U.S. 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 (Fee Required) 
 
     For the fiscal year ended December 31, 1996  
 
                                      OR 
  
[  ]    Transition Report Under Section 13 or 15(d) of the Securities 
        Exchange Act of 1934 (No Fee Required) 
 
     For the transition period from             to ________ 
 
                     Commission file number 0-17574 
 
                     CODED COMMUNICATIONS CORPORATION 
             (Name of Small Business Issuer in Its Charter)
 
                     Delaware                         33-0580412 
(State or Other Jurisdiction of Incorporation or Organization)  
(I.R.S.Employer Id. No.) 
 
            1939 Palomar Oaks Way, Carlsbad, California      92009  
             (Address of Principal Executive Offices)  (Zip Code)
 
                         (619) 431-1945 
            (Issuer's Telephone Number, Including Area Code)
 
     Securities registered under Section 12(b) of the Exchange Act: 
 
                                None 
 
     Securities registered under Section 12(g) of the Exchange Act: 
 
                      Common Stock, $.01 par value 
       ___________________(Title of class)____________________________ 
 
    Check whether 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.  [x] Yes [ ] No 
 
    Check if there is no disclosure of delinquent filers in response to  
Item 405 of Regulation S-B is not contained in this form, and no  
disclosure will be contained, to the best of registrant's knowledge, in  
definitive proxy or information statements incorporated by reference in  
Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  [ ] 
 
    The Registrant's revenues for its most recent fiscal year were  
$11,310,000. 
 
     As of February 28, 1997, the aggregate value of common stock held  
by non-affiliates of the Registrant was $5,801,000 based on the closing  
bid price as reported by the NASD OTC Electronic Bulletin Board. The  
number of shares of common stock outstanding on March 1, 1997 was  
75,984,812. 
 
                 DOCUMENTS INCORPORATED BY REFERENCE 
 
    The following document is incorporated by reference into Part III of  
this Annual Report on Form 10-KSB:  Definitive Proxy Statement for the  
1997 Annual Meeting of Shareholders 
 
 
                    CODED COMMUNICATIONS CORPORATION 
                     1996 FORM 10-KSB ANNUAL REPORT 
 
                             TABLE OF CONTENTS 
 
                                  PART I 
 
 
                                                                   Page 
 
 
Item  1.  Description of Business                                     3 
 
Item  2.  Description of Property                                    14 
   
Item  3.  Legal Proceedings                                          15 
 
Item  4.  Submission of Matters To A Vote of Security Holders        15 
 
                                  PART II 
 
Item  5.  Market for Common Equity and Related Stockholder Matters  16 
 
Item  6.  Management's Discussion and Analysis or Plan of Operation 17 
 
Item  7.  Financial Statements.                                     23 
 
Item  8.  Changes in and Disagreements with Accountants on  
          Accounting and Financial Disclosure                       23 
 
                                PART III 
 
Item  9.  Directors, Executive Officers, Promoters and  
          Control Persons; Compliance with Section 16(a) of the  
          Exchange Act                                              24 
   
Item  10.  Executive Compensation                                   24 
 
Item  11.  Security Ownership of Certain Beneficial Owners and  
           Management                                               24 
 
Item  12.  Certain Relationships and Related Transactions           24 
 
Item  13.  Exhibits and Reports on Form 8-K                         24 
 
 
 
                                PART I 
 
 
 
ITEM 1.  DESCRIPTION OF BUSINESS 
 
General 
 
     Coded Communications Corporation (the "Company") was initially  
incorporated on September 12, 1980, under the laws of the Province of  
British Columbia.  In 1993, the Company's shareholders approved a series  
of transactions which resulted in the Company reincorporating in the  
United States under the laws of the State of Delaware.  The  
reincorporation did not affect the business, assets, liabilities or  
operations of the Company, other than for the costs related to the  
transaction. 
 
     The Company, through its wholly-owned subsidiaries Coded Mobile  
Communications, Inc. ("Coded") and Decom Systems, Inc. ("Decom")  
designs, manufactures and distributes a wide range of wireless digital  
transmitting, receiving and processing equipment and systems for use in  
two primary markets:  mobile data communications and aerospace  
telemetry.  The Company's mobile data and aerospace telemetry products  
employ similar technologies and techniques to receive and process  
digitized information transmitted over public and private wireless data  
communications networks and satellite communications links.  In 1994,  
the Company also designed, integrated and marketed VSAT earthstation  
terminals.  The VSAT earthstation product line was closed at the end of  
1994.  The Company's sales by major product lines for the three year  
period ended December 31, 1996, were: 
<TABLE>
 
 <CAPTION>                           1994          1995           1996  
  <S>                         <C>         <C>  <C>        <C>   <C>        <C>
  Mobile data communications  $7,991,000  56%  $6,676,000 66%   $7,880,000 70% 
  Aerospace telemetry          4,125,000  29    3,495,000 34     3,430,000 30 
  VSAT earthstations           2,175,000  15       ---    --       ---     --  
                             $14,291,000 100% $10,171,000 100% $11,310,000 100% 
</TABLE>
 
 
     The Company, through its wholly-owned subsidiary Coded, designs,  
manufactures and markets a wide range of electronic signaling equipment  
used to provide wireless communications in mobile and fixed radio  
systems.  Coded's products include wireless radio modems and mobile  
computing terminals, automatic vehicle location terminals using the  
Global Positioning Satellite system ("GPS"), wireless connectivity  
software, and radio system network controllers.  The Company's  
communications systems provide a wireless means of transmitting and  
receiving information digitally over radio channels, and at the same  
time enable the mobile workforce to interface and access information  
systems on a real-time basis.  Sales of mobile data communications  
products and services were $7,991,000, $6,676,000 and $7,880,000 in  
1994, 1995, and 1996, respectively.  The Company believes mobile data  
communications products and services will represent not less than 70% to  
75% of consolidated sales in the near term. 
 
     The Company's aerospace telemetry products and systems include the  
Quad 7 telemetry acquisition and processing system, and telemetry front- 
end ground support equipment which includes PCM bit synchronizers  
operating at data rates of up to 35 megabits per second, PCM  
decommutators and QPSK modems.  These products are used to receive,  
demodulate, synchronize and decode digital signals in radio and  
satellite communication links.  The Company's aerospace telemetry  
systems and products are used in space, aircraft and weapons research,  
development and test programs conducted by major aerospace and defense  
contractors and United States government agencies.  The Company's  
aerospace telemetry products and systems are also used in military  
satellite communications systems.  Sales of aerospace telemetry products  
and services were $4,125,000, $3,495,000 and $3,430,000 in 1994, 1995,  
and 1996, respectively. 
 
 
 
Cautionary Statements 
 
     The Annual Report on Form 10-KSB (the "Annual Report") contains  
forward-looking statements within the meaning of the Securities Act of  
1933, as amended.  Discussions containing such forward-looking  
statements may be found throughout this Annual Report, including without  
limitation in the materials set forth under "Description of Business"  
and "Management's Discussion and Analysis or Plan of Operations."   
Actual events or results may differ materially from those discussed in  
the forward-looking statements as a result of various factors, including  
without limitation the risks set forth under the notes to the  
consolidated financial statements and the matters set forth in this  
Annual Report generally. 
 
Current Developments 
 
     On March 3, 1997, Mr. Gary L. Luick was named the Company's  
president and chief executive officer.  In addition, Mr. Luick was  
appointed to the Company's board of directors. Mr. Luick, age 56, served  
as president of GTI Corporation from 1989-1995 and as CEO from 1991- 
1995.  GTI Corporation is a publicly-held corporation.  Mr. Luick is  
currently a director of Remec Corporation, a publicly-held manufacturer  
of microwave modules for microwave systems for the commercial wireless- 
communications market. 
 
     Prior to joining GTI Corporation, Mr. Luick served in varied  
management roles at Allied-Signal Corporation over a 10 year period.   
His responsibilities centered on corporate development, including  
numerous acquisitions, divestitures and turnarounds of subsidiaries.  He  
also served as a director of several Allied-Signal European  
subsidiaries. 
 
     Mr. John A. Robinson, Jr., the Company's president and chief  
executive officer since March 1995, was named as the president of Decom.   
Mr. Robinson, who also served as a member of the Company's board of  
directors, resigned as a director. 
 
Investment and Restructuring of Debt 
 
     In the first quarter of 1995, the Company reorganized its  
operations and management.  These actions included the closing of the  
Company's VSAT product line and all international mobile data sales  
offices.  In addition, the Company's CEO resigned and a number of  
management positions were eliminated to reduce costs and expenses.  As a  
result of the reorganization, operating expenses in the year ended  
December 31, 1995 were reduced by approximately $8,400,000 compared to  
1994, and the Company achieved its first operating profit, before  
interest and income taxes, in the last half of 1995. 
 
     In September 1996, the Company completed a series of transactions  
which resulted in ISA Investments Corporation ("ISA Investments"), a  
majority-owned subsidiary of Grupo Information Satellites and  
Advertising, ("ISA"), acquiring a 76% common stock ownership interest in  
the Company; and the restructuring of the Company's $6,600,000 in  
secured debt.  ISA Investments and ISA are part of an affiliated group  
of privately-held Mexican corporations controlled by Mr. Hugo R. Camou  
and his immediate  family. 
 
     ISA acquired its 57,272,767 shares or 76% common stock ownership  
interest for, among other things, cash payments totaling $1,400,000 and  
an ISA guarantee of not less then $10,000,000 in orders for the  
Company's mobile data communications products from ISA customers in  
Mexico and Latin America, over an eighteen month period. Prior to its  
investment in the Company, ISA was a distributor of the Company's mobile  
data communications products in Mexico.  As a result of its controlling  
interest in the Company's common stock and its ability to nominate and  
elect a majority of the members of the Company's Board of Directors, the  
Company is considered to be controlled by ISA. 
 
     In connection with the ISA investment in the Company, holders of  
the Company's senior secured $1,800,000 principal amount Bridge Loan  
canceled their debt in exchange for a cash payment of $400,000; the  
issuance of 8,000 shares of the Company's Series A preferred stock (with  
a liquidation preference of $800,000); and the issuance of new  
$600,000 principal amount, 6% Term Notes, due September 27, 1997.  The 6%  
Term Notes are convertible, at the option of the holders, into 2,400,000  
shares of common stock and are collateralized by a security interest in  
the Company's assets.  In addition, the holder of the Company's secured  
$4,000,000 principal amount, 12% Convertible Debentures ("12%  
Debentures") converted the 12% Debentures and accrued interest of  
approximately $800,000 into a new seven year, $4,800,000 principal  
amount 6% Convertible Debenture (the "6% Debenture").  The 6% Debenture  
was subsequently converted in December 1996 into 48,000 shares of the  
Company's Series B preferred stock, with a liquidation preference of  
$4,800,000.  The Series B preferred stock is convertible into  
approximately 7,837,000 shares of the Company's common stock.  All of  
the shares of Series B preferred stock are held by Renaissance Capital  
Partners, II, Ltd., an investment partnership fund based in Dallas,  
Texas. 
 
     As a result of the ISA investment of $1,400,000, the conversion of  
approximately $5,600,000 of secured debt into common and preferred  
stock, and net income for the year ended December 31, 1996, the Company  
eliminated a shareholder deficit of $7,571,000 existing at the beginning  
of 1996, and reduced debt and liabilities in 1996 by $8,319,000 as  
compared to the end of 1995. 
 
     The business and operations of the Company following the investment  
by ISA and the restructuring of debt were not changed, and it is the  
present intent of ISA to continue the Company as a publicly-held  
corporation with its principal operations located in the United States.   
See Note 5 "Investments and Restructuring of Debt", Note 7 "Debt and  
Creditors' Note" and Note 10 "Common and Preferred Stock". 
 
Extinguishment of Debt 
 
     In the first half of 1995, as an integral part of its restructuring  
plan, the Company proposed an out-of-court composition settlement plan  
(the "Creditor Plan") to substantially all unsecured creditors with past  
due claims.  Under the terms of the Creditor Plan, creditors are to  
receive 50% of their unsecured claims in full settlement (the  
"settlement value") of their claim, with 5% of the settlement value to  
be repaid quarterly beginning September 1995, and a final payment of the  
remaining settlement value to be made December 31, 1997.  In addition to  
the Creditor Plan, the Company negotiated settlements with certain other  
unsecured creditors.  In the year ended December 31, 1995, creditors  
with claims valued at approximately $3,200,000 settled their claims  at  
a discount and the Company recognized a gain of $1,367,000 from the  
extinguishment of debt, net of related expense.  In the year ended  
December 31, 1996, additional settlements were reached with unsecured  
creditors, including those creditors participating in the Creditor Plan,  
with claims totaling approximately $1,504,000, and the Company  
recognized a gain of $995,000 from the extinguishment of debt, net of  
related expense.  The cash required to fund the cash payments to  
creditors in 1996 was provided primarily from $1,400,000 in proceeds  
from the ISA investment.  See Note 3 "Extraordinary Gain from  
Extinguishment of Debt" and Note 7 "Debt and Creditor Notes". 
 
Management's Plan For Future Operations and Financing 
 
     Prior to the Company's reorganization of its business operations  
and management in the first quarter of 1995, the Company had operated at  
a loss since its inception.  In addition, the Company had accumulated a  
significant shareholders' deficit and liabilities, including  
approximately $4,800,000 in secured debt that had been declared in  
default by the holder of the debt in February 1995, and $1,800,000 in  
secured debt that was scheduled for payment in April 1996. 
 
     Following the restructuring of the Company's operations and  
management in the first quarter of 1995, operating expenses were  
reduced, gross margins on sales improved and, as a result, the Company  
achieved marginal profitability before interest expense and income taxes  
in the second half of 1995 and for the year ended December 31, 1996.  In  
addition, by December 31, 1996, the Company completed the ISA investment  
transaction and restructured or negotiated settlements with its major  
unsecured and secured creditors, resulting in a reduction in unsecured  
and secured debt and other liabilities of approximately $8,319,000 from  
debt and liabilities existing at December 31, 1995. 
 
     Although the Company achieved marginal operating profits before  
interest expense and income taxes of $250,000 in the second half of 1995  
and $345,000 for the year ended December 31, 1996, the Company operates  
in markets that are emerging and highly competitive and the Company's  
principal competitors have significantly more financial and  
technological resources.  Moreover, the Company's orders are typically  
concentrated in large orders derived from a small base of customers and,  
accordingly, new orders, sales levels and operating profitability, if  
any, can and will fluctuate on a quarter-by-quarter basis.  There is no  
assurance that the Company will operate at a profit in the future. 

     New financing is likely to be required to finance working capital  
and operations at the anticipated sales level in 1997.  The Company  
believes that additional financing, in the form of short-term and long- 
term debt, preferred and common stock, or a combination of debt and  
equity will be available in 1997 under terms and conditions that are  
acceptable to the Company.  Additional capital in 1997 is likely to be  
provided or arranged by the Company's controlling shareholder, ISA;  
however, the Company believes short-term financing collateralized by  
accounts receivable and other assets could be available from other third  
party lenders. 
 
     In the event financing is not available in the time frame required,  
then the Company would be forced to reduce its rate of sales growth, if  
any, reduce operating expenses and reschedule research and development  
projects.  In addition, the Company might be required to sell certain of  
its assets or license its technologies to others.  These actions, while  
necessary for the continuance of operations during a period of cash  
constraints and a shortage of working capital, could adversely effect  
the Company's long-term business and shareholder value. 
 
Mergers and Acquisitions 
 
     Acquisition of Decom Systems, Inc. 
 
     On August 25, 1993, the Company acquired Decom in a share exchange  
transaction accounted for as a pooling of interests.  Decom designs,  
manufactures and markets ground-based fixed and mobile telemetry signal  
acquisition and processing systems and equipment, using technology  
similar to that used by the Company in its wireless mobile data  
communications systems.  Decom aerospace telemetry products are sold  
primarily to domestic and foreign defense and aerospace contractors, and  
agencies of the United States and foreign governments, for use in test  
programs and in military and commercial satellite communications. 
 
     Acquisition  of ComViSat, Inc. 
 
     In January 1994, the Company acquired ComViSat, Inc. ("ComViSat"),  
a start-up company engaged in the design, integration and distribution  
of very small aperture terminal earthstations ("VSAT's").  These systems  
are used in voice and data satellite communications, and were marketed  
primarily to developing third world countries where wireline telephone  
and other communications capabilities are inadequate.  The two  
shareholders of ComViSat received an aggregate of 50,000 shares of the  
Company's common stock for all of the outstanding common stock of  
ComViSat.  The acquisition was treated as a  purchase for accounting 
purposes.  The assets, liabilities and operations of ComViSat prior to 
its acquisition were not material to the consolidated assets, 
liabilities and operations of the Company.  As a result of depressed 
business conditions in Mexico and the destabilizing impact of the 
Mexican economy on other Latin American and South American economies 
beginning in December 1994, the decision was made to discontinue the 
Company's VSAT product line and sell all product-line assets, which 
were comprised primarily of VSAT demonstration and test equipment. 
Mexico was the principal market for the Company's VSAT products. 
Sales of VSAT products and systems were $2,175,000 in 1994, or 
approximately 15% of consolidated sales.  At December 31, 1994, the 
Company recorded a charge against income of $1,226,000 for closing 
the VSAT product line, discontinuing sales and engineering activities, 
and writing-down equipment, intangible assets and inventories. 
 
Wireless Mobile Data Communications Products and Services 
 
     The Company, through its wholly-owned subsidiary Coded, designs,  
manufactures and markets a wide range of electronic signaling equipment  
used to provide wireless communications in mobile and fixed radio  
systems.  Coded's products include wireless radio modems and mobile  
computing terminals, automatic vehicle location terminals using the  
Global Positioning Satellite system ("GPS"), wireless connectivity  
software, and radio system network controllers.  The Company's  
communications systems provide a wireless means of transmitting and  
receiving information digitally over radio channels, and at the same  
time enable the mobile workforce to interface and access information  
systems on a real-time basis.  Sales of mobile data communications  
products and services were $7,991,000, $6,676,000 and $7,880,000 in  
1994, 1995, and 1996, respectively.  The Company believes mobile data  
communications products and services will represent not less than 70% to  
75% of consolidated sales in the near term. 
 
     The need for increased speed and accuracy in information transfer  
in a mobile environment, and the growing amount of data contained in  
computerized information databases, has increased the demand for systems  
which provide efficient and accurate data communications.  Operators of  
vehicle fleets relying on conventional voice radio communications often  
encounter problems in communicating with the mobile workforce due to  
overcrowded voice channels and inefficiencies in transferring   
information stored in computers.  Through the use of wireless data  
communications and connectivity, vehicle fleet operators realize  
increased employee and vehicle productivity, improved customer service  
and faster response times.  In addition, the mobile workforce gains  
access to information databases on a real-time basis, and radio system  
operators significantly increase information throughput and maximize the  
utilization of available radio air time.  The efficient and effective  
management of the mobile workforce, vehicle fleets and remote access to  
information databases through the use of wireless communications, in the  
opinion of the Company, is becoming a significant competitive and safety  
issue for many operators of mobile vehicle fleets. 
 
     Mobile Data Communications Network Systems and Products 
 
     The Company provides a wide range of equipment to meet the mobile  
communications needs of its customers.  The Company's engineering  
capabilities include the design and installation of end-to-end solutions  
for voice and digital wireless mobile data communications networks.  The  
Company supplies complete wireless systems as a prime contractor  
directly to end-use customers, or as a subsystem contractor to large  
system integrators, such as Harris Corporation, Ericsson, Inc. and  
others.  When providing complete end-to-end wireless mobile data  
communications systems or subsystems, the Company will integrate its  
products with equipment and software supplied by third parties, such as  
mobile and base station radios, automatic vehicle location equipment,  
laptop computers and applications software. 
 
     The Company's wireless mobile data communications networks are  
designed around its core systems products, which include high-speed RF  
modems, mobile data computers and terminals, wireless connectivity  
software and radio network controllers.  These products provide the  
system infrastructure needed to interface and interact with information  
databases, and communicate with and control large numbers of vehicles  
and mobile data devices operating over wide geographical areas and  
multiple radio systems. 
 
     The Company's RF modem, the IQmodem, is an intelligent, specialized  
protocol modem designed to meet the requirements of small and large data  
terminal equipped vehicle fleets.  The IQmodem can be integrated with  
mobile or laptop computers, mobile display terminals, printers and  
automatic vehicle location ("AVL") equipment.  The IQmodem can be used  
in most conventional private radio networks and computer-controlled  
Specialized Mobile Radio ("SMR") systems.  The IQmodem operates at data  
transmission rates up to 9,600 bits per second ("bps") (higher  
transmission rates can be achieved using data compression techniques)  
and incorporates digital signal processing circuits for equalization,  
filtering and synchronization.  The Company's RF modem product line also  
includes the Landmarc 5000, an integrated RF modem and AVL receiver  
using the GPS for tracking vehicle location, speed and direction.   
 
     The Company's wireless connectivity software includes the IQswitch  
and WINMCT.  The IQswitch serves as a gateway between the mobile data  
network and host computers; computer aided dispatch application  
software; local, state and national information databases; and other  
private or public networks.  The IQswitch utilizes a UNIX operating  
system and is scaleable to meet a customer's exacting requirements.  The  
Company's WINMCT in-vehicle software manages incoming and outgoing data  
messages and interfaces the data communications system to the customer's  
specific mobile computer software applications. 
 
     The Company's wireless connectivity products also include the In- 
Vehicle Controller ("IVC"), a protocal conversion and control device  
that allows various mobile data devices installed in a vehicle, such as  
a mobile computer, GPS location receiver, mobile printer and magnetic  
strip card reader to interface with one another and the mobile data  
communications system network.  The IVC is software configurable to  
support a wide variety of combinations of mobile devices. 
 
     The Company's radio and network controller system products and  
software include base station radio controllers and UNIX-based radio  
network controllers.  Base station controllers are used to manage base  
station radios, and include software to control radio channel  
contention, provide forward error correction of digital transmissions  
and to switch radio channel traffic from data to voice and voice to  
data.  Network system controllers are used to handle the real-time  
communications requirements of a mobile data communications system,  
including tracking radio channel availability, the location of mobile  
users on multiple channel radio systems, and the interface of the mobile  
communications system with host computers and host information  
databases.  The network controller also provides remote access to the  
radio system for diagnostics and system operating statistics.  These  
features significantly reduce costly on-site service calls, time- 
consuming trouble shooting effort and unnecessary loss of host computer  
access. 
 
     The Company's principal mobile computer and terminal product lines  
are its MCT computer platform and the DXT IQ mobile data terminal. 
 
     The MCT computer platform includes several versions of the  
Company's Windows-based MCT Series 2000 mobile computer.  The MCT  
product group includes ruggidized mobile computers featuring pentium  
processors, full keyboards and keypads, and the choice of a CRT display,  
black and white LCD display or full color TFT flat screen display.  The  
MCT computer operates with the Company's high-speed RF modem and other  
interconnect devices for use in many different public and private mobile  
communications systems.  The latest version of the MCT mobile computer,  
the MCT 2275,  was introduced in 1996.  For its MCT product lines, the  
Company purchases notebook and laptop computers from other manufacturers  
and ruggidizes the computer to meet the demanding operating conditions  
of the mobile environment. 
 
     The DXT IQ mobile terminal features a CRT display with a keypad and  
full keyboard.  The DXT IQ mobile terminal operates at date transmission  
rates of up to 9,600 bps on both public and private conventional and  
trunked radio systems.  The DXT IQ mobile terminal is manufactured by  
the Company. 
 
     In addition to the MCT and DXT mobile computer and terminal product  
lines, the Company offers several other mobile displays for use in  
vehicles.  The Company's CMX mobile status terminal product line  
includes two or four line LCD displays with keypad and status keys.  All  
of the Company's mobile computers and terminals can be used with the  
Company's AVL receivers and other mobile devices such as bar code and  
magnetic strip card readers and printers. 
 
     Mobile Data Communications Marketing 
 
     The present markets for voice and data land-based radio  
communications systems include public safety agencies (fire and police),  
emergency medical services ("EMS") and operators of vehicle fleets and  
mobile work forces such as utility, transportation, overnight courier  
services, customer field service and taxi vehicle fleets.  The Company  
markets its mobile data communications systems primarily to public  
safety, EMS and utility markets.  The Company estimates that over 75% of  
its mobile data communications revenues are presently derived from  
public safety customers in the United States and Mexico. 
 
     The Company generally competes for large, special order contracts  
for mobile data systems in its vertical markets.  As a result of the  
Company's financial condition and limited working capital in 1995 and  
early 1996, the Company believes that customers awarded contracts that  
would have otherwise been awarded to the Company, to other competitors  
with substantially greater financial resources. The Company believes its  
financial condition has caused delays in and the loss of customer  
contracts in the past twelve months: however, the Company's improving  
financial condition is leading to increased business activity and  
contract awards. 
 
     The Company markets wireless mobile data communications network  
systems and products in the United States, the United Kingdom and Mexico  
through a sales staff supported by application engineers primarily to  
system integrators, original equipment manufacturers ("OEM's") and large  
end-use vehicle fleet operators.  The Company's marketing strategy for  
wireless mobile communications systems includes formation of formal  
and/or informal teaming relationships with system integrators, mobile  
radio equipment manufacturers and application software providers with  
the technical and financial resources required to support large-scale  
data communications system  installations and services.  The Company  
believes its teaming strategy will allow it to compete for large system  
orders against much larger competitors. 
 
     In 1995, the Company entered into an agreement with GEC-Marconi  
Communications for licensing manufacturing rights of the Company's MPT  
1327 modem.  The MPT 1327 modem is used in trunked private land mobile  
radio systems in the United Kingdom using the UK standard MPT 1327  
transmission protocol.  Under the license agreement, the Company  
receives royalties for each MPT 1327 modem manufactured and sold by the  
licensee. 
 
     The Company marketed its mobiles communications products and  
services in 1993 and 1994 in the United Kingdom, Japan, Australia and  
the Philippines primarily through locally-based independent sales  
representatives.  In the first quarter of 1995, the Company closed all  
of its international sales offices.  Marketing, sales and customer  
support of all export activities is now handled from the Company's  
offices in Carlsbad, California. 
 
     Substantially all of the Company's mobile communications sales are  
currently derived from customers in the United States and Mexico.  The  
Company believes export sales to Europe, Mexico and Latin and South  
America could represent over 50% of its mobile communications revenues  
in the near future.  The Company's export business is and will be  
subject to risks customarily encountered in foreign markets, including  
fluctuations in monetary exchange rates, export controls and other  
regulatory policies of the United States and foreign governments.  Sales  
of mobile data communications products to public safety customers in  
Mexico were not significant in 1995 and were approximately 53% of mobile  
communications sales in 1996. 
 
     Mobile Data Communications Competition 
 
     Competition for the sale of wireless mobile data communications  
systems and equipment is intense and many of the competitors have  
substantially greater resources than the Company.  In addition, a number  
of private and publicly held telecommunications companies are developing  
new digital terrestrial and satellite wireless communications systems  
and products that will compete for business in the Company's present  
markets. 
 
     The primary competitive factors for the sale of wireless mobile  
data communications products and services include reputation, knowledge  
of the order, digital signaling throughput performance, compatibility  
with existing mobile radio and control system equipment, and price. 
 
     The primary competitors for the sale of wireless mobile data  
communications network products and systems include Motorola, Inc., of  
Schaumberg, Illinois, ("Motorola") and large system integrators and  
radio equipment manufacturers, including TRW, Harris Corporation and  
Ericsson, Inc.  On a contract by contract basis, these system  
integrators and radio equipment manufacturers may compete against the  
Company or team with it.  The Company believes Motorola holds a dominant  
market position for terrestrial mobile data systems used by courier  
services, public safety and taxi vehicle fleets. 
 
     The Company believes a significant competitive factor in the early  
development of the mobile data market was the ability to provide high- 
performance mobile radio systems, access to radio channels and local  
system maintenance and service.  The Company believes Motorola's broad  
product line, financial and technical strength and customer service  
capability are important factors in its dominance of the market.  In  
order to compete for business, the Company focuses on specific vertical  
market segments, such as police and other public safety markets, and the  
technical advantages of its mobile data communications infrastructure  
and its open-architecture systems design, which provides the customer  
its choice of radio equipment and applications software.  The Company  
believes a competitive advantage is gained by tailoring applications  
software and system operating parameters to the requirements of its  
customers.  
 
     Mobile Data Communications Order Backlog 
 
     The Company's backlog of orders for wireless mobile communications  
products was approximately $3,710,000 at December 31, 1995 and  
$3,318,000 at December 31, 1996.  Substantially all backlog at December  
31, 1996 is expected to be delivered within one year. 
 
     A significant portion of backlog is typically comprised of large  
orders, and the total value of backlog can be expected to fluctuate from  
year to year.  The aggregate single orders of five customers represented  
67% and 85% of backlog at December 31, 1995 and 1996, respectively.  The  
Company has experienced fluctuations in order rates on a quarterly  
basis, and declines and delays in orders from time to time.  The Company  
may experience similar declines or delays in the future. 
 
     As a result of the Company's financial condition and limited  
working capital in 1995 and early 1996, the Company  experienced delays  
in completing customer contracts. The Company successfully renegotiated  
delivery schedules with its customers and the Company experienced no  
customer cancellations of major contracts.  However, the Company may  
experience similar delays in completing contracts in the future and in  
the event contract schedules are not renegotiated, contracts could be  
terminated. 
 
     Mobile Data Communications Customers 
 
     A small number of customers and special order sales account for a  
relatively large portion of the Company's wireless mobile data  
communications product revenues.  In 1994, 1995 and 1996, aggregate  
sales to the five largest mobile data communications product customers  
represented approximately 54%, 60% and 77% of mobile data communications  
sales, respectively. In 1994, sales to three end-use customers  
represented 10%, 16% and 17%, respectively, of mobile data  
communications sales.  In 1995, sales to three customers represented  
10%, 11% and 25%, respectively, of mobile data communications sales.  In  
1996, sales to two customers in Mexico represented approximately 53% of  
mobile data communications sales.  Sales are typically made to customers  
on a special order basis.  There are no contracts at December 31, 1996  
requiring customers to purchase substantial fixed quantities of products  
over more than a one year period.  The cancellation of orders of major  
customers could have a significant adverse effect on the operations of  
the Company.   
 
     Mobile Data Communications Research and Development 
 
     Research and development expenditures for mobile communications  
products and improvement of existing products were $1,948,000 in 1994  
(24% of mobile communications sales), $496,000 in 1995 (7% of mobile  
communications sales) and $984,000 in 1996 (13% of mobile communications  
sales).  Mobile data communications product research and development  
expense significantly decreased in 1995 from the prior year as a result  
of the completion of major development programs in 1994 and a reduction  
in engineering staff in 1995.  The Company plans to spend approximately  
12% of mobile data communications product sales for research and  
development in the future, primarily in the development of its wireless  
communications modem, connectivity software, and for the development and  
enhancement of new software products.  The Company believes this level  
of investment will be sufficient to maintain the competitive position of  
the Company's present core mobile data products in the near term.  
However, higher investment rates could be required thereafter to expand  
the Company's product line and software  technology. 
 
     The market for the Company's mobile data communications products is  
characterized by rapid change driven by advancements in digital signal  
processing technology, the miniaturization of electronic components and  
the construction of new wireless terrestrial and satellite  
communications systems.  The Company's ability to compete successfully  
depends, in part, on its knowledge of the mobile data communications  
market, its ability to anticipate and react to such changes, and its  
ability to implement technological advancements in new products and  
software to meet customer requirements. 
 
Aerospace Products and Services 
 
     The Company, through its wholly-owned subsidiary, Decom, designs,  
manufactures and markets electronic communications equipment for  
aerospace and commercial telemetry applications, using technology  
similar to that used by the Company in its wireless mobile data  
communications systems.  Telemetry is the technology of the wireless  
transmission of data in order to measure operating parameters, such as  
pressure, temperature or vibration, at a distance.  Telemetry systems  
employ a radio carrier to transmit information from one location to  
another, and are used extensively in missile, aircraft, satellite and  
other aerospace vehicles.  Decom designs and manufactures the receiving  
and test equipment used primarily in ground-based Pulse Code Modulation  
("PCM") and Phase Shift Keyed ("PSK") telemetry systems.  Sales of  
aerospace telemetry products and services were $4,125,000, $3,495,000  
and $3,430,000, 1994, 1995 and 1996, respectively.  The Company believes  
sales of aerospace telemetry products and services will represent  
approximately 25% to 30% of consolidated sales in the near term. 
 
     The PCM data transmission technique is extensively used in  
aerospace telemetry applications because it has the capability to  
combine many channels of information on a non-interfering basis into a  
common frequency band for transmission over a single carrier.  The PCM  
carrier signal has a low susceptibility to degradation and is a reliable  
method of transmitting data. 
 
     The Company's aerospace products may be divided into two main  
groups: telemetry front-end equipment and telemetry processing systems. 
 
     Telemetry Front-End ("TFE") Ground Support Equipment.   TFE  
products consist primarily of fully tunable PCM bit synchronizers  
operating at signal acquisition data rates up to 35 megabits per second  
("Mbps"), PCM decommutators, QPSK modems and telemetry link analyzers.   
These products are used in receiving, demodulating, synchronizing,  
decoding and converting telemetry signals in a transmission link. 
 
     Telemetry Processing Systems ("TPS systems").  The Company's Quad 7  
is a highly integrated data acquisition and processing system platform  
designed specifically for telemetry ground-based fixed and mobile flight  
test instrumentation requirements, telemetry signal processing and  
satellite communications applications.  In 1995, the Company completed a  
major upgrade to its Quad 7 product platform, which included the MOTIF  
graphical user interface and other software enhancements. 
 
     Aerospace Telemetry Marketing 
 
     The Company markets its aerospace telemetry systems and equipment  
through a small sales staff supported by applications engineers and  
independent sales representatives.  The sales efforts of these personnel  
are directed toward major aerospace companies, various agencies of the  
United States and foreign governments, satellite telecommunications  
companies and end-users of telemetry equipment and systems.  The  
Company's marketing strategy has been to supply technical applications  
engineering support for its sales personnel and to conduct comprehensive  
equipment demonstrations for customers.  The Company believes this  
strategy permits it to compete against larger competitors by emphasizing  
the Company's technological capabilities. 
 
     Aerospace telemetry product sales to major aerospace companies are  
usually on a subcontract basis under negotiated firm fixed-price  
contracts.  A substantial portion of these sales are indirectly or  
directly funded by the United States government and its agencies.  The  
Company believes that in 1994, 1995 and 1996, approximately 70%, 55% and  
61% of aerospace telemetry product sales, respectively, were directly  
and indirectly funded by agencies of the United States government.   
Direct sales of aerospace telemetry products to the United States  
government and its agencies were 14%, 8% and 18% of aerospace telemetry  
sales in 1994, 1995 and 1996, respectively. 
 
     Aerospace telemetry export sales, principally to Intertechnique, a  
publicly-held French defense contractor and the Company's exclusive  
distributor of aerospace telemetry products in Europe under export  
licenses granted on a case-by-case basis by the United States Department  
of State.  Export sales of aerospace telemetry products to  
Intertechnique were 18% in 1995 and less than 3% of aerospace telemetry  
sales in 1996.  Export sales of aerospace telemetry products are not  
expected to represent a significant portion of total aerospace telemetry  
product sales in 1997.  The Company's aerospace telemetry products  
export business is subject to risks customarily encountered in foreign  
operations, including fluctuations in monetary exchange rates, export  
controls, and the economic, political and regulatory policies of the  
United States and foreign governments. 
 
     Aerospace Telemetry Customers 
 
     A small number of customers account for a relatively large portion  
of the Company's aerospace telemetry revenues.  Aggregate sales to five  
customers, including direct sales to the United States government and  
its agencies, represented approximately 56%, 50% and 63% of aerospace  
telemetry sales in 1994, 1995 and 1996, respectively.  In 1994, two  
customers each represented 12% of aerospace telemetry sales and one  
customer represented 10% of aerospace telemetry sales.  In 1995, two  
customers each represented 12% of aerospace telemetry sales.  In 1996,  
two customers represented approximately 17% and 14% of aerospace  
telemetry sales, respectively. 
 
     Aerospace Telemetry Competition 
 
     The Company faces intense competition in the marketplace for all of  
its aerospace products.  Competitors include Lockheed Martin Corporation
Test and Instrumentation, a division of Lockheed, and many of the major 
aerospace contractors, all of whom have much greater financial and 
technological  resources than the Company.  The Company's present 
financial condition  and lack of working capital adversely affected 
sales of the Company's  Quad 7 telemetry processing system in 1995 and 
the first half of 1996,  and may continue to impact future order levels.  
 
    The Company believes the primary competitive factors in its  
aerospace markets are product performance and quality, knowledge of  
order opportunities, technological reputation and cost.  The Company's  
market penetration has been influenced by the Company's relatively small  
marketing and sales force and the long established reputations of some  
of its competitors.  In addition, a substantial portion of the Company's  
business is obtained through the submission of competitive proposals.  
See "Business - Aerospace Contracting." 
 
     Aerospace Telemetry Order Backlog 
 
     The Company's backlog of unfilled aerospace telemetry product  
orders was approximately $1,993,000 and $1,715,000 at December 31, 1995  
and 1996, respectively.  The Company estimates that substantially all of  
its backlog will be shipped within one year. 
 
     Delays and cancellations of defense procurements in the Company's  
market have adversely affected order rates from time to time.  Changing  
international political events and uncertainties regarding the level and  
priority of defense budgets in the United States and Western Europe are  
expected to continue to have an impact on new order levels. 
 
     A significant portion of the aerospace telemetry order backlog at  
December 31, 1995 and 1996, was concentrated in a few orders.  The  
aggregate orders of five customers represented approximately 67% and 65%  
of backlog at December 31, 1995 and 1996, respectively. 
 
     The Company's aerospace telemetry product backlog is subject to  
rescheduling and cancellation.  Historically, the Company has not  
experienced a significant adverse effect from the cancellation of  
aerospace telemetry orders; however, as a result of the Company's weak  
financial condition in 1995 and in early 1996, the Company experienced  
delays in completing customer contracts.  Such delays in the future  
could lead to contract cancellations, which could have an adverse effect  
on the Company's operations.  
 
     A substantial portion of backlog represents orders from the United  
States government and its agencies and subcontracts from prime  
contractors directly or indirectly funded by agencies of the United  
States government.  These orders can be canceled at the convenience of  
the government.  In such a case, the Company is generally entitled to  
recover costs incurred prior to the termination as well as a negotiated  
profit.  
 
     Aerospace Telemetry Research and Development 
 
     The Company is continuously engaged in research and development of  
aerospace telemetry products.  This program is conducted by the  
Company's own engineering staff and consulting engineers.  All of the  
Company's primary aerospace products have been developed under this  
program. 
 
     Research and development for new aerospace telemetry products and  
improvement of existing products was $696,000 in 1994 (17% of aerospace  
telemetry sales), $583,000 in 1995 (17% of aerospace telemetry sales)  
and $787,000 in 1996 (23% of aerospace telemetry sales).  Continuing  
development of the Quad 7 telemetry processing system platform will be  
required in the future to maintain its competitive position.  The  
Company anticipates continuing research and development expenditures for  
TFE products in addition to the Quad 7, and investing up to 13% of  
aerospace telemetry sales in research and development.  
 
     The market for the Company's aerospace telemetry products is  
characterized by technological change.  The Company's ability to compete  
successfully depends, in part, on its ability to develop new products  
and improve existing ones.  As a result of the Company's present  
financial condition, the Company's investment in research and  
development may be reduced.  In such event, the Company may be unable to  
maintain the competitive position of its aerospace telemetry products. 
 
     Aerospace Telemetry Contracting 
 
     In 1994, 1995, and 1996, approximately 70%, 55% and 61%,  
respectively, of aerospace telemetry sales were believed to be derived  
directly and indirectly from defense contracts for end-use by the United  
States government.  Substantially all of these orders are negotiated  
firm fixed-price contracts.  Under firm fixed-price contracts, the  
Company agrees to provide equipment and services for a fixed price and  
derives benefits from cost savings, but bears the entire risk of cost  
overruns. 
 
     The Company is subject to certain business risks as a supplier of  
defense-related equipment to the United States government, including  
dependence on congressional appropriations and changes in procurement  
policies, both of which are subject to uncertainty.  Reductions in  
government expenditures for defense programs and changes in defense  
priorities may continue to have an adverse effect on the Company's  
aerospace revenues and operating results.  
 
Employees 
 
     At December 31, 1995 and 1996, the Company employed approximately  
67 and 70 personnel, respectively, all of whom were located in the  
United States.  A number of key employees are highly skilled and  
critical to particular aspects of the Company's business.  The Company  
believes its current human resources and its access to additional  
resources should be adequate to support anticipated sales levels in  
1997.  The Company operates in emerging and highly competitive markets,  
and it must compete for skilled technical personnel against competitors  
that are significantly larger.  As a result, the Company may be unable  
to hire and retain personnel with the experience and skills that are  
critical to its operations.  In the event such personnel cannot be hired  
or leave the employment of the Company and cannot be replaced, the  
operations of the Company would be adversely affected. 
 
     The Company has never experienced a work stoppage and no employees  
are represented by a labor union.  The Company believes its employee  
relations are good. 
 
Manufacturing 
 
     The Company's mobile data communications and aerospace telemetry  
products are designed to be manufactured with standard electronic  
components and surface mounted devices.  Manufacturing and material  
procurement for all of the Company's products are integrated into one  
manufacturing operation.  The Company also designs and evaluates  
communications systems and purchases products and software from other  
manufacturers to offer complete end-to-end communications systems. 
 
     The Company purchases integrated circuits, electronic components,  
printed circuit boards and other fabricated parts from outside vendors.   
The Company subcontracts the assembly of all surface-mounted printed  
circuit boards to third party contractors.  The Company has multiple  
sources for most of its purchased materials and components.  For a few  
components, such as the Company's MCT mobile computer which is  
manufactured by a third party supplier, only a single source may be  
immediately available and there is a risk of delay in delivering  
Product.  The Company has from time to time experienced delays from  
vendors, however, these delays have not materially affected its  
business.   
 
     The Company maintains an in-house repair facility where its  
products can be refurbished or repaired.  The Company generally warrants  
its products against defects and workmanship for a period of up to one  
year from the date of shipment.  Warranty extensions may be purchased by  
any customer.  Warranty expense has not been a material factor. 
 
Environment 
 
     Compliance with federal, state and local laws and regulations  
involving the protection of the environment did not have and is not  
expected to have a material effect on the Company's capital  
expenditures, earnings or competitive position. 
 
Trademarks and Patents 
 
     In 1994, the Company was awarded a patent on its Automatic  
Deviation Compensation ("ADC") circuit.  The ADC circuit is used in the  
Company's mobile data communications systems to monitor radio system  
performance and to automatically correct individual mobile radio  
transmission deviations from performance specifications to improve  
signal reliability.  However, the principal fields in which the Company  
operates are characterized by technological innovations and design  
obsolescence.  As a result, the Company believes that its success does  
not depend on trademarks and patents to protect its hardware and  
software designs, but primarily on the Company's ability to introduce  
new products, advance its technology, and anticipate the requirements of  
its customers. 
 
ITEM 2.  DESCRIPTION OF PROPERTY 
 
     The Company's operations are headquartered in a single building in  
Carlsbad, California with approximately 19,000 square feet.  The acility  
is leased by the Company under an agreement expiring in October 1998.   
The Company also leases approximately 3,000 square feet of office and  
engineering space in Clearwater, Florida, under a lease expiring in  
January 1999. 
 
ITEM 3.  LEGAL PROCEEDINGS 
 
     On March 17, 1995, the Company, John A. Robinson, Jr., its Chief  
Executive Officer and the Chairman of the Board of Directors, and its  
wholly-owned subsidiary ComViSat, Inc. were named as defendants in a  
suit brought in Superior Court, San Diego County, by the two founders of  
ComViSat, Inc. for, among other claims, wrongful termination of  
employment of the two plaintiffs in January 1995 and alleged breach of  
duty of good faith, fraud and defamation in connection with the  
Company's acquisition of ComViSat, Inc. in 1994.  The complaint seeks  
unspecified general, special and punitive damages and costs and  
expenses.  On May 5, 1995, the Company filed an answer with the Superior  
Court denying all allegations and filed a cross-complaint against the  
two plaintiffs alleging, among other things, breach of contract and the  
implied covenant of good faith and fair dealing, breach of the duty of  
loyalty, fraud and intentional interference with contractual  
relationships.  The cross-complaint seeks unspecified damages,  
preliminary and punitive injunctive relief, and costs and expenses. 
 
     The defendants' complaint and the Company's cross-complaint were  
dismissed in 1996 by mutual consent, and the parties agreed to binding  
arbitration.  The Company anticipates the matter will go to arbitration in  
1997. 
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
 
     None. 
 
 
                               PART II 
 
 
 
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER 
MATTERS 
 
     The Company's common stock is presently traded in the over-the- 
counter market and quoted on the NASDAQ OTC Electronic Bulletin Board  
under the trading symbol CODD.  The quotations represent inter-dealer  
quotations, without retail markups, markdowns or commissions, and may  
not necessarily represent actual transactions. 
<TABLE>
 
     The following table sets forth, for the fiscal quarter indicated,  
the high and low closing bid price of the Company's common stock as  
reported by the NASDAQ OTC Electronic Bulletin Board.   
 <CAPTION>
                                             High        Low 
   Year ended December 31, 1996: 
     <S>                                   <C>        <C>
      March quarter                        $  .42     $  .19 
      June quarter                            .55        .28 
      September quarter                       .64        .34 
      December quarter                        .56        .39 
 <CAPTION>
   Year ended December 31, 1995: 
     <S>                                   <C>        <C>
      March quarter                        $ 1.22     $  .47 
      June quarter                            .63        .19 
      September quarter                       .91        .44 
      December quarter                        .63        .20 
</TABLE>
 
 
     The number of shareholders of the Company's common stock, including  
holders whose shares are held in street name, was estimated to be in  
excess of 2,000 at December 31, 1996. 
 
    There have been no dividends or other distributions made by the  
Company since its inception.  The Company does not anticipate paying  
cash dividends in the foreseeable future. 
 
 
 
ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 
 
     The Company operates in a single industry - the design, manufacture  
and integration of digital communications products and systems used  
primarily in terrestrial radio systems.  The two principal markets in  
which the Company competes are wireless mobile data communications and  
aerospace telemetry systems. 
 
     The Company restructured its business operations and management in  
the first quarter of 1995 which resulted in, among other things, a  
significant reduction in operating expenses in 1995.  Any comparison of  
operating expenses between the years ended 1996 and 1995 may not  
represent a meaningful analysis because of the business restructuring. 
 
Results of Operations - 1996 Compared With 1995 
<TABLE>
 
     Sales by the Company's major product lines are presented below. 
 <CAPTION>
                                        1995          1996 
     <S>                           <C>           <C>
     Mobile data communications..  $ 6,676,000   $ 7,880,000 
     Aerospace telemetry. .........  3,495,000     3,430,000 
</TABLE>
                                   $10,171,000   $11,310,000 

<TABLE>
 
     The following table sets forth, as a percentage of revenues,certain  
income (loss) data for the years ended December 31, 1995 and 1996: 
 <CAPTION>
                                          1995        1996 
     S                                   <C>         <C>
     Net sales...........................100.0%      100.0% 
     Cost of sales.....................   72.6        55.2 
     Gross profit.......................  27.4        44.8 
   Operating expenses: 
   Selling, general and administrative... 33.4        26.0 
   Research and development.............  10.6        15.7 
 
   Operating income (loss).............. (16.6)        3.1 
   Loss before extraordinary gain........(24.4)       (1.7) 
   Extraordinary gain...................  13.4         8.8 
   Net income (loss).....................(11.0)%       7.1% 
</TABLE>
 
     Operating Income (Loss) 
 
     For the year ended December 31, 1996 ("1996"), the Company reported  
its first annual operating profit of $345,000 before interest expense,  
income taxes and extraordinary gain, compared to an operating loss of  
$(1,688,000) in the year ended December 31, 1995 ("1995").  The sharp  
turnaround in operating performance in 1996 compared to 1995 resulted  
primarily from increased sales, improved gross margin on sales and a  
reduction in selling, general and administrative expense; offset by an  
increase in research and development costs. 
 
     The improvement in operating performance continued a trend toward  
profitability begun in the second half of 1995, when the Company  
reported an operating profit of approximately $250,000 for the six month  
period.  The trend toward operating profitability is a direct result of  
the Company's restructuring efforts completed in the first quarter of  
1995.  These efforts included changes in management, closing the VSAT  
product line and all international mobile data communications sales  
offices, a reduction in personnel and improved gross margins on sales.   
Although the Company has recently established a trend toward operating  
profitability, there can be no assurance that the Company will be  
profitable in the future.  The Company operates in markets with intense  
competition and against competitors with significantly greater financial  
and technical resources.  In addition, the Company's business is  
presently concentrated in large single orders from a small base of  
customers and, as a result, new order levels, sales and operating  
profits or losses can fluctuate significantly on a quarter-to-quarter  
and annual basis. 
 
     Sales and New Orders 
 
     Net sales in 1996 were $11,310,000, an increase of 11% over sales  
of $10,171,000 in 1995.  Sales of mobile data communications products in  
1996 were $7,880,000, an increase of 18% over sales of $6,676,000 in  
1995.  The increase in sales resulted entirely from an increase in sales  
to customers in Mexico.  Sales of mobile data communications products to  
customers in Mexico were not significant in 1995 and represented 53% of  
mobile data communications product sales in 1996.  Sales of mobile data  
products to other customers, primarily in the United States, decreased  
by 56% in 1996 compared to 1995, primarily as a result of depressed new  
order levels experienced in 1995 and the first half of 1996.  The  
Company believes that its weak financial condition in 1995 was a primary  
factor impacting new orders for mobile data communications products.   
The Company, based on current bid and proposal activity, believes that  
new orders for mobile data communications products from customers in the  
United States will increase in 1997.  However, because the Company's  
mobile data communications product sales are concentrated in single  
large orders from a small base of customers, it is extremely difficult  
to project new order and sales levels with any certainty.  The loss of  
any large potential order could have a material effect on the level of  
new orders booked in 1997 and, accordingly, there can be no assurance  
that new order levels and sales of mobile data communications products  
will increase in 1997. 
 
     Sales of aerospace telemetry products in 1996 were $3,430,000, a  
decrease of 2% from sales of $3,495,000 in 1995.  Sales of aerospace  
telemetry products are expected to moderately increase in 1997 over 1996  
sales levels; however, because of the same factors discussed above  
relating to mobile data communications products, there can be no  
assurance that new orders and sales of aerospace telemetry products will  
increase in 1997. 
 
     New orders for mobile data communications products increased by 129%  
in 1996 over 1995, entirely as a result of new orders from customers in  
Mexico.  New order levels for mobile data communications products from  
other customers, primarily in the United States, decreased by 31% in  
1996 compared to 1995.  New orders for aerospace telemetry products in  
1996 were unchanged from 1995.  The backlog of orders for mobile data  
communications and aerospace telemetry products was approximately  
$5,033,000 and $5,703,000 at December 31, 1996 and 1995, respectively.   
The backlog of orders is generally concentrated in the single orders of  
a few customers, and the cancellation of any major orders would have an  
adverse effect on the Company sales in 1997.  Historically, the Company  
has not experienced a high rate of order cancellations by customers. 
 
     Gross Margin 
 
     Gross margin, as a percentage of sales, improved to 45% of sales in  
1996 from 27% of sales in 1995.  Gross margin on sales of mobile data  
communications products improved by over 100% in 1996 compared to 1995,  
primarily as a result of a change in product mix in 1996, with a higher  
percentage of sales represented by standard products and software which  
typically yield higher gross margin than other product sales, which can  
include the products of third-party supplier such as mobile radios,  
applications software and computer equipment.  The gross margin on  
mobile data product sales in the first half of 1995 was adversely  
effected by contract cost overruns. 
 
     The gross margin, as a percentage of sales, on aerospace telemetry  
products increased by 37% in 1996 over 1995.  Gross margin on the sale  
of aerospace telemetry products in 1995 was impacted by charges for  
losses on certain contracts in the first half of 1995. 
 
     The Company anticipates that gross margin in 1997, as a percentage  
of sales, will be consistent with or slightly improved over gross margin  
in 1996, based on projected sales levels and product mix.  Gross margin,  
however, can be expected to fluctuate on a quarter-to-quarter basis and,  
in the event projected sales levels are not achieved, gross margin as a  
percentage of sales could be adversely effected. 
 
 
 
 
     Extraordinary Item - Gain on Extinguishment of Debt 
 
     In 1996, agreements for the settlement of unsecured debt at a  
discount resulted in an extraordinary gain of $995,000, net of related  
expense.  The gain on extinguishment of debt is reflected as an  
extraordinary item in the consolidated financial statements. 
 
     Operating Expense, Interest Expense and Income Taxes 
 
     In the first half of 1995, the Company restructured its operations  
and significantly reduced its level of operating expenses.  As a result,  
a comparison of operating expenses for the years ended 1996 and 1995 may  
not be meaningful. 
 
     Selling, general and administrative expense was $2,946,000 in 1996,  
a decrease of $451,000 or 13% compared to 1995.  In addition, selling,  
general and administrative expense was reduced to 26% of sales in 1996  
from 33% of sales in 1995.  The decrease in selling, general and  
administrative expense in 1996 resulted primarily from lower mobile data  
communication product selling expense and a reduction in general and  
administrative expense.  These reductions resulted from reduced  
personnel costs and discretionary selling expenses, such as advertising,  
trade show and travel expense.  Selling, general and administrative  
expenses in 1997, as a percentage of sales, are expected to be  
consistent with or slightly lower than 1996 expense levels. 
 
     Research and development costs in 1996 increased by $692,000 or 64%  
over 1995.  As a percentage of sales, research and development expense  
increased to 16% of sales in 1996 from 11% of sales in 1995.  Research  
and development expense in 1995 was significantly below historical  
levels, primarily as a result of the completion of major research and  
development programs in 1995 and a reduction in engineering personnel.   
Research and development expense in 1996, as a percentage of sales,  
returned to a level more consistent with prior years as the Company  
added engineering personnel to support mobile data communications  
product software development projects.  Research and development  
expense, as percentage of sales, is expected to range from 12% to 14% of  
sales in 1997. 
 
     Interest expense was $524,000 in 1996, a decrease of $251,000 from  
interest expense of $775,000 in 1995.  The decrease in interest expense  
resulted from a restructuring of debt in 1996, with lower interest rates  
on remaining outstanding debt and a conversion of debt to preferred  
stock. 
 
     Income tax expense, net of the benefit from the utilization of  
federal and state net operating loss carryforward benefits, was $24,000  
in 1996 and 1995, representing a provision for State income taxes.  At  
December 31, 1996, the Company and its wholly-owned subsidiaries have  
combined net operating loss carryforward benefits of approximately  
$29,000,000 available to offset future Federal income taxes, if any.   
The annual use of any future net operating loss carryforward benefits,  
however, will be limited on an annual basis due to the change in  
ownership of the Company and its subsidiaries.  This limitation in the  
annual use of Federal net operating loss tax carryforward benefits is  
not expected to have a material effect on income tax expense in 1997.   
The realization of loss carryforward tax benefits is dependent upon  
generating sufficient future taxable income prior to the expiration of  
the loss carryforwards.  Because of the Company's history of operating  
losses, there is no assurance that any loss carryforward tax benefits  
will be realized. 
 
Results of Operations - 1995 Compared With 1994 
 
     The Company restructured its business operations and management in  
the first quarter of 1995.  These actions included the closing of the  
Company's VSAT product line and the international mobile data sales  
organization.  In Addition, the Company's CEO resigned and a number of  
management positions were eliminated to streamline operations.  As a  
result of the restructuring, research and development, selling and  
administrative expenses in 1995 were reduced by approximately $8,383,000  
compared to the prior year.  The loss before interest, income taxes and  
extraordinary item was reduced in 1995 to $1,688,000 from $12,207,000 in  
1994.  Included in the loss before interest, income taxes and  
extraordinary item in 1994 is $3,151,000 in restructuring costs and  
expenses. 
 
     Any comparison of sales and operating expenses between fiscal  
periods may not represent a meaningful analysis at the present time  
because of the business restructuring implemented in the first half of  
1995, management changes and a narrower focus on selected market  
segments. 
 
     Sales and New Orders and Gross Margins 
 
     Sales of mobile data communications and aerospace telemetry  
products were $10,171,000 in 1995, a decrease of $1,945,000 or 16% from  
sales in 1994.  Sales of mobile data communications systems in 1995  
decreased 16% and aerospace telemetry sales decreased 15%, compared to  
the prior year.  Included in mobile data communications sales in 1995 is  
$394,000 in revenue recognized from the licensing of manufacturing  
rights of the Company's MPT 1327 modem to GEC-Marconi Communications.   
The MPT 1327 modem is used in trunked radio systems in the United  
Kingdom using the UK standard MPT 1327 transmission protocol.  Under the  
license agreement, the Company will receive future royalties for each  
MPT 1327 modem manufactured and sold by the licensee. 
 
     The decrease in sales in 1995 was primarily due to delays in  
completing contract shipments due to a shortage of parts and constraints  
on human resources, a lack of working capital and delays in starting  
production of the Company's new MCT mobile data computer product line.   
Additional borrowings of $1,050,000 provided by a $1,800,000 bridge loan  
in 1995 improved the Company's short-term liquidity and allowed the  
Company to increase its sales levels throughout 1995, from first quarter  
sales of approximately $2,224,000 to sales of approximately $3,056,000  
in the last quarter of 1995. 
 
     New order rates for mobile data communications and aerospace  
telemetry systems and products decreased 58% compared to record order  
levels in 1994.  Orders for mobile data communications and aerospace  
telemetry products decreased 68% and 40%, respectively, compared to  
order levels in the prior year.  Orders in 1994 included an order valued  
at over $4,100,000, the largest single mobile data communications order  
the Company has been awarded. 
 
     The Company generally competes for large, special order system  
contracts in its mobile data communications and aerospace telemetry  
markets.  As a result of its financial condition, the Company believes  
customers awarded contracts to other competitors that would otherwise  
have been awarded to the Company, based on the substantially greater  
financial resources of the Company's competitors.  The sharp reduction  
in operating losses, the settlement of a majority of unsecured creditor  
claims and customer acceptance in 1995 of several major mobile data  
systems improved the Company's competitive position late in 1995. 
 
     The backlog of orders for mobile data communications and aerospace  
telemetry products was $5,703,000 in 1995 and $8,800,000 in 1994. 
 
     Gross margin, as a percentage of sales, was 27% in 1995 and 1994.   
The gross margin on mobile data communications and aerospace telemetry  
systems were substantially unchanged in 1995 compared to 1994.  The  
Company's mobile data communications orders are concentrated in large  
single orders for complete mobile data communications systems.  The mix  
of the Company's mobile data communications products and services and  
the products of other third party suppliers, which can include mobile  
radios, laptop computers and software, will vary from order to order.   
As a result, mobile data communications gross margin can be expected to  
fluctuate from year to year. 
 
     Extraordinary Item - Gain on Extinguishment of Debt 
 
     In 1995, agreements for the settlement of unsecured creditors debt  
at a discount from the value of the creditors' claims resulted in a gain  
of $1,367,000, net of related expense.  The gain on extinguishment of  
debt is reflected as an extraordinary item in the consolidated financial  
statements. 
 
     Operating Expense and Interest Expense 
 
     As a result of the Company's efforts to restructure its operations,  
selling and administrative expense and research and development expense  
were significantly reduced in 1995 compared to 1994.  The decrease in  
operating expenses of $8,383,000 in 1995 compared to 1994 resulted  
primarily from a reduction in headcount, from 122 employees at the end  
of 1994 to 67 employees at the end of 1995, the closure of all  
international mobile data sales offices, the focus of marketing and  
selling efforts on selected markets, a reduction in overhead expense and  
the closing of the Company's VSAT earthstation product line. 
 
     Selling expenses in 1995 decreased by $4,679,000 or 65% compared to  
1994.  Approximately 42% of the reduction in expense resulted from  
closing international sales offices and 31% of the reduction resulted  
from the closing of the VSAT earthstation product line.  The balance of  
the reduction resulted  primarily from a decrease in personnel costs and  
discretionary selling expenses such as travel, advertising and trade  
show expense. 
 
     General and administrative expenses in 1995 decreased by  
approximately $2,139,000 compared to 1994, primarily as a result of a  
reduction in personnel costs of approximately $639,000 and overhead  
expense required to support international operations. 
 
     Research and development expense in 1995 decreased by $1,565,000 or  
59% compared to 1994.  Substantially all of the decrease in expense  
related to a reduction in mobile data communications engineering  
personnel and overhead support expense.  The reduction in personnel  
costs resulted from a reduction in headcount and a shift of mobile data  
engineering resources from product development to direct customer  
contracts. 
 
     Interest expense in 1995 increased by $51,000 from 1994 primarily  
as a result of interest expense on a new $1,800,000 bridge loan, funded  
in 1995.   This increase in interest expense was partially offset by the  
conversion in May 1995 of $990,000 principal amount 13.5% Convertible  
Debentures into shares of common stock.  
 
Liquidity and Capital 
 
     Since its inception, the Company has financed its operations,  
investments in new product development and met its working capital  
requirements through the sale of common stock, convertible debentures  
and other financings.  In 1996, cash requirements were met by $273,000 in  
cash flow from operations and proceeds of $1,430,000 from the sale of  
common stock.  In 1995, cash requirements where met primarily with  
$1,050,000 provided by a bridge loan, and a reduction in working  
capital. 
 
     In the third quarter of 1996, the Company completed a series of  
transactions with ISA and certain of the Company's secured creditors.   
Through these transactions, ISA acquired a 76% ownership interest in the  
Company's outstanding common shares for a cash investment of $1,400,000,  
and secured creditors holding debt in the amount of $6,600,000 agreed to  
restructure their debt on terms considered by the Company to be  
favorable.  Approximately $400,000 of the cash proceeds received from  
the ISA investment was used to retire principal on the bridge loan and  
$247,000 was used to settle, at a discount, unsecured and secured claims  
totaling approximately $1,098,000. In addition, in December 1996, the holder
of the $4,800,000 principal amount 6% Convertible Debenture converted the 
debenture into 48,000 shares of Series B preferred stock with a liquidation 
preference of $4,800,000.  Prior to year-end, 1,225 shares of Series B 
preferred stock were converted by the holder into 200,006 shares of common 
stock. 
 
     As a result of the ISA transaction and the restructuring of the  
Company's secured debt, profitable operations in 1996 and the settlement  
of creditor debt at a discount, debt and other liabilities were reduced  
by $8,319,000 in 1996; a shareholders' deficit of $7,571,000 was  
eliminated; and a working capital deficit was decreased from $7,648,000  
to $468,000. 
 
     In 1996, accounts receivable decreased by $81,000 from the prior  
year, as the timing of sales in the last quarter of 1996 and 1995 was  
comparable.  Included in accounts receivable at December 31, 1996 were  
$584,000 in receivables due from ISA.  Unbilled costs and earnings on  
contracts decreased by $637,000 in 1996, to $180,000 from $817,000 in  
1995.  The decrease was a result of the difference in the timing of  
revenue recognition for financial statement purposes and actual contract  
invoicing which is determined by contract terms.  Inventories in 1996  
decreased by $60,000, to $1,480,000 from $1,540,000 in 1995 primarily as  
a result of progress payments received from a customer. 
 
     Accounts payable in 1996 decreased by $1,458,000 compared to 1995,  
primarily as a result of the settlement of unsecured creditors claims in  
1996 with a value of approximately $1,504,000.  The Company at times  
throughout 1995 was unable to make timely payments to its trade and  
other creditors.  In the second half of 1995 and throughout 1996, most  
of the Company's suppliers required cash on delivery as their terms of  
sale and the Company was generally meeting its obligations in a timely  
manner.  By the end of 1996, the Company had reestablished credit terms  
with certain of its suppliers and the Company now believes that credit  
terms with a majority of its key suppliers will be reestablished in  
1997.  At December 31, 1995 and 1996, there were disputed and past due  
creditor claims outstanding of approximately $1,600,000 and $400,000,  
respectively.  The Company expects to reach settlements in 1997 with the  
creditors holding a substantial amount of the disputed and past due  
claims, and the settlement of these claims will not have an adverse  
effect on the Company's financial position. 
 
    Investments in property and equipment were approximately $276,000 in  
1996.  At December 31, 1996, the Company had no material commitments for  
the purchase of capital equipment. 
 
     In 1996, the Company restructured its secured debt.  The $1,800,000  
principal amount Bridge Loan, due in April 1996, was canceled in  
exchange for a cash payment of $400,000, the issuance of new $600,000  
principal amount 6% Term Notes due September 1997 and the issuance of Series 
A preferred stock with a liquidation preference of $800,000. The 6% Term 
Notes are convertible, at the option of the holders, into 2,400,000 shares of  
common stock at any time prior to maturity.  The $4,000,000 principal  
amount 12% Convertible Debentures and accrued interest of $800,000 were  
exchanged for a new seven year 6% Convertible Debenture.  The 6%  
Convertible Debenture was subsequently converted in December 1996 into  
Series B preferred stock with a liquidation preference of $4,800,000.   
In 1997, approximately $1,441,000 in debt, including the $600,000  
principal amount 6% Term Note and $837,000 principal amount of  
Creditors' Note, is scheduled for retirement.  The cash required to  
repay these obligations is expected to be provided from a combination of  
cash flow from operations, if any, and new debt or equity financing. 
 
     Although the Company has established a recent trend of profitable  
operations, prior to 1996 the Company had a history of operating losses.   
Accordingly, there can be no assurances that the Company can operate at  
a profit in the future.  Moreover, the Company's new orders and sales  
are typically concentrated in a few large single orders from a small  
base of customers.  As a result, new orders, sales and cash flow from  
operating activities may vary significantly from quarter-to-quarter.   
Accordingly, cash flow from operations is not expected to be sufficient  
to meet ongoing cash requirements and additional financing will likely  
be required to fund operations and working capital requirements in 1997.   
The Company believes that continuing progress in operating results and  
increasing new order rates will allow the Company to finance its cash  
requirements from new short-term and long-term financing, from the sale  
of common or preferred stock, or a combination of debt and equity.   
Additional capital in 1997 is likely to be provided or arranged by the  
Company's controlling shareholder ISA.  However, the Company believes  
short-term financing collateralized by accounts receivable and other  
assets could be available from other third party lenders. 
 
     In the event financing is not available in the time frame required,  
then the Company would be forced to reduce its rate of sales growth, if  
any, reduce operating expenses and reschedule research and development  
projects.  In addition, the Company might be required to sell certain of  
its assets or license its technologies to others.  These actions, while  
necessary for the continuance of operations during a period of cash  
constraints and a shortage of working capital, could adversely effect  
the Company's long-term business and shareholder value. 
 
 
 
Inflation, Changing Prices and Impact from the Year 2000 
 
     The effects of inflation have not had a material impact on revenues  
or expenses during the three year period 1994 through 1996.  At the  
present time, the Company is reviewing its internal systems to determine  
the impact, if any, the calendar year 2000 will have on its systems. 
 
ITEM 7.   FINANCIAL STATEMENTS 
 
     The consolidated financial statements and supplementary data  
required by this Item are set forth at the pages indicated in Item  
13(a). 
 
ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 
ACCOUNTING AND FINANCIAL DISCLOSURE 
 
     None 
 
                                  PART III 
 
 
ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL 
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT 
 
     The information required by this item is contained in the  
definitive Proxy Statement of the Company to be filed in connection with  
its 1997 Annual Meeting of Shareholders, which information is  
incorporated herein by reference. 
 
ITEM 10.   EXECUTIVE COMPENSATION 
 
     The information required by this item is contained in the  
definitive Proxy Statement of the Company to be filed in connection with  
its 1997 Annual Meeting of Shareholders, which information is  
incorporated herein by reference. 
 
ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 
           MANAGEMENT 
 
     The information required by this item is contained in the  
definitive Proxy Statement of the Company to be filed in connection with  
its 1997 Annual Meeting of Shareholders, which information is  
incorporated herein by reference. 
 
ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 
 
     The information required by this item is contained in the  
definitive Proxy Statement of the Company to be filed in connection with  
its 1997 Annual Meeting of Shareholders, which information is  
incorporated herein by reference. 
 
ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K 
 
     (a)   Financial Statements and Exhibits. 
                                                                  Page 
     (1)   Financial Statements: 
              Report of Independent Accountants                     28 
 
           Consolidated Balance Sheets as of December 31, 1995  
             and 1996                                               29 
 
           Consolidated Statements of Income (Loss) for the years 
             Ended December 31, 1994, 1995 and 1996                 30 
  
           Consolidated Statements of Shareholders' Equity (Deficit) 
             for the Years Ended December 31, 1994, 1995 and 1996   31 
 
           Consolidated Statements of Cash Flows  for the Years  
             Ended December 31, 1994, 1995 and 1996                 32 
 
           Notes to Consolidated Financial Statements               33 
 
       (2) Financial Statement Schedules: 
             II:  Valuation and Qualifying Accounts                 46 
 
 
 
          All other financial statement schedules have been omitted  
since the information is not applicable or required, or is included in  
the financial statements or notes thereto. 
  
       (b)   Reports on Form 8-K:   
 
                None. 
 
       (c)   Exhibits: 
 
        2.1: Agreement and Plan of Reorganization, dated as of February  
27, 1993, among CCI Coded Communications, Inc., Coded Communications  
Corporation, Decom Acquisition Corp. and Decom Systems, Inc. (1) 
 
        2.2: CCI Coded Communications, Inc. (Wyoming) and Coded  
Communications Corporation (Delaware) Articles of Merger and Agreement  
and Plan of Merger. (2) 
 
        2.3: CCI Coded Communications, Inc. (British Columbia) and CCI  
Coded Communications, Inc. (Wyoming) Certificate of Registration and  
Articles of Continuance. (2) 
 
        2.4:  Mutual Agreement of Terms and Conditions, dated May 1,  
1996 and the Second Agreement, dated July 17, 1996 (filed as Exhibits to  
the Company's Definitive Proxy Statement dated July 26, 1996). 
 
        3.1: Certificate of Incorporation and Bylaws of Coded  
Communications Corporation (Delaware). (1)   
 
        3.2: Certificate of Amendment of Certificate of Incorporation.  
(4) 
 
        3.3: Certificate of Correction of Certificate of Designation of  
Preferred Stock, Series A and Certificate of Designation of Preferred  
Stock, Series A. (4) 
 
        3.4: Certificate of Correction of Certificate of Designation of  
Preferred Stock, Series B and Certificate of Designation of Preferred  
Stock, Series B. (4) 
 
        4.1:   6% Convertible Debenture and Fourth Amendment to Loan  
Agreement by and between Coded Communications Corporation, Coded Mobile  
Communications Corporation, Coded Mobile Communications Corporation and  
Renaissance Capital Partners II, Ltd. (4) 
 
       10.1: Executive Employment Agreement between Coded Communications  
Corporation, Decom Systems, Inc. and John A. Robinson, Jr. (2) 
 
       10.2: Executive Employment Agreement between Coded Communications  
Corporation, Decom Systems, Inc. and Steven E. Borgardt. (2) 
 
       10.3: Executive Employment Agreement between Coded Communications  
Corporation, Decom Systems, Inc. and Richard K. Carrine. (2) 
 
       10.4: Executive Employment Agreement between Coded Communications  
Corporation and James B. Moore. (2) 
 
       10.5: Executive Employment Agreement between Coded Communications  
Corporation and Maurice Nieman. (2) 
 
       10.6: Industrial Lease by and between Madison Square Development  
Partnership and Decom Systems, Inc. (filed as an exhibit to Decom's  
Annual Report on Form 10-K for the fiscal year ended September 30, 1987  
and incorporated herein by reference). 
 
       10.7: Agreement for the Purchase and Sale of Assets and to  
Appoint Distributors by and between Coded Communications Corporation,  
Decom Systems, Inc. and Consolidated Coded Communications Corporation  
(filed as an exhibit to Decom's Annual Report on Form 10-K for the  
fiscal year ended September 30, 1987 and incorporated herein by  
reference). 
 
       10.8: Executive Employment Agreement between Coded Communications  
Corporation and Gerard P. Dennehy (filed as an exhibit to the Company's  
Registration Statement on Form SB-2 (No 33-72526) and incorporated  
herein by reference). 
 
       10.10: Consolidated Coded Management Incentive Program, with  
First and Second Amendments (filed as an exhibit to the Company's  
Registration Statement on Form 10 dated September 8, 1989 and  
incorporated herein by reference). 
 
       10.11: Declaration of the Management Incentive Trust (filed as an  
exhibit to the Company's Registration Statement on Form 10 dated  
September 8, 1989 and incorporated herein by reference). 
 
      10.12: Loan Agreement, as amended, between Renaissance Capital  
Partners, II Ltd.;  Jersey Invest, Ltd; Stewart Leasing Company; Mindful  
Partners, L.P.; S.L. Rudick IRA; Herman Hodges and M. Driver and Coded  
Communications Corporation, Coded Mobile Communications, Inc.; ComViSat,  
Inc.; and Decom Systems, Inc. (filed as an exhibit to the Company's  
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995  
and incorporated herein by reference). 
 
      20.1: Post Effective Amendment No. 1 to Coded Communications  
Corporation Stock Option Plan for Employees of Coded Communications  
Corporation and Subsidiaries (filed as an exhibit to the Company's  
Registration Statement on Form S-8 (No. 33-51912) dated November 5, 1993  
and incorporated herein by reference). 
 
      20.2: Coded Communications Corporation Stock Option Plan for  
Employees of Decom Systems, Inc. (filed as an exhibit to the Company's  
Registration Statement on Form S-8 (No. 33-71264) dated November 5, 1993  
and incorporated herein by reference). 
 
      21.1: List of Subsidiaries (filed herein). 
 
      23.1: Consent of Coopers & Lybrand, L.L.P. (filed herein). 
 
      27.1: Financial Data Schedule as of December 31, 1996  (filed  
herein). 
_____________________ 
 
(1)   Incorporated by reference to Registration Statement on Form S-4  
(File No. 33-59046) declared effective July 9, 1993. 
 
(2)   Incorporated by reference to the Company's Quarterly Report on  
Form 10-QSB (File No. 0-17574) for the quarter ended October 2, 1993. 
 
(3)   Incorporated by reference to the Company's Definitive Proxy  
Statement dated January 26, 1996. 
 
(4)   Incorporated by reference to the Company's Quarterly Report on  
Form 10-QSB (File No. 0-17574) for the quarter ended September 28, 1996. 
 
 
 
                                SIGNATURES 
 
     In accordance with Section 13 or 15 (d) of the Exchange Act, the  
registrant has caused this report to be signed on its behalf by the  
undersigned, thereunto duly authorized. 
 
 
                               CODED COMMUNICATIONS CORPORATION 
                                       (Registrant) 
 
 
 
                               /s/ Gary L. Luick. 
                                   Gary L. Luick 
                                   Chief Executive Officer  
                                   and President 
 
 
     In accordance with the Exchange Act, this report has been signed by  
the following persons on behalf of the registrant and in the capacities  
and on the dates indicated: 
 
 
 
          Signature            Title                   Date 
 
 
/s/ Gary L. Luick       Chief Executive Officer 
                        President and Director      March 24, 1997 
    Gary L. Luick 
 
 
/s/ Steven E. Borgardt    Vice President Finance  
                          Chief Financial Officer   March 24, 1997 
    Steven E. Borgardt    (Chief Accounting Officer)
 
/s/ Hugo R. Camou         Chairman of the Board     March 24, 1997 
    Hugo R. Camou 
 
    
    Fernando Molino       Director


/s/ Fernando Pliego       Director                  March 24, 1997 
    Fernando Pliego 
 
 
 
 
 
                    REPORT OF INDEPENDENT ACCOUNTANTS 
 
 
To the Shareholders of 
   Coded Communications Corporation

We have audited the consolidated financial statements and financial
statement schedule of Coded Communications Corporation and subsidiaries
(the "Company") listed in Item 13(a) of this Form 10-KSB.  These
financial statements and financial statement schedule are the
responsibility of the Company's management.  Our responsibility is
to express an opinion on these financial statements and financial 
statement schedule 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 text 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 consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated financial 
position of the Company at December 31, 1995 and 1996, and the consolidated 
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.  In addition, in our opinion, the financial 
statements taken as a whole, presents fairly, in all material respects,
the information required to be included therein.

The accompanying consolidated financial statements have been prepared 
assuming that the Company will continue as a going concern.  As discussed
in Note 2 to the consolidated financial statements, the Company's
liquidity has been adversely affected by continued losses from operations.
In addition, continuaiton of operations is dependent upon the availability
of additional capital and the Company's ability to generate increased 
revenues and improved gross margin on sales.  These issues raise substantial
doubt about the Company's ability to continue as a going concern.  
Management's plans in regard to these matters are also described in 
Note 2.  The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


                              COOPERS & LYBRAND L.L.P.
 
 
San Diego, California
February 28, 1997 
 
 
 
  
 
<TABLE>
 
       CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
                   CONSOLIDATED BALANCE SHEETS 
 
 <CAPTION>
                                                December 31, 
                                            1995           1996 
ASSETS 
<S>                                       <C>           <C> 
Current assets: 
  Cash and cash equivalents               $   201,000   $   963,000 
  Accounts receivable.                      1,828,000     1,776,000 
  Unbilled costs and earnings on contracts    817,000       180,000 
  Inventories                               1,540,000     1,480,000 
  Prepaids and other assets                   314,000       206,000 
     Total current assets                   4,700,000     4,605,000 
 
Property and equipment, net                   821,000       730,000 
Other assets                                  300,000       186,000 
 
                                          $ 5,821,000   $ 5,521,000 
 
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) 
 
Current liabilities: 
  Current portion of debt and  
    creditors' note                       $ 6,151,000  $ 1,441,000 
  Accounts payable                          2,437,000      979,000 
  Accrued payroll and related benefits        431,000      489,000 
  Accrued interest                            757,000        3,000 
  Deferred revenue and customer payments      624,000      748,000 
  Other accrued liabilities                 1,948,000    1,413,000 
     Total current liabilities             12,348,000    5,073,000 
 
Creditors' note, net of current portion     1,044,000       --     
Commitments and contingencies  
   (Notes 1, 2 and 11)                         --           --     
 
Shareholders' equity (deficit) (Note 10): 
  Preferred stock, $.01 par value, 2,000,000 
   shares authorized; issued and outstanding 
   8,000 shares Series A preferred stock, 
   liquidation preference $800,000; and 46,775 
   shares Series B preferred stock,  
   liquidation preference $4,678,000          --           1,000 
  Common stock, $.01 par value; 14,566,201 and 
   75,699,812 shares issued and outstanding in 
   1995 and 1996, respectively              146,000      757,000 
  Additional paid-in capital             23,330,000   29,929,000 
  Accumulated deficit                   (31,047,000) (30,239,000) 
   Total shareholders' equity (deficit)  (7,571,000)     448,000 
 
                                        $ 5,821,00  $_5,521,000 
</TABLE>
 
The accompanying notes are an integral part of the consolidated  
financial statements. 
 
 
      CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
         CONSOLIDATED STATEMENTS OF INCOME (LOSS) 
 
<TABLE>
 
 <CAPTION>                           Years Ended December 31, 
                                1994            1995           1996 
<S>                         <C>             <C>            <C> 
Net sales                   $ 14,291,000    $ 10,171,000   $ 11,310,000 
Cost of sales                 10,488,000       7,383,000      6,248,000 
 
Gross margin                   3,803,000       2,788,000      5,062,000 
 
Operating expense: 
  Selling and administrative  
    expense                   10,215,000       3,397,000      2,946,000 
  Research and development 
    expense                    2,644,000       1,079,000      1,771,000 
  Restructuring costs and  
    expenses                   3,151,000          --              --  
 
Total operating expense       16,010,000       4,476,000      4,717,000 
Operating income (loss)      (12,207,000)     (1,688,000)       345,000 
 
Interest expense                 724,000         775,000        524,000 
Interest and other income        (28,000)         (3,000)       (16,000) 
Provision for income taxes        26,000          24,000         24,000 
 
Loss before extraordinary  
    item                     (12,929,000)     (2,484,000)      (187,000) 
Extraordinary item-gain on  
    extinguishment of debt        --           1,367,000        995,000 
 
Net income (loss)           $(12,929,000)    $(1,117,000)   $   808,000 
 
Net income (loss) per share: 
    Income (loss) before 
      extraordinary item    $      (1.07)    $      (.17)   $     --  
    Extraordinary item           --                  .10           .02 
 
Net income (loss) per share $      (1.07)    $      (.07)   $      .02 
 
Average shares outstanding.   12,127,000      14,244,000    44,891,000 
</TABLE>
 
 
The accompanying notes are an integral part of the consolidated  
financial statements. 
 
 
 
 
 
 
                CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)  
 
 
<TABLE>
 
<CAPTION> 
                                                                 Additional               Total
                               Common Stock     Preferred Stock  Paid-in     Accumulated  Shareholders'
                             Shares     Stock    Par Value       Capital     Deficit     Equity(Deficit)
       
<S>                         <C>        <C>       <C>           <C>          <C>            <C>      
Balances, December 31, 1993 11,162,359 $112,000  $  ---        $19,123,000  $ (17,001,000) $ 2,234,000 
 
Issuance of common stock     1,318,965   13,000     ---          2,962,000        ---        2,975,000 
 
Issuance of common stock 
for compensation                 7,000     ---      ---             6,000         ---            6,000 
 
Issuance of common stock 
for acquisition                 50,000     ---      ---           100,000         ---          100,000 
 
Net loss for year                ---       ---      ---            ---      12,929,000)    (12,929,000) 
 
Balances, December 31, 1994 12,538,324  125,000     ---        22,191,000    (29,930,000)   (7,614,000) 
 
Conversion of 13.5%  
debentures                  1,319,997    13,000     ---          977,000          ---        990,000 
 
Issuance of common stock  
for services                 707,880      8,000     ---          162,000          ---        170,000 
 
Net loss for year            ---         ---      ---            ---       (1,117,000)  (1,117,000) 
 
Balances, December 31, 1995 14,566,201  146,000     ---       23,330,000    (31,047,000)  (7,571,000)  
  
Issuance of common stock       
for services                   244,000    2,000     ---           46,000         ---          48,000 
 
Issuance of Series A  
preferred stock in   
exchange for debt               ---        ---      ---         800,000          ---         800,000 
 
Issuance of Series B  
preferred stock in   
exchange for debt               ---        ---     1,000      4,799,000          ---       4,800,000 
 
Conversion of Series B  
preferred stock to   
common stock                 200,006     2,000      ---         (2,000)          ---          ---    
 
Issuance of common stock  
in exchange for accrued  
interest                     273,585     3,000      ---        130,000           ---         133,000 
 
Issuance of common stock   
for cash and other 
consideration             60,416,020   604,000      ---        826,000           ---       1,430,000 
 
Net income for year         ---        ---        ---          ---           808,000       808,000 

Balances, December 31, 1996 75,699,812 $757,000  $1,000   $ 29,929,000    $(30,239,000)  $   448,000 
 
</TABLE>
 
 
The accompanying notes are an integral part of the unaudited  
financial statements. 
 
 
 
    CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
        CONSOLIDATED STATEMENTS OF CASH FLOWS 
<TABLE>
 
 <CAPTION>
                                       Year Ended December 31, 
                                     1994         1995          1996 
Cash flows from operating activities: 
 <S>                            <C>            <C>           <C>
 Net income (loss)              $(12,929,000)  $(1,117,000)  $  808,000 
 Adjustments to reconcile net 
  loss to net cash provided  
  (used) by operating activities: 
    Extraordinary item                ---       (1,367,000)    (995,000) 
    Depreciation and amortization    512,000       495,000      367,000 
    Other                            801,000       296,000       93,000 
                                 (11,616,000)   (1,693,000)     273,000 
 Change in assets and liabilities, 
  net of effects of non-cash transactions: 
    Accounts receivable           (1,404,000)      482,000       81,000 
    Unbilled costs and earnings 
     on contracts                    290,000       410,000      637,000 
    Inventories                     (413,000)      381,000       60,000 
    Other current and long-term  
      assets                        (302,000)      182,000      158,000 
    Accounts payable               4,193,000       450,000     (400,000) 
    Reserve for restructuring      1,359,000      (960,000)     138,000 
    Accrued and other liabilities  2,265,000       (23,000)    (550,000) 
        Net cash provided (used) 
         by operating activities  (5,628,000)     (771,000)     397,000 
 
Cash flows from investing activities: 
 Other investments                   130,000          --           --   
 Additions to property and  
   equipment                      (1,087,000)     (159,000)    (276,000) 
 
      Net cash used by investing 
        activities                  (957,000)     (159,000)    (276,000) 
 
Cash flows from financing activities: 
 Issuance of common stock for cash 2,975,000         --       1,430,000 
 Additions to debt                 1,099,000     1,050,000       12,000 
 Payments on debt, including  
   capital leases                   (293,000)     (379,000)    (801,000) 
     
     Net cash provided by  
       financing activities        3,781,000       671,000     641,000 
 
Net increase (decrease) in cash 
  and cash equivalents            (2,804,000)     (259,000)    762,000 
Cash and cash equivalents, 
   beginning of year               3,264,000       460,000     201,000 
 
Cash and cash equivalents,  
  end of year                    $   460,000   $   201,000   $ 963,000 
 
Supplemental cash flow information: 
 Cash paid for interest          $   509,000   $   144,000   $ 160,000 
 Cash paid for income taxes           15,000        16,000      20,000 
 
</TABLE>
 
The accompanying notes are an integral part of the consolidated  
financial statements. 
 
 
         CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 
1.  The Company and Summary of Significant Accounting Policies: 
 
    Company Operations  Coded Communications Corporation and its wholly- 
owned subsidiaries (the "Company") develop, manufacture and market  
wireless digital transmitting, receiving and processing equipment and  
systems for use in two primary markets: mobile data communications and  
aerospace telemetry.  The Company's products employ similar technologies  
and techniques to transmit, receive and process digitized information  
transmitted over conventional voice radio channels and satellite  
communications links.  The Company's mobile data communications products  
and systems are marketed to small and large operators of vehicle fleets  
and include public safety, emergency medical services, utility and  
service fleets.  The Company's aerospace telemetry products and systems  
are marketed to the United States and foreign governments and agencies  
and to defense prime contractors for use in research, development, test  
and evaluation programs for aircraft, space and weapons systems. 
 
     In 1996, ISA Investments Corporation ("ISA") acquired 57,272,767  
shares or a 76% common stock ownership interest in the Company.  ISA is  
a majority controlled subsidiary of Grupo Information, Satellites and  
Advertising, S.A. de C.V. ("Grupo ISA").  Grupo ISA is majority owned by  
Mr. Hugo R. Camou and his immediate family.  As a result of its common  
stock ownership interest and its ability to nominate and elect a  
majority of the members of the Company's board of directors, the Company  
is considered to be controlled by ISA. 
 
     Basis of Presentation - The consolidated financial statements have  
been prepared in accordance with generally accepted accounting  
principles applicable to a going concern, which contemplate, among other  
things, realization of assets and payment of liabilities in the normal  
course of business.  See Note 2 "Management's Plan for Future Operations  
and Financing."  In addition, 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. 
 
     Principles of Consolidation - The consolidated financial statements  
include the accounts of Coded Communications Corporation and its wholly- 
owned subsidiaries.  All material intercompany accounts and transactions  
have been eliminated. 
 
     Accounts Receivable.  The Company provides a reserve for doubtful  
accounts where circumstances indicate that a reserve is necessary.  As  
of December 31, 1995 and 1996, the Company's reserve for doubtful  
accounts was $237,000 and $208,000, respectively. 
 
     Inventories - Inventories are valued at the lower of cost or  
market, but not in excess of net realizable value.  Cost is determined  
by the first-in, first-out method.  The Company has provided estimated  
reserves for inventory in excess of the Company's current needs and for  
technological obsolescence.  Due to the uncertainties inherent in the  
evaluation process it is at least reasonably possible that reserves for  
excess and obsolete inventories could be further revised within the next  
year.  The components of inventory are as follows: 
<TABLE>
 
 <CAPTION>                                   December 31, 
                                          1995          1996 
     <S>                                 <C>          <C>
     Raw materials and supplies.......   $  548,000   $  475,000 
     Work-in-process......................  977,000    1,163,000 
     Finished goods...................       15,000        7,000 
     Less progress billings.................  --        (165,000) 
                                         $1,540,000   $1,480,000 
</TABLE>
 
 
       CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 
 
     The Company has multiple sources of supplies for most of its  
purchased parts and components.  For a few components, there may be only  
a single source of supply.  Although the Company believes that other  
suppliers could provide similar components, a change in suppliers could  
cause a delay in manufacturing and customer delivery, and a possible  
loss of sales.  A delay in or loss of sales would adversely affect  
operating results. 
 
     Property and Equipment - Property and equipment is carried at cost.   
Depreciation and amortization are provided under the straight-line  
method with expected lives ranging from three to five years for office  
equipment, capitalized design costs and manufacturing and test  
equipment. Leasehold improvements and leased equipment are amortized  
over the useful life or the term of the respective lease, whichever is  
less. 
 
     Revenue Recognition - Revenues on engineering and systems contracts  
requiring contract performance prior to commencement of deliveries are  
recorded using the percentage-of-completion method, primarily based on  
contract costs incurred to date compared to total estimated contract  
costs.  Losses, if any, are recorded when known.  Revenue recognized in  
excess of amounts billed is classified as current or non-current on the
basis of expected realization or payment within or beyond one year, under 
unbilled costs and earnings on contracts.  Contract invoicing in excess of  
revenue is classified as a current liability.   All other revenue is  
recognized upon shipment of products or performance of services.  The  
Company has provided loss reserves for certain contracts based on the  
estimated cost to complete the contracts.  Due to the uncertainties  
inherent in the estimation process it is at least reasonably possible  
that an increase in the contract loss reserves could be required within  
the next year. 
 
     Income Taxes - Income taxes are provided utilizing the liability  
method.  The liability method requires the recognition of deferred tax  
assets and liabilities for the expected future tax consequences of  
temporary differences between the carrying amounts and tax bases of  
assets and liabilities.  Additionally, under the liability method,  
changes in tax rates and laws will be reflected in income in the period  
such changes are enacted. 
 
     Statements of Cash Flows -  For purposes of the Statements of Cash  
Flows, cash and cash equivalents include cash deposits and bank money  
market accounts. 
 
     In 1996, non-cash financing activities included the issuance of  
Series A and Series B preferred stock with an aggregate liquidation  
value of $5,600,000 in exchange for debt and accrued interest; the  
issuance of 517,585 shares of common stock for services and the  
settlement of accrued interest valued at $181,000; and the issuance of  
non-interest bearing creditor notes in the amount of $207,000 for the  
settlement of approximately $414,000 in unsecured creditor claims. 
 
     In 1995, non-cash financing activities consisted of the issuance of  
1,319,997 shares of common stock in exchange for $990,000 principal  
amount of 13.5% Convertible Senior Subordinated Debentures, the issuance  
of 707,880 shares of common stock for services valued at $170,000 and  
the issuance of non-interest bearing creditor notes in the amount of  
$1,473,000 for the settlement of approximately $2,946,000 in unsecured  
creditor claims.   
 
     In 1994, non-cash financing activities consisted of the issuance of  
7,000 shares of common stock valued at $6,000 for compensation services  
and the issuance of 50,000 shares of common stock valued at $100,000 for  
the acquisition of ComViSat, Inc.  
 
     Research and Development Costs - Company-sponsored research and  
product development costs are charged to expense as incurred. 
 
 
          CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 
 
     Concentration of Credit Risk.  The Company invests its excess cash,  
if any, in bank money market accounts, and debt instruments of financial  
institutions and corporations with strong credit ratings.  The Company  
has established guidelines relative to diversification and maturities  
that maintains safety and liquidity. 
 
     The Company manufactures and sells communications products and  
systems to United States government agencies, municipalities and  
commercial customers.  The Company performs ongoing credit evaluations  
of its customers and generally does not require collateral.  A  
substantial portion of international sales are shipped against letters  
of credit or cash advances.  The Company maintains reserves for  
estimated credit losses. 
 
     Fair Value of Financial Instruments.  The carrying amounts reported  
in the accompanying consolidated balance sheets for cash and cash  
equivalents, accrued liabilities and short-term borrowings approximate  
fair value due to the short-term nature of these instruments.  Fair  
value approximates cost for all other financial instruments. 
 
     Stock-Based Compensation.  Statement of Financial Accounting  
Standards No. 123, "Accounting for Stock-Based Compensation,"  
encourages, but does not require companies to record compensation cost  
for stock-based employee compensation plans at fair value.  The Company  
has chosen to continue to account for stock-based compensation using the  
intrinsic value method prescribed in Accounting Principles Board Opinion  
No. 25, "Accounting for Stock Issued to Employees," and related  
Interpretations.  Accordingly, compensation cost for stock options is  
measured as the excess, if any, of the fair market value of the  
Company's common stock at the date of the grant over the amount an  
employee must pay to acquire the common stock. 
 
     Net Income (Loss) Per Share - Net income (loss) per share is  
computed using the weighted average number of common shares and dilutive  
common equivalent shares outstanding during each period using the  
treasury method.  In addition, the calculation of the number of shares  
used in computing net income per share also includes Series A and Series  
B preferred stock which are convertible into an aggregate of 10,038,000  
shares of common stock, as if they were converted into common stock as  
of their original date of issuance, if such inclusion would be dilutive. 
 
     Reclassification.  Certain amounts in the 1995 consolidated  
financial statements have been reclassified to conform with the current  
year presentation. 
 
2.   Management's Plan for Future Operations and Financing: 
 
     Prior to the Company's reorganization of its business operations  
and management in the first quarter of 1995, the Company had operated at  
a loss since its inception.  In addition, the Company had accumulated a  
significant shareholders' deficit and liabilities, including  
approximately $4,800,000 in secured debt that had been declared in  
default by the holder of the debt in February 1995, and $1,800,000 in  
secured debt that was scheduled for payment in April 1996. 
 
     Following the restructuring of the Company's operations and  
management in the first quarter of 1995, operating expenses were  
reduced, gross margins on sales improved and, as a result, the Company  
achieved marginal profitability before interest expense and income taxes  
in the second half of 1995 and for the year ended December 31, 1996.  In  
addition, by December 31, 1996, the Company completed an investment  
transaction with ISA, and restructured or negotiated settlements with  
its major unsecured and secured creditors, resulting in a reduction in  
unsecured and secured debt and other liabilities of approximately  
$8,319,000 from debt and liabilities existing at December 31, 1995.  See  
Note 1 "The Company and Significant Accounting Policies" and Note 5  
"Investments and Restructuring of Debt." 
 
 
 
       CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 
 
     Although the Company achieved marginal operating profits before  
interest expense and income taxes of $250,000 in the second half of 1995  
and $345,000 for the year ended December 31, 1996, the Company operates  
in markets that are emerging and highly competitive and the Company's  
principal competitors have significantly more financial and  
technological resources.  Moreover, the Company's orders are typically  
concentrated in large orders derived from a small base of customers and,  
accordingly, new orders, sales levels and operating profits, if any,   
can and will fluctuate on a quarter-by-quarter basis.  There is no  
assurance that the Company will operate at a profit in the future.
 
     New financing is likely to be required to finance working capital  
and operations at the anticipated sales level in 1997.  The Company  
believes that additional financing, in the form of short-term and long- 
term debt, preferred and common stock, or a combination of debt and  
equity will be available in 1997 under terms and conditions that are  
acceptable to the Company.  Additional capital in 1997 is likely to be  
provided or arranged by the Company's controlling shareholder, ISA;  
however, the Company believes short-term financing collateralized by  
accounts receivable and other assets could be available from other third  
party lenders. 
 
     In the event financing is not available in the time frame required,  
then the Company will be forced to reduce its rate of sales growth, if  
any, reduce operating expenses and reschedule research and development  
projects.  In addition, the Company might be required to sell certain of  
its assets or license its technologies to others.  These actions, while  
necessary for the continuance of operations during a period of cash  
constraints and a shortage of working capital, could adversely effect  
the Company's long-term business and shareholder value. 
 
3.   Extraordinary Gain on Extinguishment of Debt: 
 
     As more fully discussed in Note 7 "Debt and Creditors' Note", in  
1995 and 1996 agreements were reached with certain unsecured creditors  
on the extinguishment of debt resulting in gains, net of related  
expense, of $1,367,000 in 1995 and $995,000 in 1996.  The gains on  
extinguishment of debt are reflected as an extraordinary item in the  
accompanying consolidated financial statements. 
 
4.   Losses and Expenses From Restructuring Operations: 
<TABLE>
 
     In December 1994, the Company initiated action to restructure its  
operations to reduce operating expenses and to focus on its domestic  
markets and core product lines.  Restructuring costs and a write-down in  
the value of assets of approximately $3,151,000 were recorded in the  
fourth quarter of 1994 and were comprised of the following: 
 <CAPTION>
       <S>                                            <C>
       Write-off of Domsat acquisition costs          $  657,000 
       Reserve for common stock repurchase agreement     340,000 
       Write-down of VSAT satellite product line assets  667,000 
       Reserve for personnel severance costs             207,000 
       Reserve for VSAT satellite product line losses  
        and closing of international mobile data sales 
        offices and marketing activities                 950,000 
           Reserves for other costs and expense          330,000 
                                                      $3,151,000 
</TABLE>
 
     In January 1994, the Company acquired ComViSat, Inc. ("ComViSat"),  
a start-up company engaged in integration and distribution of very small  
aperture terminal earthstations ("VSAT's").  These systems are used in  
voice and data satellite communications, and were marketed primarily to  
developing third world countries where wireline telephone and other  
communications capabilities were inadequate.  The two shareholders of  
ComViSat received an aggregate of 50,000 shares of Common Stock for all  
of the outstanding common stock of ComViSat.   
 
        CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 
 
In addition, the shareholders of ComViSat were entitled to future  
contingent payments, in the form of cash, common stock or a combination  
thereof, in the event certain financial performance goals are achieved  
over a four-year period.  The acquisition was treated as a purchase for  
accounting purposes.  The assets, liabilities and operations of ComViSat  
prior to its acquisition were not material to the consolidated assets,  
liabilities and operations of the Company. 
 
     As a result of depressed business conditions in Mexico and the  
destabilizing impact of the Mexican economy on other Latin American and  
South American economies beginning in December 1994, the decision was  
made in 1995 to discontinue the Company's VSAT product line and dispose  
of all product-line assets, which were comprised primarily of VSAT  
demonstration and test equipment. Mexico was the principal market for  
the Company's VSAT products. Sales of VSAT earthstation products and  
systems were $2,175,000 in 1994.  At December 31, 1994, the Company  
recorded expenses of $1,226,000 for closing the VSAT product line,  
discontinuing sales and engineering activities, and the writing-down of  
equipment, intangible assets and inventories. 
 
5.   Investments and Restructuring of Debt: 
 
     In September 1996, the Company completed a series of transactions  
which resulted in ISA acquiring a 76% common stock ownership interest in  
the Company; and the restructuring of the Company's $6,600,000 in  
secured debt.  As a result of its controlling interest in the Company's  
common stock and its ability to nominate and elect a majority of the  
members of the Company's Board of Directors, the Company is considered  
to be controlled by ISA. 
 
     ISA acquired its 57,272,767 shares or 76% common stock ownership  
interest for, among other things, cash payments totaling $1,400,000 and  
an ISA guarantee of not less then $10,000,000 in orders for mobile data  
communications products from its customers in Mexico and Latin America,  
over an eighteen month period.  Prior to its investment in the Company,  
ISA was a distributor of the Company's mobile data communications  
products in Mexico.  As a condition of its agreement with the Company,  
ISA was required to deposit in a third party escrow account 24,000,000  
shares of the Company's common stock to secure its guarantee of  
$10,000,000 in product orders.  In the event ISA places less than  
$10,000,000 in product orders over the eighteen month period, then a  
portion of the escrowed shares are to be canceled and returned to the  
Company.  At December 31, 1996, there were 16,800,000 shares held in the  
escrow account. 
 
    In connection with the ISA investment in the Company, holders of the  
Company's senior secured $1,800,000 principal amount Bridge Loan  
canceled their debt in exchange for a cash payment of $400,000; the  
issuance of 8,000 shares of the Company's Series A preferred stock (with  
a liquidation preference of $800,000); and the issuance of new  
$600,000 principal amount, 6% Term Notes, due September 27, 1997. The 6%  
Term Notes are convertible, at the option of the holders, into 2,400,000  
shares of common stock and are collateralized by a security interest in  
the Company's assets.  In addition, the holder of the Company's secured  
$4,000,000 principal amount, 12% Convertible Debentures ("12%  
Debentures") converted the 12% Debentures and accrued interest of  
approximately $800,000 into a new seven year, $4,800,000 principal  
amount 6% Convertible Debenture (the "6% Debenture").  The 6% Debenture  
was subsequently converted in December 1996 into 48,000 shares of the  
Company's Series B preferred stock, with a liquidation value of  
$4,800,000.  The Series B preferred stock is convertible into  
approximately 7,837,000 shares of the Company's common stock.  All of  
the shares of Series B preferred stock are held by Renaissance Capital  
Partners, II, Ltd. an investment partnership based in Dallas, Texas. 
 
 
         CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 
<TABLE>
 
6.  Property and Equipment: 
 <CAPTION>
    Property and equipment consisted of: 
                                                    December 31, 
                                                  1995        1996 
    <S>                                        <C>         <C>
    Manufacturing, test and demonstration  
      equipment                                $2,309,000  $2,272,000 
    Leaseholds, office and other equipment      1,307,000   1,559,000 
    Capitalized designs and tooling               125,000     125,000 
    Equipment under capitalized leases             94,000      13,000 
                                                3,835,000   3,969,000 
    Less accumulated depreciation and  
      amortization                             (3,014,000) (3,239,000) 
                                              $   821,000  $  730,000 
</TABLE>

<TABLE>

7.   Debt and Creditors' Note: 
<CAPTION> 
     Short-term debt and Creditors'  
       Note consisted of:                          December 31, 
                                               1995        1996 
     <S>                                     <C>           <C>
     12% Debentures                          $ 4,000,000   $   ---  
     Bridge loan, due April 17, 1996           1,800,000       ---  
     6% Term Notes, due September 1997             ---       600,000 
     Creditors' Note, non-interest bearing, 
      due December 31, 1997                    1,394,000     837,000 
     Installment notes, interest rates  
       up to 16%                                   1,000       4,000 
                                               7,195,000   1,441,000 
     Less amount due within one year          (6,151,000) (1,441,000) 
     Long-term debt, due after one year      $ 1,044,000 $     ---     
</TABLE>
 
     In February 1995, the holder of the 12% Debentures declared the 12%  
Debentures in default and accelerated the payment of principal and  
interest.  In addition, at December 31, 1995, there was $646,000 in  
accrued interest past due on the 12% Debentures. In September 1996, the  
holder of the 12% Debentures exchanged the $4,000,000 principal amount,  
12% Debentures and accrued interest of approximately $800,000 for a new  
seven year, $4,800,000 principal amount 6% Debenture, and 200,000 shares  
of common stock in exchange for approximately $100,000 in accrued  
interest.  In December 1996, the holder of the 6% Convertible Debenture  
converted the 6% Convertible Debenture into 48,000 shares of the  
Company's Series B preferred stock with an aggregate liquidation  
preference of $4,800,000.  See Note 5 "Investments and Restructuring of  
Debt" and Note 10 "Common and Preferred Stock". 
 
 
        CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 
 
     In April 1995, the Company completed a $1,250,000 Bridge Loan  
financing package, under which $500,000 in new loans were advanced and a  
$750,000 term loan, declared in default by the note holder in February  
1995, was refinanced.  On July 21 and September 15, 1995 the Bridge Loan  
Agreement was amended and the Bridge Loan increased to $1,800,000 with  
an additional $550,000 in new loan proceeds.  Proceeds of the Bridge  
Loan were used for working capital.  In September 1996, the holders of  
the $1,800,000 principal Bridge Loan canceled their debt in exchange for  
a cash payment of $400,000; new $600,000 principal amount 6% Term Notes,  
which are due in September 1997 and are collateralized by a security  
interest in the Company's assets; and 8,000 shares of Series A preferred  
stock with an aggregate liquidation preference of $800,000.  See Note 5  
"Investments and Restructuring of Debt" and Note 10 "Common and  
Preferred Stock".  The 6% Term Notes are convertible, at the option of the  
holders any time prior to maturity, into 2,400,000 shares of common  
stock. 
 
     In 1995, the Company engaged the San Diego Wholesale Credit  
Association to assist in the formation of an unsecured creditors'  
committee and an out-of-court composition plan (the "Creditor Plan") for  
the settlement of unsecured creditors' claims.  Under the Creditor Plan  
implemented by the Company in September 1995, certain unsecured  
creditors accepted 50% of their credit claims in full settlement of  
their claims (the "settlement value"), with quarterly repayments  
beginning September 30, 1995 at a fixed rate of 5% of the settlement  
value.  The unpaid balance of the settlement value is to be paid in  
December 1997.  As of December 31, 1995, unsecured creditors with  
original claims of approximately $2,946,000 agreed to participate in the  
Creditor Plan. 

     In 1996, additional creditors with claims of approximately $414,000  
agreed to participate in the Creditor Plan and accepted 50% of their  
credit claim in full settlement.  In addition, in September 1996 the  
Company offered all participants in the Creditor Plan a lump sum cash  
payment equal to 35% in full settlement of their then outstanding  
Creditor Note balance.  Holders of Creditor Notes with an outstanding  
balance of approximately $446,000 accepted the Company's cash offer and  
received a lump sum cash payment of $156,000 in full settlement of the  
remaining outstanding balance of their Creditor Notes.  The Creditors'  
Note balance outstanding at December 31, 1996 was $837,000, and requires  
quarterly payments of approximately $58,000 through December 31, 1997,  
at which time the remaining outstanding balance of the Creditor Note is  
payable.  The Creditor Note is collateralized by a subordinated security  
interest in the assets of the Company. 
<TABLE>
 
8.     Income Taxes: 
 <CAPTION>
     The provision for income taxes consisted of the following: 
 
                                      Year Ended December 31,
                                     1994      1995      1996    
           <S>                     <C>       <C>       <C>
           Current                 $ 26,000  $ 24,000  $ 24,000 
           Deferred                   --         --       --    
                                   $ 26,000  $ 24,000  $ 24,000 
</TABLE>
 
 
 
         CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 
<TABLE>
 
     A reconciliation of the statutory federal income tax and the  
Company's pretax income or loss (including extraordinary gain) with the  
Company's reported income tax expense is as follows: 
 <CAPTION>
                                         Year Ended December 31, 
                                         1994     1995      1996 
    <S>                                 <C>      <C>        <C>
    Federal statutory rate              (34.0)%  (34.0)%    34.0% 
    State income taxes, net of  
     federal tax benefits......           --      1.5       1.9 
    Income tax benefits not recognized  
     (recognized) for financial  
      statement purposes............     34.0     31.3     (33.0) 
                                          -- %     1.2 %     2.9 % 
</TABLE>
 
     The major components of deferred tax assets consisted of the following:
 
<TABLE>
 
 <CAPTION>                                 1995           1996 
     Deferred tax assets: 
       <S>                                <C>           <C>
       Net operating losses and tax  
         credit carryforwards             $11,209,000   $10,422,000 
       Reserves not currently deductible      621,000       671,000 
                                           11,830,000    11,093,000 
       Valuation allowance               (11,830,000)   (11,093,000) 
       Net deferred tax assets           $   --         $    --  
</TABLE>
 
     At December 31, 1996, the Company had estimated net operating loss  
carryforwards for federal tax purposes of approximately $29,000,000 and 
tax credit carryforwards of $500,000 which expire in the years 1997
through 2010.  The realization of these loss carryforwards and tax credits
are dependent upon the Company generating sufficient future taxable income 
prior to the expiration of the net operating loss and tax credit 
carryforwards.  Because of the Company's history of operating losses, 
there is no assurance that any amount of the net operating loss carryforwards
and tax credits will be realized. 

     The Company has established a valuation allowance against its
deferred tax assets due to the uncertainty surrounding the realization of
such assets.  The Company periodically evaluates the recoverability of
the deferred tax assets.  At such time as it is determined that it is
more likely than not that deferred tax assets are realizable, the
valuation allowance will be reduced.
 
     The Internal Revenue Code (the "Code") limits the availability of  
income tax net operating losses and certain tax credits that arose prior  
to certain cumulative changes in a corporation's ownership resulting in  
a change of control of the Company.  The Company's use of its net  
operating loss carryforwards and tax credit carryforwards will be  
significantly limited because the Company underwent "ownership changes"  
in 1993 and 1996.  In each year following the changes, the Company will  
be able to offset taxable income by a limited amount of the pre- 
ownership change carryforwards.   Net operating losses and  tax
credits that are unavailable in any year as a consequence of this  
limitation may be carried forward for future use subject to the  
restrictions of the Code. 
 
 
 
 
 
 
 
           CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 
 
9.   Related Party Transactions: 
 
     In 1996, third party customers of ISA placed new orders for  
approximately $5,346,000 in mobile data communications products and  
systems.  The Company believes the terms and conditions of these orders  
are consistent with the terms and conditions of similar orders accepted  
by the Company from third party customers in the United States.  In  
addition, sales to ISA customers in Mexico in 1996 were approximately  
$4,141,000 and at December 31, 1996 there was $584,000 in accounts  
receivable due from ISA.  See Note 12 "Product Lines and Major  
Customers." 
 
    In 1995, the Company's two independent directors each received  
100,000 shares of the Company's common stock for services.  The shares  
of common stock were valued at an aggregate of $52,000.  The independent  
directors received no other direct compensation for their services,  
except for the reimbursement of expenses incurred to attend Board of  
Director meetings.  Both independent directors resigned their positions  
in 1996. 
 
    In 1994, the Company loaned an aggregate of $230,000 to two officers  
for relocation to San Diego, California.  Under the terms of the loans,  
the loan principal was to be reduced by $10,000 for each year the  
officer continued his employment with the Company.  At December 31,  
1995, the notes receivable from officers, included in other assets in  
the accompanying consolidated financial statements, totaled $200,000. At  
December 31, 1996, both officers had terminated their employment with  
the Company, and the repayment of both loans was in dispute.  The  
Company believes that the notes will be ultimately collected at the  
approximate net book value of the notes at December 31, 1996. 
 
10.  Common and Preferred Stock: 
 
     The Company has authorized 100,000,000  shares of $.01 par value  
common stock.  In 1996, the Company's shareholders approved an amendment  
to the Company's Certificate of Incorporation authorizing 2,000,000  
shares of $.01 par value preferred stock.  At December 31, 1996, the  
Board of Directors had designated Series A and Series B preferred stock. 
 
     On September 27, 1996, the Company issued 8,000 shares of Series A  
preferred stock in exchange for the settlement of debt.  (See Note 7  
"Debt and Creditors' Note").  Each share of Series A preferred stock is  
entitled to receive dividends on a cumulative basis at the annual rate  
of $8.00 per share, when and as declared by the Board of Directors.   
Dividends on the Series A preferred stock have preference over any  
distributions to the holders of the Series B preferred stock and common  
stock.  Undeclared cumulative dividends amounted to $16,000 at December  
31, 1996.  Each share of the Series A preferred stock is convertible  
into 300 shares of common stock, subject to certain anti-dilution  
provision, and the Series A preferred stock has a liquidation preference  
of $100.00 per share over any distributions to holders of common stock  
and Series B preferred stock.  Holders of the Series A preferred stock  
have votes per share equivalent to the number of shares of common stock  
to which the Series A preferred stock may be converted, and such votes  
are combined with the votes of common and Series B stockholders and  
voted as a single class. 
 
 
 
 
         CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 
 
     On December 20, 1996, the Company issued 48,000 shares of Series B  
preferred stock in exchange for debt.  See Note 7 "Debt and Creditors'  
Note."  Each share of Series B preferred stock is convertible into  
163.27 shares of common stock, subject to certain anti-dilution  
provision, and each share of Series B preferred stock is entitled to  
receive dividends on a cumulative basis at the annual rate of $6.00 per  
share, when and as declared by the Board of Directors.  Dividends on the  
Series B preferred stock have preference over distributions to common  
stockholders and are junior to any distributions to Series A preferred  
stockholders.  The holder of the Series B preferred stock has votes per  
share equivalent to the number of shares of common stock to which the  
Series B preferred stock may be converted, and such votes are combined  
with the votes of common and Series A stockholders and voted as a single  
class. 
 
     In December 1996, the holder of the Series B preferred stock  
converted 1,225 shares of Series B preferred stock into 200,006 shares  
of common stock.  At December 31, 1996, there were outstanding 46,775  
shares of Series B preferred stock, with an aggregate liquidation value  
of $4,678,000. 
 
     In 1996, in connection with the ISA investment and the  
restructuring of debt, 60,272,767 shares of common stock were issued for  
a value of $1,400,000.  Of the shares issued to ISA, approximately  
16,800,000 shares were held in escrow at December 31, 1996.  These  
shares will be released to ISA as ISA meets its commitment to place  
$10,000,000 in orders for the Company's mobile data products over an  
eighteen month period.  In the event that ISA does not place $10,000,000  
in orders, then a portion of the shares held in escrow will be canceled.   
See Note 5 "Investments and Debt Restructuring."  In addition, in 1996  
the Company issued 517,585 shares of common stock in exchange for  
services and accrued interest valued at $181,000 and issued 143,250  
shares of common stock for $30,000 in cash upon the exercise of  
outstanding employee stock options. 
 
     In 1995, the Company issued 1,319,997 shares of common stock in  
exchange for $990,000 principal amount, 13.5% Debentures and issued  
707,880 shares of common stock in exchange for services valued at  
$170,000. 
 
     In 1994, the Company issued 1,318,965 shares of common stock upon  
the exercise of warrants and options for net proceeds of $2,975,000.  In  
addition, 50,000 shares of common stock valued at $100,000 were issued  
to the shareholders of ComViSat in exchange for all of the outstanding  
shares of ComViSat common stock and 7,000 shares of common stock valued  
at $6,000 were issued in consideration for compensation services. 
 
     At December 31, 1995, the Company had issued warrants to purchase a  
total of 4,256,837 shares of common stock, at an average purchase price  
of $.63 per share.  All of the warrants expired or were canceled in  
1996. 
 
     Under the Company's 1992 Incentive and Non-Qualified Stock Option  
Plan (the "1992 Option Plan"), as amended on September 19, 1996, options  
to purchase an aggregate of 13,250,000 common shares may be granted to  
directors, officers and employees.  Options under the 1992 Option Plan  
are granted at a price not less than 75% of the fair market value of a  
common share at the date of grant, and the right to exercise the option  
generally vests over such periods as determined by the Board of Directors,
but generally over a period of six months to three years and expires in
five years.  As of December 31, 1996, options to purchase 8,718,250 shares 
had been granted under the 1992 Option Plan. 
 
 
      CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 
<TABLE>
 
     The following table summarizes stock option transactions for the  
three years ended December 31, 1996: 
 <CAPTION>
                                         1994       1995      1996  
    <S>                               <C>        <C>         <C>
    Outstanding at beginning of year  1,285,889  1,054,288   3,242,915 
 
     Granted                            115,332  2,953,000   7,542,500 
     Exercised                         (324,058)     --       (143,250) 
     Canceled                           (22,875)  (764,373) (2,067,165) 
     Outstanding at end of year       1,054,288  3,242,915   8,575,000 
</TABLE>
<TABLE>
 
     The Company has adopted the disclosure-only provisions of SFAS No.  
123 Accounting for Stock-Based Compensation.  Had compensation costs  
for the Company's stock option plan been determined based on the fair- 
value at the grant date for awards in 1995 and 1996 consistent with the  
provisions of SFAS No. 123, net income (loss) and net income (loss) per  
common share would have been adjusted to the pro forma amounts indicated  
below: 
 <CAPTION>
                                        Year Ended December 31, 
                                           1995         1996    
      <S>                                  <C>         <C>
      Net income (loss): 
       As reported.......................  $(1,117,000)  $808,000       
       Pro forma.........................   (1,165,000)   376,000  
 
      Net income (loss) per common share: 
       As reported.......................  $     (.07)   $    .02       
       Pro forma...........................      (.07)        .01
</TABLE>
 
     The fair value of each option grant is estimated on the date of  
grant using the Black-Scholes option-pricing model with the following  
weighted-average assumptions used for grants in 1995 and 1996:  dividend  
yield of 0%; expected volatility of 77%; risk-free interest rates  
ranging from 5.1% to 6.6%; and expected lives of 2 to 4 years. 
 
     In 1994, options covering 115,332 shares of common stock were  
granted at an average option price of $2.90 per share (ranging from  
$2.75 to $3.00 per share).  In 1995, options covering 2,953,000 shares  
of common stock were granted at an average option price of $.32 per  
share (ranging from $.20 to $.50 per share), of which options to  
purchase 1,730,000 shares of common stock were granted to certain of the  
Company's officers at an average price of $.35 per share.  In 1996,  
options covering 7,542,500 shares of common stock were granted at an  
average option price of $.30 (ranging from $.20 per share to $.35 per  
share). 
 
     The weighted average exercise price of options excercised and canceled
in 1996 was $.21 and $.51 per share, respectively.  The weighted average
life of options outstanding at December 31, 1996 was 47 months.

     At December 31, 1996 options for 1,433,966 shares were exercisable  
at prices ranging from $.20 to $.40 per share, and 4,531,750 shares were  
available for future grant. 
 
     At December 31, 1996 the Company had reserved 26,400,578 common  
shares for issuance of 13,106,750 shares under employee stock options;  
10,036,991 common shares for issuance upon the conversion of Series A  
and Series B preferred stock into common stock; 2,400,000 common shares  
for issuance upon the conversion of the 6% Term Note into common stock;  
and 856,837 shares for issuance upon the exercise of warrants and other  
options to purchase common stock. 
 
 
 
 
      CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 
 
11. Commitments and Employee Savings Plan: 
 
    The Company leases its Carlsbad, California administrative and  
manufacturing facility under a noncancellable operating lease expiring  
in October 1998.  The minimum annual lease payments under this lease are  
approximately $206,000 in 1997 and $172,000 in 1998. 
 
    Total rent expense, including month-to-month equipment rentals, was  
$545,000, $448,000 and $194,000, respectively, for the years ended  
December 31, 1994, 1995 and 1996. 
 
    As a result of the Company's closing of its ComViSat satellite  
earthstation product line and its business operations, the Company is a  
party to legal actions  At December 31, 1996, the Company was of the  
opinion that legal actions existing as of that date would not have a  
material affect on the consolidated financial statements. 
 
    The Company entered into employment agreements in 1996 with five  
executive officers.  These agreements cover a term of three years.  Base  
salaries vary under the individual agreements and provide for annual  
incentive bonuses under a plan approved by the Board of Directors.  The  
agreements also contain severance provisions in the event that the  
Company terminates the employment of the executive officers without  
cause and under certain defined circumstance, if the executive officer  
terminates employment. 
 
     The Company maintains a 401(k) Savings Plan covering substantially  
all full time employees.  Plan participants may contribute up to 15  
percent of their eligible compensation to the plan.  The Company made an  
elective matching contribution to the Plan in 1996 of $13,000.  The  
Company did not make elective matching contributions to the plan in 1994  
or 1995. 
 
12. Product Lines and Major Customers: 
<TABLE>
 
    The Company operates in a single business segment engaged in the  
design, manufacture and marketing of a wide range of digital  
transmitting, receiving and processing equipment for use in two markets,  
wireless mobile data communications and aerospace telemetry.  In  
December 1994, the Company discontinued sales of its VSAT earthstation  
product line. Sales of VSAT equipment in 1995, which represented  
approximately 1% of consolidated sales, are  included in wireless mobile  
data sales.  Net sales of wireless mobile data communications and  
aerospace telemetry products and services for the three years ended  
December 31, 1996 were as follows: 
 <CAPTION>
 
                                    1994          1995          1996 
    <S>                          <C>           <C>          <C>
    Mobile data communications   $7,991,000    $6,676,000   $7,880,000 
    Aerospace telemetry           4,125,000     3,495,000    3,430,000 
    VSAT earthstations            2,175,000        --            --    
 
                                $14,291,000   $10,171,000  $11,310,000 
</TABLE>
 
 
 
           CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 
 
     In 1994, sales to three customers represented 10%, 16% and 17%,  
respectively, of mobile data communications product sales.  In 1995,  
sales to three customers represented 10%, 11% and 25%, respectively, of  
mobile data communications product sales.  Included in mobile data  
communications sales in 1995 is $394,000 in revenue recognized from the  
licensing of manufacturing rights of the Company's MPT 1327 modem.  The  
MPT 1327 modem is marketed primarily in the United Kingdom.  In 1996,  
sales of mobile data communications products to two customers in Mexico  
represented approximately 53% of mobile data communications sales. 
 
     In 1994, two customers each represented 12% of aerospace telemetry  
sales and one customer represented 10% of aerospace telemetry sales.  In  
1995, two customers each represented 12% of aerospace telemetry sales.   
In 1996, two customers represented 17% and 14%, respectively, of  
aerospace telemetry sales.  Export sales of aerospace telemetry  
products, principally to Western Europe, represented 9%, 18% and 12% of  
total aerospace telemetry sales in 1994, 1995 and 1996, respectively.   
Direct sales of aerospace telemetry products to the United States  
government and its agencies  represented 14%, 8% and 18% of aerospace  
telemetry sales in 1994, 1995 and 1996, respectively. 
 
     All VSAT earthstation sales in 1994 were to a single customer in  
Mexico. 
 
 
                  ___________________________ 
 
 
 
       CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES 
        SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS 
          FOR THE THREE YEARS ENDED DECEMBER 31, 1996 
 
<TABLE>
 
 <CAPTION>
                 Beginning   Charged To                   Account     Ending 
Description      Balance      Expense   Reclassification  Write-Off   Balance  
 
Allowance for doubtful accounts: 
 <S>              <C>        <C>        <C>             <C>          <C>            
 Year Ended 1996  $237,000   $ 4,000    $   --          $ (33,000)   $208,0000 
 
 Year Ended 1995  $110,000   $50,000    $ 77,000        $      --     $237,000 
 
 Year Ended 1994  $ 90,000   $32,000    $   --          $ (12,000)    $110,000 
 
 <CAPTION>
                                            Inventory 
                Beginning     Charged To    Write-Off &          Ending 
  Description   Balance       Expense       Reclassification    Balance  
 
Inventory reserves: 
 <S>              <C>         <C>             <C>                <C>          
 Year Ended 1996  $ 754,000   $ 122,000       $(189,000)         $ 687,000 
 
 Year Ended 1995  $ 610,000   $ 118,000       $  26,000          $ 754,000 
 
 Year Ended 1994  $ 441,000   $ 173,000       $  (4,000)         $ 610,000 
 
 <CAPTION>
                     Beginning      Charged To    Charged       Ending 
   Description       Balance        Expense       to Reserve    Balance  
 
Restructuring reserves: 
 <S>                 <C>          <C>           <C>           <C>   
 Year Ended 1996     $  295,000   $    --       $  (138,000)  $  157,000 
 
 Year Ended 1995     $1,359,000   $    --       $(1,064,000)  $  295,000 
 
 Year Ended 1994     $   --       $3,151,000    $(1,792,000)  $1,359,000 
</TABLE>
 
 
 
Exhibit 21.1 
 
                   CODED COMMUNICATIONS CORPORATION 
                         LIST OF SUBSIDIARIES 
                        AS OF DECEMBER 31, 1996 
 
 
 
 
                                          State or Country   Percent 
Name                                      of Incorporation   Owned    
 
 
Wholly-owned subsidiaries of Coded Communications Corporation: 
 
  Coded Mobile Communications, Inc.            Delaware       100% 
  Decom Systems, Inc.                          Delaware       100% 
  ComViSat, Inc.                               California     100% 
  Coded ComViSat de Mexico, S.A.               Mexico         100% 

Wholly-owned subsidiaries (inactive) of Decom Systems, Inc.: 

  Coded LMR Holding, Inc.                      California     100% (1) 
  Coded Land Mobile Radio, Inc.                California     100% (1) 
  Coded Communications Network Systems, Inc.   California     100% (1) 
  DSI Management Co.                           California     100% (1) 
  Decom Systems, International                 California     100% (1) 
  Decom Systems GmbH                           Germany        100% (1) 


 (1)  Percentage of ownership of Decom Systems, Inc. 
 
 
 
 
 
 
                          EXHIBIT 21.1 
 
 
                      LIST OF SUBSIDIARIES 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                             EXHIBIT 23.1 
 
                 CONSENT OF COOPERS & LYBRAND, L.L.P. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                   EXHIBIT 27.1