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

                                   FORM 10-KSB

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
         For the fiscal year ended December 31, 1998

[ ]   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 0-15927

                               COMPUTER POWER INC.

                 (Name of small business issuer in its charter)

New Jersey                                           22-1981869
(State or other jurisdiction of                  (I.R.S. Employer
 Incorporation organization)                     Identification No.)

124 West Main Street, High Bridge, NJ               08829
(Address of principal executive offices)          (Zip Code)

Issuer's telephone number:  908-638-8000

Securities registered pursuant to Section 12 (b) of the Exchange act: None




      Securities registered pursuant to Section 12(g) of the Exchange Act:
                     Common Stock, par value $.01 per share
                                (Title of Class)


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act 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. Yes X No __

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

       State issuer's revenues for its most recent fiscal year: $8,443,473

The aggregate market value of the voting stock held by  non-affiliates  computed
by  reference  to the price at which the stock was sold,  or the average bid and
asked prices of such stock as of March 29,  1999:  $349,094 The number of shares
outstanding  of each of the issuer's  classes of common  equity,  as of March 2,
1999, was 2,828,300.

Transitional Small Business Disclosure Format (check one)
Yes_______        No    X




<PAGE>




                                            Part I
Item 1.  Business

FORWARD-LOOKING STATEMENTS: NO ASSURANCES INTENDED

This Item 1 contains certain  forward-looking  statements regarding the Company,
its business  prospects  and results of  operations  that are subject to certain
risks and  uncertainties  posed by many  factors and events that could cause the
Company's  actual  business,  prospects  and  results  of  operations  to differ
materially   from  those  that  may  be  anticipated  by  such  forward  looking
statements.  Factors that may affect such forward-looking  results, such as, the
Company's  ability  to  successfully  develop  new  products  for  new  markets;
acceptance  of new  products;  the  possibility  of the  Company  losing a large
customer or key personnel; the Company's ability to manage growth; periodic cash
shortages; the impact of the competition on the Company's revenue; delays in the
Company's  introduction  of new  products;  and the  possibility  of the Company
failing to keep pace with emerging technologies.

         Accordingly no assurances can be given that events or results mentioned
in any such  forward-looking  statements  will in fact occur.  When used in this
discussion,  words such as  "believes"  and phrases such as "are  expected"  and
similar expressions are intended to identify forward looking statements, but are
not the exclusive means of identifying forward-looking  statements.  Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this report.  The Company  undertakes no obligation
to  revise  any  forward-looking  statements  in  order  to  reflect  events  or
circumstances that may subsequently arise. Readers are urged to carefully review
and consider the various  disclosures  made by the Company in this report and in
the Company's reports filed with the Securities and Exchange Commission.

         The analysis of the Company's  financial  condition,  capital resources
and operating  results  should be viewed in  conjunction  with the  accompanying
consolidated financial statements, including the notes thereto.

General

Computer Power Inc. (the  "Company",  or  "Registrant")  designs,  manufactures,
markets  and  services  products in three  distinct  market  categories:  energy
efficient  lighting,  power  protection  systems,  and emergency  lighting.  The
Astralite brand is focused on the energy efficient  lighting  market,  while the
power  protection  business is concentrated on the power  protection  market and
emergency lighting market.

POWER PROTECTION SYSTEMS

Power  protection  systems  condition and supply  electrical power to computers,
electronic  equipment  and  lighting  systems  when  utility  power  fails or is
contaminated.  These systems serve as a temporary bridge between the termination
of utility power and the commencement of power from generators,  the restoration
of utility  power,  or  provide  time for an orderly  computer  system  shutdown
without damage or loss of data. Products are automatically activated and provide
electrical power to the protected  equipment for periods of time ranging from 10
minutes to 8 hours.

     The Company concentrates on three niches of the power protection market: 1)
Emergency Lighting,  2) Custom Products,  and 3) Standard Products.  The Company
maintains a broad product line from 280VA single-phase up to 100 KVA three-phase
systems,  and  maintains a patent,  which expires in the year 2000 for an energy
efficient unit.

All power  protection  systems contain a battery,  battery  charger,  DC (direct
current) to AC (alternating current) inverter, and an output transformer.  These
components are housed in metal cabinets with meter panels, environmental filters
and air louvers.  The complete unit can be mounted on the floor,  wall, table or
desk.

The Company's  main focus is the emergency  lighting  market,  where it offers a
line of power  protection  devices  (lighting  inverters)  which backup lighting
fixtures. Required by fire code, all public buildings must provide for a minimum
of 90 minutes of emergency  lighting.  This can be  accomplished  via generator,
battery powered unit lights, or Inverters.

The   Company's   power   protection   equipment   can  be  divided   into  four
sub-categories:  double conversion, on-line uninterruptible power systems (UPS),
ferroresonant on-line  uninterruptible systems (UPS), fast transfer backup power
systems, and Standard transfer backup power systems.

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<PAGE>




The most  significant  difference  among the four categories of power protection
systems  is the  market  they  serve and the speed at which  auxiliary  power is
supplied when utility power fails. The  responsiveness of the system in terms of
supplying power determines the specific use or application of the system.

Double conversion,  on-line systems  continuously supply perfect sine wave power
to the protected  load. No interruption in power occurs during the transfer from
utility  power to emergency  power,  completely  protecting  the load from power
disturbances or outages. Ferroresonant on-line systems also supply uninterrupted
power,  but unlike  double  conversion  systems,  there is a slight  voltage and
frequency modulation during the transfer. On-line systems are used primarily for
emergency lighting applications involving High Intensity Discharge (HID) lights.
HID lights  require this type of system to continue  uninterrupted  illumination
upon loss of utility power. In the case of standard  transfer systems there is a
delay of 50 to 100 milliseconds,  which is compatible with powering incandescent
and fluorescent emergency lighting.

As a result of the differences in transfer speed and modulation,  fast transfer,
double-conversion  and  Ferroresonant  on-line UPS systems are generally used to
supply  auxiliary  power  and  line  conditioning  to  computers  and  sensitive
electronics  in which any loss of power  might  damage  the  equipment  or cause
errors and data losses. Backup power systems, having the slowest transfer speed,
are used primarily for emergency lighting systems in which the momentary loss of
power does not effect the equipment or its  performance in any  meaningful  way.
Both  double   conversion  and   Ferroresonant   on-line  systems  provide  line
conditioning  to filter and regulate  utility  power to clean sine wave.  Backup
power systems generally offer little or no line conditioning.


ENERGY EFFICIENT LIGHTING

 The lighting  retrofit market is driven by demands for energy  conservation and
related  pollution  reductions and cost savings from numerous sources  including
the  Federal  Government,   utility  power  companies  and  consumers.  Numerous
enterprises,  including both Fortune 500 and small start-up companies,  continue
to enter the  marketplace  with various product  offerings,  ranging from energy
efficient  lamp  replacements  to lighting  dimmers and  controls.  Furthermore,
utility-sponsored  energy management firms and contractors (DSMs and ESCOs) have
entered the  marketplace  offering  complete  turnkey  services to reduce energy
consumption in commercial,  industrial and public facilities.  Most recently the
Environmental  Protection  Agency (EPA) has launched  several major campaigns to
promote  energy  efficient  lighting  products.  Utility  power  companies  also
continue to promote lighting  retrofit and conservation with various rebates and
cash incentives.

Capitalizing on the growing demand for energy  efficient  lighting  products and
the  development of more powerful  solid-state  Light Emitting Diodes (LED's) in
1993 the Registrant,  under the brand name  AstraLite,  developed a 1.8-watt LED
illuminating  light  source  to  retrofit  the high  energy  consuming  standard
incandescent  lamps used in Exit Signs.  Since 1993,  Astralite has expanded its
product  line to include  both LED retrofit  kits and  complete  LED-based  Exit
Signs.  In December of 1997, in compliance with the revised UL code, the Company
introduced a new LED based retrofit kit and became the first universally  listed
supplier  of this  product.  This kit  represents  an advance in product  design
taking advantage of new superbright LED's from Hewlett-Packard.

LED's,  first  developed  in the  1960's,  produce  light by the  excitation  of
electrons  in a  semi-conductor  wafer.  Since  that  time  LED  technology  has
increased  in  brightness  and useful life making them a viable  alternative  to
incandescent  applications in color specific applications such as exit signs and
traffic signals.

The key  benefits  of LED's when used in Exit Signs is their 93% energy  savings
and extremely long life as compared to the incandescent  lamp.  Required by code
in public  buildings,  the EPA estimates that over 100 million exit signs in use
today, and this could translate to significant  energy savings for customers who
decide to convert to this new solid-state lighting technology.

PRODUCT PRICES AND REVENUES

The retail product price ranges are as follows:  (a) energy  efficient  lighting
$25-$175;  (b)  power  protection  systems  $150-90,000;  (c) line  conditioning
equipment $1,750-$22,000;  (d) battery chargers $1,730-$4,600; and (e) emergency
lighting equipment $2,800-$90,000.




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<PAGE>



MANUFACTURING AND SUPPLY

Power Protection and Astralite products are manufactured to customer's orders in
the  Company's  High  Bridge,  New Jersey  facility.  To a limited  extent,  the
Registrant  purchases fully assembled UPS systems from two sources for resale in
its  distribution  network.  Sub-assemblies  for the solid-state  light emitting
diode  retrofit  kits are  manufactured  outside  the United  States  with final
assembly at High Bridge.

The Company is a highly integrated manufacturer of power protection products and
accordingly,  except for batteries,  produces nearly all major components of its
products  from raw  materials.  The Company also custom  designs and  fabricates
components such as chassis,  transformers,  cable  connections,  printed circuit
boards,  cabinets  and  other  devices.  It  assembles,  inspects  and tests its
products at various  stages of assembly and each  finished  product  undergoes a
complete test prior to shipment.

The Company  generally  purchases  materials  and supplies  according to written
purchase  orders.  Blanket  purchase  orders are limited usually to larger usage
items at fixed prices for delivery  and payment on specific  dates  ranging from
two months to one year.

MAINTENANCE AND SERVICE

The Registrant offers warranties on all its products, including parts and labor,
which range from one year to twenty-five  years prorated  depending upon product
type.  Products sold by the Company,  but manufactured by others, are covered by
Company and original manufacturer's standard warranty and service agreements.

The  Registrant  performs  warranty and repair  service on products  through its
factory service center at its New Jersey  factory,  when required or at customer
site.  These services are performed  pursuant to a written  service  contract or
upon specific order. Services on its products sold abroad are handled by various
third party agents.  For 1998 and 1997 the Registrant had field service expenses
of approximately $600,000, and $614,000, respectively.


SALES AND MARKETING

The Company  distributes its power protection and emergency lighting products in
the  United  States  and  abroad  through  a network  of sales  representatives,
distributors,  and exporters to end-users and original equipment  manufacturers.
For domestic power protection and emergency  lighting product sales, the Company
utilizes   electrical   wholesale   distributors  and   approximately  40  sales
representative  companies.  In  the  overseas  market,  the  Company  relies  on
approximately  15  distributor/representative  companies  and  approximately  10
exporters to sell its products. In addition, the Registrant makes sales directly
to  individual  end-users  and  original  equipment   manufacturers  on  certain
products.  No single  customer  accounted for more than 13% of the Company's net
sales for 1998.

The Registrant's  relationship with its sales  representatives is specified by a
written  contract,  terminable  on 90 days  notice.  The  contract  provides for
exclusive  territorial and product  representation  and  commissions  payable to
representatives  on  their  sales  from  3% up to 20%  depending  on  terms  and
conditions.  The sales representatives do not purchase for their own account and
generally   will  represent   other   non-competitive   products.   The  top  10
representatives  accounted  for an estimated  15% of the Company's net sales for
1998.

The Company markets its Astralite  products  directly  through a select group of
lighting  and  electrical  distributors  who  focus on energy  conservation  and
long-life  lighting.  Marketing  efforts  are  directed  to plant  and  facility
managers, and energy managers responsible for industrial, commercial, and public
buildings such as schools,  hospitals,  and shopping malls.  Astralite maintains
sales offices in High Bridge,  NJ. In addition,  certain Astralite  products are
sold to original equipment manufacturers.

Astralite  products are usually  discounted to distributors from 20% to 50% from
list,  depending on the product and quantity  sold.  No  individual  distributor
accounted  for more than 2% of the  Company's  net sales for 1998.  The  Company
intends to de-emphasis  Astralite in the future and is currently seeking to sell
the Astralite line




4



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CUSTOMERS

The Registrant  sells its products to numerous  customers,  ranging in size from
small companies to large Fortune 500 corporations.  Its customers are end-users,
original equipment manufacturers,  system integrators, and distributors. Many of
the Company's  customers are repeat purchasers.  None of the Company's customers
represent  more than 13% of revenues  in 1998 and 10% of  revenues in 1997.  The
Company's Astralite and UPS businesses are generally not seasonal,  however, the
emergency   lighting  business   (approximately  58%  of  net  sales)  parallels
construction industry cycles.

INTERNATIONAL OPERATIONS

The Registrant's  international activities account for approximately 2%, 3%, and
6% of its net sales for 1998, 1997, and 1996 respectively.

BACKLOG

As of December 31, 1998 the  Registrant's  backlog was  approximately  $432,000,
represented by firm customer orders, as compared with a backlog of approximately
$533,000  as of  December  31,  1997.  Most  orders  are  generally  subject  to
cancellation.  However,  in certain cases,  particularly in regard to orders for
custom products, there are penalty provisions for cancellations.

ENGINEERING

The  Registrant  maintains  an  engineering  staff whose  functions  include the
improvement  of existing  products,  modification  of products to meet  customer
needs  and  the  engineering,  research  and  development  of new  products  and
applications. There are presently seven individuals employed at the Registrant's
High Bridge,  New Jersey  location.  Engineering  and  research and  development
expenses were approximately $393,000 in 1998, and $506,000 in 1997.

The Registrant  intends to continue its research and development  activities and
considers these efforts vital to its future business development. It anticipates
significant  expansion of such efforts primarily directed toward the development
of new power protection  products and applications,  the improvement of existing
products, and cost reductions.

COMPETITION

In all its product lines,  the Company faces intense  competition  from numerous
domestic and foreign  manufacturers  of varying sizes,  including large Japanese
and European  companies.  In the Registrant's  opinion,  companies with which it
competes  are  American  Power  Conversion,  Sola,  Exide,  Deltec,  Best Energy
Systems,  Dualite,  ProLight and others.  Many of its  competitors  are owned by
larger companies and have greater financial,  technical and marketing  resources
than the Registrant.

The degree of competition  and the  particular  competitor may vary depending on
the product line/model and application involved.  Accordingly,  the Company will
compete with certain  companies in the sales of its products for  computers  and
personal computers and with others in the emergency lighting or energy efficient
retrofit fields.  For all its products,  the Company  generally  competes on the
basis of price,  product  performance,  features  and  delivery  schedules.  The
Company endeavors to position and sell its products at competitive prices in the
market place.

RESEARCH AND DEVELOPMENT

In 1998 the Company designed a new, UL approved, interruptible power supply unit
that  incorporates  the latest in  electronic  components  and will  enhance the
manufacturing  process by allowing the Company to build the units in components.
This unit will be  manufactured  in modules using a cell  manufacturing  process
that should provide manufacturing economies.

GOVERNMENT REGULATION

The Registrant has not  experienced  and does not anticipate any material effect
of existing or probable government regulations on its business.





5


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Item 2.  Property and Facilities

The  Registrant  leases a building of  approximately  60,000 square feet in High
Bridge,  New Jersey  for its  manufacturing  facilities  and  executive  offices
expiring  December 31, 1999. Annual rent over the remaining term of the lease is
$237,000 per year. The Registrant is also  responsible for local property taxes,
insurance premiums, and other related expenses. At the end of the lease term, at
its option, the Company must either purchase the building or renew the lease for
additional  ten- (10) years at no increase in rent.  One of the two landlords is
an affiliate of the Company.

Item 3.  Legal Proceedings

To the best of its knowledge,  there are no material legal  proceedings to which
the Registrant is a party or to which its property is subject.

Item 4.  Submission of Matters to a Vote of Shareholders

No matters were submitted in 1998.


6



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                                     Part II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
        Matters.

The principal market for the Registrant's shares of Common Stock, par value $.01
per share, is the  over-the-counter  market.  The  Registrant's  Common Stock is
quoted on the OTC Bulletin Board under the symbol CUWR.

The high and low closing bid and asking prices concerning such securities,  on a
quarterly  basis, as furnished by the National  Quotation  Bureau for the period
beginning January 1, 1997 are as follows:

Common Stock (CUWR)

CALENDAR PERIOD             HIGH AND LOW BID          HIGH AND LOW ASK

1/01/97 to 03/31/97          $.312    $.2500      $.5000          $.25000
04/01/97 to 06/30/97        .12500    .12500      .25000           .25000
07/01/97 to 09/30/97        .12500    .12500      .25000           .25000
10/01/97 to 12/31/97        .37500    .12500      .50000           .21875

1/01/98 to 03/31/98         .37500    .18750      .50000           .31250
04/01/98 to 06/30/98        .18750    .18750      .37500           .25000
07/01/98 to 09/30/98        .18750    .12500      .25000           .18750
10/01/98 to 12/31/98        .25000    .09375      .93750           .31250

Quotations  represent  prices between  dealers,  do not include retail mark-ups,
markdowns or commissions and do not necessarily represent actual transactions.

As of March  2,  1998  there  were129  shareholders  of  record.  Based on prior
information from nominee holders,  the Company believes the number of beneficial
owners of its common stock exceed 600.

The  Registrant has not paid any cash dividends on its Common Stock and does not
intend to do so in the near future.


Item 6. Management's Discussion and Analysis

REVENUES

Revenues for 1998 were approximately  $8,443,000 versus approximately $9,538,000
in 1997, representing a decrease of approximately  $1,094,000 or 11% below 1997.
Power  protection  sales  were up  slightly  (1%)  compared  to the prior  year.
Astralite product sales were down approximately $1,363,000 or 32%, mainly due to
lower  retrofit kit sales.  Retrofit kit sales were  adversely  impacted by a UL
code change that went into effect  during the third quarter of 1997. In December
1997,  the Company  completed  development  for a new higher  intensity kits and
became the first  manufacturer  to obtain a UL  listing  that meets the new code
requirements.  However sales of the new product were lower than  anticipated due
higher average pricing resulting from increased costs to meet the UL approval.

COST OF SALES

Cost of sales for 1998 of  $6,420,742  was about  76% of net sales  compared  to
approximately  $7,518,000 or 79% in 1997.  The Company  managed its direct cost,
primarily materials, at slightly improved levels to sales along with a reduction
of indirect labor.




7



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OPERATING AND OTHER EXPENSES

Selling expenses for 1998 were about $855,000 or about $282,000 lower than 1997.
This  represented  about 10% of net sales in 1998  compared  to 12% in 1997.  In
order to help mitigate the impact of lower Astralite  sales, the Company reduced
sales salaries and commissions, along with advertising and promotions expenses.

General and  administrative  expenses were  approximately  $1,044,000 in 1998 as
compared to  $1,187,000  in 1997.  Administrative  expenses  for 1998 were lower
primarily due to a reduction in payroll and insurance  expenses,  and a one-time
cost reduction totaling  approximately $35,000 resulting from a three year sales
tax audit completed  during 1997.  These  decreases were partially  offset by an
increase in professional fees, and allowance for bad debt.

Interest expense for 1998 totaled  approximately  $284,000 versus  approximately
$398,000  in 1997.  The  primary  reason for the  decrease  was  forgiveness  of
interest for approximately  $140,000 from one of the debt holders as part of the
Company's ongoing debt compromise efforts. The debt forgiveness also resulted in
an extraordinary gain of approximately  $165,000 which represented interest from
prior years.

LIQUIDITY AND CAPITAL RESOURCES

At  December  31,  1998,  the  Company's  investment  in Total  Assets was about
$2,667,000  or $40,000 less than the  $2,706,000  reported at December 31, 1997.
The  significant  components  of the  change are a  reduction  in  inventory  of
$275,000 due to lower  stocking  days of material,  was  partially  offset by an
increase in accounts  receivable of  approximately  $166,000 and net increase in
fixed assets of $86,000.  At December 31, 1998,  the Company's  Liabilities  and
Stockholders'  Equity declined by $40,000 and was essentially  comprised of: (1)
the  decrease  of accrued  liabilities  by  approximately  $171,000  and the net
increase of financing  activities of approximately  $143,000 which was partially
offset by the increase of accounts payable of approximately $360,000.

The Company is  currently  negotiating  with the  landlord for a revision of the
building lease terms,  including a reduction in rent. Presently,  the Company is
making payments based on the lease,  and is in arrears in rent by  approximately
$39,000 as of December 31, 1998.  As the market has shifted to more  competition
the Company  expects to modify the lease  during 1999 to more  favorable  terms.
Should the landlord decide to terminate  discussions and institute actions under
default  provisions and the Company were unable to satisfy the obligations  then
due,  it  would  result  in a  default  of the  Company's  asset  based  lending
agreement.

The  Company  has  retained  an  outside  consultant  to  assist  it in  raising
additional  capital and in restructuring its current debt obligations.  Based on
progress  achieved to date, the Company  anticipates a favorable  outcome to the
debt  restructuring  initiative and is hopeful that a debt  compromise  with key
debt holders will be achieved during 1999.

The  ability  to restore  Astralite  sales back to  historical  sales  levels is
doubtful.  Accordingly,  management  has  decided to focus  entirely on its core
power protection business.  The Company expects to diminish Astralite operations
further  and will  attempt to find a suitable  purchaser.  The  Company has made
adequate reserves for such a divestiture or closure of the business line.

The Company has two raw material  suppliers,  one which is a related party, that
provide  extended terms. As of December 31, 1998 these vendors were owed a total
of about $267,000 of which about  $223,000 was  outstanding as a result of those
terms.

The Company  anticipates  that borrowings  available to it through its revolving
credit  and  inventory  term loan  during  1999  should be  sufficient  to cover
operating cash requirements. There is no provision in the line of credit or with
any other lending source for any material commitments; research and development,
or marketing and  promotion.  The Company  continues to search for an additional
infusion  of  cash  into  the  business   from  outside   investors   and  major
stockholders.

During 1998,  management focused on productivity  improvement programs that were
established in its plan for the year. These plans included  continuing to reduce
cost of sales and other expenses.  These plans were all implemented with varying
degrees  of  success.  However,  during  1998 when it became  clear that the new
Astralite  product  introduction  planned for the year was not meeting projected
sales, the Company reduced sales expenses,  primarily salaries.  The Company has
continued its efforts to develop new products  that will make the  manufacturing
and field service  activities more efficient.  These initiatives have materially
lowered the break-even point for the Company.  In 1998 the Company  participated
in a utility  company  energy  conservation  rebate  program with sales totaling
approximately $374,000. The Company does not expect this program to continue but
continues to search for similar programs.



8

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During 1998 the Company has purchased a year 2000 compliant  enterprise resource
planning system, and will begin implementation  training in the first quarter of
1999, with a go live date of second quarter 1999. The cost of compliance and its
effect on future results of operations is not  anticipated to be material in any
given year.

 Item 7.

Financial Statements

The information called for by this item appears at the end of this Form 10-KSB.

Item 8.

Changes In and Disagreements With Accountants On Accounting and Financial
Disclosure:

None

Item 9.

Directors and Executive Officers, Promoters and Control Persons, Compliance
with Section 16(a) of the Exchange Act

Certain  information  about  directors,  officers and other key personne
of the Registrant is contained in the following table:

Name                                        Title                        Age
----                                        -----                        ---
 .
Lindsay Gillette3                   Chairman of the Board                 40

John M. Perry1                      President & CEO                       55

Peter Gillette2,3                   Director                              38

Roger Love                          Director                              66

Clarence Wilcox2,3                  Director                              68

Paul Kohmescher                     Controller & CFO, Secretary           47

(1) Mr. Perry's  employment as President,  Chief Executive Officer is subject to
an employment  agreement.  The term of this  agreement is October 1,1998 through
December 31, 2001.
(2) Member of the Audit Committee, resigned on January27,1998. (3) Resigned as a
director on January 27, 1998.

All directors hold office until the next annual meeting of shareholders or until
their successors are elected and qualify.  Executive  officers hold office until
their successors are chosen and qualify, subject to earlier removal by the Board
of Directors.

Lindsay  Gillette had been a Director since 1994. He was elected  Chairman,
President and Chief Executive Officer in 1994 and became Chairman in June, 1996.
Mr. Gillette has also been a Managing Director of Computers and Controls Ltd., a
Trinidad & Tobago  corporation  since 1982.  Mr.  Gillette is also a Director of
Cableview Limited, Body Works Fitness & Aerobics Limited,  Favorite Foods, Ltd.,
National Maintenance Training & Security Company Ltd., and NIHERST. Mr. Gillette
is a  graduate  of  McMaster  University  with  a  bachelor's  degree  in  Civil
Engineering.

Lindsay Gillette is a brother of Peter Gillette.

John Perry was  appointed  a Director  in October  1998 when he assumed his
position as President,  Chief  Executive  Officer of the Company.  Prior to this
appointment,  Mr. Perry was Executive Vice  President at Proformix,  a developer
and manufacturer of computer  peripherals and a marketer of specialty  software.
Mr. Perry has held executive,  operations,  engineering and sales positions with
multi-national  firms  and  has  been  a  Principal  in  private   manufacturing
companies.


9


<PAGE>



Peter  Gillette had been a Director of the Company  since 1994. He also has been
technical  director of Computers  and Controls  Ltd.,  since 1983.  He is also a
Director of Cableview  Limited,  Body Works Fitness & Aerobics Limited,  Pelinja
Holdings  Limited,  Chaguaramas  Development  Authority,  Tourism and Industrial
Company and Trinidad & Tobago Free Trade Zones.  Mr. Gillette holds a bachelor's
degree in civil engineering from Cornell University.

Roger  Love was a  founder  of the  Company  in 1967.  He has  served  as a
Director  from 1972 to the present.  From 1972 to 1994 Mr. Love was President of
the Company.  Mr. Love is currently  President  and Chief  Executive  Officer of
Drumsurn, a telecommunications service company.

Clarence  Wilcox had been a Director of the Company since 1994. He also had been
Chairman and Managing Director of Wilcox  Enterprises  Limited since 1978. Since
1993 he has been Chairman and Managing Director of Guymar Caribbean Limited. Mr.
Wilcox is also Deputy Chairman and Director of MEGA Insurance  Company  Limited,
and a Director of General Packaging Limited.

Paul  Kohmescher has been employed by the company since 1997. He was promoted to
Chief  Financial  Officer in  November  1998.  Prior to joining  the Company Mr.
Kohmescher held various top management  positions most recently as the Executive
Director of National Kitchen and Bath Association.  He holds a bachelor's degree
from Indiana University,  and is presently pursuing a masters degree in business
administration at Allentown College of St. Francis de Sales.

No director,  officer, of beneficial owner of more than ten percent of any class
of equity securities of the Registrant failed to file on a timely basis, reports
required by Section 16 (a) during the fiscal year ended December 31, 1998.

Item 10. Executive Compensation

The annual and  long-term  compensation  for  services  performed in all Company
related  capacities for the fiscal years ended December 31, 1996, 1997, and 1998
of those  persons who were,  at  December  31,  1997,  the  President  and Chief
Executive Officer, and other Officers of the Company with annual compensation of
$100,000 or greater follows:

                                                SUMMARY COMPENSATION TABLE
         Annual Compensation                      Long Term Compensation

Name and                            Salary       Bonus           Deferred
Position                   Year       ($'s)      ($'s)         Compensation $'s
--------                   ----     --------------------------- ----------------
John M. Perry (1)           1998    $110,000
   President & Chief
   Executive Officer

Hiro Hiranandani(2)        1998     $1,000,000
President & Chief          1997     $   75,000                      $25,000
   Executive Officer       1996     $   49,418

Louis Massad(3)            1998     $0
 VP Finance                1997     $0
                           1996     $104,500






----------------------------------------------------------------
(1) Appointed President & Chief Executive Officer on October 1, 1998.
(2) Appointed President & Chief Executive Officer June 28, 1996.  Resigned as
    an officer on September 2, 1998.
(3) Resigned effective December 31, 1996.



10


<PAGE>



Options  and  Grants in the Last  Fiscal  Year John M.  Perry's  employment
contract  granted (1) stock options for 100,000  common shares of the Company at
an  exercisable  price  equal  to 85% of such  common  stock's  market  value at
December  31,  1999,  and (2) stock  options  for 100,000  common  shares of the
Company at an exercisable price equal to 85% of such common stock's market value
at December 31, 2000.

           Number of Securities  % of Total Options/
            Underlying Options/ SAR's Granted to        Exercise of  Expiration
Name        SAR's Granted      Employees in Fiscal Year  Base Price   Date
----        -------------     ------------------------    ----------   ----

Les Listwa     20,000                    9.0%               $0.25     01/06/07


                    Aggregated Option Fiscal Year End Values
                        (There were no exercises in 1998)

                 Number of unexercised Options/Value of unexercised In-the-Money
                   Warrants at Year-end (#)    Options/Warrants at Year-end 
Name              Exercisable/unexercisable    ($'s)
                                               Exercisable/unexercisable
John M. Perry          0/200,000                     44,000
Hiro Hiranandani       377,999/0                     82,400
Les Listwa              36,000/0                      7,800

                              Repricing of Warrants
                       Number of                                     Length of
                       Securities     Market     Exercise            Original   
                       Underlying     Price at   Price at    New      Option   
                       Options/SAR's  Time of    Time of    Exercise   Term
Name          Date     Repriced       Repricing  Repricing   Price   Remaining
----          ----     ---------      ---------  ---------  -----   ---------

Hiro          02/13/97 125,999        $0.25      $0.33     $.025   8.25 Years
Hiranandani   02/13/97 125,999        $.025      $.040     $.025   8.25 Years
              02/13/97 126,001        $.025      $.040     $.025   8.25 Years


Stock Option Plan

Under the Registrant's 1996 incentive stock option plan (the "Plan"),  which was
approved by  Shareholders  on January 6, 1997,  options to purchase a maximum of
500,000 shares of the  Registrant's  Common Stock can be granted to officers and
other  key  employees.  The  Company  also  had  options  from a  pre-1996  plan
outstanding.  The terms and  condition of both plans are  essentially  the same.
Options are intended to qualify as incentive stock options as defined in Section
422A of the Internal  Revenue Code of 1954,  as amended by the Tax Reform Act of
1986.

As of December 31, 1998,  281,000  shares of the Plan were  outstanding of which
29,000 shares have vested.  Of the pre-1996  stock option plan,  116,000  shares
remain outstanding with 113,000 shares vested.

The Plan is  administered  by the Board of Directors  which approves the persons
that are to receive  options,  the number of shares that may be purchased  under
each option,  and the exercise price. In the event an option holder  voluntarily
terminates  employment,  any unexercised options terminate immediately except in
cases where the  termination  was not for cause,  the option holder dies, or the
option holder is disabled.  The maximum terms of any option is ten years and the
option  price  per  share  may not be less  than  the fair  market  value of the
Registrant's shares on the date the option is granted.  However, options granted
to  persons  owning  more than 10% of the  voting  shares may not have a term in
excess  of five  years  and the  option  price may not be less than 110% of fair
market value.


11


<PAGE>



The aggregate fair market value of the shares of the  Registrant's  Common Stock
(determined  at the time the option is granted) with respect to which  incentive
stock  options are  exercisable  for the first time by such option holder during
any calendar year (under all such Plans) may not exceed $100,000. Options may be
granted within ten years from the effective date of the Plan.

Options granted under the Plan are not transferable other than by will or by the
laws of descent and  distribution.  Options granted under the Plan are protected
by anti-dilution  provisions increasing the number of shares issuable thereunder
and reducing the exercise price of such options,  under certain conditions.  The
Plan will  terminate on January 5, 2007, or on such earlier date as the Board of
Directors may determine.  Any options  outstanding at the termination  date will
remain  outstanding  until it expires or is exercised in full,  whichever occurs
first.

Option Grants in the Last Fiscal Year

There were 200,000 stock options granted and 169,000 stock options  canceled for
individuals that left the Company  pursuant to the Registrant's  Plan during the
fiscal year ended December 31, 1998. Stock  appreciation  rights are not granted
under the Plan.

Long-term incentive plan awards

The  Registrant  does  not  have a  long-term  incentive  plan,  other  than the
Incentive Stock Option Plan.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth as of March 3, 1999, those persons  including any
"group" who is known to the Registrant to be beneficial owners of more than five
percent (5%) of the  Company's  common  stock as well as the stock  ownership of
directors and executive officers.  The Company's common stock is the only equity
or voting security outstanding.

Name and Address of               Amount and Nature of         Percent of
Beneficial Owner                  Beneficial Ownership1         Class

John M. Perry - President               250,000                 8.84%
& Chief Executive Officer
124 W. Main Street
High Bridge, NJ 08829

Roger Love - Director                   461,199                16.31%
124 W. Main St.
High Bridge, NJ 08829

Susan M. Larson - Director            1,000,000(2)             35.36%
c/o Public Access Lighting, LLC
13603 South Halsted Street
Riverdale, Illinois 60627

All directors and officers
as a group                            1,711,199                60.50%

(1) Except as otherwise set forth herein, all shares are beneficially owned, and
the sole voting and investment power is held by the persons named. Does not give
effect to common stock reserved under the  Registrant's  Incentive  Stock Option
Plan. (2) Public Access Lighting, LLC , purchased these Common Shares subsequent
to December 31, 1998,  as part of a financing  transaction,  which  included the
acquisition of certain Company notes and warrants; Susan M. Larson was appointed
a director of the  Company on January 27, 1999 and is an equity  owner of Public
Access Lighting, LLC and therefore, beneficial ownership of that entity's Common
Shares are  attributable  to Ms.  Larson  (see:  footnote  no. 12, "  Subsequent
Events" in the attached financial statements).






12


<PAGE>



Item 12. Certain Relationships and Related Transactions

The Company  owns a 20% interest in Retrofit,  Ltd.  ("Retrofit"),  of Trinidad,
West Indies. Retrofit was established to manufacture components for the Company.
In 1996, it began  manufacturing LED sub-assemblies for the Company's  Astralite
business  unit.  The  Company's  entire  investment  in Retrofit  consisted of a
license of its patented LED retrofit  technology.  This investment is carried at
no value. The majority  interest in Retrofit is owned by certain related parties
including Messrs Lindsay Gillette and Peter Gillette,  directors of the Company.
During  1998,  the Company  purchased  approximately  $38,000 of  material  from
Retrofit.

The Company  leases its office and plant  facilities  from its former  principal
shareholders  under a noncancellable  operating lease expiring in 1999. Upon the
expiration  of the lease in 1999,  the Company  has the option to  purchase  the
facilities  on December 31, 1999 at the then fair market value by payment of 15%
cash and the balance  payable on a 30 year mortgage  bearing  interest at the 30
year treasury bond rate. If the Company does not exercise its option, it will be
obligated to renew the lease for an additional  ten years.  If the option is not
exercised, the Company is obligated to renew the lease for an additional 10 year
term without rent  escalation.  The annual  rental is $237,000 per year with the
Company  being  responsible  for property  taxes,  insurance,  and other related
expenses.  During 1997 and 1998, the Company recorded $237,000 as rental expense
per year.

On June 28, 1996,  Mr Hiro  Hiranandani,  a director and officer of the Company,
and a  company  controlled  by  Messrs  Lindsay  Gillette  and  Peter  Gillette,
directors  of the  Company,  loaned the Company  $300,000  in exchange  for term
notes,  due  July 1,  1999,  bearing  interest  at  9-1/2%  per  annum,  payable
quarterly.  In  addition,  these  investors  received a total of  300,000  stock
subscription  warrants,  with an exercise price of $1.00 per share,  exercisable
from July 1, 1998 through  July 1, 2000.  Further,  as part of the  compensation
package for Mr Hiranandani,  the President and Chief Executive Officer,  377,999
stock subscription  warrants were issued at prices ranging from $.33 to $.40 per
share, with exercise periods ranging from June 1, 1996 through June 1, 2006. The
Board of Directors repriced these stock subscription  warrants to $.25 per share
on February 13, 1997.

On June 28, 1996, a director, through an affiliated entity, restructured several
notes payable into a $415,000  note payable in three years  bearing  interest at
9-1/2% per annum. The entity also received 100,000 stock  subscription  warrants
with an exercise  price of $1.00 per share  exercisable  beginning  July 1, 1998
through July 1, 2001. The Board of Directors  repriced these stock  subscription
warrants to $.25 per share on February 13, 1997.

During February 1997, the Company arranged  additional bridge financing totaling
$280,000  from Hiro  Hiranandani,  a director and officer of the Company,  and a
company controlled by Messrs. Lindsay Gillette and Peter Gillette,  directors of
the  Company.  The  instruments  bear  interest  at 10% per annum and matured on
February  1, 1998.  At that time the Company  elected to exercise  its option to
extend the notes for l year and issued 800,000  warrants at a price of $0.35 per
share in  consideration  for this extension.  To the extent the principal of the
notes was not repaid on February 1, 1999, interest will accrue at 14% per annum,
thereafter. The warrants expire on February 1, 2006.

On April 13, 1998 the  Company's  Board of  Directors  approved  the issuance of
966,079  warrants (of which 952,289 were to affiliates  and a former CEO) to the
various  companies and  individuals  who agreed to the deferral of principal and
interest  related to certain debt as discussed in Note 2. The exercise  price of
the warrants was the market value of the  Company's  stock  ($0.25) on April 13,
1998. All warrants vested immediately and expire on April 13, 2003.

As of December  31, 1998,  the Company had  outstanding  principal  and interest
payable  under its various note  agreements  with  related  parties and entities
totaling  approximately  $2,434,000.  In addition,  the total stock subscription
warrants  outstanding  as discussed  above totaled  1,885,288 as of December 31,
1998. In addition, the Company owed Retrofit $106,000 for materials purchased in
the ordinary course of business.



13


<PAGE>



                                    PART IV.

Item 13. Exhibit List and Reports on Form 8-K:

 The following documents are filed as part of this Report: 1. Financial
       Statements, 2. (a) Exhibits as indicated and 3.
(b) Reports filed on Form 8-K as indicated.

1.   Consolidated Financial Statements:
         Index to Consolidated Financial Statements

         Report of Independent  Auditor Consolidate Balance Sheet as of
         December 31, 1998  Consolidated  Statement of  Operations  for
         each of the years in the
                  two-year period  ended December 31, 1998.
         Consolidated Statements of Stockholders' Equity for each of the years
                  in the two-year period ended December 31, 1998.
         Consolidated Statements of Cash Flows for each of the years in the
                  two-year period ended December 31, 1998.
         Notes to Consolidated Financial Statements for each of the years
                   in the two-year period ended December 31, 1998 and 1997.
2.(a) Exhibits:

     The  following  list of exhibits are  incorporated  by  reference  from the
Registrant's  Registration  Statements  on  Form  S-1 and S-8  filed  under  the
Securities Act of 1933, as amended, its Registration Statement filed on Form 8-A
and its Annual  Report on Form 10-K for the fiscal year ended  December 31, 1986
pursuant to the Securities Exchange Act of 1934, as amended:

Exhibit Number

1.1-Form of Underwriting  Agreement
1.2-Form of Underwriter's  Selling Agreement
3.1-Articles of Incorporation,  as amended
3.2-By-Laws of Registrant, as amended
4.1-Specimen Common Stock Certificate of Registrant
4.2-Specimen Common Purchase Warrant
4.3-Form  of   Underwriter's   Unit  Purchase  Option  between   Registrant  and
Underwriter  
4.4-Form of Warrant Agreement between Registrant and Warrant Agent,
as amended  
5.0-Opinion  of Rapaport and Cascone  
10.1-Form of Authorized  Sales
Representative Agreement between Registrant and its representatives 
10.2-Form of Distributor Sales Agreement between Registrant and its distributors
10.3-Joint Venture  Agreement  between  Registrant  and Data Power  Dear,  C.A. 
10.4-Joint Venture  Agreement between  Registrant and Brig. T.S. Grewal,
dated October 16, 1985 
10.5-Joint  Venture  Agreement between  Registrant and Crotan  Electronics,
Ltd., dated November 5, 1986 
10.6-Exchange of Stock between Registrant and Roger
Love and Doris Love, dated April 28, 1983
10.7-Real Estate Lease between and among the Registrant and Roger Love and Doris
Love,  dated  September 1, 1983  
10.8-Real  Estate  Lease  between and among the
Registrant and Roger Love and Doris Love, dated January 1, 1985, and
  amendment
10.9-Real Estate Lease between Registrant and Jacques J. Hibbert, dated December
10, 1982  
10.10-Promissory  Note of Registrant issued to Roger Love, dated April
1, 1986 
10.11-Promissory Note of Registrant issued to Doris Love, dated April 1,
1986
10.12-Loan  Agreement between Registrant and Horizon Bank, N.A., dated March 28,
1986 and amendment dated May 1, 1986 
10.13-Mortgage between and among New Jersey
Economic Development Authority and the Hunterdon County National Bank,
  dated July 1, 1978
10.14-Promissory Note of Roger Love and Doris Love to Horizon Bank, N.A.,
 dated March 28, 1986
10.15-Installment Sales Contract between and among Roger Love and Doris Love 
and the New Jersey Economic Development   Authority, dated July 1, 1978


14

<PAGE>



10.16-Assignment  of Sales Contract to Horizon Bank,  N.A., dated March 28, 1986
10.17-Employment  Agreement  between  Registrant and Roger Love,  dated March 1,
1976 
10.18-  Employment  Agreement  between  Registrant and J. Robert  Hoeffler,
dated  May 1, 1986  
10.19-Incentive  Stock  Option  Plan of the  Registrant,  as
amended,  and  Form of  Option  Agreement  
10.20-Supply  Agreement  between  the Registrant and Superior Electric Company,
 dated August 1, 1986

The  following  list  of  exhibits  are   incorporated  by  reference  from  the
Registrant's Form 10-K for the fiscal year ended December 31, 1990:
2-Contract of Acquisition of Siltron Illumination, Inc.
99.1-Commitment letter of Chemical Bank, dated March 28, 1990

The  following  list  of  exhibits  are   incorporated  by  reference  from  the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1992:
10.21-Employment Agreement of Roger Love, dated January 1, 1992 
10.22-Employment Agreement of Louis Massad. dated January 1, 1992  
10.23-Consulting  Agreement of Albert Lange, dated February 24, 1992 
22.0-Subsidiaries of the Registrant.

The  following  list  of  exhibits  are   incorporated  by  reference from the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1993:
99.2-Commitment letter of Chemical Bank, dated March 29, 1993.
17.1-Letter of Resignation of Albert Lange from the Board of Directors,
 dated September 18, 1993.
99.3-Notice of Default, dated December 16, 1993.

The  following  list  of  exhibits  are   incorporated  by  reference from  the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1994:
10.24-$300,000 Convertible Debenture.
10.25-$700,000 Subordinated Note.
10.26-Consolidation and Modification of Lease Agreement.
10.27-Consulting and Non-Competitive Agreement with Roger Love.
10.28-Capitalization Agreement with Ready Mix (West Indies), Ltd.

The  following  list  of  exhibits  are  incorporated  by  reference  from  the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1995:
NONE

The  following  list  of  exhibits  are   incorporated  by  reference  from  the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1996:
10.29-Resignation of Lindsay Gillette;
10.30-Employment Agreement of Hiro R. Hiranandani dated June 28, 1996;
10.31-Resignation Letter of Louis Massad;
10.32-Warrants issued by Registrant to Kenneth Rind;
10.33-Debt Restructuring Agreement between Registrant and Roger Love;
10.34-Debt Restructuring Agreement between Registrant and Doris Love;
10.35-Debt Restructuring Agreement between Registrant and Ready Mix
 (West Indies), Ltd. - Convertible Debenture;
10.36-Debt Restructuring Agreement between Registrant and Ready Mix
(West Indies), Ltd. - Subordinated Note;
10.37-Debt  Restructuring  Agreement between Registrant and SouthernTech, Ltd.;
10.38-Debt  Restructuring  Agreement between Registrant and SouthernTech, Ltd.;
10.39-Warrants issued by Registrant to SouthernTech, Ltd.; 
10.40-Promissory Note
between Registrant and Darby & Darby;  
10.41-Promissory  Note between Registrant
and  Hiro  R.  Hiranandani;   
10.42-Promissory   Note  between   Registrant  and
SouthernTech,  Ltd.; 
10.43-Extension of Warrants previously issued by Registrant
to  Rosenthal  &  Rosenthal;  
10.44-Warrants  issued  by  Registrant  to Hiro R.
Hiranandani;  
10.45-Warrants  issued by Registrant  to Albert Roth;  
10.46-Lease
Modification  Agreement  between  Registrant  and  Roger  Love and  Doris  Love;
10.47-NOT USED;

15


<PAGE>



10.48-Debt  Restructuring  Agreement  between  Registrant and Hiro  Hiranandani;
10.49-Promissory Note between Registrant and SouthernTech, Ltd.

The  following  list  of  exhibits  are   incorporated  by  reference  from  the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1997:
NONE

The following list of exhibits are  incorporated by reference from  Registrant's
Form 10-QSB for the quarter ended September 30, 1998:

10.51-Employment Agreement dated as of October 1, 1998, by and between the
 Company and John M. Perry, appointing Mr. Perry the President and Chief
 Executive Officer of the Company.
10.52- First Amendment to Employment Agreement, dated as of October 1, 1998, 
by and between the Company and John M.Perry.

3.(b) Reports Filed on Form 8-K During Applicable Period: None



                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                          COMPUTER POWER, INC.


                                          By:/s/John M. Perry
                                          John M. Perry, President

Dated: March 31, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the date indicated:

March 31, 1999

/s/ John M. Perry
John M. Perry, President, Chief Executive Officer and Director


/s/ Paul A. Kohmescher_
 Paul A. Kohmescher, Chief Financial Officer, Secretary


/s/ Roger Love 
Roger Love, Director






cpi-10k.98



16

<PAGE>



                       Computer Power Inc. And Subsidiary


            Consolidated Financial Statements As Of December 31, 1998


                                  Together With


                    Report Of Independent Public Accountants












17
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS





To Computer Power Inc.:


     We have audited the  accompanying  consolidated  statements of  operations,
shareholders'  deficit  and cash  flows OF  Computer  Power  Inc. ( a New Jersey
corporation)  and  subsidiary  for the  year  ended  December  31,  1997.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the results of operations and cash flows of Computer
Power  Inc.  and  subsidiary  for the  year  then  ended  December  31,  1997 in
conformity with generally accepted accounting principles.



                                                           Arthur Andersen LLP

Roseland, New Jersey
April 9, 1998

18                                       
<PAGE>






                          INDEPENDENT AUDITORS' REPORT





To the Board of Directors and Stockholders of
Computer Power Inc. and Subsidiary


We have audited the  accompanying  consolidated  balance sheet of Computer Power
Inc.(a New Jersey  corporation)  and subsidiary as of December 31, 1998, and the
related consolidated  statements of operations,  shareholders'  deficit and cash
flows for the year then ended. These financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of Computer  Power Inc.  and
subsidiary  as of December 31,  1998,  and the results of their  operations  and
their cash flows for the year then ended in conformity  with generally  accepted
accounting principles.



                     Rosenberg Rich Baker Berman & Company
                     A Professional Association of Certified Public Accountants

Bridgewater, New Jersey
February 26, 1999












19

<PAGE>





                       COMPUTER POWER INC. AND SUBSIDIARY


                 CONSOLIDATED BALANCE SHEET -- DECEMBER 31, 1998


                                     ASSETS

CURRENT ASSETS:
   Cash                                                           $63,204
   Accounts receivable, less allowance of $211,485 for
     doubtful accounts                                            1,478,937
   Inventories (Note 1)                                           742,991
   Prepaid expenses and other current assets                      32,714
                                                                  -------------

                Total current assets                              2,317,846
                                                                  -------------
PROPERTY AND EQUIPMENT, at cost (Note 1):
   Machinery, equipment, vehicles and furniture                   1,280,783
   Leasehold improvements                                         333,274

                                                                  1,614,057

   Less-Accumulated depreciation and amortization                 1,265,402
                                                                  -------------

                                                                  348,655
                                                                  -------------

                                                                  $2,666,501
                                                                  =============
                      LIABILITIES AND SHAREHOLDERS' DEFICIT


CURRENT LIABILITIES:
   Notes and other debt payable (Note 4)                          $2,337,667
   Current maturities of long-term debt (Note 4)                  775,694
   Accounts payable                                               798,866
    Capital leases-current maturities                             53,143
   Accrued liabilities                                            1,014,221
                                                                  -------------
       Total current liabilities  4,979,591 LONG-TERM LIABILITIES (Note
4)
  Capital Leases excluding current maturities                      $85,374
  Long term debt excluding current maturities                      224,306
                      Total long-term liabilities                 $309,680
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' DEFICIT (Notes 4 and 6):
   Preferred stock, par value $.01 per share; 2,000,000 shares authorized; none
   issued Common stock, par value $.01 per share; 12,000,000 shares authorized;
     2,602,700 shares issued                                        26,027
   Capital in excess of par value                                3,757,119
   Accumulated deficit                                          (6,331,228)
   Treasury stock, 24,400 shares, at cost                          (74,688)

                                                                (2,622,770)
                                                            ------------------

                                                                 $2,666,501
                                                            ==================

               See notes to the Consolidated Financial Statements


20

<PAGE>





                       COMPUTER POWER INC. AND SUBSIDIARY


                      CONSOLIDATED STATEMENTS OF OPERATIONS

                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997





                                                        1998          1997
                                                    ------------- -------------

NET SALES                                           $8,443,473    $9,537,967

COST OF SALES                                       6,420,742     7,518,306
                                                    ------------- -------------

                Gross profit                        2,022,731     2,019,661
                                                    ------------- -------------

OPERATING AND OTHER EXPENSES (Notes 4, 7 and 8):
     Selling expenses                               854,852       1,136,647
     General and administrative expenses            1,043,689     1,186,542
     Interest expense, net                          283,479       390,759
                                                    ------------- -------------

                                                    2,182,020     2,713,948
                                                    ------------- -------------

Income (Loss) From Continuing Operations
 Before Extraordinary Item                          $159,289)    ($694,287)


Extraordinary Item (Net of Income Taxes of $0)      $165,367             $0

Net Income (Loss)                                     $6,078      ($694,287)
EARNINGS (LOSS) PER SHARE AVAILABLE TO COMMON
   STOCKHOLDERS (a):
     Basic EPS-
       Income (Loss) From Continuing Operations       ($.06)         ($.27)
          Extraordinary Item                            .06              -
          Net  Income (Loss)                           $.00          ($.27)
       Weighted average common shares outstanding  2,578,300      2,578,300


(a) Diluted EPS is not presented for either period as the effect of the
    inclusion of the potential shares would be antidilutive.




               See notes to the Consolidated Financial Statements


21

<PAGE>





                       COMPUTER POWER INC. AND SUBSIDIARY


                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT

                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997



<TABLE>
<CAPTION>

                                                       Capital in                                                         Total
                                     Common            Excess of              Accumulated           Treasury          Shareholders'
                                     Stock             Par Value                Deficit               Stock              Deficit
                                 --------------     ----------------       -----------------     ---------------   ----------------


BALANCE, December 31,
<S>                               <C>                <C>                   <C>                    <C>               <C>         
   1996                           $26,027            $3,757,119            ($5,643,019)           ($74,688)         ($1,934,561)

   Net loss -- 1997               0                  0                     (694,287)              0                 (694,287)
                                  ------------       --------------        ----------------       --------------    ---------------

BALANCE, December 31,
   1997                           26,027             3,757,119             (6,337,306)            (74,688)          (2,628,848)

   Net income-- 1998              0                  0                     6,078                  0                 6,078
                                  ------------       --------------        ----------------       --------------    ---------------

BALANCE, December 31,
   1998                           $26,027            $3,757,119            ($6,331,228)           ($74,688)         ($2,622,770)
                                  ============       ==============        ================       ==============    ===============
</TABLE>





               See notes to the Consolidated Financial Statements




22

<PAGE>





                       COMPUTER POWER INC. AND SUBSIDIARY


                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997



<TABLE>
<CAPTION>
                                                                                           1998                  1997
                                                                                       ---------------      ------------------

CASH PROVIDED BY(USED FOR)  OPERATING ACTIVITIES:
<S>                                                                                       <C>                  <C>       
   Net  income(loss)                                                                      $6,078               ($694,287)
   Adjustments to reconcile net income (loss) to cash provided by (used for)
Operating activities-
       Depreciation and amortization                                                      65,677               59,556
       Changes in assets and liabilities-
         Accounts receivable, net                                                         (166,118)            42,071
         Inventories                                                                      275,107              520,260
         Prepaid expenses and other current assets                                        12,490               30,181
         Accounts payable                                                                 (359,569)            48,211
         Accrued liabilities                                                              171,311              93,379
         Deferred revenue                                                                 0                    (372,683)
                                                                                          ---------------      ------------------

                Cash provided by (used for) operating activities                          4,976                (273,312)
                                                                                          ---------------      ------------------

CASH USED FOR INVESTING ACTIVITIES :
   Capital expenditures                                                                   (151,986)            (58,420)
                                                                                          ---------------      ------------------

                Cash used for investing activities                                        (151,986)            (58,420)
                                                                                          ---------------      ------------------

CASH PROVIDED BY FINANCING ACTIVITIES:
   Proceeds from issuance of new debt                                                     232,914              507,527
   Repayments of debt                                                                     (90,000)             (177,014)
                                                                                          ---------------      ------------------

                Cash provided by financing activities                                     142,914              330,513
                                                                                          ---------------      ------------------

                Increase (decrease) in cash                                               (4,096)              (1,219)

CASH, beginning of year                                                                   67,300               68,519
                                                                                          ---------------      ------------------

CASH, end of year                                                                         $63,204              $67,300
                                                                                          ===============      ==================


SUPPLEMENTAL DISCLOSURES OF CASH FLOW
   INFORMATION:
     Interest paid                                                                        $145,039             $188,444
                                                                                       =================      =================
</TABLE>


               See notes to the Consolidated Financial Statements


23


<PAGE>




                       COMPUTER POWER INC. AND SUBSIDIARY


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)      SUMMARY OF SIGNIFICANT
     ACCOUNTING POLICIES:

       Description of Business-

        Computer Power Inc. designs,  manufactures,  markets, and services
        products in three distinct market categories: energy efficient lighting,
        power protection systems and emergency lighting.

         The Company has  continued to incur losses and at December 31, 1998 has
         a working capital  deficiency and a shareholders'  deficit.  Management
         has  implemented  several  programs  to reduce  costs and to reduce the
         break-even  point  necessary  for  profitable  operations.   Management
         believes that its 1999 budget,  which reflects the anticipated  results
         of these  programs,  is  reasonable  and  attainable  and will  provide
         sufficient  cash to sustain  operations  during 1999.  In  addition,  a
         principal   shareholder   of  the  Company  has  committed  to  provide
         additional  working  capital,  if  necessary.   The  Company  has  been
         negotiating a debt  compromise  with its largest debt holders and hopes
         to have the compromise consummated in 1999.

       Principles Of Consolidation-

         The consolidated  financial statements include the accounts of Computer
         Power   Inc.   (the   Company)   and   its   wholly-owned   subsidiary,
         Uninterruptible  Power  Systems,  Inc.  All  significant   intercompany
         balances and transactions have been eliminated in consolidation.

         In  addition,  the  Company  owns a 20%  interest in  Retrofit,  Ltd. a
         company  under the  jurisdiction  of Trinidad and Tobago,  West Indies,
         which is carried at no value.

       Use of Estimates-

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

       Inventories-

                  Inventories,  which include material,  labor and manufacturing
         overhead costs,  are stated at the lower of cost  (first-in,  first-out
         basis) or market and consist of-


Raw material                        $379,845
Work in process                     258,508
Finished goods                      104,638
                                    -------------

                                    $742,991
                                    =============



24

<PAGE>




       Property and Equipment-

                  Property and equipment are recorded at cost.  Depreciation is
 recorded primarily on a  straight-line basis over estimated useful lives as
 follows-


Vehicles                                      3 years
Computer equipment under capital leases       3-5 years
Furniture and fixtures                        5-7 years
Machinery and equipment                       5-10 years

           Leasehold  improvements  are amortized  over the life of the lease or
           their estimated useful lives, whichever is shorter.

          Revenue Recognition

                  Sales  revenue is  recognized  at the date of  shipment to the
customer.

          Advertising Costs

                  Advertising  costs are charged to  operations  when  incurred.
         Advertising  expense  was  approximately  $110,000  and $83,000 for the
         years ended December 31, 1998 and 1997, respectively.

          Research and Development Costs

                  Research and  development  costs are charged to  operations as
         incurred  and amounted to  approximately  $314,000 and $400,000 in 1998
         and 1997, respectively.

       Net Loss Per Share-

         Effective  for the year ended  December 31, 1997,  the Company  adopted
         Statement of Financial  Accounting Standards (SFAS) No. 128 - "Earnings
         per Share." The adoption of SFAS No. 128 requires the  presentation  of
         Basic Earnings per Share and Diluted Earnings per Share. Basic Earnings
         per Share is based on the average  number of common shares  outstanding
         during the year.  Diluted  Earnings  per Share is based on the  average
         number of common  shares  outstanding  during  the year plus the common
         share equivalents  related to outstanding  stock options.  The weighted
         average  number of shares  used in  computing  basic loss per share was
         2,578,300  in both  1998 and 1997.  Diluted  EPS is not  presented  for
         either period as the effect of the  inclusion of the  potential  shares
         would be anti-dilutive.

(2) ACCRUED LIABILITIES

         At December 31, 1998 accrued liabilities were as follows-


Accrued Interest                         $396,150
Accrued Warranty                         $207,243
Accrued Payables-Other                   $192,570
Accrued Wages and Salaries               $101,657
Miscellaneous accrued liabilities        $116,601
Total accrued liabilities                $1,014,221


CAPITAL LEASES



25
<PAGE>




         The Company leases certain  equipment  under capital leases expiring in
     various years through 2001. The assets and liabilities under capital leases
     are  recorded  at the  lower  of the  present  value of the  minimum  lease
     payments or the fair value of the asset at the inception of the lease.  The
     assets are  amortized  over the lower of their related lease terms or their
     estimated productive lives.  Amortization of assets under capital leases is
     included in the depreciation expense in 1998 and 1997.

     Properties under capital leases are as follows:


                                               December, 31
                                              1998       1997

Telephone equipment                        $65,127     $65,127

Data Processing equipment                  $150,496    $101,303
                                           --------
               Subtotal                    $215,623    $166,430
Less accumulated depreciation              $62,696     $100,272
                                           -------
               Total                       $152,927    $66,158

                  The  following  is a schedule of minimum  lease  payments  due
under capital leases as of 12/31/98.

         Year Ending, December 31,
                  $61,564
                  $58,298
                                                                      $39,005
                  Total net minimum capital lease payments           $158,867
                  Less amounts representing  interest                $ 20,350
                  Present  value of net minimum capital lease
                   payments                                          $138,517
                  Less current  maturities of capital lease  
                  obligations                                         $53,143
                  Obligations under capital leases, excluding
                   current maturities                                 $85,374

(4)  DEBT:

       At December 31,1998, notes and other debt payable include amounts due to
       related parties and other lenders as follows-


<TABLE>
<CAPTION>
Revolving credit agreement maturing January 31, 1999, bearing
<S>                                                                                         <C>           
   interest at prime (8.5% at December 31, 1997) plus 3.5%                                  $910,098(a)(c)
Subordinated, unsecured notes to a related entity due July 1, 1999
   bearing interest at 9.5%, with quarterly interest payments                               565,000(b)(e)
Term loan, bearing interest at prime (8.5% at December 31,                                  285,000
   1998) plus 3.5%, with monthly installments of $5,000 due December 31, 2002
Subordinated, unsecured note to a related entity due February 1, 1998,
   bearing interest at 10%, with quarterly interest payments                                250,000(b)(d)(e)

Subordinated, unsecured note payable to a director due July 1, 1999,
   bearing interest at 9.5%, with quarterly interest payments                               150,000(b)(e)
Subordinated, unsecured demand note, bearing interest at 8%                                 96,569(b)
Subordinated, unsecured note payable due October 31, 1997
   bearing interest at 10%                                                                  32,000(b)

</TABLE>


26

<PAGE>




<TABLE>
<CAPTION>
Subordinated, unsecured note payable to a director due February 1, 1998,
<S>                                                                                         <C>      
   bearing interest at 10%, with quarterly interest payments                                30,000(b)
Subordinated, unsecured notes payable to a director
   due October 31, 1997 bearing interest at 10%                                             19,000(b)
                Total notes and other debt payable                                          $2,337,667
                                                                                            =================

       Long-term debt consists of the following at December 31, 1998-


Subordinated  note,  bearing  interest at prime (8.5% at December 31, 1997) plus
   4%, payable in monthly installments of $19,444 plus interest
   from September 1, 1997, due August 1, 2000                                               $700,000(b)(f)
Convertible debenture, bearing interest at 9.5%, payable in monthly
   installments plus interest from July 1, 1997
   until November 2000                                                                      300,000(b)(d)(f)
                                                                                            $1,000,000
Less- Current maturities                                                                    775,694
                                                                                            ------------------
                  Long-term debt                                                            $224, 306
                                                                                            ==================
</TABLE>

         (a)  The revolving credit agreement  provides for maximum borrowings of
              85% of  eligible  accounts  receivable,  as  defined.  The maximum
              amount,  including any amounts outstanding under the term loan, is
              $2,000,000.  As of December  31, 1998,  approximately  $287,000 of
              additional borrowings were available under this agreement.

         (b)  The  individual  or  company  holding  this note has agreed to the
              deferral of all principal and interest until January 1, 1999.

         (c)  The revolving  credit  agreement,  is due to mature on January 31,
              1999.  Warrants to purchase  100,000  shares of common stock at an
              exercise  price of $.40  per  share  which  were  attached  to the
              agreement  and  scheduled  to  expire on  January  31,  1999.  The
              estimated  value of these  warrants  will be  recorded as interest
              expense in January 1999

         (d)  In the  event  that the  Company  does not pay the  principal  and
              interest on February 1, 1998,  the maturity  date will be extended
              to February  1, 1999.  In such case,  the company  would issue the
              note holders  warrants to purchase  800,000 shares of common stock
              at an exercise  price of $.35 per share.  The  estimated  value of
              these  warrants  will be recorded  as interest  expense in January
              1999.  The warrants  expire on February 1, 2001. To the extent the
              principal  of the  notes  are not  repaid  on  February  1,  1999,
              interest will accrue at 14% per annum thereafter.
         The  company  or  individual  holding  this  note  agreed  to  interest
           forgiveness for the first quarter of 1999.

            (f) The company holding this note agreed to interest forgiveness for
              these notes from the inception through the first quarter of 1999.





27

<PAGE>



       The aggregate  maturities of long-term debt giving effect to the deferred
       principal obligations discussed above, are as follows-


         1999                                 $805,694
         2000                                 284,306
         2001                                 60,000
         2002                                 60,000
         2003 and beyond                      75,000
                                                                                
                                              $1,285,000
                                                                                
       Substantially  all of the Company's  assets have been pledged as security
under the related debt.

(5)  INCOME TAXES:

       A reconciliation  of the  consolidated  provision for income taxes in the
       accompanying  statements of operations to that which would be computed at
       the U. S. statutory rate is as follows-


                                                      1998           1997
                                                 -------------  ---------------

Tax (benefit) provision at statutory rate        $21,000        ($306,000)
Provision for valuation allowance                (21,000)       306,000
                                                 -------------  ---------------

Income tax provision recorded in the financial
statements                                       $0             $0
                                                 =============  ===============

       Deferred income taxes are provided for temporary  differences between the
       financial  reporting basis and the tax basis of the Company's  assets and
       liabilities.  The  components  of the  deferred tax asset at December 31,
       1998 are as follows-


Accrued interest                                      $158,000
Depreciation                                          35,000
Reserve for slow moving inventory                     64,000
Allowance for doubtful accounts                       85,000
Accrued warranty costs                                83,000
Accrued vacation                                      26,000
Operating loss carryforwards                          2,589,000
                                                      ----------------

                                                      3,040,000

Less- Valuation allowance                             (3,040,000)
                                                      ----------------

                Net deferred tax asset                $0
                                                      ================

       In  accordance  with SFAS 109, the Company has  evaluated  its ability to
       realize  tax  benefits  associated  with its  temporary  differences  and
       operating  loss  carry  forwards.  Based on its  operating  history,  the
       Company has provided a valuation  allowance of 100% against the estimated
       tax benefits  associated with the operating loss carry forwards and other
       temporary differences.

       At December 31, 1998,  the Company has operating  loss carry  forwards of
       approximately   $6,472,000  for  income  tax  return  purposes  that  are
       available to offset future taxable income through 2009.


(6)  SHAREHOLDERS' EQUITY:


28

<PAGE>




       Stock Options-

         Under  the  Company's  pre-1996  stock  option  plan,  options  for the
         purchase of up to 500,000  common  shares  could be granted to officers
         and other key employees at prices no less than the fair market value of
         the shares on the date of grant. The plan gave the Company the right to
         repurchase the options at a price equal to the  difference  between the
         exercise  price and market price of the shares at the date the employee
         elects to exercise  the  options.  All options have a term of ten years
         and are  exercisable in equal  installments  over the five-year  period
         beginning from the date of grant.

         On January 6, 1997,  the Company's  stockholders  approved a 1996 stock
         option plan with the same terms and conditions as the pre-1996 plan. On
         that date 195,000 options were granted at a price of $.25 per share. On
         November 18, 1997 30,000 additional  options were granted at a price of
         $.125  per  share.  As of  December  31,  1998,  219,000  shares of the
         Company's  authorized  but unissued  common stock were reserved for the
         potential issuance of stock options.


         A summary of the  activity in options  under the stock option plans are
as follows-


                                                          1998           1997
                                                      ------------  -----------

Number of shares under stock option plans-
   Outstanding at beginning of year                    366,000        233,000
   Granted                                             200,000        225,000
   Exercised                                           0              0
   Canceled                                            (169,000)      (92,000)

   Outstanding at end of year                          397,000        366,000
                                                       =============  =========

   Available for grant at end of year                  219,000        340,000
   Exercisable at end of year                          142,000        156,000

Weighted average exercise price-
   Granted                                             $.19           $.23
   Exercised                                           -              -
   Canceled                                            .33            .29
   Outstanding at end of year                          .32            .32
   Exercisable at end of year                          .36            .40
   Weighted average fair value of options granted
     during the period                                 $.22           $.21

John M. Perry's employment contract grants him stock options to purchase 100,000
common shares of the Company at an exercisable price equal to 85% of such common
stock's market value at December 31, 2000.

John M. Perry's employment contract grants him stock options to purchase 100,000
common shares of the Company at an exercisable price equal to 85% of such common
stock's market value at December 31, 2001.








29


<PAGE>



                                       Number of Securities.
                                      Options Outstanding
 -------------------------------------------------------------------------------

                                               Weighted Average    Weighted
                          Number Outstanding    Remaining           Average
Range of Exercise Prices  December 31, 1998    Contractual Life  Exercise Price
------------------------    -------------------  --------------- ---------------


$.125-.25                    281,000             9.4 years            $.19
$.251-.40                    116,000             2.3 years            $.40


                                                  Options Exercisable
                             ---------------------------------------------------

                                 Number Outstanding          Weighted Average
Range of Exercise Prices        At December 31, 1998          Exercise Price
------------------------       -----------------------   ----------------------

$.25-$.40                           142,000                        $.36



       Warrants-

         On June 21, 1996,  778,000 warrants to purchase shares of the Company's
         common  stock were  granted to two members of the Board of Directors at
         varying prices ranging from $.33 to $1.00. In addition, 25,000 warrants
         to purchase  shares of the  Company's  common  stock were granted to an
         outside  shareholder  for  consulting  services at an exercise price of
         $1.00.  On February 13, 1997,  all warrants  issued  subsequent  to and
         including  June 1, 1996 were  repriced to $.25 per share.  On April 13,
         1998 the Company's Board of Directors  approved the issuance of 966,079
         warrants to the various  companies  and  individuals  who agreed to the
         deferral of principal and interest related to certain debt as discussed
         in Note 4. The  exercise  price of the warrants was the market value of
         the  Company's  stock on April  13,  1998,  $0.25.  All  warrants  vest
         immediately and expire on April 13, 2003.

       Pro Forma Information-

         The Company maintains an Incentive Stock Option Plan (the "Plan") which
         reserves  shares of the Company's  common stock for issuance to Company
         officers, key employees and other eligible persons as determined by the
         Board of Directors,  In 1996, the Company  adopted the disclosure  only
         provisions of Statement of Financial  Accounting  Standards  (SFAS) No.
         123,  "Accounting  for  Stock  Based  Compensation."   Accordingly,  no
         compensation  cost has been  recognized for the plan. Had  compensation
         expense for the warrants and the options  which vested in 1998 and 1997
         under the Company's plan been determined based on the fair value at the
         grant  date  commensurate  with the  provisions  of SFAS No.  123,  the
         Company's  net loss per share for 1998 and  1997,  respectively,  would
         have been increased to the pro forma amounts indicated below-


                                       1998                   1997
                                 ------------------     -------------------



Net income (loss)-
   As reported                       $6,078                 ($694,000)
   Pro forma                         ($250,459)             ($969,000)



Basic earnings (loss)per share-
   As reported                       $.00                   ($.27)
   Pro forma                         ($.10)                 (0.38)

         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 for grants in 1998 and 1997,



30
<PAGE>



         respectively: dividend yield of 0% and 0%; expected volatility of 
         161%, and 149%; risk-free interest rate of 4.5% and 6% and expected
         lives of 5 and 10 years.

         The prices of the options granted pursuant to the Plan will not be less
         than 100% of the fair market  value of the shares on the date of grant.
         No award  will be  exercisable  after 10 years  from the date of grant.
         Grants  will vest at the rate of 20% per year  starting  the year after
         the original grant date.

(7)  COMMITMENTS AND CONTINGENCIES:

       (A) The Company has the option to purchase  the  building on December 31,
       1999 at the then fair market value by payment of 15% cash and the balance
       payable on a 30 year  mortgage  bearing  interest at the 30 year treasury
       bond rate.  The Company  rents its office and plant  facilities  from its
       former  principal  shareholders  under a  noncancellable  operating lease
       expiring in 1999.  Property taxes,  insurance and other related  expenses
       are paid by the Company.  Upon the  expiration of the lease in 1999,  the
       Company has the option to purchase  the  facilities.  If the Company does
       not exercise  its option,  it will be obligated to renew the lease for an
       additional ten years.

       The minimum  annual  rentals under the terms of the lease were as follows
as of December 31, 1999.


           1999                                           237,000

       Rental expense amounted to $237,000 in both 1998 and 1997.

       During     1998, the Company purchased  approximately $38,000 of material
                  from Retrofit, a company in which two directors of the Company
                  own a majority interest.  At December 31, 1998,  approximately
                  $107,000 was payable to Retrofit.

(8)  BENEFIT PLAN:

       The Company maintains a 401(k) plan which covers all eligible  employees.
       Participants   may  elect  to  contribute  up  to  20%  of  their  annual
       compensation,  as defined, not to exceed the applicable limitations under
       the Internal Revenue Code. The Company  provides a matching  contribution
       of  25%  of  participant  contributions,  up to a  maximum  of 8% of  the
       participant's compensation.  Total 401(k) expense was $15,000 and $19,000
       for the years ended December 31, 1998 and 1997, respectively.

(9)  MAJOR CUSTOMERS

         For  the  year  ended  December  31,  1998,  the  customer  had a major
         customer, sales to which represented approximately 13% of the Company's
         revenues.  The company had an accounts receivable balance due from this
         customer of  approximately  $186,000 at December 31, 1998.  The loss of
         this customer would have a materially adverse affect on the Company.




(10)  FAIR VALUE OF FINANCIAL INSTRUMENTS

       Cash,  accounts  receivable,  accounts payable,  accrued expenses,  notes
       payable, long-term debt, and capitalized lease obligations:

         The carrying amount  approximates  fair value because of the short term
maturity of these instruments.


31

<PAGE>


         Limitations
                  Fair value  estimates are made at the specific  point in time,
         based on  relevant  information  and  information  about the  financial
         instrument.  These  estimates  are  subjective  in nature  and  involve
         uncertainties and matters of significant judgement and therefore cannot
         be determined with precision.
         Changes in assumptions could significantly affect the estimates.

  EXTRA ORDINARY ITEM

         During 1998 the Company  received  forgiveness of interest from a major
         debt  holder.  The  recaptured  amount  from the period  prior to 1998,
         approximately $166,000,was classified as an extraordinary item.

 (12)  SUBSEQUENT EVENT:

         On January 27, 199, Public Access Lighting, LLC, an Illinois limited
liability company ("PAL") purchased certain Company notes, warrants and
490,000 shares of the Company's Common Stock from Mantilla, Ltd. and
Southerntech, Inc., two foreign corporations controlled by Lindsay Gillette,
in a private transaction.  Thereafter, on February 11, 1999, PAL purchased
additional Company notes, warrants and 510,000 shares of the Company's
Common Stock from RMC Limited and Readymix (West Indies) Limited, two
corporations controlled by Trinidad Cement Limited, in a second private
transaction.  In connection with these transactions, on January 27, 1999,
Lindsay Gillette, Peter Gillette and Clarence Wilcox resigned as directors
of the Company's Board of Directors and Susan M. Larson, PAL's President,
was appointed a member of the Board.





























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