SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark One)

|X|   ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934

      For the fiscal year ended December 31, 1999

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
      OF 1934

      For the transition period from___________ to ____________

                         Commission File Number 1-14160

                             HelpMate Robotics Inc.
             (Exact name of registrant as specified in its charter)

      Connecticut                                        06-1110906
      (State or other jurisdiction                    (I.R.S. Employer
      of incorporation or organization)                Identification No.)

      Shelter Rock Lane
      Danbury, Connecticut                             06810
      (Address of principal executive offices)         (Zip Code)

                    Issuer's telephone number (203) 798-8988

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

      Title of each class           Name of each exchange on which registered
      -------------------           -----------------------------------------
      None

Securities registered pursuant to Section 12(g) of the Act: Units, Common Stock
and Warrants

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

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

The registrant had no revenues from continuing operations during the fiscal year
ended December 31, 1999.

The aggregate market value of the voting stock held by non-affiliates as of
March 1, 2000 was approximately $3,372,000.

The number of shares outstanding of the registrant's common stock as of March 1,
2000 is 19,971,313 shares.

Documents incorporated by reference: Portions of the Company's Proxy Statement
dated December 17, 1999.

Transitional Small Business Disclosure Format (Check One) Yes |_| No |X|

<PAGE>

PART I

Item 1: Description of Business

On December 30, 1999, HelpMate Robotics Inc. (the "Company"or "HRI") completed
the sale for $12.5 million in cash (the "Sale") to Pyxis Corporation ("Pyxis")
of substantially all of the Company's assets and the assumption by Pyxis of
specified liabilities of the Company pursuant to the Asset Purchase Agreement
between the Company and Pyxis dated as of October 14, 1999.

The consideration received by the Company was $12,500,000 less certain closing
adjustments and less $1,250,000 which will be held in escrow for a period of two
years and is available to settle potential indemnification claims.

The assets sold include all machinery and equipment including all leased
equipment; all inventory including raw materials and component parts and all
patents, trademarks (including trademarks for the name "HelpMate" and "LabMate";
all accounts receivable, security deposits and cash). Pyxis assumed certain
accounts payable and other liabilities.

In connection with the Sale, the Company made certain payments to Connecticut
Innovations Inc. ("CII") in order to obtain a release from CII from obligations
under a Development Agreement between the parties. These payments included a
$100,000 waiver and release payment (Pyxis paid CII an additional $300,000) and
$138,454 for unpaid royalties.

Also, on February 15, 2000, the Company made a distribution to the Company's
stockholders of record as of the Distribution Record Date, January 29, 2000, in
the aggregate amount of $9,800,000 (the "Initial Distribution").

Business Plan

Following the Sale, the Company's business plan is to effect a business
combination with an operating business which HRI believes has potential to
increase stockholder value. Any such business combination would depend on the
availability of attractive candidates and the Company's ability to consummate
any such business combination. HRI intends to use its available cash after
payment of the Initial Distribution, together with additional equity or debt, if
any, or a combination thereof, in effecting a business combination. HRI will
endeavor to structure any business combination in a manner which would not
require a substantial capital investment by HRI of the net proceeds of the Sale.
The Company may at any time cease to pursue this business objective and may
consider other alternatives. Reference is made to the information under the
following headings of the Company's Proxy Statement dated December 17, 1999 (the
"Special Meeting Proxy"), which information is incorporated herein by reference:
"Business of the Company Following Proposed Sale," and "Risk Factors: --No
Operating History, --Acquisition Risks, --Unspecified Business Risks, --Need for
Additional Financing, --Regulation, --Limited Management Resources and
Experience, --Ability to Attract and Retain Key Personnel, --Conflicts of
Interest, --Scarcity of and Competition for Business Combinations, -- No
Agreement for Business Combination or Other Transaction, --Possible Lack of
Diversification, -- Tax Considerations, -- Limited Public Market for Common
Shares, -- Issuance of Additional Shares, -- Possible Adverse Effect of "Penny
Stock" Rules in Liquidity for Post-Sale HRI's Securities, --Risks of Low Priced
Stocks, --Possible Adverse Effect on Rules Affecting "Blank Check Companies" on
the future issuance of Post-Sale HRI Securities, --Certain Anti-Takeover
Provisions, and --No Dividends Anticipated."

<PAGE>

Background of HRI

HRI, a Connecticut corporation, was co-founded in 1984 as a robotics
"think-tank" by its chairman, Joseph F. Engelberger. During its early years, the
Company's primary focus was contract engineering and research and development
for third parties. Through the years, however, the focus of the Company has
evolved into the development of commercial applications for autonomous robotic
products with the HelpMate(R) robotic courier, the flagship product of the
Company, becoming its namesake.

Prior to the Sale on December 30, 1999, the Company was primarily engaged in the
design, manufacture and sale of the Company's flagship product, the HelpMate(R)
robotics courier system, a trackless robotic courier used primarily in the
healthcare industry to transport materials. The Company derived revenue from
three principal sources: rentals and sales of HelpMates; sales of robotic
components such as LabMate, LightRanger and BiSight and from research and
development contracts.

Employees

As of December 31, 1999, the Company had no full-time employees. Joseph F.
Engelberger has agreed to work part time for the Company as its unpaid chairman.

Item 2. Properties

At present HRI has the use of an office in Pyxis' offices in the Shelter Rock
Business Center in Danbury, CT.

Item 3. Legal Proceedings

None

Item 4. Submission of Matters to a Vote of Stockholders

A special meeting of the stockholders of HelpMate Robotics Inc. was held on
December 30, 1999. At the special meeting, the stockholders voted upon a
proposal to approve and adopt the proposed sale for cash to Pyxis Corporation of
substantially all of the assets and certain specified liabilities of the
Company. The sale was approved and adopted by the HelpMate stockholders by the
following vote:

                              Common Stock         Percent of Votes Cast
                              ------------         ---------------------

             For                9,009,122                   99.9%
             Against                2,962                     --
             Abstain                 None                     --

<PAGE>

PART II

Item 5. Market for Common Equity and Related Sockholder Matters

Market Information

The Company's Common Stock and Warrants are currently traded on the Nasdaq
Bulletin Board. A recent last sales price for the shares of Common Stock as
reported on the Nasdaq Bulletin Board was $.1875 on March 1, 2000.

                                                      High       Low
                                                      ----       ---

              Quarter ended March 31, 1999         $   0.44   $  0.19
              Quarter ended June 30, 1999              0.39      0.17
              Quarter ended  September 30, 1999        0.34      0.19
              Quarter  ended  December 31, 1999        0.48      0.17

Holders

The Company estimates that as of March 1, 2000, there were approximately 1,000
holders of record of the Company's Common Stock.

Item 6. Management's Discussion and Analysis

On December 30, 1999, HRI consummated the Sale of substantially all of its
assets and certain liabilities to Pyxis Corporation. Accordingly, the Company is
no longer in the business of manufacturing and selling trackless robotic courier
systems.

Liquidity and Capital Resources

The Company reached a settlement with the Internal Revenue Service (the "IRS")
regarding claims by the IRS for unpaid payroll taxes arising out of the apparent
misappropriation of funds by KPM Inc. of Brookfield, CT. On August 24, 1999, the
Company paid $100,067, including interest, to the Internal Revenue Service in
full payment of the IRS claims. In addition, the Company agreed with the IRS to
forego the use of $2,710,432 of net operating loss carryforwards.

In October 1998, the Company announced an investigation to determine the extent
to which KPM misappropriated Company funds which KPM was required to pay to the
IRS with respect to Company employment taxes. Under the Internal Revenue Code,
the Company was liable for the payment of these unpaid taxes, as well as
interest and penalties assessed, if any. The Company had initially estimated
these unpaid taxes to be approximately $1,000,000 exclusive of interest and
penalties.

The Company has cooperated fully with the Internal Revenue Service and the
United States attorney's investigation of KPM.

At December 31, 1998, the Company had estimated that it could settle the IRS
claims for approximately $150,000 and this amount was included as part of
accrued expenses and selling, general and administrative expenses in the 1998
financial statements. The estimate exceeds the agreed to payment by $50,000.
This excess amount was credited to selling, general and administrative expenses
in the Company's financial statements during the third quarter ended September
30, 1999.

Results of Continuing Operations of the Company

Research and development revenue and costs terminated in the third quarter of
1998 with the delivery of the research robot to NASA.

<PAGE>

Results of Discontinued Operations of the Company

Income from discontinued operation increased by $467,866 or 101% from the year
ended December 31, 1999 compared to the year ended December 31, 1998. The
increase in income reflects improved performance, mix and lower HelpMate
installation costs.

Gain on sale of the assets and liabilities sold to Pyxis reflects gross proceeds
of $12,500,000 less a purchase adjustment of $59,062 offset by the net book
value of the assets sold and liabilities assumed of $1,891,813 and estimated
transaction costs and taxes of $573,184.

Vendor forgiveness of debt reflects the savings the Company realized when
certain vendors agreed to take less than the amount owed in 1998.

Income Taxes

The Company accounts for income taxes in accordance with Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes" ("SFAS 109").
The Company's net operating loss carryforwards of approximately $7.7 million at
December 31, 1998 expire during the years 2000 through 2013. The related
deferred tax asset has been fully reserved because the ability of the Company to
realize a future tax benefit from its net operating loss carry forwards may be
limited.

Inflation

The Company does not believe that the relatively moderate levels of inflation
which have been experienced in the United States has had or will have a
significant effect on its revenues or operations.

Forward Looking Statements

Statements other than historic information in this report contained in, or
incorporated by reference, under the heading "Business Plan" consist of forward
looking statements within the meaning of the Private Securities Litigation Act
of 1995. These forward looking statements are subject to risk and uncertainties
that could cause the actual results to differ materially from those projected,
anticipated or implied. The most significant of these are the statements
incorporated by reference from the Special Meeting Proxy under the headings
"Risk Factors: --No Operating History, --Acquisition Risks, --Unspecified
Business Risks, --Need for Additional Financing, --Regulation, --Limited
Management Resources and Experience, --Ability to Attract and Retain Key
Personnel, --Conflicts of Interest, -- Scarcity of and Competition for Business
Combinations, --No Agreement for Business Combination or Other Transaction,
--Possible Lack of Diversification, --Tax Considerations, --Limited Public
Market for Common Shares, --Issuance of Additional Shares, --Possible Adverse
Effect of "Penny Stock" Rules in Liquidity for Post-Sale HRI's Securities,
--Risks of Low Priced Stocks, --Possible Adverse Effect on Rules Affecting
"Blank Check Companies" on the future issuance of Post-Sale HRI Securities,
--Certain Anti-Takeover Provisions, and - No Dividends Anticipated." The Company
undertakes no obligation to update or revise any forward looking statements.

Item 7: Financial Statements

The information required by Item 7 of Part II is incorporated herein by
reference to the financial statements filed with this report. See Item 13 of
Part III.

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

None

<PAGE>

PART III

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

Directors, Executive Officers, Promoters and Control Persons

The Company's executive officers and directors are as follows:

Name                 Age  Position
----                 ---  --------

Joseph F.
Engelberger          74   Chairman, President, CEO and Director
Joseph G. Cote       58   Director
Howard Motter        52   Director
Theodore Sall        73   Director
Sheldon Sandler      55   Director

Mr. Engelberger co-founded the Company in 1984 and has served as a Director and
the Chairman since that time. Prior to that, Mr. Engelberger founded and served
as the first president of Unimation, Inc., the first industrial robotics
company, which was acquired by Westinghouse Electric Corporation. He also
founded and was the first president of Consolidated Controls Corporation, which
was ultimately acquired by Eaton Corporation. Mr. Engelberger has written
extensively on the subjects of instrumentation and robotics. Mr. Engelberger is
the father of Gay Engelberger, the Company's director of marketing. Mr.
Engelberger formerly served as a director of Anderson Group, Inc. and of EDO
Corporation.

Mr. Cote has been a director of the Company since August 1997. Currently Mr.
Cote is an independent business consultant. Prior to that Mr. Cote served as
co-president and chief operating officer of Prospect Street Ventures, a venture
capital firm, until 1998.

Mr. Motter has been a director of the Company since September 1998. Currently he
is President and Chief Executive Officer of Nucletron Corporation. Prior to that
Mr. Motter served as President and Chief Executive Officer of Elekta Oncology
Systems and President and Chief Executive Officer of Elekta Canada, Inc. Mr.
Motter also spent 26 years with Philips Medical Systems. Mr. Motter currently
serves as a Director of Quanta Vision, Inc.

Dr. Sall has been a director of the Company since March 1996. He currently is a
Professor Emeritus at Ramapo College of New Jersey. Prior to holding this
position, Dr. Sall was an Adjunct Professor of Clinical Medicine at the
University of Medicine and Dentistry, New Jersey School of Nursing from 1991 to
July 1995. Dr. Sall is also a Director of International Vitamin Corporation and
Fluro Scan Inc.

Mr. Sandler has been a director of the Company since March 1996. Mr. Sandler is
Chief Executive Officer and a founding partner of Bel Air Partners, a financial
consulting and investment banking firm. Previously Mr. Sandler was a managing
director with Ladenburg Thalmann & Co. Inc. Mr. Sandler was also a chief
examiner at the Securities and Exchange Commission.

<PAGE>

Board of Directors - General

The Board of Directors held six meetings in 1999. All of the directors attended
at least 75% of the meetings of the board and the respective committees of the
board of which they were a member during 1999 with the exception of Mr. Sandler,
who did not attend four Board meetings.

Compensation

The Company does not pay any additional remuneration to employees serving as
directors. The Company does pay $500 for each meeting attended to non-employee
directors. Directors' out-of-pocket expenses are not reimbursed by the Company.

Committees

The Board of Directors has the following standing Committees:

Audit Committee. The Audit Committee, which met once in 1999, consists of three
directors of the Company, all of whom are independent. The Audit Committee is
responsible for the engagement of the Company's independent auditors and reviews
with them the scope and timing of their audit services and any other services
which they are asked to perform and their report on the Company's accounts
following completion of the audit and the Company's policies and procedures with
respect to internal accounting and financial control. The Board of Directors has
appointed Messrs. Sall and Sandler as the members of the Audit Committee. There
is currently a vacancy on this Committee.

Compensation Committee. The Compensation Committee, which did not meet in 1999,
is responsible for making recommendations to the board of directors with respect
to compensation and benefit levels of executive officers of the Company. The
Board has appointed Mr. Sall as the member of the Compensation Committee. There
is currently a vacancy on this Committee.

Stock Option Committee. The Stock Option Committee met once in 1999. The Stock
Option Committee is responsible for administering the Company's 1984, 1988 and
1995 Stock Option Plans. The Board has appointed Messrs. Cote and Sall to the
Stock Option Committee.

Item 10: Executive Compensation

The following table sets forth certain information regarding compensation
awarded to, earned by, or paid to the Company's chief executive officer and each
other executive officer and employee whose salary and bonus for the fiscal year
ended December 31, 1999 exceeded $100,000.

                                                                 Securities
                                                                 Underlying
       Name and Position              Fiscal Year    Salary        Options
       -----------------              -----------    ------        -------

      Joseph F. Engelberger               1999      $ 75,000            --
      Chairman, President and CEO         1998        81,250        98,750

      Fred T. Cordano
      Vice President of                   1999      $106,090            --
      Manufacturing (1)                   1998       103,000        65,300

(1) Mr. Cordano resigned as an officer on December 30, 1999 in connection with
the Sale of the Company.

<PAGE>

The following table sets forth information on the exercise of stock options and
warrants issued to individuals named in the executive compensation table.

<TABLE>
<CAPTION>
                            Shares Acquired Upon       Number of Securities
                            Exercise of Options       Underlying Unexercised            Value of Unexercised in the
                                   During                   Options at                      Money Options at
                                Fiscal 1999              December 31, 1999                 December 31, 1999
                                -----------              -----------------                 -----------------
                           Number        Value      Exercisable     Unexerciseable     Exercisable   Unexerciseable
                           ------        -----      -----------     --------------     -----------   --------------
<S>                           <C>         <C>         <C>                 <C>            <C>               <C>
Joseph F. Engelberger         0           $0          137,156            -0-             $23,956           0

Fred T. Cordano(1)            0           $0           76,619            -0-             $13,194           0
</TABLE>

(1) Mr. Cordano resigned as an officer on December 30, 1999 in connection with
the Sale of the Company.

<PAGE>

INFORMATION ABOUT CERTAIN BENEFICIAL OWNERS OF COMMON STOCK

The following table sets forth information based upon the Company's records and
Securities and Exchange Commission filings with respect to each executive
officer, each director and nominee for director, each person known to be a
beneficial owner of more than 5% of the Common Stock of the Corporation and all
executive officers and directors as a group as of March 1, 2000. Under the rules
and regulations of the Securities and Exchange Commission, a person is deemed to
own beneficially all securities of which that person owns or shares voting or
investment power as well as all securities which may be acquired through the
exercise of currently available conversion, warrant or option rights. Unless
otherwise indicated, each such person possesses sole voting and investment power
with respect to the shares owned by him.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                           Address                              Shares       Percent
----------------------------------------------------------------------------------------------------
<S>                          <C>                                               <C>             <C>
Connecticut Financial        c/o Prospect Street Connecticut Capital Inc.      1,014,188       5.09%
Developments, LP             10 East 40th Street, 46th Floor
                             New York, NY  10016
----------------------------------------------------------------------------------------------------
Robert Gault                 91 Shelby Street                                    806,060       4.05%
                             Eminence, KY 40019
----------------------------------------------------------------------------------------------------
Gabriel Kaplan               9551 Hidden Valley Road                           1,099,091       5.52%
                             Beverly Hills, CA 90210
----------------------------------------------------------------------------------------------------
The Boston Group, LP         5777 West Century Boulevard, Suite 1605           2,411,866      12.11%
                             Los Angeles, CA 90045
----------------------------------------------------------------------------------------------------
Connecticut Innovations,     999 West Street                                   3,144,622      15.61%
Incorporated (1)             Rocky Hill, CT  06067
----------------------------------------------------------------------------------------------------
Joseph F. Engelberger(2)     HelpMate Robotics Inc.                            2,074,374      10.37%
                             22 Shelter Rock Lane
                             Danbury, CT  06810
----------------------------------------------------------------------------------------------------
Howard E. Motter             2829 Saddlebred Court                                30,000         (3)
                             Glenwood, MD 21738
----------------------------------------------------------------------------------------------------
Theodore Sall                47 Lake View Drive                                   33,000         (3)
                             Old Tappan, NJ  07675
----------------------------------------------------------------------------------------------------
Sheldon Sandler              142 Cedar Lane                                       30,000         (3)
                             Princeton, NJ 08540
----------------------------------------------------------------------------------------------------
Joseph Cote                  19 Mallard Drive                                     30,000         (3)
                             Huntington, NY 11743
----------------------------------------------------------------------------------------------------
All Directors and Executive                                                    2,217,374      10.98%
Officers as a Group (2)
----------------------------------------------------------------------------------------------------
</TABLE>

(1) Includes warrants to purchase 227,563 shares.

(2) Includes 72,589 shares of owned by Mr. Engelberger's wife, Margaret
Engelberger, but does not include shares beneficially owned by Mr. Engelberger's
adult children or his brother. Also includes 311,616 shares owned by the Joseph
F. Engelberger Foundation. Includes warrants to purchase 85,874 shares.

(3) Less than one percent.

<PAGE>

Item 12: Certain Relationships and Related Transactions

None

Item 13: Reports on Form 8-K

A report on Form 8-K dated August 26, 1999 was filed with the SEC reporting the
Company's settlement with the Internal Revenue Service (the "IRS") regarding
claims by the IRS for unpaid payroll taxes arising out of the apparent
misappropriation of funds by KPM Inc. of Brookfield, CT.

A report on Form 8-K dated October 15, 1999 was filed with the SEC reporting
upon an agreement to sell the Company's assets to Pyxis Corporation.

A report on Form 8-K dated December 30, 1999 was filed with the SEC reporting
the completion of the Sale for $12,500,000 in cash, to Pyxis Corporation, of
substantially all the Company's assets and the assumption of specified
liabilities pursuant to the Asset Purchase Agreement dated October 14, 1999.

INDEX TO EXHIBITS

NO.     DESCRIPTION OF EXHIBIT

3.01    Amended and Restated Certificate of Incorporation of Registrant as filed
        on December 28, 1995 (Incorporated by reference to Form SB2 No. 33-99348
        filed January 31, 1996, Exhibit No. 3.02)
3.02    Form of By-Laws of the Registrant, as amended .(Incorporated by
        reference to Form SB2 No, 33-99348 filed January 31, 1996, Exhibit No.
        3.03)
3.03    Amendment to the Certificate of Incorporation
4.01*   Form of Common Stock Certificate
4.02*   Form of Warrant Certificate
4.03*   Form of Unit Certificate
4.04*   Form of Warrant Agreement
4.05*   Form of Underwriters' Unit Purchase Option
4.06*   Pages of the Registrant's Certificate of Incorporation that define the
        rights of holders of the securities being registered hereby are
        incorporated herein by reference to pages 3, 4, 6 and 7 of Exhibit 3.01
4.07*   Pages of the Registrant's By-Laws that define the rights of holders of
        the securities being registered hereby are incorporated herein by
        reference to pages 1, 2, 3, 4, 5, 6, 12 and 13 of Exhibit 3.02.
10.83   Agreement between the Company and Pyxis Corporation dated October 14,
        1999.

27.1    Financial Data Schedule for the year ended December 31, 1999.

*       Incorporated by reference to Form SB2 Number 33-99348 filed January 31,
        1996 under the same exhibit number as filed therein.

<PAGE>

SIGNATURES

In accordance with 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.

(Registrant) HelpMate Robotics Inc.


By: /s/ Joseph F. Engelberger
     -------------------------------------------
    Joseph F. Engelberger, Chairman, President,
    Chief Executive Officer and Principal
    Financial and Accounting Officer                      Date March 14, 2000

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 the
dates indicated.


By:  s/s Joseph F. Engelberger
     -------------------------------------------
     Joseph F. Engelberger, Chairman, President,
     Chief Executive Officer, and Principal               Date March 14, 2000


By:  s/s Joseph G. Cote
     -------------------------------------------
     Joseph G. Cote, Director                             Date March 14, 2000


By:  s/s Howard Motter
     -------------------------------------------
     Howard E. Motter, Director                           Date March 14, 2000


By:  s/s Theodore Sall
     -------------------------------------------
     Theodore Sall, Director                              Date March 14, 2000


By:  s/s Sheldon Sandler
     -------------------------------------------
     Sheldon Sandler,  Director                           Date March 14, 2000

<PAGE>

INDEX TO FINANCIAL STATEMENTS

Audited Financial Statements:

Report of Independent Public Accountants for the years ended
December 31, 1999 and 1998 ..............................................    F-2

Balance sheet at December 31, 1999 ......................................    F-3
Statements of operations for the years ended December 31, 1999 and 1998 .    F-4
Statements of cash flows for the years ended December 31, 1999 and 1998 .    F-5
Statements of stockholders' equity (deficit) for the years ended
December 31, 1999 and 1998 ..............................................    F-6
Notes to Financial Statements ...........................................    F-7


                                      F-1
<PAGE>

                    Report of Independent Public Accountants

The Board of Directors and Stockholders
HelpMate Robotics Inc.

We have audited the accompanying balance sheet of HelpMate Robotics Inc., a
Connecticut corporation, as of December 31, 1999, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
December 31, 1999 and 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HelpMate Robotics Inc. as of
December 31, 1999, and the results of its operations and its cash flows for each
of the years ended December 31, 1999 and 1998, in conformity with generally
accepted accounting principles.

                                                Arthur Andersen LLP

Hartford, Connecticut
February 29, 2000


                                      F-2
<PAGE>

                             HelpMate Robotics Inc.

                                  Balance Sheet

                                December 31, 1999

Assets
Current assets:
  Cash and cash equivalents                                        $ 10,972,189
                                                                   ------------
Total current assets                                                 10,972,189

Cash held in escrow                                                   1,250,000
                                                                   ------------
                                                                   $ 12,222,189
                                                                   ============

Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable                                                 $     29,415
  Accrued expenses                                                      571,230
                                                                   ------------
Total current liabilities                                               600,645

Commitments and contingencies

Stockholders' equity :
  Common stock, no par value; 40,000,000 shares authorized;
   14,372,152 shares issued and outstanding                          19,602,994
  Capital surplus                                                     5,232,012
  Accumulated deficit                                               (13,213,462)
                                                                   ------------
Total stockholders' equity                                           11,621,544
                                                                   ------------
                                                                   $ 12,222,189
                                                                   ============

    The accompanying notes are an integral part of this financial statement.


                                      F-3
<PAGE>

                             HelpMate Robotics Inc.

                            Statements of Operations

                     Years ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                       1999            1998
Operations:
<S>                                                               <C>              <C>
   Research and development contracts                             $         --     $    271,183
   Cost of research and development contracts                               --         (299,185)
                                                                  -----------------------------
                                                                            --          (28,002)
Selling, general and administrative                                    133,000          100,000
                                                                  -----------------------------

Loss from continuing operations                                       (133,000)        (128,002)

Discontinued operations:
  Income from operations sold to Pyxis                                   4,899         (462,987)
  Gain on sale of assets and liabilities sold to Pyxis (net of
     applicable income taxes of $300,000)                            9,875,940               --
                                                                  -----------------------------
Net income before extraordinary item                                 9,747,839         (590,989)
Extraordinary item - vendor forgiveness of debt (Note 2)                    --          138,127
                                                                  -----------------------------
Net income (loss)                                                 $  9,747,839     $   (452,862)
                                                                  =============================

Basic earnings (loss) per share:
  Continuing operations                                           $      (0.01)    $      (0.01)
  Discontinuing operations                                                  --            (0.04)
  Gain on sale of discontinued operations                                 0.69               --
  Extraordinary item                                                        --             0.01
                                                                  -----------------------------
Net income (loss)                                                 $       0.68     $      (0.04)
                                                                  =============================

Weighted average shares outstanding                                 14,320,811       11,429,291
                                                                  =============================

Diluted earnings (loss) per share:
  Continuing operations                                           $      (0.01)    $      (0.01)
  Discontinuing operations                                                  --            (0.04)
  Gain on sale of discontinued operations                                 0.50               --
  Extraordinary item                                                        --             0.01
                                                                  -----------------------------
Net income (loss)                                                 $       0.49     $      (0.04)
                                                                  =============================

Weighted average shares outstanding                                 19,919,972       11,429,291
                                                                  =============================
</TABLE>

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


                                      F-4
<PAGE>

                             HelpMate Robotics Inc.

                            Statements of Cash Flows

                     Years ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                              1999             1998
                                                                              ----             ----
<S>                                                                       <C>              <C>
Operating activities
Net income (loss)                                                         $  9,747,839     $   (452,862)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
  Vendor forgiveness of debt                                                        --         (138,127)
  Gain on sale of discontinued operations                                   (9,875,940)              --
  Depreciation and amortization                                                517,311          832,605
Changes in operating accounts:
  (Increase) decrease in accounts receivable                                   802,862         (375,700)
  (Increase) decrease in inventory                                             395,875          488,156
  (Increase) decrease in deposits                                           (1,119,840)         (32,411)
  (Decrease) increase in accounts payable and accrued expenses                (287,013)         187,694
  (Decrease) increase in deferred revenue                                     (267,654)        (261,625)
                                                                          -----------------------------
Net cash provided by (used in) operating activities                            (86,560)         247,730
                                                                          -----------------------------

Investing activities
Proceeds from disposal of discontinued operations                           10,967,681               --
Installation costs                                                                  --         (199,090)
Equipment leased to others                                                          --         (164,258)
Purchase of property and equipment                                             (44,357)          (5,055)
                                                                          -----------------------------
Net cash provided by (used in) investing activities                         10,923,324         (368,403)
                                                                          -----------------------------

Financing activities
Proceeds from issuance of notes payable                                             --          222,000
Repayments of notes payable                                                   (334,011)        (468,226)
Proceeds from exercise of stock options                                         29,057               --
                                                                          -----------------------------
Net cash (used in) financing activities                                       (304,954)        (246,226)
                                                                          -----------------------------

Net increase (decrease) in cash and cash equivalents                        10,531,810         (366,899)

Cash at beginning of year                                                      440,379          807,278
                                                                          -----------------------------
Cash at end of year                                                       $ 10,972,189     $    440,379
                                                                          =============================

Supplemental Information:
Conversion of notes, accounts payable and accrued expenses
  to common stock                                                         $     64,888     $  2,544,545
                                                                          =============================
Cash interest paid                                                        $         --     $     37,158
                                                                          =============================
</TABLE>

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


                                      F-5
<PAGE>

                             HelpMate Robotics Inc.

                  Statements of Stockholders' Equity (Deficit)

                           December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                      Accumulated
                                                      Common Stock  Capital Surplus     Deficit            Total
                                                      -------------------------------------------------------------
<S>                                                   <C>             <C>             <C>              <C>
Balance at December 31, 1997                          $ 16,964,504    $  5,174,839    $(22,508,439)    $   (369,096)
                                                      -------------------------------------------------------------

Conversion of notes, accounts payable, and accrued
expenses to common stock                                 2,544,545              --              --        2,544,545

Issuance of stock options below fair market value               --          57,173              --           57,173

Net loss                                                        --              --        (452,862)        (452,862)
                                                      -------------------------------------------------------------

Balance at December 31, 1998                          $ 19,509,049    $  5,232,012    $(22,961,301)    $  1,779,760

Conversion of accrued expenses to common stock              64,888              --              --           64,888

Exercise of stock options                                   29,057              --              --           29,057

Net income                                                      --              --       9,747,839        9,747,839
                                                      -------------------------------------------------------------

Balance at December 31, 1999                            19,602,994    $  5,232,012    $(13,213,462)    $ 11,621,544
                                                      =============================================================
</TABLE>

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


                                      F-6
<PAGE>

                             HelpMate Robotics Inc.

                          Notes to Financial Statements

                           December 31, 1999 and 1998

1. Organization and Summary of Significant Accounting Policies

Sale of Operating Assets

On December 30, 1999, HelpMate Robotics Inc. (the "Company" or "HRI") completed
the sale for $12.5 million in cash (the "Sale") to Pyxis Corporation ("Pyxis")
of substantially all of the Company's assets and the assumption by Pyxis of
specified liabilities of the Company pursuant to the Asset Purchase Agreement
between the Company and Pyxis dated as of October 14, 1999.

The assets sold include all machinery and equipment including all leased
equipment; all inventory including raw materials and component parts and all
patents, trademarks (including trademarks for the name "HelpMate" and "LabMate";
all accounts receivable, security deposits and cash). Pyxis assumed certain
accounts payable and other liabilities.

In connection with the Sale, the Company made certain payments to Connecticut
Innovations Inc. ("CII") in order to obtain a release from CII from obligations
under a Development Agreement between the parties. These payments included a
$100,000 waiver and release payment (Pyxis paid CII an additional $300,000) and
$138,454 for unpaid royalties.

Also, the Company's Board of Directors has voted to make a distribution to the
Company's stockholders of record as of the Distribution Record Date, January 29,
2000, in the aggregate amount of $9,800,000 (the "Initial Distribution"). The
Initial Distribution was made on February 15, 2000.

HRI recognized a gain on the sale of approximately $9,975,940 calculated as
follows:

      Gross Proceeds                                         $ 12,500,000

      Purchase price adjustment                                   (59,062)

      Net book  value of assets  sold and  liabilities
      assumed                                                  (1,891,814)

      Estimated taxes and transactions costs                     (573,184)
                                                             ------------

      Gain on sale of discontinued operations                $  9,975,940
                                                             ============


                                      F-7
<PAGE>

The estimated net cash proceeds to the Company from the sale are as follows:

      Gross Proceeds                                         $ 12,500,000

      Purchase price adjustment                                   (41,990)

      Cash held in escrow for two years                        (1,250,000)

      Payment of certain CII obligations not assumed
      by Pyxis                                                   (238,454)

      Payment of transaction costs                                 (1,875)
                                                             ------------

                                                             $ 10,967,681
                                                             ============

The results of HRI prior to the Sale have been classified as Discontinued
Operations in the accompanying financial statements. Revenue generated from
these operations were $2,934,691 and $4,275,391 for the years ended December 31,
1999 and 1998 respectively.

The Company's business plan is to effect a business combination with an
operating business which HRI believes has potential to increase stockholder
value. Any such business combination would depend on the availability of
attractive candidates and the Company's ability to consummate any such business
combination. HRI intends to use its available cash after payment of the Initial
Distribution, together with additional equity or debt, if any, or a combination
thereof, in effecting a business combination. HRI will endeavor to structure any
business combination in a manner which would not require a substantial capital
investment by HRI of the net proceeds of the Sale. The Company may at any time
cease to pursue this business objective and may consider other alternatives.

Prior to December 30, 1999, the Company was primarily engaged in the design,
manufacture and sale of the Company's flagship product, the HelpMate(R) robotics
courier system, a trackless robotic courier used primarily in the healthcare
industry to transport materials. The Company derived revenue from three
principal sources: rentals and sales of HelpMates; sales of robotic components
such as LabMate, LightRanger and BiSight and from research and development
contracts.

Significant Accounting Policies

Revenue Recognition

Revenues from rentals for equipment leased to others was recognized on a
straight line basis over the lease term which commenced upon the delivery,
installation and training of personnel on the product. Revenues from HelpMate
product sales were recognized upon the delivery, installation and training of
personnel on the product. Revenues from the Company's foreign licensors, who are
also shareholders of the Company, and revenues from sales of robotic components
were recognized upon shipment of product. Revenues from research and development
contracts were accounted for on the percentage of completion method, based upon
costs incurred and were comprised principally of studies and prototypes of
robotic applications predominantly for governmental agencies. Where estimated
losses on research and development contracts existed, they were provided for on
the entire contract.


                                      F-8
<PAGE>

Use of Estimates in the Preparation of Financial Statements

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

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. As of December 31, 1999, the
Company's cash and cash equivalents are deposited with one financial
institution.

Property and Equipment

Furniture and fixtures, machinery and equipment and leasehold improvements were
stated at cost. Depreciation was computed on the straight-line method based upon
the estimated useful lives of the assets. These include furniture and fixtures
(three to five years); machinery and equipment (five to ten years); and
leasehold improvements (over the term of the lease). Depreciation expense for
property and equipment was $96,687 and $107,193 for the years ended December 31,
1999 and 1998, respectively.

Equipment Leased to Others

Equipment leased to others was stated at cost. Depreciation was computed on the
straight-line method based upon the estimated useful lives of the assets (five
years). Depreciation expense for equipment leased to others was $316,059 and
$422,545 for the years ended December 31, 1999 and 1998, respectively.

Installation Costs

The Company incurred certain direct expenses associated with the installation of
its equipment leased to others. Such costs were amortized over the initial term
of the lease in accordance with the generally accepted accounting principles
prescribed for leases. Amortization expense for installation costs was $104,555
and $302,867 for the years ended December 31, 1999 and 1998, respectively.

Earnings Per Share and Supplemental Net Loss per Share

The Company computes earnings per share in accordance with the provisions of
Statement of Financial Accounting Standards No.128 "Earnings Per Share"("SFAS
128"). Earnings per share is computed both under the basic and dilutive methods.
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding;
dilutive earnings per share is computed by giving effect to all dilutive
potential common share equivalents that were outstanding during the period.
Common share equivalents include stock options and warrants.

Stock Based Compensation

The Company accounts for stock option grants in accordance with APB 25 and
expects to continue to do so in the future.


                                      F-9
<PAGE>

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial
Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). This statement
requires the Company to recognize deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and the tax basis of the assets and
liabilities and the net operating loss carryforwards available for tax reporting
purposes, using applicable tax rates for the years in which the differences are
expected to reverse.

2. Vendor Forgiveness of Debt

During the fourth quarter of 1997 and the first quarter of 1998, the Company
reached agreements with a majority of its vendors to accept common stock of a
reduced cash payment (first $1,000 plus 30% of the outstanding balance) for the
amounts owed to them at September 30, 1997. Agreements for common stock and
warrants are discussed in Note 4. As a result of agreements received with
vendors to accept reduced cash payments, the Company realized gains of $138,127
in 1998.

3. Income Taxes

The Company's deferred tax asset as of December 31, 1999 of approximately $2.6
million arising solely from existing net operating loss carryforwards was
offset by a $2.6 million valuation allowance.

At December 31, 1999, the Company had net operating loss carryforwards for
federal tax purposes of approximately $7.8 million, net of forgone amount (see
Note 6), which expire from 2000 through 2013. However, under the Tax Reform Act
of 1986, the ability of the Company to realize a future tax benefit from its net
operating loss carryforwards is severely limited due to changes in the
proportionate ownership of the Company and the entities which own stock in the
Company.

4. Stockholders' Equity

In February 1998, the Company concluded a private placement of $1,350,000 (of
which $1,128,000 was received in 1997) of units, consisting of 7% promissory
notes due October 1, 1998 and warrants. Each note was converted effective April
18, 1998 into an aggregate of 4,090,909 shares of common stock. The warrants are
exercisable at $.33 per share for an aggregate of 1,350,000 shares of the common
stock.

In consideration for its services to the Company in connection with the private
placement, the Boston Group, LP was issued warrants, expiring December 31, 2001,
to purchase 2,411,866 shares of common stock at an exercise price of $.33 per
share.

In January 1998, the principal and interest outstanding with respect to a
certain $150,000 note in favor of the Company's chairman was converted into
467,424 shares of the common stock at a rate of one share of Common Stock for
every $.33 converted. In connection with this loan and its conversion, the
Company also issued to its chairman warrants expiring December 31, 2001 to
purchase an aggregate of 179,250 shares of Common Stock at an exercise price of
$.33 per share. Also in consideration of this loan, the Company issued to its
chairman warrants to purchase 25,000 shares at the exercise price of $.33 per
share.


                                      F-10
<PAGE>

In April 1998, the principal and interest outstanding with respect to a certain
note in favor of the Company's chairman was converted into 534,552 shares of the
common stock at a rate of one share of Common Stock for every $.33 converted. In
connection with this loan and its conversion, the Company also issued to its
chairman warrants expiring December 31, 2001 to purchase an aggregate of 176,402
shares of Common Stock at an exercise price of $.33 per share.

In consideration of a $150,000 loan made by Brookehill Equities, Inc. to the
Company in November 1997, the Company issued, in January 1998, warrants expiring
December 31, 2001 to purchase 25,000 shares of common stock at an exercise price
of $.33 per share

In January 1998, the principal and interest outstanding with respect to a
certain $60,000 note in favor of the Company's former president was converted
into 189,845 shares of the Company's common stock at a rate of one share for
every $.33 converted. In connection with the conversion of that loan, the
Company issued warrants expiring December 31, 2001 to purchase 62,649 shares of
Common Stock at an exercise price of $.33 per share.

In December 1997 and January 1998, the Company entered into agreements with
certain of its creditors pursuant to which each of these creditors agreed to
liquidate $154,756 of the Company's payables to such creditor in exchange for an
aggregate of 468,958 shares (the "Creditor Shares") of common stock and warrants
expiring on December 31, 2001 to purchase an aggregate of 154,756 shares of
common stock at an exercise price of $.33 per share. These shares and warrants
were issued in April 1998.

In January 1998, CII agreed to convert the outstanding indebtedness under its
June 14, 1995 Note from the Company bearing interest at a rate of 10% per annum
and royalty payments accrued under its Development Agreement with the Company
through December 31, 1997 into shares of common stock at the rate of one share
of Common Stock for each $.33 of indebtedness and royalty liquidated. In
addition the Company agreed to issue CII warrants expiring December 31, 2001
exercisable for shares of Common Stock at an exercise price of $.33 per share
for each dollar liquidated. The number of CII Conversion Shares and CII
Conversion Warrants to be issued will be determined as of the date of
conversion. Moreover, in lieu of cash payments accruing during the fiscal year
ending December 31, 1998, CII also agreed to accept one share of common stock
for each $.33 of royalties required to be paid and warrants expiring December
31, 2001 to purchase one share of common stock at an exercise price of $.33 per
share for each dollar of royalties required to be paid.

As a result of the foregoing CII transactions CII was issued, in June 1998,
1,556,987 shares of Common Stock and warrants to purchase an aggregate of
513,809 shares of common stock in exchange for the liquidation of $513,809 of
principal, interest and accrued royalties through December 31, 1997. In
addition, CII received 402,057 shares of Common Stock and warrants to purchase
an aggregate of 132,678 shares of common stock in exchange for $132,678 of
accrued royalties for the first three quarters of 1998.

Warrants

As of December 31, 1999, the Company had issued warrants to purchase an
aggregate of 7,107,087 shares of common stock. The warrants have exercise prices
ranging from $0.33 - $5.25 per share, are exercisable upon issuance and expire
as follows: 2009 (50,000); 2006 (98,353); 2005 (226,290); 2002 (711,376); 2001
(5,980,121); and 2000 (40,947). Of the total 7,107,087 warrants issued,
5,121,299 (issued at $0.33) were exercised on February 15, 2000 as part of the
cashless exercise of the special options (see Stock Option section of this
footnote).


                                      F-11
<PAGE>

Stock Option Plans

The Company has two stock option plans. The 1988 Nonqualified Stock Option Plan
provides for the granting of nonqualified stock options for 235,279 shares of
common stock at an exercise price based upon a formula determined by the
Company's Board of Directors, with a minimum price of not less than $0.20 per
share. Options are exercisable starting one year from the date of grant to the
extent of 20% per year on a cumulative basis and expire ten years from the date
of grant. Option holders, upon approval by the Company, may surrender their
options to the Company in exchange for the difference between the fair market
value of the shares covered by the option and the option exercise price. In the
event of cessation of employment, an option holder may exercise his stock
options within a six month period at which time the stock option is canceled. At
December 31, 1999, 250,000 shares of common stock are reserved for issuance.

The Company's 1995 Amended and Restated Stock Option Plan provides for the
granting of up to 700,000 shares of the Company's common stock to officers,
directors and employees of the Company at an exercise price not less than 100%
of the fair market value of the Company's common stock on the date of grant.
Options are exercisable starting one year from the date of grant to the extent
of 20% per year on a cumulative basis and expire ten years from the date of
grant. At December 31, 1999, 69,550 options are available for grant under this
plan and 700,000 shares of common stock are reserved for issuance.

The 1988 plan terminated on October 27, 1998 and the 1995 plan will terminate on
February 5, 2006, except as to options outstanding. The 1995 plan can be
terminated by the Company's Board of Directors at any time.

The Company has adopted the provisions of Statement of Financial Accounting
Standards, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
requires the measurement of the fair value of stock options or warrants to be
included in the statement of operations or disclosed in the notes to financial
statements. The Company has determined that it will continue to account for
stock-based compensation for employees under Accounting Principles Board Opinion
No. 25 and elect the disclosure-only alternative under SFAS 123. The Company has
computed the pro forma disclosures required under SFAS 123 for options granted
in 1998 and 1997 using the Black-Scholes option pricing model prescribed by SFAS
123. The weighted average assumptions used are as follows:

                                1999                   1998
                                ----                   ----

Risk free interest rate          7%                  6.85%-7%
Expected dividend yield         None                   None
Expected lives                 8 Years                8 Years
Expected volatility             106%                   106%

Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant dates of awards under these plans consistent with
the method of SFAS 123, the Company's net loss and net loss per share would not
have been materially different.


                                      F-12
<PAGE>

A summary of the status of the Company's stock option plan at December 31, 1999
and 1998 and changes during the years then ended is presented in the table and
narrative below.

<TABLE>
<CAPTION>
                                           1999                          1998
                                    ---------------------------   ---------------------------
                                                                                 Weighted
                                               Weighted Average                   Average
                                    Shares      Exercise Price    Shares       Exercise Price
                                    ------      --------------    ------       --------------
<S>                                 <C>              <C>          <C>              <C>
Outstanding, beginning of year      652,970          $0.18        483,086          $1.30
Granted                             10,000            0.31        549,175           0.17
Exercised                          (170,750)          0.17             --             --
Canceled/expired                   (14,358)           0.18       (379,291)          1.60
                                    -------          -----        -------          -----

Outstanding, end of year            477,862          $0.18        652,970          $0.18
                                    =======          =====        =======          =====

Exerciseable, end of year           477,862          $0.18        269,277          $0.17
                                    =======          =====        =======          =====
Weighted average fair value
of options granted                                   $0.18                         $0.17
                                                     =====                         =====
</TABLE>

In connection with the Sale, the Board of Directors approved an amendment to the
Company's 1995 Amended and Restated Stock Option Plan to accelerate the vesting
of all outstanding options issued under that plan. At December 31, 1999, the
Company had outstanding options to purchase 477,862 shares at per share exercise
prices between to $0.10 and $.20; and warrants to purchase 5,121,299 shares at
$0.33; together the ("Special Options").

In order to facilitate the exercise of the Special Options, the Company's Board
of Directors has authorized a procedure permitting a "cashless" exercise of the
Special Options (the "Cashless Exercise") as follows. The Company permitted each
holder of the Special Options to exercise its Special Options in full by
delivery of written instructions to the Company to withhold the dollar amount of
the exercise price of the Special Option from the Per Share Distribution with
respect to the Shares issuable upon exercise of a Special Option. For purposes
of determining the Per Share Distribution, (i) the Shares issuable upon all
Special Options for which the Company has received a valid and timely exercise
notice (the "Exercised Special Options") was considered outstanding and of
record as of January 29, 2000, and (ii) the exercise price of all Exercised
Special Options shall be deemed received by the Company and added to the dollar
amount of the Initial Distribution. The amount of the per Share Distribution
payable to holders of Shares received upon exercise of Special Options (the
"Cashless Exercise Shares") will be reduced by the aggregate exercise price of
those Special Options.

5. Defined Contribution Plan

The Company sponsored a defined contribution plan for substantially all of its
employees. Employees were able to contribute to the plan, on a pre tax basis, a
percentage of their qualifying compensation up to the legal limits allowed. The
Company contribution matched 25% of employee contributions up to $2000. During
1999, the Company contributed $11,620 to this plan. The Company is in the
process of terminating the plan.


                                      F-13
<PAGE>

6. Commitments and Contingencies

The Company reached a settlement with the Internal Revenue Service (the "IRS")
regarding claims by the IRS for unpaid payroll taxes arising out of the apparent
misappropriation of funds by KPM, Inc. of Brookfield, CT. On August 24, 1999,
the Company paid $100,067, including interest, to the Internal Revenue Service
in full payment of the IRS Claims. In addition, the Company agreed with the IRS
to forego the use of $2,710,432 of net operating loss carryforwards.

In October 1998, the Company announced an investigation to determine the extent
to which KPM misappropriated Company funds which KPM was required to pay to the
IRS with respect to Company employment taxes. Under the Internal Revenue Code,
the Company was liable for the payment of these unpaid taxes, as well as
interest and penalties assessed, if any. The Company had initially estimated
these unpaid taxes to be approximately $1,000,000 exclusive of interest and
penalties.

The Company has cooperated fully with the IRS and the United States attorney's
investigation of KPM.

At December 31, 1998, the Company had estimated that it could settle the IRS
claims for approximately $150,000 and this amount was included as part of
accrued expenses and selling, general and administrative expenses in the 1998
financial statements. The estimate exceeds the agreed to payment by $50,000.
This excess amount was credited to selling, general and administrative expenses
in the Company's financial statements for the third quarter ended September 30,
1999.


                                      F-14