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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A

                                 Amendment No. 1

                   For the fiscal year ended December 31, 1995

                          Commission file number 1-8191

                               PORTA SYSTEMS CORP.
             (Exact name of registrant as specified in its charter)

Delaware                                                     11-2203988
(State or other jurisdiction                                 (I.R.S. Employer
of incorporation or organization)                            Identification No.)

575 Underhill Boulevard, Syosset, New York                   11791
(Address of principal executive offices)                     (Zip Code)

Registrant's telephone number, including area code:          (516) 364-9300

Purpose  of  Amendment:  To  include  financial  statements  for the year  ended
December 31, 1995  certified by BDO Seidman LLP,  independent  certified  public
accountants (Item 8), and in connection  therewith,  to file amended Items 6 and
7.

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<PAGE>

Item 6.  Selected Financial Data

     The following  table sets forth  certain  selected  consolidated  financial
information  of the  Company.  For  further  information,  see the  Consolidated
Financial  Statements and other information set forth in Item 8 and Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations  set
forth in Item 7. All  share and per share  data  have been  restated  to to give
effect to the one for five reverse stock split effective August 2, 1996.:

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                            -----------------------
                                           1995         1994         1993         1992         1991
                                        ---------    ---------    ---------    ---------    ---------
                                                    (In thousands, except per share data)
<S>                                     <C>          <C>          <C>          <C>          <C>      
Income Statement Data:
   Sales                                $  61,181    $  68,985    $  68,141    $  68,993    $  81,957
   Operating
      income (loss)                       (19,884)     (17,541)      (3,916)     (11,466)       8,971

   Income (loss) before
     discontinued operations
     and extraordinary
      item                                (29,297)     (39,995)      (7,493)      (8,539)       6,930

   Net Income(loss)                       (31,041)     (39,995)      (9,545)     (14,977)       8,498

   Income (loss) per share from
      continuing
      operations                        $  (20.05)   $  (28.05)   $   (5.40)   $   (6.20)   $    5.30

   Cash dividends
      declared                               --           --           --           --           --

   Number of shares used in
      calculating net income
      (loss) per share                      1,461        1,427        1,382        1,378        1,311

Balance Sheet Data:
   Total Assets                         $  60,591    $  84,963    $ 109,948    $ 130,345    $ 107,303

   Long-term debt
   excluding current
   maturities                           $  55,389    $  57,310    $  49,931    $  34,205    $  20,430

   Stockholders' (deficit)
   equity                               ($ 29,323)   $   1,525    $  39,841    $  49,486    $  65,809
</TABLE>

                                       -1-


<PAGE>

Item 7.  Management Discussion and Analysis of Financial
Condition and Results of Operations.

     The Company's  consolidated  statements  of operations  for the three years
ended December 31, 1995 as a percentage of sales follows:

                            Years Ended December 31,

                                                  1995        1994        1993
                                                  ----        ----        ----

Sales                                              100%        100%        100%
Cost of sales                                       92%         90%         73%
                                                  ----        ----        ----
  Gross Profit                                       8%         10%         27%
Selling, general and
administrative expenses                             27%         29%         24%
Research and development expenses                   10%          6%          9%
Litigation settlement                                2%         --          --
Writedown of net assets sold                         1%         --          --
   Operating loss                                  (33%)       (25%)        (6%)
Interest expense                                   (14%)        (8%)        (7%)
Interest income                                     --          --          --
Other                                               (1%)        (3%)        (4%)
                                                              ----        ----
Loss from continuing
   operations before income
   taxes and minority interest                     (47%)       (36%)       (17%)
Income tax (benefit) expense                      --            22%         (6%)
                                                  ----        ----        ----
Loss before discontinued
   operations                                      (48%)       (58%)       (11%)
Provision for loss on disposal
   of discontinued operations                        6%         --          (3%)
Extraordinary gain on early
extinguishment of debt                               3%         --          --
                                                  ----        ----        ----

Net loss                                           (51%)       (58%)       (14%)
                                                  ====        ====        ====  


                                       -2-

<PAGE>

Financial Condition

     The Company's working capital changed from $13,700,000 at December 31, 1994
to a working  capital  deficit of  $8,200,000 at December 31, 1995. At September
30,  1995,  the  Company  had a working  capital  deficit  of  $48,900,000.  The
improvement in working  capital from  September 30, 1995 primarily  results from
the following transactions regarding the Company's debt:

     In March 1996,  the Company's  loan and security  agreement with its senior
secured lender, Foothill Capital Corporation ("Foothill"), was amended. Pursuant
to the amendment,  the Company's obligations were extended from November 1996 to
November  1998 and  defaults  at  December  31, 1995 and through the date of the
amendment,  were waived by Foothill. As a result, the Company's  indebtedness to
Foothill, which was reflected as a current liability of $26,500,000 at September
30, 1995,  is treated as a long-term  liability of  $26,600,000  at December 31,
1995.

     In addition, as a result of a default under the interest payment provisions
of the Company's 6%  Subordinated  Debentures due 2002 (the  "Debentures"),  the
Company's   obligations  under  the  Debentures,   which  were  reflected  as  a
$32,000,000  current  liability  at  September  30,  1995,  would have also been
reflected as a current liability at December 31, 1995.  However,  as a result of
an exchange offer (the "Exchange Offer") which, as of October 14, 1996, had been
accepted by the holders of approximately 94% of the outstanding Debentures,  the
Company  issued its new zero coupon  notes due January 2, 1998 (Note) and shares
of common  stock in  exchange  for  Debentures.  The Company is  classifying  as
current  liabilities at December 31, 1995,  $6,600,000 of Debentures  which have
not been exchanged,  and the $25,700,000 of Debentures  exchanged as a long-term
liability, consistent with the payment terms of the Notes as of March 22, 1996.

     As a result of the  Exchange  Offer,  as of October 14,  1996,  the Company
issued  its  new  zero  coupon  notes  in  the  aggregate  principal  amount  of
$25,900,000 and issued 655,000 shares of Common Stock in exchange for Debentures
in the principal amount of $33,770,000. As of such date, the principal amount of
Debentures  outstanding was $2,305,000.  The Company is in default on payment of
interest on the Debentures which were not exchanged.  The Company has no past or
ongoing interest  obligation with respect to either the new zero coupon notes or
the Debentures which were exchanged. The aggregate annual interest obligation on
the Debentures which had not been converted at October 14, 1996 is approximately
$138,000,  as compared with the $2,200,000  aggregate annual interest obligation
with  respect to the  Debentures  which were  outstanding  prior to the Exchange
Offer.

                                       -3-


<PAGE>

     On March 13, 1996, the Company  consummated an agreement  pursuant to which
it sold certain assets and the buyer assumed  certain  liabilities and severance
obligations  related to the operations of the Company's fiber optics  management
and component business. Accordingly, at December 31, 1995, the net assets of the
fiber  optics  business  are  reflected  as "assets  held for sale,  net" at net
realizable  value,  based on the terms of the sale.  The net assets of the fiber
optics  business  were  sold  for  a  total  purchase  price  of   approximately
$8,000,000,   of  which  $1,100,000  is  held  in  escrow,  subject  to  certain
conditions, plus the assumption of approximately $1,400,000 in liabilities.  The
proceeds  were  applied to reduce  the  Company's  obligations  to  Foothill  in
accordance with the March 1996 amendment to the Foothill agreement.

     The sale of the fiber optics  business  benefited  the Company in two ways.
First the sale of this  business  enabled the  Company to close two  facilities,
with a resultant decrease in personnel and overhead costs, the benefits of which
are expected to be realized  commencing with the second quarter of 1996. Second,
the sale enabled the Company to amend and extend its agreement with Foothill, as
described above, and make a significant  payment to Foothill,  which reduces its
ongoing interest costs.

     The Company's  obligations to Foothill are secured by substantially  all of
the assets of the Company and its subsidiaries.  The agreement with Foothill was
extended  for two  years,  and the  Company  is no longer in  default  under its
agreement  with Foothill.  The agreement  with Foothill  requires the Company to
continue  to  meet  certain  financial  covenants.  See  Note  11  of  Notes  to
Consolidated Financial Statements.

     Inventory was reduced from  $20,100,000  at December 31, 1994 to $9,000,000
at December 31, 1995. This decrease resulted from an inventory reduction program
during 1995 and a $1,800,000 increase in the reserve for slow-moving or obsolete
inventory  at  December  31,  1995.  In  addition,  as a result of its  illiquid
condition,  certain vendors ceased shipping to the Company while others required
cash before delivery or cash on delivery. In addition, the inventory relating to
the Company's  fiber optics  business,  amounting to $1,400,000,  is included in
"Assets held for sale" at December 31, 1995.

     Capital expenditures in 1995 were $1,479,000. The Company does not have any
significant commitments at December 31, 1995 to acquire fixed assets.

     The Company's  liquidity problems have resulted in increased cost of sales,
resulting in lower gross profits. The gross margin for 1995 is 8%, and the gross
profit of  $4,700,000 is  significantly  less than either  selling,  general and
administrative  expenses of $16,600,000 and research and development expenses of
$6,100,000.  Accordingly, without a significant reduction of cost of goods sold,
the Company will not be able to operate  profitably.  To address this situation,
the Company has consummated  the above  transactions in 1996 to reduce costs and
is reviewing options to reduce other costs and operating expenses.


                                       -4-


<PAGE>

     The Company  continues  to require  cash for its  operations.  Foothill has
provided  the Company  with funds to meet its  immediate  cash  needs.  However,
unless the Company can reverse the negative trends in its operations,  it may be
unable to obtain cash from any sources, including Foothill. Although the Company
has no plans to sell any of its remaining operations,  no assurance can be given
that it will not be  necessary  for the  Company  to do so.  The  failure of the
Company  to obtain  cash when  needed is likely to  continue  to have an adverse
effect on its business.

Results of Operations

Years Ended December 31, 1995 and 1994

     The  Company's  continued  shortage  of working  capital has had a material
adverse  effect  upon its  operations  during  1995.  The effects of the working
capital shortage were compounded by the Company's defaults during 1995 under its
agreement with Foothill,  which resulted in curtailment of certain  advances and
letter of credit facilities.  Although the defaults were waived as a result of a
March 1996 amendment to the agreement  with  Foothill,  during most of 1995, the
Company was in default  under its agreement  with  Foothill.  Although  Foothill
provided  the  Company  with cash to meet its  immediate  needs,  its failure to
provide additional  advances and letter of credit facilities  adversely affected
the  Company's  operations.  In March 1996,  the Company  sold its fiber  optics
business.  Substantially  all of the proceeds  from the sale were used to reduce
the Company's obligations to Foothill.

     The  Company's  sales for 1995  decreased  by 11% from 1994  sales,  as the
Company experienced  continuing  liquidity problems which adversely affected the
Company's  operations.  Sales of OSS products were  $29,000,000,  a 35% increase
from OSS sales of  $21,500,000  in 1994,  principally  as a result of  increased
sales to BT and sales in the Asian market.  Sales of copper connection  products
decreased by  $8,200,000,  or 29%, from  $28,600,000  in 1994 to  $20,400,000 in
1995.  The reduction in such sales reflects a reduction in sales to Telefonos de
Mexico,  which  accounted for sales of $4,600,000 in 1994 and virtually no sales
in 1995, a $1,600,000 reduction in sales of copper connection products to BT, as
well as the effects of reduced  production  resulting from the Company's working
capital problems.  The Company believes that the significantly  reduced sales to
Telefonos de Mexico is due in part to the continuing  Mexican  financial crisis.
However,  no assurance can be given that any  improvement in the Mexican economy
will result in increased sales of the Company's products.

     Sales of  fiber  optics  products  declined  by  $5,700,000,  or 47%,  from
$12,200,000  in 1994 to $6,500,000 in 1995.  The decline  reflects the Company's
inability  to  produce  fiber  optics  products  as a  result  of its  financial
problems,  as the Company  allocated  its resources  principally  to the OSS and
copper  connection  businesses.  This allocation of resources also reflected the
Company's  decision  late in 1995 to sell the fiber  optics  business.  Sales of
fiber optics products in the fourth quarter of 1995 were less than $1,000,000.


                                       -5-

<PAGE>

     Sales from signal  processing  products,  representing  approximately 8% of
1995 sales, were also hampered by the Company's ongoing financial difficulties.

     Cost of sales in 1995,  as a percentage of sales,  increased  slightly from
1994, from 90% of sales in 1994 to 92% of sales in 1995. As a result of the high
cost of sales, the gross profit for 1995 was $4,700,000, which was significantly
less  than  selling,  general  and  administrative  expenses  and  research  and
development  expenses.  The high cost of sales  reflected  (i) a lower volume of
sales,  (ii) the inability of the Company to purchase  efficiently and to obtain
materials from certain suppliers,  (iii) the under-absorption of overhead costs,
(iv)  modification  of inventory in order to fulfill  customer  orders,  and (v)
significant  writedown of fiber optics  inventory  reflecting  the value of such
inventory  in  connection  with the sale of the fiber  optics  business in March
1996. In addition,  as part of the Company's ongoing evaluation of its inventory
and based on its 1995  level of  sales,  the  Company  increased  its  inventory
reserve by approximately $1,800,000 for slow-moving or obsolete inventory. Steps
taken to reduce  manufacturing  labor costs by reductions in direct and indirect
manufacturing personnel were not implemented until late in the second quarter of
1995 and are  reflected in cost of sales in the third and fourth  quarters.  The
reduction of facility,  personnel and overhead  costs from the sale of the fiber
optics business will first be reflected in the second quarter of 1996.

     Selling,  general and administrative  expenses decreased by $3,400,000,  or
17%, from  $20,000,000  in 1994 to  $16,600,000  in 1995.  The expense  decrease
reflects the Company's  efforts to reduce  personnel costs, as well as a reduced
level of sales and  marketing  activities.  To some  extent,  the effects of the
personnel reduction were offset by severance costs incurred during 1995.

     Research and development expenses increased by $2,100,000,  from $4,000,000
in 1994 to $6,100,000 in 1995, or 53%. The increase reflected a reduction in the
amount of software development costs which qualified for capitalization.

     In 1995, the Company incurred expenses of $1,100,000,  reflecting the value
of the  Company's  common  stock to be issued as a result of the  settlement  of
class  actions.  See "Item 3. Legal  Proceedings."  In  addition,  in 1995,  the
Company wrote down the net assets of its fiber optics business to net realizable
value to reflect the price at which the assets were sold in March 1996.

     As a result of the  foregoing,  the Company  sustained an operating loss of
$19,900,000, an increase of 14% from the operating loss of $17,500,000 in 1994.



                                       -6-


<PAGE>

     Interest expense increased  $2,900,000,  or 52%, from $5,600,000 in 1994 to
$8,500,000  in 1995.  The increase in interest  expense  reflects  substantially
higher  average  interest  rates and  increased  borrowings  under the Company's
agreement with Foothill as compared with the interest rate and borrowings  under
the Company's prior agreement with Chemical Bank. Although most of the increased
borrowings  reflect  additional  borrowings  for  operations,  $2,500,000 of the
additional  borrowings  result from the  purchase  by the Company of  Debentures
which were purchased  from Foothill in connection  with the March 1995 amendment
to the Foothill agreement.

     Other expenses of approximately  $900,000 include costs associated with the
modification  of the  Company's  agreement  with  Foothill in March 1995.  Other
expenses in 1994 related to the restructuring of the Company's secured debt when
Foothill  took over  Chemical  Bank's note from the Company and the terms of the
financing were modified.

     Income tax expense for 1995 was nominal,  reflecting primarily offshore and
Delaware  corporate  taxes.  The  $14,900,000  tax expense in 1994  results from
providing a valuation allowance for deferred income taxes.

     The $3,500,000  loss from the sale of  discontinued  operations  reflects a
reduction in the amount of the expected recovery from the sale by the Company in
1993 of its Israeli  subsidiaries  which were engaged in the manufacture of data
communications   connecting  equipment.  As  a  result  of  a  receivership  and
liquidation  proceedings  involving  the  purchaser  of  the  subsidiaries,  the
estimated recovery from the sale of such operations was reduced from $4,500,000,
which was the estimated  recovery at December 31, 1994, to $1,000,000,  which is
the  estimated  recovery at December  31, 1995.  The  Company's  receivable  was
represented  by  shares  of  common  stock  of the  entity  which  now  owns the
discontinued operation. During the quarter ended June 30, 1996, the Company sold
the shares of this common stock for $3,456,000.  As such the Company  recorded a
gain of $2,264,000 on disposal of discontinued operations.

     In connection  with the February 1995 amendment to the Company's  agreement
with  Foothill,  the Company  repurchased  from Foothill and retired  $3,900,000
principal amount of Debentures for approximately  $2,500,000 through an increase
of $3,000,000 in the term loan to Foothill and the repricing of certain warrants
granted to  Foothill.  The Company  recorded an  extraordinary  item,  a gain of
$1,800,000  million  on early  extinguishment  of this  debt,  representing  the
difference  between the book value of the debt and the approximate  market value
of the debt on the date of the transaction.

     As a result of the foregoing,  the Company sustained a loss from continuing
operations in 1995 of $29,300,000,  or $20.05 per share, as compared with a loss
from continuing  operations in 1994 of $40,000,000,  or $28.05 per share.  After
giving  effect to the loss on sale of  discontinued  operations  and the gain on
early  extinguishment  of debt, the Company sustained a net loss of $31,000,000,
or $21.25 per share,  for 1995, as compared with a net loss of  $40,000,000,  or
$28.05 per share, in 1994. 

                                      -7-


<PAGE>

     In  March  1996,  the  Company  sold the net  assets  of its  fiber  optics
business,  amended its agreement with Foothill and reduced its  indebtedness  to
Foothill.  In addition,  through  October 14, 1996,  the Company issued its zero
coupon notes in the principal amount of $25,900,000 and issued 655,000 shares of
Common Stock in exchange for  $33,770,000  principal  amount of  Debentures  and
accrued  interest of $1,600,000  at December 31, 1995,  pursuant to the Exchange
Offer.  These  transactions  enabled  the Company to reduce its  facilities  and
personnel  expenses,  reduce the  indebtedness  to Foothill  and reduce  ongoing
interest  costs.  However,  the  benefits to the Company  from the  reduction in
operating  costs,  including  reductions  resulting  from the sale of the  fiber
optics business, and the reduced interest expense will not enable the Company to
operate  profitably unless it is able to significantly  reduce its cost of goods
sold or increase its sales margins and reduce its general overhead,  as to which
no assurance can be given.

Years Ending December 31, 1994  and 1993

     Sales from continuing  operations for the full year ended December 31, 1994
compared  to 1993 were up 1%  primarily  due to  increased  sales in each of the
first three  quarters  of 1994  compared  to the  similar  periods of 1993.  The
Company's sales from  continuing  operations for the fourth quarter of 1994 were
substantially below expectations,  notwithstanding  adequate backlog, due to the
continuation  of the shipment  delays caused by persistent  and worsening  parts
shortages  associated  with the reductions in borrowing  availability  under the
Company's  borrowing  agreement with its Senior Lender,  and a product mix which
resulted in shipment of lower priced and  margined  products.  In addition,  the
Company's fourth quarter 1994 OSS sales were generally and adversely impacted by
the intercreditor  disagreement which resulted in the Company allocating working
capital toward product  manufacture in connection  with the contract in order to
fulfill  its  agreement  with its  customer  and  slowing  performance  on other
contracts in the field due to resulting scarce working capital resources.

     Sales of OSS  equipment  during  the year  ended  December  31,  1994  were
$21,500,000  compared to  $17,700,000 in 1993, an increase of 21%, due primarily
to increased sales during 1994 by the Company's Korean joint venture subsidiary.
While sales of fiber  optic  connection/protection  products  for the year ended
December 31, 1994 increased to $12,151,000 compared to $8,854,000 in 1993, sales
of fiber optic connection/protection  products during the fourth quarter of 1994
were  adversely  affected  by the  reductions  in working  capital  availability
discussed above.  Sales of copper  connection/protection  products decreased 16%
during the year ended December 31, 1994 compared to 1993 due in part to shipment
delays  caused by  persistent  parts  shortages  during the three  months  ended
September  30, 1994 (which  accelerated  in the three months ended  December 31,
1994)  resulting from the reductions in working capital  availability  under the
Restated Credit Agreement,  as well as the inability of a supplier to ship parts
meeting quality  standards  required by the Company.  While shipments to British
Telecommunications  plc had fallen  during the three months ended  September 30,
1994,  the Company was able to increase its  shipments to this  customer  during


                                       -8-


<PAGE>

the  fourth  quarter  of  1994.  The  Company's   backlog  for  copper  products
significantly  increased  during this period due to  increased  orders for these
products.  Also,  the  Company's  sales  to  Telefonos  de  Mexico,  which  were
denominated  in Mexican  pesos and which were expected to be  approximately  the
same in 1994 as in 1993 but more evenly  distributed  over all four  quarters of
the year, were adversely affected in early December 1994 by the Mexican economic
crisis which caused the Company to  temporarily  halt  shipments to Telefonos de
Mexico pending  negotiations with Telefonos de Mexico to determine the increased
pricing consequences of such economic crisis. Sales of other products, primarily
Signal  Processing  products,  in the year ended December 31, 1994 were slightly
higher than sales during 1993 although  sales of other products in the third and
fourth  quarters  of  1994  were  also  somewhat  affected  by  the  operational
inefficiencies resulting from the reductions in working capital availability.

     The dollar  amount of cost of sales for the year ended  December  31,  1994
increased approximately  $13,000,000 or 26% compared to 1993. Cost of sales as a
percentage  of sales for the year  ended  December  31,  1994  compared  to 1993
increased to 91% from 73%. The dollar  amount of cost of sales for the third and
fourth  quarters  of 1994  compared  to the  similar  periods of 1993 and to the
Company's  historical  cost of  sales  experience  were  particularly  high  and
negatively  impacted the entire year's results due to the unfavorable  impact on
the  Company's   operational   costs  of  the  reductions  in  working   capital
availability  under the Restated Credit  Agreement,  the effect of the Company's
concentrated  effort to reduce inventories and the sale of lower margin products
in order to generate cash  internally  to address such  reductions in externally
available  working  capital.  In addition,  the substantial  contribution of the
Company's joint venture in Korea, which sells lower margin OSS products,  to OSS
equipment  sales tended to increase cost of sales as a percentage of sales.  The
Company's   operational  costs  were  additionally   affected  by  manufacturing
inefficiencies  resulting from materials  shortages,  smaller  productions runs,
higher per unit  purchasing  and freight  costs as well as increased  numbers of
employees and idle labor  manufacturing time and maintenance of a fixed level of
expenses  associated  with the support of a higher level of OSS equipment  sales
than actually resulted in 1994. While the Company's effort to reduce inventories
resulted in increased  cash flow in the third and fourth  quarters of 1994,  the
consequences  of this  effort  was  higher  labor  costs  related  to  rework of
inventory and reduced  margins  associated  with the sale of certain slow moving
inventory at  unfavorable  prices.  Also,  the  Company's  aggressive  inventory
reduction program caused it to conclude, after sales of such inventory,  that no
easily  accessible  and  significant  market  remained for certain of its copper
products  in the  markets  traditionally  accessed  by the  Company or which the
Company  would  reasonably  be  able  to  access  in the  near  term  given  the
restructuring  and cost cutting  moves  described  elsewhere.  Accordingly,  the
Company  determined  to  make a  $2,000,000  provision  for  such  products.  In
addition, the Company has made a provision for approximately  $2,000,000 of high
density frames which it has in stock due to its discovery that such high density
frames contain defective parts sold to it by a vendor.  The Company is presently
considering  taking  action  against such vendor to recoup its losses  resulting
from such defective parts.

                                       -9-


<PAGE>

     The dollar amount of selling,  general and  administrative  expenses in the
year ended December 31, 1994,  increased by 22% compared to 1993, while selling,
general and  administrative  expenses as a percentage of sales  increased by 20%
during the year ended December 31, 1994 compared to 1993.  Selling,  general and
administrative  expenses  were  significantly  higher during the last quarter of
1994 compared to 1993 due to the costs of servicing its Asia/Pacific marketplace
and  selling  associated  with the  European  market and  commission  costs.  In
addition,  the impact of certain one time costs  associated  with the pursuit of
substitute financing, the costs of defense of certain lawsuits which the Company
was  defending  during these periods and the costs of settlement of one of these
lawsuits increased selling,  general and administrative expenses during the year
ended December 31, 1994.

     Research  and  development  expenses  for the year ended  December 31, 1994
compared  to 1993  decreased  significantly,  both as a dollar  amount  and as a
percentage  of sales,  in part because of a reduction in staff and related costs
due  primarily  to the  consolidation  of research  and  development  activities
previously  conducted  separately by companies  acquired in prior periods and in
part because of lower research and  development  requirements  for the Company's
more mature products.

     The  Company's  operating  loss for the year  ended  December  31,  1994 is
primarily  attributable  to a number of factors,  including  a shortfall  in the
volume  of sales,  a cost  structuring  for a much  larger  level of  sales,  an
inability  to adjust  the  organization  to deal with the sales  shortfall,  the
reductions in availability of working capital,  inventory reduction program, and
transaction  costs  related to both the Restated  Credit  Agreement  and the New
Credit Agreement.

     The  Company's  operating  loss for the year ended  December  31,  1993 was
$3,916,000  and  reflected  an improving  operational  trend during the last six
months of the year. A substantial  portion of this operating loss was due to low
volumes of production in comparison to manufacturing capacity, as well as, costs
associated with strategic investments in OSS and fiber optic areas being made by
the Company.  In addition,  and consistent with the Company's cost of sales, the
mix of product sales contributed to the extent of the loss.

     Interest  expense for the year ended  December  31,  1994  compared to 1993
increased due to higher  average  interest  rates  although such higher  average
rates were  offset by a  slightly  lower  borrowing  level  during  most of 1994
compared to 1993. Interest expenses increased substantially during 1993 compared
to 1992 due to  substantially  increased  debt  used to  finance  the  Company's
operating  losses and a full year's interest on the 6% Convertible  Subordinated
Debentures.

     As reported,  other  expenses for the year ended December 31, 1994 compared
to 1993 decreased.  However,  such 1994 expenses  included various advisory fees
required as a result of the  Company's  relationship  with its lending banks and
fees related to the costs of the Company's financing with both its lending banks
and its new senior lender,  which were partially offset by a $ 313,000 gain from
the satisfaction of the bank obligations.

                                      -10-


<PAGE>

     Other  expenses  for the year ended  December  31,  1993 are  predominantly
comprised of various  advisory fees relating to the negotiation and finalization
of the  Restated  Credit  Agreement  as well as fees  related  to the  Company's
unsuccessful efforts to acquire a telecommunications  manufacturing  business of
another company.

     The Company adopted Financial Accounting Standard No. 109 effective January
1, 1992 and, as of December  31,  1993,  had  recognized a deferred tax asset of
$13,955,000,   principally   relating  to  the  Company's  net  operating   loss
carryforwards.  In the third quarter of 1994, the Company,  after  reviewing the
deferred  tax asset in the context of its results of  operations  for such third
quarter,  recorded a valuation  allowance in the entire  amount of such deferred
tax asset,  which is  included  in 1994  income tax  expense.  As a result,  the
Company  recorded  income tax expense of $14,920,000 for the year ended December
31,  1994  compared  to income tax benefit of  $3,885,000  in 1993,  principally
relating to operating losses for United States income tax purposes. The decision
to record such valuation  allowance in 1994 was based on the criteria  contained
in  Financial  Accounting  Standard  No.  109,  generally  requiring a valuation
allowance when  cumulative  losses have been  experienced and there is a lack of
sufficient objective offsetting evidence to conclude that it is more likely than
not that the deferred tax asset will be utilized.

New Accounting Standards

     In October 1995,  the Financial  Accounting  Standards  Board (FASB) issued
Statement No. 123,  "Accounting  for  Stock-Based  Compensation",  which must be
adopted by the Company in 1996.  The Company  has elected not to  implement  the
fair value based accounting  method for employee stock options,  but has elected
to disclose, commencing in 1996, the pro-forma net income and earnings per share
as if such method had been used to account for stock-based  compensation cost as
described in the Statement.

     In March 1995,  The FASB issued  Statement  No.  121,  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of,"
which must also be adopted by the Company in 1996.  The effect of adopting  this
standard will be insignificant.




                                      -11-

<PAGE>

Item 8.  Financial Statements and Supplementary Data

Index                                                                 Page
-----                                                                 ----

Report of Independent Certified Public Accountants                     13

Independent Auditors' Report                                           14

Consent of Independent Certified Public Accountants                    15

Consent of Independent Auditors                                        16

Consolidated Financial Statements and Notes:

         Consolidated Balance Sheets,
         December 31, 1995 and 1994                                    17

         Consolidated Statements of Operations
         for the Years Ended
         December 31, 1995, 1994 and 1993                              18

         Consolidated Statements of Stockholders'
         Equity (Deficit) for the Years Ended
         December 31, 1995, 1994 and 1993                              19

         Consolidated Statements of Cash Flows
         for the Years Ended December 31, 1995,
         1994 and 1993                                                 20

         Notes to Consolidated Financial Statements                    21




                                      -12-


<PAGE>

               Report of Independent Certified Public Accountants

The Board of Directors and
Stockholders of Porta Systems Corp.:

We have audited the  accompanying  consolidated  balance  sheet of Porta Systems
Corp. and  subsidiaries  as of December 31, 1995, and the related  statements of
operations,  stockholders'  equity  (deficit),  and cash flows for the year then
ended.  These  consolidated  financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Porta Systems Corp.
and  subsidiaries  as of December 31, 1995, and the results of their  operations
and their cash flows for the year ended  December 31, 1995, in  conformity  with
generally accepted accounting principles.

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  recurring  losses  from
operations and working capital and net capital  deficiencies  raise  substantial
doubt about its 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.



                                                  BDO SEIDMAN, LLP

Mitchel Field, New York
October 14, 1996


                                      -13-

<PAGE>

                          Independent Auditors' Report

The Board of Directors and Stockholders
Porta Systems Corp.:

We have audited the  accompanying  consolidated  balance  sheet of Porta Systems
Corp. and  subsidiaries  as of December 31, 1994,  and the related  consolidated
statements of operations,  stockholders'  equity, and cash flows for each of the
years in the  two-year  period  ended  December  31,  1994.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

Reference is made to note 2 of notes to the  consolidated  financial  statements
with respect to liquidity and management's plans with regard thereto.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Porta Systems Corp.
as of December  31,  1994,  and the results of their  operations  and their cash
flows for each of the years in the two-year  period ended  December 31, 1994, in
conformity with generally accepted accounting principles.



                                                   KPMG PEAT MARWICK LLP

Jericho, New York
March 31, 1995

                                      -14-


<PAGE>

               Consent of Independent Certified Public Accountants

Board of Directors
Porta Systems Corp.:

We consent to the incorporation by reference in the registration statements:
(Reg. No. 2-95117) on Form S-8, (Reg No. 2-65375) on Form S-8, (Reg. No.
33-12146) on Form S-8 and (Reg. No. 33-41992) on Form S-8 of Porta Systems Corp.
and subsidiaries of our report dated October 14, 1996, relating to the
consolidated balance sheet of Porta Systems Corp. and subsidiaries as of
December 31, 1995 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the year ended December 31,
1995, which report appears in the Porta Systems Corp. annual report on Form
10-K. Our report contains an explanatory paragraph regarding the Company's
ability to continue as a going concern.


                                             BDO Seidman, LLP


Mitchel Field, New York
October 31, 1996

                                      -15-

<PAGE>

                         Consent of Independent Auditors

Board of Directors
Porta Systems Corp.:

We consent to the incorporation by reference in the registration statements;
(Reg. No. 2-95117) on Form S-8, (Reg No. 2-65375) on Form S-8, (Reg. No.
33-12146) on Form S-8 and (Reg. No. 33-41992) on Form S-8 of Porta Systems Corp.
and subsidiaries of our report dated March 31, 1995, relating to the
consolidated balance sheet of Porta Systems Corp. and subsidiaries as of
December 31, 1994 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1994, which report appears in the Porta Systems Corp. annual
report on Form 10-K.


                                                KPMG PEAT MARWICK LLP


Jericho, New York
March 31, 1995


                                      -16-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                           December 31, 1995 and 1994
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                     Assets
                                                                               1995        1994
                                                                             --------    --------
<S>                                                                          <C>            <C>  
Current assets:
   Cash and cash equivalents                                                 $  1,109       2,332
   Accounts receivable - trade, less allowance for doubtful
      accounts of $1,251 in 1995 and $585 in 1994                              12,626      13,964
   Inventories                                                                  8,979      20,146
   Prepaid expenses                                                               659       1,020
   Receivable from sale of discontinued operations                              1,000        --
                                                                             --------    --------
                 Total current assets                                          24,373      37,462
                                                                             --------    --------

Assets held for sale, net                                                       7,893        --
Property, plant and equipment, net                                              6,911      11,139
Receivable from sale of discontinued operations                                  --         4,500
Deferred computer software, net                                                 3,188       6,257
Goodwill, net of amortization of $2,265 in 1995 and $2,192 in 1994             11,793      19,032
Other assets                                                                    6,433       6,573
                                                                             --------    --------
                  Total assets                                               $ 60,591      84,963
                                                                             ========    ========

                 Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
   Convertible subordinated debentures                                       $  6,564        --
   Accounts payable                                                             8,302       9,690
   Accrued expenses                                                            10,502       6,065
   Accrued interest payable                                                     3,534       1,414
   Accrued commissions                                                          2,016       2,180
   Income taxes payable                                                           780         478
   Customer advances                                                              504       2,525
   Notes payable                                                                 --         1,237
   Short-term loans                                                               368         152
                                                                             --------    --------
                 Total current liabilities                                     32,570      23,741
                                                                             --------    --------

Long-term debt                                                                 26,645      21,000
Convertible subordinated debentures                                            25,660      35,073
Notes payable net of current maturities                                         3,084       1,237
Income taxes payable                                                              811       1,330
Other long-term liabilities                                                       385         400
Minority interest                                                                 759         657
                                                                             --------    --------
                  Total long-term liabilities                                  57,344      59,697
                                                                             --------    --------

Commitments and contingencies

Stockholders' equity (deficit):
   Preferred stock, no par value; authorized 1,000,000 shares, none issued       --          --
   Common stock, par value $.01; authorized 20,000,000 shares,
      issued 1,492,361 shares in 1995 and 1994                                     15          15
   Additional paid-in capital                                                  33,308      32,948
   Foreign currency translation adjustment                                     (4,199)     (4,031)
   Accumulated equity (deficit)                                               (56,074)    (25,033)
                                                                             --------    --------
                                                                              (26,950)      3,899
   Treasury stock, at cost, 33,340 and 30,940
      shares in 1995 and 1994, respectively                                    (2,066)     (1,938)
   Receivable for employee stock purchases                                       (307)       (436)
                                                                             --------    --------
                 Total stockholders' equity (deficit)                         (29,323)      1,525
                                                                             --------    --------
                 Total liabilities and stockholders' equity (deficit)        $ 60,591      84,963
                                                                             ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      -17-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                  Years ended December 31, 1995, 1994 and 1993
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                   1995        1994        1993
                                                                 --------    --------    --------
<S>                                                              <C>           <C>         <C>   
Sales                                                            $ 61,181      68,985      68,141
Cost of sales                                                      56,444      62,530      49,539
                                                                 --------    --------    --------
                  Gross profit                                      4,737       6,455      18,602
                                                                 --------    --------    --------

Selling, general and administrative expenses                       16,556      20,037      16,443
Research and development expenses                                   6,103       3,959       6,075
Litigation settlement                                               1,100        --          --
Write-down of net assets held for sale to net realizable value        862        --          --
                                                                 --------    --------    --------

                  Total expenses                                   24,621      23,996      22,518
                                                                 --------    --------    --------

                  Operating loss                                  (19,884)    (17,541)     (3,916)

Interest expense                                                   (8,484)     (5,617)     (4,813)
Interest income                                                        87         251         357
Other, net                                                           (884)     (2,022)     (2,985)
                                                                 --------    --------    --------
                  Loss from continuing operations before
                     income taxes and minority interest           (29,165)    (24,929)    (11,357)

Income tax expense (benefit)                                           30      14,920      (3,885)
Minority interest                                                    (102)       (146)        (21)
                                                                 --------    --------    --------

                  Loss before discontinued operations             (29,297)    (39,995)     (7,493)

Provision for loss on disposal of discontinued operations          (3,500)       --        (2,052)
                                                                 --------    --------    --------

                  Loss before extraordinary item                  (32,797)    (39,995)     (9,545)

Extraordinary gain on early extinguishment of debt                  1,756        --          --
                                                                 --------    --------    --------

                  Net loss                                       $(31,041)    (39,995)     (9,545)
                                                                 ========    ========    ========
Per share amounts:
   Continuing operations                                         $ (20.05)     (28.05)      (5.40)
   Discontinued operations                                          (2.40)       --         (1.50)
   Extraordinary item                                                1.20        --          --
                                                                 --------    --------    --------
                  Net loss per share                             $ (21.25)     (28.05)      (6.90)
                                                                 ========    ========    ========
Weighted average shares outstanding                                 1,461       1,427       1,382
                                                                 ========    ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      -18-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
            Consolidated Statements of Stockholders' Equity (Deficit)
                  Years ended December 31, 1995, 1994 and 1993
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                                               Receivable    Total
                                                                             Foreign     Retained                  for       Stock-
                                             Common Stock       Additional   Currency    Earnings               Employee    holders'
                                           No. of    Par Value   Paid-in   Translation (Accumulated  Treasury     Stock     Equity/
                                           Shares     Amount     Capital   Adjustment    Deficit)      Stock    Purchases  (Deficit)
                                           ----------------------------------------------------------------------------------------
<S>                                          <C>     <C>        <C>        <C>         <C>         <C>         <C>         <C>     
Balance at December 31, 1992                 1,411   $     14   $ 29,514   $ (2,102)   $ 24,507    $ (1,938)   $   (509)   $ 49,486

Net loss 1993                                 --         --         --         --        (9,545)       --          --        (9,545)
Stock issued                                     5       --           92       --          --          --          --            92
Repayments of receivable                      --         --         --         --          --          --            11          11
Warrants issued                               --         --          604       --          --          --          --           604
Foreign currency translation
   adjustment                                 --         --         --         (807)       --          --          --          (807)
                                           ----------------------------------------------------------------------------------------
Balance at December 31, 1993                 1,416         14     30,210     (2,909)     14,962      (1,938)       (498)     39,841

Net loss 1994                                 --         --         --         --       (39,995)       --          --       (39,995)
Stock issued                                    76          1      2,138       --          --          --          --         2,139
Warrants issued                               --         --          600       --          --          --          --           600
Write off of receivable for
   employee stock purchases                   --         --         --         --          --          --            62          62
Foreign currency translation
   adjustment                                 --         --         --       (1,122)       --          --          --        (1,122)
                                           ----------------------------------------------------------------------------------------
Balance at December 31, 1994                 1,492         15     32,948     (4,031)    (25,033)     (1,938)       (436)      1,525


Net loss 1995                                 --         --         --         --       (31,041)       --          --       (31,041)
Warrants issued                               --         --          360       --          --          --          --           360
Write off of receivable for
   employee stock purchases                   --         --         --         --          --          (128)        129           1
Foreign currency translation
   adjustment                                 --         --         --         (168)       --          --          --          (168)
                                           ----------------------------------------------------------------------------------------
Balance at December 31, 1995                 1,492   $     15   $ 33,308   $ (4,199)   $(56,074)   $ (2,066)   $   (307)   $(29,323)
                                           ========================================================================================

</TABLE>


           See accompanying notes to consolidated financial statements

                                      -19-


<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                  Years ended December 31, 1995, 1994 and 1993
                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                            1995        1994        1993
                                                                          --------    --------    --------
<S>                                                                       <C>          <C>          <C>    
Cash flows from operating activities:
  Net loss                                                                $(31,041)    (39,995)     (9,545)
  Adjustments to reconcile net loss to net cash
     (used in) provided by operating activities:
        Loss on disposal of discontinued operations                          3,500        --         2,052
        Gain on extinguishment or refinancing of indebtedness               (1,756)       (913)       --
        Non-cash financing costs                                             2,698         600         202
        Deferred income taxes                                                 --        13,955      (4,841)
        Depreciation and amortization                                        7,015       5,580       5,416
        Write off of employee notes receivable                                   1          62        --
        Amortization of discount on convertible subordinated debentures        603         442         426
        Minority interest                                                      102         163          21
  Changes in assets and liabilities:
     Accounts receivable                                                     1,338       2,598       4,640
     Inventories                                                             9,700       8,047       1,613
     Prepaid expenses                                                         (773)       (328)        178
     Other assets                                                            1,916        (330)     (1,857)
     Accounts payable, accrued expenses and other liabilities                4,167      10,414      (4,621)
                                                                          --------    --------    --------
         Net cash (used in) provided by operating activities                (2,530)        295      (6,316)
                                                                          --------    --------    --------
Cash flows from investing activities:
  Capital additions, net of minor disposals                                 (1,749)     (1,107)     (1,559)
  Repayment of employee loans                                                 --          --            11
                                                                          --------    --------    --------
         Net cash used in investing activities                              (1,749)     (1,107)     (1,548)
                                                                          --------    --------    --------
Cash flows from financing activities:
  Proceeds from issuance of debt                                             5,781      24,212      22,897
  Repayments of debt                                                        (2,500)    (22,299)    (19,397)
  Proceeds from issuance of common stock                                      --         2,139          92
  Repayments of notes payable/short-term loans                                --        (1,162)     (9,942)
                                                                          --------    --------    --------
         Net cash provided by (used in) financing activities                 3,281       2,890      (6,350)
                                                                          --------    --------    --------

Effect of exchange rate changes on cash                                       (225)     (1,473)       (807)
(Decrease) increase in cash and cash equivalents                            (1,223)        605     (15,021)
Cash and equivalents - beginning of year                                     2,332       1,727      16,748
                                                                          --------    --------    --------

Cash and equivalents - end of year                                        $  1,109       2,332       1,727
                                                                          ========    ========    ========

Supplemental cash flow information:
  Cash paid for interest                                                  $  2,915       4,196       4,135
                                                                          ========    ========    ========

  Cash paid for income taxes                                              $     73         128          80
                                                                          ========    ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      -20-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 1995 and 1994

(1)  Summary of Significant Accounting Policies

     Nature of Operations and Principles of Consolidation

     Porta Systems  Corp. (the  "Company")  designs,  manufactures  and  markets
        systems for the connection,  protection,  testing and  administration of
        public and private  telecommunications  lines and networks.  The Company
        has various  patents for copper and software  based products and systems
        that support voice,  data, image and video  transmission.  The Company's
        principal  customers are the U.S. regional telephone operating companies
        and foreign telephone companies.

     The accompanying consolidated  financial statements include the accounts of
        Porta Systems Corp. (the "Company") and its majority-owned or controlled
        subsidiaries.  All significant  intercompany  transactions  and balances
        have been eliminated in consolidation.

     Revenue Recognition

     Revenue, from other than contracts for specialized  products, is recognized
        when a product is shipped.  Revenues and earnings  relating to long-term
        contracts   for    specialized    products   are   recognized   on   the
        percentage-of-completion  basis primarily  measured by the attainment of
        milestones.  Anticipated  losses,  if any, are  recognized in the period
        determined.

     Cash Equivalents

     The Company considers investments with original  maturities of three months
        or less at the time of purchase to be cash equivalents. Cash equivalents
        consist of commercial paper.

     Inventories

     Inventories  are stated at the lower of cost (on the  average or  first-in,
        first-out methods) or market.

     Property, Plant and Equipment

     Property, plant and equipment are carried at cost.  Leasehold  improvements
        are amortized over the term of the lease. Depreciation is computed using
        the straight-line method over the related assets' estimated lives.

     Deferred Computer Software

     Software costs incurred for specific customer contracts are charged to cost
        of sales at the time revenues on such contracts are recognized. Software
        development  costs  relating to products the Company offers for sale are
        deferred in accordance with Statement of Financial  Accounting Standards
        (SFAS) No. 86 "Accounting for the Costs of Computer Software to Be Sold,
        Leased,  or Otherwise  Marketed".  These costs are  amortized to cost of
        sales over the periods that the related  product  will be sold,  up to a
        maximum of four years.  Amortization of computer  software costs,  which
        all  relate  to  products  the  Company  offers  for sale,  amounted  to
        approximately  $3,171,000,  $1,847,000 and $1,414,000 in 1995, 1994, and
        1993, respectively. 
                                                                     (Continued)

                                      -21-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     Goodwill

     Goodwill represents the difference  between the purchase price and the fair
        market value of net assets acquired in business  combinations treated as
        purchases.  Goodwill is amortized on a straight-line basis over 18 to 40
        years.  At  December  31,  1995,  $7,242,000  of the  goodwill  is being
        amortized over  approximately 18 years and $4,551,000 is being amortized
        over 40 years.  The Company assesses the  recoverability  of unamortized
        goodwill  using the  undiscounted  projected  future cash flows from the
        related businesses.

     Income Taxes

     Deferred income taxes are recognized  based on the differences  between the
        tax bases of assets and  liabilities  and their reported  amounts in the
        financial  statements that will result in taxable or deductible  amounts
        in future years. Further, the effects of enacted tax law or rate changes
        are  included in income as part of  deferred  tax expense or benefit for
        the period that includes the enactment date.

     Puerto Rico income taxes were accrued prior to September 30, 1993 on income
        earned by a subsidiary  of the Company which had operated in Puerto Rico
        based on a ten year 90% industrial  tax exemption  effective for periods
        subsequent to May 28, 1987. The Company's subsidiary operating in Puerto
        Rico was liquidated by merger on September 30, 1993 (see note 9).

     Foreign Currency Translation

     Assets and liabilities of foreign  subsidiaries  are translated at year-end
        rates of exchange,  and revenues  and  expenses  are  translated  at the
        average rates of exchange for the year.  Gains and losses resulting from
        translation  are  accumulated in a separate  component of  stockholders'
        equity.  Gains and losses resulting from foreign  currency  transactions
        (transactions  denominated  in a  currency  other  than  the  functional
        currency) are included in net income or loss.

     Earnings (Loss) Per Share

     Earnings  per  share are  based on the  weighted  average  number of shares
        outstanding   and  common   equivalent   shares  arising  from  dilutive
        unexercised  stock  options.  Loss per  share  is based on the  weighted
        average number of shares  outstanding.  Fully diluted earnings per share
        information is not presented as it is  anti-dilutive.  All share and per
        share data have been restated to give effect to the one for five reverse
        stock split effective August 2, 1996 (See note 23).

     Reclassifications

     Certain   reclassifications   have  been  made  to  conform   prior  years'
        consolidated financial statements to the 1995 presentation.

                                                                     (Continued)
                               
                                      -22-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     Use of Estimates

     The preparation of  financial   statements  in  accordance  with  generally
        accepted accounting principles requires management to make estimates and
        assumptions  that affect 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.  Among  the more  significant  estimates
        included in these  consolidated  financial  statements are the estimated
        allowance for doubtful accounts receivable,  inventory reserves, and the
        deferred tax asset valuation allowance. Actual results could differ from
        those and other estimates.

(2)  Liquidity

     The accompanying  consolidated  financial  statements  have  been  prepared
        assuming that the Company will continue as a going concern.  In 1995 and
        1994,  the Company  experienced  a lack of liquidity.  In addition,  the
        Company's  recurring  losses from operations and working capital and net
        capital deficiencies raise substantial doubt about the Company's ability
        to continue as a going concern. The consolidated financial statements do
        not  include any  adjustments  that might arise from the outcome of this
        uncertainty.

     The Company,  to enhance its liquidity,  sold the net assets related to its
        fiber  optics  business  in  March  1996  (note  4).  This  sale  raised
        approximately  $8  million  of cash and the  acquiring  company  assumed
        approximately  $1,400,000  of  liabilities.  The sale of this  business,
        which in 1995 and prior years sustained significant losses, eliminated a
        considerable  operating  cash drain. A majority of the proceeds from the
        sale were used to pay down a portion  of the  Company's  debt,  which in
        turn will reduce  ongoing  interest  costs and provide the Company  with
        working capital through the ability to then restructure its senior debt.
        In  addition,   through   October  14,  1996,   the  Company   exchanged
        approximately   94%  of  its  6%  subordinated   convertible   debt  for
        non-interest  bearing  notes.  This  will  reduce  interest  expense  by
        approximately $2,000,000 per year. In addition, the Company is reviewing
        various options in which it can streamline  operations or further reduce
        operating expenses to enhance the Company's ability to attain profitable
        operations.


                                                                     (Continued)
                                                         
                                      -23-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued



(3)  Discontinued Operations

     In 1992,  the  Company  recorded  the  sale of its  network  communications
        business,  for which it received $3,750,000 in cash and cash equivalents
        plus promissory notes,  which after an additional  provision for loss on
        disposal of discontinued operations of $2,052,000 in 1993, had a balance
        of $4,500,000.

     During the second quarter of 1995, an ongoing dispute regarding the selling
        price  of this  business  was  resolved.  As a  result,  the  $4,500,000
        receivable  was reduced to  $1,000,000  which  resulted in an additional
        provision for loss on disposal of discontinued operations of $3,500,000.
        The remaining receivable at December 31, 1995 is collateralized,  at the
        option of the Company,  by either a $750,000 standby letter of credit or
        approximately 54,000 shares of common stock of the entity which acquired
        the business from receivership.  Such shares are held in escrow and have
        a fair value of  $1,387,000  at December 31, 1995 based on quoted market
        prices.  As of October  14,  1996,  such shares have been sold (see note
        23).

(4)  Assets Held for Sale

     On March 13, 1996, the Company  consummated an agreement  pursuant to which
        it sold certain  assets and the buyer assumed  certain  liabilities  and
        severance  obligations  related to the operations of the Company's fiber
        optics  management  and component  business for  $7,893,000,  subject to
        certain  adjustments.  The  Company  continues  to be liable for certain
        liabilities  amounting to approximately  $700,000,  related to its fiber
        optics facilities in Ireland. The Company received $6,793,000 at closing
        and the  remainder  was placed into two escrow funds to be released over
        the  next  year,  subject  to  certain  conditions,  including  a  final
        valuation of the net assets  transferred.  The proceeds  were  primarily
        used to repay long-term debt (note 11). As a result of the  transaction,
        the Company recorded a charge to operations in 1995 of $862,000 to write
        down the net assets sold to net realizable value. Net sales of the fiber
        optics business approximated $6,513,000, $12,150,000, and $8,654,000 for
        1995, 1994 and 1993, respectively.

     Net assets held for sale at net realizable  value as of  December  31, 1995
        consists of the following:

          Inventory                                      $ 1,467,000
          Fixed assets                                     1,510,000
          Deferred computer software                         319,000
          Goodwill                                         5,897,000
          Other assets                                       115,000
          Accounts payable and accrued liabilities        (1,415,000)
                                                         -----------

                                                         $ 7,893,000
                                                         ===========

                                                                     (Continued)

                                      -24-


<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(5)  Joint Venture

     The Company entered  into a joint  venture  agreement  as of April 24, 1986
        with a Korean partner.  Unless  otherwise  terminated in accordance with
        the  joint  venture  agreement,  the joint  venture  will  terminate  on
        December  31,  2010.  In  addition,  the  Company  has  entered  into an
        agreement  with its  joint  venture  partner  whereby  the  Company  has
        obtained an option, exercisable for approximately $2,300, to purchase an
        additional 1% interest in Woo Shin Electro-Systems Co. (Woo Shin), which
        would  increase the Company's  ownership  percentage to 51%. The Company
        consolidates  the  operations of Woo Shin since the Company can obtain a
        controlling  interest at its  election for a nominal sum and Woo Shin is
        entirely  dependent  on the Company for the products it sells as well as
        receiving  management  assistance from the Company.  The interest in the
        joint venture not owned by the Company is shown as a minority interest.

(6)  Inventories

     Inventories consist of the following:

                                                    December 31,
                                            ----------------------------
                                                1995             1994
                                            -----------      -----------
        Parts and components                $ 5,370,000       11,838,000
        Work-in-process                         849,000        1,854,000
        Finished goods                        2,760,000        6,454,000
                                            -----------      -----------

                                            $ 8,979,000       20,146,000
                                            ===========      ===========

(7)  Property, Plant and Equipment

     Property, plant and equipment consists of the following:

                                               December 31       
                                        -------------------------   Estimated
                                            1995          1994     useful lives
                                        -----------   -----------  -------------

        Land                            $   246,000       246,000        --
        Buildings                         2,358,000     2,288,000     20 years
        Machinery and equipment           8,426,000    15,149,000    5-8 years
        Furniture and fixtures            3,379,000     5,057,000    5-10 years
        Transportation equipment            240,000       372,000     4 years
        Tools and molds                   4,233,000     5,501,000     8 years
        Leasehold improvements              827,000     3,539,000  Term of lease
        Construction in progress               --          35,000
                                        -----------  ------------
                                         19,709,000    32,187,000

        Less accumulated depreciation
           and amortization              12,798,000    21,048,000
                                        -----------  ------------

                                        $ 6,911,000    11,139,000
                                        ===========  ============

     Total  depreciation  and  amortization  expense  for  1995,  1994  and 1993
        amounted  to  approximately   $3,610,000,   $3,242,000  and  $2,996,000,
        respectively.

                                                                     (Continued)

                                      -25-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(8)  Accounts Receivable

     Accounts  receivable  included  approximately  $1,146,000 and $2,246,000 at
        December  31,  1995,   and  1994,   of  revenues   earned  but  not  yet
        contractually  billable relating to long-term  contracts for specialized
        products.  All such  amounts at December  31,  1995,  are expected to be
        billed in the  subsequent  year.  The  allowance  for doubtful  accounts
        receivable  was $1,251,000 and $585,000 as of December 31, 1995 and 1994
        respectively.  The  allowance  for doubtful  accounts  was  increased by
        provisions  of  $864,000,   $318,000,  and  $434,000  and  decreased  by
        writeoffs  of  $198,000,  $144,000,  and  $187,000  for the years  ended
        December 31, 1995, 1994, and 1993, respectively.

(9)  Income Taxes

     Included in loss from  continuing  operations is income (loss) from foreign
        operations of $1,272,000,  $(920,000) and $2,253,000, for 1995, 1994 and
        1993, respectively.

     The provision for income taxes consists of the following:

<TABLE>
<CAPTION>

                                       1995                      1994                      1993
                                       ----                      ----                      ----
                               Current      Deferred      Current     Deferred      Current     Deferred
                             ----------    ----------   ----------   ----------   ----------   ----------
<S>                          <C>           <C>             <C>       <C>          <C>          <C>        
        Federal              $  (98,000)         --        800,000   12,670,000         --     (4,598,000)
        State and foreign       128,000          --        165,000    1,285,000      956,000     (243,000)
                             ----------    ----------   ----------   ----------   ----------   ----------

                     Total   $   30,000          --        965,000   13,955,000      956,000   (4,841,000)
                             ==========    ==========   ==========   ==========   ==========   ==========
</TABLE>

     A  reconciliation  of the  Company's  income tax  provision  and the amount
        computed by applying the statutory  U.S.  federal income tax rate of 34%
        to loss before income taxes is as follows:

<TABLE>
<CAPTION>

                                                      1995            1994            1993
                                                  ------------    ------------    ------------
<S>                                               <C>               <C>             <C>        
        Tax benefit at statutory rate             $(10,554,000)     (8,526,000)     (3,861,000)
        Increase (decrease) in income tax
           benefit resulting from:
              Increase in valuation allowance       10,741,000      22,219,000            --
              Benefit of Puerto Rico industrial
                  tax exemption                           --           813,000        (152,000)
              State and foreign taxes, less
                  applicable federal benefits          132,000         147,000         645,000
              Other                                   (289,000)        267,000        (517,000)
                                                  ------------    ------------    ------------

                                                  $     30,000      14,920,000      (3,885,000)
                                                  ============    ============    ============

</TABLE>

                                                                     (Continued)
                                      -26-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     The per common share  effect of the income tax savings from the Puerto Rico
        industrial  tax  exemption  for 1993 was $.10.  The  Company  has unused
        United  States tax net operating  loss  carryforwards  of  approximately
        $72,000,000  expiring  at  various  dates  between  2003  and  2010.  In
        addition,  the Company has net operating loss carryforwards arising from
        acquired companies of approximately $9,878,000. The carryforward amounts
        are subject to review by the Internal Revenue Service (IRS). As a result
        of the sale of the Company's  fiber optics  business  (note 4) in March,
        1996,  the above net  operating  loss  carryforwards  and  acquired  net
        operating  loss   carryforwards   will  be  reduced  by  $1,969,000  and
        $6,592,000,  respectively.  In addition, there are investment,  research
        and  development  and  job tax  credit  carryforwards  of  approximately
        $1,300,000 expiring at various dates between 1996 and 2001.

     The Company's net  operating  loss  carryforwards  expire in the  following
        years:


                         2003               $   187,000
                         2007                13,062,000
                         2008                17,291,000
                         2009                18,125,000
                         2010                23,335,000
                                            -----------
                                          
                                            $72,000,000
                                            ===========
                                 
     The components of the  deferred tax assets and  liabilities  as of December
        31, 1995 and 1994 were as follows:

<TABLE>
<CAPTION>
                                                               1995            1994
                                                          ------------    ------------
<S>                                                       <C>                <C>      
        Deferred tax assets:
           Inventory allowances                           $  4,157,000       3,508,000
           Allowance for doubtful accounts receivable          359,000         102,000
           Benefits of tax loss carryforwards               27,755,000      19,226,000
           Benefit plans                                     1,593,000         968,000
           Alternative minimum taxes                           293,000         293,000
           Depreciation                                        122,000            --
           Other                                                30,000         458,000
           Benefits of tax loss carryforwards of
              acquired businesses                            3,479,000       3,479,000
           Differences between tax basis and book basis
              of net assets of businesses acquired           3,165,000       3,165,000
                                                          ------------    ------------
                                                            40,953,000      31,199,000

           Valuation allowance                             (39,604,000)    (28,863,000)
                                                          ------------    ------------

                                                             1,349,000       2,336,000
                                                          ------------    ------------
        Deferred tax liabilities:
           Capitalized software costs                       (1,349,000)     (1,821,000)
           Depreciation                                           --          (515,000)

                                                            (1,349,000)     (2,336,000)

                                                          $       --              --
                                                          ============    ============
</TABLE>


                                                                     (Continued)
                                      -27-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


     In the third quarter of 1994, the Company, after reviewing the deferred tax
        asset in the  context  of its  results  of  operations  for  such  third
        quarter, recorded a valuation allowance in the entire amount of its then
        existing  deferred  tax asset,  which is included in income tax expense.
        This  decision  was based on the  criteria  contained  in SFAS No.  109,
        generally  requiring a valuation  allowance when cumulative  losses have
        been experienced and there is a lack of sufficient  objective offsetting
        evidence to conclude  that it is more likely than not that the  deferred
        tax asset will be utilized.

     During 1993, the Company repatriated all undistributed accumulated earnings
        of its subsidiary operating in Puerto Rico through a liquidation of such
        subsidiary  by means of a merger  into the  Company.  No  United  States
        income taxes were payable upon remittance of these earnings. Repatriated
        earnings accumulated prior to May 28, 1987 are not subject to tax by the
        Commonwealth of Puerto Rico; earnings accumulated  subsequent to May 28,
        1987 are subject to a maximum 10% tax at  repatriation.  In 1993 as part
        of the  liquidation,  the Company  repatriated  $24,279,000  in earnings
        accumulated prior to May 28, 1987 and $2,482,000 of earnings accumulated
        subsequent to May 28, 1987.

     The income tax returns  of the  Company  and its  subsidiary  operating  in
        Puerto Rico were  examined  by the IRS for the tax years ended  December
        31, 1989 and 1988.  As a result of this  examination,  the IRS increased
        the Puerto Rico subsidiary's  taxable income resulting from intercompany
        transactions,  with  a  corresponding  increase  in  the  Company's  net
        operating losses. The settlement amounted to approximately $953,000. The
        Company has entered  into a structured  settlement  with the IRS whereby
        monthly  payments  will be made along  with  certain  scheduled  balloon
        payments through February 1997.  Aggregate annual amounts payable by the
        Company,  including  interest on the unpaid amounts at a current rate of
        7%, are $514,000 in 1996 and $223,000 in 1997.  As of December 31, 1995,
        the Company has not made all the required payments under the settlement.

     The income tax returns  of the  Company  and its  subsidiary  operating  in
        Puerto Rico were  examined  by the IRS for the tax years ended  December
        31, 1991 and 1990.  As a result of this  examination,  the IRS increased
        the Puerto Rico subsidiary's  taxable income resulting from intercompany
        transactions,  with  a  corresponding  increase  in  the  Company's  net
        operating losses. In settlement of this examination, the Company revoked
        its Section 936 election and included its  subsidiary  in the  Company's
        tax return.  Accordingly,  the adjustments  were offset  resulting in no
        deficiency.

(10) Notes Payable and Short-Term Loans

     The Company has  outstanding  $3,084,000  and  $2,474,000  of  non-interest
        bearing  deferred  funding  fee notes  payable  with its senior  lender,
        included in notes  payable at December 31, 1995 and 1994,  respectively.
        As of December 31, 1995 these deferred  funding fees are due on November
        30, 1998 (note 11). The Company's Korean  subsidiary also has short-term
        borrowings  with banks at December  31,  1995 and 1994 of  $368,000  and
        $152,000, respectively, bearing interest at 11%.

                                                                     (Continued)

                                      -28-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(11) Long-Term Debt

     On December 31, 1995 and 1994,  the Company's  long-term  debt consisted of
        senior debt under its credit  facility in the amount of $26,645,000  and
        $21,000,000, respectively.

     On November  28, 1994,  and as amended on February  13,  1995,  the Company
        consummated a financing  arrangement  with a senior  lender  whereby the
        senior lender  provided the Company  advances  under a revolving line of
        credit up to the lesser of $10 million or a borrowing  base equal to 80%
        of eligible accounts receivable and 50% of eligible inventory,  less the
        amount of letters of credit and letter of credit guarantees outstanding,
        and a  $13,502,188  term loan.  If the Company  sells its Glen Cove real
        property,  the first $1 million of  proceeds  must be used to reduce the
        term loan. In addition,  on February 13, 1995 the senior lender provided
        the Company with an advance under a net worth  enhancement (NWE) line of
        credit of $3 million.  The senior lender agreed to issue standby letters
        of credit or guarantees of payment in an amount not to exceed the lesser
        of $8 million or the borrowing  base less the amount  outstanding on the
        revolving  line of  credit.  If the senior  lender  must make an advance
        under a letter of credit or letter of credit guarantee, such amount will
        be deemed  outstanding  under the revolving  line of credit.  The credit
        facility is secured by substantially  all of the Company's  assets.  All
        obligations   except  undrawn  letters  of  credit,   letter  of  credit
        guarantees  and the  deferred  fee notes will bear  interest at 12%. The
        Company will incur a fee of 2% on the average balance of undrawn letters
        of credit and letter of credit guarantees outstanding.

     As of December 31, 1995, the Company violated certain  financial  covenants
        and was in default of its agreement with its senior lender. On March 13,
        1996,  the  Company  entered  into an  agreement  to extend its Loan and
        Security  Agreement  with its senior  lender from  November  30, 1996 to
        November  30,  1998,  which also  provided  for a waiver of all previous
        events of default. The agreement provides for loan principal payments of
        $250,000 on each of June 30, 1997,  September  30, 1997 and December 31,
        1997, and $325,000 commencing March 31, 1998 and on the last day of each
        quarter thereafter during the term of the agreement. Commencing June 30,
        1997,  the agreement  requires the Company to pay  additional  principal
        payments  if certain  "adjusted  cash flow  amounts",  as  defined,  are
        attained.  The March, 1996 amendment also requires that certain proceeds
        from the Company's sale of its fiber optics business (note 4), including
        $6,793,000 received at closing, the first $100,000 disbursed from escrow
        to the  Company  and  50% of any  additional  amounts  disbursed  to the
        Company,  must be paid  directly to the senior  lender.  The  $6,793,000
        received at closing was used to pay accrued  interest  through March 31,
        1996,  repay  the  $3,000,000  NWE  line of  credit  and  the  remainder
        partially  repaid  the  principal  balance  of the term  loan.  Upon the
        payment on March 13,  1996,  the lender made  available to the Company a
        $2,000,000 revolving line of credit.  Simultaneously,  and in accordance
        with the amended agreement,  the revolving line of credit maximum amount
        was reduced from $10,000,000 to $2,000,000 and the maximum available for
        letters  of  credit  or  guarantees  was  reduced  from   $8,000,000  to
        $7,000,000.  The outstanding balance of the term loan and revolving line
        of credit was  approximately  $20  million and  approximately  $900,000,
        respectively, after all the above transactions. 

                                                                     (Continued)

                                      -29-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     Through March 22,  1996,  the  Company  incurred  the  following  fees,  in
        connection  with this credit  facility:  In 1994, a one-time  $2,474,000
        deferred funding fee for the revolving line and term loan evidenced by a
        non-interest  bearing  promissory  note due and payable on November  30,
        1998,  (as of December 31, 1994,  $1,237,000  was due in 1995 before the
        March, 1996 amendment to the agreement). The Company incurred a $300,000
        NWE fee on February 13, 1995,  evidenced by a non-interest  bearing note
        due November 30, 1998 and a $310,000  facility fee on November 30, 1995,
        which amount has been added to the outstanding  principal balance of the
        deferred  funding  fee  note  and is also  due  November  30,  1998.  In
        consideration  of the  extension  of the  facility  term to November 30,
        1998, the agreement  requires a monthly facility fee payment of $50,000,
        commencing  November  30,  1996,  and  continuing  to  the  end  of  the
        agreement.  In  addition to the fees,  the  Company  incurred a $550,000
        investment  banking  fee and  attorney  and  filing  fees  amounting  to
        $319,000 included in other nonoperating expenses in 1994.

     In connection  with the credit  facility,  in  November,  1994 the  Company
        issued warrants to its senior lender to purchase 55,000 shares of common
        stock,  immediately  exercisable  at $17.20  per share and  expiring  in
        November 1999,  together with warrants to purchase  27,500 shares of the
        Company's   common  stock  on  the  same  economic   terms  that  became
        exercisable on March 13, 1996. In connection with the extended agreement
        in March 1996, the Company granted additional  warrants to the lender to
        purchase  200,000  shares of common stock at $5 per share that expire in
        March  2001.  All such  warrants  provide the senior  lender  demand and
        "piggyback" registration rights.

     Financial  debt  covenants  include an  interest  coverage  ratio  measured
        quarterly commencing with the quarter ending June 30, 1996,  limitations
        on the incurrence of indebtedness,  limitations on capital expenditures,
        and  prohibitions  on declarations of any cash or stock dividends or the
        repurchase of the Company's stock.

     In connection with the amendment to the agreement on February 13, 1995, the
        Company  purchased from the senior lender $3.9 million  principal amount
        of  its 6%  Subordinated  Debentures  for  approximately  $2.5  million,
        including  accrued  interest.  Such  payment  was  financed  with  funds
        received  from the  increase in the term loan.  The Company  recorded an
        extraordinary   gain  on  the  early   extinguishment  of  the  debt  of
        $1,756,000.  Such gain represented the excess of the book value over the
        market  value of the debt with the premium  paid in excess of the market
        value of the debt of $782,000  reflected as additional  borrowing  costs
        over the remaining term of the facility.

     Maturities  of  the  Company's   long-term  debt,   including   convertible
        subordinated  debentures  (exclusive of $6,564,000  which are in default
        and have not been  exchanged as described in note 12 and are  classified
        as a current liability) and notes payable net of current maturities, are
        as follows:

                         1997               $   750,000
                         1998                54,639,000
                                            -----------
                                            $55,389,000
                                            ===========
                               
                                                                     (Continued)

                                      -30-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(12) 6% Convertible Subordinated Debentures

     As of December  31, 1995 and 1994 the Company had  outstanding  $32,224,000
        and $35,073,000 of its 6% convertible  Subordinated  Debentures due July
        1, 2002 (the Debentures),  net of original issue discounts  amortized to
        principal  over the term of the debt using the  effective  interest rate
        method, of $3,851,000 and $4,927,000,  respectively.  The face amount of
        the  outstanding  Debentures was $36,075,000 and $40,000,000 at December
        31, 1995 and 1994,  respectively.  The Debentures are convertible at any
        time prior to maturity, unless previously redeemed, into Common Stock of
        the  Company  at a  conversion  rate of 8.333  shares  for  each  $1,000
        principal amount at maturity of Debentures,  subject to adjustment under
        certain circumstances.

     The Debentures are redeemable at the option of the Company, (a) in whole or
        in part, at redemption  prices ranging from 89.626% of principal  amount
        at  maturity  beginning  July 1,  1995 to 100% of  principal  amount  at
        maturity  beginning July 1, 2001 and  thereafter,  together with accrued
        and unpaid  interest  to the  Redemption  Date,  and (b) in whole at any
        time,  at a redemption  price equal to the issue price plus interest and
        that portion of the original issue discount and interest  accrued to the
        redemption  date,  in the event of  certain  changes  in  United  States
        taxation or the  imposition  of certain  certification,  information  or
        other reporting requirements.

     Interest on the  Debentures is payable on July 1 of each year. The interest
        accrued as of December  31, 1995 and 1994  amounted  to  $3,244,000  and
        $1,200,000,  respectively.  As of  December  31,  1995 the Company is in
        default under the interest payment provisions of the Debentures.

     On November 30, 1995, the Company  offered the holders of its Debentures an
        exchange  of  such  debt  for  common  stock  and  zero  coupon   senior
        subordinated  convertible  notes (the  Notes) due  January 2, 1998.  The
        exchange  ratio is 19.4 shares of common  stock and $767.22 of principal
        of Notes in exchange for $1,000 principal amount of Debentures.  Accrued
        interest on the Debentures would also be eliminated.  The Company may be
        required to file a registration statement for the common stock and Notes
        issued in the  exchange.  In  addition,  the Board of  Directors  of the
        Company,   approved  an  amendment  to  the  Company's   certificate  of
        incorporation  increasing the authorized common stock from 20 million to
        40 million shares (see note 23).


                                                                     (Continued)

                                      -31-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


     The unsecured Notes will not bear  interest  and there are no sinking  fund
        requirements. Each Note is convertible into common stock at a conversion
        price of $9.25 per share until May 1, 1996 and then at decreasing prices
        to $6.55 per share on November 1, 1996 and thereafter.  Accordingly,  in
        addition to the 699,855 maximum common shares issuable from the exchange
        of the  Debentures,  the maximum  number of common  shares that could be
        issued upon conversion,  if all Debentures are exchanged,  is 4,225,600.
        The Notes are  redeemable  at the option of the Company at 79.48% of the
        principal  balance  increasing  periodically  to 100%  of the  principal
        balance on November 1, 1997.

     Subsequent to December  31, 1995 and through  March 22,  1996,  the Company
        exchanged approximately  $28,725,000 principal amount of the Debentures,
        net of  unamortized  discount of  $3,065,000,  for 557,265 shares of the
        Company's  common  stock  and  $22,038,000  principal  amount  of  Notes
        pursuant to the Exchange Offer.  Accordingly,  the Debentures exchanged,
        which were  outstanding at December 31, 1995,  have been classified as a
        long-term  liability,  consistent  with the payment  terms of the Notes.
        Since the remaining principal amount of $7,350,000 with a carrying value
        of $6,564,000 of Debentures not exchanged are in default,  such debt has
        been classified as a current liability at December 31, 1995. See note 23
        for exchanges subsequent to March 22, 1996.

     The exchange of the  Debentures  for the Notes  and  common  stock  will be
        accounted  for as a  troubled  debt  restructuring  in  accordance  with
        Statement of  Financial  Accounting  Standards  No. 15. Since the future
        principal  and  interest  payments  under  the  Notes  is less  than the
        carrying  value of the  Debentures,  The Notes will be recorded  for the
        amount  of  the  future  cash  payments,  and  not  discounted,  and  an
        extraordinary  gain on restructuring of approximately $3 million will be
        recorded.  Accordingly,  no future interest  expense will be recorded on
        the Notes.

(13) Leases

     At December 31, 1995, the Company and its subsidiaries leased manufacturing
        and administrative facilities,  equipment and automobiles under a number
        of operating  leases.  The Company is required to pay  increases in real
        estate taxes on the facilities in addition to minimum rents.  Total rent
        expense for 1995, 1994, and 1993 amounted to  approximately  $1,277,000,
        $1,397,000 and  $1,468,000,  respectively.  Minimum rental  commitments,
        exclusive of future escalation charges,  for each of the next five years
        are as follows:

                 1996                   $  547,000
                 1997                      399,000
                 1998                      328,000
                 1999                      312,000
                 2000                      273,000

                                                                     (Continued)

                                      -32-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(14) Incentive Plans

     Under the Company's 1984 Employee  Incentive Plan, the Company  provided an
        opportunity to acquire  subordinated  convertible  debentures to certain
        employees  of the  Company and its  subsidiaries.  The  debentures  bore
        interest at 1% over the prime rate.  These  debentures  on issuance were
        convertible  into a  specified  number of shares  of Common  Stock.  The
        conversion  price was the fair  market  value on the date of purchase of
        the debentures.  Under the 1984 Plan, if requested, the Company loaned a
        purchaser of a debenture all or part of the cash  necessary to make such
        a  purchase.   Any  such  loan  was   evidenced   by  a  full   recourse
        interest-bearing  promissory  note payable to the Company for the amount
        borrowed.  This  plan  was  suspended  when the  Company's  stockholders
        approved the Company's 1986 Stock Option Plan.

     As of December 31,  1995,  there is $307,000 of employee  promissory  notes
        receivable  outstanding  related to  debentures  that were  converted to
        common stock. The maturity date of the notes was extended to April 1996.
        At December 31, 1995, the majority of such notes receivable have had the
        payment of interest  forgiven.  During 1993, $48,600 principal amount of
        debentures  was converted into 1,080 shares of Common Stock and $378,000
        principal amount of debentures and $378,000 of loans incurred  therewith
        matured in  accordance  with their  terms and were repaid by the Company
        and employees, respectively. During 1995, the Company wrote off $128,000
        of notes  receivable  and took  possession of the related shares held as
        collateral. Accordingly, the balance of the note has been recorded as an
        addition to treasury stock.

     In 1986, the  stockholders of the Company approved the Company's 1986 Stock
        Incentive  Plan  (1986  Plan),  subsequently  amending  it to permit the
        granting of options to purchase up to 170,000  shares of Common Stock to
        employees of the Company and its 50% or more owned subsidiaries whom the
        Company's Compensation Committee (Committee) determines are eligible for
        such grants.

     Options granted  under the 1986 Plan may be  incentive  stock  options,  as
        defined in the Internal Revenue Code, or options which are not incentive
        stock  options.  If options  granted are incentive  stock  options,  the
        option price payable upon exercise is determined by the Committee at the
        time the  option is  granted  but will not be less than 100% of the fair
        market  value of the Common  Stock on the date of grant and will be 110%
        of such fair  market  value on the date of grant if the  individual  who
        receives such option is the owner of 10% or more of the Company's Common
        Stock.  Incentive stock options are not exercisable  more than ten years
        from the date of grant,  except that, in the case of an incentive  stock
        option  granted to an  individual  who owns 10% or more of the Company's
        Common Stock,  such option must be exercised  within 5 years of the date
        of grant.  If options which are not incentive stock options are granted,
        the option price at the time of exercise may not be less than 50% of the
        fair market value at the time the option is granted.  Options  under the
        1986 Plan may be subject to exercise in such  installments as determined
        by the Committee.  The exercise price for all options  granted was equal
        to the fair market value at the date of grant.


                                                                     (Continued)

                                      -33-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     Information regarding the 1986 Plan is as follows:

                                             Shares               Option    
                                          under option             price
                                           --------           ----------------
        Balance, December 31, 1992          123,182           37.8125 - 110.00
                                                            
        Exercised                              (500)          37.8125 - 54.375
        Canceled                            (42,352)          37.8125 - 110.00
                                           --------           ----------------
        Balance, December 31, 1993           80,330           37.8125 - 87.50
                                                            
        Granted                               2,000                49.375
        Exercised                              (200)              37.8125
        Canceled                             (1,355)           65.625 - 86.25
                                           --------           ----------------
                                                            
        Balance, December 31, 1994           80,775           37.8125 - 87.50
                                                            
        Granted                               6,000                 5.00
        Canceled                            (30,415)           37.8125-87.50
                                                            
        Balance, December 31, 1995           56,360              5.00-87.50
                                           ========           ================
                                                            
     At December 31, 1995,  options to purchase  50,360 shares were  exercisable
        and there were 105,115 options available for grant under the 1986 plan.

(15) Employee Benefit Plans

     The Company has deferred compensation  agreements with certain officers and
        employees,  with benefits  commencing at retirement  equal to 50% of the
        employee's base salary,  as defined.  Payments under the agreements will
        be  made  only  after  a  participant's   employment  with  the  Company
        terminates and then for a period of fifteen years  following the earlier
        of  attainment  of age 65 or death.  During  1995,  1994 and  1993,  the
        Company   accrued   approximately   $203,000,   $191,000  and  $162,000,
        respectively, under these agreements.

     In 1986,  the Company  established  the Porta Systems Corp.  401(k) Savings
        Plan (Savings Plan) for the benefit of eligible employees, as defined in
        the Savings  Plan.  Participants  contribute a specified  percentage  of
        their  base  salary up to a maximum  of 15%.  The  Company  will match a
        participant's  contribution  by an  amount  equal  to 75%  (subsequently
        changed  to  25%  as of  January  1,  1996)  of the  first  six  percent
        contributed  by the  participant.  A  participant  is 100% vested in the
        balance to his credit.  For the years ended December 31, 1995,  1994 and
        1993,  the  Company's  contribution  amounted to $379,000,  $417,000 and
        $475,000, respectively.

     The Company does not provide any other  post-retirement  benefits to any of
        its employees.

                                                                     (Continued)

                                      -34-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(16) Stockholders' Equity

     During 1993,  the Company  issued  warrants to  purchase  31,000  shares of
        Common Stock to certain consultants as partial remuneration for services
        provided.  Warrants to purchase 27,000 shares were issued at an exercise
        price  approximating  the fair  market  value  at the date of grant  and
        warrants to purchase  the  remaining  4,000  shares of Common Stock were
        issued at an exercise price of $5.00 per share.  In connection  with the
        issuance of these warrants, the Company recorded an expense of $202,000.
        Also, during 1993,  warrants to purchase 4,000 shares of Common Stock at
        $5.00 per share were exercised.

     During 1994,  the Company  issued  warrants to  purchase  82,500  shares of
        common  stock at an  exercise  price of $17.20  per share to its  senior
        lender that expire in November,  1999,  and warrants to purchase  53,000
        shares of common  stock at an exercise  price of $17.50 per share to its
        former lenders in return for a discount with respect to the repayment of
        its debt. In connection with the issuance of these warrants, the Company
        recorded  deferred  financing  costs  of  $360,000  and  an  expense  of
        $600,000,  respectively.  In March 1996, the Company, in connection with
        an agreement to amend and extend certain long-term debt, issued warrants
        to purchase 200,000 shares of common stock at an exercise price of $5.00
        per share that expire March,  2001 (note 11). As of March 22, 1996,  all
        warrants issued to lenders are exercisable.

     In June  1994,   pursuant  to  a  private  placement  to  certain  offshore
        investors,   the  Company  sold  an   aggregate  of  75,000   shares  of
        unregistered common stock and two-year warrants to acquire 37,500 shares
        of common  stock at an  exercise  price of $55 per  share.  The  Company
        received proceeds of $2,131,750 net of expenses.

(17) Shareholder Rights Plan

     The Company has adopted a Shareholder Rights Plan in which  preferred stock
        purchase  rights were  distributed to  stockholders as a dividend at the
        rate of one right for each common share.  Each right entitles the holder
        to buy from the Company one  one-hundredth  of a newly  issued  share of
        Series A junior  participating  preferred  stock at an exercise price of
        $175.00 per right.

     The rights will  be  exercisable   only  if  a  person  or  group  acquires
        beneficial ownership of 20 percent or more of the Company's Common Stock
        or commences a tender or exchange offer upon  consummation of which such
        person or group would  beneficially own 20 percent or more of the Common
        Stock.

     If any person  becomes  the  beneficial  owner of 20 percent or more of the
        Company's  Common  Stock other than  pursuant to an offer for all shares
        which is fair to and otherwise in the best  interests of the Company and
        its stockholders, each right not owned by such person or related parties
        will  enable its  holders  to  purchase,  at the  right's  then  current
        exercise  price,  shares of Common  Stock of the Company (or, in certain
        circumstances as determined by the Board of Directors,  a combination of
        cash,  property,  common  stock or other  securities)  having a value of
        twice the  right's  exercise  price.  In  addition,  if the  Company  is
        involved  in a merger or other  business  combination  transaction  with
        another  person in which its shares are changed or  converted,  or sells
        more than 50 percent of its assets to another  person or  persons,  each
        right that has not previously  been exercised will entitle its holder to
        purchase,  at the right's then current exercise price,  common shares of
        such other person  having a value of twice the right's  exercise  price.

                                                                     (Continued)

                                      -35-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     The Company will generally be entitled to redeem the rights, by action of a
        majority of the continuing  directors of the Company,  at $.05 per right
        at any time until the tenth business day following  public  announcement
        that a 20 percent position has been acquired.

(18) Fair Values of Financial Instruments

     Cash equivalents,  accounts receivable, accounts and notes payable, accrued
        expenses  and  short-term   loans  are  reflected  in  the  consolidated
        financial statements at fair value because of the short term maturity of
        these instruments.

     The carrying  amount of the  Company's  long-term  debt  approximates  fair
        value  as  the  extension  of  the  Loan  and  Security   Agreement  was
        renegotiated  on March 13, 1995 with similar terms to those that existed
        at December 31, 1995.

     The  carrying  amount and estimated fair value of the Company's  additional
        financial instruments are summarized as follows:

<TABLE>
<CAPTION>
                                                                December 31, 1995
                                                           -------------------------
                                                             Carrying     Estimated
                                                              amount      fair value
                                                           -----------   -----------
<S>                                                        <C>             <C>      
        Receivable from sale of discontinued operations    $ 1,000,000     1,370,000
                                                           -----------   -----------

        Convertible subordinated debentures                $32,224,000    12,626,000
                                                           ===========   ===========
</TABLE>


     The estimated fair value of the  receivable  from the sale of  discontinued
        operations is based upon the quoted market price of the shares of common
        stock collateralizing the receivable.  Management's estimated fair value
        of the  convertible  subordinated  debentures  is based on market prices
        obtained from dealers of such debt.

(19) Major Customers

     Consolidated  sales  made  to  a  Korean  telephone   company  amounted  to
        $7,651,000,   $9,599,000  and   $3,330,000  in  1995,   1994  and  1993,
        respectively.  Sales made to a United Kingdom telephone company in 1995,
        1994 and 1993  amounted to  $17,252,000,  $11,566,000  and  $12,713,000,
        respectively.  Sales made to a Mexican  telephone  company in 1995, 1994
        and 1993 amounted to $41,000, $4,987,000 and $7,257,000, respectively.

(20) Contingencies

     At December 31, 1995, the Company was  contingently  liable for outstanding
        letters of credit aggregating  approximately  $5,323,000 as security for
        the performance of certain long-term  contracts and the borrowing from a
        bank of its Korean subsidiary.

     The Company  is a party to various  lawsuits  arising  out of the  ordinary
        conduct of its  business.  Management  believes  that the  settlement of
        these matters will not have a materially adverse effect on the financial
        position of the Company.

                                                                     (Continued)

                                      -36-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(21) Legal Matters

     The Company and certain of its present and former  officers  and  directors
        are   defendants   in  eight  alleged  class  actions  which  have  been
        consolidated and are pending in the United States District Court for the
        Eastern  District of New York. The actions allege  violations of Section
        10(b) and 20(a) of the  Securities  Exchange  Act of 1934 and Rule 10b-5
        under such Act. The plaintiffs seek,  among other remedies,  unspecified
        monetary damages.

     In March 1996,  the Company  executed a Stipulation of Settlement to settle
        the class  actions.  In June 1996 an order of final  approval  and final
        judgment and order of dismissal was approved by the Court. The agreement
        is subject to certain conditions precedent, including the maintenance by
        the  Company's  common  stock of a certain  minimum  market  value.  The
        settlement, if consummated, will include a cash payment by the Company's
        insurers  and  issuance by the  Company of 220,000  shares of its common
        stock, to be distributed in accordance with a plan to be approved by the
        Court.  Under the  agreement,  the Company is not required to contribute
        any  cash  towards  the  proposed  settlement.  In  connection  with the
        settlement, the Company recorded a charge to income of $1,100,000 in the
        fourth quarter of 1995,  based upon the market value of the shares to be
        issued.

     The Company denies the material allegations  and admits no liability of any
        sort in connection with the settlement and dismissal of the action.

(22) Segment Disclosure

     The Company  operates  exclusively  in  the  telecommunications   industry.
        Customers  include telephone  operating  companies and others within and
        outside the United States and its possessions.

     In the following table, intercompany sales are accounted for at cost plus a
        reasonable  profit.  Identifiable  assets for the  geographic  areas are
        those assets  identified  with the  operations  in each area.  Corporate
        assets consist  principally of cash and cash equivalents,  debt issuance
        costs,  employee loans for debentures and patents.  The Company does not
        allocate costs for product development,  marketing or management to each
        segment.  Thus, the  information  may not be indicative of the extent to
        which geographic areas contributed to the Company's consolidated results
        of operations.



                                                                     (Continued)

                                      -37-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     Geographic area data for the years ended  December 31, 1995,  1994 and 1993
        are as follows:

<TABLE>
<CAPTION>
                                           1995            1994            1993
                                       ------------    ------------    ------------
<S>                                    <C>               <C>             <C>       
Sales made from:
   United States and Puerto Rico to:
      U.S. customers                   $ 16,445,000      23,831,000      24,718,000
      Foreign customers                  12,875,000      11,069,000       5,828,000
      Intercompany                       14,849,000      25,102,000      27,068,000
                                       ------------    ------------    ------------

                                         44,169,000      60,002,000      57,614,000
                                       ------------    ------------    ------------

Korea-to customers                        7,651,000       9,599,000       3,330,000
                                       ------------    ------------    ------------

Europe-to customers                      24,174,000      19,847,000      27,264,000
Intercompany                              3,735,000         690,000       1,299,000
                                       ------------    ------------    ------------
                                         27,909,000      20,537,000      28,563,000

Other-to customers                           36,000       4,639,000       7,001,000
Intercompany                              2,410,000       3,796,000       2,716,000
                                       ------------    ------------    ------------

                                          2,446,000       8,435,000       9,717,000
                                       ------------    ------------    ------------

Intercompany eliminations               (20,994,000)    (29,588,000)    (31,083,000)
                                       ------------    ------------    ------------

Consolidated sales                     $ 61,181,000      68,985,000      68,141,000
                                       ============    ============    ============

Operating income (loss)
   United States and Puerto Rico        (22,549,000)    (16,621,000)     (6,383,000)
   Europe                                 2,279,000      (1,465,000)      2,341,000
   Korea                                    288,000         387,000        (113,000)
   Other                                     98,000         158,000         239,000
                                       ------------    ------------    ------------

Consolidated operating (loss)          $(19,884,000)    (17,541,000)     (3,916,000)
                                       ============    ============    ============

Identifiable assets:
   United States and  Puerto Rico        39,600,000      63,200,000      91,915,000
   Europe                                11,414,000      10,505,000       8,578,000
   Korea                                  2,540,000       2,491,000       2,459,000
   Other                                    623,000       1,248,000       1,112,000
                                       ------------    ------------    ------------

Consolidated identifiable assets         54,177,000      77,444,000     104,064,000

Corporate assets                          6,414,000       7,519,000       5,884,000
                                       ------------    ------------    ------------

Consolidated total assets              $ 60,591,000      84,963,000     109,948,000
                                       ============    ============    ============
</TABLE>

                                                                     (Continued)

                                      -38-


<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

               Note to Consolidate Financial Statements, Continued

(23) Subsequent Events

     Changes in certifying auditors

     In June 1996,  the Company was advised that it is the position of the staff
        of the  Securities  and Exchange  Commission  (the "SEC") that it is the
        SEC's  staff  position  that the  independence  of the  Company's  prior
        auditors,  KPMG Peat  Marwick  LLP,  is  adversely  impacted  by certain
        relationships involving the auditors and KPMG BayMark Strategies LLC and
        Mr. Edward R. Olson,  the Company's  former interim  president and chief
        operating officer.

     On or about  July 9,  1996,  the SEC  issued an order  directing  a private
        investigation  of the Company.  The SEC has indicated the  investigation
        relates to the  position  of the SEC staff  described  in the  preceding
        paragraph.

     The Company has been cooperating with the SEC's private  investigation  and
        has produced  certain  documents  to the SEC. In addition,  in September
        1996,  the  Company  has  engaged  the  firm of BDO  Seidman  LLP as its
        independent   public  accountants  for  the  reaudit  of  its  financial
        statements for the year ended December 31, 1995.

     Capital

     On June 6, 1996, the  stockholders of the Company approved (a) an amendment
        to the Company's  certificate of incorporation to increase the number of
        authorized  shares of Common Stock from 20,000,000 to 40,000,000  shares
        and (b) a  one-for-five  reverse  split  (the  "Reverse  Split")  of the
        Company's common stock. As a result of the Reverse Split,  each share of
        common stock  outstanding  at the effective  time of the Reverse  Split,
        without any action on the part of the holder thereof,  became  one-fifth
        share of  common  stock.  The par  value  of the  common  stock  was not
        affected by the Reverse Split.

     The increase in  authorized  common  stock  and the  Reverse  Split  became
        effective  upon  filing  with  the  Delaware  Secretary  of  State of an
        amendment to the Company's  certificate  of  incorporation  on August 2,
        1996.  Accordingly,  all share and per share data have been  restated to
        give effect to the Reverse Split.

     Discontinued Operations

     At December 31, 1995 the Company's receivable from the sale of discontinued
        operations  was  collateralized  by shares of common stock of the entity
        which now owns the  discontinued  operations.  In the quarter ended June
        30,  1996,  the  Company  sold  the  shares  of this  common  stock  for
        $3,456,000  and recorded a gain of $2,264,000.  The gain  represented an
        adjustment in the estimated value of the shares previously  received and
        accordingly was reflected in continuing  operations.  The receivable had
        previously been written down to $1,000,000 as a result of the resolution
        of the dispute as discussed in note 3. As part of an agreement  with the
        Company's primary lender, the net proceeds from the sale were applied to
        reduce the outstanding principal balance of the Company's term loan.


                                      -39-

<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

               Note to Consolidate Financial Statements, Continued

     Long-Term Debt

     Subsequent to December 31, 1995, a total of  $10,249,000  of principal  was
        repaid to the Company's senior lender. $6,793,000 relates to the sale of
        the fiber optics  division in March 1996 and  $3,456,000  relates to the
        proceeds from the sale of discontinued operations.

     6% Convertible Subordinated Debentures

     Subsequent to December 31, 1995 and through  October 14, 1996,  the Company
        exchanged approximately  $33,770,000 principal amount of the Debentures,
        net of  unamortized  discount of  $355,000,  for  655,000  shares of the
        Company's  common  stock  and  $25,900,000  principal  amount  of  Notes
        pursuant to the Exchange  Offer.  The current and long-term  portions of
        the related debt which are  presented in the financial  statements  only
        reflects exchanges which were completed prior to March 22, 1996.


                                      -40-

<PAGE>

SIGNATURES

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


                                        PORTA SYSTEMS CORP.

     Dated November 1, 1996             By /s/William V. Carney
                                          ---------------------------
                                              William V. Carney
                                              Chairman of the Board and Director


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

                                                               Date
                                                               ----

By /s/William V. Carney                                        November 1, 1996
   ---------------------------
      William V. Carney
      Chairman of the Board and Director

By /s/Seymour Joffe                                            November 1, 1996
   ---------------------------
      Seymour Joffe
      President and Director

By /s/Edward B. Kornfeld                                       November 1, 1996
   ---------------------------
      Edward B. Kornfeld
      Senior Vice President,
      Chief Financial and Accounting Officer

By /s/Howard D. Brous                                          November 1, 1996
   ---------------------------
      Howard D. Brous
      Director

By /s/Herbert H. Feldman                                       November 1, 1996
   ---------------------------
      Herbert H. Feldman
      Director

By /s/Stanley Kreitman                                         November 1, 1996
   ---------------------------
      Stanley Kreitman
      Director

By /s/Michael A. Tancredi                                      November 1, 1996
   ---------------------------
      Michael A. Tancredi
      Director


                                      -41-