equity and Related Stockholder Matters 16

Item 6. Management's Discussion and Analysis or Plan of Operation 17

Item 7. Financial Statements. 23

Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 23

PART III

Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of the
Exchange Act 24

Item 10. Executive Compensation 24

Item 11. Security Ownership of Certain Beneficial Owners and
Management 24

Item 12. Certain Relationships and Related Transactions 24

Item 13. Exhibits and Reports on Form 8-K 24

PART I

ITEM 1. DESCRIPTION OF BUSINESS

General

Coded Communications Corporation (the "Company") was initially
incorporated on September 12, 1980, under the laws of the Province of
British Columbia. In 1993, the Company's shareholders approved a series
of transactions which resulted in the Company reincorporating in the
United States under the laws of the State of Delaware. The
reincorporation did not affect the business, assets, liabilities or
operations of the Company, other than for the costs related to the
transaction.

The Company, through its wholly-owned subsidiaries Coded Mobile
Communications, Inc. ("Coded") and Decom Systems, Inc. ("Decom")
designs, manufactures and distributes a wide range of wireless digital
transmitting, receiving and processing equipment and systems for use in
two primary markets: mobile data communications and aerospace
telemetry. The Company's mobile data and aerospace telemetry products
employ similar technologies and techniques to receive and process
digitized information transmitted over public and private wireless data
communications networks and satellite communications links. In 1994,
the Company also designed, integrated and marketed VSAT earthstation
terminals. The VSAT earthstation product line was closed at the end of
1994. The Company's sales by major product lines for the three year
period ended December 31, 1996, were:
<TABLE>

<CAPTION> 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Mobile data communications $7,991,000 56% $6,676,000 66% $7,880,000 70%
Aerospace telemetry 4,125,000 29 3,495,000 34 3,430,000 30
VSAT earthstations 2,175,000 15 --- -- --- --
$14,291,000 100% $10,171,000 100% $11,310,000 100%
</TABLE>

The Company, through its wholly-owned subsidiary Coded, designs,
manufactures and markets a wide range of electronic signaling equipment
used to provide wireless communications in mobile and fixed radio
systems. Coded's products include wireless radio modems and mobile
computing terminals, automatic vehicle location terminals using the
Global Positioning Satellite system ("GPS"), wireless connectivity
software, and radio system network controllers. The Company's
communications systems provide a wireless means of transmitting and
receiving information digitally over radio channels, and at the same
time enable the mobile workforce to interface and access information
systems on a real-time basis. Sales of mobile data communications
products and services were $7,991,000, $6,676,000 and $7,880,000 in
1994, 1995, and 1996, respectively. The Company believes mobile data
communications products and services will represent not less than 70% to
75% of consolidated sales in the near term.

The Company's aerospace telemetry products and systems include the
Quad 7 telemetry acquisition and processing system, and telemetry front-
end ground support equipment which includes PCM bit synchronizers
operating at data rates of up to 35 megabits per second, PCM
decommutators and QPSK modems. These products are used to receive,
demodulate, synchronize and decode digital signals in radio and
satellite communication links. The Company's aerospace telemetry
systems and products are used in space, aircraft and weapons research,
development and test programs conducted by major aerospace and defense
contractors and United States government agencies. The Company's
aerospace telemetry products and systems are also used in military
satellite communications systems. Sales of aerospace telemetry products
and services were $4,125,000, $3,495,000 and $3,430,000 in 1994, 1995,
and 1996, respectively.

Cautionary Statements

The Annual Report on Form 10-KSB (the "Annual Report") contains
forward-looking statements within the meaning of the Securities Act of
1933, as amended. Discussions containing such forward-looking
statements may be found throughout this Annual Report, including without
limitation in the materials set forth under "Description of Business"
and "Management's Discussion and Analysis or Plan of Operations."
Actual events or results may differ materially from those discussed in
the forward-looking statements as a result of various factors, including
without limitation the risks set forth under the notes to the
consolidated financial statements and the matters set forth in this
Annual Report generally.

Current Developments

On March 3, 1997, Mr. Gary L. Luick was named the Company's
president and chief executive officer. In addition, Mr. Luick was
appointed to the Company's board of directors. Mr. Luick, age 56, served
as president of GTI Corporation from 1989-1995 and as CEO from 1991-
1995. GTI Corporation is a publicly-held corporation. Mr. Luick is
currently a director of Remec Corporation, a publicly-held manufacturer
of microwave modules for microwave systems for the commercial wireless-
communications market.

Prior to joining GTI Corporation, Mr. Luick served in varied
management roles at Allied-Signal Corporation over a 10 year period.
His responsibilities centered on corporate development, including
numerous acquisitions, divestitures and turnarounds of subsidiaries. He
also served as a director of several Allied-Signal European
subsidiaries.

Mr. John A. Robinson, Jr., the Company's president and chief
executive officer since March 1995, was named as the president of Decom.
Mr. Robinson, who also served as a member of the Company's board of
directors, resigned as a director.

Investment and Restructuring of Debt

In the first quarter of 1995, the Company reorganized its
operations and management. These actions included the closing of the
Company's VSAT product line and all international mobile data sales
offices. In addition, the Company's CEO resigned and a number of
management positions were eliminated to reduce costs and expenses. As a
result of the reorganization, operating expenses in the year ended
December 31, 1995 were reduced by approximately $8,400,000 compared to
1994, and the Company achieved its first operating profit, before
interest and income taxes, in the last half of 1995.

In September 1996, the Company completed a series of transactions
which resulted in ISA Investments Corporation ("ISA Investments"), a
majority-owned subsidiary of Grupo Information Satellites and
Advertising, ("ISA"), acquiring a 76% common stock ownership interest in
the Company; and the restructuring of the Company's $6,600,000 in
secured debt. ISA Investments and ISA are part of an affiliated group
of privately-held Mexican corporations controlled by Mr. Hugo R. Camou
and his immediate family.

ISA acquired its 57,272,767 shares or 76% common stock ownership
interest for, among other things, cash payments totaling $1,400,000 and
an ISA guarantee of not less then $10,000,000 in orders for the
Company's mobile data communications products from ISA customers in
Mexico and Latin America, over an eighteen month period. Prior to its
investment in the Company, ISA was a distributor of the Company's mobile
data communications products in Mexico. As a result of its controlling
interest in the Company's common stock and its ability to nominate and
elect a majority of the members of the Company's Board of Directors, the
Company is considered to be controlled by ISA.

In connection with the ISA investment in the Company, holders of
the Company's senior secured $1,800,000 principal amount Bridge Loan
canceled their debt in exchange for a cash payment of $400,000; the
issuance of 8,000 shares of the Company's Series A preferred stock (with
a liquidation preference of $800,000); and the issuance of new
$600,000 principal amount, 6% Term Notes, due September 27, 1997. The 6%
Term Notes are convertible, at the option of the holders, into 2,400,000
shares of common stock and are collateralized by a security interest in
the Company's assets. In addition, the holder of the Company's secured
$4,000,000 principal amount, 12% Convertible Debentures ("12%
Debentures") converted the 12% Debentures and accrued interest of
approximately $800,000 into a new seven year, $4,800,000 principal
amount 6% Convertible Debenture (the "6% Debenture"). The 6% Debenture
was subsequently converted in December 1996 into 48,000 shares of the
Company's Series B preferred stock, with a liquidation preference of
$4,800,000. The Series B preferred stock is convertible into
approximately 7,837,000 shares of the Company's common stock. All of
the shares of Series B preferred stock are held by Renaissance Capital
Partners, II, Ltd., an investment partnership fund based in Dallas,
Texas.

As a result of the ISA investment of $1,400,000, the conversion of
approximately $5,600,000 of secured debt into common and preferred
stock, and net income for the year ended December 31, 1996, the Company
eliminated a shareholder deficit of $7,571,000 existing at the beginning
of 1996, and reduced debt and liabilities in 1996 by $8,319,000 as
compared to the end of 1995.

The business and operations of the Company following the investment
by ISA and the restructuring of debt were not changed, and it is the
present intent of ISA to continue the Company as a publicly-held
corporation with its principal operations located in the United States.
See Note 5 "Investments and Restructuring of Debt", Note 7 "Debt and
Creditors' Note" and Note 10 "Common and Preferred Stock".

Extinguishment of Debt

In the first half of 1995, as an integral part of its restructuring
plan, the Company proposed an out-of-court composition settlement plan
(the "Creditor Plan") to substantially all unsecured creditors with past
due claims. Under the terms of the Creditor Plan, creditors are to
receive 50% of their unsecured claims in full settlement (the
"settlement value") of their claim, with 5% of the settlement value to
be repaid quarterly beginning September 1995, and a final payment of the
remaining settlement value to be made December 31, 1997. In addition to
the Creditor Plan, the Company negotiated settlements with certain other
unsecured creditors. In the year ended December 31, 1995, creditors
with claims valued at approximately $3,200,000 settled their claims at
a discount and the Company recognized a gain of $1,367,000 from the
extinguishment of debt, net of related expense. In the year ended
December 31, 1996, additional settlements were reached with unsecured
creditors, including those creditors participating in the Creditor Plan,
with claims totaling approximately $1,504,000, and the Company
recognized a gain of $995,000 from the extinguishment of debt, net of
related expense. The cash required to fund the cash payments to
creditors in 1996 was provided primarily from $1,400,000 in proceeds
from the ISA investment. See Note 3 "Extraordinary Gain from
Extinguishment of Debt" and Note 7 "Debt and Creditor Notes".

Management's Plan For Future Operations and Financing

Prior to the Company's reorganization of its business operations
and management in the first quarter of 1995, the Company had operated at
a loss since its inception. In addition, the Company had accumulated a
significant shareholders' deficit and liabilities, including
approximately $4,800,000 in secured debt that had been declared in
default by the holder of the debt in February 1995, and $1,800,000 in
secured debt that was scheduled for payment in April 1996.

Following the restructuring of the Company's operations and
management in the first quarter of 1995, operating expenses were
reduced, gross margins on sales improved and, as a result, the Company
achieved marginal profitability before interest expense and income taxes
in the second half of 1995 and for the year ended December 31, 1996. In
addition, by December 31, 1996, the Company completed the ISA investment
transaction and restructured or negotiated settlements with its major
unsecured and secured creditors, resulting in a reduction in unsecured
and secured debt and other liabilities of approximately $8,319,000 from
debt and liabilities existing at December 31, 1995.

Although the Company achieved marginal operating profits before
interest expense and income taxes of $250,000 in the second half of 1995
and $345,000 for the year ended December 31, 1996, the Company operates
in markets that are emerging and highly competitive and the Company's
principal competitors have significantly more financial and
technological resources. Moreover, the Company's orders are typically
concentrated in large orders derived from a small base of customers and,
accordingly, new orders, sales levels and operating profitability, if
any, can and will fluctuate on a quarter-by-quarter basis. There is no
assurance that the Company will operate at a profit in the future.

New financing is likely to be required to finance working capital
and operations at the anticipated sales level in 1997. The Company
believes that additional financing, in the form of short-term and long-
term debt, preferred and common stock, or a combination of debt and
equity will be available in 1997 under terms and conditions that are
acceptable to the Company. Additional capital in 1997 is likely to be
provided or arranged by the Company's controlling shareholder, ISA;
however, the Company believes short-term financing collateralized by
accounts receivable and other assets could be available from other third
party lenders.

In the event financing is not available in the time frame required,
then the Company would be forced to reduce its rate of sales growth, if
any, reduce operating expenses and reschedule research and development
projects. In addition, the Company might be required to sell certain of
its assets or license its technologies to others. These actions, while
necessary for the continuance of operations during a period of cash
constraints and a shortage of working capital, could adversely effect
the Company's long-term business and shareholder value.

Mergers and Acquisitions

Acquisition of Decom Systems, Inc.

On August 25, 1993, the Company acquired Decom in a share exchange
transaction accounted for as a pooling of interests. Decom designs,
manufactures and markets ground-based fixed and mobile telemetry signal
acquisition and processing systems and equipment, using technology
similar to that used by the Company in its wireless mobile data
communications systems. Decom aerospace telemetry products are sold
primarily to domestic and foreign defense and aerospace contractors, and
agencies of the United States and foreign governments, for use in test
programs and in military and commercial satellite communications.

Acquisition of ComViSat, Inc.

In January 1994, the Company acquired ComViSat, Inc. ("ComViSat"),
a start-up company engaged in the design, integration and distribution
of very small aperture terminal earthstations ("VSAT's"). These systems
are used in voice and data satellite communications, and were marketed
primarily to developing third world countries where wireline telephone
and other communications capabilities are inadequate. The two
shareholders of ComViSat received an aggregate of 50,000 shares of the
Company's common stock for all of the outstanding common stock of
ComViSat. The acquisition was treated as a purchase for accounting
purposes. The assets, liabilities and operations of ComViSat prior to
its acquisition were not material to the consolidated assets,
liabilities and operations of the Company. As a result of depressed
business conditions in Mexico and the destabilizing impact of the
Mexican economy on other Latin American and South American economies
beginning in December 1994, the decision was made to discontinue the
Company's VSAT product line and sell all product-line assets, which
were comprised primarily of VSAT demonstration and test equipment.
Mexico was the principal market for the Company's VSAT products.
Sales of VSAT products and systems were $2,175,000 in 1994, or
approximately 15% of consolidated sales. At December 31, 1994, the
Company recorded a charge against income of $1,226,000 for closing
the VSAT product line, discontinuing sales and engineering activities,
and writing-down equipment, intangible assets and inventories.

Wireless Mobile Data Communications Products and Services

The need for increased speed and accuracy in information transfer
in a mobile environment, and the growing amount of data contained in
computerized information databases, has increased the demand for systems
which provide efficient and accurate data communications. Operators of
vehicle fleets relying on conventional voice radio communications often
encounter problems in communicating with the mobile workforce due to
overcrowded voice channels and inefficiencies in transferring
information stored in computers. Through the use of wireless data
communications and connectivity, vehicle fleet operators realize
increased employee and vehicle productivity, improved customer service
and faster response times. In addition, the mobile workforce gains
access to information databases on a real-time basis, and radio system
operators significantly increase information throughput and maximize the
utilization of available radio air time. The efficient and effective
management of the mobile workforce, vehicle fleets and remote access to
information databases through the use of wireless communications, in the
opinion of the Company, is becoming a significant competitive and safety
issue for many operators of mobile vehicle fleets.

Mobile Data Communications Network Systems and Products

The Company provides a wide range of equipment to meet the mobile
communications needs of its customers. The Company's engineering
capabilities include the design and installation of end-to-end solutions
for voice and digital wireless mobile data communications networks. The
Company supplies complete wireless systems as a prime contractor
directly to end-use customers, or as a subsystem contractor to large
system integrators, such as Harris Corporation, Ericsson, Inc. and
others. When providing complete end-to-end wireless mobile data
communications systems or subsystems, the Company will integrate its
products with equipment and software supplied by third parties, such as
mobile and base station radios, automatic vehicle location equipment,
laptop computers and applications software.

The Company's wireless mobile data communications networks are
designed around its core systems products, which include high-speed RF
modems, mobile data computers and terminals, wireless connectivity
software and radio network controllers. These products provide the
system infrastructure needed to interface and interact with information
databases, and communicate with and control large numbers of vehicles
and mobile data devices operating over wide geographical areas and
multiple radio systems.

The Company's RF modem, the IQmodem, is an intelligent, specialized
protocol modem designed to meet the requirements of small and large data
terminal equipped vehicle fleets. The IQmodem can be integrated with
mobile or laptop computers, mobile display terminals, printers and
automatic vehicle location ("AVL") equipment. The IQmodem can be used
in most conventional private radio networks and computer-controlled
Specialized Mobile Radio ("SMR") systems. The IQmodem operates at data
transmission rates up to 9,600 bits per second ("bps") (higher
transmission rates can be achieved using data compression techniques)
and incorporates digital signal processing circuits for equalization,
filtering and synchronization. The Company's RF modem product line also
includes the Landmarc 5000, an integrated RF modem and AVL receiver
using the GPS for tracking vehicle location, speed and direction.

The Company's wireless connectivity software includes the IQswitch
and WINMCT. The IQswitch serves as a gateway between the mobile data
network and host computers; computer aided dispatch application
software; local, state and national information databases; and other
private or public networks. The IQswitch utilizes a UNIX operating
system and is scaleable to meet a customer's exacting requirements. The
Company's WINMCT in-vehicle software manages incoming and outgoing data
messages and interfaces the data communications system to the customer's
specific mobile computer software applications.

The Company's wireless connectivity products also include the In-
Vehicle Controller ("IVC"), a protocal conversion and control device
that allows various mobile data devices installed in a vehicle, such as
a mobile computer, GPS location receiver, mobile printer and magnetic
strip card reader to interface with one another and the mobile data
communications system network. The IVC is software configurable to
support a wide variety of combinations of mobile devices.

The Company's radio and network controller system products and
software include base station radio controllers and UNIX-based radio
network controllers. Base station controllers are used to manage base
station radios, and include software to control radio channel
contention, provide forward error correction of digital transmissions
and to switch radio channel traffic from data to voice and voice to
data. Network system controllers are used to handle the real-time
communications requirements of a mobile data communications system,
including tracking radio channel availability, the location of mobile
users on multiple channel radio systems, and the interface of the mobile
communications system with host computers and host information
databases. The network controller also provides remote access to the
radio system for diagnostics and system operating statistics. These
features significantly reduce costly on-site service calls, time-
consuming trouble shooting effort and unnecessary loss of host computer
access.

The Company's principal mobile computer and terminal product lines
are its MCT computer platform and the DXT IQ mobile data terminal.

The MCT computer platform includes several versions of the
Company's Windows-based MCT Series 2000 mobile computer. The MCT
product group includes ruggidized mobile computers featuring pentium
processors, full keyboards and keypads, and the choice of a CRT display,
black and white LCD display or full color TFT flat screen display. The
MCT computer operates with the Company's high-speed RF modem and other
interconnect devices for use in many different public and private mobile
communications systems. The latest version of the MCT mobile computer,
the MCT 2275, was introduced in 1996. For its MCT product lines, the
Company purchases notebook and laptop computers from other manufacturers
and ruggidizes the computer to meet the demanding operating conditions
of the mobile environment.

The DXT IQ mobile terminal features a CRT display with a keypad and
full keyboard. The DXT IQ mobile terminal operates at date transmission
rates of up to 9,600 bps on both public and private conventional and
trunked radio systems. The DXT IQ mobile terminal is manufactured by
the Company.

In addition to the MCT and DXT mobile computer and terminal product
lines, the Company offers several other mobile displays for use in
vehicles. The Company's CMX mobile status terminal product line
includes two or four line LCD displays with keypad and status keys. All
of the Company's mobile computers and terminals can be used with the
Company's AVL receivers and other mobile devices such as bar code and
magnetic strip card readers and printers.

Mobile Data Communications Marketing

The present markets for voice and data land-based radio
communications systems include public safety agencies (fire and police),
emergency medical services ("EMS") and operators of vehicle fleets and
mobile work forces such as utility, transportation, overnight courier
services, customer field service and taxi vehicle fleets. The Company
markets its mobile data communications systems primarily to public
safety, EMS and utility markets. The Company estimates that over 75% of
its mobile data communications revenues are presently derived from
public safety customers in the United States and Mexico.

The Company generally competes for large, special order contracts
for mobile data systems in its vertical markets. As a result of the
Company's financial condition and limited working capital in 1995 and
early 1996, the Company believes that customers awarded contracts that
would have otherwise been awarded to the Company, to other competitors
with substantially greater financial resources. The Company believes its
financial condition has caused delays in and the loss of customer
contracts in the past twelve months: however, the Company's improving
financial condition is leading to increased business activity and
contract awards.

The Company markets wireless mobile data communications network
systems and products in the United States, the United Kingdom and Mexico
through a sales staff supported by application engineers primarily to
system integrators, original equipment manufacturers ("OEM's") and large
end-use vehicle fleet operators. The Company's marketing strategy for
wireless mobile communications systems includes formation of formal
and/or informal teaming relationships with system integrators, mobile
radio equipment manufacturers and application software providers with
the technical and financial resources required to support large-scale
data communications system installations and services. The Company
believes its teaming strategy will allow it to compete for large system
orders against much larger competitors.

In 1995, the Company entered into an agreement with GEC-Marconi
Communications for licensing manufacturing rights of the Company's MPT
1327 modem. The MPT 1327 modem is used in trunked private land mobile
radio systems in the United Kingdom using the UK standard MPT 1327
transmission protocol. Under the license agreement, the Company
receives royalties for each MPT 1327 modem manufactured and sold by the
licensee.

The Company marketed its mobiles communications products and
services in 1993 and 1994 in the United Kingdom, Japan, Australia and
the Philippines primarily through locally-based independent sales
representatives. In the first quarter of 1995, the Company closed all
of its international sales offices. Marketing, sales and customer
support of all export activities is now handled from the Company's
offices in Carlsbad, California.

Substantially all of the Company's mobile communications sales are
currently derived from customers in the United States and Mexico. The
Company believes export sales to Europe, Mexico and Latin and South
America could represent over 50% of its mobile communications revenues
in the near future. The Company's export business is and will be
subject to risks customarily encountered in foreign markets, including
fluctuations in monetary exchange rates, export controls and other
regulatory policies of the United States and foreign governments. Sales
of mobile data communications products to public safety customers in
Mexico were not significant in 1995 and were approximately 53% of mobile
communications sales in 1996.

Mobile Data Communications Competition

Competition for the sale of wireless mobile data communications
systems and equipment is intense and many of the competitors have
substantially greater resources than the Company. In addition, a number
of private and publicly held telecommunications companies are developing
new digital terrestrial and satellite wireless communications systems
and products that will compete for business in the Company's present
markets.

The primary competitive factors for the sale of wireless mobile
data communications products and services include reputation, knowledge
of the order, digital signaling throughput performance, compatibility
with existing mobile radio and control system equipment, and price.

The primary competitors for the sale of wireless mobile data
communications network products and systems include Motorola, Inc., of
Schaumberg, Illinois, ("Motorola") and large system integrators and
radio equipment manufacturers, including TRW, Harris Corporation and
Ericsson, Inc. On a contract by contract basis, these system
integrators and radio equipment manufacturers may compete against the
Company or team with it. The Company believes Motorola holds a dominant
market position for terrestrial mobile data systems used by courier
services, public safety and taxi vehicle fleets.

The Company believes a significant competitive factor in the early
development of the mobile data market was the ability to provide high-
performance mobile radio systems, access to radio channels and local
system maintenance and service. The Company believes Motorola's broad
product line, financial and technical strength and customer service
capability are important factors in its dominance of the market. In
order to compete for business, the Company focuses on specific vertical
market segments, such as police and other public safety markets, and the
technical advantages of its mobile data communications infrastructure
and its open-architecture systems design, which provides the customer
its choice of radio equipment and applications software. The Company
believes a competitive advantage is gained by tailoring applications
software and system operating parameters to the requirements of its
customers.

Mobile Data Communications Order Backlog

The Company's backlog of orders for wireless mobile communications
products was approximately $3,710,000 at December 31, 1995 and
$3,318,000 at December 31, 1996. Substantially all backlog at December
31, 1996 is expected to be delivered within one year.

A significant portion of backlog is typically comprised of large
orders, and the total value of backlog can be expected to fluctuate from
year to year. The aggregate single orders of five customers represented
67% and 85% of backlog at December 31, 1995 and 1996, respectively. The
Company has experienced fluctuations in order rates on a quarterly
basis, and declines and delays in orders from time to time. The Company
may experience similar declines or delays in the future.

As a result of the Company's financial condition and limited
working capital in 1995 and early 1996, the Company experienced delays
in completing customer contracts. The Company successfully renegotiated
delivery schedules with its customers and the Company experienced no
customer cancellations of major contracts. However, the Company may
experience similar delays in completing contracts in the future and in
the event contract schedules are not renegotiated, contracts could be
terminated.

Mobile Data Communications Customers

A small number of customers and special order sales account for a
relatively large portion of the Company's wireless mobile data
communications product revenues. In 1994, 1995 and 1996, aggregate
sales to the five largest mobile data communications product customers
represented approximately 54%, 60% and 77% of mobile data communications
sales, respectively. In 1994, sales to three end-use customers
represented 10%, 16% and 17%, respectively, of mobile data
communications sales. In 1995, sales to three customers represented
10%, 11% and 25%, respectively, of mobile data communications sales. In
1996, sales to two customers in Mexico represented approximately 53% of
mobile data communications sales. Sales are typically made to customers
on a special order basis. There are no contracts at December 31, 1996
requiring customers to purchase substantial fixed quantities of products
over more than a one year period. The cancellation of orders of major
customers could have a significant adverse effect on the operations of
the Company.

Mobile Data Communications Research and Development

Research and development expenditures for mobile communications
products and improvement of existing products were $1,948,000 in 1994
(24% of mobile communications sales), $496,000 in 1995 (7% of mobile
communications sales) and $984,000 in 1996 (13% of mobile communications
sales). Mobile data communications product research and development
expense significantly decreased in 1995 from the prior year as a result
of the completion of major development programs in 1994 and a reduction
in engineering staff in 1995. The Company plans to spend approximately
12% of mobile data communications product sales for research and
development in the future, primarily in the development of its wireless
communications modem, connectivity software, and for the development and
enhancement of new software products. The Company believes this level
of investment will be sufficient to maintain the competitive position of
the Company's present core mobile data products in the near term.
However, higher investment rates could be required thereafter to expand
the Company's product line and software technology.

The market for the Company's mobile data communications products is
characterized by rapid change driven by advancements in digital signal
processing technology, the miniaturization of electronic components and
the construction of new wireless terrestrial and satellite
communications systems. The Company's ability to compete successfully
depends, in part, on its knowledge of the mobile data communications
market, its ability to anticipate and react to such changes, and its
ability to implement technological advancements in new products and
software to meet customer requirements.

Aerospace Products and Services

The Company, through its wholly-owned subsidiary, Decom, designs,
manufactures and markets electronic communications equipment for
aerospace and commercial telemetry applications, using technology
similar to that used by the Company in its wireless mobile data
communications systems. Telemetry is the technology of the wireless
transmission of data in order to measure operating parameters, such as
pressure, temperature or vibration, at a distance. Telemetry systems
employ a radio carrier to transmit information from one location to
another, and are used extensively in missile, aircraft, satellite and
other aerospace vehicles. Decom designs and manufactures the receiving
and test equipment used primarily in ground-based Pulse Code Modulation
("PCM") and Phase Shift Keyed ("PSK") telemetry systems. Sales of
aerospace telemetry products and services were $4,125,000, $3,495,000
and $3,430,000, 1994, 1995 and 1996, respectively. The Company believes
sales of aerospace telemetry products and services will represent
approximately 25% to 30% of consolidated sales in the near term.

The PCM data transmission technique is extensively used in
aerospace telemetry applications because it has the capability to
combine many channels of information on a non-interfering basis into a
common frequency band for transmission over a single carrier. The PCM
carrier signal has a low susceptibility to degradation and is a reliable
method of transmitting data.

The Company's aerospace products may be divided into two main
groups: telemetry front-end equipment and telemetry processing systems.

Telemetry Front-End ("TFE") Ground Support Equipment. TFE
products consist primarily of fully tunable PCM bit synchronizers
operating at signal acquisition data rates up to 35 megabits per second
("Mbps"), PCM decommutators, QPSK modems and telemetry link analyzers.
These products are used in receiving, demodulating, synchronizing,
decoding and converting telemetry signals in a transmission link.

Telemetry Processing Systems ("TPS systems"). The Company's Quad 7
is a highly integrated data acquisition and processing system platform
designed specifically for telemetry ground-based fixed and mobile flight
test instrumentation requirements, telemetry signal processing and
satellite communications applications. In 1995, the Company completed a
major upgrade to its Quad 7 product platform, which included the MOTIF
graphical user interface and other software enhancements.

Aerospace Telemetry Marketing

The Company markets its aerospace telemetry systems and equipment
through a small sales staff supported by applications engineers and
independent sales representatives. The sales efforts of these personnel
are directed toward major aerospace companies, various agencies of the
United States and foreign governments, satellite telecommunications
companies and end-users of telemetry equipment and systems. The
Company's marketing strategy has been to supply technical applications
engineering support for its sales personnel and to conduct comprehensive
equipment demonstrations for customers. The Company believes this
strategy permits it to compete against larger competitors by emphasizing
the Company's technological capabilities.

Aerospace telemetry product sales to major aerospace companies are
usually on a subcontract basis under negotiated firm fixed-price
contracts. A substantial portion of these sales are indirectly or
directly funded by the United States government and its agencies. The
Company believes that in 1994, 1995 and 1996, approximately 70%, 55% and
61% of aerospace telemetry product sales, respectively, were directly
and indirectly funded by agencies of the United States government.
Direct sales of aerospace telemetry products to the United States
government and its agencies were 14%, 8% and 18% of aerospace telemetry
sales in 1994, 1995 and 1996, respectively.

Aerospace telemetry export sales, principally to Intertechnique, a
publicly-held French defense contractor and the Company's exclusive
distributor of aerospace telemetry products in Europe under export
licenses granted on a case-by-case basis by the United States Department
of State. Export sales of aerospace telemetry products to
Intertechnique were 18% in 1995 and less than 3% of aerospace telemetry
sales in 1996. Export sales of aerospace telemetry products are not
expected to represent a significant portion of total aerospace telemetry
product sales in 1997. The Company's aerospace telemetry products
export business is subject to risks customarily encountered in foreign
operations, including fluctuations in monetary exchange rates, export
controls, and the economic, political and regulatory policies of the
United States and foreign governments.

Aerospace Telemetry Customers

A small number of customers account for a relatively large portion
of the Company's aerospace telemetry revenues. Aggregate sales to five
customers, including direct sales to the United States government and
its agencies, represented approximately 56%, 50% and 63% of aerospace
telemetry sales in 1994, 1995 and 1996, respectively. In 1994, two
customers each represented 12% of aerospace telemetry sales and one
customer represented 10% of aerospace telemetry sales. In 1995, two
customers each represented 12% of aerospace telemetry sales. In 1996,
two customers represented approximately 17% and 14% of aerospace
telemetry sales, respectively.

Aerospace Telemetry Competition

The Company faces intense competition in the marketplace for all of
its aerospace products. Competitors include Lockheed Martin Corporation
Test and Instrumentation, a division of Lockheed, and many of the major
aerospace contractors, all of whom have much greater financial and
technological resources than the Company. The Company's present
financial condition and lack of working capital adversely affected
sales of the Company's Quad 7 telemetry processing system in 1995 and
the first half of 1996, and may continue to impact future order levels.

The Company believes the primary competitive factors in its
aerospace markets are product performance and quality, knowledge of
order opportunities, technological reputation and cost. The Company's
market penetration has been influenced by the Company's relatively small
marketing and sales force and the long established reputations of some
of its competitors. In addition, a substantial portion of the Company's
business is obtained through the submission of competitive proposals.
See "Business - Aerospace Contracting."

Aerospace Telemetry Order Backlog

The Company's backlog of unfilled aerospace telemetry product
orders was approximately $1,993,000 and $1,715,000 at December 31, 1995
and 1996, respectively. The Company estimates that substantially all of
its backlog will be shipped within one year.

Delays and cancellations of defense procurements in the Company's
market have adversely affected order rates from time to time. Changing
international political events and uncertainties regarding the level and
priority of defense budgets in the United States and Western Europe are
expected to continue to have an impact on new order levels.

A significant portion of the aerospace telemetry order backlog at
December 31, 1995 and 1996, was concentrated in a few orders. The
aggregate orders of five customers represented approximately 67% and 65%
of backlog at December 31, 1995 and 1996, respectively.

The Company's aerospace telemetry product backlog is subject to
rescheduling and cancellation. Historically, the Company has not
experienced a significant adverse effect from the cancellation of
aerospace telemetry orders; however, as a result of the Company's weak
financial condition in 1995 and in early 1996, the Company experienced
delays in completing customer contracts. Such delays in the future
could lead to contract cancellations, which could have an adverse effect
on the Company's operations.

A substantial portion of backlog represents orders from the United
States government and its agencies and subcontracts from prime
contractors directly or indirectly funded by agencies of the United
States government. These orders can be canceled at the convenience of
the government. In such a case, the Company is generally entitled to
recover costs incurred prior to the termination as well as a negotiated
profit.

Aerospace Telemetry Research and Development

The Company is continuously engaged in research and development of
aerospace telemetry products. This program is conducted by the
Company's own engineering staff and consulting engineers. All of the
Company's primary aerospace products have been developed under this
program.

Research and development for new aerospace telemetry products and
improvement of existing products was $696,000 in 1994 (17% of aerospace
telemetry sales), $583,000 in 1995 (17% of aerospace telemetry sales)
and $787,000 in 1996 (23% of aerospace telemetry sales). Continuing
development of the Quad 7 telemetry processing system platform will be
required in the future to maintain its competitive position. The
Company anticipates continuing research and development expenditures for
TFE products in addition to the Quad 7, and investing up to 13% of
aerospace telemetry sales in research and development.

The market for the Company's aerospace telemetry products is
characterized by technological change. The Company's ability to compete
successfully depends, in part, on its ability to develop new products
and improve existing ones. As a result of the Company's present
financial condition, the Company's investment in research and
development may be reduced. In such event, the Company may be unable to
maintain the competitive position of its aerospace telemetry products.

Aerospace Telemetry Contracting

In 1994, 1995, and 1996, approximately 70%, 55% and 61%,
respectively, of aerospace telemetry sales were believed to be derived
directly and indirectly from defense contracts for end-use by the United
States government. Substantially all of these orders are negotiated
firm fixed-price contracts. Under firm fixed-price contracts, the
Company agrees to provide equipment and services for a fixed price and
derives benefits from cost savings, but bears the entire risk of cost
overruns.

The Company is subject to certain business risks as a supplier of
defense-related equipment to the United States government, including
dependence on congressional appropriations and changes in procurement
policies, both of which are subject to uncertainty. Reductions in
government expenditures for defense programs and changes in defense
priorities may continue to have an adverse effect on the Company's
aerospace revenues and operating results.

Employees

At December 31, 1995 and 1996, the Company employed approximately
67 and 70 personnel, respectively, all of whom were located in the
United States. A number of key employees are highly skilled and
critical to particular aspects of the Company's business. The Company
believes its current human resources and its access to additional
resources should be adequate to support anticipated sales levels in
1997. The Company operates in emerging and highly competitive markets,
and it must compete for skilled technical personnel against competitors
that are significantly larger. As a result, the Company may be unable
to hire and retain personnel with the experience and skills that are
critical to its operations. In the event such personnel cannot be hired
or leave the employment of the Company and cannot be replaced, the
operations of the Company would be adversely affected.

The Company has never experienced a work stoppage and no employees
are represented by a labor union. The Company believes its employee
relations are good.

Manufacturing

The Company's mobile data communications and aerospace telemetry
products are designed to be manufactured with standard electronic
components and surface mounted devices. Manufacturing and material
procurement for all of the Company's products are integrated into one
manufacturing operation. The Company also designs and evaluates
communications systems and purchases products and software from other
manufacturers to offer complete end-to-end communications systems.

The Company purchases integrated circuits, electronic components,
printed circuit boards and other fabricated parts from outside vendors.
The Company subcontracts the assembly of all surface-mounted printed
circuit boards to third party contractors. The Company has multiple
sources for most of its purchased materials and components. For a few
components, such as the Company's MCT mobile computer which is
manufactured by a third party supplier, only a single source may be
immediately available and there is a risk of delay in delivering
Product. The Company has from time to time experienced delays from
vendors, however, these delays have not materially affected its
business.

The Company maintains an in-house repair facility where its
products can be refurbished or repaired. The Company generally warrants
its products against defects and workmanship for a period of up to one
year from the date of shipment. Warranty extensions may be purchased by
any customer. Warranty expense has not been a material factor.

Environment

Compliance with federal, state and local laws and regulations
involving the protection of the environment did not have and is not
expected to have a material effect on the Company's capital
expenditures, earnings or competitive position.

Trademarks and Patents

In 1994, the Company was awarded a patent on its Automatic
Deviation Compensation ("ADC") circuit. The ADC circuit is used in the
Company's mobile data communications systems to monitor radio system
performance and to automatically correct individual mobile radio
transmission deviations from performance specifications to improve
signal reliability. However, the principal fields in which the Company
operates are characterized by technological innovations and design
obsolescence. As a result, the Company believes that its success does
not depend on trademarks and patents to protect its hardware and
software designs, but primarily on the Company's ability to introduce
new products, advance its technology, and anticipate the requirements of
its customers.

ITEM 2. DESCRIPTION OF PROPERTY

The Company's operations are headquartered in a single building in
Carlsbad, California with approximately 19,000 square feet. The acility
is leased by the Company under an agreement expiring in October 1998.
The Company also leases approximately 3,000 square feet of office and
engineering space in Clearwater, Florida, under a lease expiring in
January 1999.

ITEM 3. LEGAL PROCEEDINGS

On March 17, 1995, the Company, John A. Robinson, Jr., its Chief
Executive Officer and the Chairman of the Board of Directors, and its
wholly-owned subsidiary ComViSat, Inc. were named as defendants in a
suit brought in Superior Court, San Diego County, by the two founders of
ComViSat, Inc. for, among other claims, wrongful termination of
employment of the two plaintiffs in January 1995 and alleged breach of
duty of good faith, fraud and defamation in connection with the
Company's acquisition of ComViSat, Inc. in 1994. The complaint seeks
unspecified general, special and punitive damages and costs and
expenses. On May 5, 1995, the Company filed an answer with the Superior
Court denying all allegations and filed a cross-complaint against the
two plaintiffs alleging, among other things, breach of contract and the
implied covenant of good faith and fair dealing, breach of the duty of
loyalty, fraud and intentional interference with contractual
relationships. The cross-complaint seeks unspecified damages,
preliminary and punitive injunctive relief, and costs and expenses.

The defendants' complaint and the Company's cross-complaint were
dismissed in 1996 by mutual consent, and the parties agreed to binding
arbitration. The Company anticipates the matter will go to arbitration in
1997.

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

None.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's common stock is presently traded in the over-the-
counter market and quoted on the NASDAQ OTC Electronic Bulletin Board
under the trading symbol CODD. The quotations represent inter-dealer
quotations, without retail markups, markdowns or commissions, and may
not necessarily represent actual transactions.
<TABLE>

The following table sets forth, for the fiscal quarter indicated,
the high and low closing bid price of the Company's common stock as
reported by the NASDAQ OTC Electronic Bulletin Board.
<CAPTION>
High Low
Year ended December 31, 1996:
<S> <C> <C>
March quarter $ .42 $ .19
June quarter .55 .28
September quarter .64 .34
December quarter .56 .39
<CAPTION>
Year ended December 31, 1995:
<S> <C> <C>
March quarter $ 1.22 $ .47
June quarter .63 .19
September quarter .91 .44
December quarter .63 .20
</TABLE>

The number of shareholders of the Company's common stock, including
holders whose shares are held in street name, was estimated to be in
excess of 2,000 at December 31, 1996.

There have been no dividends or other distributions made by the
Company since its inception. The Company does not anticipate paying
cash dividends in the foreseeable future.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The Company operates in a single industry - the design, manufacture
and integration of digital communications products and systems used
primarily in terrestrial radio systems. The two principal markets in
which the Company competes are wireless mobile data communications and
aerospace telemetry systems.

The Company restructured its business operations and management in
the first quarter of 1995 which resulted in, among other things, a
significant reduction in operating expenses in 1995. Any comparison of
operating expenses between the years ended 1996 and 1995 may not
represent a meaningful analysis because of the business restructuring.

Results of Operations - 1996 Compared With 1995
<TABLE>

Sales by the Company's major product lines are presented below.
<CAPTION>
1995 1996
<S> <C> <C>
Mobile data communications.. $ 6,676,000 $ 7,880,000
Aerospace telemetry. ......... 3,495,000 3,430,000
</TABLE>
$10,171,000 $11,310,000

<TABLE>

The following table sets forth, as a percentage of revenues,certain
income (loss) data for the years ended December 31, 1995 and 1996:
<CAPTION>
1995 1996
S <C> <C>
Net sales...........................100.0% 100.0%
Cost of sales..................... 72.6 55.2
Gross profit....................... 27.4 44.8
Operating expenses:
Selling, general and administrative... 33.4 26.0
Research and development............. 10.6 15.7

Operating income (loss).............. (16.6) 3.1
Loss before extraordinary gain........(24.4) (1.7)
Extraordinary gain................... 13.4 8.8
Net income (loss).....................(11.0)% 7.1%
</TABLE>

Operating Income (Loss)

For the year ended December 31, 1996 ("1996"), the Company reported
its first annual operating profit of $345,000 before interest expense,
income taxes and extraordinary gain, compared to an operating loss of
$(1,688,000) in the year ended December 31, 1995 ("1995"). The sharp
turnaround in operating performance in 1996 compared to 1995 resulted
primarily from increased sales, improved gross margin on sales and a
reduction in selling, general and administrative expense; offset by an
increase in research and development costs.

The improvement in operating performance continued a trend toward
profitability begun in the second half of 1995, when the Company
reported an operating profit of approximately $250,000 for the six month
period. The trend toward operating profitability is a direct result of
the Company's restructuring efforts completed in the first quarter of
1995. These efforts included changes in management, closing the VSAT
product line and all international mobile data communications sales
offices, a reduction in personnel and improved gross margins on sales.
Although the Company has recently established a trend toward operating
profitability, there can be no assurance that the Company will be
profitable in the future. The Company operates in markets with intense
competition and against competitors with significantly greater financial
and technical resources. In addition, the Company's business is
presently concentrated in large single orders from a small base of
customers and, as a result, new order levels, sales and operating
profits or losses can fluctuate significantly on a quarter-to-quarter
and annual basis.

Sales and New Orders

Net sales in 1996 were $11,310,000, an increase of 11% over sales
of $10,171,000 in 1995. Sales of mobile data communications products in
1996 were $7,880,000, an increase of 18% over sales of $6,676,000 in
1995. The increase in sales resulted entirely from an increase in sales
to customers in Mexico. Sales of mobile data communications products to
customers in Mexico were not significant in 1995 and represented 53% of
mobile data communications product sales in 1996. Sales of mobile data
products to other customers, primarily in the United States, decreased
by 56% in 1996 compared to 1995, primarily as a result of depressed new
order levels experienced in 1995 and the first half of 1996. The
Company believes that its weak financial condition in 1995 was a primary
factor impacting new orders for mobile data communications products.
The Company, based on current bid and proposal activity, believes that
new orders for mobile data communications products from customers in the
United States will increase in 1997. However, because the Company's
mobile data communications product sales are concentrated in single
large orders from a small base of customers, it is extremely difficult
to project new order and sales levels with any certainty. The loss of
any large potential order could have a material effect on the level of
new orders booked in 1997 and, accordingly, there can be no assurance
that new order levels and sales of mobile data communications products
will increase in 1997.

Sales of aerospace telemetry products in 1996 were $3,430,000, a
decrease of 2% from sales of $3,495,000 in 1995. Sales of aerospace
telemetry products are expected to moderately increase in 1997 over 1996
sales levels; however, because of the same factors discussed above
relating to mobile data communications products, there can be no
assurance that new orders and sales of aerospace telemetry products will
increase in 1997.

New orders for mobile data communications products increased by 129%
in 1996 over 1995, entirely as a result of new orders from customers in
Mexico. New order levels for mobile data communications products from
other customers, primarily in the United States, decreased by 31% in
1996 compared to 1995. New orders for aerospace telemetry products in
1996 were unchanged from 1995. The backlog of orders for mobile data
communications and aerospace telemetry products was approximately
$5,033,000 and $5,703,000 at December 31, 1996 and 1995, respectively.
The backlog of orders is generally concentrated in the single orders of
a few customers, and the cancellation of any major orders would have an
adverse effect on the Company sales in 1997. Historically, the Company
has not experienced a high rate of order cancellations by customers.

Gross Margin

Gross margin, as a percentage of sales, improved to 45% of sales in
1996 from 27% of sales in 1995. Gross margin on sales of mobile data
communications products improved by over 100% in 1996 compared to 1995,
primarily as a result of a change in product mix in 1996, with a higher
percentage of sales represented by standard products and software which
typically yield higher gross margin than other product sales, which can
include the products of third-party supplier such as mobile radios,
applications software and computer equipment. The gross margin on
mobile data product sales in the first half of 1995 was adversely
effected by contract cost overruns.

The gross margin, as a percentage of sales, on aerospace telemetry
products increased by 37% in 1996 over 1995. Gross margin on the sale
of aerospace telemetry products in 1995 was impacted by charges for
losses on certain contracts in the first half of 1995.

The Company anticipates that gross margin in 1997, as a percentage
of sales, will be consistent with or slightly improved over gross margin
in 1996, based on projected sales levels and product mix. Gross margin,
however, can be expected to fluctuate on a quarter-to-quarter basis and,
in the event projected sales levels are not achieved, gross margin as a
percentage of sales could be adversely effected.

Extraordinary Item - Gain on Extinguishment of Debt

In 1996, agreements for the settlement of unsecured debt at a
discount resulted in an extraordinary gain of $995,000, net of related
expense. The gain on extinguishment of debt is reflected as an
extraordinary item in the consolidated financial statements.

Operating Expense, Interest Expense and Income Taxes

In the first half of 1995, the Company restructured its operations
and significantly reduced its level of operating expenses. As a result,
a comparison of operating expenses for the years ended 1996 and 1995 may
not be meaningful.

Selling, general and administrative expense was $2,946,000 in 1996,
a decrease of $451,000 or 13% compared to 1995. In addition, selling,
general and administrative expense was reduced to 26% of sales in 1996
from 33% of sales in 1995. The decrease in selling, general and
administrative expense in 1996 resulted primarily from lower mobile data
communication product selling expense and a reduction in general and
administrative expense. These reductions resulted from reduced
personnel costs and discretionary selling expenses, such as advertising,
trade show and travel expense. Selling, general and administrative
expenses in 1997, as a percentage of sales, are expected to be
consistent with or slightly lower than 1996 expense levels.

Research and development costs in 1996 increased by $692,000 or 64%
over 1995. As a percentage of sales, research and development expense
increased to 16% of sales in 1996 from 11% of sales in 1995. Research
and development expense in 1995 was significantly below historical
levels, primarily as a result of the completion of major research and
development programs in 1995 and a reduction in engineering personnel.
Research and development expense in 1996, as a percentage of sales,
returned to a level more consistent with prior years as the Company
added engineering personnel to support mobile data communications
product software development projects. Research and development
expense, as percentage of sales, is expected to range from 12% to 14% of
sales in 1997.

Interest expense was $524,000 in 1996, a decrease of $251,000 from
interest expense of $775,000 in 1995. The decrease in interest expense
resulted from a restructuring of debt in 1996, with lower interest rates
on remaining outstanding debt and a conversion of debt to preferred
stock.

Income tax expense, net of the benefit from the utilization of
federal and state net operating loss carryforward benefits, was $24,000
in 1996 and 1995, representing a provision for State income taxes. At
December 31, 1996, the Company and its wholly-owned subsidiaries have
combined net operating loss carryforward benefits of approximately
$29,000,000 available to offset future Federal income taxes, if any.
The annual use of any future net operating loss carryforward benefits,
however, will be limited on an annual basis due to the change in
ownership of the Company and its subsidiaries. This limitation in the
annual use of Federal net operating loss tax carryforward benefits is
not expected to have a material effect on income tax expense in 1997.
The realization of loss carryforward tax benefits is dependent upon
generating sufficient future taxable income prior to the expiration of
the loss carryforwards. Because of the Company's history of operating
losses, there is no assurance that any loss carryforward tax benefits
will be realized.

Results of Operations - 1995 Compared With 1994

The Company restructured its business operations and management in
the first quarter of 1995. These actions included the closing of the
Company's VSAT product line and the international mobile data sales
organization. In Addition, the Company's CEO resigned and a number of
management positions were eliminated to streamline operations. As a
result of the restructuring, research and development, selling and
administrative expenses in 1995 were reduced by approximately $8,383,000
compared to the prior year. The loss before interest, income taxes and
extraordinary item was reduced in 1995 to $1,688,000 from $12,207,000 in
1994. Included in the loss before interest, income taxes and
extraordinary item in 1994 is $3,151,000 in restructuring costs and
expenses.

Any comparison of sales and operating expenses between fiscal
periods may not represent a meaningful analysis at the present time
because of the business restructuring implemented in the first half of
1995, management changes and a narrower focus on selected market
segments.

Sales and New Orders and Gross Margins

Sales of mobile data communications and aerospace telemetry
products were $10,171,000 in 1995, a decrease of $1,945,000 or 16% from
sales in 1994. Sales of mobile data communications systems in 1995
decreased 16% and aerospace telemetry sales decreased 15%, compared to
the prior year. Included in mobile data communications sales in 1995 is
$394,000 in revenue recognized from the licensing of manufacturing
rights of the Company's MPT 1327 modem to GEC-Marconi Communications.
The MPT 1327 modem is used in trunked radio systems in the United
Kingdom using the UK standard MPT 1327 transmission protocol. Under the
license agreement, the Company will receive future royalties for each
MPT 1327 modem manufactured and sold by the licensee.

The decrease in sales in 1995 was primarily due to delays in
completing contract shipments due to a shortage of parts and constraints
on human resources, a lack of working capital and delays in starting
production of the Company's new MCT mobile data computer product line.
Additional borrowings of $1,050,000 provided by a $1,800,000 bridge loan
in 1995 improved the Company's short-term liquidity and allowed the
Company to increase its sales levels throughout 1995, from first quarter
sales of approximately $2,224,000 to sales of approximately $3,056,000
in the last quarter of 1995.

New order rates for mobile data communications and aerospace
telemetry systems and products decreased 58% compared to record order
levels in 1994. Orders for mobile data communications and aerospace
telemetry products decreased 68% and 40%, respectively, compared to
order levels in the prior year. Orders in 1994 included an order valued
at over $4,100,000, the largest single mobile data communications order
the Company has been awarded.

The Company generally competes for large, special order system
contracts in its mobile data communications and aerospace telemetry
markets. As a result of its financial condition, the Company believes
customers awarded contracts to other competitors that would otherwise
have been awarded to the Company, based on the substantially greater
financial resources of the Company's competitors. The sharp reduction
in operating losses, the settlement of a majority of unsecured creditor
claims and customer acceptance in 1995 of several major mobile data
systems improved the Company's competitive position late in 1995.

The backlog of orders for mobile data communications and aerospace
telemetry products was $5,703,000 in 1995 and $8,800,000 in 1994.

Gross margin, as a percentage of sales, was 27% in 1995 and 1994.
The gross margin on mobile data communications and aerospace telemetry
systems were substantially unchanged in 1995 compared to 1994. The
Company's mobile data communications orders are concentrated in large
single orders for complete mobile data communications systems. The mix
of the Company's mobile data communications products and services and
the products of other third party suppliers, which can include mobile
radios, laptop computers and software, will vary from order to order.
As a result, mobile data communications gross margin can be expected to
fluctuate from year to year.

Extraordinary Item - Gain on Extinguishment of Debt

In 1995, agreements for the settlement of unsecured creditors debt
at a discount from the value of the creditors' claims resulted in a gain
of $1,367,000, net of related expense. The gain on extinguishment of
debt is reflected as an extraordinary item in the consolidated financial
statements.

Operating Expense and Interest Expense

As a result of the Company's efforts to restructure its operations,
selling and administrative expense and research and development expense
were significantly reduced in 1995 compared to 1994. The decrease in
operating expenses of $8,383,000 in 1995 compared to 1994 resulted
primarily from a reduction in headcount, from 122 employees at the end
of 1994 to 67 employees at the end of 1995, the closure of all
international mobile data sales offices, the focus of marketing and
selling efforts on selected markets, a reduction in overhead expense and
the closing of the Company's VSAT earthstation product line.

Selling expenses in 1995 decreased by $4,679,000 or 65% compared to
1994. Approximately 42% of the reduction in expense resulted from
closing international sales offices and 31% of the reduction resulted
from the closing of the VSAT earthstation product line. The balance of
the reduction resulted primarily from a decrease in personnel costs and
discretionary selling expenses such as travel, advertising and trade
show expense.

General and administrative expenses in 1995 decreased by
approximately $2,139,000 compared to 1994, primarily as a result of a
reduction in personnel costs of approximately $639,000 and overhead
expense required to support international operations.

Research and development expense in 1995 decreased by $1,565,000 or
59% compared to 1994. Substantially all of the decrease in expense
related to a reduction in mobile data communications engineering
personnel and overhead support expense. The reduction in personnel
costs resulted from a reduction in headcount and a shift of mobile data
engineering resources from product development to direct customer
contracts.

Interest expense in 1995 increased by $51,000 from 1994 primarily
as a result of interest expense on a new $1,800,000 bridge loan, funded
in 1995. This increase in interest expense was partially offset by the
conversion in May 1995 of $990,000 principal amount 13.5% Convertible
Debentures into shares of common stock.

Liquidity and Capital

Since its inception, the Company has financed its operations,
investments in new product development and met its working capital
requirements through the sale of common stock, convertible debentures
and other financings. In 1996, cash requirements were met by $273,000 in
cash flow from operations and proceeds of $1,430,000 from the sale of
common stock. In 1995, cash requirements where met primarily with
$1,050,000 provided by a bridge loan, and a reduction in working
capital.

In the third quarter of 1996, the Company completed a series of
transactions with ISA and certain of the Company's secured creditors.
Through these transactions, ISA acquired a 76% ownership interest in the
Company's outstanding common shares for a cash investment of $1,400,000,
and secured creditors holding debt in the amount of $6,600,000 agreed to
restructure their debt on terms considered by the Company to be
favorable. Approximately $400,000 of the cash proceeds received from
the ISA investment was used to retire principal on the bridge loan and
$247,000 was used to settle, at a discount, unsecured and secured claims
totaling approximately $1,098,000. In addition, in December 1996, the holder
of the $4,800,000 principal amount 6% Convertible Debenture converted the
debenture into 48,000 shares of Series B preferred stock with a liquidation
preference of $4,800,000. Prior to year-end, 1,225 shares of Series B
preferred stock were converted by the holder into 200,006 shares of common
stock.

As a result of the ISA transaction and the restructuring of the
Company's secured debt, profitable operations in 1996 and the settlement
of creditor debt at a discount, debt and other liabilities were reduced
by $8,319,000 in 1996; a shareholders' deficit of $7,571,000 was
eliminated; and a working capital deficit was decreased from $7,648,000
to $468,000.

In 1996, accounts receivable decreased by $81,000 from the prior
year, as the timing of sales in the last quarter of 1996 and 1995 was
comparable. Included in accounts receivable at December 31, 1996 were
$584,000 in receivables due from ISA. Unbilled costs and earnings on
contracts decreased by $637,000 in 1996, to $180,000 from $817,000 in
1995. The decrease was a result of the difference in the timing of
revenue recognition for financial statement purposes and actual contract
invoicing which is determined by contract terms. Inventories in 1996
decreased by $60,000, to $1,480,000 from $1,540,000 in 1995 primarily as
a result of progress payments received from a customer.

Accounts payable in 1996 decreased by $1,458,000 compared to 1995,
primarily as a result of the settlement of unsecured creditors claims in
1996 with a value of approximately $1,504,000. The Company at times
throughout 1995 was unable to make timely payments to its trade and
other creditors. In the second half of 1995 and throughout 1996, most
of the Company's suppliers required cash on delivery as their terms of
sale and the Company was generally meeting its obligations in a timely
manner. By the end of 1996, the Company had reestablished credit terms
with certain of its suppliers and the Company now believes that credit
terms with a majority of its key suppliers will be reestablished in
1997. At December 31, 1995 and 1996, there were disputed and past due
creditor claims outstanding of approximately $1,600,000 and $400,000,
respectively. The Company expects to reach settlements in 1997 with the
creditors holding a substantial amount of the disputed and past due
claims, and the settlement of these claims will not have an adverse
effect on the Company's financial position.

Investments in property and equipment were approximately $276,000 in
1996. At December 31, 1996, the Company had no material commitments for
the purchase of capital equipment.

In 1996, the Company restructured its secured debt. The $1,800,000
principal amount Bridge Loan, due in April 1996, was canceled in
exchange for a cash payment of $400,000, the issuance of new $600,000
principal amount 6% Term Notes due September 1997 and the issuance of Series
A preferred stock with a liquidation preference of $800,000. The 6% Term
Notes are convertible, at the option of the holders, into 2,400,000 shares of
common stock at any time prior to maturity. The $4,000,000 principal
amount 12% Convertible Debentures and accrued interest of $800,000 were
exchanged for a new seven year 6% Convertible Debenture. The 6%
Convertible Debenture was subsequently converted in December 1996 into
Series B preferred stock with a liquidation preference of $4,800,000.
In 1997, approximately $1,441,000 in debt, including the $600,000
principal amount 6% Term Note and $837,000 principal amount of
Creditors' Note, is scheduled for retirement. The cash required to
repay these obligations is expected to be provided from a combination of
cash flow from operations, if any, and new debt or equity financing.

Although the Company has established a recent trend of profitable
operations, prior to 1996 the Company had a history of operating losses.
Accordingly, there can be no assurances that the Company can operate at
a profit in the future. Moreover, the Company's new orders and sales
are typically concentrated in a few large single orders from a small
base of customers. As a result, new orders, sales and cash flow from
operating activities may vary significantly from quarter-to-quarter.
Accordingly, cash flow from operations is not expected to be sufficient
to meet ongoing cash requirements and additional financing will likely
be required to fund operations and working capital requirements in 1997.
The Company believes that continuing progress in operating results and
increasing new order rates will allow the Company to finance its cash
requirements from new short-term and long-term financing, from the sale
of common or preferred stock, or a combination of debt and equity.
Additional capital in 1997 is likely to be provided or arranged by the
Company's controlling shareholder ISA. However, the Company believes
short-term financing collateralized by accounts receivable and other
assets could be available from other third party lenders.

Inflation, Changing Prices and Impact from the Year 2000

The effects of inflation have not had a material impact on revenues
or expenses during the three year period 1994 through 1996. At the
present time, the Company is reviewing its internal systems to determine
the impact, if any, the calendar year 2000 will have on its systems.

ITEM 7. FINANCIAL STATEMENTS

The consolidated financial statements and supplementary data
required by this Item are set forth at the pages indicated in Item
13(a).

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

None

PART III

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

The information required by this item is contained in the
definitive Proxy Statement of the Company to be filed in connection with
its 1997 Annual Meeting of Shareholders, which information is
incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Financial Statements and Exhibits.
Page
(1) Financial Statements:
Report of Independent Accountants 28

Consolidated Balance Sheets as of December 31, 1995
and 1996 29

Consolidated Statements of Income (Loss) for the years
Ended December 31, 1994, 1995 and 1996 30

Consolidated Statements of Shareholders' Equity (Deficit)
for the Years Ended December 31, 1994, 1995 and 1996 31

Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994, 1995 and 1996 32

Notes to Consolidated Financial Statements 33

(2) Financial Statement Schedules:
II: Valuation and Qualifying Accounts 46

All other financial statement schedules have been omitted
since the information is not applicable or required, or is included in
the financial statements or notes thereto.

(b) Reports on Form 8-K:

None.

2.1: Agreement and Plan of Reorganization, dated as of February
27, 1993, among CCI Coded Communications, Inc., Coded Communications
Corporation, Decom Acquisition Corp. and Decom Systems, Inc. (1)

2.2: CCI Coded Communications, Inc. (Wyoming) and Coded
Communications Corporation (Delaware) Articles of Merger and Agreement
and Plan of Merger. (2)

2.3: CCI Coded Communications, Inc. (British Columbia) and CCI
Coded Communications, Inc. (Wyoming) Certificate of Registration and
Articles of Continuance. (2)

2.4: Mutual Agreement of Terms and Conditions, dated May 1,
1996 and the Second Agreement, dated July 17, 1996 (filed as Exhibits to
the Company's Definitive Proxy Statement dated July 26, 1996).

3.1: Certificate of Incorporation and Bylaws of Coded
Communications Corporation (Delaware). (1)

3.2: Certificate of Amendment of Certificate of Incorporation.
(4)

3.3: Certificate of Correction of Certificate of Designation of
Preferred Stock, Series A and Certificate of Designation of Preferred
Stock, Series A. (4)

3.4: Certificate of Correction of Certificate of Designation of
Preferred Stock, Series B and Certificate of Designation of Preferred
Stock, Series B. (4)

4.1: 6% Convertible Debenture and Fourth Amendment to Loan
Agreement by and between Coded Communications Corporation, Coded Mobile
Communications Corporation, Coded Mobile Communications Corporation and
Renaissance Capital Partners II, Ltd. (4)

10.1: Executive Employment Agreement between Coded Communications
Corporation, Decom Systems, Inc. and John A. Robinson, Jr. (2)

10.2: Executive Employment Agreement between Coded Communications
Corporation, Decom Systems, Inc. and Steven E. Borgardt. (2)

10.3: Executive Employment Agreement between Coded Communications
Corporation, Decom Systems, Inc. and Richard K. Carrine. (2)

10.4: Executive Employment Agreement between Coded Communications
Corporation and James B. Moore. (2)

10.5: Executive Employment Agreement between Coded Communications
Corporation and Maurice Nieman. (2)

10.6: Industrial Lease by and between Madison Square Development
Partnership and Decom Systems, Inc. (filed as an exhibit to Decom's
Annual Report on Form 10-K for the fiscal year ended September 30, 1987
and incorporated herein by reference).

10.7: Agreement for the Purchase and Sale of Assets and to
Appoint Distributors by and between Coded Communications Corporation,
Decom Systems, Inc. and Consolidated Coded Communications Corporation
(filed as an exhibit to Decom's Annual Report on Form 10-K for the
fiscal year ended September 30, 1987 and incorporated herein by
reference).

10.8: Executive Employment Agreement between Coded Communications
Corporation and Gerard P. Dennehy (filed as an exhibit to the Company's
Registration Statement on Form SB-2 (No 33-72526) and incorporated
herein by reference).

10.10: Consolidated Coded Management Incentive Program, with
First and Second Amendments (filed as an exhibit to the Company's
Registration Statement on Form 10 dated September 8, 1989 and
incorporated herein by reference).

10.11: Declaration of the Management Incentive Trust (filed as an
exhibit to the Company's Registration Statement on Form 10 dated
September 8, 1989 and incorporated herein by reference).

10.12: Loan Agreement, as amended, between Renaissance Capital
Partners, II Ltd.; Jersey Invest, Ltd; Stewart Leasing Company; Mindful
Partners, L.P.; S.L. Rudick IRA; Herman Hodges and M. Driver and Coded
Communications Corporation, Coded Mobile Communications, Inc.; ComViSat,
Inc.; and Decom Systems, Inc. (filed as an exhibit to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995
and incorporated herein by reference).

20.1: Post Effective Amendment No. 1 to Coded Communications
Corporation Stock Option Plan for Employees of Coded Communications
Corporation and Subsidiaries (filed as an exhibit to the Company's
Registration Statement on Form S-8 (No. 33-51912) dated November 5, 1993
and incorporated herein by reference).

20.2: Coded Communications Corporation Stock Option Plan for
Employees of Decom Systems, Inc. (filed as an exhibit to the Company's
Registration Statement on Form S-8 (No. 33-71264) dated November 5, 1993
and incorporated herein by reference).

21.1: List of Subsidiaries (filed herein).

23.1: Consent of Coopers & Lybrand, L.L.P. (filed herein).

27.1: Financial Data Schedule as of December 31, 1996 (filed
herein).
_____________________

(1) Incorporated by reference to Registration Statement on Form S-4
(File No. 33-59046) declared effective July 9, 1993.

(2) Incorporated by reference to the Company's Quarterly Report on
Form 10-QSB (File No. 0-17574) for the quarter ended October 2, 1993.

(3) Incorporated by reference to the Company's Definitive Proxy
Statement dated January 26, 1996.

(4) Incorporated by reference to the Company's Quarterly Report on
Form 10-QSB (File No. 0-17574) for the quarter ended September 28, 1996.

SIGNATURES

In accordance with Section 13 or 15 (d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

CODED COMMUNICATIONS CORPORATION
(Registrant)

/s/ Gary L. Luick.
Gary L. Luick
Chief Executive Officer
and President

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

Signature Title Date

/s/ Gary L. Luick Chief Executive Officer
President and Director March 24, 1997
Gary L. Luick

/s/ Steven E. Borgardt Vice President Finance
Chief Financial Officer March 24, 1997
Steven E. Borgardt (Chief Accounting Officer)

/s/ Hugo R. Camou Chairman of the Board March 24, 1997
Hugo R. Camou

Fernando Molino Director

/s/ Fernando Pliego Director March 24, 1997
Fernando Pliego

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of
Coded Communications Corporation

We have audited the consolidated financial statements and financial
statement schedule of Coded Communications Corporation and subsidiaries
(the "Company") listed in Item 13(a) of this Form 10-KSB. These
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and financial
statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of the Company at December 31, 1995 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial
statements taken as a whole, presents fairly, in all material respects,
the information required to be included therein.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in Note 2 to the consolidated financial statements, the Company's
liquidity has been adversely affected by continued losses from operations.
In addition, continuaiton of operations is dependent upon the availability
of additional capital and the Company's ability to generate increased
revenues and improved gross margin on sales. These issues raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

COOPERS & LYBRAND L.L.P.

San Diego, California
February 28, 1997

<TABLE>

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<CAPTION>
December 31,
1995 1996
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 201,000 $ 963,000
Accounts receivable. 1,828,000 1,776,000
Unbilled costs and earnings on contracts 817,000 180,000
Inventories 1,540,000 1,480,000
Prepaids and other assets 314,000 206,000
Total current assets 4,700,000 4,605,000

Property and equipment, net 821,000 730,000
Other assets 300,000 186,000

$ 5,821,000 $ 5,521,000

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Current portion of debt and
creditors' note $ 6,151,000 $ 1,441,000
Accounts payable 2,437,000 979,000
Accrued payroll and related benefits 431,000 489,000
Accrued interest 757,000 3,000
Deferred revenue and customer payments 624,000 748,000
Other accrued liabilities 1,948,000 1,413,000
Total current liabilities 12,348,000 5,073,000

Creditors' note, net of current portion 1,044,000 --
Commitments and contingencies
(Notes 1, 2 and 11) -- --

Shareholders' equity (deficit) (Note 10):
Preferred stock, $.01 par value, 2,000,000
shares authorized; issued and outstanding
8,000 shares Series A preferred stock,
liquidation preference $800,000; and 46,775
shares Series B preferred stock,
liquidation preference $4,678,000 -- 1,000
Common stock, $.01 par value; 14,566,201 and
75,699,812 shares issued and outstanding in
1995 and 1996, respectively 146,000 757,000
Additional paid-in capital 23,330,000 29,929,000
Accumulated deficit (31,047,000) (30,239,000)
Total shareholders' equity (deficit) (7,571,000) 448,000

$ 5,821,00 $_5,521,000
</TABLE>

The accompanying notes are an integral part of the consolidated
financial statements.

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)

<TABLE>

<CAPTION> Years Ended December 31,
1994 1995 1996
<S> <C> <C> <C>
Net sales $ 14,291,000 $ 10,171,000 $ 11,310,000
Cost of sales 10,488,000 7,383,000 6,248,000

Gross margin 3,803,000 2,788,000 5,062,000

Operating expense:
Selling and administrative
expense 10,215,000 3,397,000 2,946,000
Research and development
expense 2,644,000 1,079,000 1,771,000
Restructuring costs and
expenses 3,151,000 -- --

Total operating expense 16,010,000 4,476,000 4,717,000
Operating income (loss) (12,207,000) (1,688,000) 345,000

Interest expense 724,000 775,000 524,000
Interest and other income (28,000) (3,000) (16,000)
Provision for income taxes 26,000 24,000 24,000

Loss before extraordinary
item (12,929,000) (2,484,000) (187,000)
Extraordinary item-gain on
extinguishment of debt -- 1,367,000 995,000

Net income (loss) $(12,929,000) $(1,117,000) $ 808,000

Net income (loss) per share:
Income (loss) before
extraordinary item $ (1.07) $ (.17) $ --
Extraordinary item -- .10 .02

Net income (loss) per share $ (1.07) $ (.07) $ .02

Average shares outstanding. 12,127,000 14,244,000 44,891,000
</TABLE>

The accompanying notes are an integral part of the consolidated
financial statements.

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>

<CAPTION>
Additional Total
Common Stock Preferred Stock Paid-in Accumulated Shareholders'
Shares Stock Par Value Capital Deficit Equity(Deficit)

<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 11,162,359 $112,000 $ --- $19,123,000 $ (17,001,000) $ 2,234,000

Issuance of common stock 1,318,965 13,000 --- 2,962,000 --- 2,975,000

Issuance of common stock
for compensation 7,000 --- --- 6,000 --- 6,000

Issuance of common stock
for acquisition 50,000 --- --- 100,000 --- 100,000

Net loss for year --- --- --- --- 12,929,000) (12,929,000)

Balances, December 31, 1994 12,538,324 125,000 --- 22,191,000 (29,930,000) (7,614,000)

Conversion of 13.5%
debentures 1,319,997 13,000 --- 977,000 --- 990,000

Issuance of common stock
for services 707,880 8,000 --- 162,000 --- 170,000

Net loss for year --- --- --- --- (1,117,000) (1,117,000)

Balances, December 31, 1995 14,566,201 146,000 --- 23,330,000 (31,047,000) (7,571,000)

Issuance of common stock
for services 244,000 2,000 --- 46,000 --- 48,000

Issuance of Series A
preferred stock in
exchange for debt --- --- --- 800,000 --- 800,000

Issuance of Series B
preferred stock in
exchange for debt --- --- 1,000 4,799,000 --- 4,800,000

Conversion of Series B
preferred stock to
common stock 200,006 2,000 --- (2,000) --- ---

Issuance of common stock
in exchange for accrued
interest 273,585 3,000 --- 130,000 --- 133,000

Issuance of common stock
for cash and other
consideration 60,416,020 604,000 --- 826,000 --- 1,430,000

Net income for year --- --- --- --- 808,000 808,000

Balances, December 31, 1996 75,699,812 $757,000 $1,000 $ 29,929,000 $(30,239,000) $ 448,000

</TABLE>

The accompanying notes are an integral part of the unaudited
financial statements.

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>

<CAPTION>
Year Ended December 31,
1994 1995 1996
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $(12,929,000) $(1,117,000) $ 808,000
Adjustments to reconcile net
loss to net cash provided
(used) by operating activities:
Extraordinary item --- (1,367,000) (995,000)
Depreciation and amortization 512,000 495,000 367,000
Other 801,000 296,000 93,000
(11,616,000) (1,693,000) 273,000
Change in assets and liabilities,
net of effects of non-cash transactions:
Accounts receivable (1,404,000) 482,000 81,000
Unbilled costs and earnings
on contracts 290,000 410,000 637,000
Inventories (413,000) 381,000 60,000
Other current and long-term
assets (302,000) 182,000 158,000
Accounts payable 4,193,000 450,000 (400,000)
Reserve for restructuring 1,359,000 (960,000) 138,000
Accrued and other liabilities 2,265,000 (23,000) (550,000)
Net cash provided (used)
by operating activities (5,628,000) (771,000) 397,000

Cash flows from investing activities:
Other investments 130,000 -- --
Additions to property and
equipment (1,087,000) (159,000) (276,000)

Net cash used by investing
activities (957,000) (159,000) (276,000)

Cash flows from financing activities:
Issuance of common stock for cash 2,975,000 -- 1,430,000
Additions to debt 1,099,000 1,050,000 12,000
Payments on debt, including
capital leases (293,000) (379,000) (801,000)

Net cash provided by
financing activities 3,781,000 671,000 641,000

Net increase (decrease) in cash
and cash equivalents (2,804,000) (259,000) 762,000
Cash and cash equivalents,
beginning of year 3,264,000 460,000 201,000

Cash and cash equivalents,
end of year $ 460,000 $ 201,000 $ 963,000

Supplemental cash flow information:
Cash paid for interest $ 509,000 $ 144,000 $ 160,000
Cash paid for income taxes 15,000 16,000 20,000

</TABLE>

The accompanying notes are an integral part of the consolidated
financial statements.

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The Company and Summary of Significant Accounting Policies:

Company Operations Coded Communications Corporation and its wholly-
owned subsidiaries (the "Company") develop, manufacture and market
wireless digital transmitting, receiving and processing equipment and
systems for use in two primary markets: mobile data communications and
aerospace telemetry. The Company's products employ similar technologies
and techniques to transmit, receive and process digitized information
transmitted over conventional voice radio channels and satellite
communications links. The Company's mobile data communications products
and systems are marketed to small and large operators of vehicle fleets
and include public safety, emergency medical services, utility and
service fleets. The Company's aerospace telemetry products and systems
are marketed to the United States and foreign governments and agencies
and to defense prime contractors for use in research, development, test
and evaluation programs for aircraft, space and weapons systems.

In 1996, ISA Investments Corporation ("ISA") acquired 57,272,767
shares or a 76% common stock ownership interest in the Company. ISA is
a majority controlled subsidiary of Grupo Information, Satellites and
Advertising, S.A. de C.V. ("Grupo ISA"). Grupo ISA is majority owned by
Mr. Hugo R. Camou and his immediate family. As a result of its common
stock ownership interest and its ability to nominate and elect a
majority of the members of the Company's board of directors, the Company
is considered to be controlled by ISA.

Basis of Presentation - The consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles applicable to a going concern, which contemplate, among other
things, realization of assets and payment of liabilities in the normal
course of business. See Note 2 "Management's Plan for Future Operations
and Financing." In addition, 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.

Principles of Consolidation - The consolidated financial statements
include the accounts of Coded Communications Corporation and its wholly-
owned subsidiaries. All material intercompany accounts and transactions
have been eliminated.

Accounts Receivable. The Company provides a reserve for doubtful
accounts where circumstances indicate that a reserve is necessary. As
of December 31, 1995 and 1996, the Company's reserve for doubtful
accounts was $237,000 and $208,000, respectively.

Inventories - Inventories are valued at the lower of cost or
market, but not in excess of net realizable value. Cost is determined
by the first-in, first-out method. The Company has provided estimated
reserves for inventory in excess of the Company's current needs and for
technological obsolescence. Due to the uncertainties inherent in the
evaluation process it is at least reasonably possible that reserves for
excess and obsolete inventories could be further revised within the next
year. The components of inventory are as follows:
<TABLE>

<CAPTION> December 31,
1995 1996
<S> <C> <C>
Raw materials and supplies....... $ 548,000 $ 475,000
Work-in-process...................... 977,000 1,163,000
Finished goods................... 15,000 7,000
Less progress billings................. -- (165,000)
$1,540,000 $1,480,000
</TABLE>

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has multiple sources of supplies for most of its
purchased parts and components. For a few components, there may be only
a single source of supply. Although the Company believes that other
suppliers could provide similar components, a change in suppliers could
cause a delay in manufacturing and customer delivery, and a possible
loss of sales. A delay in or loss of sales would adversely affect
operating results.

Property and Equipment - Property and equipment is carried at cost.
Depreciation and amortization are provided under the straight-line
method with expected lives ranging from three to five years for office
equipment, capitalized design costs and manufacturing and test
equipment. Leasehold improvements and leased equipment are amortized
over the useful life or the term of the respective lease, whichever is
less.

Revenue Recognition - Revenues on engineering and systems contracts
requiring contract performance prior to commencement of deliveries are
recorded using the percentage-of-completion method, primarily based on
contract costs incurred to date compared to total estimated contract
costs. Losses, if any, are recorded when known. Revenue recognized in
excess of amounts billed is classified as current or non-current on the
basis of expected realization or payment within or beyond one year, under
unbilled costs and earnings on contracts. Contract invoicing in excess of
revenue is classified as a current liability. All other revenue is
recognized upon shipment of products or performance of services. The
Company has provided loss reserves for certain contracts based on the
estimated cost to complete the contracts. Due to the uncertainties
inherent in the estimation process it is at least reasonably possible
that an increase in the contract loss reserves could be required within
the next year.

Income Taxes - Income taxes are provided utilizing the liability
method. The liability method requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of
assets and liabilities. Additionally, under the liability method,
changes in tax rates and laws will be reflected in income in the period
such changes are enacted.

Statements of Cash Flows - For purposes of the Statements of Cash
Flows, cash and cash equivalents include cash deposits and bank money
market accounts.

In 1996, non-cash financing activities included the issuance of
Series A and Series B preferred stock with an aggregate liquidation
value of $5,600,000 in exchange for debt and accrued interest; the
issuance of 517,585 shares of common stock for services and the
settlement of accrued interest valued at $181,000; and the issuance of
non-interest bearing creditor notes in the amount of $207,000 for the
settlement of approximately $414,000 in unsecured creditor claims.

In 1995, non-cash financing activities consisted of the issuance of
1,319,997 shares of common stock in exchange for $990,000 principal
amount of 13.5% Convertible Senior Subordinated Debentures, the issuance
of 707,880 shares of common stock for services valued at $170,000 and
the issuance of non-interest bearing creditor notes in the amount of
$1,473,000 for the settlement of approximately $2,946,000 in unsecured
creditor claims.

In 1994, non-cash financing activities consisted of the issuance of
7,000 shares of common stock valued at $6,000 for compensation services
and the issuance of 50,000 shares of common stock valued at $100,000 for
the acquisition of ComViSat, Inc.

Research and Development Costs - Company-sponsored research and
product development costs are charged to expense as incurred.

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentration of Credit Risk. The Company invests its excess cash,
if any, in bank money market accounts, and debt instruments of financial
institutions and corporations with strong credit ratings. The Company
has established guidelines relative to diversification and maturities
that maintains safety and liquidity.

The Company manufactures and sells communications products and
systems to United States government agencies, municipalities and
commercial customers. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. A
substantial portion of international sales are shipped against letters
of credit or cash advances. The Company maintains reserves for
estimated credit losses.

Fair Value of Financial Instruments. The carrying amounts reported
in the accompanying consolidated balance sheets for cash and cash
equivalents, accrued liabilities and short-term borrowings approximate
fair value due to the short-term nature of these instruments. Fair
value approximates cost for all other financial instruments.

Stock-Based Compensation. Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation,"
encourages, but does not require companies to record compensation cost
for stock-based employee compensation plans at fair value. The Company
has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair market value of the
Company's common stock at the date of the grant over the amount an
employee must pay to acquire the common stock.

Net Income (Loss) Per Share - Net income (loss) per share is
computed using the weighted average number of common shares and dilutive
common equivalent shares outstanding during each period using the
treasury method. In addition, the calculation of the number of shares
used in computing net income per share also includes Series A and Series
B preferred stock which are convertible into an aggregate of 10,038,000
shares of common stock, as if they were converted into common stock as
of their original date of issuance, if such inclusion would be dilutive.

Reclassification. Certain amounts in the 1995 consolidated
financial statements have been reclassified to conform with the current
year presentation.

2. Management's Plan for Future Operations and Financing:

Following the restructuring of the Company's operations and
management in the first quarter of 1995, operating expenses were
reduced, gross margins on sales improved and, as a result, the Company
achieved marginal profitability before interest expense and income taxes
in the second half of 1995 and for the year ended December 31, 1996. In
addition, by December 31, 1996, the Company completed an investment
transaction with ISA, and restructured or negotiated settlements with
its major unsecured and secured creditors, resulting in a reduction in
unsecured and secured debt and other liabilities of approximately
$8,319,000 from debt and liabilities existing at December 31, 1995. See
Note 1 "The Company and Significant Accounting Policies" and Note 5
"Investments and Restructuring of Debt."

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Although the Company achieved marginal operating profits before
interest expense and income taxes of $250,000 in the second half of 1995
and $345,000 for the year ended December 31, 1996, the Company operates
in markets that are emerging and highly competitive and the Company's
principal competitors have significantly more financial and
technological resources. Moreover, the Company's orders are typically
concentrated in large orders derived from a small base of customers and,
accordingly, new orders, sales levels and operating profits, if any,
can and will fluctuate on a quarter-by-quarter basis. There is no
assurance that the Company will operate at a profit in the future.

In the event financing is not available in the time frame required,
then the Company will be forced to reduce its rate of sales growth, if
any, reduce operating expenses and reschedule research and development
projects. In addition, the Company might be required to sell certain of
its assets or license its technologies to others. These actions, while
necessary for the continuance of operations during a period of cash
constraints and a shortage of working capital, could adversely effect
the Company's long-term business and shareholder value.

3. Extraordinary Gain on Extinguishment of Debt:

As more fully discussed in Note 7 "Debt and Creditors' Note", in
1995 and 1996 agreements were reached with certain unsecured creditors
on the extinguishment of debt resulting in gains, net of related
expense, of $1,367,000 in 1995 and $995,000 in 1996. The gains on
extinguishment of debt are reflected as an extraordinary item in the
accompanying consolidated financial statements.

4. Losses and Expenses From Restructuring Operations:
<TABLE>

In December 1994, the Company initiated action to restructure its
operations to reduce operating expenses and to focus on its domestic
markets and core product lines. Restructuring costs and a write-down in
the value of assets of approximately $3,151,000 were recorded in the
fourth quarter of 1994 and were comprised of the following:
<CAPTION>
<S> <C>
Write-off of Domsat acquisition costs $ 657,000
Reserve for common stock repurchase agreement 340,000
Write-down of VSAT satellite product line assets 667,000
Reserve for personnel severance costs 207,000
Reserve for VSAT satellite product line losses
and closing of international mobile data sales
offices and marketing activities 950,000
Reserves for other costs and expense 330,000
$3,151,000
</TABLE>

In January 1994, the Company acquired ComViSat, Inc. ("ComViSat"),
a start-up company engaged in integration and distribution of very small
aperture terminal earthstations ("VSAT's"). These systems are used in
voice and data satellite communications, and were marketed primarily to
developing third world countries where wireline telephone and other
communications capabilities were inadequate. The two shareholders of
ComViSat received an aggregate of 50,000 shares of Common Stock for all
of the outstanding common stock of ComViSat.

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In addition, the shareholders of ComViSat were entitled to future
contingent payments, in the form of cash, common stock or a combination
thereof, in the event certain financial performance goals are achieved
over a four-year period. The acquisition was treated as a purchase for
accounting purposes. The assets, liabilities and operations of ComViSat
prior to its acquisition were not material to the consolidated assets,
liabilities and operations of the Company.

As a result of depressed business conditions in Mexico and the
destabilizing impact of the Mexican economy on other Latin American and
South American economies beginning in December 1994, the decision was
made in 1995 to discontinue the Company's VSAT product line and dispose
of all product-line assets, which were comprised primarily of VSAT
demonstration and test equipment. Mexico was the principal market for
the Company's VSAT products. Sales of VSAT earthstation products and
systems were $2,175,000 in 1994. At December 31, 1994, the Company
recorded expenses of $1,226,000 for closing the VSAT product line,
discontinuing sales and engineering activities, and the writing-down of
equipment, intangible assets and inventories.

5. Investments and Restructuring of Debt:

In September 1996, the Company completed a series of transactions
which resulted in ISA acquiring a 76% common stock ownership interest in
the Company; and the restructuring of the Company's $6,600,000 in
secured debt. As a result of its controlling interest in the Company's
common stock and its ability to nominate and elect a majority of the
members of the Company's Board of Directors, the Company is considered
to be controlled by ISA.

ISA acquired its 57,272,767 shares or 76% common stock ownership
interest for, among other things, cash payments totaling $1,400,000 and
an ISA guarantee of not less then $10,000,000 in orders for mobile data
communications products from its customers in Mexico and Latin America,
over an eighteen month period. Prior to its investment in the Company,
ISA was a distributor of the Company's mobile data communications
products in Mexico. As a condition of its agreement with the Company,
ISA was required to deposit in a third party escrow account 24,000,000
shares of the Company's common stock to secure its guarantee of
$10,000,000 in product orders. In the event ISA places less than
$10,000,000 in product orders over the eighteen month period, then a
portion of the escrowed shares are to be canceled and returned to the
Company. At December 31, 1996, there were 16,800,000 shares held in the
escrow account.

In connection with the ISA investment in the Company, holders of the
Company's senior secured $1,800,000 principal amount Bridge Loan
canceled their debt in exchange for a cash payment of $400,000; the
issuance of 8,000 shares of the Company's Series A preferred stock (with
a liquidation preference of $800,000); and the issuance of new
$600,000 principal amount, 6% Term Notes, due September 27, 1997. The 6%
Term Notes are convertible, at the option of the holders, into 2,400,000
shares of common stock and are collateralized by a security interest in
the Company's assets. In addition, the holder of the Company's secured
$4,000,000 principal amount, 12% Convertible Debentures ("12%
Debentures") converted the 12% Debentures and accrued interest of
approximately $800,000 into a new seven year, $4,800,000 principal
amount 6% Convertible Debenture (the "6% Debenture"). The 6% Debenture
was subsequently converted in December 1996 into 48,000 shares of the
Company's Series B preferred stock, with a liquidation value of
$4,800,000. The Series B preferred stock is convertible into
approximately 7,837,000 shares of the Company's common stock. All of
the shares of Series B preferred stock are held by Renaissance Capital
Partners, II, Ltd. an investment partnership based in Dallas, Texas.

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>

6. Property and Equipment:
<CAPTION>
Property and equipment consisted of:
December 31,
1995 1996
<S> <C> <C>
Manufacturing, test and demonstration
equipment $2,309,000 $2,272,000
Leaseholds, office and other equipment 1,307,000 1,559,000
Capitalized designs and tooling 125,000 125,000
Equipment under capitalized leases 94,000 13,000
3,835,000 3,969,000
Less accumulated depreciation and
amortization (3,014,000) (3,239,000)
$ 821,000 $ 730,000
</TABLE>

<TABLE>

7. Debt and Creditors' Note:
<CAPTION>
Short-term debt and Creditors'
Note consisted of: December 31,
1995 1996
<S> <C> <C>
12% Debentures $ 4,000,000 $ ---
Bridge loan, due April 17, 1996 1,800,000 ---
6% Term Notes, due September 1997 --- 600,000
Creditors' Note, non-interest bearing,
due December 31, 1997 1,394,000 837,000
Installment notes, interest rates
up to 16% 1,000 4,000
7,195,000 1,441,000
Less amount due within one year (6,151,000) (1,441,000)
Long-term debt, due after one year $ 1,044,000 $ ---
</TABLE>

In February 1995, the holder of the 12% Debentures declared the 12%
Debentures in default and accelerated the payment of principal and
interest. In addition, at December 31, 1995, there was $646,000 in
accrued interest past due on the 12% Debentures. In September 1996, the
holder of the 12% Debentures exchanged the $4,000,000 principal amount,
12% Debentures and accrued interest of approximately $800,000 for a new
seven year, $4,800,000 principal amount 6% Debenture, and 200,000 shares
of common stock in exchange for approximately $100,000 in accrued
interest. In December 1996, the holder of the 6% Convertible Debenture
converted the 6% Convertible Debenture into 48,000 shares of the
Company's Series B preferred stock with an aggregate liquidation
preference of $4,800,000. See Note 5 "Investments and Restructuring of
Debt" and Note 10 "Common and Preferred Stock".

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In April 1995, the Company completed a $1,250,000 Bridge Loan
financing package, under which $500,000 in new loans were advanced and a
$750,000 term loan, declared in default by the note holder in February
1995, was refinanced. On July 21 and September 15, 1995 the Bridge Loan
Agreement was amended and the Bridge Loan increased to $1,800,000 with
an additional $550,000 in new loan proceeds. Proceeds of the Bridge
Loan were used for working capital. In September 1996, the holders of
the $1,800,000 principal Bridge Loan canceled their debt in exchange for
a cash payment of $400,000; new $600,000 principal amount 6% Term Notes,
which are due in September 1997 and are collateralized by a security
interest in the Company's assets; and 8,000 shares of Series A preferred
stock with an aggregate liquidation preference of $800,000. See Note 5
"Investments and Restructuring of Debt" and Note 10 "Common and
Preferred Stock". The 6% Term Notes are convertible, at the option of the
holders any time prior to maturity, into 2,400,000 shares of common
stock.

In 1995, the Company engaged the San Diego Wholesale Credit
Association to assist in the formation of an unsecured creditors'
committee and an out-of-court composition plan (the "Creditor Plan") for
the settlement of unsecured creditors' claims. Under the Creditor Plan
implemented by the Company in September 1995, certain unsecured
creditors accepted 50% of their credit claims in full settlement of
their claims (the "settlement value"), with quarterly repayments
beginning September 30, 1995 at a fixed rate of 5% of the settlement
value. The unpaid balance of the settlement value is to be paid in
December 1997. As of December 31, 1995, unsecured creditors with
original claims of approximately $2,946,000 agreed to participate in the
Creditor Plan.

In 1996, additional creditors with claims of approximately $414,000
agreed to participate in the Creditor Plan and accepted 50% of their
credit claim in full settlement. In addition, in September 1996 the
Company offered all participants in the Creditor Plan a lump sum cash
payment equal to 35% in full settlement of their then outstanding
Creditor Note balance. Holders of Creditor Notes with an outstanding
balance of approximately $446,000 accepted the Company's cash offer and
received a lump sum cash payment of $156,000 in full settlement of the
remaining outstanding balance of their Creditor Notes. The Creditors'
Note balance outstanding at December 31, 1996 was $837,000, and requires
quarterly payments of approximately $58,000 through December 31, 1997,
at which time the remaining outstanding balance of the Creditor Note is
payable. The Creditor Note is collateralized by a subordinated security
interest in the assets of the Company.
<TABLE>

8. Income Taxes:
<CAPTION>
The provision for income taxes consisted of the following:

Year Ended December 31,
1994 1995 1996
<S> <C> <C> <C>
Current $ 26,000 $ 24,000 $ 24,000
Deferred -- -- --
$ 26,000 $ 24,000 $ 24,000
</TABLE>

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>

A reconciliation of the statutory federal income tax and the
Company's pretax income or loss (including extraordinary gain) with the
Company's reported income tax expense is as follows:
<CAPTION>
Year Ended December 31,
1994 1995 1996
<S> <C> <C> <C>
Federal statutory rate (34.0)% (34.0)% 34.0%
State income taxes, net of
federal tax benefits...... -- 1.5 1.9
Income tax benefits not recognized
(recognized) for financial
statement purposes............ 34.0 31.3 (33.0)
-- % 1.2 % 2.9 %
</TABLE>

The major components of deferred tax assets consisted of the following:

<TABLE>

<CAPTION> 1995 1996
Deferred tax assets:
<S> <C> <C>
Net operating losses and tax
credit carryforwards $11,209,000 $10,422,000
Reserves not currently deductible 621,000 671,000
11,830,000 11,093,000
Valuation allowance (11,830,000) (11,093,000)
Net deferred tax assets $ -- $ --
</TABLE>

At December 31, 1996, the Company had estimated net operating loss
carryforwards for federal tax purposes of approximately $29,000,000 and
tax credit carryforwards of $500,000 which expire in the years 1997
through 2010. The realization of these loss carryforwards and tax credits
are dependent upon the Company generating sufficient future taxable income
prior to the expiration of the net operating loss and tax credit
carryforwards. Because of the Company's history of operating losses,
there is no assurance that any amount of the net operating loss carryforwards
and tax credits will be realized.

The Company has established a valuation allowance against its
deferred tax assets due to the uncertainty surrounding the realization of
such assets. The Company periodically evaluates the recoverability of
the deferred tax assets. At such time as it is determined that it is
more likely than not that deferred tax assets are realizable, the
valuation allowance will be reduced.

The Internal Revenue Code (the "Code") limits the availability of
income tax net operating losses and certain tax credits that arose prior
to certain cumulative changes in a corporation's ownership resulting in
a change of control of the Company. The Company's use of its net
operating loss carryforwards and tax credit carryforwards will be
significantly limited because the Company underwent "ownership changes"
in 1993 and 1996. In each year following the changes, the Company will
be able to offset taxable income by a limited amount of the pre-
ownership change carryforwards. Net operating losses and tax
credits that are unavailable in any year as a consequence of this
limitation may be carried forward for future use subject to the
restrictions of the Code.

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Related Party Transactions:

In 1996, third party customers of ISA placed new orders for
approximately $5,346,000 in mobile data communications products and
systems. The Company believes the terms and conditions of these orders
are consistent with the terms and conditions of similar orders accepted
by the Company from third party customers in the United States. In
addition, sales to ISA customers in Mexico in 1996 were approximately
$4,141,000 and at December 31, 1996 there was $584,000 in accounts
receivable due from ISA. See Note 12 "Product Lines and Major
Customers."

In 1995, the Company's two independent directors each received
100,000 shares of the Company's common stock for services. The shares
of common stock were valued at an aggregate of $52,000. The independent
directors received no other direct compensation for their services,
except for the reimbursement of expenses incurred to attend Board of
Director meetings. Both independent directors resigned their positions
in 1996.

In 1994, the Company loaned an aggregate of $230,000 to two officers
for relocation to San Diego, California. Under the terms of the loans,
the loan principal was to be reduced by $10,000 for each year the
officer continued his employment with the Company. At December 31,
1995, the notes receivable from officers, included in other assets in
the accompanying consolidated financial statements, totaled $200,000. At
December 31, 1996, both officers had terminated their employment with
the Company, and the repayment of both loans was in dispute. The
Company believes that the notes will be ultimately collected at the
approximate net book value of the notes at December 31, 1996.

10. Common and Preferred Stock:

The Company has authorized 100,000,000 shares of $.01 par value
common stock. In 1996, the Company's shareholders approved an amendment
to the Company's Certificate of Incorporation authorizing 2,000,000
shares of $.01 par value preferred stock. At December 31, 1996, the
Board of Directors had designated Series A and Series B preferred stock.

On September 27, 1996, the Company issued 8,000 shares of Series A
preferred stock in exchange for the settlement of debt. (See Note 7
"Debt and Creditors' Note"). Each share of Series A preferred stock is
entitled to receive dividends on a cumulative basis at the annual rate
of $8.00 per share, when and as declared by the Board of Directors.
Dividends on the Series A preferred stock have preference over any
distributions to the holders of the Series B preferred stock and common
stock. Undeclared cumulative dividends amounted to $16,000 at December
31, 1996. Each share of the Series A preferred stock is convertible
into 300 shares of common stock, subject to certain anti-dilution
provision, and the Series A preferred stock has a liquidation preference
of $100.00 per share over any distributions to holders of common stock
and Series B preferred stock. Holders of the Series A preferred stock
have votes per share equivalent to the number of shares of common stock
to which the Series A preferred stock may be converted, and such votes
are combined with the votes of common and Series B stockholders and
voted as a single class.

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On December 20, 1996, the Company issued 48,000 shares of Series B
preferred stock in exchange for debt. See Note 7 "Debt and Creditors'
Note." Each share of Series B preferred stock is convertible into
163.27 shares of common stock, subject to certain anti-dilution
provision, and each share of Series B preferred stock is entitled to
receive dividends on a cumulative basis at the annual rate of $6.00 per
share, when and as declared by the Board of Directors. Dividends on the
Series B preferred stock have preference over distributions to common
stockholders and are junior to any distributions to Series A preferred
stockholders. The holder of the Series B preferred stock has votes per
share equivalent to the number of shares of common stock to which the
Series B preferred stock may be converted, and such votes are combined
with the votes of common and Series A stockholders and voted as a single
class.

In December 1996, the holder of the Series B preferred stock
converted 1,225 shares of Series B preferred stock into 200,006 shares
of common stock. At December 31, 1996, there were outstanding 46,775
shares of Series B preferred stock, with an aggregate liquidation value
of $4,678,000.

In 1996, in connection with the ISA investment and the
restructuring of debt, 60,272,767 shares of common stock were issued for
a value of $1,400,000. Of the shares issued to ISA, approximately
16,800,000 shares were held in escrow at December 31, 1996. These
shares will be released to ISA as ISA meets its commitment to place
$10,000,000 in orders for the Company's mobile data products over an
eighteen month period. In the event that ISA does not place $10,000,000
in orders, then a portion of the shares held in escrow will be canceled.
See Note 5 "Investments and Debt Restructuring." In addition, in 1996
the Company issued 517,585 shares of common stock in exchange for
services and accrued interest valued at $181,000 and issued 143,250
shares of common stock for $30,000 in cash upon the exercise of
outstanding employee stock options.

In 1995, the Company issued 1,319,997 shares of common stock in
exchange for $990,000 principal amount, 13.5% Debentures and issued
707,880 shares of common stock in exchange for services valued at
$170,000.

In 1994, the Company issued 1,318,965 shares of common stock upon
the exercise of warrants and options for net proceeds of $2,975,000. In
addition, 50,000 shares of common stock valued at $100,000 were issued
to the shareholders of ComViSat in exchange for all of the outstanding
shares of ComViSat common stock and 7,000 shares of common stock valued
at $6,000 were issued in consideration for compensation services.

At December 31, 1995, the Company had issued warrants to purchase a
total of 4,256,837 shares of common stock, at an average purchase price
of $.63 per share. All of the warrants expired or were canceled in
1996.

Under the Company's 1992 Incentive and Non-Qualified Stock Option
Plan (the "1992 Option Plan"), as amended on September 19, 1996, options
to purchase an aggregate of 13,250,000 common shares may be granted to
directors, officers and employees. Options under the 1992 Option Plan
are granted at a price not less than 75% of the fair market value of a
common share at the date of grant, and the right to exercise the option
generally vests over such periods as determined by the Board of Directors,
but generally over a period of six months to three years and expires in
five years. As of December 31, 1996, options to purchase 8,718,250 shares
had been granted under the 1992 Option Plan.

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>

The following table summarizes stock option transactions for the
three years ended December 31, 1996:
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Outstanding at beginning of year 1,285,889 1,054,288 3,242,915

Granted 115,332 2,953,000 7,542,500
Exercised (324,058) -- (143,250)
Canceled (22,875) (764,373) (2,067,165)
Outstanding at end of year 1,054,288 3,242,915 8,575,000
</TABLE>
<TABLE>

The Company has adopted the disclosure-only provisions of SFAS No.
123 Accounting for Stock-Based Compensation. Had compensation costs
for the Company's stock option plan been determined based on the fair-
value at the grant date for awards in 1995 and 1996 consistent with the
provisions of SFAS No. 123, net income (loss) and net income (loss) per
common share would have been adjusted to the pro forma amounts indicated
below:
<CAPTION>
Year Ended December 31,
1995 1996
<S> <C> <C>
Net income (loss):
As reported....................... $(1,117,000) $808,000
Pro forma......................... (1,165,000) 376,000

Net income (loss) per common share:
As reported....................... $ (.07) $ .02
Pro forma........................... (.07) .01
</TABLE>

The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1995 and 1996: dividend
yield of 0%; expected volatility of 77%; risk-free interest rates
ranging from 5.1% to 6.6%; and expected lives of 2 to 4 years.

In 1994, options covering 115,332 shares of common stock were
granted at an average option price of $2.90 per share (ranging from
$2.75 to $3.00 per share). In 1995, options covering 2,953,000 shares
of common stock were granted at an average option price of $.32 per
share (ranging from $.20 to $.50 per share), of which options to
purchase 1,730,000 shares of common stock were granted to certain of the
Company's officers at an average price of $.35 per share. In 1996,
options covering 7,542,500 shares of common stock were granted at an
average option price of $.30 (ranging from $.20 per share to $.35 per
share).

The weighted average exercise price of options excercised and canceled
in 1996 was $.21 and $.51 per share, respectively. The weighted average
life of options outstanding at December 31, 1996 was 47 months.

At December 31, 1996 options for 1,433,966 shares were exercisable
at prices ranging from $.20 to $.40 per share, and 4,531,750 shares were
available for future grant.

At December 31, 1996 the Company had reserved 26,400,578 common
shares for issuance of 13,106,750 shares under employee stock options;
10,036,991 common shares for issuance upon the conversion of Series A
and Series B preferred stock into common stock; 2,400,000 common shares
for issuance upon the conversion of the 6% Term Note into common stock;
and 856,837 shares for issuance upon the exercise of warrants and other
options to purchase common stock.

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Commitments and Employee Savings Plan:

The Company leases its Carlsbad, California administrative and
manufacturing facility under a noncancellable operating lease expiring
in October 1998. The minimum annual lease payments under this lease are
approximately $206,000 in 1997 and $172,000 in 1998.

Total rent expense, including month-to-month equipment rentals, was
$545,000, $448,000 and $194,000, respectively, for the years ended
December 31, 1994, 1995 and 1996.

As a result of the Company's closing of its ComViSat satellite
earthstation product line and its business operations, the Company is a
party to legal actions At December 31, 1996, the Company was of the
opinion that legal actions existing as of that date would not have a
material affect on the consolidated financial statements.

The Company entered into employment agreements in 1996 with five
executive officers. These agreements cover a term of three years. Base
salaries vary under the individual agreements and provide for annual
incentive bonuses under a plan approved by the Board of Directors. The
agreements also contain severance provisions in the event that the
Company terminates the employment of the executive officers without
cause and under certain defined circumstance, if the executive officer
terminates employment.

The Company maintains a 401(k) Savings Plan covering substantially
all full time employees. Plan participants may contribute up to 15
percent of their eligible compensation to the plan. The Company made an
elective matching contribution to the Plan in 1996 of $13,000. The
Company did not make elective matching contributions to the plan in 1994
or 1995.

12. Product Lines and Major Customers:
<TABLE>

The Company operates in a single business segment engaged in the
design, manufacture and marketing of a wide range of digital
transmitting, receiving and processing equipment for use in two markets,
wireless mobile data communications and aerospace telemetry. In
December 1994, the Company discontinued sales of its VSAT earthstation
product line. Sales of VSAT equipment in 1995, which represented
approximately 1% of consolidated sales, are included in wireless mobile
data sales. Net sales of wireless mobile data communications and
aerospace telemetry products and services for the three years ended
December 31, 1996 were as follows:
<CAPTION>

1994 1995 1996
<S> <C> <C> <C>
Mobile data communications $7,991,000 $6,676,000 $7,880,000
Aerospace telemetry 4,125,000 3,495,000 3,430,000
VSAT earthstations 2,175,000 -- --

$14,291,000 $10,171,000 $11,310,000
</TABLE>

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In 1994, sales to three customers represented 10%, 16% and 17%,
respectively, of mobile data communications product sales. In 1995,
sales to three customers represented 10%, 11% and 25%, respectively, of
mobile data communications product sales. Included in mobile data
communications sales in 1995 is $394,000 in revenue recognized from the
licensing of manufacturing rights of the Company's MPT 1327 modem. The
MPT 1327 modem is marketed primarily in the United Kingdom. In 1996,
sales of mobile data communications products to two customers in Mexico
represented approximately 53% of mobile data communications sales.

In 1994, two customers each represented 12% of aerospace telemetry
sales and one customer represented 10% of aerospace telemetry sales. In
1995, two customers each represented 12% of aerospace telemetry sales.
In 1996, two customers represented 17% and 14%, respectively, of
aerospace telemetry sales. Export sales of aerospace telemetry
products, principally to Western Europe, represented 9%, 18% and 12% of
total aerospace telemetry sales in 1994, 1995 and 1996, respectively.
Direct sales of aerospace telemetry products to the United States
government and its agencies represented 14%, 8% and 18% of aerospace
telemetry sales in 1994, 1995 and 1996, respectively.

All VSAT earthstation sales in 1994 were to a single customer in
Mexico.

___________________________

CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996

<TABLE>

<CAPTION>
Beginning Charged To Account Ending
Description Balance Expense Reclassification Write-Off Balance

Allowance for doubtful accounts:
<S> <C> <C> <C> <C> <C>
Year Ended 1996 $237,000 $ 4,000 $ -- $ (33,000) $208,0000

Year Ended 1995 $110,000 $50,000 $ 77,000 $ -- $237,000

Year Ended 1994 $ 90,000 $32,000 $ -- $ (12,000) $110,000

<CAPTION>
Inventory
Beginning Charged To Write-Off & Ending
Description Balance Expense Reclassification Balance

Inventory reserves:
<S> <C> <C> <C> <C>
Year Ended 1996 $ 754,000 $ 122,000 $(189,000) $ 687,000

Year Ended 1995 $ 610,000 $ 118,000 $ 26,000 $ 754,000

Year Ended 1994 $ 441,000 $ 173,000 $ (4,000) $ 610,000

<CAPTION>
Beginning Charged To Charged Ending
Description Balance Expense to Reserve Balance

Restructuring reserves:
<S> <C> <C> <C> <C>
Year Ended 1996 $ 295,000 $ -- $ (138,000) $ 157,000

Year Ended 1995 $1,359,000 $ -- $(1,064,000) $ 295,000

Year Ended 1994 $ -- $3,151,000 $(1,792,000) $1,359,000
</TABLE>

Exhibit 21.1

CODED COMMUNICATIONS CORPORATION
LIST OF SUBSIDIARIES
AS OF DECEMBER 31, 1996

State or Country Percent
Name of Incorporation Owned

Wholly-owned subsidiaries of Coded Communications Corporation:

Coded Mobile Communications, Inc. Delaware 100%
Decom Systems, Inc. Delaware 100%
ComViSat, Inc. California 100%
Coded ComViSat de Mexico, S.A. Mexico 100%

Wholly-owned subsidiaries (inactive) of Decom Systems, Inc.:

Coded LMR Holding, Inc. California 100% (1)
Coded Land Mobile Radio, Inc. California 100% (1)
Coded Communications Network Systems, Inc. California 100% (1)
DSI Management Co. California 100% (1)
Decom Systems, International California 100% (1)
Decom Systems GmbH Germany 100% (1)

(1) Percentage of ownership of Decom Systems, Inc.

EXHIBIT 21.1

LIST OF SUBSIDIARIES

EXHIBIT 23.1

CONSENT OF COOPERS & LYBRAND, L.L.P.

EXHIBIT 27.1

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 963,000
<SECURITIES> 0
<RECEIVABLES> 1,984,000
<ALLOWANCES> (208,000)
<INVENTORY> 1,480,000
<CURRENT-ASSETS> 4,605,000
<PP&E> 3,969,000
<DEPRECIATION> (3,239,000)
<TOTAL-ASSETS> 5,521,000
<CURRENT-LIABILITIES> 5,073,000
<BONDS> 600,000
0
5,478,000
<COMMON> 25,211,000
<OTHER-SE> (30,241,000)
<TOTAL-LIABILITY-AND-EQUITY> 5,521,000
<SALES> 11,022,000
<TOTAL-REVENUES> 11,310,000
<CGS> 6,248,000
<TOTAL-COSTS> 4,717,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 508,000
<INCOME-PRETAX> (163,000)
<INCOME-TAX> 24,000
<INCOME-CONTINUING> (187,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 995,000
<CHANGES> 0
<NET-INCOME> 808,000
<EPS-PRIMARY> .02
<EPS-DILUTED> .02

</TABLE>

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration
statements of Coded Communications Corporation on form S-8
(Registration No. 33-532802) pertaining to the Coded Communications
Corporation and subsidiaries' 1992 Incentive and Non-Qualified Stock Option
Plan of our report dated February 28, 1997, which includes an explanatory
paragraph about the Company's ability to continue as a going concern, on our
audits of the consolidated financial statements and financial statement
schedule of Coded Communications Corporation as of December 31, 1995 and
1996 and for each of the three years in the period ended December 31, 1996,
which is included in this Annual Report on Form 10-KSB.

COOPERS & LYBRAND L.L.P.

San Diego, California
February 28, 1997