<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                   FORM 10-KSB

(Mark One)

/X/       Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.

For the fiscal year ended June 30, 1999.

/ /       Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934.

For the fiscal year ended__________

Commission File No.                 0-1921

                               POWER DESIGNS INC.

--------------------------------------------------------------------------------
           (Name of Small Business Issuer as specified in its charter)

         DELAWARE                                        11-1708714
--------------------------------                 -------------------------------
(State or other jurisdiction of                 (I.R.S. Employer Identification
incorporation or organization)                   Number)


14 COMMERCE DRIVE, DANBURY, CONNECTICUT                          06810
--------------------------------------                        -------------
(Address of principal executive offices)                      (Zip Code)

                                 (203) 748-7001

--------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

                                                     Name of each exchange on
Title of Each Class                                  which registered
-------------------                                  ---------------------------
      None                                                      None

<PAGE>


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

Common Stock, $.0001 par value

                                (Title of class)

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.


Yes                        No   X
    ---                      ------

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

State issuer's revenues for its most recent fiscal year.  $2,875,686
                                                        --------------

The aggregate market value of the voting stock held by non-affiliates of the
issuer cannot be estimated because there is no active market for the stock.

                   ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE LAST FIVE YEARS

         Check whether the issuer has filed all documents and reports required
to be filed by Sections 12, 13 and 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.

         Yes____X______    No_________

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

         State the number of shares outstanding or each of the issuer's classes
of common equity, as of the latest practicable date.

         2,391,493 as of November 4, 1997

Transitional Small Business Issuer Format  (check one):

         Yes____________   No_____X_____


                                                                               2
<PAGE>

                                     PART I

ITEM 1.           BUSINESS

         GENERAL

         Power Designs, Inc., the small business issuer making this report,
was organized on July 7, 1952 under the laws of the State of New York. The
issuer's Common Stock, $.0001 par value ("Common Stock") is registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended. Late in
fiscal year 1995, the issuer amended its certificate of incorporation to
change the par value of its common shares from $.01 per share to $.0001 per
share. In October 1996 the issuer created a new class of Class A Convertible
Preferred Stock ("Preferred Stock") with a par value of $.01 per share. As of
this writing, this class of Preferred Stock remains restricted and
unregistered by the issuer.

         In early 1995, the issuer's shareholders approved a resolution calling
for the re-incorporation of the issuer under Delaware law, by merging the issuer
into a Delaware corporation also named Power Designs, Inc. This merger was
completed on August 8, 1997, upon approval by the New York State Department of
State, Division of Corporations.

         Since its inception the issuer has been engaged exclusively in the
design and manufacture of electronically controlled power sources used in the
operation of electronic equipment and mechanical instruments. The power sources
produced by the issuer function by taking electric current from batteries or
commercial power lines and converting it into controlled voltages or currents
for the operation of the end equipment.

           The issuer purchases certain raw materials, components and
subassemblies included in the issuer's products from a limited group of
qualified suppliers and does not maintain long-term supply contracts with any of
its key suppliers. The disruption or termination of these sources could have a
material adverse effect on the issuer's business and results of operations.
While the issuer is aware of alternative suppliers for these products, there can
be no assurance that any supplier could be replaced in a timely manner.

         The equipment is used by military, industry, scientific research, and
electro-medical organizations for such applications as computers, data
processors, video and sound communications media, nuclear biological and medical
research, nuclear power generation, and other facilities where disturbances in
the primary power source for these systems may affect their accuracy and
performance. These power sources or conditioners are connected between the
primary source, which may be a commercial power line, battery, diesel, gasoline
or steam-driven generator, and the system being powered, to stabilize, eliminate
surges or transient changes, or convert the input voltages and currents to other
voltage or current levels required by the system.


                                                                               3
<PAGE>


         The principal market for the issuer's products is users or
manufacturers who incorporate the products into their equipment. The equipment
is used in various industries, as well as organizations conducting scientific
research and electro-medical entities. The issuer's customers include private
companies, government agencies, and educational institutions, both within and
outside of the United States. International sales approximated $29,000 and
$192,000 for fiscal years 1999 and 1998 respectively.

         There are approximately five hundred companies in the country who
manufacture one or more competitive products. To differentiate itself, the
issuer strives to maintain a reputation for excellent quality and reliability.
No one customer of the issuer accounts for ten percent or more of the issuer's
business. However, various governmental agencies and military departments
aggregated together comprise approximately 17% of sales, or $496,000, during
fiscal 1999.

         Although the issuer is attempting to expand its business in "off the
shelf" products, it continues to fabricate power supplies and power systems to
specific customer specifications. Off the shelf products are usually purchased
on an "as needed" basis and dollar backlog is usually quite small compared with
the issuer's annual revenues. Custom fabrication is usually contracted on a
scheduled basis.

         In prior fiscal years the issuer had begun efforts to develop a new
family of high voltage products and other new products, although development has
been retarded by lack of working capital. However, during the second quarter of
fiscal year 1997, the issuer's wholly-owned subsidiary, PDIXF Acquisition Corp.,
purchased the significant assets and assumed certain liabilities of two
divisions of Penril DataComm Networks, Inc ("Penril"). The purchased assets
comprise a line of uninterruptible power supply/power line conditioners
("UPS/PLC"), an autotransformer business and a military grade switching power
supply line.

         An unacceptable level of product failures in the early shipments of the
UPS/PLC product line, required the issuer to suspend product distribution and
initiate efforts to resolve serious technical and production problems. As a
result of the significant operating losses sustained during its attempts to
resolve these issues, the issuer ceased operations and filed for relief under
Chapter 11 of the United States Bankruptcy Code on January 22, 1998. On January
26, 1998 the issuer reopened for business on a reduced scale and under new
management. At this writing, the issuer continues to manufacture its original
product line, as well as the autotransformer and military power supply lines.

         The issuer's primary research and development activities center on the
customization and special engineering of its products. Prior development of the
UPS/PLC product line in the 1997 fiscal year resulted in a substantial increase
to 14.8% of annual revenues or approximately $542,000 devoted to research and
development. The continuation of the same project is reflected in the fiscal
year 1998 expense of approximately $406,000 or 15.6% of revenues. The absence
of this project in fiscal 1999 resulted in approximately $108,000 of


                                                                               4
<PAGE>


expense or 3.8% of revenues. The average number of employees engaged in these
efforts was four in 1998 and totaled two in 1999. Total employees at June 30,
1999 number 26.

                  The business is not seasonal although there are historical
peaks during the second and fourth quarters, September-December and April-June.
The issuer's principal competitive advantage has been product reliability and
quality and it has been able to compete with other suppliers, notwithstanding
the fact that the number of competitors is large and generally in a state of
flux.

         The issuer holds a license pursuant to a Purchase Agreement dated March
30, 1993 with GENRAD Inc. for the Trademark "Variac". The issuer is also the
holder of the Trademarks and Tradenames "Technipower" and "Constant Power". The
issuer is not dependent on any other material patents, trademarks, licenses or
other agreements held or with third parties.

         As described above and in Item 6 - Management's Discussion of Financial
Condition and Results of Operations, the issuer has experienced significant
financial and operating difficulties.

         BANKRUPTCY PROCEEDINGS

         Due to the significant operating losses sustained prior to the
suspension of the UPS/PLC product line, the issuer filed for bankruptcy
protection under Chapter 11 on January 22, 1998. A plan of reorganization,
outlining the issuer's initial plans to discharge its responsibilities, was
filed by the debtor in May of 1998. Ongoing negotiations between the debtor and
its various creditor constituencies have resulted in an amended plan of
reorganization, which was filed by the debtor on November 24, 1999. A
confirmation hearing on the amended plan of reorganization has been continued
to March 21, 2000, although it may be continued from time to time by the
court.

         Pursuant to a previous Chapter 11 filing, a plan of reorganization,
under which Venture Partners, Ltd. ("Venture Partners") as agent, supplied
capital to the issuer, was confirmed by the bankruptcy court in January 1994.

         Additional information as to the bankruptcy proceedings is found at
Item 6 - "Management's Discussion and Analysis of Financial Conditions and
Results of Operations - Bankruptcy Proceedings."

ITEM 2.           PROPERTIES/FACILITIES

         The issuer currently leases 30,000 square feet of office and
manufacturing space located at 14 Commerce Drive, Danbury, Connecticut. The
issuer moved to the space in October, 1996 as a result of the acquisition of the
Penril assets and a consolidation of its operations. The lease expired on
February 28, 1998 and was subsequently extended for an additional five-year
term. Fixed annual rental payments total $186,600. These


                                                                               5
<PAGE>

payments do not include additional charges for real estate taxes and are subject
to adjustments.

         As of this date, the issuer is current on all post-petition payments
due under the existing lease agreement. In an effort to control costs, the
issuer has determined that a smaller facility would adequately house the
current production requirements, and has, together with the lessor, retained
a local real estate brokerage firm to sublet the existing facility. Although
a smaller facility adequate to the issuer's needs has been identified, a
viable replacement tenant for the present location has not been located.


ITEM. 3           LEGAL PROCEEDINGS

         In August 1997, a material supplier of the issuer, filed a claim for
monies owed for goods and services provided in the amount of $144,281. The
parties subsequently negotiated the terms of a forbearance agreement, which
called for weekly progress payments of principal and interest at 8%. At this
writing the issuer is in default of this forbearance agreement, and the
remaining balance has been classified as a prepetition liability subject to
compromise.

         In August 1997, an advertising service provider, initiated a collection
action for money damages for advertising services performed in the amount of
$34,500. The plaintiff subsequently withdrew their complaint.

         No other litigation was pending as of the end of the fiscal year.

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

         No matter was submitted during the fiscal year covered by this report
to a vote of security holders, through the solicitation of proxies, or
otherwise.


                                                                               6
<PAGE>


                                     PART II

ITEM. 5           MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS


         The Common Stock has been traded over the counter in the United States.
The shares are not currently quoted regularly on any information service. The
approximate number of record holders of the securities is 752.

         The following table sets forth, for the periods indicated, the
quarterly high and low representative bid quotations for the issuer's Common
Stock as reported by the online archival information service, FinancialWeb.com,
Inc.

<TABLE>
<CAPTION>


Fiscal years ended
JUNE 30, 1998 AND 1999                                1998                                1999
----------------------                                ----                                ----
                                            HIGH              LOW                 HIGH             LOW
                                            ----              ----                -----            -----


<S>                                          <C>               <C>               <C>              <C>
1st Quarter                                  $0.75             $0.75             $0.062           $0.062
2nd Quarter                                   0.60              0.60              0.031            0.031
3rd Quarter                                   0.50              0.15              0.10             0.10
4th Quarter                                   0.50              0.15              0.08             0.08
</TABLE>


No cash dividends on shares of Common Stock have been declared by the issuer for
the two most recent fiscal years, nor in any subsequent interim period for which
financial statements are required to be presented. In accordance with certain of
its debt agreements, the issuer is restricted from paying dividends to owners of
the issuer's Common Stock.

         To the best of the issuer's knowledge, there has been no active market
in the stock for the last two years.

ITEM. 6           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS


         BANKRUPTCY PROCEEDINGS

         During the fiscal years 1997 and 1998, the issuer's monetary and
non-monetary resources were significantly directed toward the development and
production of a new line of uninterruptible power supplies and power line
conditioners. Repeated attempts by the issuer to resolve the technical and
manufacturing problems persistent in the new product line remained unsuccessful.
As a result, the issuer could not generate the sales necessary to meet its
existing financial obligations. Employees of the issuer were furloughed in
December 1997 and all production operations ceased. On January 15, 1998 Fred G.
Basso resigned his position as President of the issuer. On January 22, 1998 the


                                                                               7
<PAGE>


issuer, and its wholly owned subsidiary, PDIXF Acquisition Corporation, filed
petitions of relief under Chapter 11 of the United States Bankruptcy Code.

         In the Chapter 11 case, substantially all liabilities as of the date of
the Filing are subject to resolution under a plan of reorganization to be voted
upon by the Debtors' creditors and stockholders and confirmed by the Bankruptcy
Court. Schedules have been filed by the Debtors with the Bankruptcy Court
setting forth the assets and liabilities of the Debtors as of the Filing as
shown by the Debtors' accounting records. Differences between amounts shown by
the Debtors and claims filed by creditors will be investigated and reconciled.
The amount and settlement terms for such disputed liabilities are subject to
allowance by the Bankruptcy Court. Ultimately the adjustment of the total
liabilities of the Debtors remains subject to a Bankruptcy Court approved plan
of reorganization, and, accordingly, the amount of such liabilities is not
presently determinable.

         Under the Bankruptcy Code, the Debtors may elect to assume or reject
real estate leases, employment contracts, personal property leases, service
contracts and other executory pre-petition contracts, subject to Bankruptcy
Court approval. The Debtors continue to review leases and contracts, as well as
other operational changes, and cannot presently determine or reasonably estimate
the ultimate outcome of, or liability resulting from, this review. Claims
secured against the Debtors' assets ("secured claims") also are stayed, although
the holders of such claims have the right to move the Court for relief from the
stay. Secured claims are secured primarily by liens on the Debtor's machinery,
equipment and accounts receivable.

         On January 26, 1998 the issuer re-opened for business as
Debtor-in-Possession under new management. Since that time, the issuer has been
in the sole business of manufacturing its three remaining product lines:
military power supply products, variable autotransformers, and laboratory power
supplies. A small group of approximately twenty employees were gradually
recalled to work. Claims for wage arrearages were paid to those returning
employees up to the $4,000 maximum per employee permitted by law.

         On May 12, 1998 the issuer filed a Plan of Reorganization (the "Plan")
with the Office of the U.S. Trustee. Once filed, the Plan continued as the
subject of negotiation between the issuer and various creditor committee
constituencies. An amended plan of reorganization, containing the results of
these discussions, was filed by the issuer on November 24, 1999. The plan is a
proposal of Power Designs Inc., and PDIXF Acquisition Corporation to their
Creditors and holders of Equity Interests. The Plan is the product of
discussions with the Debtors' senior secured creditor, Inverness, which has
agreed to support the Plan. The Plan undertakes to resolve all secured claims,
administrative claims, priority claims, unsecured claims and equity interests.
The Debtors believe that the distributions to be made, pursuant to the terms of
this Plan, will produce for Creditors not less than they would receive if the
Debtors' cases were converted to cases under Chapter 7 of the Code, the Debtors'
assets liquidated and appropriate distributions therein were made as required by
the Code.


                                                                               8
<PAGE>



         In summation, the amended Plan provides for substantive consolidation
of the two co-debtors as well as six classes of claims and equity interests,
described as follows:

1.   Class 1, the allowed secured claims of Inverness Corporation, shall receive
     a secured note in the amount of $1,800,000 with interest at 10% annually
     and approximately 998,000 shares of common stock in the reorganized
     corporation.

2.   Class 2, the allowed claim of Hayes Corporation, shall receive an unsecured
     note in the amount of $150,000 with interest at 10% annually and a prorata
     number of shares of common stock in the reorganized corporation, as
     discussed in item 4 below.

3.   Class 3, the allowed employee priority claims, shall receive the full
     amount of their allowed employee priority claim in eight equal monthly
     payments together with interest at 7%.

4.   Class 4a, the allowed unsecured claims of Power Designs Inc., together with
     the allowed claim of Hayes Corporation, shall receive approximately
     1,002,000 shares of common stock in the reorganized corporation. The
     allowed unsecured claims of Power Designs, Inc. shall also receive an
     annual conditional payment equal to 10% of one-half of the face amount of
     their allowed claim, payable to the extent that the issuer's free cash flow
     is greater than $400,000. Class 4b, the allowed unsecured claims of PDIXF
     Acquisition Corporation, shall receive 5% of the amount of their allowed
     claims in full satisfaction of their claims.

5.   Class 5, the equity interests in Power Designs, Inc., shall be deemed
     cancelled as of the effective date of the Plan.

6.   Class 6, the equity interests in PDIXF Acquisition Corporation, shall be
     deemed cancelled as of the effective date of the Plan.

In addition, the amended plan provides terms for the cash payment of all
administrative and priority tax claims, an increase in the number of corporate
directors from six to seven, and certain amendments to the certificate of
incorporation, which will reflect certain restrictions on the transfer of common
shares for a period of two years from the effective date of the plan. Such
restrictions are intended to prevent any acquisition, which could result in the
disallowance or limitation of the issuer's federal income tax net operating loss
carryforwards

         Funding of the payments, required under the Plan, will be made from
cash accumulated by the issuer from the petition date to the effective date,
and other sources of commercial financing as may be available at the time of
confirmation. Additional information as to the financing arrangements is
found at Item 6 - "Management's Discussion and Analysis of Financial
Conditions and Results of Operations -Liquidity and capital resources."

         A confirmation hearing on the amended plan of reorganization has been
continued to March 21, 2000, although it may be continued from time to time by
the court. Should the amended plan not be confirmed, there is significant
probability that the case may be converted to a Chapter 7 case. In the
instance of a conversion to a Chapter 7 liquidation, there is little
likelihood of any value remaining to satisfy the existing equity interests of
the Debtors.

                                                                               9
<PAGE>


         CURRENT DEVELOPMENTS

         During the first quarter of fiscal 1997, the issuer agreed to purchase
the assets of two subsidiaries of Penril DataComm Networks, Inc. (n/k/a Hayes
Corporation). That acquisition was consummated on October 11, 1996, and reported
on a Form 8-K dated October 28, 1996. Total consideration, which was determined
through arms-length negotiations, consisted of approximately $4.4 million in
cash and notes payable. In November 1996, the issuer consolidated its managerial
and manufacturing operations at the former Penril site in Connecticut.

         Once relocated, the issuer's manufacturing and engineering efforts were
primarily directed toward the development and manufacture of an innovative line
of uninterruptible power supply/power line conditioners purchased as part of the
Penril acquisition. A considerable investment of the issuer's financial
resources was made in material, machinery and personnel. The issuer's inability
to resolve the technical problems, which plagued the UPS/PLC product line,
resulted in numerous product failures both in the field and in the factory.
Consequently product sales fell well below management's original projections,
and the issuer suffered significant operating losses during these periods. As a
result of these losses, the issuer was unable to meet its current financial
obligations, as well as required debt repayments.

         In an effort to conserve working capital, the issuer began a series of
workforce reductions commencing in the first quarter of fiscal 1998. These
reductions were completed during January 1998 when the remaining employees were
furloughed, and Fred G. Basso, President of the issuer, resigned his position.
The issuer filed petitions of relief under Chapter 11 of the United States
Bankruptcy Act on January 22, 1998. Additional information as to the bankruptcy
proceedings is found at Item 6 - "Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Bankruptcy proceedings."

         On January 26, 1998 the issuer, as Debtors-in-Possession, resumed
operations on a limited scale. Pursuant to a court order, the issuer retained
The Vantage Partners LLC, a management consulting firm, who, together with
Melvin A. Becker, Vice President of Operations, comprise existing senior
management. Approximately twenty employees were recalled to work in the
production of the three remaining product lines. Since that time, management's
efforts have been concentrated in the following areas: restoring customer
relationships, streamlining operating costs, improving manufacturing quality and
material procurement efficiencies, and re-establishing credit availability with
vendors and suppliers.

         Since the initial months following the Filing, product offerings have
been confined to three historical families of products: military grade power
supplies, variable autotransformers, and linear switching power supply products.
The company has successfully resolved issues of material procurement with key
suppliers and reinstated deteriorating relationships with distributors and
customers. Liquidity has been improved by


                                                                              10
<PAGE>


increased shipping levels and a concentrated effort on credit and collection
issues with all customers. Marketing efforts have been increased in the areas of
product literature development, internet advertisement, and sales representative
solicitation. Despite a plateau during the third fiscal quarter of 1999, both
military and commercial orders for product have continued to exhibit stable
levels of predictability. Open sales orders at June 30, 1999 total $464,514.
Subsequent periods saw continued efforts in the areas of order procurement and
customer satisfaction, and have resulted in open sales orders at January 31,
2000 of $503,518 and shipments in excess of the monthly average.

         In an effort to preserve prior investments made in the proprietary
UPS/PLC product technology, the issuer also retained an original member of the
engineering staff, who was instrumental to the development of the technology.
This individual was charged by the issuer with the task of examining and
redesigning the product to yield one with optimal manufacturing costs, and
minimal field product failure. By the end of fiscal year 1998, the products had
been examined, findings documented, and a design modification conceptualized.
Although it is the intention of management to preserve the technology for a
potential development and/or licensing joint venture in the future, there can be
no assurances that such a joint venture partner can be located, or that such an
endeavor can be profitably consummated.

         In May of 1998, the issuer filed a Plan of Reorganization with the
Office of the U.S. Trustee (see Item 6 - "Management's Discussion and Analysis
of Financial Conditions and Results of Operations - Bankruptcy proceedings").
Continuing discussions between the debtors and the various creditor
representatives resulted in the filing of an amended plan on November 24, 1999.
The amended plan provides for the cancellation of all existing equity interests,
and the issuance of 2,000,000 new common shares to be divided among Inverness
Corporation, Hayes Corporation, and certain unsecured creditors. Approximately
$1.95 million of secured debt is proposed to remain post-confirmation and will
bear interest at 10% annually. Administrative claims, priority tax claims, and
employee priority claims will be paid in accordance with the terms negotiated
with the claimants, or in certain cases, those provided by law. Certain
unsecured claims of PDIXF Acquisition Corporation will receive a 5% cash
settlement in full satisfaction of their outstanding claims. All remaining
claims will be deemed unsecured non-priority claims, and their holders will
receive a proportionate number of common shares in the reorganized corporation.

         Subsequent to the end of fiscal 1998, the issuer engaged the services
of a local real estate broker to locate a smaller facility, suitable for
manufacturing the current product offerings. Simultaneously, the landlord of the
issuer has proposed a highly suitable 15,000 square foot facility available for
lease in the current industrial park. The broker, in conjunction with the
landlord of the issuer, has been enlisted to solicit a sublet tenant for the
issuer's existing rented facility. Once a sublet tenant has been signed for the
existing facility, a possible relocation to the smaller facility may be
negotiated with the landlord. Although the existing facility continues to be
presented to the marketplace, no sublease transactions have as yet been
consummated.


                                                                              11
<PAGE>


         In addition to various advertising measures and additions to its
internal sales force, the issuer has likewise retained the services of outside
sales consultants and manufacturer's representatives in an effort to expand the
customer base and increase product revenue. To date, six manufacturer's sales
representatives have been contracted to sell product in the following domestic
regions: New England Region, Sunbelt Region, Central Region, Southwest Region,
Caribbean Rim Region, and Western Region. Negotiations are pending with
representatives in three additional U.S. regions. Contemporaneously, a new
homepage has been uploaded to the Internet domain, wwwh.powerdesignshh.com. This
website currently displays the entire linear, military and autotransformer
product lines. While these efforts are focused on generating increased order
levels, there are, however, no assurances that the issuer will be able to
effectuate these measures, or that such measures will produce the desired
results.

         Coupled with overhead cost containment measures, the issuer has also
initiated an engineering effort to redesign certain products in its linear power
supply family. The update of the precision, low voltage power supplies has been
completed, and work is currently underway on the triple output products. Once
finalized these new designs should prove easier and more cost effective to
manufacture, as well as provide a greater range of product features and
reliability.

         LIQUIDITY AND CAPITAL RESOURCES.

         In connection with the Penril acquisition, the issuer simultaneously
obtained significant additional outside financing, totaling approximately
$6,400,000. The financing consisted of three primary components: a private
placement of debt and equity securities and Common Stock purchase warrants for
approximately $1,360,000 to six individuals and a limited partnership; advances
on revolving notes payable to Inverness in the amount of $2,290,000, and a Term
Note payable to Penril of $2,750,000 due on December 31, 1996. As part of the
acquisition and financing, the issuer also created a class of Preferred Stock,
$.01 par value, which had been authorized by vote of the shareholders in fiscal
year 1995. Shares of the Preferred Stock were included with the securities
placed with the six individuals and a limited partnership.

         Subsequent to the Penril acquisition, the resources and personnel of
the issuer were deployed in the investigation and resolution of a number of
manufacturing and production problems encountered in the manufacturing of the
UPS/PLC product lines. These problems resulted in extremely low manufacturing
yields evidenced by the gross profit (loss) at June 30, 1997 of ($366,138). To
correct these problems, significant operating funds were expended over the
course of the remainder of fiscal year 1997, resulting in a net loss for the
year of ($5,126,630). In order to finance these operating expenditures,
Inverness Corporation amended its revolving credit facilities with the issuer on
November 27, 1996, December 31, 1996, and March 1, 1997 to increase the maximum
availability under this vehicle from $2,500,000 initially to $8,000,000.

         To combat significant shortages in working capital, the issuer was
required to enter into additional loans, which were issued as part of a private
placement offering of $100,000 units. These units comprise Bridge Notes ("Bridge
Notes") and Common


                                                                              12
<PAGE>


Stock purchase warrants, which commenced on March 21, 1997 and was completed on
July 31, 1997. For each unit purchased, the bridge lenders received a promissory
note for $100,000 due no later than July 31, 1998 and 40,000 warrants to acquire
shares of the issuer's Common Stock for $0.25 per share subject to adjustment.
The obligations outstanding of $1,653,500 at June 30, 1999 and 1998 represent
the total amount raised through the offering.

         In addition to the loans described above, the issuer has received two
unsecured loans in the aggregate amount of $300,000 payable to two investors, as
well as additional unsecured loans in the amount of $313,000 payable to four
affiliates on terms similar to those of the Bridge Notes.

         Following the Chapter 11 filing in January of 1998 pursuant to a court
order, the issuer, as debtor-in-possession, entered into a financing agreement
with Venture Partners Ltd., as agent, to borrow working capital, up to a maximum
of $400,000. The terms of this agreement call for interest at 20% and a term of
120 days. This debt is collateralized firstly by the machinery and equipment of
the issuer, and secondarily by its accounts receivable. A total of $245,000 is
presently outstanding on this loan. As of this date the term of the note has
expired placing the borrower in default. At this time, no demand for repayment
has been received by the issuer.

         Similarly, in February of 1998 the issuer, pursuant to a court
order, entered into a receivable factoring agreement with Porter Capital
Corporation ("Porter"), whereby trade receivables are sold to Porter at 94%
of face value. A 4% and 2% rebate is returned to the issuer if the receivable
is collected within 60 and 90 days respectively. Fees to Porter include a
minimum of 2% of the face amount of the receivables factored, and an annual
interest rate of prime on the outstanding amount advanced. Collateral for
this obligation comprises the factored receivables, with a secondary lien on
the machinery and equipment of the issuer. In September of 1998 the before
mentioned agreement was modified to a minimum fee of 2.5% for receivables
collected within 60 days and an additional 1% for each additional 15 days
outstanding to a maximum of 90 days. At June 30, 1999 advances under this
factoring agreement totaled $129,203, with a total of $0 outstanding since
October 31, 1999.

         At this writing the issuer has liquidated $78,655 of its pre-petition
labor arrearages. As of this date the only remaining pre-petition labor
arrearage is that of certain former officers, as well as accrued vacation wages
for all former employees that did not return to work. During this time period
the issuer was in discussions with the U.S. Department of Labor regarding this
matter. The amended Plan of Reorganization addresses the liquidation of the
priority portion of these pre-petition liabilities over a period of eight
months.

         The issuer hopes to be able to supply a greater percentage of its
working capital needs through improved operating cash flow during the 2000 and
2001 fiscal years. This improved operating cash flow is predicated upon a
stabilized core product manufacturing process and increased revenue for fiscal
2000 of which there can be no assurance. Nevertheless, the issuer expects that
it will be in need of additional financing in future


                                                                              13
<PAGE>


post Chapter 11 confirmation periods. In an effort to procure such financing,
the issuer has prepared financial projections, and has retained an
independent appraiser to value the machinery and inventory collateral. These
documents have been presented to various prospective lenders for their
review; however, to date no permanent financing has been executed. It is the
issuer's intent to pay its obligations pursuant to the amended plan of
reorganization, as well as to replace the current debtor-in-possession
financing with less costly, conventional financing arrangements. The issuer
estimates that it needs to obtain approximately $700,000 in additional
financing to be able to meet its operating cash flows and the obligations
subsequent to confirmation of the plan of reorganization.

         At June 30, 1999 the issuer currently has a net stockholders' deficit
of approximately $16,000,000, meaning that amounts owed to its creditors exceed
the issuer's assets.

         As a result of the issuer's net loss position, no provision has been
made for income taxes. Approximately $13,380,000 of net operating loss
carryforwards remain available to reduce future federal and state taxable
income, which expire in 2000 through 2014. There is no certainty that the
issuer will have taxable income during the expiration period in order to
realize the benefit of these carryforward amounts. As a result, the issuer
has recorded a valuation allowance equal to the entire amount of the related
deferred tax asset, as well as all other deferred tax assets. Also changes in
ownership, and/or reductions of debt, including changes resulting from a
Chapter 11 plan confirmation, could result in a limitation or reduction in
the use of these net operating loss carryforwards.

         The issuer has proceeded with implementing and executing a Year 2000
compliance plan with the objective of having all of their significant business
systems, including those that affect facilities and manufacturing activities,
functioning properly with respect to the Year 2000 issue before January 1, 2000.
The issuer has assessed their internal processes and systems, and believes that
sales, administration, and general operations are substantially Year 2000
compliant. Prior to purchasing any new equipment or software, it is the issuer's
policy to ensure that the specifications include Year 2000 compliance. Because
no specific instance of material Year 2000 non-compliance has been discovered to
date, the issuer has not adopted a contingency plan to deal with Year 2000
issues.

         Based upon the level of Year 2000 compliance to date, the issuer does
not expect the total costs of the Year 2000 review and compliance to have a
material adverse effect on the business or financial results. The issuer may
have to spend a material amount to develop and implement a contingency plan
during 2000, if the issuer finds that a material supplier or other third party
upon whom the issuer relies will face business interruptions as a result of Year
2000 issues.

         Based upon the review of the Year 2000 issues to date, the issuer has
not experienced, and does not anticipate any significant interruption of normal
internal operations. The failure to correct a material Year 2000 problem could
result in an interruption in, or a failure of, certain normal business
activities or operations. Such failures could materially and adversely affect
the issuer's results of operations, liquidity


                                                                              14
<PAGE>


and financial condition. The issuer believes that, at this writing, the
possibility of significant interruptions of normal operations is minimal.

         FINANCIAL CONDITION

         Stable operations and the staying of liabilities inherent in a
Chapter 11, account for the minor fluctuations in assets and liabilities from
June 30, 1998 to June 30, 1999. Current assets decreased by approximately
7.6% over fiscal year 1998 to $1,233,761. This decrease, which is primarily
attributable to inventories and accounts receivable, is the direct result of
the heightened collection efforts on receivables and conservative purchasing
of raw material during fiscal year 1999. There were no material changes in
prepaid assets or cash over fiscal year 1998. However, equipment and
leasehold improvements decreased from $538,098 to $395,372. This decrease is
primarily attributable to normal depreciation of existing assets. Other
assets represent equipment, which was integral in the manufacture of the
discontinued products and was removed from service at the time of the Chapter
11 filing. The ultimate disposition of this machinery will be a matter
determined at Plan confirmation.

         Total liabilities increased by 8% to $17,769,193 over fiscal year 1998.
98% of the increase in total liabilities represents additional accrued and
unpaid interest on secured, pre-petition liabilities. Liabilities subject to
compromise of $16,970,032 at June 30, 1999 represent those pre-petition claims,
which will be impaired under the proposed plan of reorganization. In the case of
this issuer, all remaining pre-petition claims have been classified as
liabilities subject to compromise.

         Total stockholders' deficit increased by 10.8% to $15,975,123 over
fiscal year 1998. This increase is generated solely by operating losses incurred
in the current fiscal year of $1,560,176. Common stock, preferred stock, and
additional paid-in capital remain unchanged from June 30, 1998. During fiscal
year 1998, 40,000 common stock purchase warrants were issued to certain
unsecured investors in conjunction with the execution of various notes payable
to those investors. These warrants are exercisable at $0.25 per share. Due to
the proposed impairment of all existing equity interests in the issuer, no value
has been assigned to these warrants.

         RESULTS OF OPERATIONS

         The issuer's sales during fiscal 1999 increased by 10.5% over fiscal
year 1998, to $2,875,686 while its gross profit (loss) increased by 200% over
the same period. The seriously low manufacturing yields, as well as the
inventory obsolescence generated by the now-defunct UPS/PLC product line are the
key factors inherent in the fiscal 1998 loss. In like manner product revenues,
which averaged approximately $216,000 per month in fiscal year 1998, included
UPS/PLC sales in the seven months immediately preceding the Chapter 11 filing.
Post-petition sales have averaged approximately $247,000 per month in core
product shipments only.

         Operating expenses decreased by approximately 82%, to $946,503 for
fiscal year 1999. The significant component in the prior year total is a
one-time amortization


                                                                              15
<PAGE>


expense related to the goodwill impairment of $2,870,432. Net of this
transaction, operating expenses were $2,460,901 for the prior year, with a
decrease of $1,514,398 in fiscal year 1999. This decrease is the result of
the major reductions in workforce, overhead, and research and development
costs following the Chapter 11 filing in mid-fiscal 1998. Other income and
expense decreased from $2,095,773 in 1998 to $1,645,965 in 1999. Consistent
with generally accepted accounting principles, the issuer has continued to
accrue unpaid interest on $9.2 million of secured debt in the post-petition
period. However interest on approximately $2.3 million of unsecured debt has
been stayed since the January 1998 Chapter 11 filing. This decrease in
interest expense comprises the majority of the change in other income and
expense. $117,525 of reorganization items in 1998 represent legal and court
costs associated with the bankruptcy proceeding. Comparable legal and court
expenses in 1999 total $76,152. As a result of all of the changes described
above, the net loss for fiscal 1998 of approximately $8.6 million
significantly exceeded the fiscal 1999 net loss of approximately $1.5 million.

         Throughout the second half of fiscal year 1998 and in subsequent
periods, the issuer has expended considerable time and effort in repairing and
reactivating many customer relationships, which suffered a decline during the
months prior to the Chapter 11 filing. The issuer's inability to manufacture a
functional UPS/PLC product, as well as the working capital shortages which
strangled core product shipments, shifted many customers to search for an
alternative supplier of power protection products. Since January 22, 1998 the
issuer has been actively interviewing and communicating with prior customers to
better assess their product needs, and to institute operational measures to
insure on-time delivery of goods. At this writing, new manufacturer
representation in the field, redesigned product literature, and internet
advertising are all means by which the issuer plans to continue to enhance sales
volumes in future periods.

         The most important general economic trend during fiscal year 1999 was
the continued strength of the national economy, reflected in significant
improvements in the major capital markets. In addition, the advent and
subsequent rapid growth of the internet as an advertising and marketing medium,
has opened many new possibilities for reaching yet untapped segments of what is,
in many ways, a mature market. However a growing decline in domestic government
spending for defense programs is expected to continue to impact the demand for
military grade power supply products. Although it is the intention of the issuer
to replace these retiring customers with newly developed industrial and
commercial uses for these products, there is no certainty that these objectives
will be attained.

         Certain statements contained in this Item 6 regarding matters that are
not historical facts, including, among others, statements regarding the future
adequacy of the issuer's working capital, its ability to raise capital through
debt or equity offerings, its ability to maintain or improve its present cash
flow, are "forward-looking statements". Such forward-looking statements involve
risks and uncertainties which may cause the actual results, performance or
achievements of the issuer to be materially different from


                                                                              16
<PAGE>


any future results, performance or achievements, express or implied by such
forward-looking statements.

         These forward-looking statements are identified by their use of forms
of such terms and phrases as "expects," "intends," "goals," "estimates,"
"projects," "plans," "anticipates," "should," "future," "believes," and
"scheduled". The variables which may cause differences include, but are not
limited to, the following: general economic and business conditions;
competition; success of operating initiatives; operating costs; advertising and
promotional efforts; the existence or absence of adverse publicity; changes in
business strategy or development plans; the ability to retain management;
availability, terms and deployment of capital; business abilities and judgement
of personnel; availability of qualified personnel; labor and employee benefit
costs; availability and costs of raw materials and supplies; and changes in, or
failure to comply with, government regulations. Although the issuer believes
that the assumptions underlying the forward-looking statements contained herein
are reasonable, any of the assumptions could be inaccurate, and therefore, there
can be no assurance that the forward-looking statements included in this filing
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the issuer or any
other person that the objectives and expectations of the issuer will be
achieved.

ITEM 7.           FINANCIAL STATEMENTS

         Attached hereto and made a part of this filing is the audited
consolidated balance sheets and related consolidated statements of operations,
stockholders' deficit, and cash flows of the issuer for its fiscal years ended
June 30, 1999 and June 30, 1998.

         The report of McGladrey & Pullen, LLP, dated December 23, 1999 on the
issuer's 1999 consolidated financial statements is attached hereto and made part
of this filing.

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

         None to report in last two fiscal years.

                                    PART III

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


                                       17
<PAGE>


         The Board of Directors as of June 30, 1999 consisted of six directors.
All directors of the issuer presently serve until resignation or until the next
annual shareholders' meeting.

         JONATHAN D. BETTS. Mr. Betts has served as Chairman of the Board of the
issuer since November 1996. Mr. Betts is principal and founder of Venture
Partners, a private investment bank, and Inverness Corporation, a private
commercial finance Company, founded in 1986 and 1993, respectively. Mr. Betts,
Venture Partners and Inverness Corporation are affiliates of Millenia Capital
Holdings, LLC ("Millenia"), the largest stockholder of the issuer. Mr. Betts
served as a member of the consulting operation of Technology Transitions
Incorporated, a venture capital firm, from November 1985 to December 1986 and as
Regional Sales Manager for Medical Electronics Corporation, a critical care
medical instrumentation manufacturer, from June 1983 to September 1985. Mr.
Betts has a Bachelor's Degree in Electrical Engineering from Boston University.

         MELVIN BECKER. Mr. Becker has served as a Vice President of the issuer
since November 1996. Mr. Becker has served as a Director of the issuer since
1984, and served as President of the issuer from January 1984 to November 1996,
and as Vice President in charge of Manufacturing of the issuer from 1971 to
1979. Mr. Becker served as Vice President of Operations and as Executive
Assistant to the President at Ferranti-Venus, a manufacturer of DC power
supplies from March 1979 to December 1983. Mr. Becker holds a Bachelor's Degree
in Electrical Engineering from the University of Miami.

         GARY M. LASKOWSKI. Mr. Laskowski has served as a Director of the issuer
since April 1994. Mr. Laskowski is a principal and founder of Venture Partners,
a private investment bank, and Inverness Corporation, a private commercial
finance Company, founded in 1986 and 1993, respectively. Mr. Laskowski, Venture
Partners and Inverness Corporation are affiliates of Millenia. Mr. Laskowski
served as a member of the consulting operation of Technology Transitions
Incorporated, a venture capital firm, from March 1985 to January 1986 and served
in a number of posts, including Vice President, Marketing, for Canberra
Industries, Inc., a supplier of data acquisition and analysis systems, from 1976
to 1984. Mr. Laskowski holds a Bachelor's Degree in Electrical Engineering from
the University of Connecticut.

         ROBERT R. SPARACINO. Mr. Sparacino was appointed as a Director of the
issuer on October 7, 1997. Mr. Sparacino has served as President of Sparacino
Associates, a management and venture capital consulting firm specializing in
high technology businesses since 1982, as a Director and Vice Chairman of
Tristar Corporation since 1992 and as a Director of Concurrent Computer
Corporation, a computer equipment manufacturer, from November, 1994 until
November, 1997. Additionally, Mr. Sparacino has served in executive management
positions with Xerox Corporation and General Motors Corporation. Mr. Sparacino
holds a Doctoral Degree in Instrumentation from the Massachusetts Institute of
Technology.


                                                                              18
<PAGE>


         RAYMOND E. JOSLIN. Mr. Joslin was appointed as a Director of the issuer
on October 7, 1997. Mr. Joslin currently serves as a Director, and as Vice
President and Group Head of the Entertainment & Syndication Group, of Hearst
Corporation. Mr. Joslin is also a Founding Director and Co-Chairman of
Hearst/ABC Video Services, and serves as a Founding Director and Co-Chairman of
each of the A&E Networks (which includes the History Channel) and Lifetime
Television, which are 75% and 100% owned by Hearst/ABC Video Services,
respectively. Mr. Joslin attended the Carnegie Institute of Technology and
Harvard Business School and holds a Bachelor's Degree in Economics from Trinity
College.

         SHANNON LEROY. Mr. LeRoy was appointed as a Director of the issuer on
October 7, 1997. Mr. LeRoy currently serves as President of Tennessee Business
Investment, Inc., the general partner of Equitas, L.P., a licensed Small
Business Investment Company. From 1984 to 1994 Mr. LeRoy served as Senior Vice
President of First Union National Bank of Tennessee, where he managed commercial
banking. Mr. LeRoy is a Director of HLM Design, Inc., an architectural and
engineering firm and Laure Beverage Company, Inc., a consumer beverage company.
Mr. LeRoy holds a Bachelor of Arts degree from the University of North Carolina
in Chapel Hill.

         ROBERT S. DORFMAN. Mr. Dorfman will become a Director upon the
confirmation of the issuer's bankruptcy case. He is founder, owner and President
of The Robert S. Dorfman Company which specializes in arranging financing for
corporate clients, and also acts as a Manager of Crescent Capital. He is also
the principal and President of Dorfman Securities, a registered NASD
broker-dealer. Mr. Dorfman was formerly Managing Director-Business Development
for Advest, Inc., a regional investment bank and brokerage firm and also held
positions as Vice President of Corporate Finance at Berg & Co., and as a Banking
Officer at National Westminster Bank, USA. Mr. Dorfman holds a Bachelor of Arts
degree from Tufts University and a Master of Business Administration degree from
Boston University.

EXECUTIVE OFFICERS OF THE ISSUER

         As of June 30, 1999 there were no other executive officers, other than
the directors identified as such above (see Item 10 - "Executive Compensation").

ITEM 10. EXECUTIVE COMPENSATION

         The following table sets forth the compensation earned by certain
executive officers of the issuer for services in all capacities for the fiscal
years ended June 30, 1998 and 1999. No other employee's annual salary and bonus
exceeded $100,000 for the fiscal year.



                                                                              19
<PAGE>


                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>


                                                                                                SECURITIES
                                                                                                UNDERLYING
                                                                                                   STOCK
NAME                    YEAR                 PRINCIPAL POSITION                               SALARY ($)  OPTIONS

<S>                    <C>                <C>                                                <C>         <C>
Melvin A. Becker        1999               Vice President, October 9, 1996-present             92,037
                        1998               President, Jan 1, 1984-October 9, 1996              97,192
                        1997                                                                  100,698           0


Fred G. Basso           1998                President, May 6, 1997-January 15, 1998            81,216           0
                        1997                                                                   18,847     150,000
</TABLE>


         In fiscal year 1995, the issuer adopted the Employee Incentive Stock
Option Program (the "Option Program"), which provides for the issuance of up to
the lesser of 24% of the fully diluted issued and outstanding Common Stock or
1,000,000 shares of Common Stock through the grant of incentive and
non-qualified stock options. Stock options under the Option Program are to be
issued by action of the Board of Directors or its Compensation Committee (the
"Administrator").

         On October 9, 1996, the issuer entered into a three-year contract with
Mr. Becker, under which he assumed the duties of Vice President for a base
salary of $100,000 per annum. Prior to the Chapter 11 filing, Mr. Becker's
employment was terminated by the issuer on January 6, 1998. On January 19, 1998
Mr. Becker was rehired by the issuer at an annual salary of $80,000 per year. On
January 1, 1999 Mr. Becker's salary was increased to $90,000 annually.

         Fred G. Basso assumed the office of President of the issuer on May
6, 1997. His compensation consists of an annual cash salary of $140,000, and
options for the purchase of 150,000 shares of Common Stock at a price of
$.875 per share. Mr. Basso resigned his position with the issuer on January
15, 1998 prior to the Chapter 11 filing. Upon his resignation, all options to
purchase shares of Common Stock expired. Subject to the terms of his
employment contract, Mr. Basso has an allowed unsecured pre-petition claim
against the issuer for $70,000 in severance compensation

         As of June 30, 1999, and subsequent to the end of the fiscal year, none
of the above-mentioned options have been exercised.

                      Option/SAR Grants in Last Fiscal Year
                                Individual Grants

<TABLE>
<CAPTION>

                           Number of          % of Total
                           securities         Options/SARs
                           Underlying         Granted to         Exercise
                           Options/SARs       Employees          or Base           Expiration
Name                       Granted (#)        In Fiscal Year     (Price$/Sh)       Date
----                       ------------       --------------     -----------       ----------
<S>                       <C>                <C>                <C>               <C>


</TABLE>

(a)      No stock options were issued during the fiscal year covered by this
         report


                                                                              20
<PAGE>


               Aggregated Option/SAR Exercises in Last Fiscal Year
                          and FY-End Option/SAR Values

<TABLE>
<CAPTION>


                                                              Number of
                                                              Securities        Value of
                                                              Underlying        Unexercised
                                                              Unexercised       In-the-Money
                                                              Options/SARs      Options/SARs
                                                              At FY-End(#)      at FY-End($)

                           Shares Acquired  Value             Exercisable/      Exercisable/
Name                       On Exercise(#)   Realized($)       Unexercisable     Unexercisable

<S>                               <C>              <C>               <C>               <C>
Melvin A. Becker                    0                0                 0/0               $0/$0

H. Rudolf Zeidler                   0                0                 0/0               $0/$0

Fred G. Basso(a)                    0                0                 0/0               $0/$0
</TABLE>


(a) In accordance with the Employment Agreement executed between the issuer and
Fred G. Basso, all options denoted, expired upon the date of employment contract
termination.

         The Company has no pension plan covering executives and currently
provides no benefits to executives other than life insurance coverage of 100% of
annual salary and health insurance.

ITEM 11. OWNERSHIP OF SECURITIES BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The following table sets forth (i) those entities and individuals known
to the issuer to be the beneficial owners of more than 5% of the issuer's Common
Stock, (ii) beneficial ownership of the issuer's Common Stock by each director
and the Chief Executive Officer and the Named Executive Officer of the issuer
and (iii) beneficial ownership of the issuer's Common Stock by all directors and
executive officers of the issuer as a group. Unless otherwise indicated, each of
the stockholders has sole voting and dispositive power with respect to the
Common Stock beneficially owned by such stockholder.


<TABLE>
<CAPTION>

                                                                                AMOUNT AND
                                                                                NATURE OF
                                                                                BENEFICIAL     PERCENT
                           NAME AND ADDRESS OF                                  OWNERSHIP         OF
TITLE OF CLASS             BENEFICIAL OWNER                                     (SHARES)        CLASS
--------------             --------------------                                 ---------     ------------
<S>                       <C>                                                  <C>               <C>
Common Stock               Millenia Capital Holdings, LLC(4)                    1,072,028         44.8
                           P.O. Drawer 9
                           Kensington, Connecticut 06037

                           Inverness Corporation(5)                             1,297,163(10)     35.2
                           1224 Mill Street, Bldg. A
</TABLE>


                                                                              21
<PAGE>

<TABLE>

<S>                       <C>                                                   <C>              <C>
                           East Berlin, Connecticut 06023

                           Bril Corp.(6)                                          149,468(15)      6.2
                           P.O. Drawer 9
                           Kensington, Connecticut 06037

                           Equitas, L.P.                                          263,189(11)      9.9
                           200 Glen Echo Road
                           Suite 101
                           Nashville, Tennessee 37215

                           Thomas O'Grady(2)                                      125,323          5.2

                           David H. Smith II(2)                                   125,323          5.2

                           Jeri Fink(2)                                           283,503         11.8

                           Sandra Roth(2)                                         146,503          6.1

                           Jonathan D. Betts(2)(7)                              2,518,959         63.7
                                                                               (8)(13)(14)
                                                                                 (shared)

                           Melvin A. Becker(2)                                    134,871(12)      5.4

                           Gary M. Laskowski (2)(7)                             2,528,859         64.0
                                                                               (9)(13)(14)
                                                                                (shared)

                           All Directors and Executive Officers                 2,663,830         65.1
                                    as a Group
</TABLE>


(1)  For purposes of the above table, a person or group of persons is deemed to
     have "beneficial ownership" of any shares that such person or group has the
     right to acquire within 60 days after such date; for purposes of computing
     the percentage of outstanding shares held by each person or group on a
     given date, such shares are deemed to be outstanding, but are not deemed to
     be outstanding for the purpose of computing the percentage ownership of any
     other person.

     Beneficial ownership is determined in accordance with Rule 13d-3 under the
     Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is
     generally determined by voting power and/or investment power with respect
     to securities. Except as indicated by footnote, and subject to community
     property laws where applicable, the issuer believes that the persons named
     in the table above have sole voting and investment power with respect to
     all shares of Common Stock shown as beneficially owned by them.


                                                                              22
<PAGE>


(2)  The address for the referenced person is c/o Jonathan D. Betts, Chairman,
     Power Designs, Inc., 14 Commerce Drive, Danbury, Connecticut  06810.

(3)  Individual percentages have been rounded to the nearest .1%.

(4)  The member-managers of Millenia Capital Holdings ("Millenia") are Deborah
     Laskowski and Kathleen Betts, the spouses of Gary M. Laskowski and Jonathan
     D. Betts, respectively, each of whom is a director of the issuer. The
     concurrence of both Ms. Laskowski and Ms. Betts is necessary to direct the
     voting of securities owned by Millenia and the disposition of such shares
     requires the consent of both Ms. Laskowski and Ms. Betts. Both, Mr.
     Laskowski and Mr. Betts disclaim beneficial ownership of shares of Common
     Stock owned by Millenia.

(5)  The executive officers of Inverness Corporation ("Inverness") are Gary M.
     Laskowski and Jonathan D. Betts, each of whom is a director of the issuer.
     The concurrence of both Mr. Laskowski and Mr. Betts is necessary to direct
     the voting of securities owned by Inverness and the disposition of such
     shares requires the consent of both remaining shareholders of Inverness,
     Deborah Laskowski, the spouse of Mr. Laskowski, and Kathleen Betts, the
     spouse of Mr. Betts. Accordingly, Mr. Laskowski and Mr. Betts may be deemed
     the beneficial owners of shares of Common Stock owned by Inverness.

(6)  The executive officers of Bril Corp. ("Bril") are Gary M. Laskowski and
     Jonathan D. Betts, each of whom is a director of the issuer. The
     concurrence of both Mr. Laskowski and Mr. Betts is necessary to direct the
     voting of securities owned by Bril and the disposition of such shares
     requires the consent of both remaining shareholders of Bril, Deborah
     Laskowski, the spouse of Mr. Laskowski, and Kathleen Betts, the spouse of
     Mr. Betts. Accordingly, Mr. Laskowski and Mr. Betts may be deemed the
     beneficial owners of shares of Common Stock owned by Bril.

(7)  Mr. Betts and Mr. Laskowski share voting power over the 1,297,163 and
     149,468 shares of Common Stock currently owned by (or underlying options
     immediately exercisable by) Inverness and Bril, respectively. See Notes 5
     and 6, above. In addition, Mr. Betts and Mr. Laskowski are trustees and
     beneficiaries of a retirement plan that owns 200 shares of Common Stock.

(8)  Includes 100 additional shares of Common Stock owned individually of record
     and beneficially by Mr. Betts, and includes 1,072,028 shares of Common
     Stock owned by Millenia as to which Mr. Betts disclaims beneficial
     ownership.

(9)  Includes 10,000 additional shares of Common Stock owned individually of
     record and beneficially by Mr. Laskowski, and includes 1,072,028 shares of
     Common Stock owned by Millenia as to which Mr. Laskowski disclaims
     beneficial ownership.


                                                                              23
<PAGE>


(10) Includes 1,297,163 shares of Common Stock underlying warrants which are
     currently exercisable.

(11) Includes 263,189 shares of Common Stock underlying warrants which are
     currently exercisable.

(12) Includes 121,608 shares of Common Stock underlying options which are
     currently exercisable.

(13) Includes 1,297,163 shares of Common Stock underlying warrants which are
     currently exercisable by Inverness.

(14) Excludes 50,000 shares of Common Stock underlying options issued pursuant
     to the current Option Plan which are subject to approval by the
     stockholders at the Annual Meeting of stockholders.

(15) Includes 26,291 and 24,700 shares of Common Stock previously owned by Bril
     and transferred to Gary Laskowski as Trustee for Bril Corp. Profit Sharing
     Plan and Trust and Gary Laskowski as Trustee for Bril Corp. Money Purchase
     Plan, respectively, on September 15, 1997.

 .ITEM 12.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Jonathan D. Betts and Gary M. Laskowski, directors of the issuer, are
officers of Venture Partners, Ltd., and of Inverness Corporation, both of which
have provided capital to the issuer under several loan agreements:

(a)  The issuer has entered into an agreement with Venture Partners whereby
     Venture Partners is paid a minimum of $10,600 per month, plus expenses, for
     various consulting services provided to the issuer. The issuer is not
     committed to pay Venture Partners under this agreement for future periods.
     During the years ended June 30, 1999 and 1998 the issuer incurred
     approximately $0 and $112,000 of expenses under this agreement, and for
     services provided outside of the agreement.

(b)  Inverness has also entered into certain Revolving Loan Agreements with the
     issuer commencing on October 11, 1996 and December 31, 1996, and later
     amended on November 27, 1996, March 20, 1997. The notes under these
     Agreements provide for 18% annual interest and, as of June 30, 1998,
     provided for a maximum credit line of $8,000,000, secured by substantially
     all the assets of the issuer.

     During the year ended June 30, 1997, the issuer paid $100,000 in fees to
     Inverness in connection with these loan agreements.

(c)  The issuer leases certain equipment under capital leases with Inverness,
     which include a security interest in the property maintained by the
     lessors. As of June 30, 1999, obligations under these leases were
     approximately $142,872, and the cost and


                                                                              24
<PAGE>


     accumulated amortization of equipment under capital leases was $174,762 and
     $31,890, respectively.

(d)  The issuer, pursuant to a court order entered into a financing agreement
     with Venture Partners Ltd., as agent, to borrow working capital up to a
     maximum of $400,000. The terms of this agreement call for interest at 20%
     and a term of 120 days. The debt is collateralized firstly by the machinery
     and equipment of the issuer, and secondarily by its accounts receivable. At
     June 30, 1999 the term of the note had expired, placing the issuer in
     default. At this time, no demand for repayment has been received by the
     issuer.

         At the year ended June 30, 1999 the issuer had approximately $6,000 in
outstanding advances to Melvin A. Becker, an officer and director of the issuer.
This advance is included in accounts receivable in the balance sheet of the
issuer, and is to be repaid without interest over a fixed term.

A COPY OF THIS REPORT ON FORM 10-KSB FOR FISCAL YEAR 1999 MAY BE OBTAINED FREE
OF CHARGE BY SENDING A REQUEST IN WRITING TO:

                               INVESTOR RELATIONS
                               POWER DESIGNS, INC.
                                14 COMMERCE DRIVE
                                DANBURY, CT 06810



                                                                              25
<PAGE>



ITEM 13.          EXHIBITS, LIST AND REPORTS ON FORM 8-K

        (a)                           EXHIBIT INDEX




Exhibit
Number                Description
-------               -----------

         Financial Statements

            Independent Auditor's Report

            Consolidated Balance Sheets - June 30, 1999 and 1998

            Consolidated Statements of Operations - Years Ended
              June 30, 1999 and 1998

            Consolidated Statements of Stockholders' Deficit - Years Ended
              June 30, 1999 and 1998

            Consolidated Statements of Cash Flows - Years Ended
              June 30, 1999 and 1998

            Notes to Consolidated Financial Statements

(3)(i)   CERTIFICATE OF INCORPORATION
                (INCORPORATED BY REFERENCE TO EXHIBIT
                 3(i) TO FORM 10-KSB FOR THE FISCAL
                 YEAR ENDED JUNE 30, 1995)

(3)(ii)  BYLAWS
              (INCORPORATED BY REFERENCE TO EXHIBIT
               3(ii) TO FORM 10-KSB FOR THE FISCAL
               YEAR ENDED JUNE 30, 1995)

(10)       MATERIAL CONTRACTS

(i)      Plan of Reorganization
                  (INCORPORATED BY REFERENCE TO EXHIBIT


                                                                              26
<PAGE>


                  10(i) TO FORM 10-KSB FOR THE FISCAL
                  YEAR ENDED JUNE 30, 1994)

(ii)     Final Decree
                  (INCORPORATED BY REFERENCE TO EXHIBIT
                  10(ii) TO FORM 10-KSB FOR THE FISCAL
                  YEAR ENDED JUNE 30, 1994)

(iii)    Employee Incentive Stock Option Program
                  (INCORPORATED BY REFERENCE TO EXHIBIT
                   10(vi) TO FORM 10-KSB FOR THE FISCAL
                   YEAR ENDED JUNE 30, 1995)

(iv)     Plan of Reorganization for Power Designs, Inc. and PDIXF Acquisition
         Corporation
                  (INCORPORATED BY REFERENCE TO EXHIBIT
                  10(xv) TO FORM 10-KSB FOR THE FISCAL
                  YEAR ENDED JUNE 30, 1998)

(v)     Amended Plan of Reorganization for Power Designs, Inc. and PDIXF
         Acquisition Corporation

(vi)    Disclosure Statement for the Amended Plan of Reorganization for Power
         Designs, Inc. and PDIXF Acquisition Corporation


                                                                             27
<PAGE>

(27)     Financial Data Schedules

 (i)     Financial Data Schedules

(b)      REPORTS ON FORM 8-K

         No reports on Form 8-K have been filed during the fiscal year covered
by this report.



                                                                            28
<PAGE>


                                   SIGNATURES

         In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Date:    February 28, 2000                            POWER DESIGNS, INC.
         Danbury, Connecticut                             (Registrant)


                                               By: /s/ Anthony F. Intino II
                                                   ----------------------------
                                                   Anthony F. Intino II,
                                                   Chief Financial Officer

                                               By: /s/ Jonathan D. Betts
                                                 -------------------------------
                                                   Jonathan D. Betts,
                                                   Chairman of the Board

                                               By: /s/ Melvin A. Becker
                                                 ------------------------------
                                                   Melvin A. Becker,
                                                   Director

                                               By: /s/ Gary M. Laskowski
                                                  ------------------------------
                                                   Gary M. Laskowski,
                                                   Director



                                                                             29
<PAGE>


                                               By: /s/ Robert R. Sparacino
                                                 -------------------------------
                                                   Robert R. Sparacino,
                                                   Director

                                               By: /s/ Raymond E. Joslin
                                                  -----------------------------
                                                   Raymond E. Joslin,
                                                   Director

                                               By: /s/ Shannon LeRoy
                                                 ------------------------------
                                                   Shannon LeRoy,
                                                   Director




                                                                            30
<PAGE>

                       POWER DESIGNS, INC. AND SUBSIDIARY

                          CONSOLIDATED FINANCIAL REPORT

                                  JUNE 30, 1999

<PAGE>



                                    CONTENTS
--------------------------------------------------------------------------------

INDEPENDENT AUDITOR'S REPORT                                                F-3
--------------------------------------------------------------------------------

FINANCIAL STATEMENTS
   Consolidated balance sheets                                              F-5
   Consolidated statements of operations                                    F-6
   Consolidated statements of stockholders' deficit                         F-7
   Consolidated statements of cash flows                                    F-8
   Notes to consolidated financial statements                               F-9
--------------------------------------------------------------------------------


                                      F-2
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Power Designs, Inc.
Danbury, Connecticut


We have audited the accompanying consolidated balance sheets of Power Designs,
Inc. and Subsidiary (Debtor-in-Possession) (the "Company") as of June 30, 1999
and 1998, and the related consolidated statements of operations, stockholders'
deficit and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Power Designs, Inc.
and Subsidiary (Debtor-in-Possession) as of June 30, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.

As discussed in Note 1, the Company and its Subsidiary filed for reorganization
under Chapter 11 of the United States Bankruptcy Code in January 1998. The
accompanying consolidated financial statements do not purport to reflect or
provide for the consequences of the bankruptcy proceedings. In particular, such
financial statements do not purport to show (a) as to assets, their realizable
value on a liquidation basis or their availability to satisfy liabilities; (b)
as to pre-petition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to stockholder
accounts, the effect of any changes that may be made in the capitalization of
the Company; or (d) as to operations, the effect of any changes that may be made
in its business. The eventual outcome of these matters is not presently
determinable.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, on
January 22, 1998, the Company filed for relief under Chapter 11 of the United
States Bankruptcy Code and has sustained recurring losses from operations. These
matters raise substantial doubt about the


                                      F-3
<PAGE>

Company's ability to continue as a going concern. Management's plans concerning
these matters are also discussed in Note 1. In the event a plan of
reorganization is accepted, continuation of the business thereafter is dependent
on the Company's ability to achieve sufficient cash flow to meet its
restructured debt obligations. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
those uncertainties.



New Haven, Connecticut
December 23, 1999


                                      F-4
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                     1999           1998
                                                                              ----------------------------
ASSETS (Note 11)
<S>                                                                           <C>             <C>
Current Assets
   Cash                                                                       $     53,395    $     41,362
   Accounts receivable, less allowance for doubtful accounts
     of $21,625 in 1998 (Note 12)                                                  425,289         493,595
   Inventories (Note 6)                                                            710,874         766,438
   Prepaid expenses                                                                 44,203          34,490
                                                                              ----------------------------
             TOTAL CURRENT ASSETS                                                1,233,761       1,335,885
                                                                              ----------------------------

Equipment and Leasehold Improvements, net (Notes 7 and 12)                         395,372         538,098

Other Assets                                                                       164,937         164,913
                                                                              ----------------------------

                                                                              $  1,794,070    $  2,038,896
                                                                              ============================

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
   Notes payable (Note 11)                                                    $    245,000    $    245,000
   Advances under factoring agreement (Note 12)                                    129,203         253,327
   Accounts payable                                                                138,423          91,503
   Accrued expenses                                                                149,757         111,585
   Accrued legal fees                                                              132,751          73,365
   Accrued interest                                                                  4,027           4,027
                                                                              ----------------------------
             TOTAL CURRENT LIABILITIES                                             799,161         778,807

Liabilities subject to compromise (Note 13)                                     16,970,032      15,675,036
                                                                              ----------------------------

                                                                                17,769,193      16,453,843
                                                                              ----------------------------

Commitments and Contingencies (Notes 3, 4, 9, 15, 16, 17 and 18)

Stockholders' Deficit
   Common stock, $.0001 par value, 10,000,000 shares authorized,
     2,391,493 shares issued and outstanding at June 30, 1999
      and 1998 (Notes 11 and 15)                                                       240             240
   Preferred stock, $.01 par value, 1,000,000 shares authorized;
     316,743 shares issued and outstanding at June 30, 1999
      and 1998 (Notes 11 and 15)                                                     3,167           3,167
   Additional paid-in capital (Note 15)                                          1,382,807       1,382,807
   Accumulated deficit                                                         (17,361,337)    (15,801,161)
                                                                              ----------------------------

                                                                               (15,975,123)    (14,414,947)
                                                                              ----------------------------

                                                                              $  1,794,070    $  2,038,896
                                                                              ============================
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-5
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                    1999           1998
                                                                --------------------------
<S>                                                             <C>            <C>
Net Sales                                                       $ 2,875,686    $ 2,602,387

Cost of Sales                                                     1,767,242      3,706,823
                                                                --------------------------

             GROSS PROFIT (LOSS)                                  1,108,444     (1,104,436)
                                                                --------------------------

Operating Expenses
   Selling, general and administrative expenses                     802,311      1,804,202
   Research and development                                         108,883        406,260
   Depreciation and amortization                                     35,309      3,120,871
                                                                --------------------------
                                                                    946,503      5,331,333
                                                                --------------------------

             INCOME (LOSS)  BEFORE OTHER INCOME (EXPENSE) AND
                REORGANIZATION ITEMS                                161,941     (6,435,769)

Other Income (Expense)
   Investment income                                                  3,601          2,438
   Interest expense (contractual interest $1,778,949 in 1999,
     $2,149,585 in 1998) (Note 19)                               (1,552,299)    (2,059,385)
   Other                                                            (97,267)       (38,826)
                                                                --------------------------
                                                                 (1,645,965)    (2,095,773)
                                                                --------------------------

             LOSS BEFORE REORGANIZATION ITEMS                    (1,484,024)    (8,531,542)

Reorganization Items (Note 14)                                       76,152        117,525
                                                                --------------------------

             NET LOSS                                           $(1,560,176)   $(8,649,067)
                                                                ==========================

Weighted average number of common shares outstanding              2,391,493      2,391,493
                                                                ==========================

Net loss per common share                                       $     (0.65)   $     (3.62)
                                                                ==========================
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-6
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                         Common Stock         Preferred Stock
                                     ----------------------------------------------------------------------
                                                                                  Additional
                                       Shares      Par        Shares     Par       Paid-In    Accumulated
                                       Issued     Value       Issued    Value      Capital      Deficit
                                     ----------------------------------------------------------------------

<S>                                  <C>         <C>         <C>      <C>       <C>            <C>
Balance, June 30, 1997               2,391,493   $ 240       316,743   $ 3,167   $  1,382,807   $ (7,152,094)

   Net loss                                 --      --             --      --             --      (8,649,067)
                                     ------------------------------------------------------------------------

Balance, June 30, 1998               2,391,493     240       316,743     3,167      1,382,807    (15,801,161)

   Net loss                                 --      --            --       --             --      (1,560,176)
                                     ------------------------------------------------------------------------

BALANCE, JUNE 30, 1999               2,391,493   $ 240       316,743   $ 3,167   S  1,382,807   $(17,361,337)
                                     ========================================================================
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-7
<PAGE>
POWER DESIGNS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999 AND 199 8
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                 1999          1998
                                                                            ---------------------------
<S>                                                                         <C>            <C>
Cash Flows From Operating Activities
   Net loss                                                                 $(1,560,176)   $(8,649,067)
   Adjustments to reconcile net loss to net cash provided by (used in)
   operating activities:
     Depreciation and amortization                                              151,315      3,252,781
     Provision for bad debts                                                         --        125,539
     Amortization of debt discount                                                   --        289,000
     Reorganization items                                                        76,152        117,525
     Changes in operating assets and liabilities:
           Decrease in accounts receivable                                       68,306        110,007
           Decrease in inventories                                               55,564      1,125,809
           Increase in prepaid expenses                                          (9,713)       (32,967)
           (Increase) decrease in other assets                                      (24)        53,571
           Increase in accounts payable and accrued expenses                  1,380,087      1,704,864
           Increase in payables related to reorganization                            --         86,461
                                                                            ---------------------------
               NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES BEFORE
                  REORGANIZATION ITEMS                                          161,511     (1,816,477)
                                                                            ---------------------------

     Reorganization items paid                                                  (16,766)        (8,621)
                                                                            ---------------------------
               NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES              144,745     (1,825,098)
                                                                            ---------------------------
Cash Flows From Investing Activities
     Purchase of property and equipment                                          (8,588)       (29,992)
                                                                            ---------------------------
               NET CASH USED IN INVESTING ACTIVITIES                             (8,588)       (29,992)
                                                                            ---------------------------
Cash Flows From Financing Activities
   Payment of deferred financing costs                                               --        (25,000)
   Principal payments on capital lease obligations                                   --        (24,756)
   Net increase in revolving loans payable                                           --      1,178,912
   Proceeds from notes payable                                                       --        578,000
   Principal payments on notes payable                                               --        (72,930)
   Net advances (payments) under factoring agreement                           (124,124)       253,327
                                                                            ---------------------------
               NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES             (124,124)     1,887,553
                                                                            ---------------------------

               NET INCREASE IN CASH                                              12,033         32,463

Cash, beginning of  year                                                         41,362          8,899
                                                                            ---------------------------

Cash, end of year                                                           $    53,395    $    41,362
                                                                            ===========================

Supplemental Disclosures of Cash Flow Information
   Cash payments for interest                                               $    54,651    $   820,244
                                                                            ===========================

   Cash payments for income taxes                                           $       500    $       639
                                                                            ===========================

Supplemental Schedule of Noncash Investing and Financing Activities
   Capital lease obligations incurred for equipment                         $      --      $    88,996
                                                                            ===========================

   Reclassification of idle equipment                                       $      --      $   142,872
                                                                            ===========================
</TABLE>

See Notes to Consolidated Financial Statements

                                      F-8
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------

Note 1.  CHAPTER 11 PROCEEDINGS AND BASIS OF FINANCIAL STATEMENTS PRESENTATION

On January 22, 1998, Power Designs, Inc. and Subsidiary (the "Debtors" or the
"Company") filed voluntary petitions (the "Filing") for relief under Chapter 11
of the United States Bankruptcy Code ("Chapter 11"). The Debtors are presently
operating their business as debtors-in-possession subject to the jurisdiction of
the U.S. Bankruptcy Court for the Bridgeport District of Connecticut (the
"Bankruptcy Court").

In the Chapter 11 case, substantially all liabilities as of the date of the
Filing are subject to resolution under a plan of reorganization to be voted upon
by the Debtors' creditors and stockholders and confirmed by the Bankruptcy
Court. Amended and restated schedules were filed by the Debtors with the
Bankruptcy Court setting forth the assets and liabilities of the Debtors as of
the date of the Filing as shown by the Debtors' accounting records. The
Bankruptcy Court fixed June 8, 1998 as the last date by which creditors of the
Debtors could file proofs of claim for claims that arose prior to the Filing.
The Debtors are in the process of reconciling differences between amounts shown
by the Debtors and claims filed by creditors. The amount and settlement terms
for such disputed liabilities are subject to allowance by the Bankruptcy Court.
Ultimately, the adjustment of the total liabilities of the Debtors remains
subject to a Bankruptcy Court approved plan of reorganization and, accordingly,
the amount of such liabilities is not determinable. In May 1998, the Debtor
filed a plan of reorganization with the Bankruptcy Court. An amended plan of
reorganization was filed with the Bankruptcy Court in November 1999. The
consummation of this plan for the Company will require the requisite vote of
impaired creditors under the Code and confirmation of the plan by the court.

The United States Trustee for the Bridgeport District of Connecticut has
appointed Official Committees ("Committees") of Unsecured Creditors and Equity
Security Holders for the Chapter 11 case. The role of the Committees includes,
among other things: (a) consultation with the Debtors concerning the
administration of the Chapter 11 case; (b) investigation of the acts, conduct,
assets, liabilities, financial condition and operations of the Debtors, and the
desirability of the continuation of their business and other relevant matters;
and (c) participation in the formulation of a plan of reorganization. In
discharging these responsibilities, the Committees have standing to raise issues
with the Bankruptcy Court relating to the business of the Debtors and the
conduct and course of the Chapter 11 case. The Debtors are required to pay
certain expenses of the Committees, including professional fees, to the extent
allowed by the Bankruptcy Court.

Under the Bankruptcy Code, the Debtors may elect to assume or reject real estate
leases, employment contracts, personal property leases, service contracts and
other executory pre-petition contracts, subject to Bankruptcy Court approval.
The Debtors continue to review leases and contracts, as well as other
operational changes, and cannot presently determine or reasonably estimate the
ultimate outcome of, or liability resulting from, this review. Claims secured
against the Debtors' assets ("secured claims") also are stayed, although the
holders of such claims have the right to move the Court for relief from the
stay. Secured claims are secured primarily by liens on


                                      F-9
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------

the Debtors' machinery, equipment and accounts receivable.

The consolidated financial statements of the Company have been presented in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7: "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("SOP 90-7") and have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
contemplates continuity of operations, realization of assets and the liquidation
of liabilities and commitments in the normal course of business. The Filing,
related circumstances and the losses from operations, raise substantial doubt
about its ability to continue as a going concern. The appropriateness of using
the going concern basis is dependent upon, among other things, confirmation of a
plan of reorganization, future profitable operations, and the ability to
generate sufficient cash from operations and financing sources to meet
obligations. As a result of the Filing and related circumstances, however, such
realization of assets and liquidation of liabilities is subject to significant
uncertainty. While under the protection of Chapter 11, the Debtors may sell or
otherwise dispose of assets, and liquidate or settle liabilities, for amounts
other than those reflected in the consolidated financial statements. Further, a
plan of reorganization could materially change the amounts reported in the
consolidated financial statements. The consolidated financial statements do not
include any adjustments relating to a recoverability of the value of recorded
asset amounts or the amounts and classification of liabilities that might be
necessary as a consequence of a plan of reorganization.

The Company plans to supply a greater percentage of its working capital needs
through improved operating cash flows. This improved operating cash flow is
predicated upon a stabilized core product manufacturing process and increased
revenue. In addition, the Company plans to meet its obligations pursuant to the
amended plan of reorganization and debtor in possession financing with cash
accumulated by the Company at the confirmation date and funds obtained from
commercial financing arrangements. The Company estimates that they need to
obtain approximately $700,000 in additional financing to be able to meet its
operating cash flows and obligations subsequent to confirmation of the plan of
reorganization. Currently, the Company has not obtained any additional financing
and there can be no assurances that the Company will be successful in obtaining
such financing in the future.

Note 2.   NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

The Company is a provider of customized power supply products to both original
equipment manufacturers and end users in the electronics industry. The Company
designs, develops, manufactures and markets highly regulated direct current
power supplies as well as a line of variable auto-transformers. These power
supplies function by taking electric current from batteries or commercial power
lines and converting it into controlled voltages or currents for the


                                      F-10
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


operation of transistorized or micro-circuit equipment. These products are
routinely used in critical applications in industrial, commercial, nuclear
monitoring, consumer and medical diagnostic equipment. During the period from
October 1996 until January 1998, the Company's principal product was an
innovative, proprietary uninterruptible power supply/power line conditioning
("UPS/PLC") product capable of servicing widely divergent power supply sources
worldwide. The Company's principal products now include variable
auto-transformers, switching and linear power supplies for use in military and
laboratory applications, and regulated linear direct current power supplies.
Segment information is not presented since the Company's revenue is attributed
to a single reportable segment.

The principal market for these products is users or manufacturers who
incorporate the products into their equipment. Customers include private
companies, government agencies and educational institutions throughout the
United States and in various foreign countries.

USE OF ESTIMATES

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

Certain significant estimates include the allowance for slow-moving and obsolete
inventory, accrued warranty expenses and required provisions for impairment of
long-lived assets and certain intangible assets. These estimates are susceptible
to change in the near term, and these changes could be significant.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Power Designs,
Inc. and its wholly-owned subsidiary, PDIXF Acquisition Corp. ("PDIXF"). All
intercompany transactions and balances have been eliminated in consolidation.

REVENUE RECOGNITION

Revenue from sales of the Company's products is recognized when the related
products are shipped because the Company is not obligated to perform significant
activities after product shipment.

INVENTORIES


                                      F-11
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


Inventories are stated at the lower of average cost or market. Cost is
determined by the first-in, first-out (FIFO) method.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements are stated at cost. Depreciation is
computed principally by the straight-line method over the estimated useful lives
of the respective assets, ranging from three to seven years. Improvements to
leased property are depreciated over the lesser of the life of the lease or life
of the improvements. Depreciation expense on assets acquired under capital
leases is included with depreciation expense on owned assets.

INTANGIBLE ASSETS

During the second quarter of 1998, management of the Company reviewed the
recoverability of recorded goodwill and wrote off the balance as there was
estimated to be no continuing fair value associated with the intangible asset.
Amortization in the amount of $2,870,432 was charged against operations for the
year ended June 30, 1998.

OTHER ASSETS

Other assets consist primarily of equipment that was taken out of service and
idle at June 30, 199 9 and 1998. This equipment is being leased under capital
leases with Inverness (See Note 9).

ESTIMATED WARRANTY EXPENSES

The Company currently sells its products with a warranty that provides for
repairs or replacements of any defective parts for one year after the sale. At
the time of the sale, the Company accrues an estimate of the cost of providing
the warranty based on prior experience. During the year ended June 30, 1999, the
Company decreased its warranty accrual by approximately $190,000 due to facts
and circumstances known to them at that time, including the expiration of the
warranty coverage period for certain products.

DEFERRED TAXES

Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards, and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets


                                      F-12
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


and liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.

FAIR VALUE OF FINANCIAL INSTRUMENTS

"Statement of Financial Accounting Standards ("SFAS") No. 107," "Disclosures
about the Fair Value of Financial Instruments," requires the disclosure of the
fair value information for certain assets and liabilities, whether or not
recorded in the balance sheet, for which it is practical to estimate that value.
The Company has the following financial instruments: cash, accounts receivable,
advances under factoring agreement, accounts payable, accrued expenses and notes
payable. The Company considers the carrying amount of these items, excluding
notes payable, to approximate the fair value because of the short period of time
between the origination of such instruments and their expected realization.
Refer to Note 11 for the fair value disclosures of notes payable.

NET LOSS PER COMMON SHARE

Basic earnings (loss) per share amounts are computed by dividing net income
(loss) by the weighted-average number of common shares outstanding. Diluted
per-share amounts assume exercise of all potential common stock instruments
unless the effect is to reduce the loss or increase the income per common share.

For the periods presented, there were no items which changed the net loss as
presented in the consolidated statements of operations and the amounts used to
compute basic and diluted loss per share. For the years ended June 30, 1999 and
1998, common stock equivalents have been excluded from the computation of the
net loss per share because inclusion of such equivalents is antidilutive.

RECLASSIFICATIONS

Certain items on the consolidated statement of operations as of June 30, 1998
have been reclassified with no effect on net loss, to be consistent with the
classifications adopted for June 30, 1999.


                                      F-13
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


Note 3.   BUSINESS COMBINATION

In conjunction with the purchase of the assets of two divisions, Technipower,
Inc. and Constant Power, Inc., from Penril DataComm Networks, Inc on October 11,
1996, the Company entered into an agreement which provides that a portion of the
purchase price would be paid in the form of a royalty, computed as 2% of
quarterly sales of certain products, from September 30, 1997 to June 30, 2001.
As of June 30, 1999, the Company has not had any material sales of products
under this agreement.

Note 4.   MAJOR CUSTOMER

Net sales for the year ended June 30, 1999 include sales to various gover
nmental agencies and military departments which aggregated together were
approximately $496,000 (approximately 17% of sales). Accounts receivable from
these agencies and departments at June 30, 1999 were approximately $76,000.
There were no major customers during the year ended June 30, 1998.

Note 5.   DEPENDENCE ON SUPPLIERS

The Company purchases certain raw materials, components and subassemblies
included in the Company's products from a limited group of qualified suppliers
and does not maintain long-term supply contracts with any of its key suppliers.
The disruption or termination of these sources could have a material adverse
effect on the Company's business and results of operations. While the Company is
aware of alternative suppliers for these products, there can be no assurance
that any supplier could be replaced in a timely manner.

Note 6.   INVENTORIES

At June 30, 1999 and 1998, inventories consisted of the following:

<TABLE>
<CAPTION>
                                   1999         1998
                                ----------------------
<S>                             <C>          <C>
Raw materials                   $ 712,412    $ 780,131
Work in process                   139,854      142,284
Finished goods                     23,608       24,023
Allowance for slow-moving and
   obsolete inventory            (165,000)    (180,000)
                                ----------------------
                                $ 710,874    $ 766,438
                                ======================
</TABLE>


                                      F-14
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


Note 7.   EQUIPMENT AND LEASEHOLD IMPROVEMENTS

At June 30, 1999 and 1998, equipment and leasehold improvements consisted of the
following:

<TABLE>
<CAPTION>
                                   1999        1998
                                ----------------------
<S>                             <C>          <C>
Leasehold improvements          $  92,610    $  92,610
Machinery and equipment           730,049      721,460
Furniture and fixtures              6,720        6,720
                                ----------------------
                                  829,379      820,790
Less accumulated depreciation    (434,007)    (282,692)
                                ----------------------
                                $ 395,372    $ 538,098
                                ======================
</TABLE>


As of June 30, 1999 and 1998, the cost and accumulated amortization of equipment
under capital leases was $174,762 and $31,890, respectively, which are included
in other assets on the accompanying balance sheet.

Note 8.   INCOME TAXES

The tax effects of temporary differences that give rise to significant
components of the deferred tax assets and deferred tax liabilities at June 30,
1999 and 1998, are presented below:

<TABLE>
<CAPTION>
                                          1999           1998
                                      ---------------------------
<S>                                   <C>            <C>
Deferred tax assets:
   Net operating loss carryforwards   $ 5,365,200    $ 4,904,000
   Allowance for doubtful accounts           --            8,700
   Inventory                              192,000             --
   Warranty accrual                         4,000         80,800
   Property and equipment                  33,700             --
   Interest accrual                       848,500        309,000
   Other accruals                          21,900         23,500
                                      ---------------------------

Gross deferred tax assets               6,465,300      5,326,000

Less valuation allowance                6,465,300      5,222,500
                                      ---------------------------
Net deferred tax assets                        --        103,500
</TABLE>


                                      F-15
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


<TABLE>
<S>                                   <C>                <C>
Deferred tax liabilities:
   Property and equipment                      --        (19,100)
   Inventory                                   --        (84,400)
                                      ---------------------------
                                      $        --    $       --
                                      ===========================
</TABLE>


For the years ended June 30, 1999 and 1998, tax benefits recognized for net
operating losses incurred were offset by equal increases to the valuation
allowance for deferred taxes, resulting in no income tax expense or benefit
reflected on the Statement of Operations.

As of June 30, 1999, the Company had net operating loss carryforwards of
approximately $13,380,000 available to reduce future federal and state taxable
income, which expire as follows:

<TABLE>
<CAPTION>
                      Expiration          Amount
                      ----------      -----------
<S>                                  <C>
                         2000        $    10,000
                         2001             10,000
                         2002             10,000
                         2003             10,000
                         2004             10,000
                         2005             10,000
                         2006             10,000
                         2007             10,000
                         2008             10,000
                         2009             55,000
                         2010            529,000
                         2011            549,000
                         2012          3,140,000
                         2013          7,866,000
                         2014          1,151,000
                                     -----------
                                     $13,380,000
                                     ===========
</TABLE>


Changes in ownership or debt discharge could result in a reduction or limitation
on the use of these net operating loss carryforwards.

Note 9.   LEASES

The Company leases certain equipment under capital leases with Inverness, which
include a security interest in the property maintained by the lessors. In
addition, the Company has entered into operating leases for the rental of
facilities space and other property. Under the lease for the facilities space,
the Company is required to pay, among other items, all real estate and personal


                                      F-16
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


property taxes, and insurance. Future minimum lease payments under operating
leases are as follows:

<TABLE>
<CAPTION>
                                              Operating
             Period Ending June 30,            Leases
             ----------------------         --------------
<S>                                             <C>
             2000                               $ 186,600
             2001                                 186,600
             2002                                 186,600
             2003                                 124,400
             2004
                                            --------------
                                                $ 684,200
                                            ==============
</TABLE>

During the year ended June 30, 1999, there have been no payments made on capital
leases. Obligations under capital leases in the amount of $142,872 have been
classified as liabilities subject to compromise at June 30, 1999 and 1998.

Total rent expense charged to operations under operating leases was
approximately $208,000 for the years ended June 30, 1999 and 1998.

Note 10.   PRIOR REORGANIZATION

During the year ended June 30, 1994, the Company emerged from Chapter 11 of the
Federal bankruptcy court - State of New York. In accordance with the terms set
by the bankruptcy court, unsecured creditors agreed to accept twenty percent of
the amount due to them for pre-petition claims (five percent upon emerging from
bankruptcy and the remaining 15% over a period of three years).

The amounts due to these unsecured creditors, as well as other amounts due to
various taxing authorities, are due and payable with interest, at June 30, 1999
and 1998, as follows:

<TABLE>
<CAPTION>
                                                            1999          1998
                                                          ----------------------
<S>                                                       <C>           <C>
             Class VI creditors (former unsecured
                creditors)                                $ 10,960      $ 10,960

             Class V creditors (taxing authorities and
                union fees)                                177,626       177,626
                                                          ----------------------
                                                          $188,586      $188,586
                                                          ======================
</TABLE>


                                      F-17
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


At June 30, 1999 and 1998, the Company was in default due to its failing to make
all appropriate payments as required by the bankruptcy court. The amounts at
June 30, 1999 and 1998 are shown as liabilities subject to compromise in the
consolidated balance sheet.

Note 11.   NOTES PAYABLE

<TABLE>
<CAPTION>
                                                                                    1999          1998
                                                                                -------------------------
<S>                                                                             <C>           <C>
NOTES PAYABLE CLASSIFIED AS LIABILITIES SUBJECT TO COMPROMISE

    Revolving loans payable to Inverness due upon demand, interest payable
       monthly at 18%, secured by substantially all assets of the
       Company                                                                  $ 7,015,553   $ 7,015,553

    Term notes, subordinated to Inverness notes, payable to preferred
       stockholders, due October 31, 2001, interest payable quarterly at 8%,
       secured by substantially all assets of the Company                         1,087,415     1,087,415

    Term note payable to seller of divisions acquired in October 1996 (see
       Note 3), due July 31, 1997, interest payable monthly at the prime rate
       plus 2%, secured by all outstanding PDIXF stock, and
       substantially all assets of the Company                                      990,000       990,000

    Unsecured bridge loans, subordinated to Inverness notes, payable to
       various third parties, principal and accrued interest at 10% due no
       later than July 31, 1998. Effective interest rate of 12.1% based on
       maturity date of July 31, 1998                                             1,653,500     1,653,500

    Unsecured short term loans payable, due March 31, 1998,
       interest at 10%                                                              300,000       300,000

    Unsecured short term notes, subordinated to Inverness
       Notes, due no later than April 30, 1998, interest at 10%                     313,000       313,000
                                                                                -------------------------
                                                                                $11,359,468   $11,359,468
                                                                                =========================
</TABLE>

Management estimates that the fair value of the above debt instruments and the
debtor in possession facility described in this footnote is approximately $2
million after giving effect to the Company's current bankruptcy filing and
current borrowing rate.


                                      F-18
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


REVOLVING LOANS PAYABLE

The Company is in violation of certain covenants contained in the loan
agreements. These loans have been classified as liabilities subject to
compromise.

TERM NOTES

These notes were issued to various investors in conjunction with the private
placement sale of these notes, the Company's preferred stock and common stock
purchase warrants. The Company is in violation of certain covenants contained in
the related loan agreements. These notes have been classified as liabilities
subject to compromise.

TERM NOTE PAYABLE TO SELLER

The obligation to Penril Datacomm Networks (now known as Hayes Corporation) (the
"Seller") incurred in conjunction with the Asset Purchase (see Note 3) was
initially due in full on December 31, 1996, however the Company was unable to
pay the obligation in full at that time. The Company subsequently entered into a
series of forbearance agreements with the Seller, however, on July 31, 1997, the
Company was unable to make the payments required and the Company is now in
violation of the forbearance agreement. The note has been classified as
liabilities subject to compromise.

UNSECURED BRIDGE LOANS

These loans were issued as part of a private placement offering of $100,000
units comprised of these notes and common stock purchase warrants, which
commenced on March 21, 1997, and was completed on July 31, 1997. For each unit
purchased, the bridge lenders received a promissory note for $100,000 due no
later than July 31, 1998, and 40,000 warrants to acquire shares of the Company's
common stock for $.25 per share. Upon issuance of these loans, $289,000 was
allocated to warrants and fully amortized during fiscal year 1998. The
obligations outstanding of $1,653,500 at June 30, 1999 and 1998 have been
classified as liabilities subject to compromise.

UNSECURED SHORT TERM NOTES

These notes were issued to various investors. For each note issued, the lender
received a specified number of warrants to acquire shares of the Company stock
for $.25 per share. At June 30, 1998, there was no fair value associated with
these warrants, thus no amount was allocated to the warrants.


                                      F-19
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


DEBTOR IN POSSESSION FACILITY

In January 1998, pursuant to a court order, the Company, as
debtor-in-possession, entered into a financing agreement with Venture Partners
Ltd., as agent, to borrow working capital, up to a maximum of $400,000. The
terms of this agreement call for interest at 20% and a term of 120 days. This
debt is collateralized firstly by the machinery and equipment of the issuer, and
secondarily by its accounts receivable. At June 30, 1999 and 1998, $245,000 was
outstanding under this loan agreement. As of this date, the term of the note has
expired placing the Company in default. At this time, no demand for repayment
has been received by the Company.

Note 12.  FACTORING AND LOAN AGREEMENT

In March 1998, the Company, pursuant to a court order, entered into a receivable
factoring agreement with Porter Capital Corporation ("Porter"), whereby trade
receivables are sold with recourse to Porter at 94% of face value. A 4% and 2%
rebate is returned to the issuer if the receivable is collected within 60 and 90
days respectively. Fees to Porter include a minimum of 2% of the face amount of
the receivables factored, and an annual interest rate of prime on the
outstanding amount advanced. Collateral for this obligation comprises the
factored receivables, with a secondary lien on the machinery and equipment of
the issuer. In September 1998, this agreement was modified to a minimum fee of
2.5% for receivables collected within 60 days and an additional 1% for each
additional 15 days outstanding to a maximum of 90 days, and an annual interest
rate of prime plus 2.5% on the outstanding amount advanced. As this arrangement
does not meet the criteria of a sale, receivables sold with recourse to Porter
are included in the accompanying balance sheets. In addition, advances under
this agreement are included in the accompanying balance sheets.

Note 13.  LIABILITIES SUBJECT TO COMPROMISE

The principal categories of obligations classified as liabilities subject to
compromise under reorganization proceedings are identified below. The amounts
below in total may vary significantly from the stated amount of proofs of claim
that will be filed with the Court and may be subject to future adjustment
depending on Court action, further developments with respect to potential
disputed claims, determination as to the value of any collateral securing
claims, or other events.


                                      F-20
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


Liabilities subject to compromise are as follows:

<TABLE>
<CAPTION>
                                                         1999             1998
                                                     ----------------------------
<S>                                                  <C>              <C>
           Accounts payable, trade                   $ 2,394,099      $ 2,344,828
           Accrued expenses                            2,885,007(2)     1,639,282(1)
           Obligations under capital leases              142,872          142,872
           Payables related to 1994 reorganization
                including accrued interest               188,586          188,586
           Notes payable:
                Affiliated companies                   7,015,553        7,015,553
                 Preferred shareholders                1,087,415        1,087,415
                Seller of assets acquired                990,000          990,000
                Others                                 2,266,500        2,266,500
                                                     ----------------------------
                                                     $16,970,032      $15,675,036
                                                     ============================
</TABLE>

         (1)      Includes accrued interest at January 22, 1998 and accrued
                  interest on secured obligations from January 22, 1998 to June
                  30, 1998.
         (2)      Includes accrued interest at January 22, 1998 and accrued
                  interest on secured obligations from January 22, 1998 to June
                  30, 1999.

As a result of the Chapter 11 filing, no principal or interest payments will be
made on most prepetition debt without Court approval or until a plan of
reorganization providing for the repayment terms has been confirmed by the Court
and becomes effective. Interest on prepetition unsecured obligations has not
been accrued after the Petition Date. Contractual interest expense of $90,200
and $226,650 was not recorded on certain unsecured pre-petition debt for the
period January 22, 1998 (filing date) through June 30, 1998 and the year ended
June 30, 1999, respectively.

Note 14.  REORGANIZATION ITEMS

The components of reorganization items that were directly associated with the
Company's Chapter 11 reorganization proceedings and the resulting restructuring
of its operations were as follows:

<TABLE>
<CAPTION>
                                                 1999          1998
                                               ----------------------
<S>                                            <C>           <C>
           Reorganization items
              Professional fees                $ 60,152      $105,940
              U.S. trustee fees                  16,000         8,000
              Other                                --           3,585
                                               ----------------------
                                               $ 76,152      $117,525
                                               ======================
</TABLE>


                                      F-21
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


Note 15.  CAPITAL STOCK

PREFERRED STOCK

The principle features of Class A Convertible Preferred Stock are as follows:

     VOTING RIGHTS

     All preferred shares are entitled to one vote per share.

     DIVIDENDS

     When declared by the Company's Board of Directors, a dividend of 8% per
     annum on the amount at which the shares were originally issued. Dividends
     are payable quarterly in arrears and all unpaid dividends are payable upon
     conversion of preferred stock to common stock, or upon liquidation of the
     Company.

     LIQUIDATION RIGHTS

     In the event of any voluntary or involuntary liquidation of the Company,
     the holders of preferred stock are entitled to receive distributions, plus
     in the case of each share, accrued and unpaid dividends, before any
     distribution or payment to the holders or common stock.

     CONVERSION

     The holders of each share of Preferred Stock have the right to convert
     their shares of preferred stock into shares of common stock at the
     conversion ratio of $.875 per share, which prices are subject to adjustment
     from time to time. However, each share of preferred stock shall be
     automatically converted into common stock upon the closing of a $10 million
     public offering of common stock. If such public offering is between $5
     million and $10 million, then conversion will occur only if approved by
     greater than 50% of the preferred stockholders.

COMMON STOCK

In accordance with covenants contained in certain debt agreements, the Company
is restricted from paying dividends to owners of the Company's common stock.


                                      F-22
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


Note 16.  STOCK OPTION AND WARRANT PLANS

STOCK OPTION PLAN

Pursuant to the Company's stock option plan, incentive stock options are
generally granted at prices equal to or greater than the fair market value of
the Company's stock at the date of grant, and are exercisable at the date of
grant unless otherwise stated. In addition, non-qualified options are granted at
a price determined by the Company's stock option committee, which may be less
than market value, in which case an expense equal to the difference between the
option price and market value is recognized. The exercise period for both the
incentive and non-qualified stock options generally cannot exceed ten years.

Also, under this Plan, the Company may grant shares of restricted stock to
employees, the restrictions and price of such shares to be paid by the
employees, if any, are determined at the time of grant.

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), established new standards for stock-based
compensation plans under which employees receive shares of stock or other equity
instruments, such as stock options, of the employer. This Statement established
a fair value based method of expense recognition for stock-based compensation
plans and encouraged, but did not require, entities to adopt that method in
place of existing generally accepted accounting principles. As permitted by SFAS
No. 123, for options granted where the exercise price at date of grant is equal
to or exceeds the fair market value of the Company's stock, the Company has
elected to continue under existing generally accepted accounting principles and
to account for the options granted under APB Opinion No. 25, and accordingly, no
compensation cost has been recognized in the statements of operations for grants
under the option plan.

There were no options issued during the year ended June 30, 1999 and 1998. As
such, net loss as reported is the same as the pro forma amount required to be
disclosed.


                                      F-23
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


A summary of the status of the Company's stock option plan at June 30, 1999 and
1998, and changes during the years then ended, is as follows:

<TABLE>
<CAPTION>
                                                                   Weighted
                                                                    Average
                                            Shares       Options   Exercise
                                           Reserved    Outstanding   Price
                                          ---------------------------------
<S>                                         <C>         <C>           <C>
           Balance, June 30, 1997           573,958      536,764      $0.38
              Canceled                         --       (260,781)      0.61
              Granted
              Exercised                        --           --         --
                                          ---------------------------------

           Balance, June 30, 1998           573,958      275,983      $0.16
              Canceled                         --       (275,983)      0.16
              Granted                          --           --         --
              Exercised                        --           --         --
                                          ---------------------------------

           BALANCE, JUNE 30, 1999           573,958         --        $--
                                          =================================
</TABLE>


There were no options granted or exercised during the years ended June 30, 1999
and 1998.

STOCK WARRANTS

During the year ended June 30, 1998, in conjunction with the sale of certain
notes to various investors, the Company issued 40,000 common stock purchase
warrants ("warrants") which are exercisable at $.25 per share. Due to the
significant financial difficulties and bankruptcy proceedings of the Company,
there was no fair value associated with these warrants, thus no amount was
allocated to the warrants.


                                      F-24
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


The following table summarizes warrants outstanding at June 30, 1999 and 1998,
and the changes in warrants during the years then ended:

<TABLE>
<CAPTION>
                                                                Weighted-
                                                                Average
                                       Shares     Number of     Exercise
                                      Reserved      Shares       Price
                                    -----------------------------------
<S>                                   <C>           <C>           <C>
           Balance, June 30, 1997     2,375,312     2,375,312     $0.36
              Canceled
              Granted                    40,000        40,000      0.25
              Exercised
                                    -----------------------------------

           Balance, June 30, 1998     2,415,312     2,415,312      0.36
              Canceled
              Granted
              Exercised
                                    -----------------------------------

           BALANCE, JUNE 30, 1999     2,415,312     2,415,312     $0.36
                                    ===================================
</TABLE>

A further summary of warrants outstanding at June 30, 1999, is as follows:

<TABLE>
<CAPTION>
                                 Warrants Outstanding                        Warrants Exercisable
                     ----------------------------------------------------------------------------------
                                      Weighted-
                                       Average             Weighted-                       Weighted-
                                      Remaining             Average                        Average
  Range of Exercise     Number       Contractual           Exercise         Number         Exercise
       Prices        Outstanding    Life (In Years)          Price        Exercisable       Price
-------------------------------------------------------------------------------------------------------
<S>                   <C>                <C>                  <C>          <C>               <C>
    $.25 to $.875     2,415,312          2.5                  $.36         2,415,312         $.36
</TABLE>

NOTE 17.  401(K) PLAN

The Company maintains a 401(k) profit sharing plan for the benefit of
substantially all its employees who meet certain minimum eligibility
requirements and who elect to participate. Under the terms of the Plan,
participants can contribute up to 15% of their pay to the extent permitted by
law. The Company may make matching contributions to the Plan equal to 50% of the
employees' annual contributions, as well as discretionary non-matching
contributions, however the annual matching contribution is limited to 13% of
participant compensation. Participants are immediately vested in their
contribution. There were no contributions to the Plan during the years ended
June 30, 1999 and 1998.


                                      F-25
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


Note 18.  LITIGATION

A lawsuit has been brought against the Company by an entity seeking payment for
goods and services provided to the Company. With regards to this lawsuit, the
Company has entered into a forbearance agreement with the plaintiffs to make
weekly payments on the liability of approximately $144,300 plus interest at 8%.
At June 30, 1999 and 1998, the Company was in default of this forbearance
agreement and the remaining obligation of $133,944 has been classified as
liabilities subject to compromise.

Note 19.  RELATED PARTY TRANSACTIONS

The Company entered into an agreement, which has no specified expiration date,
with Venture Partners whereby Venture Partners is paid a minimum of $10,600 per
month, plus expenses, for various consulting services provided to the Company.
The Company is not committed to pay Venture Partners under this agreement for
future periods. In January 1998, Venture Partners ceased providing consulting
services to the Company under this agreement. During the year ended June 30,
1998, the Company incurred approximately $112,000 of expenses of which $15,000
was paid during the year ended June 30, 1998 under this agreement and for
services provided outside of the agreement.

At June 30, 1999 and 1998, advances due from a member of senior management
approximated $6,000 and are included in accounts receivable in the balance
sheet.

As outlined in Notes 5, 9 and 11 to the consolidated financial statements, the
Company has various lending agreements with Venture Partners and Inverness whose
principals are also directors of the Company. Interest expense incurred on these
loans totaled $1,337,709 and $1,354,678 for the years ended June 30, 1999 and
1998, respectively.


                                      F-26
<PAGE>

POWER DESIGNS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------


Note 20.  ENTERPRISE WIDE DISCLOSURES

The following table presents revenues from external cusomters for each of the
Company's groups of products for the years ended June 30, 1999 and 1998:

<TABLE>
<CAPTION>
                                                     1999                1998
                                                  ------------------------------
<S>                                               <C>                 <C>
Military power supplies                           $1,457,302          $1,036,528
Variable auto transformers                           743,862             927,073
Linear power supplies                                426,150             398,302
Service support                                      248,372              89,602
UPS/PLC products                                         --              150,882
                                                  ------------------------------
                                                  $2,875,686          $2,602,387
                                                  ==============================
</TABLE>

Sales to foreign customers were approximately $29,150 and $192,000 for the years
ended June 30, 1999 and 1998, respectively. All other revenues were to customers
in the United States. All long-lived assets are in the United States.

See Note 4 for information related to a major customer.


                                      F-27