UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                    FORM 10-Q


[X]  Quarterly  report  pursuant  to Section 13 or 15(d) of the  Securities
     Exchange Act of 1934

         For the quarterly period ended       March 31, 1998     
                                         ----------------------

     OR

[ ]  Transition  Report  Pursuant  to Section  13 or 15(d) of the  Securities
     Exchange Act of 1934

         For the transition period from                 to      

Commission File Number              33-55254-45               


ASSOCIATED TECHNOLOGIES
(Exact name of registrant as specified in its charter)

                  DELAWARE                           87-0485306   
(State or other jurisdiction of incorporation     (IRS Employer
         or organization)                          Identification Number)

3 RIVERSIDE DRIVE,
ANDOVER                                             01810      
---------------------------------------         --------------
(Address of principal executive offices)          (Zip Code)


Registrant's telephone number, including area code      (978) 688-8800 
                                                  ---------------------

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


      Class                           Outstanding as of March 31, 1998 
--------------------                  --------------------------------
CLASS A COMMON STOCK                        4,630,798 shares
                                            Par Value $0.001


                                        1

<PAGE>





                         PART I - FINANCIAL INFORMATION

                          Item 1. Financial Statements


Financial Statements                                                Page

Consolidated Balance Sheets as at December 31, 1997 and
     March 31, 1998                                                   5

Consolidated Statements of Operations for the quarter ending
     March 31, 1998 and 1997                                          6

Consolidated Statements of Cash Flows for the quarter ending
     March 31, 1998 and 1997                                          7

Selected Notes to Consolidated Financial Statements                   8


                                        2

<PAGE>




Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Results of Operations:

Three Months Ended March 31, 1998 and 1997

As more fully  described  in Note 2 to the  financial  statements,  the  Company
completed 74% of a merger with VME during the quarter.  The merger resulted in a
reverse  acquisition  for  accounting  purposes.  At March 31,  1998  former VME
security  holders  controlled  50.25% of the  Company's  issued and  outstanding
common stock.  The results of operations  for the three month period ended March
31, 1997 are those of VME and the  comparative  analysis below is based on those
results as  compared to the  consolidated  results of  operations  for the three
month period ended March 31, 1998.

Net Sales for the three months ended March 31, 1998  decreased 52% to $822,  382
from  $1,712,733 for the  comparable  period in 1997. The decrease was primarily
the result of $184,000 in royalties,  $570,000 of development  fees and $950,000
in sales  advances  being recorded in the three months ended March 31, 1997 with
no such revenue  being  recorded in the three  months ended March 31, 1998.  The
drop in revenue was offset in part by net sales of V Picks of  $162,574  and net
sales from Ogenic of $654,024.

Gross profit for the three months ended March 31, 1998  increased by $503,149 to
$452,741 from  ($50,408) for the three months ended March 31, 1997. The increase
was due largely to the gross profit of $480,364 attributable to the acquisition.

Selling,  general  and  administrative  decreased  51% for the first  quarter to
$913,806  from  $1,873,510  for the same period in 1997.  The  reduction was the
result of  reductions  in  operating  expenses  of  $622,814  and  reduction  of
distribution  rights  related  expenses of $900,000.  These savings were in part
offset by $513,653 in operating  expenses  from both Ogenic and the legal parent
company.

The company also incurred a non-recurring  charge of $2,900,326  relating to 74%
of the estimated value of purchased research and development  resulting from the
merger of the Company and VME.

As a result of the above factors  operating  losses increased to ($3,399,622) in
the three month  period  ended March 31,  1998 from  ($1,951,776)  for the three
months ended March 31, 1997.

Liquidity and Capital Resources:

The company has funding obligations under the Securities Exchange Agreement with
VME dated December 18, 1997 of $1,500,000, due in scheduled payments through May
15, 1998.  First Sydney, a related party, is obligated to provide the funding in
the event the  Company  is unable to do so.  The  capital  contributed  by First
Sydney is  convertible  into shares of the  Company's  common stock at a rate of
$2.50 of funding  per share of common  stock.  When  First  Sydney was unable to
provide the funding specified in the Securities Exchange Agreement,  the Company
exhausted every  opportunity to raise  alternative  funding.  Regrettably,  this
funding did not  materialise and on November 18, 1998, the Company agreed to the
unwinding of the  Securities  Exchange  Agreement  and  rescission of the Merger
Agreement in return for a 20%  shareholding in VME to compensate the Company for
funding already provided.


                                        3

<PAGE>




Cash used in  operating  activities  decreased  to $888,186 for the three months
ended March 31, 1998 from  $2,099,272 for the three months ended March 31, 1997.
Cash  provided by investing  activities  for the period ended March 31, 1998 was
$584,347,  inclusive of $643,847 of cash acquired in the Merger,  as compared to
$2,853,157 for the three months ended March 31, 1997. Cash provided by financing
activities  decreased to $440,435 for the three months ended March 31, 1998 from
$(3,134) for the three months ended March 31, 1997.

As of March 31, 1998 the company has an accumulated  deficit of $20,665,960  and
deficit working capital of $6,235,292.

                           PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) The following exhibits are included in this filing:
                                                             Page
     Financial Statements as of March 31, 1998               5-11
     Financial Data Schedule

(b) Reports on Form 8-K.

     Announcement  of  Acquisition  of a  majority  interest  in  Virtual  Music
     Entertainment Inc - 16th January 1998.


                                   SIGNATURES

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

ASSOCIATED TECHNOLOGIES


By:     s/ John Deloughery
     John Deloughery
     CEO and Director                           



Dated :          February 22, 1999





                                        4

<PAGE>



                          ASSOCIATED TECHNOLOGIES, INC.
                          consolidated balance sheets


                                     Assets

<TABLE>
<CAPTION>
                                                                       March 31, 1998     December 31, 1997
                                                                         (unaudited)        (unaudited)
                                                                    -------------------   -----------------
CURRENT ASSETS:
<S>                                                                 <C>                   <C>              
   Cash                                                             $           132,286   $           4,738
   Accounts receivable, net of allowances of $5,676 as of March                            
     31, 1998 and December 31, 1997                                             190,730              27,114
   Inventory                                                                    300,091             116,619
   Prepaid and other current assets                                             180,784              43,178
                                                                    -------------------   -----------------
         Total current assets                                                   803,891             191,649

   Furniture, equipment and leasehold improvements, net                         392,192             307,205
   Capitalized software costs                                                   520,000             465,000
   Other Assets                                                               1,338,665             265,352
                                                                    -------------------   -----------------

         Total assets                                               $         3,054,738   $       1,229,206
                                                                    ===================   =================


Liabilities and Stockholders' Deficit

Current Liabilities:
   Notes payable                                                    $         1,671,203   $       1,577,000
   Accounts payable and accrued expenses                                      2,991,990           2,245,027
   Deferred revenue                                                             438,111
   Distributor advances                                                       1,722,700           1,667,200
   Customer deposits                                                            215,179                   -
                                                                    -------------------   -----------------
         Total current liabilities                                            7,039,183           5,489,227

   Capital lease obligations, net of current portion                              5,838                 699
                                                                    -------------------   -----------------

         Total liabilities                                                    7,045,021           5,489,926
                                                                    -------------------   -----------------


Stockholders' Deficit:
   Convertible  preferred  stock,  Series D, $0.01 par value;
     3,450,000  shares authorized; 0 and 3,434,050 shares
     issued and outstanding at March 31, 1998 and December 31,
     1997 respectively (liquidation preference, $2,609,878 at
     December 31, 1997)                                                               0              34,341
   Convertible preferred stock, Series E, $0.01 par value;           
     6,000,000  shares  authorized;  0 and  1,528,583,  
     and  shares  issued  and outstanding at March 31, 1998
     and December 31, 1997 respectively (liquidation preference,
     $3,011,309 at December 31, 1997)                                                 0              15,286
   Common stock, $.001 par value; 25,000,000 shares                                        
     authorized; 4,630,798 and 2,534,481 shares issued and
     outstanding at March 31, 1998 and December 31, 1997                                 
     respectively                                                                 4,631               2,535
   Cumulative Translation Adjustment                                             (9,048)                  -
   Adjustment Additional paid-in capital                                     16,680,094          12,955,018
   Accumulated deficit                                                      (20,665,960)        (17,267,900)
                                                                    -------------------   -----------------

         Total stockholders' deficit                                         (3,990,283)         (4,260,720)
                                                                    -------------------   -----------------

         Total liabilities and stockholders' deficit                $         3,054,738   $       1,229,206
                                                                    ===================   =================
</TABLE>


The accompanying notes are an integral part of these financial statements.



                                        5

<PAGE>



                          ASSOCIATED TECHNOLOGIES, INC.
                            Statements of Operations


<TABLE>
<CAPTION>
                                                                                 Three Months Ended
                                                                                      March 31 ,
                                                                                     (unaudited)
                                                                                1998               1997
                                                                           -------------        -----------
<S>                                                                        <C>                  <C>        
NET SALES                                                                  $     822,382        $ 1,712,733

COST OF SALES                                                                    369,641          1,763,141
                                                                           -------------        -----------

GROSS PROFIT                                                                     452,741            (50,408)

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                     913,806          1,873,510

NON-RECURRING CHARGE ,WRITE OFF  OF  PURCHASED R&D                             2,900,326                  -
                                                                           -------------        -----------


LOSS FROM OPERATIONS                                                          (3,361,391)         1,923,918

INTEREST INCOME (EXPENSE), NET                                                   (38,231)            (7,237)
                                                                           -------------        -----------

LOSS FROM OPERATIONS BEFORE INCOME TAXES                                      (3,399,622)        (1,931,155)

PROVISION FOR INCOME TAXES                                                             -             20,621
                                                                                       -

NET LOSS                                                                   $  (3,399,622)       $(1,951,776)
                                                                           =============        ===========

BASIC AND DILUTED NET LOSS PER SHARE                                       $         (78)             (1.02)

BASIC AND DILUTED SHARES OUTSTANDING                                           4,376,102          1,906,296
</TABLE>


The accompanying notes are an integral part of these financial statements.



                                        6

<PAGE>






                          ASSOCIATED TECHNOLOGIES, INC.
                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                 Three Months Ended
                                                                                      March 31 ,
                                                                                     (unaudited)
                                                                                1998               1997
                                                                           -------------        -----------
<S>                                                                        <C>                  <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss from operations before extraordinary item                      $  (3,399,622)       $(1,951,776)
   Adjustment to reconcile net loss to net cash used in operating
   activities
Depreciation and amortization                                                     82,652             25,541
Bad debt expense and allowances                                                  (34,605)            (5,873)
Non cash charge for purchased R&D                                              2,900,326
     Changes in operating  assets and  liabilities 
     net of effect of the reverse acquisition of 
     Associated Technologies, Inc.:
        Accounts receivable                                                      166,825             52,384
        Inventory                                                                 (2,605)          (230,379)
        Other current assets and prepaid expenses                                (97,880)           224,376
        Deferred Revenue                                                        (429,764)
        Other Assets                                                             (23,779)           130,151
        Accounts payable and accrued expenses                                   (320,313)         1,214,562
        Royalties payable                                                                          (181,432)
        Distributor advances                                                      55,500         (1,376,826)
        Customer Deposits                                                        215,179                  -
                                                                           -------------        -----------

           Net cash used in operating activities                                (888,186)        (2,099,272)

Cash Flows from Investing Activities:
Purchase of furniture, equipment and leasehold improvements                       (4,500)           (81,224)
   Payments for purchase of intangible assets                                                       (24,587)
   Decrease (Increase) in capitalized software                                   (55,000)         1,408,108
Net proceeds from issuance of preferred stock                                                     1,550,860
  Cash acquired from acquisition of Associated.                                  643,847                  -
                                                                           -------------        -----------

           Net cash provided in investing activities                             584,347          2,853,157
                                                                           -------------        -----------

Cash Flows from Financing Activities:
   Proceeds from notes payable                                                   438,602
Principal payments under capital lease obligations                                 5,140             (3,134)
Cash paid for subsidiary                                                          (3,307)                 -
                                                                           -------------        -----------

  Net cash provided by financing activities                                      440,435             (3,134)
                                                                           -------------        -----------
  Effect of Exchange rates on cash and equivalents                                (9,048)                 -
                                                                           -------------        -----------

Net Increase (Decrease) in Cash                                                  127,548            750,751

Cash at Beginning of Period                                                        4,738            202,907
                                                                           -------------        -----------
Cash at End of Period                                                      $     132,286        $   953,658
                                                                           =============        ===========

Supplemental Disclosure of Cash Flow Information:
   Income taxes paid                                                                   -             20,621

Supplemental Disclosure of Non-cash Financing
Activities:
Conversion of promissory notes, including accrued interest to
    convertible preferred stock, Series E                                                        $1,156,815

</TABLE>


The accompanying notes are an integral part of these financial statements.

                                        7

<PAGE>

                          ASSOCIATED TECHNOLOGIES, INC.
                    Notes to Condensed Financial Statements
                                  (unaudited)


Note 1.           Basis of Presentation

The Company,  a Delaware  corporation,  was incorporated on August 9, 1990 under
the laws of the State of Nevada and subsequently  reincorporated in the State of
Delaware on October 16, 1997.  The Company was a  development  stage company and
conducted  no business  operations  until June of 1996 when it  acquired  Ogenic
Technologies Pty Ltd. ("Ogenic"), an Australian-based  manufacturer and supplier
of equipment and services for the radio broadcasting industry.

On February 5, 1998 the Company completed 74% of a merger,  more fully described
in Note 2, with  Virtual  Music  Entertainment,  Inc.,  a  Delaware  corporation
("VME") which develops and markets multimedia  interactive musical entertainment
software for personal computer and home entertainment systems. At March 31, 1998
former  VME  security  holders  controlled  50.25% of the  Company's  issued and
outstanding  common stock. In accordance with APB 16 the merger is being treated
as a reverse  acquisition  for accounting  purposes.  The historical  results of
operations for the three month period ended March 31, 1997 and the balance sheet
as of December 31, 1997 are those of VME.

On  November  18,  1998  and in  view of the  Company's  inability  to meet  its
obligations  under the  Securities  Exchange  Agreement,  agreement  was reached
between the Company  and VME for the  unwinding  of the  incomplete  merger.  In
addition,  the Company agreed to retain a 20%  shareholding in VME in return for
$1,384,000 invested by Associated in VME in the form of loan notes. As a result,
Note 9 below includes a proforma statement of accounts at March 31, 1998 for the
Company,  drawn up as if VME had not been  acquired  and no part of the  partial
merger had been completed.

Since its  acquisition  of Ogenic and VME, the Company has operated as a holding
company which derives  income solely from the  operations of Ogenic and VME. The
term "Company" as used herein shall  collectively  mean  Associated,  Ogenic and
VME.

The accompanying  unaudited condensed  financial  statements of the Company have
been  prepared  pursuant  to the rules and  regulations  of the  Securities  and
Exchange  Commission  ("SEC"),  and, in the opinion of  management,  reflect all
adjustments  (consisting  of only normal  recurring  adjustments)  necessary  to
present fairly the financial position,  results of operations and cash flows for
the periods presented.  Certain information and footnote disclosures included in
financial  statements  prepared in accordance with generally accepted accounting
principles have been condensed or omitted.  Certain  reclassifications have been
made to prior period financial statements to conform with current  presentation.
These  condensed  financial  statements  should be read in conjunction  with the
audited  financial  statements  and  notes  thereto  included  in the  financial
statements  filed as part of the Company's  Annual Report on Form 10-K filed for
the year ended December 31, 1997.

Assets and liabilities of foreign subsidiaries, where the functional currency is
the local  currency,  are translated at current  exchanges rates and the related
translation  adjustments  are reported as a component of  stockholders'  equity.
Income statement accounts are translated at the average rates during the period.
Foreign  currency   transaction   gains  and  losses,  as  well  as  translation
adjustments  for  assets  and  liabilities  of  foreign  subsidiaries  where the
functional currency is the dollar, are included in net income.

Included in the net loss for the period ended March 31, 1998 is a  non-recurring
charge of $2,900,326 representing the portion of the purchase price allocated to
purchased research and development  arising from the reverse merger with VME (as
described in Note 2).

The results of the  operations for the three months ended March 31, 1998 are not
necessarily indicative of the operating results for the full year.



                                        8

<PAGE>

Note 2.  Partial acquisition of Virtual Music Entertainment, Inc.

On December 19, 1997, the Company entered into a Securities  Exchange  Agreement
to purchase a majority of the outstanding equity, on a fully-diluted  basis, and
assume  certain note  payables of VME in exchange for up to 3,144,962  shares of
Common  Stock.  Upon  completion of the share  exchange in  accordance  with the
Securities  Exchange  Agreement , former note holders and  preferred  and common
stock  holders  of VME will hold  fifty  five  percent  (55%) of the  issued and
outstanding  shares of the Company's  common stock.  As a result,  the merger is
being  accounted  for, and the  historical  condensed  financial  statements are
presented as, a reverse merger with VME as the acquirer for accounting purposes.
As of February 5, 1998 VME Security Holders  controlled  50.25% of the Company's
issued and outstanding common stock.

On January 8, 1998, the Company consummated a portion of the Exchange whereby it
acquired a majority of the  outstanding  voting  securities  of VME from certain
selling stockholders of VME (the "VME Securityholders") who tendered certain VME
securities (the "VME Tendered  Securities") in exchange for 2,090,432  shares of
Common Stock. On February 5, 1998, the Company acquired  additional VME Tendered
Securities in exchange for 236,849 shares of Common Stock. Pursuant to the terms
of the Securities Exchange Agreement, a notes payable in an amount of $1,089,000
issued  by  Associated  in favor of First  Sydney  Investments  Pty Ltd  ("First
Sydney") are to be converted into 435,600 shares of Common Stock.

As  part  of the  Exchange,  the  Company,  VME and AT  Sub,  Inc.,  a  Delaware
corporation and wholly-owned special purpose subsidiary of Associated ("AT Sub")
also entered  into an  Agreement  and Plan of Merger dated as of January 8, 1998
(the "Merger Agreement").  Pursuant to the Merger Agreement, the stockholders of
VME were to be solicited to vote for a merger (the  "Merger") of AT Sub with and
into VME (with VME being the  surviving  corporation).  In  connection  with the
Merger,  Associated was to issue an additional  1,054,530 shares of Common Stock
and pay certain  cash  consideration  and VME would have  become a  wholly-owned
subsidiary  of  Associated.  The  consummation  of the Merger was subject to the
satisfaction of certain conditions set forth in the Merger Agreement,  including
the approval of the Merger by the stockholders of VME.

The conditions  contained in the Securities  Exchange  Agreement  provided inter
alia for First Sydney to provide funding of $2,050,000 to VME in accordance with
a defined  time  schedule.  By  September  30,  1998,  First Sydney had provided
funding of $1,960,500,  $89,500 short of the original agreed sum over the period
to September  1998.  VME has expended  $398,011 of these funds in  settlement of
costs associated with the Merger. Furthermore, monies advanced were not received
by VME on the due dates.

As a result of First  Sydney's  inability  to provide  further  funding  and the
Company's  inability to locate alternative  sources of funding, an agreement was
reached between the Company and VME to unwind the Securities  Exchange Agreement
and to rescind the Merger  Agreement.  At the same time,  funding of  $1,384,000
provided  by First  Sydney,  is to be  converted  into  equity  in VME such that
Associated will retain a 20% holding in VME.

In anticipation of completion of the Merger,  the Company advanced through March
31, 1998,  $1,346,500 to VME. The amounts owing between the Company and VME have
been  eliminated in  consolidation.  In addition the Company  holds  $960,000 in
notes  payable  issued by VME which the Company  received  from note  holders in
exchange for 420,982 shares of the Company's common stock.

At March 31, 1998, the Company had issued  2,327,278 of the 3,144,962 or seventy
four  percent  (74%) of the total  shares to be issued  upon  completion  of the
Merger.  The  allocation  of the purchase  price  reflected in the  accompanying
financial  statements  reflect the  allocation of 74% of the estimated  purchase
price at a value of $1.54 per share.  The net assets acquired were less than the
liabilities  assumed and  accordingly the minority  interest  remaining has been
included in goodwill.


Note 3.  Loss Per Share

The Company adopted SFAS No. 128, Earnings Per Share, which requires  disclosure
about  computing and presenting  earnings per share.  Basic and Diluted Loss Per
Share has been  computed  for the three  month  period  ended  March 31, 1998 by
dividing



                                        9

<PAGE>



the  consolidated  net  loss  for the  period  by the  weighted  average  shares
outstanding for the period.  Diluted net loss per share is the same as basic net
loss per share since the shares  issuable  pursuant to  completion of the Merger
with VME,  conversion of notes payable,  and stock options are not considered as
their  effect is  antidilutive.  The company has 817,684  shares  issuable  upon
completion  of the  Merger  with VME,  435,600  shares for  conversion  of notes
payable, and 2,535,500 shares for stock options.

Basic and Diluted Loss Per Share for the three month period ended March 31, 1997
has  been  calculated  by  dividing  the net  loss  for VME  (the  acquirer  for
accounting  purposes)  by the shares which would have been issued had the Merger
been 74% complete of March 31,  1997,  less  420,982  shares  issued to VME Note
Holders, as such notes payable were outstanding at March 31, 1997.



Note 4.  Comprehensive Income

The Company adopted SFAS No. 130, Reporting Comprehensive Income, which requires
reporting   comprehensive   income  separately  between  Net  Income  and  Other
Comprehensive  Income.  Other  Comprehensive  Income includes:  foreign currency
items,  pension  liability  adjustments  and  unrealized  gains  and  losses  on
securities  and  investments.  The  Company's  component of other  comprehensive
income is reported below:


                                              Three Months Ended
                                                    March 31,
                                              1998        1997
                                           ---------    --------   
Cumulative Currency Translation
         Beginning Balance                         -           -
         Current Period Charge                (9,048)          -
                                           ---------    --------  
         Ending Balance                       (9,048)          -

Note 5.  New Accounting Standards

In June 1997, FASB issued SFAS No. 131,  Disclosure of an Enterprise and Related
Information,  which is effective for fiscal years  beginning  after December 15,
1997.  The company is not  required to adopt SFAS No. 131 for interim  financial
statements  during the initial year of application.  Unless  impracticable,  the
Company will be required to restate prior period information upon adoption.


Note 6.  Pro-Forma Financial Results

The  following  is a  comparison,  on a pro-forma  basis,  of  consolidated  net
revenue,  operating income net of acquisition related non-recurring charges, and
earning per share, as if the acquisition had been completed on January 1, 1997.

                                           Pro-forma for three months ended
                                                     March 31,
                                                1998           1997
                                             -----------    ------------

Net Revenues                                 $   822,382    $  1,869,284

Income (Loss) from Operations                $  (499,296)   $ (2,452,175)

Income (Loss) per Basic Share Outstanding    $      (.09)   $       (.46)

Weight average shares outstanding              5,448,482       5,292,962




                                       10

<PAGE>

Note 8.  Acquisition of CGI

On January 31, 1998, the Company acquired 100% of the outstanding  equity of CGI
Syndicated  Investments Pty Ltd., ("CGI") a dormant shell corporation for $3,307
in cash. CGI has since entered into a joint venture  agreement  with  Elderberry
Holdings Pty Ltd, ("Elderberry") pursuant to a proposed research and development
("R&D")  syndication  agreement with Ogenic. CGI will provide 10% of the funding
for this R&D syndication with the balance being provided by Elderberry.


Note 9.  Proforma Financial Statements

The proforma financial  statements which follow have been prepared as if VME had
never been  acquired.  These  financial  statements  are  provided to enable the
reader of the accounts to assess the impact of the reversal of the VME Merger on
the accounts of the Company when it is finalised during 1999.


                                       11

<PAGE>



                          ASSOCIATED TECHNOLOGIES, INC.
                      Proforma Consolidated balance sheets


                                     Assets

<TABLE>
<CAPTION>
                                                                        March 31, 1998      December 31, 1997
                                                                          (unaudited)           (audited)
                                                                    ---------------------   -----------------
CURRENT ASSETS:  
<S>                                                                 <C>                     <C>              
   Cash                                                             $              31,891   $         643,847
   Accounts receivable                                                            175,375             330,342
   Inventory                                                                      234,329             180,867
   Prepaid and other current assets                                               114,096              39,726

   Note receivable - VME (incl. interest) - see note below                      1,412,508                   0
                                                                    ---------------------   -----------------

         Total current assets                                                   1,968,199           1,194,782

   Note receivable plus accrued interest                                                              624,347
   Furniture, equipment and leasehold improvements, net                           109,519             112,119
                                                                    ---------------------   -----------------

         Total assets                                               $           2,077,718   $       1,931,248
                                                                    =====================   =================

Liabilities and Stockholders' Deficit
Current Liabilities:
   Notes payable                                                    $           1,664,203   $       1,225,601
   Accounts payable and accrued expenses                                        1,159,537             991,061
   Deferred revenue                                                               438,111             867,875
   Customer deposits                                                              215,179             217,621
                                                                    ---------------------   -----------------
         Total current liabilities                                              3,477,030           3,302,158

Stockholders' Deficit:
   Common stock, $.001 par value; 25,000,000 shares                                        
     authorized; 2,303,520 shares issued                                            2,304               2,304
   Additional paid in capital                                                   3,512,995           3,512,995
   (Deficit) accumulated                                                       (4,941,682)         (4,922,328)
   Cumulative Translation Adjustment                                               27,071              36,119
                                                                    ---------------------   -----------------
         Total stockholders' deficit                                          (1,399,312)          (1,370,910)
                                                                    ---------------------   -----------------

         Total liabilities and stockholders' deficit                $           2,077,718   $       1,931,248
                                                                    =====================   =================
</TABLE>


The accompanying notes are an integral part of these financial statements


The Proforma Balance Sheet (above) and the Statement of Operations (next),  show
the position of the Company as if the acquisition of VME had not occurred.

Note Receivable - VME
It is anticipated that this receivable will be converted into a 20% shareholding
in VME  during  1999.  The  realizable  value of this  investment  is  uncertain
primarily  because of the  difficulty  in assessing  the value of the  company's
software  development  intangible.  At 30th June 1998,  VME  reported  unaudited
results showing a Total  Stockholders  Deficit of $4,574,087.  If the deficit is
adjusted for Notes due to ATTT, the deficit would fall to  approximately  $1.6m.
In the event,  therefore,  that no  realizable  value  could be  ascribed to the
developed software, there would be no value attaching to ATTT's investment.



                                       12

<PAGE>


                          ASSOCIATED TECHNOLOGIES, INC.
                       Proforma Statements of Operations

<TABLE>
<CAPTION>
                                                                                 Three Months Ended
                                                                                      March 31 ,
                                                                                     (unaudited)
                                                                                1998               1997
                                                                           -------------        -----------
<S>                                                                        <C>                  <C>        
NET SALES                                                                  $     654,024        $   156,552

COST OF SALES                                                                   (173,660)           (76,268)
                                                                           -------------        -----------

GROSS PROFIT                                                                     480,364             80,284

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                    (513,653)          (455,444)
                                                                           -------------        -----------

LOSS FROM OPERATIONS                                                             (33,289)          (375,160)

INTEREST INCOME (EXPENSE), NET                                                    17,242           (23,281)
                                                                           -------------        -----------

LOSS FROM OPERATIONS BEFORE INCOME TAXES                                         (16,047)          (398,441)

PROVISION FOR INCOME TAXES                                                             0                  0
                                                                           -------------        -----------

NET LOSS                                                                   $     (16,047)       $  (398,441)
                                                                           =============        ===========

BASIC AND DILUTED NET LOSS PER SHARE                                       $       (0.01)       $     (0.19)

BASIC AND DILUTED SHARES OUTSTANDING                                           2,303,520          2,148,000


The accompanying notes are an integral part of these financial statements.

</TABLE>


                                       13