FORM 10-KSB
                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

     For the fiscal year ended:  9/30/96
                            
                                       OR
                
[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from               to
                                    -------------    ---------------
     Commission file number:  0-10944

                             MTX INTERNATIONAL, INC.
                ------------------------------------------------
               (Exact name of registrant as specified in charter)

         Colorado                                         84-0729290
 ------------------------------                         -----------------
(State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                         Identification No.)

7901 East Bellview Ave., Suite 50, Englewood, Colorado          80111
------------------------------------------------------        --------
      (Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code: (303) 770-9840

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

Securities registered pursuant to Section 12(g) of the Act: None

Check whether the registrant  (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding
12 months (or 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 [ ]

The aggregate  market value of Registrant's  voting $0.01 par value common stock
held by  non-affiliates,  as of July 31,1996 was $306,104.  The number of shares
outstanding of registrant's only class of common stock, as of July 31, 1996, was
10,774,398  shares  of its  $.01  par  value  common  stock.  No  documents  are
incorporated into the text by reference.

                                             Exhibit Index is located on Page 17

Transitional Small Business Disclosure Format  Yes [ ]    No [X]


<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

     (a)  General  Development  of  Business.   MTX  International,   Inc.  (the
"Company") was incorporated  under the laws of Colorado on November 2, 1976. The
Company is engaged in the design,  development,  marketing,  sale and service of
its own  proprietary  business  application  computer  software and the sale and
service of  computer  hardware  systems.  Formerly,  the  Company  marketed  its
products primarily to construction contractors and provided them with management
and technical consulting services.

     The Company  completed a public offering of its securities in February 1983
by issuing  2,000,000 units,  each unit ("Unit")  consisting of one share of its
$0.01 par value common stock and one warrant to purchase one share of its common
stock,  at an offering  price of $1.00 per Unit. The net proceeds to the Company
totaled  $1,609,022 after deduction of underwriting  commissions and expenses of
the  offering  and  were  used  primarily  to  cover   operational  and  product
development  expenses.  Warrants sold in the initial public  offering and to the
underwriter expired without being exercised.

     Prior to fiscal 1989,  the Company's  major focus was the sale of "turnkey"
hardware/software systems to construction contractors.  The hardware sold during
this period was a proprietary system produced by Cubix Corporation which was not
compatible with the more common DOS based systems  produced by companies such as
IBM and Compaq ("IBM compatible"). During fiscal 1989, the Company converted its
software products to run in a DOS environment as a means of enhancing  marketing
capabilities for its software  products.  The Company also began the assembly of
personal IBM compatible "clone" computers in order to appeal to a broader market
base and reduce the costs of hardware  previously  included in system sales.  In
addition  to the sales of  systems to the  construction  industry,  the  Company
believed  that  by  offering  IBM  compatible  hardware  systems,  it  could  be
competitive in the sales of personal  computers,  including Local Area Networks,
to  industry  segments  other  than  construction.   However,   due  to  intense
competition  and the rapid  reduction  in sales  prices and  margins of computer
hardware,  the  Company  determined  that it would  substantially  reduce  sales
efforts of low margin computer hardware.

     The Company believes that the computer industry is undergoing major changes
in regard to the  deployment  of  computer  software  applications.  A change to
Client/Server  computing  is in  progress.  This change  includes the use of the
Internet.  Microsoft  Corporation  is  one  of  the  industry  leaders  in  this
transformation with its Windows operating environment. The Company determined in
June 1992 to work with Microsoft products to develop a new accounting product in
the Microsoft Windows environment. Microsoft invited the Company to announce The
MTX  Accounting  SDK for  Microsoft  Access at Fall Comdex in  November  1992 in
conjunction with their official  announcement of Microsoft  Access.  Access is a
relational database management system and was used by the Company to develop its
new  products.  Sales of the  Accounting  SDK product from  December 15, 1992 to
September 30, 1993  resulted in revenues of $144,875 and $271,387  during fiscal
1994. The product was renamed to MTX  Accounting  for Microsoft  Office in 1994.
Sales of the renamed product  increased to $484,436 in fiscal 1995 and decreased
to $337,227 in fiscal 1996. The success of the Accounting SDK and MTX Accounting
combined with the growing relationship with Microsoft led the Company to believe
that it should enter into a more formalized  relationship.  The Company became a
Microsoft  Solution  Provider  in March 1993 and a Microsoft  Solution  Provider
Partner in July 1994.

     As a Microsoft Solution Provider Partner, the Company is determined to be a
leader in implementing new software technologies.  The Company continues to make
a  substantial  investment  in  further  development  and  marketing  of the MTX
Accounting  products.  The Company believes that the future of the industry lies
in implementing the new technologies  through the use of re-usable objects.  The
MTX Accounting products were designed to be used as the accounting basis for the
development  of  customized  solutions.  Using The Windows  platform,  Microsoft
Office and the MTX Accounting products, cost effective, customized solutions may
be delivered to the end user.  The MTX  Accounting  products are marketed to end

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users and to  unaffiliated  third  parties  consisting  of software  developers,
corporate  developers  and  consultants as a modifiable  accounting  application
consisting of General Ledger, Accounts Payable,  Accounts Receivable and Payroll
modules.  Inventory,  Order Entry and Purchase  Order  modules were designed and
developed during fiscal year 1995 then released during the Company's fiscal year
1996.  Upon  sale  or  resale  of  the  MTX  Accounting  as all  or  part  of an
application,  the company  receives an end user  runtime  license fee of between
$675 and $4,000  depending  on the  modules  purchased.  During  fiscal 1995 the
Company  initiated a sales  effort for  licensing  of its product  under  O.E.M.
agreements.  Under these agreements,  developers of other software  applications
would include MTX Accounting in their product offerings.

     The Company began the  conversion of the  Accounting  SDK to operate with a
new version of Microsoft  Access and the development of further  enhancements to
the product in January  1994. In May 1994,  Microsoft  announced a new Microsoft
Office  compatible  program.  The  Company  was  accepted  into the  program and
immediately began the modifications to the product,  which were required to pass
certification testing by an independent testing laboratory. The product was then
renamed "MTX  Accounting  for Microsoft  Office" and began shipping in September
1994.  It was the first  accounting  system to be certified as Microsoft  Office
compatible. Currently, the product is one of approximately four other accounting
applications  which  have  been  certified  by  Microsoft  as  Microsoft  Office
compatible.

     During fiscal 1996, the Company  commenced  development of a new version of
MTX Accounting for Microsoft Office called MTX Enterprise  Accounting.  This new
product is based upon Microsoft SQL Server, a larger more powerful database than
Microsoft Access. The company believes this version may be of interest to larger
organizations. The Company anticipates completing this new product during fiscal
year 1997 and plans to apply for  Microsoft  BackOffice  logo  certification  in
order to assist in marketing the new product.

     (b) Financial  Information About Industry  Segments.  During its last three
fiscal years, the Company has been primarily engaged in the design, development,
marketing, and sale of accounting software products.

     (c) Narrative Description of Business.

          (i)  Principal  Products  Produced  and  Services  Rendered.  Computer
     Hardware and Software Operations

               Earlier Products. The Company's first software product was called
CMS ("Construction  Management System"). This product was sold by the Company to
electrical,   mechanical   and  heating,   ventilation   and  air   conditioning
contractors.  The Company no longer pursues  business with this older  DOS-based
product since the market now seeks Windows-based  systems.  The Company plans to
develop an OEM relationship  with one or more future business  partners in order
to provide a Windows-based system for this market. In December 1992, the Company
introduced  the Accounting SDK (Software  Development  Kit) in conjunction  with
Microsoft  Corporation's  announcement of its new Microsoft  Windows  relational
database  management  software  product named  Microsoft  Access.  Sales of this
product under the name  "Accounting SDK for Microsoft  Access" (version 1.1) was
discontinued in September 1994 upon release of the "MTX Accounting for Microsoft
Office" (version 2.0).

               MTX Accounting for Microsoft  Office.  This product  replaced the
prior product  "Accounting  SDK for  Microsoft  Access" in September  1994.  MTX
Accounting for Microsoft Office complies with the design standards for the "look
and feel" as  implemented  by  Microsoft  for their  suite of  Microsoft  Office
products which include Excel,  Word,  Powerpoint,  Mail and Access. In addition,
the MTX product integrates with the Microsoft Office products.  This integration
provides the capability for end users to  automatically  integrate data from the
accounting  application  with Microsoft  Office products for financial  analysis
including graphing, customized queries, reporting and presentations. Information
may also be  distributed  via e-mail  directly from MTX Accounting for Microsoft
Office or from any of the Microsoft  applications.  MTX Accounting for Microsoft
Office is the first  accounting  product  certified by  Microsoft as  "Microsoft
Office  Compatible".  Version 2.0 of this product was developed  using Microsoft
Access version 2.0, a 16-bit version of Access designed for  compatibility  with
Microsoft  Office 4.3. During calendar year 1995,  Microsoft  announced plans to

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launch a new 32- bit version of Microsoft  Access called Microsoft Access 95 (to
be compatible with Microsoft Office 95). The Company converted their Version 2.0
product and sold a limited  number of systems that use  Microsoft  Access 95. In
1996, the Company  learned that  Microsoft  planned to release  another  updated
version of 32-bit Access,  to be called  Microsoft Access 97. When the Microsoft
Access  97 and  Microsoft  Office  97 plans  by  Microsoft  became  known to the
Company,  the  Company  immediately  ceased  further  development  of an  Access
95-based  product.  In fiscal 1997, the Company plans to update their  Microsoft
Access-based  product line to utilize  Microsoft  Access 97 and to be compatible
with  Microsoft  Office 1997.  No sales of a Microsoft  Access 97 version of MTX
Accounting  for Microsoft  Office were made during fiscal year ending  September
30, 1996.

           New Products. A new product called MTX Enterprise Accounting has been
designed  and is under  development.  This new product  will use  Microsoft  SQL
Server 6.5 as a database running on Microsoft  Windows NT 4.0 in a client/server
network architecture. This new product is designed to process a larger number of
transactions  than MTX Accounting for Microsoft Office and will provide the same
basic  accounting  functionality  as MTX  Accounting for Microsoft  Office.  The
Company  plans to  explore  opportunities  to extend MTX  Enterprise  Accounting
further so that  alternative  versions  can be developed  for Oracle,  Informix,
Sybase and IBM client/server  databases.  No sales of this new product were made
during fiscal year 1996 ending September 30, 1996.

               Direct  Hardware  Sales.  During the fiscal years ended September
30, 1992, 1993, 1994, 1995, and 1996 the Company had sales of computer  hardware
and software of $321,215  (47.67% of gross revenue),  $549,380  (59.32% of gross
revenues),  $652,103 (62.8%),  $595,494 (59%) and $454,554 (50.3%) respectively.
The Company has substantially  reduced its marketing efforts for hardware sales;
therefore,  the  majority  of sales in 1995 and 1996  resulted  from the sale of
software.

               Support  Services.  The Company  provides  hardware  and software
support services directly to the end user.  Hardware support services  primarily
consist of  replacement of defective  hardware  modules for older CMS customers.
This method of hardware support does not require skilled electronics technicians
on-site and may be performed by the customer  after the Company has determined a
module to be  defective  and has shipped the same  overnight.

Software support consists of telephone consultations and periodic updates to the
various  software  modules  on an  as-needed  basis.  Due to the  design  of the
software, which in most instances allows customers to adapt the package to their
individual  needs  without  software  modifications,  the  Company  can  provide
periodic updates with only minimal personal contact.

Historically,  support  services  were  provided  to the user  through  one-year
renewable  hardware support  contracts and either one year or monthly  renewable
software  support  contracts.  During the fiscal years ended September 30, 1992,
1993, 1994, 1995 and 1996 the Company had gross revenues from providing  support
and consulting services of $342,644 (50.85% of gross revenues), $362,322 (39.12%
of gross revenue),  $385,580  (37.1%),  $404,945  (40.12%) and $447,726  (49.5%)
respectively.  The Company briefly tested an incident-based support plan for new
users  during  fiscal year 1996 then  determined  that the  Company  would use a
conventional  12-month  plan.  Support  services  are  billed  at the time a new
software  license is sold,  then  recognized as revenue over a 12- month period.

               Marketing;  Distribution.  The  Company  has  not  committed  any
significant  marketing  efforts to the sale of earlier  products  that have been
discontinued.

     With the release of the MTX Accounting for Microsoft  Office  product,  the
Company re-focused its advertising efforts to include end users. The Company has
also  restructured its dealer program to require  "Certified  Dealers" to attend
training  classes  which  include both  technical  and  marketing  segments.  At
September 30, 1996, the Company had  approximately  85 domestic  dealers,  seven
international dealers and one international distributor.

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<PAGE>


          (ii) Status of New  Products or Industry  Segments.  In calendar  year
1992, the Company developed  versions of its software products that would permit
them  to  run  under   Microsoft   Windows.   Management  had  determined   that
compatibility  with  "Windows"  could  enhance the  marketing  potential  of its
existing product line. The basic conversion to Windows was completed in December
1992. The Company received its Microsoft Office Compatible certification for the
MTX Accounting for Microsoft  Office product in early  September 1994; and began
shipping  the product at the end of September  1994.  During  fiscal  1996,  the
Company  completed the development of Sales Order,  Purchase Order and Inventory
Control  modules  for the  Microsoft  Access 2.0 version of their  systems,  and
commenced  development of a new version of MTX  Accounting for Microsoft  Office
called MTX Enterprise  Accounting.  This new  client/server  product operates on
Microsoft  Windows 95 personal  computers and Microsoft  Windows NT servers;  is
based upon Microsoft Access 97 and Microsoft SQL Server 6.5, and integrates with
Microsoft  Office 97. The Company  will  continue  enhancements  to new products
based on technological changes and on developer and user requests.

          (iii)  Sources  and  Availability  of  Raw  Materials;  Supplies.  The
computer  software  sold by the Company runs in Microsoft  Windows  environment,
which is the industry standard for most business applications. The Company's new
products  operate  in  the  Microsoft   Windows  95  and  Microsoft  Windows  NT
environments, which have become industry standard operating environments for the
desktop and servers.

          (iv) Patents,  Trademarks,  Licenses,  Franchises and Concessions. The
Company  currently has no patents for any of its products,  and does not believe
that any of its current products are patentable.  However,  the Company attempts
to secure  copyright  protection for its computer  software  products by placing
appropriate  language  on its  products,  and has entered  into non-  disclosure
agreements  with its  employees  concerning  these  products.  In addition,  the
Company has obtained trademark  registration for the name "MTX" which it uses on
its computer systems and software.  This trademark  registration  will remain in
force for 20 years, commencing November 5, 1985, unless sooner terminated.

          (v) Working Capital Items. The Company does not maintain large amounts
of  inventory  but  keeps a supply of  modular  hardware  replacements  on hand,
primarily as replacement equipment in connection with its support services.  The
size of this  replacement  inventory  is  directly  related to the volume of the
Company's maintenance services.  Because the Company requires most new customers
to pay C.O.D., the Company does not maintain large accounts receivable balances.
The Company does grant credit terms on  maintenance  contracts and supply sales,
but does not anticipate any significant cash flow problems resulting  therefrom.
In  accordance  with  the  Company's  accounting  policy  for  inventories,  the
inventory  value of repair parts for older computer  equipment,  which are still
covered by maintenance contracts, has been completely written down.

          (vi) Major  Customers.  During the fiscal  years ended  September  30,
1994,  1995 and 1996  respectively,  the Company was not dependent upon a single
customer, or a few customers,  the loss of any one or more of which would have a
material adverse effect on its business.

          (vii) Backlog.  At September 30, 1994,  1995 and 1996, the Company had
no backlog of unfilled orders for its systems.

          (viii)  Renegotiation  or Termination of Government  Contracts.  As of
July 31, 1997, no company  products or service required  government  approval of
licensing.  Further, no material portion of the Company's business is subject to
government regulation.

          (ix)  Competitive  Conditions.  The market for  computer  software and
hardware  products is highly  competitive.  Many companies having an established
reputation  in the computer  industry  have far greater  financing,  technology,
operating  resources and personnel  than the Company.  At the present time,  the
Company's competitive position in terms of market share in the overall market is
insignificant.  However,  the market is highly fragmented.  The Company believes
there may be as many as 100 companies  with products that compete  directly with
the Company's products.  The Company believes that each of those companies has a
small customer base and no one company holds a controlling share of the market.

                                        5


<PAGE>



The  computer   software/hardware   industry  is  also  characterized  by  rapid
technological   advances.  The  Company  would  be  adversely  affected  if  its
competitors introduced  technologically  superior products. The Company believes
that the  computer  industry  will  continue to make  significant  technological
advances and, as a result, the Company expects to continue to incur research and
development expenses in order to make its present and future software compatible
with such new hardware products and operating platforms.

          (x)  Research  and  Development.  The Company  operates in an industry
which is subject to rapid  changes in  technology,  and  therefore the Company's
ability to compete and operate successfully depends upon its ability to react to
such changes.  This situation  necessitates  that the Company continue to devote
resources to software enhancement, specifically, to keeping its software current
with technological  advances.  As of September 30, 1996 the Company employed one
person who  devoted a  substantial  part of their time to  software  enhancement
activities and also used the services of independent software contractors. As of
July 31, 1997,  the Company had one  full-time  employee and several  occasional
part-time software  contractors devoted to software enhancement for the Company.
In addition, the Company's president spends a portion of his time working on the
design and  development  of new  products,  and the  evaluation  of new software
technology  from Microsoft and others.

     During the fiscal years ended  September  30, 1992,  1993,  1994,  1995 and
1996,  the  Company  expended  $30,881,  $76,081,  $60,039  $61,749  and 85,623;
respectively, on software enhancement and development activities which have been
capitalized.  During this same period,  the company expended  $12,490,  $10,772,
$1,455, $37,137 and $47,201 respectively, on research and development activities
which have been expensed.

          (xi) Environmental Laws. The Company's business, capital expenditures,
earnings and competitive position are not materially affected by compliance with
Federal, State or local provisions which have been enacted or adopted regulating
the discharge of materials into the  environment,  or otherwise  relating to the
protection of the environment,  and the Company does not anticipate any material
capital expenditures for compliance with environmental laws in the future.

          (xii)  Employees.  As of September 30, 1996,  the Company  employed 10
persons  full  time.  As of July  31,  1997 the  Company  employs  10 full  time
employees and a variable number of independent software contractors.

ITEM 2.   DESCRIPTION OF PROPERTIES.

The  Company  owns  no real  property  and  leases  all of its  facilities.  The
Company's principal offices are located at 7901 East Bellview Avenue,  Suite 50,
Englewood,  Colorado.  The Company  leases 3294 square feet, at a base rental of
$22,644 per annum pursuant to a written lease from an unaffiliated  entity which
commenced on September 1, 1996 and will terminate on August 31, 1999.

ITEM 3.  LEGAL PROCEEDINGS.

There is no  material  pending  or  threatened  legal  proceedings  to which the
Company is a party or of which any of its  properties  is  subject,  and no such
proceedings  are  known  to  the  Company  to be  contemplated  by  governmental
authorities.

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

During the fourth  quarter of the fiscal  year  ended  September  30,  1996,  no
matters were submitted to a vote of the Company's security holders,  through the
solicitation of proxies or otherwise.

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                                     PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Market  Information.  There  is  no  established  trading  market  for  the
Company's  stock.  The Company's  common stock may, from time to time, be traded
through the Company's market maker, Mercer,  Bokert,  Buckman & Reid, Inc. at 75
W. Front Street, Red Bank, NJ 07701.

     The following table sets forth the range of high and low bid quotations for
the  Company's  common  stock for each  quarter of the last two fiscal  years as
estimated from data available to the public by Telescan, Inc. and Edgar On-Line.
The quotations represent inter-dealer prices without retail markup,  markdown or
commission, and may not necessarily represent actual transactions.

                  Quarter Ended             Low Bid            High Bid

                     12/31/94                $0.14               $0.24
                      3/31/95                $0.12               $0.20
                      6/30/95                $0.09               $0.16
                      9/30/95                $0.09               $0.13

                     12/31/95                $0.13               $0.18
                      3/31/96                $0.13               $0.18
                      6/30/96                $0.15               $0.20
                      9/30/96                $0.13               $0.18

     Holders.  The approximate number of holders of record of the Company's $.01
par value common stock, as of September 30, 1996, was 572.

     Dividends.  Holders of the  Company's  common stock are entitled to receive
such dividends as may be declared by its Board of Directors. No dividends on the
Company's  common stock have ever been paid, and the Company does not anticipate
that dividends will be paid on its common stock in the foreseeable future.

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

Trends and Uncertainties.  Management has tried to structure the Company so that
it can adjust to the trends and uncertainties in software  development and sales
and services industry. The Company has tried to eliminate the major variables of
interest rates and operating expense.  However,  as the Company has little or no
control over the demand for its services,  inflation  and changing  prices could
have a material effect on the future profitability of the Company. The Company's
lease for office space  expires on August 31,  1999.  It is probable the Company
will be unable  renegotiate  a new lease at the current  rate.  The Company will
attempt to negotiate a new lease with the current  landlord or will  negotiate a
new lease for other  space with a different  landlord.  The  company's  software
technology and products are greatly affected by various new products produced by
Microsoft. During the fall of 1995, Microsoft released Microsoft Windows 95, and
shortly after that,  Microsoft  Access 95 and Microsoft Office 95. Then, in late
summer  1996,  Microsoft  announced  plans to  release  Microsoft  Access 97 and
Microsoft Office 97 in early 1997. It has become apparent that Microsoft intends
to revise  their  products  frequently.  There is no  assurance  the Company can
revise and update their current or future products to keep pace with the rate of
new product introductions from Microsoft.

Financial  Condition  and  Changes in  Financial  Condition.  For the year ended
September 30, 1996, the Company experienced a net loss from operating activities
of $118,714  compared to a loss of $125,465  for the same period in 1995;  and a
gain of $44,043  for the same  period in 1994.  Net cash at  September  30, 1996
decreased to $26,732 from $60,491 at September  30, 1995.  This  decrease is due
primarily  to  the  net  loss  from  operating   activities.   Depreciation  and
amortization expenses remained relatively unchanged for these periods.  Accounts
receivable  increased from $84,562 at September 30, 1995 to $86,775 at September


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30, 1996.  Inventories  and other  assets  remained  relatively  equal for those
periods.  An employee  receivable,  which  reflects  draws against  commissions,
decreased  from  $11,957 in 1994 to $8,052 in 1995 and $1,270 at  September  30,
1996. For the fiscal year ended  September 30, 1995, the Company  experienced an
increase in accounts payable of $61,734,  an increase in accrued  liabilities of
$37,103 and a decrease in deferred revenue of $11,310.  The decrease in deferred
revenue  is due to a  decrease  in  support  services  sold with the sale of new
software licenses.  The Company  experienced a positive cash flow of $55,984 for
the year ended  September  30, 1996 as compared to positive cash flow of $82,268
for the year ended September 30, 1995 as a result of operating activities.

For the year ended  September  30, 1996,  the Company  experienced a decrease in
cash  flow  from  investing  activities  of  $86,344  due  to the  purchase  and
development of computer software.

The Company  experienced an increase in cash flows from financing  activities of
$3,399  primarily due to repayment of officer loans.  At September 30, 1996, the
Company had made no material commitments for capital expenditures.

Results of Operations:  Comparison of fiscal 1996 and 1995. The Company's  sales
revenues decreased from $595,493 in fiscal 1995 to $454,554 in fiscal 1996. This
decrease was primarily a result of a decrease in the sales of MTX Accounting for
Microsoft Office to dealers and end users.

Service  and  consulting  revenues  increased  from  $404,945  in fiscal 1995 to
$447,726 in fiscal 1996.

Miscellaneous  revenues decreased from $8,799 in fiscal 1995 to $2,125 in fiscal
1996. This decrease is primarily a result of reduced shipping revenue associated
with the sales of new software.

Cost of sales, service and consulting decreased from $175,725,  or 18% of sales,
in fiscal 1995 to $112,027,  or 12% of sales,  in fiscal 1996. This decrease was
primarily the result of the increase in sales of higher margin software products
and a decrease in sales of lower margin hardware products.

Marketing  expenses  decreased  $129,684,  or 26%,  during  fiscal  1996.  These
expenses  decreased  from $503,129 in fiscal 1995 to $373,445 in fiscal 1996 due
to reduced sales promotions,  reduced staffing,  and reduced marketing  supplies
and postage.

General and administrative  expenses  increased  $59,173,  or 16%, during fiscal
1996.  These  expenses  increased  from  $371,178  in fiscal 1995 to $430,351 in
fiscal  1996.  This  increase is primarily a result of the  full-year  affect of
salaries and benefits for new management added in the prior fiscal year.

Depreciation and amortization expenses remained relatively unchanged.

Research and development  expenses  increased from $37,137 in 1995 to $47,201 in
1996. The increase in these expenses is a result of new product development.

Earnings  increased from a loss of $125,465 in fiscal 1995 to a loss of $119,871
in fiscal  1996.  This loss is  primarily  due to a decline  in the sales of new
software licenses.

Results of Operations:  Comparison of fiscal 1995 and 1994. The Company's  sales
revenues decreased from $652,103 in fiscal 1994 to $595,494 in fiscal 1995. This
decrease was primarily a result of a decrease in low margin  Hardware sales from
1994 to 1995. Hardware sales decreased  $206,450,  or 70%, from $295,105 in 1994
to $88,655 in 1995.  Software  sales of the  Company's  Microsoft  Windows based
products increased $213,049, or 79%, from $271,387 in 1994 to $484,436 in 1995.

                                        8


<PAGE>


Service and consulting  revenues increased slightly from $385,580 in fiscal 1994
to $404,945 in fiscal 1995.

Miscellaneous  revenues  increased  from $673 in fiscal 1994 to $8,799 in fiscal
1995.  This  increase is  primarily a result of billings  for  shipping  charges
associated with the Company's new products.

Cost of sales, service and consulting decreased from $338,503,  or 33%, of sales
in fiscal 1994 to $175,725,  or 18%, of sales in fiscal 1995.  This decrease was
primarily the result of the increase in sales of higher margin software products
and a decrease in sales of lower margin hardware products.

Marketing  expenses  increased  $151,654,  or 43%,  during  fiscal  1995.  These
expenses  increased  from $351,475 in fiscal 1994 to $503,129 in fiscal 1995 due
to the marketing  efforts  associated  with the Company's new Microsoft  Windows
compatible products.

General and administrative  expenses increased  $107,981,  or 41%, during fiscal
1995.  These  expenses  increased  from  $263,196  in fiscal 1994 to $371,178 in
fiscal  1995.  This  increase  is  primarily  a result  of the  addition  of new
management  personnel,  which are  required for the further  development  of the
Company's new line of Microsoft Windows compatible software products.

Depreciation and amortization expenses remained relatively unchanged.

Research and  development  expenses  increased from $1,455 in 1994 to $37,137 in
1995. The increase in these expenses is a result of new product development.

Earnings  decreased  from $41,003 in fiscal 1994 to a loss of $125,465 in fiscal
1995.  This  decrease  is  primarily a result of the costs  associated  with the
restructuring  of the Company to a Microsoft  Solution  Provider  and  Microsoft
Certified  Developer and to increased  marketing  expenses  associated  with the
Company's new products.

ITEM 7.  FINANCIAL STATEMENTS

Financial Statements. The response to this item is being submitted as a separate
section of this report beginning on page F-l.

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

Neither  during the two fiscal years ending  September 30, 1996 or September 30,
1995,  nor in any  subsequent  period,  did the Company file a Form 8-K with the
Securities and Exchange Commission reporting a change of accountants involving a
disagreement  of any matter of  accounting  principles or practices of financial
statement disclosure.

                                    PART III

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

Identification of Directors and Executive  Officers of the CompanyThe  following
table sets forth the names and ages of all directors  and executive  officers of
the Company and all persons nominated or chosen to become a director, indicating
all  positions  and offices  with the  Company  held by each such person and the
period during which he has served as a director:


                                        9


<PAGE>


Name                  Age       Position                    Since

Gerald J. Novreske    58        CEO and Director            November 1976

A.W. Blair            57        President and Director      April 1995

Dale R. Hunzelman     65        Treasurer and Director      March 1979
                                Secretary                   June 25, 1991

Jerry R. Brookhart    56        Director                    October 1979

The  Company's  directors  hold  office  until the next  annual  meeting  of the
Company's  shareholders.  There is no arrangement or  understanding  between any
director or nominee for  director of the Company and any other person or persons
pursuant  to which such  director  was or is to be  selected  as a  director  or
nominee for director.

Identification of Certain Significant Employees. The Company does not employ any
person, other than the above-named executive officers,  who make or are expected
to  make  significant   contributions  to  the  business  of  the  Company.

Family Relationship.  There are no family relationships  between any director or
executive  officer  or person  nominated  or chosen by the  Company  to become a
director or executive officer.

Business Experience. The following is a brief account of the business experience
during at least the past five years of the  directors  and  executive  officers,
indicating their principal  occupations and employment  during that period,  and
the  names  and  principal   businesses  of  the  organizations  in  which  such
occupations and employment were carried out.

     Gerald J.  Novreske.  Mr.  Novreske was the President and a Director of the
Company  from its  inception  on  November  2, 1976 to December  31,  1996.  Mr.
Novreske is no longer an  executive  officer or  director  of the  Company  (see
below). From 1973 to 1975, Mr. Novreske was a vice- president of Apollo Electric
Co.,   Inc.,   Denver,    Colorado,    with   administrative   and   engineering
responsibilities.  From 1971 to 1973,  Mr.  Novreske  was the  president of I.V.
Company, Peru, Illinois, a mechanical/electrical  contracting company. From 1969
to 1971, Mr.  Novreske was a  vice-president  of Zaborac  Electric,  Inc.,  East
Peoria,  Illinois,  with  responsibilities  for sales,  administration  and data
processing.

     A.W. Blair. Mr. Blair has been President and Chief Operating  Officer and a
Director of the Company since April 1, 1995. From 1990 to 1995 he served as Vice
President of Enterprise Computing Services for Semiotix,  Inc., a Colorado-based
client/server software consulting and training firm. From 1985 to 1989 Mr. Blair
served as  Executive  Vice  President  for the  largest  operating  division  of
Kayser-Roth  Apparel in New York City. In this position he was  responsible  for
$50 million in annual  sales from 17 domestic  and  international  manufacturing
plants.  Previously, as Vice President of Administration on the corporate staff,
he  supervised  all HR, MIS and  administrative  services  spanning 10 different
operating   companies   comprising   $350   million  in  annual  sales  from  83
manufacturing plants and 23 distribution centers. Prior to 1985 Mr. Blair served

                                       10


<PAGE>


in various senior  operating  management and MIS positions with The  J.R.Simplot
Company,  Bayly Corporation and The Great Western Sugar Company.  Mr. Blair is a
Certified  Microsoft  Product  Specialist  and  holds  an MBA  Degree  from  the
University of Oklahoma City (1966) and a B.A. in Mathematics from the University
of Colorado  (1962).  He served as a Captain in the Air Force during the Vietnam
War and was awarded the AF Commendation Medal for computerized numerical control
manufacturing.

     Dale R.  Hunzelman.  Mr.  Hunzelman has been Treasurer of the Company since
October 20,  1979,  a director of the Company  since March 5, 1979 and served as
the  Secretary of the Company from  October 20, 1979 until  resigning  from that
position  effective  February  2, 1987 and then  again  since  June 25,  1991 to
January 23, 1997. Mr. Hunzelman is no longer an executive officer or director of
the  Company  (see  below).  From April 1982 to March  1986,  he was a full-time
employee of the Company.  Since March 1986, Mr. Hunzelman has been controller of
R/W  Specialties,   Commerce  City,  Colorado,  a  distributor  of  construction
products.  From l964 to February of 1982, Mr. Hunzelman was a director,  officer
and co-founder of Dalby & Associates, Denver, Colorado, a public accounting firm
and data processing service bureau.

     Jerry R. Brookhart.  Mr. Brookhart has been a Director of the Company since
October 20, 1979. Mr. Brookhart is no longer an executive officer or director of
the Company (see below). In 1994 Mr. Brookhart co-founded Image Signs, Inc. with
his son. Image Signs is a full service sign designer and manufacturer located in
Denver,  Colorado.  From 1990 to 1994 Mr.  Brookhart  was  Director  of  Channel
Management  for Valisys,  a provider of CIM  integration  software for the large
scale  manufacturing  environment.  From  1985 to 1990,  he was  Regional  Sales
Manager for Cadam, Inc., Golden,  Colorado, a division of Lockheed which markets
CAD  software.  From  1982 to 1985,  he was  Manager,  Third  Party  Sales,  for
Precision Visual, Inc., Boulder,  Colorado. Prior thereto, he was Senior Account
Manager for Tektronix Corp., Denver, Colorado during 1981. From 1980 to 1981, he
was  Senior  Account  Manager  for  Auto-Trol  Technology  Corporation,  Denver,
Colorado. In 1979, he was Marketing Director of Solar Industries,  Inc., Denver,
Colorado.  From 1977 to 1979, Mr. Brookhart was General System Division Regional
Special  Systems Unit Manager for IBM,  with  responsibility  for  marketing and
technical support covering five states for the IBM Series/1 mini-computer.  From
1974 to 1977, he was Data  Processing  Division  Marketing  Manager for IBM with
responsibility  for System 370  marketing  to large  manufacturing  and  process
companies.  He was also an IBM Systems  Engineering  Manager  during 1974, and a
Headquarters  Staff Senior  Industry  Marketing  Representative  for the process
industry from 1972 to 1974.  From 1963 to 1972, he held various other  positions
with IBM, including Advisory Marketing  Representative,  Account  Representative
and Systems  Engineer.  Mr.  Brookhart  received a Bachelor of Science Degree in
agricultural  science from the University of Illinois in 1963, and has completed
advanced  business  courses at the University of Chicago.

Changes in Management. Subsequent To September 30, 1996. Subsequent to September
30,  1996 and prior to filing  this Annual  Report,  all of the above  directors
(except  for A. W.  Blair)  resigned  for various  personal  reasons.  Gerald J.
Novreske  resigned as chief executive  officer  effective  December 31, 1996 and
agreed to provide  consulting  services to the Company at the rate of $4,100 per
month from January 1, 1997 through March 31, 1998. He subsequently  resigned his
position on the Board of Directors  effective  March 31,  1997.  A. W. Blair was
appointed to the position of chief executive  officer effective January 2, 1997,
replacing Mr. Novreske. Dale R. Hunzelman resigned as Secretary/Treasurer and as
a  member  of the  Board of  Directors  effective  January  23,  1997.  Jerry R.
Brookhart  subsequently  advised the Company that he had relocated from Colorado
and  resigned  his position as a member of the Board of Directors of the Company
effective April 15, 1997.

Mr. Blair  appointed an interim board of directors to replace the previous board
and filed a Form 8-K  reporting  such events on April 15, 1997.  On July 2, 1997
the new  board  appointed  Thomas  O.  Lawson  as Vice  President  of Sales  and
Marketing of the Company.  The following  table sets forth the names and ages of
all officers and directors of the Company as of July 2, 1997.

                                       11


<PAGE>


Name                      Age      Position                          Since

A. W. Blair                57      President and CEO                 April 1995
                                   Director

Kevin J. Cox               40      Director                          April 1997

J. David Higgins *         55      Director                          April 1997

Gary W. Williams           47      Controller and Director           April 1997
                                   Secretary

Thomas O. Lawson           47      Vice President of Sales and       July 1997
                                   Marketing

* Mr. Higgins resigned as a director effective August 5, 1997.

Business  Experience of New Management.  The following is a brief account of the
business experience during at least the past five years of the new directors and
executive officers, indicating their principal occupations and employment during
that period,  and the names and  principal  businesses of the  organizations  in
which such occupations and employment were carried out.

     Kevin J. Cox. Mr. Cox is the President and Founder of Computer  Peritia;  a
Colorado-based  corporation  formed  February 1995 to specialize in  consulting,
training,  and software development  activities.  From 1988 to 1995, Mr. Cox was
employed as a Client/Server Architect,  Senior Software Engineer, and Trainer by
Semiotix,   Inc.,  a  Microsoft  Solution  Provider  specializing  in  training,
consulting and client/server application development.  Mr. Cox has over 17 years
of  experience  in the  computer  industry  and is a noted  national  expert  in
Microsoft SQL Server relational database technology and Microsoft Windows NT. He
speaks  nationally  at various  technical  conferences  and is the author of The
Administrators  Guide to Microsoft  SQL Server 6.5. The Company has retained the
services of Mr. Cox to focus on the Company's MTX Enterprise  Accounting system.
Mr. Cox has earned numerous Microsoft Professional and Training  certifications.
He is also a certified PowerBuilder developer and instructor. He has an MBA from
the University of Denver, and a B.S. Degree from Arizona State University.

     J. David  Higgins.  Mr.  Higgins is the  President  and  Founder of Telsoft
Corporation.  Founded in 1989, Telsoft is a communications and marketing company
established for low cost  distribution  of software via telephone,  computer and
video technology on the Internet. Prior to founding Telsoft, Mr. Higgins founded
and/or  worked for  several  venture  capital  funded  high tech  start-ups  and
marketing  services firms.  From 1969 to 1980 Mr. Higgins served in senior level
sales and marketing positions of increasing responsibility for Digital Equipment
Corporation.  Mr. Higgins holds an MBA Degree from  Pepperdine  University and a
B.S. Degree from Utah State  University.  Mr. Higgins is no longer a director of
the Company (see above).

     Gary W.  Williams.  Mr.  Williams is a  Certified  Public  Accountant.  Mr.
Williams joined the Company in February 1997 as Controller. Prior to joining the
Company,  Mr. Williams worked from 1987 to 1997 as an independent  CPA. Prior to
that period, from 1986 to 1987 he worked as an accountant for Reliance Equities,
a  mortgage  company  in  Denver,  Colorado.  From  1983 to 1986 he worked as an
auditor  for Wolf &  Company/Cordle  & Co.  From  1981 to 1983 he  worked  as an
independent  CPA in Grand Junction,  Colorado.  From 1978 to 1981 he worked as a
Senior  Accountant  for the John M.  Hanson & Company in Denver,  Colorado.  Mr.
Williams is a graduate of the University of Northern Colorado with a B.S.B.A. in
Accounting.


                                       12


<PAGE>


     Thomas O.  Lawson.  Mr.  Lawson was  appointed  Vice  President  of Sales &
Marketing of the Company in July 1997.  Prior to joining the Company,  from 1985
to 1997 Mr. Lawson served as Sales Manager for Business Management Systems Inc.,
a privately held accounting  software firm with sales nationwide.  Prior to that
time he worked in management,  financial, and business development positions for
Ideal Basic Industries,  Beechcraft, Cessna Aircraft, and the State of Kentucky.
Mr. Lawson served as a Missile Launch  Officer in the Air Force from  1971-1975.
He has an M.B.A.  in Finance from the  University  of North  Dakota,  and a B.S.
Degree in Marketing from Western Kentucky University.

Directorships.  No director or nominee for director holds a directorship  in any
other  company with a class of securities  registered  pursuant to Section 12 of
the Securities  Exchange Act of 1934 or subject to the  requirements  of Section
15(d) of such Act or any company  registered as an investment  company under the
Investment Company Act of 1940.

ITEM 10.  EXECUTIVE  COMPENSATION

During  fiscal  1996,  and as of the  date of  filing  this  Annual  Report,  no
compensation  has been paid, nor have there been  compensation  arrangements  or
plans, other than what has been indicated below.

Cash Compensation.  The following table sets forth all cash compensation paid to
each of the Company's five most highly compensated executive officers whose cash
compensation  exceed  $60,000 and to all executive  officers of the Company as a
group,  for  services in all  capacities  to the Company  during the fiscal year
ended September 30, 1996:

Name of Individual                 Capacities             Cash
or Number in Group                 In Which Served        Compensation

Gerald J. Novreske                 CEO                    $96,085 (1)

A. W. Blair                        President and COO      $100,417

All Executive Officers as          All Capacities         $196,502
a Group (2 Persons)

(1)  Reflects auto expense compensation of $8,733.

Compensation  Pursuant to Plans.  The Company has no plan pursuant to which cash
or non-cash compensation was paid or distributed during the last fiscal year, or
is proposed to be paid or  distributed  in the future,  to the  individuals  and
group described above, except as follows:

     Gerald J.  Novreske,  the  Company's  CEO, in April,  1995,  entered into a
written employment agreement with the Company for a three year term, at a yearly
salary of $96,000,  plus a bonus of 6% of the Company's yearly net profit before
taxes.  In  addition  to his salary Mr.  Novreske  is  entitled to the use of an
automobile,  80% of the  cost of which  is  borne  by the  Company.  He may also
receive such other bonuses as the Board of Directors  determines to award in its
sole discretion.  Mr. Novreske is no longer an executive  officer or director of
the Company (see Item 9 above).

     A. W. Blair, The Company's President and COO, in April 1995, entered into a
written employment agreement with the Company for a three-year term, at a yearly
salary of $85,000.  In addition to his basic salary,  Mr..  Blair will receive a
commission  based on performance and will be determined by multiplying 20% times
the gross profit  contribution from increased revenues resulting from consulting
and related new business of the  Corporation  before taxes.  Minimum  guaranteed
commissions  shall be $30,000 in year one of the agreement,  $20,000 in year two
of the agreement and $10,000 in year three of the agreement.  The commissions in
any year  may not  exceed  100%  the  base  salary  for  that  year.

                                       13


<PAGE>


Change in Compensation for The Company's President.  Subsequent to September 30,
1996 and  prior to the date of this  filing,  the  employment  agreement  of the
Company's president was modified on January 2, 1997 to also appoint Mr. Blair to
the  position of chief  executive  officer  and to  increase  the base salary to
$105,000.  However,  only 50% ($52,500 per year) will be paid until such time as
the Company has reported profitable  quarterly operating results, or a change in
control of the Company  occurs.  At either such time the salary will be restored
to  $105,000.  In addition,  a  performance  incentive  of 8% of annual  pre-tax
operating  income will be paid to Mr. Blair in lieu of the previously  described
20% consulting commission.

Stock Option and Stock Appreciation Right Plan  On February 2, 1987, the Company
adopted the 1987 Stock Option Plan ("1987 ISOP") which  provides for granting to
the Company's  officers and employees  options to acquire up to 3,000,000 shares
of the Company's common stock. The shares issuable under the 1987 ISOP were at a
price to be determined by the stock option committee (the "Committee"),  but not
less than the fair market value of the stock on the date of grant, except that a
holder  of 10% or more of the  Company's  stock  must have paid 110% of the fair
market value. The exercise dates of the options are determined by the Committee,
not to  exceed 10 years;  for a holder  of 10% or more of the  Company's  common
stock, the exercise date could not exceed five years.

The plan expired  February 2, 1997. No executive  officer or director  holds any
options pursuant to the 1987 ISOP.

Compensation of Directors. Directors of the Company who are not employees of the
Company may receive a fee of $250 per meeting for their  attendance  at meetings
of the  Company's  Board of  Directors,  and are entitled to  reimbursement  for
reasonable travel expenses.

Termination of Employment and Change of Control Arrangement.  Except as noted in
the next  paragraph,  the  Company  has no  compensatory  plan or  arrangements,
including  payments  to be  received  from  the  Company,  with  respect  to any
individual named in this Item, for the latest or the next preceding fiscal year,
which  plan or  arrangement  may  result or will  result  from the  resignation,
retirement or any other  termination of such  individual's  employment  with the
Company,  or  from a  change  in  control  of the  Company  or a  change  in the
individual's  responsibilities  following a change in  control.

Pursuant to the terms of Mr. Novreske's employment  agreement,  in the event his
employment was terminated by the Company  without cause,  he was entitled to the
full amount of the  compensation  for the remainder of the term of the contract,
however, in no event shall the amount of compensation to be less than 50% of the
total value of the  agreement  for all three  years.  In the event Mr.  Novreske
became totally disabled during the term of his employment agreement,  60% of his
salary was to be continued  for the  remaining  term of the agreement or for the
period of time for which he remains totally disabled,  whichever was shorter. If
he was unable to perform services by reason of illness or physical  injury,  not
amounting to a disability, his salary shall continue to be paid in full.

As noted previously, Mr. Novreske resigned effective December 31, 1996.

As noted  above,  on January 2,  1997,  Mr.  Blair's  employment  agreement  was
modified to state that in the event his  employment is terminated by the Company
without cause,  he will be entitled to the full amount of the  compensation  for
the remainder of the term of the contract, however, in no event shall the amount
of  compensation  be less than 50% of the total value of the  agreement  for all
three years. In the event Mr. Blair becomes totally  disabled during the term of
his employment agreement,  60% of his salary will be continued for the remaining
term of the  agreement  or for the period of time for which he  remains  totally
disabled, whichever is shorter. If he is unable to perform services by reason of
illness or physical  injury,  not  amounting to a  disability,  his salary shall
continue  to be paid in full.  (See above for  additional  terms of Mr.  Blair's
employment agreement).


                                       14


<PAGE>


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of September 30, 1996,  the  following  persons were officers or directors of
the  Company or were known by the  Company to own or control  beneficially  more
than five percent of the Company's common stock.

                                 Amount and Nature        Percent
Name and Address of                 Beneficial              of
Beneficial Owner                   Ownership(1)           Class(2)

Gerald J. Novreske                 1,572,501(3)             14.6%
7575 Berkshire Ct.
Castle Rock, CO 80104

A.W. Blair                         1,500,000                13.9%
7901 East Belleview Ave
Suite 50
Englewood, CO 80111

Cubix Corporation f/k/a            1,309,770                12.2%
L/F Technologies
Incorporated
2800 Lockheed Way
Carson City, NV  89701

Dale R. Hunzelman                    449,823(4)              4.2%
3028 Isabell Court
Golden, CO 80401

Jerry R. Brookhart                   175,440(5)              1.6%
21 Vista Drive
La Selva Beach, CA 95076

All Officers and Directors
as a Group (4 Persons)             3,697,764(3)(4)(5)       34.3%

(1) Unless  otherwise  indicated,  the named  individuals have sole voting power
regarding indicated shares.

(2) Based on 10,774,398  shares of common stock  outstanding as of September 30,
1996,  except that any securities not outstanding which are subject to presently
exercisable  options or  exercisable  within 90 days from September 30, 1996 are
deemed  to be  outstanding  for the  purpose  of  computing  the  percentage  of
outstanding  securities  of the class owned by such person but are not deemed to
be outstanding for the purpose of computing the percentage of the class owned by
any other  person.

(3) Includes 1,407,120 shares owned by Mr. Novreske, and 155,381 shares owned by
Susan R.  Novreske,  Mr.  Novreske's  wife,  of  which  Mr.  Novreske  disclaims
beneficial ownership pursuant to Rule 13d-4 under the Securities Exchange Act of
1934,  and 10,000 shares  subject to stock options owned by Mr.  Novreske  which
were exercisable until January, 2000.

(4) Includes 329,823 shares owned by Mr.  Hunzelman,  10,000 shares held jointly
with Mr.  Hunzelman's  wife;  and 110,000  shares subject to stock options which
were exercisable until January, 2000.

                                       15


<PAGE>


(5) Includes 65,440 shares owned by Mr.  Brookhart and 110,000 shares subject to
stock options, which were exercisable until January 2000.

Changes in Control There are no  arrangements,  known to the Company,  including
any pledge by any person of  securities  of the Company,  the operation of which
may at a subsequent date result in a change of control of the Company.  However,
as the  result of a private  agreement  dated  January 2,  1997,  G.J.  Novreske
granted  A.W.  Blair a first right of refusal on the sale of all MTX stock owned
by Mr. Novreske  (1,407,120  shares) providing Mr. Blair remains employed by the
Company.  The first  right of refusal  must be  exercised  within 14 days of any
bonafied  offer.  There is no  expiration  date on the  first  right of  refusal
granted to Mr. Blair by Mr. Novreske.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED  TRANSACTIONS

During June 1991, at the request of a bank, a then existing loan was  discounted
to the Company's  president.  The balance at June 27, 1991  amounting to $55,010
was repaid by the officer for $30,000 in cash and a $10,000 promissory note. The
Company recorded no gain or loss from the transaction and has continued carrying
the liability at its historical  amount. The debt, which accrues interest at 12%
per annum, had a balance of $4,399 and $23,138  respectively as of September 30,
1995 and 1994. In addition, during 1993 this officer advanced the Company $1,175
which was added to the loan. The Company paid the officer $8,000 during the year
ended September 30, 1994 of which $3,040 is attributed to interest.  During 1995
the Company paid the officer $20,196 including interest of $1,457. The remaining
debt of $4,399 was repaid by the Company during 1996.

There were no other  transactions or series of transactions  for the fiscal 1996
year, to which the Company is a party,  in which the amount exceeds  $60,000 and
in which to the  knowledge  of the  Company  any  director,  executive  officer,
nominee,  five percent  shareholder or any member of the immediate family of any
of the  foregoing  persons,  have or will  have a direct  or  indirect  material
interest.

Indebtedness  of  Management.  No director or executive  officer of the Company,
nominee for election as a director,  any member of the immediate  family of such
persons,  the corporation or organization  (other than the Company) of which any
of  such  persons  is an  executive  officer  or  partner  or  is,  directly  or
indirectly,  the  beneficial  owner  of  10% or  more  of any  class  of  equity
securities,  or any trust or other  estate in which  any of such  persons  has a
substantial  beneficial  interest or as to which such person serves as a trustee
or in a similar capacity, has been indebted to the Company at any time since the
beginning of the Company's last fiscal year in an amount in excess of $60,000.

                                       16


<PAGE>

                                     PART IV

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Financial Statements and Schedules

     The following financial  statements and schedules are filed as part of this
report:

     Report of Independent Public Auditors ..................................F-1
     Balance Sheets..........................................................F-2
     Statement of Operations.................................................F-3
     Statement of Cash Flows.................................................F-4
     Statement of Stockholders' Equity ......................................F-5
     Notes to Financial Statements .......................................F-6-10

     Schedules  Omitted:  All schedules other than those shown have been omitted
because they are not applicable,  not required,  or the required  information is
shown in the financial statements or notes thereto.

     (b) List of Exhibits The following  exhibits are  incorporated by reference
or filed with this report:

     (3.0)  Restated   Articles  of  Incorporation   and  Bylaws,   as  amended,
incorporated  by reference  to Annual  Report on Form 10-K for fiscal year ended
September 30, 1986.

     (4.1) Form of Warrant  Agreement  between the Company  and  American  Stock
Transfer,  Inc.,  incorporated  by reference  to Annual  Report on Form 10-K for
fiscal year ended September 30, 1986.

     (4.2) Form of Stock Purchase  Warrant,  incorporated by reference to Annual
Report on Form 10-K for fiscal year ended September 30, 1986.

     No exhibit ever filed under 10.1

     (10.2) Lease Agreement, as amended, with Inverness Associates, incorporated
by reference to Annual  Report on Form 10-K for fiscal year ended  September 30,
1986.

     (10.3) Employment  Agreement with Gerald J. Novreske,  effective October 1,
1985 and  terminated  September  30, 1988,  incorporated  by reference to Annual
Report on Form l0-K for fiscal year ended September 30, 1986.

     (10.4)  Employment  Agreement with Dale R. Hunzelman,  effective October 1,
1985 and  terminated  September  30, 1988,  incorporated  by reference to Annual
Report on Form 10-K for fiscal year ended September 30, 1986.

     (10.5) Incentive Stock Option Plan, adopted October 11, 1982,  incorporated
by reference to Annual  Report on Form 10-K for fiscal year ended  September 30,
1986.

     No exhibit ever filed under 10.6

     (10.7)   Trademark   Registration   of  "MTX,"  dated   November  5,  1985,
incorporated  by reference  to Annual  Report on Form 10-K for fiscal year ended
September 30, 1986.

     (10.8)  Amendment  Number  One to  Office  Lease  Agreement  (amendment  of
agreement  referred to in Exhibit 10.2),  dated March 17, 1986,  incorporated by
reference  to Annual  Report on Form 10-K for fiscal  year ended  September  30,
1986.

     (10.9) Office Lease Agreement with Inverness Ventures,  effective September
1, 1986  incorporated by reference to Annual Report on Form 10-K for fiscal year
ended September 30, 1986.

                                       17


<PAGE>


     (l0.l0) Amendment Number One to Office Lease Agreement  (amending agreement
referred  to in  Exhibit  l0.9),  dated  September  11,  1986,  incorporated  by
reference  to Annual  Report on Form 10-K for fiscal  year ended  September  30,
1987.

     (10.11)  Amendment Number Two to Office Lease Agreement  (further  amending
agreement referred to in Exhibit 10.2),  dated September 11, 1986,  incorporated
by reference to Annual  Report on Form 10-K for fiscal year ended  September 30,
1987.

     (10.12) Letter  Agreement  with National Price Service,  dated June 9, 1988
incorporated  reference  to Annual  Report on Form 10-K for  fiscal  year  ended
September 30, 1987.

     (10.13) 1987  Incentive  Stock Option  Plan,  incorporated  by reference to
Annual Report on Form 10-K for fiscal year ended September 30, 1987.

     (10.14) Cubix Products Purchase Agreement and Limited Warranty entered into
on March 24, 1989,  incorporated  by reference to Annual Report on Form 10-K for
fiscal year ended September 30, 1987.

     (10.15) Office Lease Agreement with Inverness  Drive East Business  Center,
dated November 13, 1990  incorporated by reference to Annual Report on Form 10-K
for fiscal year ended September 30, 1990.

     (10.16)  Termination  of Lease  Agreement  with  Inverness  Ventures  dated
November 13, 1990  incorporated  by reference to Annual  Report on Form 10-K for
fiscal year ended September 30, 1990.

     (10.17)  Agreement-in-Principle  by and  between  the  Company  and Systems
Support  Agency,  Inc.  incorporated by reference to Report on Form 8-K filed in
the first quarter of the fiscal year ended September 30, 1992.

     (10.18)  Agreement-In-Principle  by and  between  the  Company  and Goodwin
Market of Quality  incorporated  by reference to Annual  Report on Form 10-K for
fiscal year ended September 30, 1994.

     (10.19)  Agreement by and between the Company and Goodwin Market of Quality
regarding  distribution rights of the ROS software  application  incorporated by
reference  to Annual  Report on Form 10-K for fiscal  year ended  September  30,
1994.

     (10.20) Agreement by and between Microsoft  Corporation wherein the Company
is accepted as a Microsoft Solution Provider incorporated by reference to Annual
Report on Form 10-K for fiscal year ended September 30, 1994.

     (10.21)  Agreement  by and between  Microsoft  Corporation  and the Company
whereby the Company is accepted into the  Microsoft  Office  Compatible  program
incorporated  by reference  to Annual  Report on Form 10-K for fiscal year ended
September 30, 1994.

     (10.22)  Employment  Agreement  Effective April 1, 1995 between the Company
and A. W. Blair.

     (10.23)  Employment  Agreement  Effective April 1, 1995 between the Company
and G. J. Novreske.

     (27) Financial Data Schedule.

     (c)  Reports  on Form  8-K 

     No  reports  on Form  8-K  were  filed  with the  Securities  and  Exchange
Commission in Washington, D.C. during the fourth quarter of the Company's fiscal
year ended September 30, 1996.

                                       18


<PAGE>

                                   SIGNATURES

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

Date:  August 26, 1997                       MTX INTERNATIONAL, INC.

                                                 /s/ A. W. Blair
                                                 -----------------------------
                                             By: A. W. Blair, President & CEO

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

/s/ A.W. Blair                          Date:    August 26, 1997
----------------------------------
A. W. Blair
President, CEO and Director

/s/ Gary W. Williams                    Date:    August 26, 1997
----------------------------------
Gary W. Williams                  
Secretary, Controller and Director

/s/ Kevin J. Cox                        Date:    August 26, 1997
---------------------------------
Kevin J. Cox
Director



                                       19


<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Stockholders
MTX International, Inc.

We have audited the accompanying balance sheets of MTX International, Inc. as of
September  30,  1996  and  1995,  and  the  related  statements  of  operations,
stockholders'  equity and cash  flows for each of the three  years in the period
ended September 30, 1996. 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  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 MTX International,  Inc. as of
September  30, 1996 and 1995,  and the results of its  operations,  and its cash
flows for each of the three years in the period ended  September  30,  1996,  in
conformity with generally accepted accounting principles.


                                   Winter, Scheifley and Associates, P.C.
                                   Certified Public Accountants


Englewood, Colorado
February 5, 1997, except for Note 3
  which is dated April 10, 1997
                                   [GRAPHIC OMITTED]


                                      F-1
<PAGE>

<TABLE>
<CAPTION>
                             MTX International, Inc.
                                 Balance Sheets
                           September 30, 1996 and 1995
                                                                 
                               ASSETS
                               ------                               1996             1995
                                                                    ----             ----
<S>                                                            <C>              <C>       
Current assets:
  Cash ......................................................  $   26,732       $   60,491
  Accounts receivable, trade, less allowance for
   doubtful accounts of $11,265 and $52,189 ..................     86,775           84,562
  Employee receivable ........................................      1,270            8,052
  Inventories ................................................     65,305           72,955
  Prepaid expenses ...........................................      6,985           11,490
                                                                ---------        ---------
      Total current assets ...................................    187,067          237,550

Property and equipment, at cost, net of
  accumulated depreciation of $197,508
  and $192,291 ...............................................     14,412           18,908

Other assets:
  Software acquisition and development costs, net
   of amortization of $621,995 and $561,900 ..................    174,999          149,471
  Refundable deposits ........................................      4,318            3,278
                                                                ---------        ---------
                                                               $  380,796       $  409,207
                                                                =========        =========
        LIABILITIES AND STOCKHOLDERS' EQUITY
        ------------------------------------
Current liabilities:
  Accounts payable ..........................................  $  122,931       $   61,197
  Accrued liabilities .......................................      84,543           50,108
  Deferred revenue ..........................................      72,760           84,070
  Note payable - officer ....................................        --              4,399
                                                                ---------        ---------
      Total current liabilities .............................     280,234          199,774

Commitments (Note 4) ........................................        --              --

Stockholders' equity:
 Common stock, $.01 par value,
  40,000,000 shares authorized, 10,774,398
  and 10,674,398 shares issued and outstanding ..............     107,744          106,744
 Additional paid-in capital .................................   2,225,459        2,225,459
 Subscriptions to common stock ..............................      10,000            --
 Treasury stock, 68,160 shares ..............................     (22,493)         (22,493)
 Accumulated deficit ........................................  (2,220,148)      (2,100,277)
                                                                ---------        ---------
                                                                  100,562          209,433
                                                                ---------        ---------
                                                               $  380,796       $  409,207
                                                                =========        =========
</TABLE>

                 See accompanying notes to financial statements.

                                      F-2
<PAGE>

<TABLE>
<CAPTION>

                            Statements of Operations
                  Years ended September 30, 1996, 1995 and 1994

                                                               1996            1995            1994
                                                               ----            ----            ----
<S>                                                     <C>             <C>             <C>         
Revenues:
 Sales ..............................................   $    454,554    $    595,493    $    652,103
 Service and consulting .............................        447,726         404,945         385,580
 Miscellaneous ......................................          2,125           8,799             673
                                                           ---------      ----------     -----------
                                                             904,405       1,009,237       1,038,356
Costs and expenses:
 Cost of sales, service and consulting ..............        112,027         175,725         338,503
 Marketing ..........................................        373,445         503,129         351,475
 General and administrative .........................        430,351         371,178         263,197
 Amortization of software acquisition costs..........         60,095          47,534          39,693
 Research and development ...........................         47,201          37,136           1,455
                                                           ---------      ----------     -----------
                                                           1,023,119       1,134,702         994,323
                                                           ---------      ----------     -----------
Income (loss) from operations .......................       (118,714)       (125,465)         44,033

Other income and (expense):
 Interest income ....................................            550           1,060           1,666
 Utilization of operating loss carryforward..........           --              --             7,800
 Interest expense ...................................         (1,707)         (3,102)         (4,696)
                                                           ---------      ----------     -----------
                                                              (1,157)         (2,042)          4,770

Income (loss) before income taxes ...................       (119,871)       (127,507)         48,803
Provision for income taxes ..........................           --              --            (7,800)
                                                           ---------      ----------     -----------

  Net income (loss) .................................   $   (119,871)   $   (127,507)   $     41,003
                                                           =========      ==========     ===========


Earnings (loss) per share:
 Net income (loss) ..................................   $      (0.01)   $      (0.01)   $       0.01
                                                           =========      ==========     ===========

 Weighted average shares outstanding ................     10,682,731       9,443,148       7,919,398
                                                           =========      ==========     ===========
</TABLE>


                 See accompanying notes to financial statements.

                                      F-3

<PAGE>

<TABLE>
<CAPTION>

                             MTX International, Inc.
                            Statements of Cash Flows
                  Years ended September 30, 1996, 1995 and 1994

                                                                  1996         1995         1994
                                                                  ----         ----         ----
<S>                                                          <C>          <C>           <C>      
Cash flows from operating activities:
  Net income (loss) .......................................  $ (119,871)  $ (127,507)   $  41,003
  Adjustments to reconcile net income (loss) to net
   cash provided by operating activities:
   Depreciation ...........................................       5,216        2,849         --
   Amortization of software development costs .............      60,095       47,534       39,693
   Stock subscription for services ........................      10,000         --           --
Changes in assets and liabilities:
    (Increase) decrease in accounts receivable ............       4,570       22,063      (14,125)
    (Increase) decrease in inventory ......................       7,650         (101)      10,312
    (Increase) decrease in prepaid expenses ...............       4,505       (3,157)      (8,333)
    (Increase) in other assets ............................      (1,040)        --          1,048
    Increase (decrease) in accounts payable ...............      61,734       (2,836)      (5,036)
    Increase (decrease) in accrued liabilities ............      34,435       15,531        8,880
    Increase (Decrease) in deferred revenue ...............     (11,310)      53,892        8,272
                                                              ---------    ---------    ---------
       Total adjustments ..................................     175,855      135,775       40,711
                                                              ---------    ---------    ---------
  Net cash provided by (used in)
   operating activities ...................................      55,984        8,268       81,714
                                                              ---------    ---------    ---------

Cash flows from investing activities:
    Purchase of equipment .................................        (721)     (21,757)        --
    Purchase and development of
     computer software ....................................     (85,623)     (61,749)     (60,039)
                                                              ---------    ---------    ---------
Net cash (used in) investing activities ...................     (86,344)     (83,506)     (60,039)
                                                              ---------    ---------    ---------

Cash flows from financing activities:
   Proceeds from sale of common stock .....................       1,000      114,750         --
   Increase in officer loans ..............................        --           --           --
   Repayment of officer loans .............................      (4,399)     (18,739)      (4,960)
                                                              ---------    ---------    ---------
  Net cash provided by (used in)
   financing activities ...................................      (3,399)      96,011       (4,960)
                                                              ---------    ---------    ---------

Increase (decrease) in cash ...............................     (33,759)      20,773       16,715
Cash and cash equivalents,
 beginning of period ......................................      60,491       39,718       23,003
                                                              ---------    ---------    ---------
Cash and cash equivalents,
 end of period ............................................   $  26,732    $  60,491    $  39,718
                                                              =========    =========    =========

Supplemental cash flow information:
   Cash paid for interest .................................   $   1,707    $   3,103    $   3,040
   Cash paid for income taxes .............................   $     --     $    --      $    --
</TABLE>


                 See accompanying notes to financial statements.

                                      F-4

<PAGE>

<TABLE>
<CAPTION>
                             MTX International, Inc.
                  Statement of Changes in Stockholders' Equity
                  Years ended September 30, 1996, 1995 and 1994

                                                                            Additional
                                               Common          Stock         Paid-in
          ACTIVITY                             Shares          Amount        Capital
                                               ------          ------       --------

<S>                                           <C>            <C>           <C> 
Balance, September 30, 1993 ..............    7,919,398      $  79,194     $ 2,128,259

Net income for the year ..................         --             --             --   
                                             ----------       --------       ---------

Balance, September 30, 1994 ..............    7,919,398         79,194       2,128,259

Common stock issued for cash .............    1,000,000         10,000          90,000

Exercise of common stock options .........    1,355,000         13,550           1,200

Issuance of subscription shares ..........      400,000          4,000           6,000

Net (loss) for the year ..................         --             --              -- 
                                             ----------       --------       ---------
Balance, September 30, 1995 ..............   10,674,398        106,744       2,225,459

Common stock subscriptions ...............         --             --              --   

Exercise of common stock options..........      100,000          1,000            --   

Net (loss) for the year ..................         --             --              --   
                                             ----------       --------       ---------
Balance, September 30, 1996 ..............   10,774,398      $ 107,744     $ 2,225,459
                                             ==========       ========       =========
<CAPTION>
                                                 Stock        Treasury       Accumulated
                                             Subscriptions      Stock          Deficit        Total
                                             -------------    --------       -----------      -----
 <S>                                           <C>            <C>           <C>              <C> 
Balance, September 30, 1993 ..............    $  10,000      $ (22,493)    $ (2,013,773)    $ 181,187

Net income for the year ..................         --             --             41,003        41,003
                                             ----------       --------        ---------      --------
Balance, September 30, 1994 ..............       10,000        (22,493)      (1,972,770)      222,190

Common stock issued for cash .............         --             --               --         100,000

Exercise of common stock options..........         --             --               --          14,750

Issuance of subscription shares ..........      (10,000)          --               --            --
                                                
Net (loss) for the year ..................         --             --           (127,507)     (127,507)
                                             ----------       --------        ---------      --------                               
Balance, September 30, 1995 ..............         --          (22,493)      (2,100,277)      209,433

Common stock subscriptions ...............       10,000           --               --          10,000

Exercise of common stock options..........         --             --               --           1,000

Net (loss) for the year ..................         --             --           (119,871)     (119,871)
                                             ----------       --------        ---------      --------
Balance, September 30, 1996 ..............    $  10,000      $ (22,493)    $ (2,220,148)    $ 100,562
                                             ==========       ========        =========      ========
</TABLE>

                 See accompanying notes to financial statements.

                                      F-5

<PAGE>

                             MTX INTERNATIONAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                        September 30, 1996, 1995 and 1994


1. Organization and significant accounting policies

Organization:

The Company was incorporated under the laws of the State of Colorado on November
2, 1976. The Company markets  software and hardware  micro-computer  products to
construction  contractors  and  provides  management  and  technical  consulting
services and, in 1994,  began marketing an accounting  software  package that is
compatible with Microsoft Windows.

Estimates:

Management of the Company uses estimates and assumptions in preparing  financial
statements in accordance with generally accepted  accounting  principles.  Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent  assets and liabilities,  and the reported revenues
and expenses. Actual results could vary from the estimates that management uses.

Revenue recognition:

Revenue is  recognized  on software and hardware  products  upon shipment to the
customer.  Revenue from  consulting and other services is recognized at the time
the services are performed or ratably over the term of maintenance contracts.

Inventories:

Inventories  (which  consist  principally of spare parts) are stated at lower of
cost (first-in, first-out method) or market.

Depreciation:

Depreciation  is  provided  on  the  straight-line  method  over  the  following
estimated useful lives:

        Computer equipment                     5-7 years
        Furniture and equipment                3-7 years
        Leasehold improvements                   5 years

Software acquisition and development costs:

Costs incurred to establish the technological feasibility of a computer software
product to be sold,  leased or otherwise  marketed are research and  development
costs and are charged to expense as incurred.  Development  costs  incurred once
technological feasibility has been established are capitalized.


                                      F-6
<PAGE>

                             MTX INTERNATIONAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                        September 30, 1996, 1995 and 1994
                                   (Continued)


1. Organization and significant accounting policies (continued)

During the fiscal years ended  September  30, 1996,  1995 and 1994,  the Company
capitalized  $85,623,  $61,749 and $60,039,  respectively,  of costs  related to
purchase  and  enhancements  of software  under the  criteria  mentioned  in the
previous  paragraph.  These costs are being amortized on a  straight-line  basis
over the remaining  estimated  economic life of the specific product,  generally
five years.  Amortization amounted to $60,095, $47,534 and $39,693 for the years
1996, 1995 and 1994, respectively.

Income taxes:

For  income  tax  purposes,   the  Company  deducts  software   acquisition  and
development costs (except for purchased software) as incurred. No deferred taxes
have been  provided on this and other timing  differences  since the Company has
significant net operating loss  carryforwards for financial  reporting  purposes
(see Note 6).

Earnings (loss) per share:

Earnings (loss) per share has been computed using the weighted average number of
shares  outstanding  during each period. The shares issuable under stock options
have an  insignificant  effect in the  years  presented.  Earnings  per share is
unchanged on a fully diluted basis.

Cash:

For purposes of the  statement of cash flows,  the Company  considers all highly
liquid debt instruments  purchased with a maturity of three months or less to be
cash equivalents.

Financial Instruments:

The  Company's  short-term  financial  instruments  consist  of  cash  and  cash
equivalents,  accounts  receivable/payable,  and accruals. The carrying value of
these financial  instruments  approximate fair value because of their short-term
maturities.

Advertising Costs:

Advertising  costs are  expensed as incurred.  Advertising  expense was $21,516,
$13,396 and $15,337 for the years ended  September  30,  1996,  1995,  and 1994,
respectively.

2. Notes payable - officer

During June 1991, at the request of a bank, a then existing loan was  discounted
to the Company's  president.  The balance at June 27, 1991  amounting to $55,010
was repaid by the officer for $30,000 in cash and a $10,000 promissory note. The



                                      F-7

<PAGE>

                             MTX INTERNATIONAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                        September 30, 1996, 1995 and 1994
                                   (Continued)

2. Notes payable - officer (continued)

Company recorded no gain or loss from the transaction and has continued carrying
the liability at its historical  amount. The debt, which accrued interest at 12%
per annum, had a balance of $4,399 and $23,138  respectively as of September 30,
1995 and 1994. In addition, during 1993 this officer advanced the Company $1,175
which was added to the loan. The Company paid the officer $8,000 during the year
ended September 30, 1994 of which $3,040 is attributed to interest.  During 1995
the Company paid the officer $20,196 including  interest of $1,457.  During 1996
the remaining debt of $4,399 was repaid by the Company.

3. Stockholders' equity

During April 1995 the Company sold 1,000,000  shares of its common stock at $.10
per  share  to an  individual  hired  at that  time to  serve  as the  Company's
president. The price paid for the restricted shares was equivalent to the market
price at that date.

Also during 1995 the Company issued  400,000 of its  restricted  common stock in
connection  with  a  subscription  agreement  entered  into  with  an  unrelated
individual  during  November 1992. The price  established at that time,  when no
market quote was available, was $.025 per share.

During 1996 the Company  agreed to issue 80,000  shares of stock in exchange for
services valued at $10,000. These shares were issued in April, 1997.

4. Commitments

The Company rents equipment under operating leases which provide for annual base
rentals through September 30, 1999 of $11,394.

In August  1996  Company  negotiated  a  thirty-six  month  lease on new  office
facilities  commencing on September 1, 1996.  During the same period the Company
reached an agreement to terminate its prior lease agreement. The resulting lease
commitment under the new agreement is as follows:

                         Years ending
                         September 30,
                         ------------
                             1997           $ 22,644
                             1998             22,644
                             1999             20,757
                                              ------
                                            $ 66,045
                                              ======


                                      F-8

<PAGE>

                             MTX INTERNATIONAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                        September 30, 1996, 1995 and 1994
                                   (Continued)

4. Commitments (continued)

In addition to base rent,  the  Company is  required  to pay  additional  office
facility  rent which  represents  its pro-rata  share of  operating  expenses in
excess of base operating expenses.

Rent expense for office  facilities and equipment  amounted to $51,373,  $50,179
and $42,031 for the years ended September 30, 1996, 1995 and 1994, respectively.

During 1990, the Company and other defendants  reached a settlement  regarding a
guarantee of payment under a contract with a third party.  Under the  agreement,
the Company and the related  parties,  including the President and a Director of
the Company,  were jointly and  severally  liable to pay $50,000 over a six year
period.  The  Company's  share of the future  payments  under the  agreement was
$2,668 per year through 1996.  The net present value of the payments  amounts to
$2,668 as of  September  30,  1995,  and was paid in full  during the year ended
September 30, 1996.

In April 1995 the Company entered into a three year employment contract with its
chief executive officer.  The contract provided for a base salary of $96,000 per
year and a bonus of 6% of pre-tax profit (see Note 7).

In April 1995 the Company entered into a three year employment contract with its
president.  The  contract  provided  for a base salary of $85,000 per year and a
bonus of 20% of gross profits earned from new business products or services (see
Note 7).

5. Stock option plans

On  February  2, 1987,  the  Company  adopted  the 1987 Stock  Option Plan which
provides  for  granting to  officers,  directors  and  employees  of the Company
options to acquire up to 3,000,000  shares of the Company's  common  stock.

The shares  issuable  under the 1987 plan are at a price to be determined by the
stock option committee (the Committee),  but not less than the fair market value
of the  stock on the date of grant,  except  that a holder of 10% or more of the
Company's stock must pay 110% of the fair market value.  The exercise periods of
the options are  determined  by the  Committee,  not to exceed ten years;  for a
holder of 10% or more of the Company's  common stock the exercise  period cannot
exceed five years.


                                      F-9
<PAGE>

                             MTX INTERNATIONAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                        September 30, 1996, 1995 and 1994
                                   (Continued)

5. Stock option plans (continued)

The following summarizes option transactions under the 1987 Stock Option Plan:

                                            Number    Option price
                                          of shares     per share     Aggregate
                                          ---------   ------------    ---------

 Balance, September, 30, 1993 .........   1,940,000   $.01 - $.011     20,400
   Granted ............................     890,000   $.01 - $.011      9,100
   Forfeited ..........................     220,000   $.01 - $.011      2,200
   Exercised ..........................        --          --            --
                                          ---------   ------------     ------
 Balance, September, 30, 1994 ..........  2,610,000   $.01 - $.011     27,300
   Granted ............................     270,000   $.20 - $.22      52,200
   Forfeited ..........................     256,000   $.01 - $.011      2,650
   Exercised ..........................   1,355,000   $.01 - $.011     14,759
                                          ---------   ------------     ------
 Balance, September, 30, 1995 .........   1,269,000   $.01 - $.011     62,100
   Granted ............................        --          --            --
   Forfeited ..........................      20,000          $.01         200
   Exercised ..........................     100,000          $.01       1,000
                                          ---------   ------------     ------
Balance, September, 30, 1996 ..........   1,149,000   $.01 - $.011   $ 60,900
                                          =========   ============     ======
Options exercisable at
 September 30, 1996 ...................   1,269,000
                                          =========
Options available for grant ...........     376,000
                                          =========

During July 1994 the Company granted  non-qualified  options to purchase 150,000
shares of common stock to two individuals as an inducement to accept  employment
by the  Company.  The  options  are  exercisable  $.20 per share (100% of market
value)  during the period from  November 1, 1994 to December 31, 1994. No market
existed for the Company's shares prior to July 1994. The options expired without
exercise at December 31, 1994.

6. Income taxes

At September 30, 1996, the Company had accumulated  operating loss carryforwards
available for to reduce future income tax expense of  approximately  $2,209,000.
The Company has investment tax credit and research tax credit  carryforwards  of
approximately $9,900 and $32,200, respectively.  During the year ended September
30,  1994,  the  Company  utilized,  for  financial  statement  purposes,  a net
operating loss  carryforward  resulting in an income tax benefit of $7,800 which
has been shown as other income in the accompanying financial statements.

                                      F-10

<PAGE>

                             MTX INTERNATIONAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                        September 30, 1996, 1995 and 1994
                                   (Continued)


6. Income taxes (continued)

The carryforwards and credits expire as follows:

                         Operating          Investment         Research
                           loss             tax credit        tax credit
                         ---------         -----------       -----------
          1997         $  110,000         $    2,200         $    4,000
          1998            774,000              7,400             12,700
          1999            830,000                300             15,500
          2000            122,000
          2001              3,000
          2002             53,000
          2003              2,000
          2004             13,000
          2005             36,000
          2006             19,000
          2010            127,000
          2011            120,000
                        ---------         ----------         ----------
                       $2,209,000         $    9,900         $   32,200
                       ==========         ==========         ==========

The Company does not anticipate the utilization of these net operating losses in
the near future and has established a valuation allowance for the full amount of
deferred tax asset ($751,000)  estimated to arise therefrom.  The reserve amount
increased by approximately $33,000 during the year ended September 30, 1996.

7. Subsequent events:

The Company's  employment agreement with its president (see Note 4) was modified
on  January 2, 1997 to also  appoint  the  president  to the  position  of chief
executive  officer and increase  the base salary to  $105,000.  However only 50%
($52,500  per year)  will be paid until such time as the  Company  has  reported
profitable  quarterly  operating results,  or a change in control of the Company
occurs.  At  either  such time the  salary  will be  restored  to  $105,000.  In
addition, a performance  incentive of 8% of annual pre-tax operating income will
be paid to this officer.

In addition,  the former chief executive officer (see Note 4) resigned effective
December 31, 1996, and agreed to provide  consulting  services to the Company at
the rate of $4,100 per month from January 1, 1997 through March 31, 1998.


                                      F-11