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, 1997
                                             -----------------

[ ]  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:

         Title of each class                Name of exchange on which
                                            registered

         None                               None
         ----                               ----

Name of each exchange on which registered

         None
         ----

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

                     Common Stock, par value $.01 Per Share
                                (Title of Class)


<PAGE>


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 not contained in this form, and no disclosure  will be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year:  $9,537,967
                                                          ----------

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 25, 1998: $296,275

The  number of shares  outstanding  of each of the  issuer's  classes  of common
equity, as of March 25, 1998: 2,578,300 shares of Common Stock.

Transitional Small Business Disclosure Format (check one)

Yes [  ]        No   [X]


                                       2
<PAGE>

                                     PART I
ITEM 1.  BUSINESS

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.  In order
to serve these markets,  the Company is organized into two business  units.  The
Astralite  business  unit is focused on the energy  efficient  lighting  market,
while the Power Protection business unit is concentrated on the power protection
market and emergency lighting market.

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 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  P-N  junction  and  use  the  same  manufacturing  process  as
semiconductors.  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 


                                       3
<PAGE>


estimates  that  over 100  million  exit  signs  in use  today,  and this  could
translate  to $1 billion  per year in energy  savings if the nation  converts to
this new solid-state lighting technology.




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 a accomplished via generator,
battery powered unit lights, or Inverters.

The   Company's   power   protection   equipment   can  be  divided   into  four
sub-categories:  1) Double  conversion,  on-line  uninterruptible  power systems
(UPS), 2) Ferroresonant, on-line uninterruptible systems (UPS), 3) Fast transfer
backup power systems, and 4) Standard transfer backup power systems.

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


                                       4
<PAGE>


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 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.

PRODUCT PRICES AND REVENUES

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

MANUFACTURING AND SUPPLY

The Company's  manufacturing  operations,  are conducted at its High Bridge, New
Jersey  facility.  Manufacturing  includes an order  specific  customized  order
processing system for power protection  products,  and large quantity orders for
Astralite products.  Production is scheduled on a historical sales basis as well
as for specific customer orders. To a limited extent,  the Registrant  purchases
fully  assembled  UPS  systems  from two  sources  for resale in its  world-wide
distribution  network.  Subassemblies  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.


                                       5
<PAGE>


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.



                    BALANCE OF PAGE LEFT INTENTIONALLY BLANK


                                       6
<PAGE>


MAINTENANCE AND SERVICE

The Registrant offers warranties on all its products, including parts and labor,
that 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.
For 1996 and 1997 the  Registrant  had field service  expenses of  approximately
$589,000, and $614,000, respectively.

The Registrant  performs  service on products through its factory service center
at its New Jersey  factory  or at  customer  locations.  These  services  may be
performed  pursuant  to a written  service  contract or upon  specific  order at
various  rates.  Service on its products sold abroad are usually  handled by its
foreign distributors.

SALES AND MARKETING

The Company markets its Astralite  products  directly  through a select group of
500 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 York, PA, and 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%,
depending on the product and quantity  sold.  No one  distributor  accounted for
more than 7% of the Company's net sales for 1997.

The  Company  markets  and sells 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 one distributor,  representative or original equipment manufacturer
accounted for more than 10% of the Company's net sales for 1997.

The Registrant's relationship with its sales representatives is usually governed
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 manufacturers but not on competing products.  The
top 10 representatives accounted for an estimated 9 % of the Company's net sales
for 1997.


                                       7
<PAGE>


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 8% of revenues  in 1996 and 10% of  revenues  in 1997.  The
Company's Astralite and UPS businesses are generally not seasonal,  however, the
emergency   lighting  business   (approximately  38%  of  net  sales)  parallels
construction industry cycles.

INTERNATIONAL OPERATIONS

The Registrant's  international activities account for approximately 8%, 6%, and
3% of its net sales for 1995,1996, and 1997 respectively.

BACKLOG

As of December 31, 1997 the Registrant's  backlog was approximately  $533,000 as
compared with a backlog of approximately  $1,715,000 as of December 31, 1996. No
single  customer  represents  more than 14 % and 16 % of such total  backlog for
December 31, 1997 and December 31, 1996, respectively. Backlog figures generally
include written  purchase orders and are for products only and not for services.
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 $290,000 in 1996, and $506,000 in 1997.

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

In December of 1997, an improved energy saving LED light source was listed by UL
for universal application in replacing  conventional lighting in exit signs. The
Company  was the  first UL  listed  manufacturer  to meet  very  stringent  code
standards that went in effect in August 1997.


                                       8
<PAGE>


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, Lithonia, ProLight and many other companies.

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 Registrant generally competes on the
basis of price, product performance, features and delivery schedules. Service is
ordinarily not a factor.  The Company  generally  endeavors to position and sell
its  products  at equal  prices  to its  competitors.  Many of its  competitors,
however, are owned by larger companies and have greater financial, technical and
marketing resources than the Registrant.

GOVERNMENT REGULATION

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

ITEM 2.  PROPERTY AND FACILITIES

The  Registrant  leases  from Roger Love (a Company  director)  and Doris Love 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 an additional ten (10)
years at no increase in rent.

ITEM 3.  LEGAL PROCEEDINGS

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

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

On January 6, 1997, the Registrant submitted four proposals to its shareholders.
These  proposals,  each of which  was  approved  by the  shareholders,  were the
election of directors, the approval of the 1996 Stock Option Plan, the amendment
to the  certificate  of  incorporation  to  increase  the  authorized  shares to
12,000,000  from  5,000,000,  and the  appointment  of Arthur  Andersen,  LLP as
independent auditors.


                                       9
<PAGE>


                                     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 NASD NON-NASDAQ OTC Bulletin Board with 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, 1996 are as follows:

COMMON STOCK (CUWR)

CALENDAR PERIOD                       HIGH AND LOW BID       HIGH AND LOW ASK

1/01/96 to 03/31/96                    9/16      11/16       1 1/4        11/16
04/01/96 to 06/30/96                  1 1/8       9/16      1 3/16        11/16
07/01/96 to 09/30/96                  11/16       9/16      1 1/16          7/8
10/01/96 to 12/31/96                   9/16        1/4      1 1/16         7/16
1/01/97 to 03/31/97                    5/16        1/4         1/2          1/4
04/01/97 to 06/30/97                    1/8        1/8         1/4          1/4
07/01/97 to 09/30/97                    1/8        1/8         1/4          1/4
10/01/97 to 12/31/97                    3/8        1/8         1/2         7/32

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

The  number of  shareholders  of record on March 25,  1997 was 125 per  American
Stock Transfer and Trust Company shareholder's listing. 

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

                    BALANCE OF PAGE LEFT INTENTIONALLY BLANK


                                       10
<PAGE>


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

REVENUES

Revenues for 1997 were $9,538,000 or 12% below 1996.  Sales were down across all
product lines.  Power protection sales were down by 14% primarily due to lack of
custom UPS business  compared to prior years.  Astralite product sales were down
12% mainly due to lower retrofit kit sales which were  negatively  affected by a
UL code  change  that went into  effect  during the third  quarter  of 1997.  In
December 1997, the Company became the first  manufacturer to obtain a UL listing
that meets the new code  requirements.  Sales of the new product are expected to
commence  during the first  quarter of 1998.  The program of  investment  in new
product research and development begun in 1996 continues.

COST OF SALES

Cost of sales for 1997 of $7,518,000  was about 79% of net sales compared to 77%
in 1996 after  removing the effects of 1996 inventory  adjustments.  The Company
managed its variable cost,  primarily  direct labor and  materials,  at slightly
improved  levels  to  sales.  With  an  increase  in  research  and  development
activities, cost as a percent of sales increased.

OPERATING AND OTHER EXPENSES

Selling  expenses for 1997 were about  $1,137,000 or about  $452,000  lower than
1996. This represented about 12% of net sales in 1997 compared to 14.7% in 1996.
With a new UL code  taking  effect in  August  1997,  the  Company  reduced  its
Astralite  product  sales  and  marketing  expenses  pending  approval  of a new
product.  This  approval was  obtained in December  1997,  and expenses  will be
increased in the first quarter of 1998.

General  and  administrative  expenses  were  approximately  $1,187,000  in 1997
compared to  $1,137,000  in 1996.  Administrative  expenses for 1997 included an
increase in the cost of  insurance,  higher UL fees  associated  with  obtaining
approval for the Company's new  Astralite  product  retrofit kit, and a one time
cost of a three year sales tax audit completed during the year.

Interest  expense  for 1997 of  approximately  $391,000  was  about 3% below the
expense for 1996.  The average level of borrowing  outstanding  was  essentially
equivalent  to 1996,  however  proceeds  from  additional  related  party  loans
obtained  during the year were used to pay down higher  interest  loans from the
asset based lender.

LIQUIDITY AND CAPITAL RESOURCES

At  December  31,  1997,  the  Company's  investment  in Total  Assets was about
$2,706,000 or $595,000 less than the  $3,301,000  reported at December 31, 1996.
The significant components


                                       11
<PAGE>


of the change are (1) a reduction  in  inventory  of $520,000  due to a focus on
reducing  the number of days of  materials  on hand,  (2) a decrease in accounts
receivable  of $115,000  (before  reserves)  due to lower fourth  quarter  sales
($265,000),  partially  offset  by an  increase  in the  number of days of sales
outstanding  ($150,000),  and, (3) a decrease in its provision for uncollectible
accounts of $74,000 as a result of tighter  credit  controls and  monitoring  of
customer  balances.   At  December  31,  1997,  the  Company's  Liabilities  and
Stockholders' Equity declined by $595,000 and was essentially  comprised of: (1)
the loss for the year of $694,000, (2) a reduction in accounts payable,  accrued
liabilities  and  deferred  revenue  of  $230,000  due  to  the  elimination  of
consignment  sales which was partially offset by an increase in interest payable
resulting from the negotiated deferral of debt service,  and which was (3) by an
increase in debt outstanding of $331,000.

The Company has two raw  material  suppliers,  one of which is a related  party,
that provide  extended  terms. As of December 31, 1997 these vendors were owed a
total of about $370,000 of which about  $320,000 was  outstanding as a result of
those terms.

The Company  anticipates  that borrowings  available to it through its revolving
credit and inventory term loan facilities along with the agreed  continuation of
the deferral of debt service for the year negotiated with unsecured debt holders
should be  sufficient  to cover  operating  cash  requirements  during 1998.  In
addition,  the Company has obtained a  commitment  from a major  stockholder  to
supplement working capital should the need arise during 1998.

In order to obtain the 1998  deferral of debt  service,  the  Company  agreed to
issue  166,079  five year  warrants  at  market  price as  compensation  to debt
holders. The warrants are issuable on a prorata basis. In addition,  the Company
agreed  to add a board  member  to be  designated  by  Readymix  (West  Indies),
Limited.

During the fourth quarter of 1997, the Company had its inventory  assessed by an
outside  appraiser  and on the  basis of this  appraisal  was  able to  obtain a
$150,000  increase in the amount of credit  available  to it under its term loan
with the  secured  asset  based  lender.  The Company  received  $75,000  during
February of 1998, with the remainder available after assessing the first quarter
performance.

During 1997,  management  focused on the programs that were  established  in its
plan for the year. These plans included investing in additional sales resources,
establishing a cell manufacturing plan,  focusing on new product  introductions,
and  establishing  teams to implement  practices to lower  manufacturing  costs.
These plans were all implemented  with varying degrees of success.  The addition
of sales resources was  accomplished  early in the year.  However,  as it became
clear that the new Astralite product introduction planned for the year was going
to be  delayed,  and that the  additional  sales  resources  were not capable of
paying for  themselves,  sales and  marketing  expenses were reduced to meet the
expected level of near term sales.  Practices were established to lower the cost
of  manufacturing.  The power  protection  products  manufacturing  process  was
redesigned  and teams assisted  management in  determining  ways to reduce cost.
These initiatives


                                       12
<PAGE>


have materially lowered the sales level required to break-even. For example, the
total  number of Company  employees  was 80 at year end 1997  compared to 103 at
year end 1996.

The Company has determined that it can upgrade its existing  computer systems at
reasonable   conversion   and  training   costs,   and  can  meet  a  year  2000
implementation  date. The Company is investigating  other system alternatives in
order to ensure that customer as well as management information requirements are
met. The cost of  compliance  and its effect on future  results of operations is
not anticipated to be material in any given year.

The following  recently  issued  accounting  standards  will increase  financial
reporting disclosures,  but are not expected to have any impact on the Company's
financial position or results of operations.  In February 1998, SFAS No. 132 - "
Employees'  Disclosures  about Pensions and Other  Postretirement  Benefits" was
issued and is effective for periods  beginning  after December 15, 1997. In June
1997,  SFAS No.  130 -  "Reporting  Comprehensive  Income"  and  SAFS No.  131 -
"Disclosures  about  Segments of an  Enterprise  and Related  Information"  were
issued and are effective for periods beginning after December 15, 1997. SFAS No.
132  revises  employers'  disclosures  about  pension  and other  postretirement
benefit plans.  SAFS No. 130 establishes  standards for reporting  comprehensive
income and its  components.  SFAS No. 131  establishes  standards  for reporting
financial  and  descriptive  information  regarding  an  enterprise's  operating
segments.

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

                    BALANCE OF PAGE LEFT INTENTIONALLY BLANK


                                       13
<PAGE>


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 personnel of the
Registrant is contained in the following table:

NAME                                    TITLE                            AGE
----                                    -----                            ---

Lindsay Gillette                  Chairman of the Board                   39

Hiro Hiranandani(1)               President & CEO                         60

Peter Gillette(2)                 Director                                37

Richard Hobday                    Director                                67

Roger Love                        Director                                65

Kenneth Rind2                     Director                                62

Clarence Wilcox2                  Director                                67

Thomas Marren                     Vice President and CFO, Secretary       52

Leslie Listwa                     Vice President and GM Astralite         40

Paul Kohmescher                   Controller                              46

(1)   Mr.  Hiranandani's  employment as President,  Chief  Executive  Officer is
      subject to an employment agreement. The term of this agreement is June 28,
      1996 through December 31, 1998.

(2)   Member of the Audit Committee

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  has 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


                                       14
<PAGE>


NIHERST.  Mr.  Gillette is a graduate of McMaster  University  with a bachelor's
degree in Civil Engineering.

Hiro Hiranandani became President, Chief Executive Officer and a Director of the
Company  in June of  1996.  From  1977 to 1994,  Mr.  Hiranandani  held  various
management  positions with Pitney Bowes,  Inc. He most recently was President of
Worldwide  Mailing Systems  operations of Pitney Bowes. Mr.  Hiranandani holds a
bachelor's degree in electrical  engineering from the University of Missouri,  a
master's degree in electrical engineering from Purdue University, and a master's
degree in business administration from the University of Bridgeport.

Peter  Gillette has 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.

Richard O. Hobday has been a Director of the Company since  December 1996. He is
an independent consultant.  In 1988, he retired as a partner with Arthur Young &
Co.  (Ernest & Young)  accountants.  Mr. Hobday is a Director of Ready Mix (West
Indies) Ltd., Trinidad Contractors Ltd., and Los Cuevos Resorts Ltd.

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. He currently is a consultant.

Kenneth  Rind has been a Director  since  1995.  Dr.  Rind is Chairman of Oxford
Venture Corporation,  an independent venture capital management company which he
co-founded  in 1981.  From  1976 to 1981,  Dr.  Rind  was a  principal  at Xerox
Development   Corporation  responsible  for  acquisitions  and  venture  capital
investments.  From 1970 to 1976, he was  Vice-President  of Corporate Finance at
Oppenheimer & Co., and managed its venture capital and high technology corporate
finance  activities.  He is a Director  of Medical  Sterilization,  Inc.,  Alpha
Technologies Group, Inc., Vasomedical,  Inc., and ESC Medical Systems, Ltd., and
several private  companies.  Dr. Rind received a bachelor's  degree in chemistry
from Cornell  University  and a doctorate  in nuclear  chemistry  from  Columbia
University.

Clarence  Wilcox has been a Director of the Company since 1994. He also has 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.

Thomas Marren joined the Company in September 1996. Prior to joining the Company
Mr.  Marren  held  various   financial   positions  at  Engelhard   Corporation,
Allied-Signal  and Deloitte  Haskins and Sells  (Deloitte & Touche).  He holds a
bachelor's  degree in  accounting  from  Upsala


                                       15
<PAGE>


College, a master's degree in business  administration from Monmouth University,
and is a member of the New Jersey Society of Certified Public Accountants.

Leslie Listwa joined the Company in 1991 as Director of Sales and Marketing.  He
was  instrumental  in the start-up of the Astralite  operations  and assumed his
present  position in July of 1996.  Prior to joining the Company Mr. Listwa held
various  key  engineering  and  marketing  positions  at RCA  Americom,  Dranetz
Technologies,  and Ariel  Corporation.  Mr. Listwa holds a bachelor's  degree in
electrical  engineering from Pratt Institute,  and a master's degree in business
administration from Pace University.

Paul Kohmescher joined the Company in October 1997. Prior to joining the Company
Mr.  Kohmescher held various  financial  positions with Area Lighting  Research,
Inc. He holds a bachelor's degree from Indiana University.

Lindsay Gillette and Peter Gillette are brothers.

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, 1997.


                    BALANCE OF PAGE LEFT INTENTIONALLY BLANK


                                       16
<PAGE>


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, 1995, 1996, and 1997
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(7)     Bonus         Deferred
Position              Year        ($'S)         ($'S)     Compensation $'S
----------------------------------------------------------------------------

Hiro Hiranandani(1)   1997      $  75,000                     $25,000
President & CEO       1996      $  49,418

Leslie Listwa(2)      1997      $  80,000
VP & GM Astralite     1996      $  80,066     $  5,655
                      1995      $  80,000     $ 27,000

Louis Massad(3)       1997      $       0
VP Finance            1996      $ 104,500
                      1995      $  75,500

Lindsay Gillette(4)
President & CEO       1997      $       0
                      1996      $  46,646
                      1995      $  93,670     $ 49,150

----------------------------------------------------------------------------
(1)   Appointed President & CEO June 28, 1996.
(2)   Beginning January 1, 1995.
(3)   Resigned effective December 31, 1996
(4)   Resigned as President & CEO June 28, 1996.  Remained Chairman of the Board
      of Directors.
[Paul-What about Footnote 7?]



                    BALANCE OF PAGE LEFT INTENTIONALLY BLANK


                                       17
<PAGE>


<TABLE>
<CAPTION>
                            Options and Grants in the Last Fiscal Year
                            ------------------------------------------
                 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
----                -------------        ------------------------   ----------       ----
<S>                     <C>                       <C>                 <C>          <C>   
Les Listwa              20,000                    9.0%                $0.25        01/06/07
</TABLE>


<TABLE>
<CAPTION>
                    Aggregated Option Fiscal Year End Values
                    ----------------------------------------
                        (There were no exercises in 1997)

                    Number of unexercised Options/   Value of unexercised In-the-Money
                       Warrants at Year-end (#)      Options/Warrants at Year-end ($'s)
Name                  Exercisable/unexercisable          Exercisable/unexercisable
----                  -------------------------          -------------------------
<S>                        <C>                                <C>          
Hiro Hiranandani           251,998/126,001                    63,000/31,500

Les Listwa                   56,000/44,000                       5,600/5000
</TABLE>

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

<S>               <C>         <C>              <C>               <C>               <C>              <C>       
Hiro              02/13/97    125,999          $0.25             $0.33             $.025            9.25 Years
Hiranandani       02/13/97    125,999          $.025             $.040             $.025            9.25 Years
                  02/13/97    126,001          $.025             $.040             $.025            9.25 Years
</TABLE>


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, 1997,  160,000  shares of the Plan were  outstanding  and no
shares have vested.  Of the pre-1996  stock option plan,  206,000  shares remain
outstanding with 156,000 shares vested.


                                       18
<PAGE>


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.

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 antidilution  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 225,000 stock options  granted and 65,000 stock options  canceled for
individuals that left the Company  pursuant to the Registrant's  Plan during the
fiscal year ended December 31, 1997. 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.


                                       19
<PAGE>


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of March 25, 1998, 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 Ownership(1)         Class
----------------                 ---------------------           -----

Roger Love(2)                            461,199(2)              17.7%
124 W. Main St.
High Bridge, NJ 08829

Mantilla Ltd.                            490,000(3)              18.8%
P.O. Box 173, Road Town
Tortola, B.V.I.

RMC Ltd.                                  510,000                19.6%
Tumpuna Road
Guanapo, Trinidad, WI

Leslie Listwa                              40,000                 1.5%
124 W. Main Street
High Bridge, NJ 08829

All directors and officers
as a group                                501,199                21.9%

(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)   Roger Love has  deposited  his shares in a voting  trust,  the  trustee of
      which is Mr. Lindsay Gillette, Chairman of the Board.
(3)   Lindsay  Gillette,  Chairman of the Board and Peter Gillette,  a director,
      are primary owners of Mantilla, Ltd.



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 


                                       20
<PAGE>


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 1997, the Company purchased
approximately $336,000 of material from Retrofit.

The Company leases its principal office and manufacturing  facilities from Roger
Love and Doris Love under a written lease agreement  expiring December 31, 1999.
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. 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 1996 and 1997, 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 new  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 is not repaid on February 1, 1999,  interest will accrue at 14% per annum,
thereafter. The warrants expire on February 1, 2006.


As of December  31, 1997,  the Company had  outstanding  principal  and interest
payable  under its various note  agreements  with  related  parties and entities
totaling  $2,468,000.   In  addition,  the  total  stock  subscription  warrants
outstanding  as discussed  above  totaled  778,000 as of December


                                       21
<PAGE>


31,  1997.  In  addition,  the Company  owed  Retrofit  $176,000  for  materials
purchased in the ordinary course of business.

                                    PART IV.

ITEM 13. EXHIBIT AND REPORTS ON FORM 8-K:

a) None.
b) The following  documents are filed as a part of this report:  
     1. and 2. Financial Statements:


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

* Report of Independent Public Accountant.

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

  Consolidated  Statements of Operations  for the years ended December 31, 1996,
  1995, and 1994.

  Consolidated  Statements of  Shareholders  Equity for the years ended December
  31, 1996, 1995, and 1994.

  Consolidated  Statements of Cash flows for the years ended  December 31, 1996,
  1995, and 1994.

* Notes to Consolidated Financial Statements.

3. 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,  it Registration  Statement filed under
     the Securities Exchange Act of 1934, as amended, on Form 8-A and its Annual
     Report on Form 10-K dated December 31, 1986.

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


                                       22
<PAGE>
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

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, 1995:
10.24-$300,000 Convertible Debenture.


                                       23
<PAGE>

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 FILED AS PART OF THIS REPORT:

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; 

10.48-Debt Restructuring Agreement between Registrant and Hiro Hiranandani;

10.49-Promissory  Note between  Registrant and SouthernTech,
      Ltd.


                                       24
<PAGE>


                                   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/ Hiro R. Hiranandani
                                                -------------------------------
                                                Hiro R. Hiranandani, President

Dated: March 27, 1998

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 27, 1998

/s/ Hiro R. Hiranandani
---------------------------------
Hiro R. Hiranandani, President (CEO) and Director

/s/ Thomas E. Marren, Jr.
---------------------------------
Thomas E. Marren, Jr., Vice President and Chief Financial Officer, Secretary

/s/ Lindsay Gillette
---------------------------------
Lindsay Gillette, Chairman of the Board of Directors

/s/ Peter Gillette                           /s/ Clarence Wilcox
---------------------------------            ----------------------------------
Peter Gillette, Director                     Clarence Wilcox, Director

/s/ Roger Love                               /s/ Kenneth Rind
---------------------------------            ----------------------------------
Roger Love, Director                         Kenneth Rind, Director

/s/ Richard Hobday
---------------------------------
Richard Hobday, Director


                                       25

<PAGE>
                       COMPUTER POWER INC. AND SUBSIDIARY


            CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997


                                  TOGETHER WITH


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


                                       26
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Computer Power Inc.:


We have audited the accompanying consolidated balance sheet of Computer Power
Inc. (a New Jersey corporation) and subsidiary as of December 31, 1997, and the
related consolidated statements of operations, changes in shareholders' deficit
and cash flows for each of the two years in the period 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 audits.

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

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



                                                             ARTHUR ANDERSEN LLP


Roseland, New Jersey 
April 9, 1998 (except with respect 
to the matter discussed in Note 7, 
as to which the date is April 13, 1998)

                                       27
<PAGE>

<TABLE>
<CAPTION>
                               COMPUTER POWER INC. AND SUBSIDIARY


                         CONSOLIDATED BALANCE SHEET -- DECEMBER 31, 1997

                                               ASSETS
<S>                                                                                 <C>       
CURRENT ASSETS:
   Cash                                                                             $   67,300
   Accounts receivable, less allowance of $179,778 for
     doubtful accounts                                                               1,312,819
   Inventories (Note 1)                                                              1,018,098
   Prepaid expenses and other current assets                                            45,204
                                                                                    ----------
                Total current assets                                                 2,443,421
                                                                                    ----------
PROPERTY AND EQUIPMENT, at cost (Note 1):
   Machinery, equipment, vehicles and furniture                                      1,128,797
   Leasehold improvements                                                              333,274
                                                                                    ----------
                                                                                     1,462,071
   Less-Accumulated depreciation and amortization                                    1,199,725
                                                                                    ----------
                                                                                       262,346
                                                                                    ----------
                                                                                    $2,705,767
                                                                                    ==========
                                         LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES:
   Notes and other debt payable (Note 2)                                            $  899,753
   Current maturities of long-term debt (Note 2)                                        60,000
   Accounts payable                                                                  1,158,435
   Accrued liabilities                                                                 981,427
                                                                                    ----------
                Total current liabilities                                            3,099,615
                                                                                    ----------
LONG-TERM DEBT (Note 2)                                                              2,235,000
                                                                                    ----------

COMMITMENTS AND CONTINGENCIES (Note 5)

SHAREHOLDERS' DEFICIT (Notes 2 and 4):
   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                                                              (6,337,306)
   Treasury stock, 24,400 shares, at cost                                              (74,688)
                                                                                    ----------
                                                                                    (2,628,848)
                                                                                    ----------
                                                                                    $2,705,767
                                                                                    ==========
</TABLE>

                The accompanying notes to consolidated financial statements
                        are an integral part of this balance sheet.

                                       28
<PAGE>

                       COMPUTER POWER INC. AND SUBSIDIARY


                      CONSOLIDATED STATEMENTS OF OPERATIONS

                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996


                                                         1997          1996
                                                      ----------    -----------

NET SALES                                             $9,537,967    $10,838,816

COST OF SALES                                          7,518,306      9,600,397
                                                      ----------    -----------

                Gross profit                           2,019,661      1,238,419
                                                      ----------    -----------

OPERATING AND OTHER EXPENSES (Notes 2, 5 and 6):
     Selling expenses                                  1,136,647      1,589,243
     General and administrative expenses               1,186,542      1,137,294
     Interest expense, net                               390,759        403,533
                                                      ----------    -----------
                                                       2,713,948      3,130,070
                                                      ----------    -----------
                Net loss                              $ (694,287)   $(1,891,651)
                                                      ==========    ===========

EARNINGS PER SHARE AVAILABLE TO COMMON
   STOCKHOLDERS (a):
     Basic EPS-
       Net loss                                       $     (.27)   $      (.73)
       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.


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

                                       29
<PAGE>

<TABLE>
<CAPTION>
                       COMPUTER POWER INC. AND SUBSIDIARY


           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT

                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996



                                   Capital in                                Total
                          Common   Excess of    Accumulated   Treasury     Shareholders'
                          Stock    Par Value      Deficit       Stock        Deficit
                          ------   ----------   -----------   ---------    -------------
<S>                       <C>      <C>          <C>           <C>          <C>          
BALANCE, December 31,
   1995                   $26,027  $3,757,119   $(3,751,368)  $ (74,688)   $    (42,910)

   Net loss -- 1996             0           0    (1,891,651)          0      (1,891,651)
                          -------  ----------   -----------   ---------    ------------

BALANCE, December 31,
   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)
                          =======  ==========   ===========   =========    ============
</TABLE>

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

                                       30
<PAGE>
<TABLE>
<CAPTION>

                                     COMPUTER POWER INC. AND SUBSIDIARY


                                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                               FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996


                                                                               1997               1996
                                                                            ----------        -------------
<S>                                                                         <C>               <C>          
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES:
   Net loss                                                                 $ (694,287)       $ (1,891,651)
   Adjustments to reconcile net loss to cash (used for) provided by
     operating activities-
       Depreciation and amortization                                            59,556              67,874
       Writedown of assets                                                           0             136,000
       Changes in assets and liabilities-
         Accounts receivable, net                                               42,071           1,058,902
         Inventories                                                           520,260           1,050,723
         Prepaid expenses and other current assets                              30,181             174,956
         Accounts payable                                                       48,211            (795,795)
         Accrued liabilities                                                    93,379             239,341
         Deferred revenue                                                     (372,683)            372,683
                                                                            ----------        ------------
                Cash (used for) provided by operating activities              (273,312)            413,033
                                                                            ----------        ------------
CASH USED FOR INVESTING ACTIVITIES --
   Capital expenditures                                                        (58,420)            (79,077)
                                                                            ----------        ------------
                Cash used for investing activities                             (58,420)            (79,077)
                                                                            ----------        ------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
   Proceeds from issuance of new debt                                          507,527             485,558
   Repayments of debt                                                         (177,014)           (750,995)
                                                                            ----------        ------------
                Cash provided by (used for) financing activities               330,513            (265,437)
                                                                            ----------        ------------
                Increase (decrease) in cash                                     (1,219)             68,519
CASH, beginning of year                                                         68,519                   0
                                                                            ----------        ------------
CASH, end of year                                                              $67,300        $     68,519
                                                                            ==========        ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
   INFORMATION:
     Interest paid                                                          $  188,444        $    268,968
                                                                            ==========        ============


                        The accompanying notes to consolidated financial statements
                                are an integral part of these statements.
</TABLE>

                                       31
<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, 1997 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 1998 budget, which reflects the anticipated results
         of these programs, is reasonable and attainable and will provide
         sufficient cash to sustain operations during 1998. In addition, a
         principal shareholder of the Company has committed to provide
         additional working capital, if necessary.

       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.

       ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS-

         Statement of Financial Accounting Standards No.121, "Accounting for the
         Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
         Of." (SFAS No. 121) requires that if certain events or changes in
         circumstances indicate that the carrying value of long-lived assets,
         identifiable intangibles and goodwill may not by recoverable, an entity
         must estimate the undiscounted future cash flows expected to result
         from the use or sale of the asset and record an impairment for the
         amount by which the carrying value exceeds the discounted fair value.
         As a result of this the Company wrote-off $136,000 in patents in 1996.
         The Company does not believe that any such change has occurred in 1997.

                                       32
<PAGE>

       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                                    $  631,220
            Work in process                                    295,248
            Finished goods                                      91,630
                                                            ----------

                                                            $1,018,098
                                                            ==========

       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        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.

       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 1997 and 1996. Diluted EPS is not presented for
         either period as the effect of the inclusion of the potential shares
         would be antidilutive.

       RECLASSIFICATIONS-

         Certain reclassifications have been made to the prior year's
         consolidated financial statements to conform to the current year
         presentation.

                                       33
<PAGE>
<TABLE>
<CAPTION>

(2)  DEBT:
<S>      <C>                                                                                <C>             
       At December 31, 1997, notes and other debt payable include amounts due to
       related parties and other lenders as follows-
          Revolving credit agreement maturing January 31, 1999, bearing
             interest at prime (8.5% at December 31, 1997) plus 3.5%                        $  752,184(a)(c)
          Subordinated, unsecured note payable due October 31, 1997
             bearing interest at 10%                                                            32,000(b)
          Subordinated, unsecured notes payable to a director
             due October 31, 1997 bearing interest at 10%                                       19,000(b)
          Subordinated, unsecured demand note, bearing interest at 8%                           96,569(b)
                                                                                            ----------

                          Total notes and other debt payable                                $  899,753
                                                                                            ==========

       Long-term debt consists of the following at December 31, 1997-

          Term loan, bearing interest at prime (8.5% at December 31, 1997) plus
             3.5%, with monthly installments of $5,000 due
             December 31, 2002                                                              $  300,000
          Subordinated, unsecured notes to a related entity due July 1, 1999
             bearing interest at 9.5%, with quarterly interest payments                        565,000(b)
          Subordinated, unsecured note payable to a director due July 1, 1999,
             bearing interest at 9.5%, with quarterly interest payments                        150,000(b)
          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)
          Convertible debenture, bearing interest at 9.5%, payable in monthly
             installments plus interest from July 1, 1997
             until November 2000                                                               300,000(b)(d)
          Subordinated, unsecured note to a related entity due February 1, 1998,
             bearing interest at 10%, with quarterly interest payments                         250,000(b)(d)
          Subordinated, unsecured note payable to a director due February 1, 1998,
             bearing interest at 10%, with quarterly interest payments                          30,000(b)
                                                                                            ----------
                                                                                             2,295,000
          Less- Current maturities                                                              60,000
                                                                                            ----------
                            Long-term debt                                                  $2,235,000
                                                                                            ==========

         (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, 1997, approximately $240,000 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.
</TABLE>

                                       34
<PAGE>

         (c)  The revolving credit agreement, which was due to mature on
              December 31, 1997, was extended to 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 December 31, 1997 were extended to January 31, 1999.
              The estimated value of these warrants will be recorded as interest
              expense from January 1, 1998 through January 31, 1999. The
              warrants expire on January 31, 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 from February
              1, 1998 through January 31, 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 aggregate maturities of long-term debt giving effect to the deferred
       principal obligations discussed above, are as follows-

         1998                                          $   60,000
         1999                                           1,830,694
         2000                                             284,306
         2001                                              60,000
         2002                                              60,000
                                                       ----------

                                                       $2,295,000
                                                       ==========

       Substantially all of the Company's assets have been pledged as security
under the related debt.

(3)  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-

<TABLE>
<CAPTION>
                                                                            1997          1996
                                                                         ----------    ----------

<S>                                                                      <C>           <C>        
          Tax (benefit) provision at statutory rate                      $ (306,000)   $ (640,000)
          Provision for valuation allowance                                 306,000       640,000
                                                                         ----------    ----------

          Income tax provision recorded in the financial statements      $        0    $        0
                                                                         ==========    ==========
</TABLE>

                                       35
<PAGE>

       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,
       1997 are as follows-

          Accrued interest                                     $  169,000
          Depreciation                                             96,000
          Reserve for slow moving inventory                        77,000
          Allowance for doubtful accounts                          72,000
          Accrued warranty costs                                   49,000
          Accrued vacation                                         25,000
          Operating loss carryforwards                          2,573,000
                                                               ----------
                                                                3,061,000

          Less- Valuation allowance                            (3,061,000)
                                                               ----------
                          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 carryforwards. Based on its operating history, the Company
       has provided a valuation allowance of 100% against the estimated tax
       benefits associated with the operating loss carryforwards and other
       temporary differences.

       At December 31, 1997, the Company has operating loss carryforwards of
       approximately $6,434,000 for income tax return purposes that are
       available to offset future taxable income through 2009.

(4)  SHAREHOLDERS' EQUITY:

       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, 1997, 340,000 shares of the
         Company's authorized but unissued common stock were reserved for the
         potential issuance of stock options.

                                       36
<PAGE>

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

<TABLE>
<CAPTION>
                                                                    1997           1996
                                                                  --------       -------
<S>                                                                <C>           <C>    
            Number of shares under stock option plans-
               Outstanding at beginning of year                    233,000       295,000
               Granted                                             225,000             0
               Exercised                                                 0             0
               Canceled                                            (92,000)      (62,000)
                                                                   -------       -------

               Outstanding at end of year                          366,000       233,000
                                                                   =======       =======

               Available for grant at end of year                  340,000       267,000
               Exercisable at end of year                          156,000       148,000

            Weighted average exercise price-
               Granted                                                 .23            --
               Exercised                                                 -            --
               Canceled                                                .29           .40
               Outstanding at end of year                              .32           .40
               Exercisable at end of year                              .40           .40
               Weighted average fair value of options granted
                 during the period                                     .21           .65
</TABLE>


<TABLE>
<CAPTION>
                                                                          Options Outstanding
                                               ----------------------------------------------------------------------------
                                                                                 Weighted Average          Weighted Average
                                                Number Outstanding                   Remaining              Exercise Price
        Range Of Exercise Prices               At December 31, 1997              Contractual Life
        ------------------------               --------------------              ----------------          ----------------

<S>            <C>                                    <C>                            <C>                         <C> 
               $.125-.250                             160,000                        9.2 years                   $.23
               $.251-.40                              206,000                        5.3 years                   $.40

                                                               Options Exercisable
                                               --------------------------------------------------
                                                Number Outstanding               Weighted Average
        Range Of Exercise Prices               At December 31, 1997               Exercise Price
        ------------------------               --------------------              ----------------

               $.40                                   156,000                        $.40
</TABLE>

       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. As of December
         31, 1997 and 1996 total warrants outstanding were 932,999 and
         1,082,999, respectively.

                                       37
<PAGE>

       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 1997 and 1996
         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 1997 and 1996, respectively, would
         have been increased to the pro forma amounts indicated below-

                                              1997                 1996
                                           ----------          -------------

            Net income-
               As reported                 $ (694,000)         $ (1,891,000)
               Pro forma                   $ (969,000)         $ (2,143,000)

            Basic earnings per share-
               As reported                 $     (.27)         $       (.73)
               Pro forma                   $     (.38)                (0.83)

         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 1997 and 1996, respectively:
         dividend yield of 0% and 0%; expected volatility of 149%, and 88%;
         risk-free interest rate of 6% and 7.84% 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.

(5)  COMMITMENTS AND CONTINGENCIES:

       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, 1997-

           1998                                         $237,000
           1999                                          237,000

       Rental expense amounted to $237,000 in both 1997 and 1996.

                                       38
<PAGE>

       During 1997, the Company purchased approximately $336,000 of material
       from Retrofit, a company in which two directors of the Company own a
       majority interest. At December 31, 1997, approximately $178,000 was
       payable of Retrofit.

(6)  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 $19,000 and $21,000
       for the years ended December 31, 1997 and 1996, respectively.

(7)  SUBSEQUENT EVENT:

       On April 13, 1998 the Company's Board of Directors approved the issuance
       of 166,079 warrants to the various companies and individuals who agreed
       to the deferral of principal and interest related to certain debt as
       discussed in Note 2. The exercise price of the warrants will be the
       market value of the Company's stock on April 13, 1998. All warrants vest
       immediately and expire on April 13, 2003. The estimated value of these
       warrants will be recorded as interest expense during 1998.

                                       39