U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)

    [      X ]  Annual  Report  under  Section  13 or  15(d)  of the  Securities
           Exchange Act of 1934 [No Fee Required]

                                       OR

   [    ] Transition Report under Section 13 or 15(d) of the Securities Exchange
          Act of 1934  [No Fee Required]

For the fiscal year ended December 31, 1996  Commission file number:  333-4686-A

For the transition period from                             to

                              HIREL HOLDINGS, INC.
                 (Name of Small Business Issuer in its Charter)

      Delaware                                          65-0666239
  (State or other jurisdiction of           (I.R.S. Employer Identification No.)
   incorporation or organization)

650 S. W. 16th Terrace                             Pompano Beach, Florida  33069
(Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including are code:  954-942-5390

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

                              Name of Each Exchange
                   Title of Each Class             on Which Registered

                   Common Stock, par value
                   $.001 per share                       None

Securities register pursuant to Section 12(g) of the Act

                    Common Stock, par value $.001 per share
                                (Title of Class)

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

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained, to 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. [ ]
      State issuer's revenues for its most recent fiscal year:  $22,836,088

     The aggregate  market value of the voting stock held by the  non-affiliates
of the  Registrant  was  $15,658,700  based on the  average  bid and asked price
reported March 31, 1997.

     State the number of shares outstanding of each of the registrant's  classes
of common stock, as of March 31, 1997.

          Class                                 Outstanding
     Common Stock, $.001                        5,208,750

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE


<PAGE>



                                    PART I


Item 1.  Business

Overview

     Hirel  Holdings,  Inc. (the  "Company")  was  incorporated  in the State of
Delaware  on May 1, 1996 for the  purpose of  acquiring  the  business  of Hirel
Marketing,  Inc., a Florida corporation ("HMI") and Hirel Technologies,  Inc., a
Florida corporation which is a successor to Hirel Technologies,  Ltd., a limited
partnership  (collectively  "HTI").  Hirel  Technologies,  Ltd. was organized in
October 1995 to acquire from its sole general partner  substantially  all of the
operating assets and intellectual  property rights of Cutler Induction  Systems,
Inc.,  which through October 23, 1995 was engaged in the development and sale of
fuel  injection  systems  for  marine  engines.  In  describing  HTI  herein and
financial  results of the operations of HTI, the term "HTI" shall include Cutler
Induction Systems, Inc.

     On July 22,  1996 the Company  successfully  completed  its initial  public
offering  of  1,063,750  shares  of its  common  stock at $6.00  per  share  and
completed Share Exchange Agreements and the related  acquisitions of HMI and HTI
which became wholly-owned subsidiaries of the Company on that date.

     HMI is a distributor of  microcomputer  hardware,  peripherals  and related
communication  products to  value-added  resellers  ("VARS")  and dealers in the
United States,  Europe,  and the Pacific Rim  countries.  HTI develops and sells
products designed to enhance the performance of fuel injection systems.

     On January 24, 1997, the Company completed its acquisition of substantially
all of the assets of Marine Power,  Inc.  ("MPI")  effective  December 31, 1996.
MPI,  which is operated as a division  of HTI, is engaged in  manufacturing  and
marketing   engines  for  the  marine  after   market  and  original   equipment
manufacturers.

     The Company's executive offices are located at 650 SW 16th Terrace, Pompano
Beach, FL 33069, and its telephone number is (954)942-5390.

HIREL MARKETING, INC.

General

     HMI is a distributor of  microcomputer  hardware,  peripherals  and related
communication  products  to (i)  resellers,  commonly  known in the  industry as
value-added  resellers  ("VARS"),  who are able to offer additional value to the
products by offering to the  reseller's  purchasers  complimentary  products and
services to the products  sold by HMI,  and (ii)  dealers in the United  states,
Europe and the Pacific Rim countries.  HMI purchases its products  directly from
manufacturers,  distributors  and  dealers in large  quantities  and sells to an
active  base of over  2,000  established  customers.  HMI  emphasizes  immediate
turnover of products  thereby creating  available funds for constant  purchasing
and  reducing   warehouse,   labor  and  other  expenses.   The  Company  offers
manufacturers,  distributors, VARS and dealers the ability to reach consumers on
a cost efficient basis.  HMI has  historically  concentrated on purchasing large
quantities of low-end to  middle-range  type products  which  generally  sell at
low-margin returns.


                                      2

<PAGE>



     HMI provides its  customers  with  microcomputers,  disk drives,  printers,
monitors,  terminals,  plug-in-boards and related products. HMI also distributes
certain  software  packages which support and are included in selected  computer
sales.  To  compliment  its  distribution  activities,  HMI  provides  technical
assistance to its customers by telephone at no charge.

Industry

     HMI believes that the  microcomputer  products  industry is well-suited for
wholesale  distribution.  The large number and  diversity  of resellers  make it
cost-efficient for manufacturers to rely on wholesale  distributors for at least
some  portion  of their  distribution.  Similarly,  due to the  large  number of
manufacturers,  resellers often cannot  efficiently  establish direct purchasing
relationships  and  instead  rely on  wholesale  distributors,  such as HMI,  to
satisfy a portion of their product needs.

     As a result of the use of open  systems and the  off-the-shelf  components,
computer hardware and software products are increasingly  viewed as commodities.
The resulting price  competition has prompted  manufacturers and vendors to rely
on more cost-efficient methods of distribution.  This, coupled with shorter life
cycles,  has  benefited  distributors  like HMI which offer vendors an efficient
mechanism for distributing their products.

Vendor Relations and Sources of Supply

     Generally, a manufacturer will require their authorized  distributors,  and
in turn,  these  authorized  distributors  will require  their VARS and dealers,
contractually to purchase and sell a specified quantity of product. HMI does not
maintain  exclusive  supplier  agreements  with its  suppliers  requiring  it to
purchase or sell a specified  quantity of product or restricting it from selling
similar  products  manufactured or distributed by competitors and therefore,  is
not an authorized distributor or dealer. As a result, HMI has the flexibility to
terminate  or curtail  purchases  of one  product  or  product  line in favor of
another  product  or  product  line  due  to  over  production  of  products  by
manufacturers,   rapid   technological   changes   in  the   industry,   pricing
considerations and customer demand. HMI's market presence enables it to purchase
from manufacturers, VARS and dealers large quantities of products at competitive
prices that it can resell to other VARS and dealers at competitive prices.

     Historically,  a substantial amount of the merchandise purchased by HMI has
included trademarked products  manufactured in the United States and Pacific Rim
countries,  which products are sold through authorized distributors.  Agreements
between the manufacturer and the authorized  distributor  generally provide that
the products may only be distributed to authorized dealers or VAR for all of the
products it sells,  who in turn may only resell such  products to end users.  In
addition, the manufacturers may also require their authorized distributors,  and
in turn these  authorized  distributors  will require  their VARS and dealers to
purchase  and  sell a  specified  quantity  of  product.  HMI,  which  is not an
authorized  dealer,  authorized  distributor or VAR,  purchases its products for
resale  directly from  manufacturers,  authorized  distributors  and  authorized
dealers.  While the Company does not believe that  purchasing  directly from the
manufacturers  would violate any  restrictive  agreement,  the Company  believes
purchasing from or selling to authorized  distributors,  dealers and VARs' could
cause such  authorized  distributor,  dealer or VAR to breach  their  respective
restrictive agreement for the year ended December 31, 1996. Approximately 85% of
HMI's  purchases  of  Apple  Computer,   Inc.   products  were  from  authorized
distributors,  dealers and VAR's that are not  authorized to sell to HMI.  Legal
causes of  actions  which may be  brought  against  HMI  and/or  the  Company in
connection with the enforcement of restrictive  agreements may include breach of
contract, contractual and/or tortuous interference,  violation of trademarks and
violation of copyrights.

                                      3

<PAGE>



     Although  the  Company  does not  believe any legal cause of action will be
brought against it, in the event a claim is filed against HMI and/or the Company
and the plaintiff  therein is successful,  HMI and/or the Company may be subject
to compensatory  and/or punitive  damages,  and/or  equitable  relief  including
injunctive relief . While manufacturers, distributors or dealers have not sought
enforcement  of the  restrictive  provision in the  agreements,  there can be no
assurances  that HMI's  business  will not become the  subject of legal  actions
involving manufacturers, distributors or others.

     HMI  believes  that  authorized  distributors,  dealers  and VARs choose to
purchase  from and sell to HMI in  violation of their  respective  authorization
agreements  primarily as a result of their  inability to dispose of all of their
excess  inventory or obtain enough desirable  products cost effectively  through
authorized   distribution   channels.   Authorization   agreements  require  the
distributors,  dealers and VARs to purchase  and/or sell,  as the case may be, a
specific  quantity  of product at  specified  prices.  HMI  provides  authorized
distributors, dealers and VARs with the ability to dispose of excess products or
obtain desired products cost effectively.

     Subsequent to the effective  date of the Initial Public  Offering,  HMI has
become an authorized dealer for IBM, Motorola and Adobe software.

     HMI  finances  its  inventory  from its  working  capital or from a line of
credit which secures letters of credit to acquire inventory.  HMI has the option
to pay the  letters of credit  upon  presentation  or to finance  them for up to
ninety (90) days.

Products

     Through December 31, 1996, substantially all of the products distributed by
HMI were  manufactured  by Apple  Computer,  Inc. or are  peripherals  for Apple
Computer,  Inc. As noted above,  however,  HMI has recently become an authorized
dealer for IBM, Motorola and Adobe software products.  No determination has been
made as to how much of such products will be distributed.

     HMI distributes its products on a  non-exclusive  basis without  geographic
restriction  and without  entering  into the  industry  manufacturer-distributor
agreements for  authorization  to purchase and sell the products.  The following
products are distributed by HMI:

     Microcomputers:  HMI distributes desk top and lap top personal computers.

     Local Area Networks and other Communication Products:  Local area networks
     ("LANS") allow communications among microcomputers.

     Disk Drives: As computer users seek to store and manage increasing  volumes
     of data, their demand for such data storage devices rise  accordingly.  HMI
     markets hard disk drives and optical disk storage sub-systems.

     Printers:  HMI markets non-impact technologies such as laser printers and
     ink jet printers, and to a lesser extent, dot matrix and daisy wheel
     printers.

     Monitors and Terminals: HMI distributes monitors, including high resolution
     colored monitors, and terminals.


                                      4

<PAGE>




     Plug-in  Boards:   Many   manufacturers   build  their  computers  with  an
     architecture  featuring open slots that accept the plug-in boards or add on
     modules of their  manufacturers.  Among other functions,  these enhancement
     products may provide  additional memory and monochrome or color graphics to
     the personal computer, as well as communications with mini-computers,  main
     frame computers, or other micro-computers.

     HMI distributes certain software which support and are included in selected
computer sales.

     HMI  intends  to seek  sources  other  than Apple  Computer,  Inc.  for its
     products.  No assurances are made, however,  that alternate sources for its
     products will be available.


Product Warranties

     Purchasers  of  HMI  products   that  are  not   purchased   directly  from
manufacturers,   authorized   distributors   or   VAR's  do  not   receive   the
manufacturer's   warranty  on  the  products   they   purchase   from  HMI.  The
manufacturer's  warranty does not extend to HMI  purchasers  since HMI is not an
authorized  distributor,  dealer or VAR. HMI  provides,  however,  the identical
warranty  to its  purchasers  as that  warranty  which  would  be  given  by the
manufacturer.  HMI provides a one year  warranty to its  purchasers on parts and
labor on all the products it sells. Although HMI has had no substantial warranty
claims to date, no assurance can be given that it will not be requested to honor
the  warranties  in the future in certain  circumstances  could have  materially
adverse affect on HMI.

Customers

     HMI sells micro-computer  hardware,  peripherals and related  communication
products  purchased  directly from  manufacturers,  distributors  and dealers in
large quantities for sale to an active customer base of more than 2,000 VARS and
dealers.  HMI pursues a strategy of  expanding  its product line and quantity of
purchases  to  broaden  its  customer  base and  offer its  customers  a broader
assortment. Revenues from HMI customers by geographic areas was as follows:

                                    1996               1995
                                    ----               ----

     United States             $16,241,227        $12,934,688
     Europe                      3,737,649          7,514,527
     Other                       1,527,004          1,189,374
                                ----------         ----------
                               $21,505,880        $21,638,589

     The decline in sales to customers in Europe is in the opinion of Management
attributable  to the weakness of European  currency as compared to the US dollar
(See Management's  Discussion and Analysis of Financial Condition and Results of
Operation).

     HMI's VARS and dealer  customers  typically  do not have the  resources  to
establish a large number of direct purchasing relationships or stock significant
product inventory.  Larger resellers,  on the other hand, often establish direct
relationships  with  manufacturers for their more popular products,  but utilize
distributors  for slower moving  products and for fill-in  orders of fast moving
products. HMI's backlog of orders is not considered material to understanding of
its business.  No single customer  accounted for more than 5% of HMI's net sales
during fiscal 1996 or 12% in 1995.


                                      5

<PAGE>



     Management  believes  that,  although  alternative  sources of products are
available,  VARS and  dealers  prefer  to work  with  only a  limited  number of
suppliers  who  can  provide  products  on  a  timely  and  competitive   basis.
Accordingly,  management  believes that well managed inventory,  rapid delivery,
efficient  order pricing,  competitive  pricing and  expeditious  replacement or
repair  of  defective  merchandise   contribute  greatly  to  HMI's  competitive
position. Most of HMI's sales are done on a C.O.D. basis.


Sales and Marketing

     HMI  conducts  business  under the name  "Mac-in-Stock.  Product is sold by
sales   representatives   who  rely  generally  on  telephone  and   advertising
communications by facsimile.  Customers rely upon the Company's weekly facsimile
mailings  of product  specials as a source for  product  information,  including
prices.

     Customers  typically  call their sales  representative  to place orders for
same  day or next day  shipment.  Assuming  availability  of  product,  an order
received by 5:00 p.m.  local time will generally be shipped the same day or next
day from HMI's  warehouse in Pompano Beach,  Florida.  HMI's  domestic  customer
receives the goods by next day overnight shipment.

     HMI provides comprehensive  training to its sales representative  regarding
technical  characteristics of products and its policies and procedures.  In this
regard,  to  compliment  its  distribution  activities,  HMI provides  technical
assistance to its  customers.  HMI has used limited  advertising  as part of its
marketing program.  Marketing for the most part is handled directly by HMI sales
representatives.

Competition

     HMI operates in a market characterized by intense competition.  Competition
within  the  industry  is based on product  availability,  price,  delivery  and
various  types  of  support   provided  by  the  distributor  to  the  reseller.
Competitors  of HMI include  authorized  distributors,  VARS,  dealers and other
wholesale distributors like HMI such as Tech Data Corporation, Merisel, Inc. and
Inacom.  Some of HMI's  competitors  are larger and have greater  resources than
HMI.

     HMI  believes  that it is capable  of  competing  with  other  distributors
because of its ability to obtain  products at the best  available  prices and to
immediately resell such products to its established customers. By having a large
and established  customer base, HMI is often able to pre-sell products purchased
from its various sources.



HIREL TECHNOLOGIES, INC.

GENERAL

     HTI designs,  manufactures  and markets fuel injection  systems designed to
enhance  the  performance  of gasoline  powered  engines.  The initial  products
designed and  developed by HTI focus on two areas of  technical  innovation  and
market  advantage.  The first are fuel intake  systems,  which through  patented
devices improve efficiency, thus developing more torque and horsepower than most
other OEM or aftermarket products presently available in the market.


                                      6

<PAGE>



     The second are control  systems which,  through patent pending  advances in
computerized  engine  management,  should  serve to  eliminate  the  barriers to
providing  complex  computerized  fuel  management.  Through  December 31, 1996,
component  parts  of  the  HTI  products  were  manufactured  by  third  parties
(including  Fenco Tool & Die,  Ltd., in which Vincent  Montelione and Gregory S.
Fenech,  directors of the Company, owned an interest on a contract basis and the
products  are  assembled at the HTI  facilities.  HTI's  products are  currently
designed  and  implemented  for marine use only.  Marine  customers  use the HTI
products to improve engine performance and reduce gas consumption and emissions.
It is believed  that  ultimately  automotive  and other  customers  will use the
products for the same reason.

     Subsequent  to December  31, 1996 the Company  acquired the assets of Fenco
Tool and Die,  LTD. (See "Certain  Transactions").  In addition,  on January 24,
1997, the Company  completed its acquisition of substantially  all of the assets
of Marine  Power,  Inc.  ("MPI")  effective  December  31, 1996.  MPI,  which is
operated as a division of HTI, is engaged in manufacturing and marketing engines
for the marine after market and original equipment manufacturers.

     Management, which is seeking additional acquisitions for HTI, believes that
the market for its  products  will  initially  be for engines used in the marine
market.  According to the National  Marine  Association,  there are 16.5 million
(11.1 million  registered)  recreational boats in the U.S.,  accounting for over
$13 billion in retail spending for craft, engines and accessories.  Of the total
registered   boats,   about  3  million  are  stern   drive  boats   powered  by
automotive-type  gasoline  engines,  which  type are able to use HTI's  existing
products.

Product Description and Overview

     The fuel injection system for a gasoline powered engine is that part of the
engine where air and spark are combined with fuel to create the combustion  that
drives the pistons in the engine.  The "throttle body" is the mechanical  device
that regulates the  introduction  of air to the fuel injection  system.  The air
passes  through the throttle body into the  manifold.  It is within the manifold
that the air is mixed with fuel , which is  introduced  through  the fuel rails.
The contour of the manifold  will affect the volume and velocity  with which the
air is mixed with the fuel. The volume and timing of fuel being  introduced into
the system is governed by fuel injectors and the electronic control module.

     In order for an  engine  to run on an  optimum  basis,  the fuel  injection
system must  properly  mix the fuel and air,  and the spark plugs must ignite at
the proper time.  Too much air relative to the volume of fuel,  or too much fuel
relative to the volume of air, may cause the engine to run lean or rich,  as the
case may be. Either  situation is inefficient,  both in terms of the performance
of the engine and  consumption  of fuel.  HTI's fuel  intake  systems  have been
designed with its  proprietary  manifold  that  provides  with patented  airflow
design innovations to HTI's self-tuning  computerized engine management systems.
Multiport fuel injection is also known as multipoint fuel injection.

     An electronic  control module,  or "ECM", is the electronic  device used in
the fuel injection  system that  coordinates the proper mixture of fuel and air.
An ECM can also control the  introduction  of spark into the fuel and air. If an
ECM does not control spark, then spark must be controlled by a separate ignition
system.  As the driver  moves the  throttle  forward,  in a marine  setting,  or
presses down on the gas pedal, in an automotive setting, the mixture of fuel and
air and the  introduction  of spark  must be  carefully  coordinated  to achieve
optimal  performance and fuel economy.  Electronic  control modules currently on
the market control this  coordination of fuel, air and spark pursuant to factory
program specifications, which are known in the industry as a "fuel map".


                                      7

<PAGE>



     HTI's patented ECM is believed to be the industry's first  self-tuning fuel
injection  control  module.  With the ECM, an engine  builder or an  aftermarket
engine service  provider,  can configure the engine to suit its  application and
let  the ECM  automatically  provide  the  right  fuel  mixtures,  at the  right
injection  times, for the unique demands of the engine and  applications.  Using
advanced  microprocessor  components  and  control  software  techniques  (which
techniques are the subject of a pending patent application) the ECM continuously
adjusts fueling to the optimum power point for all engine speeds and loads.

     The  throttle  body,  manifold  and ECM  developed  by HTI are  intended to
improve the  performance  of gasoline  powered  engines by achieving the optimal
mixture of fuel and air. Users of this system should also achieve  enhanced fuel
conservation.  HTI's electronic control module should be particularly  useful to
two main groups.  First,  are those owners of gasoline powered engines that have
either  carbureted or electronic  throttle  engines.  The use of carburetors and
electronic throttle body fuel injection to mix fuel and air within the engine is
less exacting than is a true multi-point fuel injection  system.  HTI's products
are designed,  at the present time, for only certain specific marine engines, to
allow the customer to convert their  carburetor or throttle body injected engine
to a true multi-point fuel injection system.

     In addition, in the event that HTI is successful in developing its products
for use in  automobiles,  recreational  vehicles and  industrial  vehicles,  HTI
intends to market its products to users of those vehicles.  HTI's products would
be appropriate for users that are no longer achieving optimal engine performance
and fuel efficiency because the fuel map contained within the electronic control
module is no longer viable as a result of changes in the mixture of fuel and air
within the fuel injection system.  This would occur, for example, as a result of
normal wear and tear in the engine, the introduction of alternate fuels into the
engine,  or extreme  changes in the air  pressure  at which the vehicle is being
operated.  Because of the self programming  feature of HTI's electronic  control
module,  these changes from the assumptions  made in the factory  installed fuel
map can be detected and appropriate compensating changes can be made (whether in
the mixture of fuel and air, or the introduction of spark).

     At the present time,  HTI's ECM does not control the introduction of spark,
and spark is controlled by a separate  ignition system,  but HTI intends to seek
to modify its  electronic  control module to regulate the timing of spark within
the engine.  The need to use a separate ECM control spark ignition system is not
anticipated  to  adversely  affect  the  sales of HTI's  ECM and  other  related
products.

     Presently complete EFI systems, which includes the manifold,  throttle body
and HTI's ECM together  with  related  components  produced by  unrelated  third
parties,  are being  marketed  in the marine  aftermarket  through a  nationwide
network of dealers. HTI also supplies manifolds,  throttle bodies and fuel rails
to several OEM marine customers. It is anticipated that the manifolds,  throttle
bodies and fuel rails will be  included on the MPI  engines.  It should be noted
that the current  version of the ECM is for marine  application  only.  Versions
currently under  development  will address a variety of automotive and specialty
engine markets.

EFI Products

     HTI's EFI products  presently are available for marine application only and
include  those  described  below.  Because HTI branded  systems are  designed to
replace  carburetor systems on new engines as well as older models, HTI throttle
bodies utilize "carb-standard"  dimensions which are designed to accept standard
air  cleaners,  marine  flame  arrestors  and forced  induction  (turbo or super
charged)  systems.  In addition  these  systems are  designed  with  integration
capabilities with other

                                      8

<PAGE>



standard aftermarket accessory components, and as such provide a highly flexible
product line that meets numerous consumer requirements,  as well as all industry
and regulatory specifications.

     Manfold for  Big-Block GM V8's.  This  manifold is designed to be used with
large-displacement  (i.e."big-block")  General Motors high  performance  engines
having from 454 to 600 cubic inches.  The manifold or the complete intake system
is available in the  following  configurations:  standard  deck height with 1000
cubic feet per minute ("CFM") throttle body,  standard deck height with 2000 cfm
throttle  body,  tall deck racing engine block with 1000 cfm throttle  body. The
manifold can have brass water passages for salt water applications.

     The fuel  intake  system  incorporates  many design  features  that are the
subject of several  patents  pending and  awarded.  Design  techniques,  such as
raised radius polonium floor,  contoured airfoil shapes inside the manifold, and
specially  positioned  injectors  give the manifold the  capability of producing
superior low-RPM power while retaining high-RPM power.

     Manifold  for  Small-Block  GM  V8's.  This  intake  manifold  known as the
"GenOne" is designed for smaller-displacement (i.e. small-block") General Motors
engines  having from 305 to 409 cubic  inches.  The design has the same patented
features  which apply to the  big-block  model and is available in two versions.
One model is for "early"  cylinder heads that fit engines  which,  although new,
use a  configuration  which is standard  prior to 1987.  The second version is a
model for "late"  cylinder  head  engines  (meaning  those  produced in 1987 and
thereafter).  Like the  big-block  manifolds,  these  manifolds  are  capable of
producing high power levels at low engine speeds  without  losing  efficiency at
high engine speeds.

     Enhanced Manifold for Small-Block GM V8's. This intake manifold is known as
the "Gen One Plus  Enhanced."  Beginning  in mid 1995,  GM began to  supply  its
marine, industrial and other specialty OEM customers with a newly designed small
block V8 (meaning that it has 8 cylinders),  capable of producing  greater power
than their current models in a cost package that meets market needs.

     Throttle  Bodies.  EFI throttle bodies are used to control air intake.  HTI
offers two throttle body models:  (i) a 1000 cfm model for applications from 250
to 650 horsepower;  and (ii) a 2000 cfm model for engines  producing 650 to 1000
horsepower.  Like  HTI's  intake  manifolds,  HTI's  brand  throttle  bodies are
designed to provide superior volumetric  efficiency through advanced laminar air
flow techniques.

Research and Development

     Management has devoted  significant  resources to research and development.
The patented intake  elements of HTI's products have been developed  utilizing a
combination  of several  advanced  design  prototyping  systems  and engine test
systems that are  advantageous  to the engineers.  Designs  developed at HTI are
brought to life using a Computer  Aid  Device  ("CAD")  environment  application
known as  ProEngineer  ("ProE"),  an advanced  visual  design tool in mechanical
engineering.  Using the ProE  software,  the  designers  can  render,  prove and
experiment  in three  dimensions  with  full  capability  to  apply  engineering
calculations to the functional limits of the design at engineering  workstations
or computers rather that doing manual drafting.

     When the  design  is ready  for real time  testing,  it can be turned  into
output as a conventional  blueprint,  color image,  an instruction  file for the
computerized machining and manufacturing systems, or an instruction file for the
state of the art "rapid prototyping"  system. HTI has the in-house capability to
employ the most advanced rapid prototyping system available, a three dimensional
laser

                                      9

<PAGE>



rendering system known as stereolithography ("SL"). Simply stated, SL technology
allows the  Company to down load the output from the ProE  software  and quickly
develop a working prototype which can be bolted to the engine and tested.

     SL engineers take a three  dimensional  drawing from the design  engineer's
computer  file and  convert  the  drawing to a computer  data base within the SL
system.  This  conversion  causes the file to be "sliced" into thousands of very
thin cross sections.  Once converted the file is then passed to the SL equipment
which primarily consists of a laser aimed at the surface of a tank of resin. The
file then  instructs the laser to travel along the pool resin in the pattern set
forth by the first cross section or slice of the three dimensional  drawing, and
the laser literally  "draws" the pattern on the surface of the resin. The effect
of the laser on the resin is that where the laser  touches the resin,  the resin
turns into  solid and where it does not touch the resin,  it remains in a liquid
form. When the first cross section has been drawn,  the thin section of recently
hardened  resin is lowered just a few  thousandths of an inch below the surface,
after which this process is repeated layer after layer until the system "builds"
the entire object in three  dimensions  replicating to exact detail the original
design.  The  resulting  rapidly  built  prototype is extremely  accurate to the
design, even in the smallest detail, and because of the nature of the resin is a
functional  part  that can be  tested in real  applications  and to endure  high
levels of resistance and tolerance.

     Management  takes full  advantage of this  technology in a variety of ways.
First, SL prototypes are rendered of individual  elements of a product for quick
real world  testing of form,  fit and function.  The SL prototype can show,  for
example,  how a  manifold  runner  will  fit  into a given  space or how the air
actually  flows when a runner shape is put on a conventional  flow bench.  These
items can be  ascertained  within  hours after  rendering  a new design.  The SL
prototypes or models are also used in actual engine  testing.  The partial SL or
complete SL element that has been  rendered  into a model can be assembled on an
engine and tested.

     In the  case of HTI,  management  has  chosen  to  perform  such  test on a
dynamometer  ("dyno").  The dyno is a laboratory  piece of equipment that allows
the  engineers  to hook up an engine to it and  retrieve  critical  data such as
horsepower,  torque,  fuel  consumption,  exhaust gas  temperatures and air fuel
ratios.

     When a design is complete and fully tested, the engineers can return to the
ProE  environment  and let the system  help  render a new  foundry  pattern  for
casting  a  manifold.  Since  the file has the net  "positive"  shape of the new
intake system,  a simple  instruction  can render the "negative"  shapes,  those
spaces around or inside the system . Because the objective is a foundry pattern,
HTI engineers  have  "taught" or built in a method  within the ProE  environment
that calculates that shrink factor for aluminum casting to exact measure.

     The resulting molds are believed to be far more accurate than tooling built
by the most skilled  pattern-maker.  More important,  such tooling is ready in a
few weeks versus the nine to twelve  months which  conventional  pattern  making
processes generally require. Each of the ProE and SL technologies as well as the
dynamometer  have been (as described  above)  important tools in the development
and testing of the HTI technologies.

     HTI is presently engaged in two specific research and development projects.
The  first  project  is  the  adaptation  of the  ECM  control  for  self-tuning
automobiles and other street vehicles including  recreation vehicles and trucks,
as well  as  adding  the  ability  of the ECM to  control  spark.  The  software
presently being used for the marine industry needs to be modified for the use in
automobiles.


                                      10

<PAGE>



     The  second  project  involves  a  concept  for the  development  of a fuel
condensor  (also  referred to as the "Fuel  Chiller")  that allows for vaporized
fuel to be condensed back into liquid form to be used in fueling the engine.  No
application  for a patent  has been  filed,  and there is no  assurance  that if
filed,  that a patent will be granted,  or that the concept can be developed for
commercial application.


Customers

     HTI's  sales to date have been made to the marine  industry  consisting  of
manufacturers  as well as  aftermarket  users  such as marinas  and boat  repair
facilities  for OEM  resale to other  customers  made on open  account to credit
worthy  customers  and on a COD cash  basis.  In  addition,  MPI also  sells its
products to distributors for subsequent resale to dealers.

Sales and Marketing

     HTI's  initial  sales  have  been  made  based  in  large  part on  limited
advertising  and by word of mouth.  HTI has in the past, and will in the future,
continue  attending trade shows and other marine industry expos and conventions.
With the  acquisition of MPI, the Company has increased its advertising in trade
journals.

Competition

     HTI operates in a market characterized by intense competition.  Competition
within the industry is based on  acceptance of and changes in technology as well
as cost  and  availability  of  product.  It is  believed  that  many  of  HTI's
competitors  are larger  and have  greater  resources  than HTI.  HTI  believes,
however,  that it can effectively  compete with such competitors  because of its
technology and continuing improvements to such technology.

Government Regulations

     HMI and HTI are  presently  not subject to  federal,  state and local laws,
regulations  or  recommendations  relating  to its  businesses.  The  extent  of
government  regulations  which may result from any legislation or administrative
action in the future and cannot be accurately predicted.

Patents, Trademarks, Copyrights and Proprietary Rights

     HTI seeks to protect  its  proprietary  technology  by means of patents and
contractual arrangements. The Company's policy is to file patent applications to
protect  technology,  inventions  and  improvements  that are  important  to the
development  of its  business.  HTI also  relies upon trade  secrets,  know how,
continuing  technological  innovation and licensing opportunities to develop and
maintain its competitive position.

     Immediately  prior to its initial public  offering  acquired by means of an
assignment from the former partners of the predecessor of HTI, all United States
patent  rights  relating  to the  following  technology:  (1) single  point fuel
injection  systems (patent issued on November 7, 1995), (2) air intake manifolds
for fuel  injected,  internal  combustion  engines  (patent  issued on April 19,
1996),  (3) air valves for the intake manifolds of internal  combustion  engines
(patent  issued  on  March  26,  1996),  (4)  an  electronic  control  unit  for
controlling  an  electronic  injector  fuel  delivery  system  and a  method  of
controlling an electronic injector delivery system (application pending).  There
can be no assurance  that the patents  that are pending  with the United  States
Patent and Trademark Officer will be issued,

                                      11

<PAGE>



or that issued patents will not be challenged  successfully or will commercially
benefit or adequately protect the Company.

     The former  partners  of the  predecessor  of HTI, in the  aggregate,  will
receive the following  royalties on the gross  revenues of four (4) devices that
may be sold by HTI (I)  Manifold/Throttle  Body (5%),  (ii)  Electronic  Control
Module (ECM) (10%),  (iii) Single Point  Metering  (71/2%) and (iv) Fuel Chiller
(condenser)  (71/2%).  HTI is currently selling  manifolds,  throttle bodies and
ECM's.  Single Point Metering and the Fuel Chiller are under development and not
available for sale.

     HTI relies heavily on patent rights, trade secrets, unpatented know how and
nondisclosure  agreements to establish and protect its proprietary rights. HTI's
policy is to require  all  employees  and  consultants  to sign  confidentiality
agreements  under which they agree not to use or disclose  HTI's  proprietary or
other  confidential  information.  HTI's  policy  is also to  require  technical
employees to enter into a  non-competition  agreements  with HTI and  agreements
specifying that inventions and improvements  made by an employee during the term
of employment related to HTI's business become the sole property of HTI.

     Despite these  precautions,  it may be possible for others to independently
develop the same or similar  technologies,  or for unauthorized third parties to
obtain and use information that HTI regards as proprietary.  No assurance can be
given that any patents under pending  patent  applications  or any future patent
applications will be issued, or when and if issued,  that such patents or issued
patents currently assigned to HTI will afford patent protection of a scope which
will  exclude  competitors  or that any of HTI's  patents  will be held valid if
challenged.

Employees

     As of March, 1996, the Company and its subsidiaries, HMI and HTI, employ an
aggregate of twenty-five (25) persons, including Vincent Montelione, all of whom
are full time  employees and none of whom are subject to  collective  bargaining
agreements.   Of  these  full  time   employees,   seven  (7)  are   engaged  in
administration and finance, nine (9) in manufacturing and production, six (6) in
marketing and sales,  and three (3) in  engineering,  research and  development.
Many employees have overlapping responsibilities within these job descriptions.

     The Company  believes that its combined future success will depend in large
measure upon its continued  ability to recruit and retain  technical  personnel.
HMI and HTI have never  experienced a work stoppage.  The Company  believes that
its relationship with employees is good.


Recent Developments

     On January 24, 1997, the Company completed its acquisition of substantially
all the assets of Marine Power,  Inc. ("MPI")  effective  December 31, 1996. The
Company  acquired assets of $4,674,526 and assumed  liabilities of $5,323,278 in
exchange for 390,000 shares of the Company's  Common Stock valued at $1,950,000.
The  acquisition  will be accounted for  utilizing  the purchase  method and the
operations  of MPI will be included  with the  Company's  from December 31, 1996
onward.  Goodwill of $2,638,752  (including $40,000 of legal and accounting fees
charged to the acquisition)  arose from the transaction  which will be amortized
utilizing  the  straight-line  method over 15 years.  In  addition,  the Company
entered into  agreements  whereby,  based on the  attainment of certain  earning
levels, the sellers can earn registration  rights on specified portions of their
shares as well as up to an  additional  50,000  shares of the  Company's  Common
Stock.


                                      12

<PAGE>



     On January  10,  1997,  the  Company  acquired  the assets and  assumed the
liabilities of Fenco Tool and Die, Ltd., a company owned by certain stockholders
of the Company. The company acquired assets of approximately $90,000 and assumed
liabilities of approximately $30,000 for a $60,000 cash payment. The acquisition
will be accounted for as a purchase and no goodwill will be recorded.

Item 2. Properties

     HMI and HTI sublease from Cutler Induction  Systems,  Inc. (and predecessor
to HTI), an affiliate company of Vincent Montelione,  approximately 5,000 square
feet of  office  space in two  adjacent  buildings  and  11,000  square  feet of
warehouse space in North Miami Beach, Florida.

     The Company pays rent of  approximately  $3,100 per month on the office and
warehouse  lease for HMI,  which lease  expires in April 1997.  The Company pays
rent of  approximately  $6,000 per month on the office  lease for HTI which also
expires in April 1997.  Cutler  Induction  Systems,  Inc.  leases the  foregoing
described  office and warehouse space from an unaffiliated  landlord which lease
was determined by arms length negotiations.

     On September 4, 1996,  the Company  entered into a Sublease  Agreement with
Parlux  Fragrances,  Inc. for a 38,458 square foot office and warehouse building
located at 650 S.W.  16th Terrace in Pompano  Beach,  Fl Rent under the Sublease
commenced on October 1, 1996 and will terminate  October 31, 2000 unless earlier
terminated  as provided in the  Sublease.  The Sublease  provides for payment of
base rent ranging from $13,300 per month commencing  November 1, 1996 to $15,063
commencing  November 1, 1999. In addition to the base rent, the Company must pay
operating costs of which are presently $5,512 per month.


Item 3. Legal Proceedings

     The Company is not involved in any pending litigation.


Item 4.  Submission of Matters to a Vote of Security Holders

     No  matters  were  submitted  to a vote of  security  holders in the fourth
quarter of 1996.


                                      13

<PAGE>



                                    PART II

Item 5.  Market for the Registrant's Common Equity and Related Stockholder
         Matters


     (a) Market  Information.  The Company's Common Stock has been quoted on the
         on the OTC  Bulletin  Board  (from  July 22 to  August  28,  1996)  and
         thereafter on the NASDAQ Small Cap Market  ("NASDAQ")  under the symbol
         "HIRL".

     The following table sets forth the high and low bid price for the Company's
Common  Stock as  reported  by NASDAQ  since  August 28,  1996,  for the periods
indicated.


                                        Bid Price
                                    High        Low

Quarter Ended:
     September 30, 1996
      (Since August 28, 1996)     $  10.00   $  5.50
     December 31, 1996            $   7.63   $  4.25

     (b) Holders.  As of March 1, 1997, there were 5,208,750 shares  outstanding
         and  approximately 16 holders of record as determined by an examination
         of the Company's stock transfer records.

     (c) Dividends.  The  Company  has never  paid any  dividends  on its Common
         Stock. The Company  currently intends to retain earnings for use in its
         businesses and therefore  does not anticipate  paying cash dividends in
         the foreseeable future.

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

     The  following   discussion   should  be  read  in  conjunction   with  the
consolidated financial statements of the Company and the Notes thereto appearing
on Pages F-1 through F-20 of this Report.

     Hirel  Holdings,  Inc.  ("HHI") and its  wholly-owned  subsidiaries,  Hirel
Marketing,  Inc. ("HMI") and Hirel Technologies,  Inc. ("HTI"), are collectively
referred to as "the  Company".  The  financial  statements  of the Company as of
December 31, 1996 and for the year then ended  include the results of operations
of  HHI,  formed  on May 1,  1996  to  acquire  HMI  and  HTI  (including  Hirel
Technologies,  Ltd.  ["HTL"] as predecessor from inception on October 24, 1995),
and are presented on a consolidated  basis  commencing  July 22, 1996.  Prior to
that date the separate results of HMI and HTI (including HTL as predecessor from
inception on October 24,  1995) have been  combined on a basis  consistent  with
that of  consolidated  financial  statements  giving  retroactive  effect to the
issuance of 2,750,000  shares of HHI's Common Stock to the  stockholders of HMI,
and 1,000,000 shares of HHI's Common Stock to the stockholders of HTI.

     The  Company  operates  in two  business  segments  through  its  operating
subsidiaries.  HMI is a wholesale  seller to retailers and end users  throughout
the  United  States  and  internationally  of  personal   computers,   primarily
manufactured by Apple Computer, Inc., and related peripherals. During 1996 HMI's
operations   constituted  the  predominant   business  segment.   HTI  develops,
manufactures and

                                      14

<PAGE>



sells fuel  injection  systems  for marine  engines to customer  throughout  the
United States.  Both segments  operate out of the Company's  single  location in
Pompano Beach,  FL. Effective  December 31, 1996 Marine Power,  Inc. ("MPI") was
acquired as a division of HTI. MPI manufactures  engines for marine applications
for sale throughout the United States at its location in Ponchatoula, LA.

     The  financial  statements  as of  December  31, 1995 and for the year then
ended include the separate  results of HMI and HTI including HTL as  predecessor
from  inception on October 24, 1995 to December  31,  1995,  combined on a basis
consistent with that of consolidated  financial  statements  giving  retroactive
effect  to the  issuance  of  2,750,000  shares  of  HHI's  Common  Stock to the
stockholders  of  HMI,  and  1,000,000  shares  of  HHI's  Common  Stock  to the
stockholders  of HTI.  The  predecessor  to HTL  was  Cutler  Induction  Systems
("CIS").  Had CIS  operations  from  January  1, 1995 to October  24,  1995 been
included in the combined financial  statements of HMI and HTI for the year ended
December 31, 1995, net sales would have been $22,453,195 versus $21,716,344,  an
increase  of  $736,851,  and the net loss  would  have  been  $1,607,000  versus
$130,043, an increase of $1,476,957.

     Total net sales for the year ended December 31, 1996,  increased $1,119,744
over the year ended  December 31, 1995,  from  $21,716,344  to  $22,836,088,  an
increase of 5.2%. Net sales of computer  equipment  decreased  $132,709 over the
year ended December 31, 1995,  from  $21,638,589 to  $21,505,880,  a decrease of
 .6%. This decrease is primarily attributable to weak sales of computer equipment
in the fourth quarter of 1996. Most of the products sold by HMI are manufactured
by Apple Computer,  Inc. or are peripherals for Apple computers.  Apple products
which were in demand and  competitively  priced were not as readily available in
the latter part of 1996. In addition,  international  sales of computer products
have weakened as the dollar has strengthened against foreign currencies.  HMI is
submitting  applications to other computer  manufacturers to broaden its base of
available  products,  and in  fact,  has  been  approved  as a  distributor  for
Motorola,  IBM, and Adobe hardware and software products.  In addition,  HMI has
increased its advertising and is actively  contacting its domestic customer base
in an  attempt  to offset the loss of some of its  international  business.  Net
sales of fuel  injection  systems  increased  $1,252,453  over  the  year  ended
December 31, 1995,  from $77,755 to  $1,330,208,  an increase of 1,710.8%.  This
increase is primarily  attributable to the fact that for the year ended December
31,  1995,  HTI's  results  include  only the period  from  October  24, 1995 to
December  31,  1995,  which  period  includes  HTL as  predecessor  to HTI.  The
predecessor  to HTL was CIS,  and had its  operations  from  January  1, 1995 to
October 24, 1995 been included in the  financial  statements of HTI for the year
ended  December 31,  1995,  HTI's sales would have been  approximately  $736,000
higher.  In addition HTI sold more fuel injection systems in 1996 as a result of
establishing a new  distributor/dealer  network across the United States to sell
its fuel  injection  systems to end users and the sale of systems and components
to a marine engine manufacturer.

     Cost of goods sold was  $21,428,135  and  $20,713,089  for the years  ended
December 31, 1996 and 1995, respectively,  and increase of $715046 or 3.5%. Cost
of computer  equipment sold decreased  $165,771 over the year ended December 31,
1995 from  $20,660,204  to  $20,494,433,  a  decrease  of .8% This  decrease  is
primarily  attributable to the decrease in computer sales discussed above.  Cost
of fuel injection systems sold increased  $$880,817 over the year ended December
31, 1995 from  $52,885 to  $933,702,  an increase of 1665.5%.  This  increase is
primarily  attributable  to the HTI  structure  in  1995  versus  1996,  and the
increased sales discussed above.

     Gross profit was $1,407,953 and $1,003,255 for the years ended
December 31, 1996 and 1995, an increase of $404,698 or 40.3%.  This increase is
primarily attributable to gross profit earned on the increased number of fuel
injection systems sold in 1996 versus 1995 as discussed above.  Gross

                                      15

<PAGE>



profit  on  computer  sales as a  percentage  of sales was 4.7% and 4.5% for the
years ended  December  31,  1996 and 1995,  respectively.  Gross  profit on fuel
injection  systems  sales as a  percentage  of sales was 29.8% and 32.0% for the
years ended December 31, 1996 and 1995, respectively.  In 1996 more systems were
sold to original equipment  manufacturers at a lower gross profit margin than in
1995, thereby reducing the overall gross profit margin on fuel injection systems
sold.

     General and  administrative  expenses for the year ended December 31, 1996,
increased  $1,406,744  over the year ended  December  31, 1995 from  $691,724 to
$2,098,468,  an increase of 203.4%.  Had CIS operations  from January 1, 1995 to
October 24, 1995 been included in the  financial  statements of HTI for the year
ended December 31, 1995,  HTI's general and  administrative  expenses would have
been  approximately  $940,000 higher.  In addition,  HHI incurred  approximately
$532,000 in general and administrative expenses subsequent to its initial public
offering in July, 1996. These expenses  consisted  primarily of payroll,  legal,
accounting  and  consulting  fees incurred as a result of being a public company
and rent, travel and automobile expenses.

     Research  and  development  expense  for the year ended  December  31, 1996
decreased  $117,487  over the year ended  December  31, 1995,  from  $326,728 to
$209,241,  a  decrease  of 36.0%.  Had CIS  operations  from  January 1, 1995 to
October 24, 1995 been included in the  financial  statements of HTI for the year
ended  December  31,  1995,  research and  development  expense  would have been
$488,492. The primary component of research and development is payroll. In 1996,
HTI had fewer people  involved in research and development and in some instances
the percentage of their time spent in research and  development was less than it
had been in 1995,  when HTI was still  developing  its patented  fuel  injection
system.

     Depreciation and amortization  expense for the year ended December 31, 1996
increased  $208,694  over the year ended  December  31,  1995,  from  $65,806 to
$274,500,  an increase of 317.1%.  Had CIS  operations  from  January 1, 1995 to
October 24, 1995 been included in the  financial  statements of HTI for the year
ended December 31, 1995,  depreciation and amortization  expense would have been
$275,865.  However, in 1996,  depreciation is approximately $56,000 less than it
would have been in 1995,  primarily due to the fact that HTI had less  machinery
in 1996, and amortization is approximately $55,000 higher in 1996 than 1995, due
to amortization of loan fees related to HMI's line of credit.

     The  provision for doubtful  accounts for the year ended  December 31, 1996
increased  $82,333  over the year  ended  December  31,  1995,  from  $24,667 to
$107,000,  an increase of 333.8%. This increase is primarily  attributable to an
increase in the provision  for doubtful  accounts  applicable to HMI's  accounts
receivable.

     As a result of the discussion  above, the operating loss for the year ended
December 31, 1996  increased  $1,175,586  over the year ended  December 31, 1995
from $105,670 to $1,281,256,  an increase of 1112.5% However, had the operations
of CIS from January 1, 1995 to October 24, 1995 been  included in the  financial
statements of HTI for the year ended December 31, 1995,  the combined  operating
loss for the year ended December 31, 1995 would have been $1,164,098 compared to
a  consolidated  operating  loss of $1,281,256  for the year ended  December 31,
1996.

     Interest  expense for the year ended December 31, 1996  increased  $106,436
over the year ended  December 31, 1995 from $27,637 to $134,073,  an increase of
385.1%. This increase is attributable to increased  utilization of HMI's line of
credit in 1996. In June, 1995, HMI obtained a $1,000,000 line of credit which it
utilizes to finance  letters of credit used to purchase  inventory.  The line of
credit was increased to $2,000,000 in December, 1995.

                                      16

<PAGE>



     Interest income for the year ended December 31, 1996 increased $81,169 over
the year ended December 31, 1995, from $0 to $81,169. This increase is primarily
attributable  to HHI's  temporary  investment  of a  substantial  portion of the
proceeds of the initial public offering which occurred in July, 1996.

     Interest  income from related  parties for the year ended December 31, 1996
increased $27,678 over the year ended December 31, 1995, from $3,264 to $30,942,
an increase of 848.0%.  This increase is attributable to interest income accrued
by HMI on a receivable from SCV, Ltd., a related party.

     The loss on the sale of asset of $36,244  for the year ended  December  31,
1996 is  attributable  to the sale of a piece of machinery for $85,000 by HTI in
1996.

     As a result  of the  discussion  above,  the net  loss  for the year  ended
December 31, 1996  increased  $1,207,343  over the year ended December 31, 1995,
from $130,043 to $1,337,386,  an increase of 928.4%. However, had the operations
of CIS from January 1, 1995 to October 24, 1995 been  included in the  financial
statements  of HTI for the year ended  December 31, 1995,  the combined net loss
for the year ended  December 31, 1995 would have been  $1,607,000  compared to a
consolidated net loss of $1,337,386 for the year ended December 31, 1996.

Liquidity and Capital Resources

     Cash at December 31, 1996 was  $3,426,450  compared to $588,242 at December
31, 1995.

     Net cash used for operating  activities  was  $1,595,963 for the year ended
December 31, 1996  compared to net cash  generated by  operating  activities  of
$594,830 for the year ended  December 31, 1995.  In 1996,  the net loss adjusted
for  non-cash  charges was $919,642  which along with  increases in inventory of
$389,845, other current assets of $91,447, deposits of $48,714 and a decrease in
other current  liabilities of $140,378 were the primary reasons for the net cash
used in  operating  activities.  In 1995,  the net loss  adjusted  for  non-cash
charges  provided  operating  cash of  $246,418  which along with  increases  in
accounts  receivable of $112,787,  inventory of $150,159,  accounts  payable and
accrued  expenses of $543,882 and other current  liabilities of $72,274 were the
primary reasons for net cash generated by operating activities.

     Net cash used in  investing  activities  was  $758,168  for the year  ended
December 31, 1996 compared to $228,696 for the year ended  December 31, 1995. In
1996,  cash used to purchase  property and  equipment  of $168,588,  advances to
related  parties of  $139,669,  and  transfers  of cash due to  restrictions  of
$788,000  was offset by proceeds  from the sale of equipment of $85,000 and cash
acquired as a result of the MPI acquisition  (discussed  below) of $253,089.  In
1995,  the  primary use of cash for  investing  activities  was for  advances to
related parties of $223,104.

     The  restricted  cash of $788,000 at December 31, 1996,  is comprised of an
escrow account of $580,000 established from the proceeds of HHI's initial public
offering  to be held until  March 23,  1997(remitted  to the  Company in full on
April  10,  1997) in  conjunction  with any  liability  HHI or HTI may  incur in
connection with CIS's prior  ownership of HTI assets,  and an HHI certificate of
deposit of $208,000 pledged as collateral for HMI's line of credit.

     Net cash provided by financing activities was $5,222,339 for the year ended
December 31, 1996 compared to $103,527 for the year ended  December 31, 1995. In
1996,  the primary  source of cash  provided by financing  activities  came from
three  equity  sales  which   generated   proceeds  of   $5,486,325   offset  by
distributions  shareholders  and  partners  of $384,317  prior to HHI's  initial
public offering in

                                      17

<PAGE>



July, 1996. This initial public offering of 1,063,750 shares of Common Stock was
the primary equity sale and generated net proceeds of  $4,837,325.  In 1995, the
primary  source of cash  provided by  financing  activities  was net advances on
HMI's line of credit of $660,806  offset by  distributions  to  shareholders  of
$466,083 and payment of loan origination fees on the line of credit of $121,085.

     On January 10, 1997, HHI through its wholly-owned subsidiary, HTI, acquired
the assets and  assumed the  liabilities  of Fenco Tool & Die,  Ltd.,  a Florida
limited  partnership  controlled  by Vincent  Montelione  and  Gregory S. Fenech
through  their  ownership of the stock in the  corporate  general  partner.  HTI
acquired   assets  of   approximately   $90,000  and  assumed   liabilities   of
approximately  $30,000 for a $60,000  cash  payment.  No  goodwill  arose in the
transaction.

     On January 24, 1997, HHI through its wholly-owned subsidiary, HTI, acquired
substantially  all of the assets and certain  liabilities of Marine Power,  Inc.
("MPI")  pursuant  to a Plan of  Reorganization  dated  January  22,  1997,  and
effective  December 31, 1996.  The Company  acquired  assets of  $4,674,526  and
assumed  liabilities  of  $5,323,278  in  exchange  for  390,000  shares  of the
Company's  Common Stock valued at $1,950,000.  The acquisition was accounted for
using the purchase  method of accounting  and the operations of MPI are included
with the Company's from December 31, 1996. Goodwill of $2,638,752 was recognized
at December 31, 1996 as a result of the purchase.

     With  the  exception  of  commitments  to  provide  its MPI  division  with
additional  working capital or as otherwise  provided herein, the Company has no
additional  commitments for capital resources and believes its available capital
is adequate.

Item 7.  Financial Statements

     The financial  statements that the Company is required to file under Item 7
of this Form 10-KSB are presented on Pages F-1 through F-21 of this Report.

Item 8.  Changes in and Disagreements with Accountants

     Not applicable



                                      18

<PAGE>




                                   PART III

Item 9.  Directors and Executive Officers of the Company

     The current directors and executive officers of the Company are as follows:

Name                       Age               Position

Vincent Montelione         40     President, Chief Executive Officer, and
                                  Chairman

Gregory S. Fenech          42     President, HTI, and Director

Vincent P. Fagnani, Jr.    31     Vice President, Sales and Marketing, HMI, and
                                  Director

William H. Aden            50     Vice President and Chief Financial Officer

     Vincent Montelione has been President, Chief Executive Officer and Chairman
of the Board of the Company since May, 1996. Prior to that time he held the same
positions  with HMI and HTI  (including  CIS) since August,  1989, and February,
1992,  respectively.  Mr.  Montelione  maintains  a  business  interest  in  F&M
Investment Group, Inc., the general partner of Fenco Tool & Die, Ltd., a machine
tool  manufacturing  company as a director and SCV Holdings,  Inc.,  the general
partner  of SCV,  Ltd.  (the  general  partner  of HTL,  predecessor  to HTI) as
president and director.

     Gregory S. Fenech has been President of HTI since July, 1996 and a Director
of the  Company  since  May,  1996  and has  held  similar  positions  with  CIS
(predecessor to HTI) since July, 1994. Prior to joining HTI, Mr. Fenech was Vice
President and General Manager for Spectrum  Engineering and Technologies,  Inc.,
an engineering firm which designs tools and dies, since 1989.

     Vincent P. Fagnani, Jr. has been Vice President of Sales and Marketing of
HMI since July, 1991, and a Director of the Company since May, 1996.  Prior
thereto, Mr. Fagnani was Assistant Sales Manager of Graham Companies, Miami,
Florida, a 400 single family home community.  Mr.Fagnani has a B.S. in economics
and finance from Barry University, Miami Shores, Florida.  Mr.Fagnani is the
brother-in-law of Vincent Montelione.

     William H. Aden has been Vice President and Chief Financial  Officer of the
Company since September, 1996. From June, 1994 to September, 1996, Mr. Aden, who
is a certified public  accountant,  held the same position with Prime Management
Group, Inc., Boca Raton,  Florida, a full service property  management  company,
and from January,  1993 to May, 1994,  served as Chief Operating Officer of 21st
Century  Power  and  Light  Corporation,   Lantana,   Florida,  a  research  and
development company.  From January,  1980 to December,  1992, Mr. Aden served as
Chief Financial and  Administrative  Officer for Gator Culver Company,  Lanatan,
Florida, a manufacturer of metal storm drainage piping.

     Each director is elected at the Company's  annual  meeting of  shareholders
and holds office until the next annual meeting of  stockholders,  or until their
successors are elected and qualified.  The Company's bylaws provide for not less
than one director. Currently, the Company has three directors. The bylaws permit
the Board of Directors to fill any vacancy and such director may serve until the
next  annual  meeting of  shareholders  or until his  successor  is elected  and
qualified.  Officer  are  elected by the Board of  Directors  and their terms of
office  are,  except to the extent  governed  by  employment  contracts,  at the
discretion of the Board. Other than as indicated above, there are no

                                      19

<PAGE>



family relations among any directors or officers of the Company.  All of the
Company's officers are full-time employees of the Company.

     The Board of Directors has audit, compensation and option committees.  The
audit committee consists of Messrs. Montelione and Fenech.  The compensation
committee consists of Messrs. Montelione and Fagnani.  The option committee
consists of Mr. Montelione.

Compliance with Section 16 (a) of the Securities Exchange Act of 1934

     For the year ended December 31, 1996,  Mr.  Montelione has not filed Form 4
covering certain transactions.

Item 10.  Executive Compensation

     The following  table sets forth,  for the years ended December 31, 1996 and
1995, the remuneration paid by the Company to executive  officers of the Company
whose compensation exceeds $100,000.

Name and Principal Position    Year     Salary(1)  Other Compensation

Vincent Montelione             1996    $ 117,900       $  - 0 -
President, Chief Executive Officer
 and Chairman                  1995    $  16,200       $  - 0 -

Gregory S. Fenech              1996    $  75,000       $ 60,000(2)
President, HTI, and Director   1995    $  70,000       $  - 0 -



(1)  Does not  include  Subchapter  S  distributions  from  HMI made to  Vincent
     Montelione  during  1996 and 1995 in the amount of $260,857  and  $543,123,
     respectively.  The table does not include any amounts for certain  personal
     benefits  extended  to Messrs.  Montelione  and Fenech  such as the cost of
     automobiles  used by them.  The  Company  believes  that the  value of such
     non-cash  benefits  and  compensation  provided to Messrs.  Montelione  and
     Fenech did not  exceed  the  lessor of  $50,000 or 10% of the total  annual
     salary and bonus they received in either year.

(2) Consulting fees paid to Mr. Fenech in 1996.

     On May 2, 1996,  the Company  entered  into an  Employment  Agreement  (the
"Agreement")  with Vincent  Montelione  which  commenced  on July 22, 1996,  the
effective  date of the Company's  initial  public  offering,  and expires on the
fifth  anniversary  thereof.  The annual  salary under the Agreement is $150,000
which amount will be increased by 10% each. The term of employment  provides for
two three-year  renewals at the mutual agreement of the parties.  Mr. Montelione
is also  eligible  to  receive  an  annual  bonus  equal to 5% of the  Company's
consolidated  pre-tax  earnings in excess of $1,000,000,  payable within 30 days
after the  determination of such pre-tax  earnings.  The Agreement also provides
for the issuance of options to purchase up to an  aggregate  amount of 2,050,000
shares of the  Company's  Common Stock at $6.00 per share which options shall be
earned as follows:  (i) 500,000 options if HMI has earnings before income taxes,
depreciation and amortization  ("EBITDA") in excess of $1,000,0000 in any fiscal
year,  (ii) an  additional  250,000  options  if HMI has  EBITDA  in  excess  of
$1,500,000 in any fiscal year,  (iii) an additional  250,000  options if HMI has
EBITDA of at least  $2,000,000 in any fiscal year,  (iv) an  additional  250,000
options if HMI has

                                      20

<PAGE>



EBITDA of at least  $2,500,000  in any fiscal year,  (v) an  additional  500,000
options if HMI has EBITDA of at least $3,000,000 in any fiscal year, and (vi) an
additional  300,000  options  if HMI has  EBITDA of at least  $4,000,000  in any
fiscal year.  Options issued in any given year pursuant to the Agreement will be
deducted  from the  aggregate  amount  available  for  issuance  pursuant to the
Agreement until an aggregate  amount not to exceed  2,050,000  options have been
issued.

     The  Agreement  provides,  among  other  things,  for  participation  in an
equitable  manner in any  profit-sharing  or  retirement  plan for  employees or
executives  and for  participation  in other  employee  benefits  applicable  to
employees and  executive of the Company,  except for the 1996 Stock Option Plan.
The Agreement  further  provides for the use of an  automobile  and other fringe
benefits commensurate with his duties and  responsibilities.  The Agreement also
provides for benefits in the event of disability.

     Pursuant to the Agreement, employment may be terminated by the Company with
cause or by the  executive  with or  without  good  reason.  Termination  by the
Company  without cause,  or by the executive for good reason,  would subject the
Company to liability for liquidated damages in an amount equal to the terminated
executive's  current  salary  and an  amount  equal to his  prior  year's  bonus
annually,  for the  remaining  term of the  Agreement,  payable in equal monthly
installments,  without  any  set-off  for  compensation  received  from  any new
employment.  In addition,  the terminated executive would be entitled to receive
all  options  entitled  to  be  earned  under  the  Agreement  and  continue  to
participate  in and accrue  benefits  under all  employee  benefit  plans and to
receive supplemental retirement benefits to replace benefits under any qualified
plan for the remaining term of the Agreement to the extent permitted by law.

     On May 2, 1996 the Board of  Directors  and  shareholders  approved a stock
option plan called the "1996 Stock  Option Plan" (the  "Plan").  Under the Plan,
the Company has  reserved an  aggregate  of 500,000  shares of Common  Stock for
issuance pursuant to options granted under the Plan ("Plan Options"). The Option
Committee of the Board of Directors (the Committee") of the Company  administers
the Plan including, without limitation, the selection of the persons who will be
granted Plan Options under the Plan, the type of Plan Options to be granted, the
number of shares subject to each Plan Option and the Plan Option price.

     Plan Options  granted  under the Plan may either be options  qualifying  as
incentive stock options ("Incentive  Options") under Section 422 of the Internal
Revenue   Code  of  1996,   as  amended  or  options  that  do  not  so  qualify
("Non-Qualified  Options").  In addition, the Plan also allows for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the  exercise  price of the Plan Option with shares of Common Stock owned
by the  eligible  person and  receive a new Plan  Option to  purchase  shares of
Common  Stock  equal in number to the  tendered  shares.  Any  Incentive  Option
granted under the Plan must provide for an exercise  price of not less than 100%
of the fair market value of the underlying shares on the date of such grant, but
the  exercise  price of any  Incentive  Option  granted to an eligible  employee
owning more than 10% of the Company's Common Stock must be at least 110% of such
fair market value as determined on the date of the grant.  The term of each Plan
Option and the manner in which it may be exercised is determined by the Board of
the Directors or the Committee,  provided that no Plan Option may be exercisable
more than 10 years after the date of its grant and, in the case of an  Incentive
Option  granted to an eligible  employee  owning more than 10% of the  Company's
Common Stock, no more than five years after the day of the grant.

     The exercise  price of  Non-Qualified  Options  shall be  determined by the
Board of Directors or the Committee.


                                      21

<PAGE>



     The per share purchase price of the shares subject to Plan Options  granted
under the Plan may be adjusted in the event of certain  changes in the Company's
capitalization,  but any such adjustment may not change the total purchase price
payable upon the exercise in full of Plan Options granted under the Plan.

     Officers,  directors,  key employees and consultants of the Company and its
subsidiaries are eligible to receive  Non-Qualified Options under the Plan. Only
officers, directors and employees of the Company who are employed by the Company
or by any subsidiary thereof are eligible to receive Incentive Options.

     All Plan Options are nonassignable and  nontransferable,  except by will or
by the  laws of  descent  and  distribution,  and  during  the  lifetime  of the
optionee, may be exercised only by such optionee. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause,  or if an  optionee  is not an employee of the Company but is a member of
the Company's Board of Directors and his service as a director is terminated for
any reason, other than death or disability, the Plan Option granted to him shall
lapse to the extent unexercised on the earlier of the expiration date or 30 days
following the date of  termination.  If the optionee dies during the term of his
employment, the Plan Option granted to him shall lapse to the extent unexercised
on the  earlier of the  expiration  date of the Plan Option or the date one year
following the date of the optionee's  death.  If the optionee is permanently and
totally  disabled within the meaning of Section 22(c)(3) of the Internal Revenue
Code of 1986, the Plan Option granted to him lapses to the extent unexercised on
the earlier of the expiration  date of the option or one year following the date
of such disability.

     The Board of  Directors or Committee  may amend,  suspend or terminate  the
Plan at any time, except that no amendment shall be made which (i) increases the
total number of shares subject to the Plan or changes the minimum purchase price
therefor  (except in either case in the event of  adjustments  due to changes in
the  Company's  capitalization),  (ii) affects  outstanding  Plan Options or any
exercise right thereunder,  (iii) extends the term of any Plan Option beyond ten
years, or (iv) extends the termination  date of the Plan.  Unless the Plan shall
theretofore  have been  suspended or terminated  by the Board of Directors,  the
Plan shall terminate in May 2, 2006. Any such  termination of the Plan shall not
affect the validity of any Plan Options previously granted thereunder.

     On July 22, 1996, options to acquire 116,000 shares at $6.00 per share were
granted to employees of the Company pursuant to the Plan.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

     The following table sets forth certain information  regarding the Company's
Common  Stock  beneficially  owned at March 1, 1997,  (i) by each  person who is
known by the  Company to own  beneficially  5% or more of the  Company's  Common
Stock; (ii) by each of the Company's  directors;  and (iii) by all directors and
executive officers as a group. At March 31, 1997, there were 5,208,750 shares of
Common Stock of the Company outstanding.


                                      22

<PAGE>




                                   Number of Shares of
                                       Common Stock
Name and Address of Beneficial Owner(1)Beneficially OwnedPercent of Class

Vincent Montelione(2)                    2,000,000         38.4%

Vincent Montelione, as Trustee(3)          600,000         11.5%

Herbert D. Katz, as Trustee(4)             300,000          5.8%

SCV, Ltd.(5)                               100,000          1.9%

Gregory S. Fenech(3)                         - 0 -           --

Vincent P. Fagnani, Jr.                      - 0 -           --

William H. Aden                              - 0 -           --

All directors and officers as a group    2,000,000         38.4%


(1)  Unless otherwise noted, c/o Hirel Holdings, Inc., 650 S.W. 16th Tr.,
     Pompano Beach, Florida  33069

(2)  Includes (i) 600,000 shares of Common Stock held by Vincent Montelione,  as
     Trustee,  under a Trust Agreement,  Vincent Montelione (90%) and Gregory S.
     Fenech (10%), as beneficiaries and (ii) 100,000 shares of Common Stock held
     by  SCV,  Ltd.,  a  limited  partnership   beneficially  owned  by  Vincent
     Montelione (90%) and Gregory S. Fenech (10%).

(3)  Includes  600,000  shares of Common  Stock held by Vincent  Montelione,  as
     Trustee,  under a Trust Agreement,  Vincent Montelione (90%) and Gregory S.
     Fenech  (10%),  as  beneficiaries,  which  shares are also  included in the
     amount of shares  owned by Vincent  Montelione,  as  reflected  herein,  as
     Vincent Montelione is a beneficial owner of these shares.

(4)  Represents  shares of Common  Stock held by Herbert  D. Katz,  as  Trustee,
     under a Letter  Agreement  dated April 23, 1996, with Katz Investment II, a
     Florida general partnership, and Thomas O. Katz, as beneficiary.

(5)  Vincent Montelione, president of SCV Holdings, Inc., the general partner of
     SCV, Ltd.,  beneficially  owns 90% of and has the sole voting rights to the
     100,000  shares of Common  Stock held by SCV,  Ltd.  which  shares are also
     included in the number of shares owned by Vincent Montelione,  as reflected
     herein, as Vincent Montelione is a beneficial owner of these shares.

Item 12.  Certain Relationships and Related Transactions

     The Company periodically  advances funds to its principal  stockholder on a
very short term  basis.  These  loans are non  interest  bearing  with no formal
repayment  terms.  As of December  31,  1996 and 1995,  the balance due on these
loans was $21,025 and $ 0, respectively.  Subsequent to year end, $17,950 of the
balance due at December 31, 1996 was repaid. The Company also makes

                                      23

<PAGE>



advances to enterprises controlled by its principal stockholder.  As of December
31, 1996 and 1995, the balance due from related parties  including  interest was
$362,773 and $223,104, respectively. The related party loans are due on December
31, 1997, and bear interest at prime.  Interest receivable of $34,063 and $3,264
and interest income of $30,942 and $3,264 on those loans as of December 31, 1996
and 1995, respectively, is reflected in the financial statements of the Company.
The Company also  acquired  receivables  from  related  parties in the amount of
$162,044 in conjunction with the MPI acquisition.

     During the year ended  December  31, 1995,  HMI had sales of  approximately
$2,500,000 to a company in which Vincent Montelione was the sole stockholder.

     During the six months  ended June 30, 1996 and the year ended  December 31,
1995,  Vincent  Montelione  received  Subchapter  S  distributions  from  HMI of
approximately $260,857 and $543,123, respectively.

     During  the six months  ended  June 30,  1996,  HTL made  distributions  of
$123,460 to its general partner, SCV, Ltd., which in turn made a distribution to
Vincent Montelione, a limited partner of SCV, Ltd., in the amount of $80,000.

     HMI and HTI  sublease  from CIS  approximately  5,000 square feet of office
space and 11,000  square feet of warehouse  space in two  adjacent  buildings in
North Miami Beach,  Florida.  While it is believed that the sublease is fair and
reasonable,  such  lease was not  entered  into at arms  length.  CIS leases the
office  and  warehouse  space  from an  unaffiliated  landlord  which  lease was
determined by arms length negotiations.  HMI pays approximately $3,100 per month
for the office and warehouse space it occupies.  HTI pays  approximately  $6,000
per month on the space it occupies. The lease expires in April, 1997.

     During the year ended December 31, 1996, HTI paid Fenco Tool & Die, Ltd., a
Florida  limited  partnership  controlled by Vincent  Montelione  and Gregory S.
Fenech through their  ownership of the stock in the corporate  general  partner,
approximately $160,000 for the machining of certain components of its products.

     During the year ended December 31, 1996, HTI paid its president  $60,000 in
consulting fees.

     During the year ended  December  31, 1996,  the Company  paid  royalties of
$14,935 under a royalty  agreement on certain patents covering six components of
its products to a company  controlled  by the Company's  principal  stockholder.
Under the agreement,  royalties are calculated as a percentage,  ranging between
5% and 10%, of net selling price as defined in the agreement.  Royalty  payments
are due quarterly under the agreement which runs for 50 years.



                                      24

<PAGE>




Item 13. Exhibits and Reports on Form 8-K.

         (a)(1) Financial Statements

         See  the  Index  to  Consolidated  Financial  Statements  on  Page  F-1
         hereafter, which is incorporated herein by reference.

         (a)(2) Financial Statement Schedules

         None.

         (a)(3) Exhibits

Exhibit              Exhibit
Number               Description

1.1      Form of Underwriting Agreement (1)

1.1(a)   Revised Form of Underwriting Agreement (1)

1.3      Form of Selected Dealers Agreement (1)

1.3(a)   Revised Form of Selected Dealers Agreement (1)

3.1      Articles of Incorporation dated May 1, 1996 (1)

3.2      By-laws of Hirel Holdings, Inc. (1)

3.2(a)   Revised By-laws of Hirel Holdings, Inc. (1)

4.1      Specimen Common Stock Certificate (1)

4.2      Specimen Class A Common Stock Purchase Warrant (1)

4.2(a)   Revised Specimen Class A Common Stock Purchase Warrant (1)

4.3      Specimen Class B Common Stock Purchase Warrant (1)

4.3(a)   Revised Specimen Class B Common Stock Purchase Warrant (1)

4.4      Warrant Agreement (1)

4.4(a)   Revised Warrant Agreement (1)

4.5      Underwriter's Unit Purchase Option (1)

4.5(a)   Revised Underwriter's Unit Purchase Option (1)

5.1      Opinion of Atlas, Pearlman, Trop & Borkson, P.A. concerning legality of
         shares being registered pursuant to the Registration Statement (1)

                                      25

<PAGE>



Exhibit              Exhibit
Number               Description

10.1     Stock Option Plan (1)

10.2     Executive Employment Agreement between the Company and Vincent
         Montelione dated as of May 2, 1996 (1)

10.2(a)  Revised Executive Employment Agreement between the Company and Vincent
         Montelione dated as of May 2, 1996 (1)

10.3     Share Exchange Agreement between the Company and Hirel Inc. dated as of
         May 2, 1996 (1)

10.3(a)  Addendum dated May 29, 1996 to the Share Exchange Agreement between the
         Company and Hirel Marketing, Inc. dated as of May 2, 1996 (1)

10.4     Share Exchange Agreement between the Company and Hirel Technologies,
         Inc. dated as of May 2, 1996 (1)

10.4(a)  Addendum dated May 29, 1996 to the Share Exchange Agreement between the
         Company and Hirel Technologies, Inc. dated as of May 2, 1996 (1)

10.4(b)  Addendum No. 2 dated June 20, 1996 to the Share Exchange Agreement
         between the Company and Hirel Technologies, Inc. dated as of
         May 2, 1996 (1)

10.5     Sublease Agreement with Hirel Marketing, Inc. and Cutler Induction
         Systems, Inc. dated October 23, 1995 (1)

10.6     Sublease Agreement with Hirel Technologies, Inc. and Cutler Induction
         Systems, Inc. dated October 23, 1995 (1)

10.7     Ocean Bank Line of Credit Loan Agreement dated 12/26/95 due 6/26/00
         re: $2,000,000  (1)

10.8     Ocean Bank Line of Credit Loan Agreement dated 7/5/95 due 6/26/00
         re: $1,000,000 (1)

10.9     Technologies Assignment and Royalty Agreement dated May 2, 1996 (1)

10.10    Lease between Hirel Technologies, Inc. and Fenco Tool & Die, Ltd.
         dated April 1, 1996  (1)

10.11    Business Valuation Report by Fiske and Company dated
         January 31, 1996 (1)

10.12    Plan of Reorganization dated January 22, 1997, by and among Marine
         Power, Inc., a Louisiana corporation, W.E. Allbright, Jr., Hirel
         Technologies, Inc., a Florida corporation, and Hirel Holdings, Inc.,
         a Delaware corporation (2)

10.13    Employment Agreement dated January 22, 1997, between W.E. Allbright, Jr
         and Hirel Technologies, Inc. (2)

                                      26

<PAGE>




Exhibit              Exhibit
Number               Description

10.14    Sublease Agreement between Parlux Fragrances, Inc. and Hirel Holdings,
         Inc. dated September 4, 1996.

10.15    Asset Purchase Agreement between Fenco Tool & Die, Ltd. and Hirel
         Technologies, Inc. dated January 10, 1997.

10.16    Option Agreement between Hirel Marketing, Inc. and Group 32 dated
         March 21, 1997.

21       Subsidiaries of the Company (1)

23.1     Consent of Moore Stephens P.C. (formerly Mortenson &
         Associates, P.C.)(1)

23.2     Consent of Atlas, Pearlman, Trop & Borkson, P.A.(included in
         Exhibit 5.1)(1)

23.3     Consent of Fiske & Company (1)


(1) Incorporated by reference from the Company's  Registration Statement on Form
SB-2, File No.
     333-4686-A.
(2)  Incorporated by reference from the Company's report on Form 8-K/A,
     Amendment No. 1, dated February 6, 1997.

         (b) Reports on Form 8-K

         The  Company  filed a  report  on Form  8-K  dated  February  6,  1997,
         announcing the  acquisition,  as of December 31, 1996, of substantially
         all of the assets and certain  liabilities  of Marine  Power,  Inc.,  a
         Louisiana  based  manufacturer  and marketer of marine  engines for the
         after market and original equipment manufacturers.

         The  Company  filed a report on Form  8-K/A,  Amendment  No.  1,  dated
         February 6, 1996,  which  contained the Exhibits  required by Item 7 of
         the report on Form 8-K announcing the acquisition of Marine Power, Inc.

         The Company filed a report on Form 8-K/A,  Amendment No. 2, dated April
         3, 1997, which contained the Financial Statements required by Item 7 of
         the  report  on  Form  8-K  dated  February  6,  1997,  announcing  the
         acquisition of Marine Power, Inc.



                                      27

<PAGE>



INDEX TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------





Financial Statements of Hirel Holdings, Inc. and Subsidiaries:

  Independent Auditor's Report.....................................  F-2

  Consolidated Balance Sheet as of December 31, 1996...............  F-3 - F-4

  Statements of Operations for the years ended December 31, 1996 and F-55

  Statements of Stockholders' Equity for the years ended December 31, 1996
  and 1995.........................................................  F-6

  Statements of Cash Flows for the years ended December 31, 1996 and F-7 -F-8

  Notes to Financial Statements....................................  F-9 -F-20


                   .   .   .   .   .   .   .   .   .   .   .

                                       F-1

<PAGE>



                          INDEPENDENT AUDITOR'S REPORT


To the Stockholders and Board of Directors of
  Hirel Holdings, Inc.
  Pompano Beach, Florida



            We have audited the accompanying consolidated balance sheet of Hirel
Holdings,  Inc. and its  subsidiaries  as of December 31, 1996,  and the related
statements of operations,  stockholders'  equity, and cash flows for each of the
two years in the period ended December 31, 1996. These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

            In our opinion,  the financial  statements referred to above present
fairly, in all material respects,  the consolidated  financial position of Hirel
Holdings,  Inc. and its subsidiaries as of December 31, 1996, and the results of
their  operations  and their  cash flows for each of the two years in the period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.








                              MOORE STEPHENS, P. C.
                          Certified Public Accountants.

Cranford, New Jersey
March 6, 1997


                                       F-2

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996.
------------------------------------------------------------------------------




Assets:
Current Assets:
  Cash                                                              $ 3,426,450
  Cash Restricted                                                       580,000
  Accounts Receivable [Net of Allowance for Doubtful Accounts
   of $192,000]                                                       1,004,460
  Accounts Receivable - Related Party                                   237,393
  Inventory                                                           3,542,036
  Notes Receivable - Related Parties                                     41,385
  Loans Receivable - Related Party                                       21,025
  Other Current Assets                                                  130,369
                                                                     -----------

  Total Current Assets                                                8,983,118

Property and Equipment:
  Machinery and Equipment                                             1,779,305
  Furniture and Fixtures                                                148,699
  Leasehold Improvements                                                122,981
  Office and Computer Equipment                                         297,388
                                                                     -----------

  Total - At Cost                                                     2,348,373
  Less:  Accumulated Depreciation                                     1,091,027

  Property and Equipment - Net                                        1,257,346
                                                                     -----------

Other Assets:
  Cash Restricted                                                       208,000
  Goodwill                                                            2,638,752
  Security Deposits                                                      56,631
  Notes Receivable - Related Parties                                    483,432
  Other Assets                                                           27,783
                                                                     -----------

  Total Other Assets                                                  3,414,598

  Total Assets                                                      $13,655,062


See Notes to Financial Statements.


                                        F-3

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996.
------------------------------------------------------------------------------





Liabilities and Stockholders' Equity:
Current Liabilities:
  Line of Credit                                                    $ 1,595,090
  Notes Payable - Current Portion                                       134,651
  Accounts Payable                                                    3,336,311
  Accrued Expenses                                                      445,548
  Other Current Liabilities                                              66,552
                                                                     -----------

  Total Current Liabilities                                           5,578,152

Non-Current Liabilities:
  Due to Related Parties                                                 13,111
  Notes Payable                                                       1,364,898

  Total Non-Current Liabilities                                       1,378,009

  Total Liabilities                                                   6,956,161

Commitments and Contingencies                                                --

Stockholders' Equity:
  Preferred Stock - $.001 Par Value, 1,000,000 Shares Authorized,
   None Issued or Outstanding                                                --

  Common Stock, $.001 Par Value, 24,000,000 Shares Authorized,
   5,208,750 Shares Issued and Outstanding                                5,209

  Paid-in Capital                                                     7,908,775

  Retained Earnings [Deficit]                                        (1,215,083)

  Total Stockholders' Equity                                          6,698,901

  Total Liabilities and Stockholders' Equity                        $13,655,062



See Notes to Financial Statements.

                                        F-4

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------


                                                                Years ended
                                                                December 31,
                                                            1 9 9 6     1 9 9 5
                                                            -------     -------
Net Sales:
  Computer Equipment                                    $21,505,880  $19,147,478
  Computer Equipment - Related Party                            --     2,491,111
  Fuel Injection Systems                                  1,330,208       77,755
                                                         ----------- -----------

  Total Net Sales                                        22,836,088   21,716,344
                                                         ----------- -----------

Cost of Goods Sold:
  Computer Equipment                                     20,494,433   20,660,204
  Fuel Injection Systems                                    933,702       52,885
                                                         ----------- -----------

  Total Cost of Goods Sold                               21,428,135   20,713,089
                                                         ----------- -----------

  Gross Profit                                            1,407,953    1,003,255
                                                         ----------- -----------

Expenses:
  General and Administrative Expenses                     2,098,468      691,724
  Research and Development                                  209,241      326,728
  Depreciation and Amortization                             274,500       65,806
  Provision for Doubtful Accounts                           107,000       24,667
                                                         ----------- -----------

  Total Expenses                                           2,689,209   1,108,925
                                                         ----------- -----------

Operating [Loss]                                         (1,281,256)   (105,670)
                                                         ----------- -----------

Other Income [Expense]:
  Interest Expense                                         (134,073)    (27,637)
  Interest Income                                             81,169          --
  Interest Income - Related Parties                           30,942       3,264
  Loss on Sale of Asset                                      (36,244)         --
  Other Income                                                 2,076          --
                                                         ----------- -----------

  Total Other [Expense]                                     (56,130)    (24,373)
                                                         ----------- -----------

  [Loss] Before Income Taxes                             (1,337,386)   (130,043)

Income Taxes                                                      --          --
                                                         ----------- -----------

  Net [Loss]                                            $(1,337,386) $ (130,043)
                                                         =========== ===========

  [Loss] Per Share                                      $      (.32) $     (.05)
                                                         =========== ===========

  Weighted Average Common Shares Outstanding               4,134,647   2,436,301
                                                         =========== ===========


See Notes to Financial Statements.

                                        F-5

<PAGE>
<TABLE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


STATEMENTS OF STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------




                                                                            Retained    Total
                            Preferred Stock   Common Stock      Paid in     Earnings    Stockholders'
                            Shares   Amount Shares    Amount    Capital     [Deficit]   Equity
 <S>                         <C>     <C>    <C>       <C>      <C>          <C>        <C>

  December 31, 1994           --     $      3,750,000 $ 3,750  $2,170,350    $132,345  $2,306,445

Subchapter S Distributions    --      --      --       --       --           (543,123)   (543,123)

Net Income - 1995             --      --      --       --       --           (130,043)   (130,043)
                             ------  ------ ---------  -------- ----------   --------   ----------

  December 31, 1995           --       --   3,750,000   3,750   2,170,350    (540,821)  1,633,279

Subchapter S and Partnership
  Distributions               --       --       --       --      (123,460)   (260,857)   (384,317)

Transfer of Accumulated
  Losses of S Corporation
  and Partnership to Paid-in
  Capital                     --       --       --       --      (923,981)    923,981        --

Proceeds from Initial Public
  Offering                    --       --   1,068,750   1,069   4,836,256      --       4,837,325

Common Stock Issued in
  Exchange for Assets         --       --     390,000     390   1,949,610      --       1,950,000

Net Income - 1996             --       --       --       --       --        (1,337,386)(1,337,386)
                             ------  ------- --------  -------  ----------   ---------  ---------

  December 31, 1996           --     $ --    5,208,750 $ 5,209 $7,908,775  $(1,215,08$) 6,698,901
                             ======  ======= ========= ======= ==========   =========== =========
</TABLE>


See Notes to Financial Statements.



                                        F-6

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------


                                                                Years ended
                                                                December 31,
                                                           1 9 9 6     1 9 9 5
                                                           -------     -------
Operating Activities:
  Net [Loss]                                            $(1,337,386)$  (130,043)
                                                         ----------- -----------
  Adjustments  to  Reconcile  Net [Loss] to Net Cash  [Used  for]  Provided  by
   Operating Activities:
   Depreciation                                             185,197      34,024
   Amortization                                              89,303      31,782
   Loss on Sale of Asset                                     36,244          --
   Provision for Losses on Accounts Receivable              107,000       4,450
   Contributed Research and Development                          --     306,205

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Accounts Receivable                                    (20,681)   (112,787)
     Inventory                                             (389,845)   (150,159)
     Other Current Assets                                   (91,447)     (4,798)
     Deposits                                               (48,714)         --

   Increase [Decrease] in:
     Accounts Payable and Accrued Expenses                   14,744     543,882
     Other Current Liabilities                             (140,378)     72,274
                                                        ----------- -----------

   Total Adjustments                                       (258,577)    724,873
                                                        ----------- -----------

  Net Cash - Operating Activities                        (1,595,963)    594,830
                                                        ----------- -----------

Investing Activities:
  Purchase of Property and Equipment                       (168,588)     (3,892)
  Proceeds from Sale of Equipment                            85,000      (1,700)
  Advances to Related Parties                              (139,669)   (223,104)
  Cash Acquired through Acquisition - Net of Payments       253,089          --
  Transfers to Cash Restricted                             (788,000)         --
                                                        ----------- -----------

  Net Cash - Investing Activities                          (758,168)   (228,696)
                                                        ----------- -----------

Financing Activities:
  Distributions                                            (384,317)   (466,083)
  Advances from Line of Credit                            6,519,919   2,112,019
  Repayments on Line of Credit                           (6,361,785) (1,451,213)
  Advances from Related Parties                             287,483     669,839
  Repayments to Related Parties                            (325,286)   (639,950)
  Proceeds from Equity Sales                              5,486,325          --
  Loan Origination Fees                                          --    (121,085)
                                                        ----------- -----------

  Net Cash - Financing Activities                         5,222,339     103,527
                                                        ----------- -----------

  Net Increase in Cash                                    2,868,208     469,661

Cash - Beginning of Years                                   558,242      88,581
                                                        ----------- -----------

  Cash - End of Years                                   $ 3,426,450 $   558,242
                                                        =========== ===========

See Notes to Financial Statements.

                                        F-7

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------


                                                               Years ended
                                                               December 31,
                                                           1 9 9 6     1 9 9 5
                                                           -------     -------
Supplemental Disclosures of Cash Flow Information:
  Cash paid during the years for:
   Interest                                             $   144,342 $    19,437
   Income Taxes                                         $        -- $        --

Supplemental Disclosures of Non-Cash Financing and Investing Activities:
  During 1996, the Company acquired assets of $4,674,526 and assumed liabilities
of  $5,298,278  in  exchange  for  390,000  shares  of  common  stock  valued at
$1,950,000.

  During  1995,  the  Company  received   $1,500,000  of  assets  consisting  of
approximately  $63,000  of  accounts  receivable,   approximately   $218,000  of
inventory,  machinery and equipment with a book value of approximately  $913,000
and intangibles valued at approximately  $306,000 in exchange for 900,000 shares
of common stock.

  During  1995,   $77,040  of  inventory  was  distributed  as  a  Subchapter  S
distribution.

  During 1995, $2,155 of inventory was capitalized to property and equipment.





See Notes to Financial Statements.


                                        F-8

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
------------------------------------------------------------------------------



[1] Organization and Nature of Operations

The  consolidated  financial  statements are presented on a  consolidated  basis
commencing  July 22, 1996 and include  the results of  operations  of the parent
company,  Hirel  Holdings,  Inc.  and  its  wholly-owned   subsidiaries,   Hirel
Marketing,  Inc.  ["HMI"] and Hirel  Technologies,  Inc.  ["HTI"]  [collectively
referred to as the  "Company"].  The Company  operates in two business  segments
through  its  operating  subsidiaries.  HMI is a  wholesale  seller of  personal
computers and related  peripherals,  primarily  manufactured  by Apple Computer,
Inc.  and  during  1996 was the  predominant  business  segment.  HMI  sells its
products  to  retailers  and  end  users   throughout   the  United  States  and
internationally. HTI develops, manufactures and sells fuel injection systems for
marine engines to customers  throughout the United States. Both segments operate
out of the Company's  single location in southern  Florida.  Marine Power,  Inc.
["MPI"],  a division of HTI, [See Note 4], was acquired  effective  December 31,
1996, and manufactures  engines for marine  applications for sale throughout the
United States at its location in southern Louisiana.

[2] Basis of Presentation

The financial  statements  for the period ended  December 31, 1996 and 1995 give
retroactive  effect to the  acquisition  by Hirel  Holdings,  Inc. of all of the
outstanding common stock of HMI [an S corporation] and HTI on July 22, 1996. HTI
is the successor to Hirel Technologies, Ltd. ["HTL"], a limited partnership. The
financial  statements  of the  Company are  presented  on a  consolidated  basis
commencing July 22, 1996. Prior to that date the separate results of HMI and HTI
[including  HTL as  predecessor  from  inception  on October 24, 1995] have been
combined on a basis  consistent with that of consolidated  financial  statements
giving  retroactive  effect to the issuance of 2,750,000 shares of the Company's
common stock to the  stockholders of HMI, and 1,000,000  shares of the Company's
common stock to the  stockholders  of HTI.  Additionally,  the S corporation and
partnership  equity  sections  of HMI and HTL as  predecessor  to HTI have  been
reclassified  to additional  paid-in  capital.  No adjustment of assets to "fair
value" have been recorded and all intercompany  balances and  transactions  were
eliminated.  The  accompanying  financial  statements will become the historical
financial  statements  upon  issuance  of  financial  statements  for the period
subsequent to July 22, 1996.

The accompanying historical financial statements for the year ended December 31,
1995 include the results of HTL as  predecessor  of HTI from October 24, 1995 to
December 31, 1995. The predecessor of HTL was Cutler Induction  Systems ["CIS"].
The following pro forma unaudited  information gives effect to the operations of
CIS for the period  January 1, 1995 to October 24, 1995 as if they were included
in the statement of operations for the year ended December 31, 1995.

Net Sales - Computer Equipment                    $21,638,589
Net Sales - Fuel Injection Systems                    814,606
                                                  -----------

  Total Net Sales                                 $22,453,195

  Net Loss                                        $(1,607,000)

  Net Loss Per Share                              $      (.43)
  ------------------                              ===========

  Weighted Average Common Shares Outstanding        3,750,000




                                       F-9

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #2
------------------------------------------------------------------------------



[3] Summary of Significant Accounting Policies

Cash and Cash  Equivalents - Cash  equivalents  are comprised of certain  highly
liquid  investments with a maturity of three months or less when purchased.  The
Company has no cash equivalents at December 31, 1996.

Inventory  -  Inventory  is recorded  principally  at the lower of average  cost
[using the first-in, first-out ["FIFO"] method] or market.

Property and Equipment and  Depreciation - Property and equipment is recorded at
cost.  Depreciation  is computed  utilizing  the  straight-line  method based on
estimated  useful  lives  of  five  to  ten  years.  Amortization  of  leasehold
improvements is computed  utilizing the straight-line  method over the lesser of
the  remaining  lease term or the  useful  life of the  leasehold.  Depreciation
expense, which includes amortization of leasehold improvements, was $185,197 and
$34,024 for the years ended December 31, 1996 and 1995, respectively.

Intangibles and Amortization - Goodwill is amortized utilizing the straight-line
method over a period of 15 years. When changes in circumstances  warrant it, the
Company evaluates the carrying value and the periods of amortization of goodwill
based on the  current  and  expected  future  non-discounted  cash  flows of the
entities  or assets  giving rise to the  goodwill.  Loan  origination  costs are
amortized  utilizing the straight-line  method over the life of the related debt
which matured in 1996 and  amortization  expense was $89,303 and $31,782 in 1996
and 1995, respectively.

Revenue  Recognition and Product Warranty - Revenue is recognized when goods are
shipped to  customers.  The Company  warrants its  computer and engine  products
against  defects for various  periods to a maximum of two years. A provision for
estimated  future costs  relating to warranty  expense is recorded when products
are shipped.

Income Taxes - Prior to July 22,  1996,  HMI and HTI as separate  companies  had
elected to have their  income  taxed under  Subchapters  S and K of the Internal
Revenue Code,  and the related state  provisions,  which provide that in lieu of
federal and state  corporation  income taxes,  the stockholders and partners are
taxed on their proportionate  share of the Company's taxable income.  Therefore,
no provision or liability  for federal or state income taxes is reflected in the
historical financial statements prior to that date.

Research and  Development - The Company  expenses  research and  development  as
incurred.  In connection with its formation,  the Company  expensed  $306,205 in
1995 as contributed research and development.

Earnings Per Share - Earnings per share of common stock is based on the weighted
average number of common shares  outstanding  for each period  presented,  after
giving retroactive effect for the shares issued in the business combination [See
Note 2]. Common stock equivalents are included if dilutive.

Concentration of Credit Risk - Financial  instruments  that potentially  subject
the Company to concentration of credit risk include cash and accounts receivable
arising from its normal  business  activities.  The Company places its cash with
high  credit  quality   financial   institutions.   The  Company  currently  has
approximately  $3,143,434  in financial  institutions  that is subject to normal
credit risk beyond insured amounts.  Regarding accounts receivable,  the Company
believes  that  credit  risk is  limited  due to the large  number  of  entities
comprising the Company's  customer base and the diversified  industries in which
the Company operates.  As a consequence,  the Company believes that its accounts
receivable  credit  risk  exposure  is  limited.  The  Company  does not require
collateral  on  accounts  receivable.  The  Company  is also  subject to risk on
amounts loaned to companies owned by its officers and stockholders.



                                      F-10

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #3
------------------------------------------------------------------------------



[3] Summary of Significant Accounting Policies [Continued]

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

Advertising  -  The  Company  expenses  advertising  costs  as  incurred.  Total
advertising costs charged to expense amounted to approximately  $58,448 and $921
for the years ended December 31, 1996 and 1995, respectively.

Stock Options - The Company accounts for employee stock-based compensation under
the intrinsic  value based method as prescribed by Accounting  Principles  Board
["APB"]  Opinion No. 25. The Company  applies the  provisions  of  Statement  of
Financial  Accounting  Standards  ["SFAS"] No. 123 to  non-employee  stock-based
compensation  and the pro  forma  disclosure  provisions  of that  statement  to
employee stock-based compensation.

[4] Business Combination

On January 24, 1997, the Company  completed its acquisition of substantially all
the assets of MPI effective  December 31, 1996. The Company  acquired  assets of
$4,674,526 and assumed  liabilities of $5,323,278 in exchange for 390,000 shares
of the Company's  common stock valued at  $1,950,000.  The  acquisition  will be
accounted for utilizing the purchase  method of accounting and the operations of
Marine Power,  Inc. will be included with the Company's  from December 31, 1996.
Goodwill including transaction expenses of $2,638,752 arose from the transaction
which will be amortized  utilizing the straight-line  method over a period of 15
years.  No  amortization  expense  was  recorded  at  December  31,  1996 as the
transaction  was effective on that date. In addition,  the Company  entered into
agreements  whereby  based on the  attainment  of  certain  earnings  levels the
sellers can earn  registration  rights on specified  portions of their shares as
well as earn up to an additional  50,000 shares of the Company's common stock if
certain  earnings  targets are met. If the  targets  are met,  the Company  will
recognize additional goodwill measured by the number of shares earned multiplied
by the fair value of the stock on that date.

The following  unaudited pro forma combined  results of operations  reflects the
acquisition  as if it had occurred at the  beginning  of the periods  presented.
These pro forma results may not be  indicative  of results that  actually  would
have occurred if the combination had been in effect on the date indicated.

                                                    December 31,
                                                1 9 9 6       1 9 9 5

Total Revenues                               $34,165,384   $33,917,354
                                             ===========   ===========

Net [Loss]                                   $(3,330,658)  $(1,925,562)
                                             ===========   ===========

[Loss] Per Common Share                      $      (.74)  $      (.47)
                                             ===========   ===========

Weighted Average Common Shares Outstanding     4,523,579     4,140,000



                                      F-11

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #4
------------------------------------------------------------------------------


[5] Cash Restricted

In connection  with the Company's  formation it received  assets once owned by a
predecessor  of HTL  [See  Note  2].  Although  the  Company  believes  that  no
liabilities  or legal claims can be asserted  against HTI, as a condition of its
initial public  offering [See Note 10], the Company placed in escrow $580,000 of
the offering  proceeds until March 23, 1997 to satisfy any claims that may arise
[See Note 20].

In  connection  with the  HMI's  line of  credit,  it was  required  to assign a
$208,000 certificate of deposit as security to the bank.

[6] Inventory

Inventory consists of the following at December 31, 1996:

Raw Materials                                $ 2,795,240
Finished Goods                                   746,796
                                             -----------

  Total                                      $ 3,542,036
  -----                                      ===========

[7] Lines of Credit

HMI maintains a line of credit in the amount of $2,000,000 at December 31, 1996.
The line of credit is used to finance  letters of credit  used by HMI to acquire
inventory.  HMI has the option to pay the letters of credit upon presentation or
to finance them for up to 90 days.  The line of credit  carries  interest at the
Citibank  prime rate [8.25  percent at  December  31,  1996] plus 2 percent to a
maximum of 18  percent.  The line of credit is subject to renewal  annually,  is
collateralized  by all  corporate  assets  and is  guaranteed  by the  principal
stockholder  of the Company.  The line of credit also  restricts  the payment of
dividends  to annual net  income.  Borrowings  under the line were  $818,940  at
December 31, 1996. Letters of credit,  which have not been presented for payment
are included in the caption "accounts payable" on the balance sheet, and totaled
$150,796 at December 31, 1996. The weighted  average interest rate on short-term
borrowings at December 31, 1996 was 8.25 percent.

MPI  maintains a line of credit in the amount of $850,000 at December  31, 1996.
The line of credit  carries  interest at the banks  prime rate [8.25  percent at
December  31,  1996] plus 2 percent  after an initial  rate for the first  three
months of 12.15 percent. The line of credit is subject to renewal annually,  and
is  collateralized  by  accounts  receivable.  Borrowings  under  the line  were
$776,150 at December 31, 1996.

[8] Notes Payable

Notes payable consisted of the following at December 31, 1996:
                                                           December 31,
                                                              1 9 9 6
Note payable to bank,  interest  at prime rate plus 1.5  percent,  with  monthly
  payments of principal and interest through 2$081,400,731

Various notes payable, collateralized by equipment with interest
  rates from 5.75 percent to 10.25 percent, maturing through
  July 2000.                                                    98,818

Total                                                        1,499,549
Less: Current Maturities                                       134,651

  Total                                                    $ 1,364,898
  -----                                                    ===========

Substantially  all of MPI's  assets are pledged as  security  for the above note
payable to bank.  The note payable is personally  guaranteed by certain  related
parties.

                                      F-12

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #5
------------------------------------------------------------------------------


[8] Notes Payable [Continued]

Note payable to bank arose through the Company's  acquisition  of the assets and
liabilities of MPI effective  December 31, 1996 [See Note 4]. The loan agreement
contained certain financial statement  covenants,  and among other restrictions,
limited  the  payment of  dividends.  MPI had  failed to satisfy  certain of the
covenants at June 30, 1996 which had been its fiscal year end and has received a
waiver of the covenants  through June 30, 1997.  The bank has indicated that the
waiver will remain in effect  until the receipt of the  Company's  December  31,
1997 financial statements.

Current maturities on notes payable at December 31, 1996 are as follows:

December 31,
  1997                                       $   134,651
  1998                                           105,927
  1999                                           102,771
  2000                                           102,337
  2001                                           109,896
  Thereafter                                     943,967
                                             -----------

  Total                                      $ 1,499,549
  -----                                      ===========

[9] Related Party Transactions

The Company periodically  advances funds to the Company's principal  stockholder
on a very short-term basis.  These loans are non interest bearing with no formal
repayment  terms.  The Company also makes advances to enterprises  controlled by
the  Company's  principal  stockholder.  A summary  of the loan  activity  is as
follows:

Loans to Stockholder:
                           Beginning                            Ending
   Year End                 Balance     Additions  Repayments   Balance

December 31, 1996          $      --   $ 281,025   $ 260,000  $   21,025
                           =========   =========   =========  ==========

December 31, 1995          $      --   $ 639,950   $ 639,950  $       --
                           =========   =========   =========  ==========

Stockholder loans are subordinated to the line of credit.

Loans to Related Parties Including Interest:

                           Beginning                            Ending
    Year End                Balance     Additions   Repayments  Balance

December 31, 1996          $ 223,104   $ 301,713[1] $     --  $  524,817
                           =========   =========    ========  ==========

December 31, 1995          $      --   $ 223,104    $     --  $  223,104
                           =========   =========    ========  ==========

[1] Includes  $162,044 of related  party  receivables  acquired  through the MPI
acquisition.

The related  party loans of greater than a short-term  nature carry  interest at
prime.  Interest receivable of $34,063 and $3,264 and interest income of $30,942
and $3,264 on those loans as of December  31,  1996 and 1995,  respectively,  is
reflected in the accompanying financial statements.



                                      F-13

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #6
------------------------------------------------------------------------------



[9] Related Party Transactions [Continued]

During the year ended  December 31, 1995, the Company had sales of $2,491,111 to
a company in which the  principal  stockholder  of the Company had an  ownership
interest [See Note 14]. The related party sales ceased in June 1995.

During the year ended  December 31, 1996, the Company paid $60,000 in consulting
fees to the President of HTI.

During the year ended  December  31,  1996,  the Company paid Fenco Tool and Die
Ltd. approximately $160,000 for machinery services [See Note 18].

During the years  ended  December  31, 1996 and 1995,  the Company  paid rent of
$133,636  and  $48,224  to a  company  controlled  by  the  Company's  principal
stockholder. The leases expire in April 1997.

During the year ended  December  31,  1996,  the Company  accrued  royalties  of
$14,935 to a Company controlled by the Company's  principal  stockholder under a
royalty  agreement on certain  patents  covering six components of the Company's
products. Under the agreement,  royalties are calculated as a percentage ranging
between  5  percent  and 10  percent  of net  selling  price as  defined  in the
agreement.  Royalty  payments are due quarterly and the agreement is for a fifty
year period.

[10] Stockholders' Equity

On July 22, 1996, the Company  completed an initial public offering of 1,063,750
shares of common stock at a price of $6.00 per share.  The Company  realized net
proceeds  of  approximately  $4,840,000  in  connection  with the  offering.  In
addition,  the Company issued to its  underwriter  an option to purchase  92,500
shares of common stock at $8.70 per share. The option is exercisable  commencing
July 22, 1997 and expires July 22, 2001. The Company also issued 5,000 shares of
common  stock  to its  attorneys  for  work  performed  in  connection  with the
offering.

[11] Options

The Company has adopted a stock option plan,  effective May 2, 1996.  Under such
plan, key employees and officers and  consultants of the Company will be granted
options to purchase  shares of the  Company's  common stock at their fair market
value on the date of  grant.  The plan  provides  for an  aggregate  of  500,000
options. Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive  Options") under Section 422 of the Internal
Revenue   Code  of  1996,   as  amended  or  options  that  do  not  so  qualify
("Non-Qualified  Options").  In addition, the Plan also allows for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the  exercise  price of the Plan Option with shares of common stock owned
by the  eligible  person and  receive a new Plan  Option to  purchase  shares of
common  stock  equal in number to the  tendered  shares.  Any  Incentive  Option
granted under the Plan must provide for an exercise  price of not less than 100%
of the fair market value of the underlying shares on the date of such grant, but
the  exercise  price of any  Incentive  Option  granted to an eligible  employee
owning more than 10% of the company's common stock must be at least 110% of such
fair market value as determined on the date of the grant.  The term of each Plan
Option and the manner in which it may be exercised is determined by the Board of
the Directors or the Committee,  provided that no Plan Option may be exercisable
more than 10 years after the date of its grant and, in the case of an  Incentive
Option  granted to an eligible  employee  owning more than 10% of the  Company's
Common Stock, no more than five years after the date of the grant.


A summary of the activity under the plan is as follows:

                                               Exercise    Remaining    Average
                                                 Price    Contractual   Exercise
                                       Shares  Per Share     Life        Price


Balance - December 31, 1995                 --  $     --

Granted                                116,000      6.00
Exercised                                   --        --
Forfeited/Expired                       (3,000)    (6.00)
                                     ---------  --------

  Outstanding - December 31, 1996      113,000  $   6.00   9.4 Years  $  6.00
  -------------------------------    =========  ========

  Exercisable - December 31, 1996       10,000  $   6.00   9.4 Years  $  6.00
  -------------------------------    =========  ========



                                      F-14

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #7
------------------------------------------------------------------------------


[11] Options [Continued]

Had  compensation  cost for the Company's stock options issued to employees been
determined  based upon the fair value at the grant date for stock options issued
under these plans  pursuant to the  methodology  prescribed  under  Statement of
Financial  Accounting  Standards  ["SFAS"] No. 123,  Accounting for  Stock-Based
Compensation,  the  Company's  net  loss  and loss per  share  would  have  been
increased,  on a pro forma basis, by approximately  $213,000,  or $.05 per share
for the year ended December 31, 1996. The fair value of stock options granted to
employees used in determining the pro forma amounts is estimated at $4.54 during
1996 using the Black-Scholes option-pricing model for the pro forma amounts with
the following weighted average assumptions:

                                       December 31,
                                    1 9 9 6      1 9 9 5

Risk-free Interest Rate              6.62%         N/A
Expected Life                       6 Years        N/A
Expected Volatility                  84.8%         N/A
Expected Dividends                          None

Net  [loss] and [loss]  per share as  reported,  and on a pro forma  basis as if
compensation  cost had been  determined  on the basis of fair value  pursuant to
SFAS No. 123 is as follows:

                           December 31, 1996

Net [Loss]:
  As Reported               $   (1,337,386)
                            --------------
  Pro Forma                 $   (1,550,386)
                            --------------

[Loss] Per Share:
  As Reported               $         (.32)
                            --------------
  Pro Forma                 $         (.37)
                            --------------

[12] Income Taxes

Commencing  July 22,  1996,  the Company  will  provide for current and deferred
federal and state income taxes where  necessary.  Prior to July 22, 1996,  taxes
were  not  provided  for  as  each  of  the  separate  entities  comprising  the
consolidated group were pass-through  entities.  No pro forma income tax effects
are provided for, as there were losses in all periods presented. At December 31,
1996, the Company has federal net operating loss  carryforwards of approximately
$1,300,000 all of which will expire in 2011.

The major components of the Company's net deferred income taxes are as follows:

Deferred Tax Liabilities:
  Accelerated Depreciation                      $(143,951)

Deferred Tax Assets:
  Reserves and Allowances                          43,290
  Net Operating Loss                              481,000

  Total Deferred Tax Asset                        524,290

Net Deferred Tax Asset Before Valuation Allowance 380,339
Valuation Allowance                              (380,339)

  Net Deferred Tax Asset                        $      --
  ----------------------                        =========


                                      F-15

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #8
------------------------------------------------------------------------------


[13] Segment and Geographic Information

In 1996, the Company's  operations are classified  into two principal  segments;
computer  equipment sales, and fuel injection  systems sales. The following is a
summary of segment and geographic information:

                                    United States Europe     Other  Consolidated
Revenue From Non-Affiliates:
  Computer Equipment                $16,241,227 $3,737,649$1,527,004 $21,505,880
  Fuel Injection Systems             1,330,208         --         --   1,330,208
                                    ----------  --------- ---------- -----------

  Totals                            $17,571,435 $3,737,649$1,527,004 $22,836,088
  ------                            =========== ==================== ===========

Income [Loss] From Operations:
  Computer Equipment                                                $   (32,780)
  Fuel Injection Systems                                               (898,859)
  Corporate                                                            (349,617)
                                                                     -----------

  Total                                                              (1,281,256)

Other Expenses                                                          (56,130)

  [Loss] Before Income Tax Expense                                  $(1,337,386)

Identifiable Assets:
  Computer Equipment                                                $ 1,396,970
  Fuel Injection Systems                                                370,727
  Marine Engine Manufacturing [See Note 4]                            7,272,061
  Corporate                                                           4,615,304
                                                                    -----------

  Total                                                             $13,655,062

Depreciation and Amortization:
  Computer Equipment                                                $   103,719
  Fuel Injection Systems                                                161,391
  Corporate                                                               9,390
                                                                    -----------

  Total                                                             $   274,500
  -----                                                             ===========

Capital Expenditures:
  Computer Equipment                                                $     8,220
  Fuel Injection Systems                                                 22,037
  Corporate                                                             138,331
                                                                    -----------

  Total                                                             $   168,588
  -----                                                             ===========

                                      F-16

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #9
------------------------------------------------------------------------------



[13] Segment and Geographic Information [Continued]

In 1995, the Company's  operations are classified  into two principal  segments;
computer  equipment sales, and fuel injection  systems sales. The following is a
summary of segment and geographic information:

                                 United States   Europe    Other    Consolidated
Revenue From Non-Affiliates:
  Computer Equipment               $12,934,688 $7,514,527 $1,189,374 $21,638,589
  Fuel Injection Systems                77,755        --          --      77,755
                                     ---------- ---------  ---------- ----------

  Totals                           $13,012,443 $7,514,527 $1,189,374 $21,716,344
  ------                            ==========  ========= ==========  ==========

Income [Loss] From Operations:
  Computer Equipment                                                 $  360,199
  Fuel Injection Systems                                               (465,869)
  Corporate                                                                  --
                                                                     ----------

  Total                                                                (105,670)

Other Expenses                                                          (24,373)

  [Loss] Before Income Tax Expense                                   $ (130,043)
  --------------------------------                                    ==========

Identifiable Assets:
  Computer Equipment                                                 $1,418,915
  Fuel Injection Systems                                              1,142,525
  Corporate                                                                  --
                                                                     ----------

  Total                                                              $2,561,440

Depreciation and Amortization:
  Computer Equipment                                                 $   42,428
  Fuel Injection Systems                                                 23,378
                                                                     ----------

  Total                                                              $   65,806
  -----                                                              ==========

Capital Expenditures:
  Computer Equipment                                                 $    6,047
  Fuel Injection Systems                                                913,105
                                                                     ----------

  Total                                                              $  919,152
  -----                                                              ==========

[14] Significant Customers

During  the  year  ended   December  31,  1995,   one  customer   accounted  for
approximately  11.5  percent of the  Company's  sales.  The  customer was also a
related party.



                                      F-17

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #10
------------------------------------------------------------------------------


[15] Commitments and Contingencies

Leases - The Company leases real property and a vehicle under  operating  leases
expiring  through 2001.  The Company also leases its  Louisiana  facility from a
company  controlled by a stockholder of the Company and certain Florida premises
from a company controlled by the Company's principal stockholder.  The Louisiana
lease has an initial term of five years with three  additional five year options
and the Florida leases expire in April 1997.  The Louisiana  lease also contains
annual  adjustments  based on the consumer price index to a maximum  increase of
three percent per year.  Minimum future rental payments as of December 31, 1996,
for each of the next five years, and in the aggregate are as follows:

                                     Related Party  Third Parties       Total

1997                                 $   48,000    $   272,234      $  320,234
1998                                     48,000        278,688         326,688
1999                                     48,000        279,242         327,242
2000                                     48,000        235,798         283,798
2001                                     48,000          7,200          55,200
Thereafter                                   --             --              --
                                     ----------    -----------      ----------

  Total                              $  240,000    $ 1,073,162      $1,313,162
  -----                              ==========    ===========      ==========

Rent expense was $212,686 and $48,224 for the years ended  December 31, 1996 and
1995, respectively, which includes $133,636 and $48,224, respectively, paid to a
related party [See Note 9].

Employment Agreements -

[A] The Company has entered into an agreement  ["Agreement"]  dated as of May 2,
1996 with Vincent  Montelione.  The term of  employment  will  commence upon the
effective  date of the  proposed  public  offering  and will expire on the fifth
anniversary  thereof.  The annual salary under the Agreement is $150,000,  which
amount  will be  increased  by 10  percent  each  year.  The term of  employment
provides for two,  three year  renewals at the mutual  agreement of the parties.
Vincent  Montelione  is also  eligible  to  receive an annual  bonus  equal to 5
percent of the Company's  consolidated  earnings before income tax, depreciation
and  amortization  in excess of  $1,000,000,  payable  within 30 days  after the
determination of such earnings.  The Agreement also provides for the issuance of
up to an  aggregate  of 2,050,000  options to purchase  shares of the  Company's
common stock at $6.00 per share which  options  shall be earned as follows:  (i)
500,000  options  if HMI  has  earnings  before  income  tax,  depreciation  and
amortization  in excess of  $1,000,000  in any fiscal year,  (ii) an  additional
250,000  options if the HMI has earnings  before  income tax,  depreciation  and
amortization  of at least  $1,500,000 in any fiscal year,  (iii) and  additional
250,000  options if the HMI has earnings  before  income tax,  depreciation  and
amortization  of at least  $2,000,000  in any fiscal  year,  (iv) an  additional
250,000  options  if HMI  has  earnings  before  income  tax,  depreciation  and
amortization  of at least  $2,500,000  in any  fiscal  year,  (v) an  additional
500,000  options  if HMI  has  earnings  before  income  tax,  depreciation  and
amortization  of at least  $3,000,000 in any fiscal year, and (vi) an additional
300,000  options  if HMI  has  earnings  before  income  tax,  depreciation  and
amortization  of at least  $4,000,000  in any fiscal  year.  These  options  are
transferable  to Mr.  Montelione's  immediate  family which will include spouse,
parents,  siblings, and children. The Agreement will also provide for noncompete
provisions  and certain  registration  rights with respect to the common  shares
underlying the options. If the aforementioned earnings are achieved, the Company
will recognize  compensation  expense equal to the  difference  between the fair
market value of the options when earned and the exercise price of the options of
$6.00 per share.  The issuance of the options is likely to result in substantial
compensation expense to the Company in future years.

The Agreement  provides,  among other things,  for participation in an equitable
manner in any  profit-sharing or retirement plan for employees or executives and
for  participation  in other  employee  benefits  applicable  to  employees  and
executives of the Company  except for the 1996 Stock Option Plan.  The Agreement
further  provides  for  the  use of an  automobile  and  other  fringe  benefits
commensurate with his duties and  responsibilities.  The Agreement also provides
for benefits in the event of disability.

                                      F-18

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #11
------------------------------------------------------------------------------



[15] Commitments and Contingencies [Continued]

Employment Agreements [Continued]

[A] [Continued]  Pursuant to the Agreement,  employment may be terminated by the
Company with cause or by the executive with or without good reason.  Termination
by the Company without cause, or by the executive for good reason, would subject
the  Company to  liability  for  liquidated  damages  in an amount  equal to the
terminated  executive's  current  salary and an amount equal to his prior year's
bonus  annually,  for the  remaining  term of the  Agreement,  payable  in equal
monthly installments, without any set-off for compensation received from any new
employment.  In addition,  the terminated executive would be entitled to receive
all options earned on a prorata basis as of the date termination and continue to
participate  in and accrue  benefits  under all  employee  benefit  plans and to
receive supplemental retirement benefits to replace benefits under any qualified
plan for the remaining term of the Agreement to the extent permitted by law.

[B] The  Company has entered  into  employment  agreements  with  various  other
officers  and  employees.  The  agreements  vary in terms and  length  with some
containing provisions for the granting of options and or cash bonuses based upon
the achievement of certain  criteria.  Compensation  related to those provisions
will be accrued as earned.

Share Exchange  Agreement - The share exchange  agreement with HTI in connection
with the business  combination  discussed in Note 2 provides for the issuance of
options to  purchase  shares of the  Company's  common  stock at $6.00 per share
which  options  shall be earned as  follows:  (i)  1,000,000  options if HTI has
pre-tax earnings which equals or exceeds  $1,000,000 in any fiscal year, (ii) an
additional 1,000,000 options if pre-tax earnings equals or exceeds $2,000,000 in
any fiscal year, and (iii) an additional  1,000,000  options if pre-tax earnings
equals or exceeds $3,000,000 in any fiscal year. If the aforementioned  earnings
are  achieved,  the Company will  recognize  compensation  expense  equal to the
difference  between  the fair market  value of the  options  when earned and the
exercise price of the options of $6.00 per share. The issuance of the options is
likely to result in  substantial  compensation  expense to the Company in future
years.

[16] Fair Value of Financial Instruments

Effective  December  31,  1995,  the  Company  adopted  Statement  of  Financial
Accounting  Standards  No.  107,  "Disclosure  About  Fair  Value  of  Financial
Instruments," which requires disclosing fair value to the extent practicable for
financial instruments which are recognized or unrecognized in the balance sheet.
The fair value of the financial  instruments disclosed herein is not necessarily
representative  of the amount that could be  realized  or settled,  nor does the
fair value amount consider the tax consequences of realization or settlement.

In  assessing  the fair value of these  financial  instruments,  the Company was
required to make assumptions, which were based on estimates of market conditions
and risks  existing  at that time.  For  certain  instruments,  including  cash,
accounts receivable, notes receivable, accounts payable, amounts due to and from
related parties and affiliates,  and short-term debt,  management estimates that
the  carrying  amount   approximated  fair  value  for  the  majority  of  these
instruments  because of their short  maturities.  Management  estimates that the
carrying amount of its long-term indebtedness  approximates fair value since the
interest rates  currently  offered to the Company for debt of the same remaining
maturities  approximates  the  average  interest  rates  which  the  Company  is
currently paying.


                                      F-19

<PAGE>



HIREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #12
------------------------------------------------------------------------------



[17] Subsequent Event

On January 10, 1997, the Company acquired the assets and assumed the liabilities
of Fenco Tool and Die,  Ltd.,  a company  owned by certain  stockholders  of the
Company.  The  Company  acquired  assets of  approximately  $90,000  and assumed
liabilities of approximately $30,000 for a $60,000 cash payment.
No goodwill arose in the transaction.

[18] New Authoritative Accounting Pronouncements

The  Financial  Accounting  Standards  Board  ["FASB"]  has issued  Statement of
Financial  Accounting  Standards ["SFAS"] No. 125, "Accounting for Transfers and
Servicing of Financial Assets and  Extinguishment of Liabilities."  SFAS No. 125
is effective for transfers and servicing of financial assets and  extinguishment
of liabilities  occurring  after December 31, 1996.  Earlier  application is not
allowed.  The  provisions  of  SFAS  No.  125  must  be  applied  prospectively;
retroactive  application  is  prohibited.  Adoption  on  January  1, 1997 is not
expected  to have a  material  impact on the  Company.  The FASB  deferred  some
provisions of SFAS No.125, which are not expected to be relevant to the Company.

The Financial Accounting Standards Board ["FASB"] has issued Statement of
Financial Accounting Standards ["SFAS"] No. 128, "Earnings per Share," and SFAS
No. 129, "Disclosure of Information about Capital Structure," in February 1997.

SFAS No. 128 simplifies the earnings per share ["EPS"] calculations  required by
Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations,
by replacing the  presentation  of primary EPS with a presentation of basic EPS.
SFAS No. 128  requires  dual  presentation  of basic and diluted EPS by entities
with complex capital structures.  Basic EPS includes no dilution and is computed
by dividing  income  available to common  stockholders  by the  weighted-average
number of common  shares  outstanding  for the period.  Diluted EPS reflects the
potential  dilution of securities that could share in the earnings of an entity,
similar  to the  fully  diluted  EPS of APB  Opinion  No.  15.  SFAS No.  128 is
effective for financial  statements issued for periods ending after December 15,
1997,  including  interim periods;  earlier  application is not permitted.  When
adopted,  SFAS No. 128 will require  restatement  of all  prior-period  EPS data
presented;  however,  the Company has not sufficiently  analyzed SFAS No. 128 to
determine  what effect SFAS No. 128 will have on its  historically  reported EPS
amounts.

SFAS No. 129 does not change any previous  disclosure  requirements,  but rather
consolidates existing disclosure requirements for ease of retrieval.

[19] Subsequent Event [Unaudited]

On March 21, 1997, the Company made two $100,000 loans to an unrelated  company.
The loans bear interest at prime plus 2 percent and mature on December 31, 1997.
In connection with the loans, the Company's HMI subsidiary was granted an option
to require the  reorganization  of the  unrelated  company  with and into HMI as
provided  in a plan of  reorganization  between  the two  companies.  The option
expires on June 1, 1998.

On March 24, 1997,  the Company  received  the  $580,000  which had been held in
escrow.






                    .   .   .   .   .   .   .   .   .   .   .


                                      F-20