UNITED STATES
                               
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-K

 [X]Annual Report Pursuant to Section 13 or 15(d) of the Securities 
                         Exchange Act of 1934

                      For the year ended September 30, 1996

                         Commission File Number 1-11046

                          TOP SOURCE TECHNOLOGIES, INC.
             (Exact name of Registrant as specified in its charter).
Delaware                                               84-1027821
(State or other jurisdiction of                     (I.R.S. Employer
corporation or organization)                      Identification Number)

        7108 Fairway Drive, Suite 200, Palm Beach Gardens, Florida 33418
               (Address of Principal executive office)           (zip code)

       Registrant's telephone number, including area code: (561) 775-5756

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

Title of each class                               Name of each exchange
                                                  on which registered
Common Stock                                      American Stock Exchange

           Securities registered pursuant to Section 12(g) of the Act:
                  .001 par value common stock (Title of Class)
                                      None

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports); and (2) has been subject to such filing
                  requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
Incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]

As of December 13, 1996, 28,451,477 shares of $.001 par value Common Stock (the
Registrant's only class of voting stock) were outstanding. The aggregate market
value of the common shares of the Registrant on December 13, 1996 (based upon
the closing sales price) held by non-affiliates of the Registrant, was
approximately $79,733,523.

                       Documents Incorporated by Reference
Location in Form 10-K                              Incorporated Document
Part III-Items 10, 11, & 12                        Definitive Proxy 
                                                   Statement in connection
                                                   with its annual meeting of
                                                   stockholders to be held
                                                   on May 15, 1997


                                     <PAGE>



                                     PART I


ITEM 1.  BUSINESS

A.  General Description of Business

Top  Source  Technologies,  Inc.  (the  "Company")  was  organized  in  1986  to
distribute a patented overhead mounted speaker system ("OHSS") for vehicles.  In
1989, the Company's mission was expanded to include  developing and marketing of
products,   services  and  technologies  for  the   transportation  and  related
industries. The Company has since further expanded its product line. In addition
to the  OHSS,  in  1993  and  1994  the  Company  acquired  three  oil  analysis
laboratories  which were  subsequently  sold,  (see United Testing Group ("UTG")
Sale of Assets in Section  C.) and has  developed  a  proprietary  oil  analysis
instrument,  the On-Site  Oil  Analyzer  ("OSA")  for use in the  petrochemical,
automotive  and  equipment  service  industries.  The Company also  licenses one
safety restraint technology,  Acceleration  Restraint Curve Safety Seat ("ARCS")
from the Massachusetts Institute of Technology ("M.I.T.").
As of January 6, 1997, the Company had four subsidiaries: Top Source Automotive,
Inc.  ("TSA"),  On-Site  Analysis,  Inc.  ("OSAI") whose name was changed to Top
Source Instruments, Inc. ("TSI."), and ARCS Safety Seat, Inc. ("ARCS, Inc.") all
located in the Troy,  Michigan  area, and United  Testing  Group,  Inc.  ("UTG")
currently  a  discontinued  operation.  In  fiscal  1996,  the  Company  derived
substantially  all of its revenue from sales of its OHSS at TSA. Service revenue
from UTG for years ended September 30. 1996, 1995 and 1994 has been reclassified
and  is  included  in  the  Company's  financial   statements  as  "discontinued
operations."
B.  Financial Information About Industry Segments

The Company currently has two industry segments:  automotive technology, TSA and
oil analysis service, TSI. (For information on industry segments,  see Item 8. -
Financial Statements and Supplementary Data, Note 17 Segment Information.)


C.  Narrative Description of Business

General
The Company  markets  one  product,  an OHSS,  and  provides  one  service,  oil
analysis. The Company has three proprietary  technologies:  OHSS; OSA, which has
generated  a  nominal  amount  of  revenue;   and  ARCS,  which  is  non-revenue
generating.  Another technology, Engine Fuel Economy Emissions Control Reduction
System  ("EFECS"),  was also licensed from M.I.T. and subsequently sold pursuant
to a future royalty  agreement in May 1995. (See Item 8. - Financial  Statements
and  Supplementary  Data,  Note  16 and the  heading  "EFECS"  in this  Business
Section.)

Products and Technologies

Overhead Speaker System
In 1987, the Company  acquired the exclusive  rights to distribute in the United
States and Canada a patented automotive overhead mounted speaker system from its
Swedish  inventor.  The  Company  holds a number of  patents  for the OHSS which
expire at various  times  through  2009.  In  addition,  the  Company has patent
applications  for other uses of OHSS.  The patents cover the design and mounting
method which permits  speakers,  dome lights and other accessories to be mounted
overhead. The assembly includes enclosed audio speakers pre-wired in an overhead
mounting  system.  The unit,  about six  inches  wide,  mounts  up  against  the
headliner  across  the  width of the sport  utility  vehicle  as a rear  speaker
system.  Overhead mounted speakers  deliver  unobstructed  sound directly to the
listener whereas speakers mounted in the side doors,  tailgate or cargo area can
become

2
<PAGE>



ITEM 1.  BUSINESS (continued)

obstructed  by  passengers  or  cargo.  The  OHSS  eliminates  the need for rear
speakers in traditional locations, reduces weight in the liftgate and because of
its fixed  overhead  mounting,  is not  subject  to the same  risks of damage as
speakers  located in door or liftgate  panels.  The OHSS  provides  the Original
Equipment  Manufacturers  ("OEMs")  with a cost  effective  solution to improved
audio sound without  additional  expensive  tooling and within  relatively short
lead times, and the assembly reduces installation time in factory applications.

In  1991,  a  custom   designed  OHSS  was  approved  by  Chrysler   Corporation
("Chrysler")  for dealer  installation on the Jeep(R)  Wrangler,  and a purchase
order was received.  This OHSS unit can be installed in less than 30 minutes and
retails for around $300. A patent on the  Wrangler  OHSS was issued in 1991.  In
February  1992,  the  Company  established  an  engineering  team that worked on
housing designs,  materials,  and other features, as well as audio sound issues.
The team, which included internal engineers and outside consultants,  identified
vehicle  opportunities for the OHSS and built working prototypes.  The Company's
marketing group presented  these units to OEM audio,  trim and product  planning
engineers  for  evaluation.  The second  custom OHSS unit was  designed  for the
Jeep(R)  Cherokee,  a high volume vehicle in production since 1984. The Cherokee
unit was molded from reinforced urethane and housed two 5 1/4 inch speakers. The
unit  mounted  over the rear  cargo  area and  incorporated  the cargo area dome
light.  In May  1992,  Chrysler  approved  this  unit and a  purchase  order was
received for dealer  installation.  The third custom unit which was designed for
the new Jeep(R)  Grand  Cherokee  featured  four  speakers and mounted above the
cargo area in the rear of the  vehicle.  In early  1993,  the  Company  received
approval and a purchase order for the Grand Cherokee unit as a dealer  installed
option.  Patents have been applied for in regard to both Cherokees.

In  1992,  TSA  focused  its  marketing  effort  on  expanded   production  line
installation  opportunities for both the Wrangler and Cherokee,  and the Company
received  its  first  production  line  orders  for  both the  Wrangler  and the
Cherokee.  That  opportunity  promised  significant  increases  in OHSS  volumes
compared to dealer installed application. To support that effort the Company, in
early  1993,  established  its  own  assembly  operation  in a  leased  Michigan
facility.  The in-house  assembly  assured  reduced  costs and permitted the TSA
total control of quality and delivery schedules.  By September 1993, the Company
was  shipping  significantly  increased  OHSS units due to the  production  line
purchase orders.


In 1990, the TSA shipped  approximately  7,480 OHSS units.  By 1996, that number
had grown to 228,731 OHSS units of which 3,400 were shipped to Venezuela.

In  January  1996,  TSA  started  shipments  of a new Jeep  Wrangler  OHSS model
designed for the completely redesigned Wrangler.  Although no formal commitments
beyond  model  year 1997 have been  received,  the  Company  believes  that this
program will last at least through year 2000. In addition,  the Company has also
received  approval  from  Chrysler to begin  tooling  for an upscale  OHSS to be
factory installed in the 1997 high end Grand Cherokee.  The Company has designed
and  presented  many more custom units to domestic and foreign OEMs  including a
completely  new design.  The new design,  which a patent has been  applied  for,
positions  small  speakers in the center part of the vehicle with sound channels
distributing the sound to acoustically correct positions.  The whole system will
be built as a modular  assembly  and  attached  to the ceiling of the vehicle at
assembly  lines and later  covered by the  headliner.  This new  product has the
potential to eliminate the need for speakers in all doors and instrument  panels
and will be incorporated both in front as well as the rear of the vehicle.  This
product also opens up a wider target  market range of vehicles  than the earlier
truck, van and sport utility vehicle market. Also during 1996, TSA began working
with several major  interior  trim  suppliers to provide sound systems which are
fully  integrated into the interior trim on future vehicles models  beginning in
the model year 2000.

The Company  believes it can meet additional  potential demand for its OHSS from
present  or  new  customers  due to  available  capacity  at  TSA's  new  plant.
Components of the OHSS such as speakers, grills, wiring harnesses,  housings and
dome  lights are  sourced  either by the  Company or the OEM  customer.  Back-up
sources are available for all components.


3
<PAGE>



ITEM 1.  BUSINESS (continued)

Currently, TSA has three production line contracts with Chrysler, Jeep Cherokee,
Jeep Grand  Cherokee and Jeep  Wrangler.  The Jeep Cherokee  contract,  which is
projected  to account  for between  33% to 40% of TSA's  fiscal  1997  revenues,
expires during the Company's fiscal 1997 fourth quarter.

Based on the anticipated growth of TSA's two remaining  contracts,  TSA believes
it can  reduce  the  projected  impact  of the  loss  of the  Cherokee  Program,
excluding any additional aftermarket revenue that can be generated, so that 1998
and  1999  TSA  revenues  will  approximate  70% to 75% of 1997  levels.  TSA is
currently  seeking  strategic   relationships  with  several  major  aftermarket
retailers.

Due to the  receipt  by TSA in 1996  of  Chrysler's  Gold  Pentastar  award  for
quality,  performance and on-time delivery, TSA's unique patent position and due
to TSA's growing  visibility in the overhead  speaker  market,  TSA  anticipates
receiving  some  of  these  aftermarket  contracts;  however,  there  can  be no
assurances  that these  contracts can be obtained or that these  contracts  will
offset or exceed the loss of the profit on the Cherokee contract.

Oil Analysis
Oil analysis is a 50-year-old technology initially used by the railroad industry
to monitor the internal condition of their engines.  Over the past 30 years, use
of the  technology  expanded and oil analysis is now widely used for  diagnostic
and  preventative  maintenance  programs for equipment in the aircraft,  marine,
heavy duty vehicle,  industrial machine, defense and automotive industries.  The
technology is also used for process  quality control and pipe line monitoring in
the petrochemical industry as well as many other chemical and mineral production
processes.

It is  estimated  that the size of the oil  analysis  market is in excess of two
billion  dollars.  This  includes oil  analysis  performed  by  independent  and
in-house  laboratories.  The Company  believes that the use of oil analysis will
increase as a  preventative  maintenance  and process  control  technology.  The
Company also  believes  that  advances in oil analysis  technology  owned by the
Company will permit oil analysis utilization in new markets, such as automotive,
and will  increase  oil  analysis  application  by  those  presently  using  the
technology.

Traditionally,  the service requires  extracting a small sample of used oil from
oil  lubricated  equipment  and  sending it to a  laboratory.  Scientific  tests
identify  and quantify  metal  debris that is the result of wear.  The amount of
metal  debris,  correlated  to time or mileage that the oil has been in service,
indicates if wear is normal or abnormal.  Other  laboratory  tests  indicate and
measure  if there is any  coolant or water in the oil,  the  amount of  airborne
dirt, viscosity,  acidity, depletion level of the additive package, flash point,
coloration  and many other  factors.  Oil analysis users select the tests from a
service  menu  based on their  particular  needs.  Once  the  empirical  data is
generated  by  laboratory  tests,  a trained  evaluator  reviews the results and
generates a report, which often contains service recommendations.  The report is
then sent to the end user.

All major oil companies  provide oil analysis  service for their  industrial and
commercial  lubricant customers to help them monitor the service and maintenance
needs  of  their  equipment.   These  oil  companies  either  contract  with  an
independent  laboratory  for a private  label  package or perform the service in
their own laboratory.

In March of 1992,  the  Company  decided  to pursue  the  concept  of an On-Site
Analyzer ("OSA") using the advanced software  technology,  automated  diagnostic
system and  proprietary  database  developed and used at  Spectro/Metrics,  Inc.
("SMI"),  then a privately  owned oil analysis  laboratory.  The Company entered
into an agreement with SMI to solicit instrument manufacturers
4
<PAGE>



ITEM 1. BUSINESS  (continued)

with the goal of designing  and building a low cost test  instrument  for use on
the shop floor, which was capable of performing many of the services provided by
an oil analysis  laboratory.  The goal was to provide almost instant  results by
eliminating  the need to send a sample to a laboratory.  Initially,  the Company
intended to license the  proprietary  software and database  from SMI,  purchase
OSAs from an instrument  manufacturer and either sell the instrument or sell the
service on a per test basis. The Company also conducted  primary market research
in many markets to verify the demand, acceptability and requirements of an OSA.

In order to provide  present and  potential  users of OSAs with the oil analysis
data,  the oil  sample  must be  tested  by two  distinctly  different  types of
spectrometers:  an emission spectrometer to identify and quantify metal elements
and an infrared spectrometer to measure the physical-chemical  properties of the
used oil. Other  specifications for the instrument  included parameters such as:
user friendly,  low cost,  minimal  maintenance,  near  laboratory  accuracy and
repeatability, reliability and several minute turn around time, etc. The overall
objective  was to provide  high volume oil analysis  locations  with an OSA that
delivers acceptable data in minutes at about the same price they pay for similar
data by sending samples to a laboratory.

Under their agreement,  the Company and SMI jointly  developed an initial design
that outlined the flow of oil and information in a potential instrument, defined
the  specifications  required  by the  target  market  and  identified  the user
friendly   aspects.   The  instrument   considerations   included  cost  limits,
calibration,   diagnostic   and  service   issues.   The   concept   design  and
specifications  were presented to several  instrument  manufacturers  around the
world.

In January  1993,  the  Company  and SMI  entered  into an  initial  development
agreement  with the Thermo  Jarrell  Ash ("TJA")  Division of Thermo  Instrument
Systems,  Inc.  to  jointly  develop  an OSA with  both  emission  and  infrared
capability.  The  intent of the  agreement  was to  provide  TJA with  exclusive
manufacturing  rights in exchange for their development  expense and the Company
would receive exclusive  distribution  rights to the petrochemical and synthetic
lubricants market while TJA could pursue other markets. Under the agreement, TJA
was responsible for all hardware  included in the instrument as well as software
for each individual spectrometer. The Company was responsible for the analytical
software including  quantification files and database and the overall instrument
operating software.

In July 1993, the Company acquired SMI and Professional  Services Inc. ("PSI") ,
another oil analysis  laboratory  with a broad customer  base.  This enabled the
Company to gain  control of the  extensive  database,  technology  and  software
necessary  to develop  the OSA.  SMI and PSI were  merged  under the name United
Testing Group,  Inc.  ("UTG").  In January 1994, UTG acquired a small laboratory
located near Reno, Nevada. With this acquisition, UTG now had three laboratories
(Atlanta, Chicago, Reno) and further expanded its database.

From July 1993 through September 1996, UTG added a significant amount of new and
diverse oil analysis samples to its database.  This database became essential to
the  development  of the  computer  software  that  operates  and  controls  the
precision  and accuracy of the OSA machines.  In July 1996,  (1) with TSI having
completed the majority of the OSA software development and modification, (2) the
inability  of UTG to become  profitable  at current  sales  levels,  and (3) the
decision by the Company to focus its resources on the  proprietary  OSA and OHSS
products;  the Company  agreed to sell its three oil analysis  laboratories.  


Sale of United Testing Group Assets - Discontinued Operations
On  July  31,  1996,  the  Company  entered  into a  non-binding  Memorandum  of
Understanding  to  sell  substantially  all of the  assets  of its  wholly-owned
subsidiary,  UTG, to Conam Inspection,  Inc., ("Conam") a subsidiary of Staveley
Industries, plc ("Staveley") from the United Kingdom.


5
<PAGE>



ITEM 1. BUSINESS  (continued)

On September 12, 1996,  the Company  agreed to the  financial  terms of the sale
with Conam and adopted a plan to discontinue  UTG  operations  effective for the
Company's fiscal year ended September 30, 1996. On October 30, 1996, pursuant to
an Asset Purchase Agreement (filed by the Company on Form 8-K dated November 12,
1996) ("Agreement") the Company consummated the Agreement.

Under the financial  terms of the Agreement,  Conam  purchased for $3,348,910 in
cash,  after closing  adjustments,  all of UTG's property,  plant and equipment,
deposits,  supplies inventory,  trademarks and patents, and goodwill, and agreed
to assume  substantially  all of UTG's  liability  for  outstanding  prepaid oil
analysis kits, and the liability for various equipment and facility leases. (See
Financial Statements and Supplementary Data, Note 2 - Discontinued  Operations.)
Of this amount $200,000 was placed in an escrow account for a one-year period to
cover undisclosed liabilities not assumed by Conam.

After the  transaction  of  October  30th , UTG  retained  ownership  of all pre
October 30th trade accounts receivable balances amounting to $656,706,  net of a
reserve  for bad debts of  $83,650.  As of  January  2, 1997,  the  Company  has
collected  $440,331  of  its  October  29th  accounts  receivable  balances  and
anticipates collecting the remaining balances. Also, as part of the transaction,
the Company  maintained  ownership of its proprietary oil analysis database used
for creating  quantification  files for the Company's OSA units. Conam agreed to
lease this database for a ten-year period for a cash prepayment of $100,000, and
also agreed to lease two OSA units for a three-year period with a nominal buyout
at the end of the lease for an additional payment of $100,000.  Revenue from the
lease of the database and two OSA units will start to be recognized in the first
quarter of fiscal year 1997.

Also during the closing  period,  Conam began  negotiations  with the Company to
market  OSA  units  via  franchising,  and  to  represent  the  Company  in  the
petro-chemical  industry.  (See TSA "Marketing and Franchise Agreements" in this
Business Section.)

OSA Development
In July 1993,  OSAI was formed as a  wholly-owned  subsidiary  of the Company to
exclusively  develop the OSA  program.  On  September  12, 1996  pursuant to the
restructuring,  the name of OSAI was changed to TSI. (See "Restructuring of TSI"
in this  Business  Section.)  The  Company  since  1993  has  staffed  TSI  with
spectroscopists,  instrument  specialists,  sales  and  marketing,  systems  and
programmer   personnel   as  well  as   technicians   capable  of  assisting  in
installation, operation and training.

During August 1993, TJA and OSAI produced an Alpha developmental  prototype that
appeared to be able to meet the requirements and specifications  established for
the OSA. In December  1993,  OSAI  introduced  the first OSA Beta  prototype  at
Chevron's national oil distributor convention in San Diego.  Concurrently,  OSAI
placed an order with TJA to manufacture  additional  Beta OSA units.  The intent
was to place OSAs in the field at various  locations  to identify any issues yet
to be resolved before a final design was established for larger distribution.

During 1993,  the Company  confirmed  with several oil companies that they had a
strong interest for OSA use in their operations for process  control,  pipe line
monitoring, and maintenance of equipment such as compressors, pumps, engines and
gear cases. The petroleum processing industry,  including refining, blending and
recycling,  is today a large user of oil  analysis.  Presently,  oil  production
facilities  rely on in-house  central  laboratories  for quality control testing
after each  production  process.  It generally  takes more than six hours to get
results  which  determine  if the  product  is  acceptable  to go on to the next
process  or to be  shipped.  OSA has the  potential  to become an at, or on-line
process controller which could provide operators with almost instant information
concerning  the quality of the  product.  This would permit  adjustments  to the
process to keep the product "in spec,"  creating  significant  cost  savings and
increases in production speeds.


6
<PAGE>



ITEM 1. BUSINESS  (continued)

In December  1993,  the Company  signed a  confidentiality  agreement with Exxon
Corporation  ("Exxon")  and began  evaluating  a variety  of  petroleum  product
samples.  In July 1994,  the Company and Exxon signed a national  lease.  In the
Fall of 1994,  extensive  testing was  commenced  at Exxon on three OSA refinery
units.  The  purpose  of  the  testing  was  to  determine  the  durability  and
operational reliability of an OSA unit in the refinery market. Based on positive
initial  results,  the Company and TJA began  hardware and  software  changes to
enhance the original OSA  equipment  maintenance  design to be usable in process
control  applications  required  in  a  refinery.  This  project  has  continued
throughout 1995 to the present.

In July 1994, the first 15 Beta equipment  maintenance OSA (the original design)
units were shipped to various  business  test sites.  From July 1994 and through
mid-August  1995, the Company and TJA  identified and corrected many  unexpected
design flaws and made modifications  necessary for the OSAs to operate reliably.
Due to these engineering changes, the Company was unable to generate any revenue
on these OSA units.

By the end of August 1995, the Company had  retrofitted  all existing Beta units
at customer  sites and began  shipping the newly  designed  units to  additional
customers  for  evaluation  and  testing.  In  September,  the  customers  began
re-testing the OSAs in order to ensure the required  reliability and performance
existed.

During  1996,  the Company  continued  to send OSA units to various test markets
locations in diverse  industries  and generated a nominal amount of revenue from
OSA  units  at  a  refinery,   automobile   dealership,   oil   distributor  and
municipality.  Although  the  commercialization  by the Company of OSA units has
occurred at slower than  anticipated  pace,  the Company  believes it has gained
valuable market  information  from OSAs at test locations that has enabled it to
identify  primary  and  secondary  markets  and to  devise  a  strategy  to help
accelerate OSA revenue growth.  The Company currently  believes that its primary
markets are in powertrain development locations,  the refinery and petrochemical
industry and in franchising mini-laboratories which would encompass new and used
car dealers, fleets, municipalities quick lubes, auto and truck service centers,
industrial and marine locations and truck stops.

Also, based on market information obtained during 1996, the Company modified its
pricing  strategy to match the  economics of various OSA markets.  These pricing
guidelines  now offer the  customer  five  different  methods of  obtaining  the
benefits of OSA usage.  These methods are (1) outright  purchase,  (2) operating
leases,  (3) capital leases,  (4) per click usage, (5) and several other pricing
structures  whereby  TSI  provides  for the  rental  of both  the OSA unit and a
trained operator on hourly basis or lease basis.

Each OSA currently has the capacity to effectively  analyze  approximately eight
samples per hour. Software  enhancements  currently in process will increase the
samples  per hour to 12. The  Company  believes  that the OSA units are now user
friendly,  self-calibrating,  self-diagnostic,  and capable of being operated by
non-technical personnel in a non-laboratory environment.


On April 9, 1996 and July 15, 1996,  the Company placed two test OSA units in an
OEM's powertrain testing facility in Detroit.  Based on the favorable results to
date,  the  Company  anticipates  receiving a purchase  order for and  recording
revenue for these units in February, 1997.

On December 11, 1996, the Company received a purchase order from Hyundai Motors,
Inc. for  approximately  $150,000 to buy an OSA unit for its powertrain  testing
facility in Korea.  The Company  anticipates  shipping  this unit and  recording
revenue in February 1997.

Based on the  reliability  demonstrated  by the OSA units  throughout the latter
part of 1995 and during 1996, and based on market  information  obtained  during
1996, the Company anticipates  generating an increasing quarterly revenue stream
from equipment maintenance OSA units.


7
<PAGE>



ITEM 1.  BUSINESS (continued)

Since 1994, the Company has been working at the Exxon refinery in Baton Rouge to
develop a refinery  OSA unit.  This has  required  the Company to  significantly
modify,  enhance  and add  additional  hardware  and  software  to its  standard
equipment  maintenance  OSA unit.  The Company  currently  believes  that it has
developed a OSA refinery  unit that can meet the stringent and highly
complex technical requirements of Exxon and other refineries.

The Company  believes it will receive an order for additional  refinery units at
the Exxon Baton Rouge  refinery and will receive  orders from other  refineries,
however,  due to previous delays,  ongoing and changing technical  requirements,
and the  difficulty in  introducing  and receiving  customer  acceptance for new
technology,  there  can be no  assurances  as to the  quantity  or timing of the
orders.

On March  3,  1995,  the  Company  and TJA  signed a  long-term  agreement.  The
agreement  provides for  exclusive  manufacturing  rights for TJA and  exclusive
distribution  rights for the Company for  petrochemical  products and synthetics
used as lubrication.  TJA is now assembling OSAs in its Grand Junction, Colorado
facility. TJA has the capacity to produce up to 1,500 units within 12 months and
has the  capability to increase  their  capacity and supply all of the Company's
needs given several  months ramp-up time. The Company has received three patents
on various aspects of the instrument and applied for several others. The Company
believes that TJA has also applied for and received  patents on the  instrument.
There is  presently no known  technology  competitive  to OSA.  The  proprietary
nature of the OSA is also protected by trade secrets,  high cost of development,
requirement of a large database and a highly complex analytical  process.  As of
January,  1997, the Company knows of no other  supplier  capable of developing a
comparable unit in the near term.

To  date,  the  Company  has  used  its  existing  cash  resources  to fund  the
development of OSA units and the  operations of TSI.  Future units will continue
to be paid for with  available  cash and credit lines from First Union  National
Bank, if necessary.  (See Financial  Statements and Supplementary Data, Note 9 -
Debt and Liquidity and Capital Resources in Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations.)

TSI Marketing and Franchise Agreements
In December  1995,  the  Company  entered  into a non  binding  Letter of Intent
("LOI") with a group interested in becoming the exclusive  worldwide  franchisor
of the  Company's  OSA units.  In May 1996,  the  original  LOI was  modified to
exclude certain territories and to set specific  performance  guidelines for the
franchise group with the goal of reaching a binding definitive agreement by July
31, 1996.

Due to the franchise group's lack of demonstrable  progress in responding to the
definitive  agreement  drafted by the Company,  the Company allowed the original
LOI to expire on July 31, 1996.  However,  subsequent to that date,  the Company
continued  discussions with certain individuals  included in the original group.
Simultaneously,  upon  expiration  of the  LOI,  the  Company  began  meaningful
discussions with Conam, the buyer of the UTG assets (see "Sale of UTG Assets" in
this Business  Section)  regarding  joint marketing and  representation  for OSA
units in the refinery  industry and on a franchise basis both  domestically  and
internationally.

On October 30, 1996 as part of the UTG transaction,  Conam agreed to lease for a
total payment of $100,000 two OSA units for a three-year period. These units are
intended to be used by Conam in two pilot locations in a franchise  environment.
Based on current  discussion  in progress,  the Company  believes it will sign a
definitive  franchise  agreement  with  Conam or other  parties  that will yield
multiple OSA sales and result in growing ongoing revenue;  however, there can be
no assurances.


8
<PAGE>



ITEM 1. BUSINESS  (continued)

In addition to the previously described  discussions,  on November 14, 1996, the
Company  entered into a Marketing  Agreement with Conam whereby Conam became the
Company's  exclusive OSA sales agent in the  petrochemical  processing  industry
("Oil Industry") in North America.  Under the terms of the Agreement,  (1) Conam
will receive a commission of 10% of the revenue  generated from OSA Oil Industry
placements  entered into  subsequent  to November  14,  1996,  and (2) agreed to
provide to the Company office space and support  services at Conam facilities in
Chicago, Los Angeles,  Houston,  and San Francisco.  Either the Company or Conam
may terminate  this Agreement for any reason,  whatsoever,  upon 90 days written
notice.

Restructuring of TSI Operations
Due to the Company's  favorable OSA test location  results in the OEM powertrain
market in Detroit,  the sale of the UTG laboratories in Atlanta, and the need to
staff TSI with professionals with different marketing  experience than currently
staffed at TSI, on September 12, 1996, the Company's Board of Directors approved
a restructuring  plan. This plan included the  restructuring of management,  and
relocating TSI's office and certain personnel from Atlanta to the Troy, Michigan
area to be in close proximity to the Company's TSA subsidiary.  As a result, the
Company recorded a restructuring  charge of $725,000 in fiscal 1996 to cover the
costs of severance,  lease  cancellation in Atlanta and other expenses that have
no future benefit.

ARCS (Acceleration Restraint Curve Safety Seat)
Over the past seven  years the Company has  developed a  proprietary  technology
involving  controlled  seat motion that occurs at the instant of a frontal crash
to help  restrain  vehicle  occupants and assist  automakers in meeting  Federal
passive  restraint laws. The Company  labeled the technology ARCS  (Acceleration
Restraint  Curve Safety Seat).  The primary  objective of this  technology is to
provide supplemental lower torso restraint to alleviate abdominal,  hip, leg and
ankle  injuries  caused by unwanted  lower torso motion often  experienced  in a
severe  frontal  crash.  The secondary  objective of the technology is to better
position the upper torso in a frontal crash and alleviate  injuries to the head,
neck  and  chest.  In a  severe  frontal  crash,  occupants  restrained  by  any
combination of air bags and seat belts may  experience  upper and/or lower torso
injuries caused by "submarining" under the lap belt, shoulder harness and/or air
bag.  The ARCS  technology  is designed to reduce or  alleviate  those  injuries
caused by  submarining.  The ARCS  technology  is intended to become part of the
overall  restraint  system along with air bags and seat belts,  eliminating  the
need and expense of knee  bolsters,  allowing more passenger leg room and giving
instrument panel designers more latitude.

A prototype seat was built in October 1990. The Company selected the Wayne State
University Biomechanics Department, based in Detroit, to conduct the sled tests.
The sled test results  proved ARCS'  technology  ability to provide  significant
injury reduction  potential for vehicle  occupants during a frontal crash.  Sled
tests were  conducted  with the occupant  restrained by a shoulder  harness only
without the use of an air bag or lapbelt,  and the instrument panel and steering
column were removed.

During the third and fourth quarters of fiscal year 1994, a
major Detroit automaker sled-tested the ARCS technology in a second vehicle. The
results were within Federal Safety Standards with the occupant  restrained using
the ARCS seat motion for the lower torso and an air bag for the upper body.  The
Company  is  unaware  of  any  other  moving  seat   technology  that  has  been
successfully  tested by a major automobile  manufacturer.  In December 1996, the
U.S. Patent Office granted patent protection for ARCS technology.

The Company believes  research and development costs to the Company for the ARCS
is complete and all future development and application  engineering will be paid
for by the vehicle and/or seat  manufacturers.  Due to the requirement to design
and build actual  pre-production  hardware for automaker testing, the Company is
attempting  to  establish  a  strategic   partner   relationship   with  a  seat
manufacturer.  The Company hopes to sell the technology and maintain a long-term
opportunity  for future  royalty  income.  Based on lead times in the automobile
industry,  royalties  would not be generated for a minimum of four years after a
contract is signed;  however,  due to the increasing  regulation and scrutiny on
air  bag  technology,  the  time  period  for  implementation  of  an  alternate
technology could be shortened.

9
<PAGE>



ITEM 1. BUSINESS (continued)

EFECS
In early 1990, the technology  licensing office at M.I.T.  offered the Company a
new  technology  that  promised to improve the fuel  economy and reduce  exhaust
emissions of a spark-ignited  engine,  without decreasing power or driveability.
The technology,  named EFECS,  Engine Fuel Economy  Emissions  Control Reduction
System,  was developed by an engineer who is also a member of the M.I.T.  racing
team. EFECS is based on a patented computer-controlled engine operation strategy
and employs its own  patented  high  powered  variable  output  ignition  system
coupled to a unique spark plug design. The system is intended to help automakers
meet  future  stringent  exhaust  emission   standards,   including  cold  start
emissions,  as well as improve fuel economy.  The EFECS technology may solve the
major problems  experienced with lean burn engine operation in the past and also
provide a cost and weight  effective  solution  to cold start  emissions.  These
problems  include  (i)  control of the  transient  fuel air  charge to  maintain
driveability,  (ii) control of a variable air fuel ratio,  (iii) maintaining low
NOX in a lean burn  environment,  (iv)  ignitability  of a lean  mixture and (v)
misfire control.  EFECS' self-tuning  capability  eliminates the need to tune-up
the engine and keeps it running efficiently for the life of the vehicle. It also
provides diagnostics and trouble-shooting  information. In May 1995, the Company
sold the EFECS  technology to Adrenaline  Inc., the original  inventor of EFECS,
pursuant to a future royalty  arrangement to accelerate  royalty payments to the
Company and to place a ceiling on the amount of total  royalties  payable to the
Company.  This  agreement was  subsequently  amended on February 22, 1996.  (See
Financial  Statements  and  Supplementary  Data,  Note  16 - Sale  of  EFECS  to
Adrenaline,  Inc.) . As of January 6, 1997,  the Company had received a total of
$29,169 in royalty payments.

Significant Customer Information
During 1996,  approximately  99% of the Company's  revenue was derived from OHSS
sales to Chrysler Corporation. Revenue from the UTG operations has been excluded
from total revenue.  (See Item 8 - Financial  Statements and Supplementary Data,
Note 2 Discontinued  Operations.) For significant  customer information see Item
8. - Financial  Statements and  Supplementary  Data, Note 15 - Concentration  of
Credit Risk.

Government Regulation
The  Company  is subject  to  government  regulations  generally  affecting  all
businesses.  UTG, while it was in operation,  routinely  disposed of used oil in
the ordinary  course of its  business and as such was subject to federal,  state
and  local  regulations.  To handle  this oil  disposal,  UTG hired a  licensed,
insured third party. The Company believes that UTG and its predecessors  were in
material  compliance  with all rules and  regulations of the federal,  state and
local agencies and agreed to indemnify  Conam, the purchaser of UTG, against any
compliance penalties, if any should arise .

Seasonal Information
The Company's management believes that their business is not seasonal,  however,
its OHSS product sold by TSA is subject to normal periods of OEM production line
shutdown for vehicle  model year  changeovers.  This  shutdown  period  normally
occurs for  periods of time  ranging  from two to six weeks and not  necessarily
occurring  during the same  quarter  or  quarters  during  each fiscal
year.

Offices and Employees
The Company maintains  principal  administrative  offices in Palm Beach Gardens,
Florida  and  handles  investor  relations  in the New  York  City  office.  The
Company's automotive subsidiary, TSA, has a 45,000 square foot facility in Troy,
Michigan, which includes its administrative, engineering and assembly operation.
TSI was located near Atlanta,  Georgia and is presently in the process of moving
its facility to a 14,900 square foot facility in Farmington Hills, Michigan. The
Company employs approximately 72 full-time and three part-time people.


10
<PAGE>



ITEM 2. DESCRIPTION OF PROPERTY

The following table sets forth the location and use of the Company's facilities.
All of the facilities are leased.

             USE            LOCATION                           EXPIRATION
             -----          ---------                           ----------
Corporate Headquarters     Palm Beach Gardens, Florida         January 1999
Investor Relations Office  New York, New York                  November 1999
TSA                        Troy, Michigan                      June 2000
TSI                        Atlanta, Georgia                    July 1998
                           Farmington Hills, Michigan          August 2000

All  facilities   have  excess   capacity  and  the  capability  to  accommodate
significant future growth. Each of these facilities is in good condition.

ITEM 3. LEGAL PROCEEDINGS

On April 20, 1994,  the Company  initiated a suit in U.S.  District  Court ("the
Court")  in  Atlanta,  Georgia  against  PSI for  failure  to honor  contractual
obligations relating to oil testing samples sold prior to the Company's purchase
of PSI on July 16,  1993.  On June 26,  1995,  PSI  paid the  Company  $229,500,
without any conditions  attached,  in anticipation of the Company dismissing the
lawsuit against PSI. On October 17, 1995, PSI,  pursuant to a ruling made by the
Court, paid the Company an additional $56,367 in full settlement of the suit. In
January 1996,  the Company filed an appeal with the court to collect  additional
amounts,  which the Company  believes it was owed. In September 1996, the appeal
was denied resulting in no impact to the Company's Financial Statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER'S

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the fiscal year ended September 30, 1996.


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

Market Information For Common Stock
The following table sets forth for the periods  indicated the range of quarterly
high and low  representative  market prices for the Company's  common stock. The
Company's  common stock trades on the American  Stock  Exchange under the symbol
"TPS".

                                   Fiscal 1996                Fiscal 1995
                                High            Low       High          Low
First Quarter  (December 31)  8-7/8           6-3/8      8-3/8          5-3/4
Second Quarter (March 31)     7-3/8           5          7-3/4          5-3/8
Third Quarter  (June 30)      8-3/16          5-5/16     7-3/16         5-3/16
Fourth Quarter (September 30) 7-1/16          3-3/8      9-3/16         6-1/8

Holders
As of December 13, 1996, there were approximately 1,398 holders of record of the
Company's common stock.


11
<PAGE>



ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(continued)

Dividend Policy
The  Company  has never  paid cash  dividends  on its common  stock.  Payment of
dividends is within the discretion of the Company's  Board of Directors and will
depend upon the  earnings,  capital  requirements  and  operating  and financial
condition of the Company,  and any  restrictions in loan agreements  among other
factors.  Currently,  the Company intends to follow a policy of retaining future
earnings in order to finance the growth and development of its businesses.

Share Repurchase program
On November  12,  1996,  the Company  announced  that it put into effect a stock
repurchase program.  Initially, the Company intended to repurchase up to 300,000
shares of its common  stock in the open  market and hold the shares as  treasury
stock.  In December  1996,  Top Source  Technologies,  Inc.  increased its share
repurchase  program by 100,000 shares.  As of December 13, 1996, the Company had
repurchased 295,700 shares at an average purchase price of $3.37 per share.


ITEM 6.  SELECTED FINANCIAL DATA

The following table summarizes  certain selected financial data of the Company's
financial  condition  and  results of  operations  as of and for the years ended
September 30, 1996, 1995, 1994, and 1993 and as of and for the nine months ended
September 30, 1992.  The selected  financial  data should be read in conjunction
with Item 8. Financial Statements and Supplementary Data and Item 7.

Management's Discussion and Analysis of Financial Condition and Results
 of Operations.
<TABLE>

AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, 1994, 1993, AND AS OF
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1992
<S>                                               <C>               <C>              <C>            <C>                 <C>  
Balance Sheet Data                                 1996             1995             1994             1993             1992

Total Assets                                     $ 16,012,716     $ 19,109,250     $ 17,855,313     $ 10,632,917    $   2,353,657
Long-term Debt                                      3,020,000        2,060,000       ---                 458,368       ---
Total Liabilities                                   7,095,991        4,704,152        2,351,143        2,784,104          515,997
Stockholders' Equity                                8,916,725       14,405,098       15,504,170        7,848,813        1,837,660

Statement of Operations Data

Net Sales                                         $16,146,524     $ 13,907,354    $   9,259,581    $   2,536,340    $   1,826,623
Income (Loss) from Continuing
     Operations                                   (4,831,786)      (2,820,492)        1,840,366      (3,671,212)      (2,118,154)
Net Income (Loss)                                 (6,698,787)      (3,399,796)        2,014,577      (3,610,226)      (2,118,154)
Income (loss) per Common Share
     from Continuing Operations                        (0.17)           (0.10)             0.06           (0.18)           (0.12)
Net Income ( Loss) per Weighted
     Average Common Share                              (0.24)           (0.12)             0.07           (0.18)           (0.12)
</TABLE>

See Notes to Consolidated  Financial  Statements for information on transactions
and  accounting  classifications  which have affected the  comparability  of the
periods  presented  above.  The Company has not declared  cash  dividends on its
common stock for any of the periods presented above.


12
<PAGE>



 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS

Results of Operations
On October 30,  1996,  the Company sold certain  assets and  liabilities  of the
Company's oil analysis  subsidiary,  UTG. (See Item 8. Financial  Statements and
Supplementary Data, Note 2. Discontinued  Operations.  Therefore, the operations
of UTG for 1996, 1995 and 1994 are excluded from the analysis below.

1996 Compared to 1995

Total revenue for the year ended September 30, 1996 was $16,146,524  compared to
$13,907,354  for the year ended  September 30, 1995,  an increase of 16.1%.  TSA
generated  total revenue for the year ended  September  30, 1996 of  $16,102,523
compared to $13,893,459  for the year ended September 30, 1995. This increase of
15.9% is due to increased  sales of the OHSS.  TSI's revenue for fiscal 1996 and
1995 was nominal.

The gross profit margin for the year ended September 30, 1996 was 33.3% compared
to 37.2% for the year ended  September  30, 1995.  The decrease in margins below
comparable  levels is primarily  attributable  to  increased  labor and overhead
costs relating to product sales at TSA.

General and administrative  expenses decreased 4.6% for the year ended September
30, 1996 compared to the year ended  September 30, 1995.  The decrease is due to
personnel  reductions and improved  efficiency at the Company's corporate office
which were offset by increased  expenses at the Company's  subsidiaries  TSA and
TSI.

Selling and marketing  expense  increased 50.6% for the year ended September 30,
1996 compared to the year ended  September 30, 1995.  This increase is primarily
due to increased salary and commission expense at TSA and TSI.

Depreciation  and  amortization  expense  increased  20.9%  for the  year  ended
September 30, 1996 compared to the year ended  September 30, 1995.  The increase
is  primarily  due to  increased  depreciation  at TSI which is  related  to the
purchase of  additional  OSA units  during the year ended  September  30,  1996.
Additional  depreciation and amortization of $307,373 has been allocated to cost
of sales as it directly  relates to the products and services sold during fiscal
1996.

Interest income increased $49,553 or 78.8% for the year ended September 30, 1996
compared to the year ended September 30, 1995,  which was due to interest earned
on increased funds that were invested during the current fiscal year.

Interest expense  increased  $216,266 during the fiscal year ended September 30,
1996 as compared to the year ended  September  30, 1995.  The increase is due to
the  interest  expense on the  Company's  $3,020,000  nine  percent  (9%) Senior
Subordinated Convertible Notes which were issued in June and October of 1995.

Other  income  decreased  $221,589  for the year  ended  September  30,  1996 as
compared  to the same  period  in 1995.  This  decrease  is due to  proceeds  of
$229,500 from Professional Services Industries, Inc. ("PSI") received in June of
1995. (See Item 3. Legal Proceedings)

Income tax expense  increased  $933,300 for the year ended September 30, 1996 as
compared to the year ended September 30, 1995. The increased tax expense was due
to a reversal of $1,365,000 of the Company's previously established tax asset as
a result of the Company not meeting  expected  taxable income in fiscal 1996. In
addition, TSA had increased state tax expense of $117,500 during fiscal 1996.

At September  30, 1996,  the Company has net tax basis  Federal  operating  loss
carryforwards of approximately  $25,674,000,  which may be used to offset future
taxable income, if any. The Company's net operating loss carryforwards  begin to
expire between 2001 and 2011.


13
<PAGE>




ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
 RESULTS OF OPERATIONS  (continued)


The increase of $3,298,991 in the net loss for the year ended September 30, 1996
as compared to the same period in 1995 is  primarily  related to the  $1,804,791
loss from the disposal of UTG as well as a restructuring reserve of $725,000 set
up for TSI, Inc. In addition,  tax expense increased $933,300 primarily due to a
reversal of the Company's tax asset.

The pre-tax loss from  operations for the period ended September 30, 1996 before
restructuring charge was $2,331,219 compared to a pre-tax loss of $2,366,527 in
1995. The losses in both periods are primarily  attributable  to expenses at TSI
to develop the OSA product,  and corporate  expenses offset by  profitability at
TSA.

1995 Compared to 1994

Total revenue for the year ended September 30, 1995 was $13,907,354  compared to
$9,259,581 for the year ended September 30, 1994, an increase of 50.2%.  This is
primarily  due to an  increase  of 51% in  product  sales at the  Company's  TSA
subsidiary which is attributable to an increased  installation rate and sales of
OHSS products for Chrysler's  Jeep(R) Wrangler and Jeep(R) Cherokee  vehicles as
well  as  increased  deliveries  to  Chrysler  Venezuela  for  Jeep(R)  Cherokee
applications.

The gross profit margin for the year ended September 30, 1995 was 37.2% compared
to 39.4% for the year ended  September  30, 1994.  The decrease in margins below
comparable  levels is primarily  attributable  to  increased  labor and overhead
costs relating to product sales at TSA.

General and administrative expenses increased 87.3% for the year ended September
30, 1995 compared to the year ended  September 30, 1994. The increase was caused
by significant general and administrative  expenditures of $1,655,125 at TSI, an
increase of  $1,587,207  from fiscal  1994.  The  majority of the  expenses  are
attributable  to an increase in  personnel  and  technical  staff  necessary  to
support the  anticipated  rollout of the OSA units.  Also, the Company  incurred
additional costs of $331,050 related to payments on an employment and consulting
contract.  The  services  have been  completed  and there will be no  additional
expenses  incurred under this  agreement.  In the fourth quarter of fiscal 1995,
senior  management of the Company made reductions,  primarily  through personnel
cuts,  in  operating  costs  from the then  current  levels  in order to  reduce
expenses.  Professional  fees, which are included in general and  administrative
expenses, increased primarily due to legal costs incurred in connection with the
PSI litigation (see Item 3. Legal  Proceedings).  Professional  fees incurred in
fiscal 1995 relating to the PSI lawsuit were approximately $102,000.

Selling and marketing  expense  increased 57.2% for the year ended September 30,
1995 compared to the year ended  September 30, 1994.  This increase was a result
of the intensification of marketing and promotional activities in support of the
TSIs  including an increase in the TSI sales force.  These selling and marketing
expenses include increased salaries, benefits and travel expenses.

Depreciation and amortization  increased 106.7% for the year ended September 30,
1995 compared to the year ended  September 30, 1994. This increase is due to the
purchase of  $1,682,018 in capital  assets during fiscal 1995 of which  $774,857
related to  purchases  by TSI.  Depreciation  and  amortization  of $130,238 was
allocated  to cost of sales as it directly  relates to the products and services
sold during fiscal 1995.

Research  and  development  decreased  71.3% for year ended  September  30, 1995
compared to the year ended  September  30,  1994.  This  decrease  is  primarily
attributable to the elimination of research and development  expenses related to
the ARCS  technology.  During 1995,  the Company  modified and enhanced the OSA.
These costs are included in general and administrative expenses. In fiscal 1995,
there were no research and development expenses related to the OSA.



14
<PAGE>



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)


Interest  income  increased 50.7% for the year ended September 30, 1995 compared
to the year ended  September  30,  1994.  This  increase is due to the  interest
earned on the senior subordinated  convertible note proceeds of $2,060,000 which
were received in June 1995. (See Item 8. Financial  Statements and Supplementary
Data, Note 9. Debt.)

Other income  (expense)  decreased 41.1% for the year ended September 30, 1995
compared to the year ended  September  30,  1994.  In fiscal  1994 Other  Income
included  approximately $278,000 which related to the recovery of loan fees that
had been previously written off in fiscal 1993.

Income tax expense for the year ended  September 30, 1995 was $610,000  compared
to a benefit  of  $2,270,000  of for the year  ended  September  30,  1994.  The
increase  in tax  expense  was due to a reversal  of a portion of the  Company's
previously  established  tax  asset,  as a result  of the  Company  not  meeting
expectations of taxable income in 1995.

The net loss for the year ended  September  30, 1995  compared to the year ended
September 30, 1994 is attributable to increased expenses relating to the rollout
of OSA units and an increased  loss for oil analysis  services at UTG. Also, the
loss was  attributable  to the $550,000  increase in the deferred tax  valuation
allowance.

The  remaining  products  marketed by the Company may be  adversely  affected by
economic conditions.

Liquidity and Capital Resources

Net cash flows  used in  operations  during  the  current  fiscal  year  totaled
$1,237,130.  The usage of cash is attributable to a net operating loss excluding
depreciation and  amortization,  of $5,459,851,  an increase in accounts payable
and  accrued  liabilities  of  $1,306,090,  an  increase  in  current  assets of
$688,628, an increase in the tax valuation allowance of $1,365,000,  an increase
of $725,000  for  accrued  restructuring  reserve and the loss from  disposal of
discontinued operations of $1,804,791.

Net cash used in investing  activities  was  $1,434,292  of which  approximately
$1,857,004  was  expended  for capital  assets,  $42,510 for patent  costs,  and
$465,222 related to the reimbursement of tooling costs.

Net cash provided by financing  activities  was  $2,170,414  which  included the
exercise of stock  options and  warrants  (exercise  prices  ranged from $.53 to
$6.50) that  generated  approximately  $1,210,414  in net  proceeds.  Also,  net
proceeds of $960,000 were  generated  from the issuance of the remaining  senior
subordinated  convertible notes. The Company has bank financing with First Union
National Bank of Florida,  ("the Bank"). On October 12, 1995, the Bank increased
the Company's line of credit to $6,000,000 with  $1,500,000  being available for
short term working  capital,  ("Credit Line") and $4,500,000  ("OSA Line") to be
used exclusively for the purchase of OSAs.

At September 30, 1996, the Company had not met the minimum debt service coverage
on the $4,500,000 OSA Line, and, therefore, was unable to access the line. Under
the terms of the credit  facility,  on December 31, 1996, the OSA Line principal
balance  availability  was reduced from $4,500,000 to $2,250,000 and will remain
at that level until the expiration of the facility on December 31, 1997.

Due to the current number of OSA machines already owned by the Company and based
on current cash balances and the  accessibility  of the $1,500,000  Credit Line,
the  Company  does not  anticipate  a need to access  the OSA Line  prior to its
expiration on December 31, 1997.

During fiscal 1996 through the present,  the Company has not utilized its Credit
Line.  The Company  believes  that the Credit Line will be renewed until January
31, 1998 upon its expiration on January 31, 1997.


15
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)


Based on current  cash  balances,  the Credit  Line and savings  generated  from
expense  reductions,  the  Company  believes  it has  sufficient  cash  flow and
liquidity  to  fund  its  current  operations  and  anticipated  increasing  OSA
commercialization.

Forward-Looking Statements
The  statements   discussed  above  under  the  Business  Section,   Results  of
Operations,   Liquidity  and  Capital   Resources   relating  to  the  Company's
expectations  that it  anticipates  (1)  generating  OSA revenue  from OSA units
located in the powertrain,  refinery, and other markets through franchising, (2)
entering  into  strategic   relationships,   (3)  obtaining  significant  dealer
installed  and  aftermarket  OHSS  programs,   (4)future  TSA  orders,  and  (5)
improvements in the Company's  profitability  and liquidity are  forward-looking
statements  within the meaning of Section 27A of the  Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934.

Important  factors that could cause actual results to differ materially from the
forward-looking  statements  include the  following:  (1) the decline in current
production  levels at Chrysler for vehicles  installing  OHSS, (2) the continued
reliability  of the OSA  technology  over an  extended  period of time,  (3) the
Company's  ability to market OSAs,  (4) the  acceptance of the OSA technology by
the marketplace, (5) the general tendency of large corporations to slowly change
from known technology to emerging new technology,  (6) the Company's reliance on
a third party to manufacture  OSAs, (7) potential future  competition from third
parties that may develop  proprietary  technology  which either does not violate
the  Company's  proprietary  rights or is claimed not to violate  the  Company's
proprietary rights, and (8) unanticipated  business or legal disagreements which
impede  entry into one or more  strategic  alliances  or impact the signing of a
definitive agreement.

Inflation
The impact of inflation has become less significant with dormant inflation rates
in recent years. The Company believes inflation has not had a material effect on
the Company's operations.

New Accounting Standards
In 1995 the Financial  Accounting  Standards Board ("FASB") issued  Statement of
Financial  Accounting  Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of. The Company
will adopt the  statement  in fiscal 1997.  It is not expected to have  material
impact  on  the  Company's   consolidated   financial  position  or  results  of
operations.

In 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based  Compensation.
With respect to accounting  for its stock options,  as permitted  under SFAS No.
123, the Company intends to retain the intrinsic value method  currently used as
prescribed by Accounting  Principles Board Opinion No. 25,  Accounting for Stock
Issued to Employees.  The Company will provide  disclosures  in accordance  with
SFAS No. 123 when the standard is adopted in fiscal 1997.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX                                                                     Page
Report of Independent  Certified Public Accountants........................17
Consolidated Balance Sheets as of September 30, 1996 and 1995..............18
Consolidated Statements of Operations for the Years Ended 
            September 30, 1996, 1995 and 1994..............................19
Consolidated Statements of Stockholders' Equity for the Years 
            Ended September 30, 1996, 1995 and 1994........... ............20
Consolidated Statements of Cash Flows for the Years Ended 
            September 30, 1996, 1995 and 1994.....  .......................21
Notes to Consolidated Financial Statements.................................22
16
<PAGE>



                              REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders of Top Source Technologies, Inc.:

We have  audited  the  accompanying  consolidated  balance  sheets of Top Source
Technologies,  Inc., (a Delaware  corporation)  and subsidiaries as of September
30,  1996 and 1995,  and the  related  consolidated  statements  of  operations,
stockholders'  equity and cash  flows for each of the three  years in the period
ended September 30, 1996. These financial  statements and the schedule  referred
to below are the responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Top Source Technologies,  Inc.
and  subsidiaries  as of  September  30,  1996 and 1995 and the results of their
operations  and their cash flows for each of the three years in the period ended
September 30, 1996 in conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic  financial
statements taken as a whole.  Schedule II is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the basic
financial  statements.   This  schedule  has  been  subjected  to  the  auditing
procedures  applied in the audit of the basic  financial  statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic  financial  statements  taken as a
whole.



ARTHUR ANDERSEN LLP



West Palm Beach, Florida
December 13, 1996

17
<PAGE>



<TABLE>

                                               TOP SOURCE TECHNOLOGIES, INC.
                                                ANNUAL REPORT ON FORM 10-K

                                                CONSOLIDATED BALANCE SHEETS
                                             AS OF SEPTEMBER 30, 1996 and 1995

----------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                            <C>
ASSETS                                                                         1996                              1995
                                                                          ----------------                 -----------------
Current Assets:
  Cash and cash equivalents                                                       653,129                         1,154,137
  Accounts receivable trade (net of allowance of $83,650
     and $145,703 in 1996 and 1995, respectively)                               4,100,672                         3,489,791
  Inventories                                                                     511,958                           468,169
  Prepaid expenses                                                                325,946                           300,549
  Other                                                                           111,685                            82,258
                                                                          ----------------                 -----------------
Total current assets                                                            5,703,390                         5,494,904

Property and equipment, net                                                     2,503,033                         2,217,051
Manufacturing and distribution rights and patents, net                            333,762                           361,340
Capitalized database, net                                                       2,494,860                         2,705,693
Deferred income tax assets, net                                                   355,000                         1,720,000
Other assets, net                                                                 784,203                           808,695
Net assets from discontinued operations                                         3,838,468                         5,801,567
                                                                          ================                 =================
TOTAL ASSETS                                                                   16,012,716                        19,109,250
                                                                          ================                 =================


LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable                                                              1,836,395                         1,279,761
  Accrued salaries                                                                229,939                           318,621
  Accrued liabilities                                                           1,520,099                           681,961
  Net liabilities from discontinued operations                                    489,558                           363,809
                                                                          ----------------                 -----------------
Total current liabilities                                                       4,075,991                         2,644,152
  Senior subordinated convertible notes                                         3,020,000                         2,060,000
                                                                          ----------------                 -----------------
Total liabilities                                                               7,095,991                         4,704,152

Commitments and contingencies (Note 10)

Stockholders' equity:
  Preferred stock - $.10 par value, 5,000,000 shares
   authorized; none outstanding                                                    ---                               ---
  Common stock-$.001 par value, 50,000,000 shares
   authorized; 28,446,477 and 27,731,477 shares issued and
   outstanding in 1996 and 1995, respectively                                      28,446                            27,731
  Additional paid-in capital                                                   28,723,853                        27,514,154
  Accumulated deficit                                                         (19,703,789)                      (13,005,002)
  Treasury stock-at cost; 87,534 shares                                          (131,785)                         (131,785)
                                                                          ----------------                 -----------------
Total stockholders' equity                                                      8,916,725                        14,405,098
                                                                          ----------------                 -----------------
                                                                          ================                 =================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     16,012,716                        19,109,250
                                                                          ================                 =================


  The accompanying  notes to consolidated  financial  statements are an integral
part of these balance sheets.

</TABLE>
18
<PAGE>
<TABLE>


                                               TOP SOURCE TECHNOLOGIES, INC.
                                                ANNUAL REPORT ON FORM 10-K

                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                   FOR THE YEARS ENDED SEPTEMBER 30, 1996, 
                                                  1995 AND 1994
<S>                                                                        <C>                 <C>            <C>                 
                                                                               1996             1995             1994
----------------------------------------------------------------------------------------------------------------------------


Product sales                                                                 $16,102,523      $13,893,459       $9,203,938
Service revenue                                                                    44,001           13,895       ---
Other                                                                           ---             ---                  55,643
                                                                          --------------------------------------------------
  Net sales                                                                    16,146,524       13,907,354        9,259,581
                                                                          --------------------------------------------------

Cost of product sales                                                          10,749,431        8,739,691        5,596,167
Cost of services                                                                   26,772       ---              ---
Other                                                                           ---             ---                  10,151
                                                                          --------------------------------------------------
  Cost of sales                                                                10,776,203        8,739,691        5,606,318
                                                                          --------------------------------------------------
Gross profit                                                                    5,370,321        5,167,663        3,653,263
                                                                          --------------------------------------------------
Expenses:
  General and administrative                                                    5,751,733        6,030,533        3,220,291
  Selling and marketing                                                           989,450          657,220          418,123
  Depreciation and amortization                                                   931,563          770,286          372,613
  Restructuring reserve                                                           725,000       ---              ---
  Research and development                                                         28,794           76,151          265,330
                                                                          --------------------------------------------------
Total expenses                                                                  8,426,540        7,534,190        4,276,357
                                                                          --------------------------------------------------
Loss from operations                                                           (3,056,219)      (2,366,527)        (623,094)
Other income (expense):
  Interest income                                                                 112,398           62,845           41,686
  Interest expense                                                               (276,566)         (60,300)         (63,727)
  Other income (expense), net                                                     (68,099)         153,490          260,671
                                                                          --------------------------------------------------
Net other income (expense)                                                       (232,267)         156,035          238,630
                                                                          --------------------------------------------------
Loss before income taxes                                                       (3,288,486)      (2,210,492)        (384,464)
Income tax benefit (expense)                                                   (1,543,300)        (610,000)       2,224,830
                                                                          --------------------------------------------------
Income (loss) from continuing operations                                       (4,831,786)      (2,820,492)       1,840,366
                                                                          --------------------------------------------------
Discontinued operations:
   Income (loss) from discontinued operations (net
     of income tax benefit of $45,170 in 1994)                                    (62,210)        (579,304)         174,211
   Loss on disposal of discontinued operations                                 (1,804,791)         ---              ---
                                                                          --------------------------------------------------
Net income (loss)                                                          ($6,698,787)        ($3,399,796)      $2,014,577
                                                                          --------------------------------------------------
Income (loss) per weighted average common share
   outstanding:
   Continuing operations                                                               (0.17)           (0.10)            0.06
   Discontinued operations:
     Income (loss) from operations                                                       ---            (0.02)            0.01
     Loss on disposal                                                                  (0.07)            ---              ---
                                                                          ==================================================
     Total                                                                             (0.24)           (0.12)            0.07
                                                                          ==================================================
Weighted average common shares outstanding                                     28,027,959       27,249,541
                                                                          =================================
Weighted average common and common equivalent shares:
     Primary                                                                                                     28,381,211
                                                                                                           =================
     Fully diluted                                                                                               28,728,488
                                                                                                           =================


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

</TABLE>

19
<PAGE>
<TABLE>




                                                    TOP SOURCE TECHNOLOGIES, INC.
                                                     ANNUAL REPORT ON FORM 10-K
                                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                         FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<S>                                     <C>          <C>       <C>              <C>       <C>          <C>         <C>
                                                                                           DEFERRED                 TOTAL
                                                               ADDITIONAL      ACCUMU-     OFFICERS'                STOCK-
                                                                 PAID-IN        LATED      COMPENSA-   TREASURY    HOLDERS'
                                            SHARES     AMOUNT    CAPITAL       DEFICIT       TION       STOCK       EQUITY
                                         -----------------------------------------------------------------------------------

BALANCE, SEPTEMBER 30, 1993               24,330,899  $ 24,331 $  19,590,000 $ (11,619,783)$ (13,950)  $ (131,785)  $7,848,813
                                                                                                                         
Exercise of stock options
 ($.28125 to $6.00 per share)                708,800      709     1,275,722         --        --            --       1,276,431
Exercise of warrants
 ($1.00 to $3.00 per share)                1,052,300    1,052     2,894,346                   --            --       2,895,398
Sale of common stock
 ($1.75 per share)                           550,000      550       961,950         --        --            --         962,500
Common stock issued in acquisition      
 ($6.62 per share)                            74,396       74       492,427         --        --            --         492,501
Amortization of deferred
 officers' compensation                           --        --         --           --       13,950         --          13,950
Net income                                        --        --         --        2,014,577     --           --       2,014,577
                                            --------------------------------------------------------------------------------------  


BALANCE, SEPTEMBER 30, 1994                26,716,395    26,716   25,214,445    (9,605,206)     --       (131,785)   15,504,170    

Exercise of stock options
 ($.28 to $6.50 per share)                  1,015,082    1,015    2,299,709         --         --           --       2,300,724
Net loss                                         --        --         --       (3,399,796)     --           --      (3,399,796)
                                          -------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1995                27,731,477   27,731   27,514,154   (13,005,002)     --       (131,785)   14,405,098

Exercise of stock options
 ($.53 to $6.50 per share)                    675,000      675    1,169,739       --           --         --         1,170,414
Exercise of warrants 
 ($1.00 per share)                             40,000       40       39,960       --           --         --            40,000
Net loss                                          --        --          --      (6,698,787)    --         --        (6,698,787)
                                           =====================================================================================
BALANCE, SEPTEMBER 30, 1996                28,446,477  $ 28,446 $28,723,853   $(19,703,789)  $ --       $(131,785)  $8,916,725
                                           =====================================================================================

                                                                                    



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

                                         
20

</TABLE>

<PAGE>

<TABLE>



                                               TOP SOURCE TECHNOLOGIES, INC.
                                                ANNUAL REPORT ON FORM 10-K

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                 <C>                <C>

                                                                                1996             1995             1994
                                                                          --------------------------------------------------
OPERATING ACTIVITIES:
    Net income (loss)                                                          (6,698,787)      (3,399,796)       2,014,577
    Adjustments to reconcile net income (loss) to
       net cash used in operating activities:
    Loss (income) from discontinued operations                                  1,867,001          579,304         (174,211)
    Depreciation                                                                  963,302          631,578          273,355
    Amortization                                                                  275,634          268,946          328,076
    Disposal of equipment                                                         151,411           64,735          (68,407)
    Deferred income taxes                                                        (970,000)         (75,000)         (33,126)
    Decrease (increase) in deferred income tax assets, net                      2,335,000          625,000       (2,236,874)
    Provision for doubtful accounts                                                 ---             (4,297)         136,855
    Advance to officer                                                              ---            (45,000)        (140,000)
    Repayment from officer                                                          ---             85,000          100,000
    Increase in accounts receivable, net                                         (610,881)        (121,934)      (2,143,976)
    Increase in inventories                                                       (43,789)        (111,671)         (92,974)
    Decrease (increase) in prepaid expenses                                       (25,397)           7,056         (208,269)
    Decrease (increase) in other assets                                            (8,561)         100,422         (270,776)
    Increase (decrease) in accounts payable                                       556,634         (325,561)         498,526
    Increase (decrease) in accrued salaries                                       (88,682)         199,138         (142,428)
    Increase in accrued liabilities                                               838,138          143,665          287,131
    Discontinued operations - change in net assets                                221,847         (759,824)          70,836
                                                                          --------------------------------------------------
Net cash used in operating activities                                          (1,237,130)      (2,138,239)      (1,801,685)
                                                                          --------------------------------------------------

INVESTING ACTIVITIES:
    Purchases of property and equipment, net                                   (1,857,004)      (1,682,018)        (904,577)
    Reimbursement of tooling costs                                                465,222            ---              ---
    Purchase of business, net                                                       ---              ---            (96,324)
    Increase in other assets                                                        ---           (650,000)           ---
    Additions to patent costs, net                                                (42,510)         (77,650)        (136,490)
                                                                          --------------------------------------------------
Net cash used in investing activities                                          (1,434,292)      (2,409,668)      (1,137,391)
                                                                          --------------------------------------------------

FINANCING ACTIVITIES:
    Proceeds from sale of common stock, net                                     1,210,414        2,300,724        5,134,329
    Proceeds from borrowings                                                      960,000        4,460,000          600,000
    Repayments of borrowings                                                        ---         (2,488,042)      (1,728,242)
                                                                          --------------------------------------------------
Net cash provided by financing activities                                       2,170,414        4,272,682        4,006,087
                                                                          --------------------------------------------------
Net increase (decrease) in cash and cash equivalents                             (501,008)        (275,225)       1,067,011
Cash and cash equivalents at beginning of period                                1,154,137        1,429,362          362,351
                                                                          ==================================================
Cash and cash equivalents at end of period                                       $653,129       $1,154,137       $1,429,362
                                                                          ==================================================




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


21
</TABLE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business  -  Top  Source  Technologies,  Inc.  (the  "Company")  is  focused  on
developing  and  commercializing  state-of-the-art  technologies  for use in the
transportation,  industrial and petrochemical marketplaces. The Company has four
wholly-owned  subsidiaries:  Top Source  Automotive,  Inc.  ("TSA"),  Top Source
Instruments,  Inc. ("TSI"), formerly On-Site Analysis, Inc. ("OSA"), ARCS Safety
Seat, Inc. ("ARCS, Inc."), and United Testing Group, Inc., ("UTG").

The Company concentrates on two industry segments: automotive technology and oil
analysis service.  Within these two segments,  the Company has three proprietary
technologies:  an Overhead Speaker System ("OHSS");  safety restraint technology
("ARCS");  and the On-Site Analyzer  (developed  jointly with the Thermo Jarrell
Ash ("TJA") Division of Thermo Instrument Systems, Inc.), which is a proprietary
oil analysis instrument that combines two spectrometers in order to analyze both
new or used oil in eight minutes at the end-user's site. Within the oil analysis
segment, the Company has UTG consisting of three oil analysis laboratories which
sold  certain  assets  and  liabilities  subsequent  to year  end and  which  is
accounted for as discontinued operations. (See Note 2.)

Revenue  is  currently  derived  primarily  from  sales  of the  OHSS  for  both
production line and dealership installed units.

Basis of Presentation - Certain 1995 and 1994 amounts have been  reclassified to
conform to the current year presentation.

Cash Equivalents - The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.

Principles of Consolidation - The consolidated  financial statements include the
accounts of the  Company  and its  subsidiaries.  All  significant  intercompany
accounts and transactions have been eliminated.

Revenue  Recognition - The Company recognizes revenue from sales of its products
(Automotive  Technology  segment)  at the time the  products  are  shipped.  The
Company  recognized  revenue from the  performance of its oil analysis  services
(oil analysis service segment) at the time the service is rendered.

Inventories  -  Inventories  are  stated at the lower of cost or market  and are
valued by the first-in, first-out (FIFO) method.

Property and Equipment - Property and equipment are stated at cost.  Repairs and
maintenance  costs  are  charged  to  expense  as  incurred.   Depreciation  and
amortization  are computed  using the  straight-line  method over the  estimated
useful  lives  of the  assets,  or the  lease  term if  shorter  in the  case of
leasehold  improvements,  ranging  from two to twelve  years.  When  property or
equipment is retired or otherwise disposed of, the cost less related accumulated
depreciation  is removed from the accounts and the resulting gains or losses are
included in other expense in the accompanying statements of operations.

Manufacturing  and Distribution  Rights and Patents - These assets are valued at
the lower of cost or net  realizable  value and are  being  amortized  using the
straight-line  method over the terms of the  agreements  or life of the patents,
ranging from ten to thirteen years.

23
<PAGE>




----------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)


Intangible  Assets  -  Intangible  assets  primarily  consisted  of the  cost of
acquired businesses in excess of the fair value of net tangible and identifiable
intangible assets acquired (See Note 7.) The cost in excess of the fair value of
net  tangible  and  identifiable  intangible  assets  was being  amortized  on a
straight-line basis over 40 years. All costs in excess of fair value relating to
the  acquisition of UTG was sold  subsequent to fiscal year ended  September 30,
1996 (see Note 2.) Accordingly,  costs in excess of fair value (goodwill) in the
Company's  consolidated  financial  statements  have been included in net assets
from discontinued  operations.  The capitalized database is being amortized over
15 years using the straight-line  method.  Subsequent to its  acquisitions,  the
Company continually  evaluates factors,  events and circumstances which include,
but are not limited to, the  historical and projected  operating  performance of
acquired businesses, specific industry trends and general economic conditions to
assess  whether the remaining  estimated  useful life of  intangible  assets may
warrant revision or that the remaining  balance of intangible  assets may not be
recoverable. When such factors, events or circumstances indicate that intangible
assets should be evaluated for possible impairment, the Company uses an estimate
of undiscounted  cash flow over the remaining lives of the intangible  assets in
measuring their recoverability.

Research and Development - The costs associated with research and development of
products and technologies are expensed as incurred.

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

New Accounting Standards
In 1995 the Financial  Accounting  Standards Board ("FASB") issued  Statement of
Financial  Accounting  Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of. The Company
will adopt the statement in fiscal 1997. Management does not believe adoption of
this  statement  will  have a  material  impact  on the  Company's  consolidated
financial position or results of operations.

In 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based  Compensation.
With respect to accounting  for its stock options,  as permitted  under SFAS No.
123, the Company intends to retain the intrinsic value method  currently used as
prescribed by Accounting  Principles Board Opinion No. 25,  Accounting for Stock
Issued to Employees.  The Company will provide  disclosures  in accordance  with
SFAS No. 123 when the standard is adopted in fiscal 1997.

Quarterly  Information - The Company recorded an additional  valuation allowance
to reduce the  deferred  tax assets in the amounts of  $1,365,000  and  $550,000
during the fourth  quarters  of the fiscal  years ended  September  30, 1996 and
1995, respectively. (See Note 12.)

24
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------
2. DISCONTINUED OPERATIONS

On September 12, 1996, the Company's Board of Directors  approved a plan to sell
certain assets and  liabilities of the Company's oil analysis  subsidiary,  UTG.
The sale was  consummated  on October 30, 1996.  The  provision  for loss on the
disposal  of UTG  of  $1,804,791  reflected  in the  consolidated  statement  of
operations  includes  a write  down  of the  net  assets  of  $1,565,621  and an
additional $239,170 for estimated costs to dispose of these operations.

The net losses of UTG for the years ended  September 30, 1996, 1995 and 1994 are
included  in  the  consolidated  statement  of  operations  under  "discontinued
operations."  Revenues from such  operations  for the years ended  September 30,
1996, 1995 and 1994 were  $4,549,944,  $5,061,452 and $5,878,281,  respectively,
and were not  included  in  service  revenue  in the  accompanying  consolidated
statements of operations.

Assets and liabilities sold consisted of the following:
<TABLE>
<S>                                     <C>                      <C>
                                         1996                       1995
                                         ----                       ----

Supplies inventory                      $ 91,422                 $ 136,189
Property, plant and equipment, net       812,197                 1,027,672
Deposits                                  27,639                      --         
Trademarks and patents                     5,692                     5,425
Intangibles                            4,642,604                 4,768,470
                                       ---------                  ---------

Total assets                           5,579,554                 5,937,756
                                       ----------                 ---------

Deferred service revenue                 608,619                   499,998
Long-term capital lease                   56,404                      --
                                           -----                    ------

Total liabilities                        665,023                   499,998
                                         -------                   -------
Net assets disposed of                 4,914,531                 5,437,758
Less allowance for discontinued
operations                            (1,565,621)                     --
                                        ---------                 ________
Net assets from discontinued
operations                            $ 3,348,910               $5,437,758
                                      ===========               ==========

</TABLE>


3. STATEMENTS OF CASH FLOWS

There were no non-cash  investing  activities for the years ended  September 30,
1996 and 1995.  Non-cash  investing  activities for the year ended September 30,
1994 are as follows:

Accounts receivable                                        $   (208,484)
Intangibles                                                   1,337,092
Liabilities assumed                                            (539,783)
Issuance of stock in connection with the
 acquisitions                                                  (492,501)
                                                                --------
Cash used in acquisitions                                   $    96,324
                                                             ==========

In January  1994,  the  Company  acquired  the assets of Pro-Tech  Oil  Analysis
(Pro-Tech) of Sparks,  Nevada. The total purchase price of $589,075 consisted of
approximately  $96,324 in cash and  issuance of 74,396  shares of the  Company's
common stock which was valued at $6.625 per share,  the closing  market price on
the date of the transaction.  Non-cash  investing activity amounts above include
the preliminary purchase price allocations for the Pro-Tech acquisition.

There were no non-cash financing activities during 1996, 1995 and 1994.
25
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------

4. INVENTORIES

Inventories consisted of the following at September 30, 1996 and 1995:

                                1996                   1995
                                -----                  ----

Raw materials                  $398,248              $395,999
Finished goods                  113,710                72,170
                               -------               --------
                               $511,958              $468,169
                                =======              ========


5.  PROPERTY AND EQUIPMENT

Property  and  equipment  consisted of the  following at September  30, 1996 and
1995:
                                   Useful               1996           1995
                                 Life (Years)          ----            ----   
Equipment                          2-12                  $287,074    $174,710
Computer equipment                 3-4                  1,021,937     883,902
On-Site Analyzer                   4-5                  1,613,014   1,015,101
Tooling                            2                      891,540     832,891
Furniture and fixtures             3-5                    296,271     245,716
Vehicles and delivery equipment    3                      119,103      82,043
Leasehold improvements             2-5                    134,049      76,658 
                                                          -------     -------   
                                                        4,362,988   3,311,021
  
Less:  accumulated depreciation                        (1,859,955) (1,093,970)

                                                         ---------  ----------
                                                       $2,503,033  $2,217,051
                                                        =========  ==========

Depreciation of tooling and production  equipment incurred in manufacturing OHSS
in the amount of $307,373 and $130,238  for the years ended  September  30, 1996
and  1995,  respectively,  has been  allocated  to cost of sales as it  directly
relates to the  products  sold.  Amounts  relating to UTG for 1996 and 1995 have
been  excluded  from  the  total  above  and are  included  in net  assets  from
discontinued operations (See Note 2.)

6. MANUFACTURING AND DISTRIBUTION RIGHTS AND PATENTS

Manufacturing and distribution  rights and patents consisted of the following at
September 30, 1996 and 1995:

                                     Useful
                                    Life (Years)          1996          1995
                                    ------------          ----          ----

Manufacturing rights                    13           $   58,438        $58,438
Distribution rights                     13              437,501        437,501
Patents                                 10              244,094        210,747
                                                        -------       -------
                                                        740,033        706,686
Less: accumulated amortization                         (406,271)      (345,346)
                                                        -------       --------
                                                       $333,762      $ 361,340
                                                       =======        =========


26
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------

6. MANUFACTURING AND DISTRIBUTION RIGHTS AND PATENTS  (continued)

OHSS  (Overhead Speaker System)
The Company has the exclusive  right to produce and sell Pelo Sound  products in
North,  Central and South America and a non-exclusive  right to produce and sell
the  products in all other areas of the world,  excluding  Europe.  The value of
these rights is being  amortized over thirteen  years,  and have a remaining net
book value of $22,201 at September 30, 1996.

The Company has  distribution  rights acquired from B&R  International  Imports,
Corp.  related  to its  Overhead  Speaker  System.  The net book  value of these
rights,  which are being amortized over thirteen years, is $119,172 at September
30, 1996. The Company also has patents on the OHSS relating to improvements  and
perfections on the Overhead Speaker System.  The value of these patents is being
amortized  over ten years and have a  remaining  net book  value of  $58,347  at
September 30, 1996.

OSA  (On-Site Analyzer)
TSI has been granted two patents on unique technology critical to the operations
of its On-Site Analyzer.  The value of these patents is being amortized over ten
years and have a remaining net book value of $55,287 at September 30, 1996.

ARCS (Acceleration Restraint Curve Safety Seat)
In September  1990, the Company  entered into an exclusive  licensing  agreement
with M.I.T. for certain technologies associated with the ARCS Seat Safety Motion
whereby M.I.T. would share in any revenue produced from the technologies. M.I.T.
shall receive 5% of any sublicense  revenue and one-half of one percent (.5%) of
Net Sales of Licensed Products or Licensed Processes, as defined. These licensed
technologies  have  contributed to the research,  development and design efforts
for the Company's  ARCS project.  No revenues were recorded in fiscal years 1996
and 1995.

The  value of the  patents  related  to the ARCS  Seat  Safety  Device  is being
amortized over ten years and have a remaining net book value of $78,755.

7.  INTANGIBLE ASSETS

Intangible assets consisted of the following at September 30, 1996 and 1995:
                             Useful
                             Life (Years)    1996           1995
                             -----------     ----           ----


Capitalized database          15            $3,162,500      $3,162,500
Less: accumulated amortization                (667,640)       (456,807)
                                               --------       ---------
                                            $2,494,860      $2,705,693

The capitalized  database contains an active library of engine and machine tests
that  have a  diagnosed  history.  The  value of the  capitalized  database was
determined  based on an  assessment  of the  number of samples  included  in the
database and a per unit cost to develop/buy  the data. The 15-year  amortization
period is supported by an independent  study of the expected life in use of each
engine type in the database. The database will remain for use by TSI and will be
an integral part of TSI by developing  specialized  markets. As of September 30,
1996,  TSI has generated a nominal  amount of revenue.  Costs in excess of value
relating  to UTG for 1996 and 1995 have  been  excluded  from  above as they are
included in net assets from discontinued operations (see Note 2.)

8. OTHER ASSETS

Included in other  assets at  September  30, 1996 and 1995 is a $650,000
deposit  which was made to the  manufacturer  of the OSA units.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------


9.  DEBT

Notes payable at September 30, 1996 and 1995 are as follows:

Senior Subordinated convertible notes,
 due June 2000, bearing               1996                      1995
                                    -------                   ------
 interest at 9%                   $3,020,000                $2,060,000
                                   =========                ==========


On June 9, 1995, the Company entered into an agreement with advisory  clients of
Ganz  Capital  Management,  Inc.  ("Ganz")  whereby the holders  would  purchase
$3,020,000 in senior  subordinated  convertible notes from the Company.  In June
1995,  the Company  issued  $2,060,000  of nine percent (9%)  convertible  notes
maturing  in June  2000.  After  June 9,  1996,  the notes can be prepaid by the
Company  without  penalty  and  can be  converted  by  the  holders  into  fully
registered shares of the Company's common stock at a conversion price of $10 per
share.  The Company  issued the  remaining  $960,000 in notes and  received  the
related proceeds on October 12, 1995.

In November 1994,  the Company  entered into a $5,000,000  Loan Agreement  ("the
Agreement")  which was subsequently  amended,  with First Union National Bank of
Florida (the "Bank").  Under the Agreement amounts  outstanding bear interest at
the prime rate plus .85% and interest  only is payable  monthly.  The  Agreement
stipulated  that  $4,500,000  (OSA Line) of the  proceeds  could be used for the
purchase  of  certain  OSAs.  A  principal  payment  will  be  required  that is
sufficient to reduce the principal  amount  outstanding on the OSA Line, if any,
to $2,250,000 on December 31, 1996 with any remaining amounts  outstanding being
due and payable on December 31, 1997. The Agreement also indicates that $500,000
would be available  for  short-term  working  capital  through  January 31, 1997
("Credit  Line").  In April 1995,  the Credit Line was increased by $250,000 and
subsequently  increased  by an  additional  $750,000  in  October  1995  for  an
aggregate of $1,500,000 of borrowing capacity.  During the term of the loan, the
Company is required to meet certain financial covenants,  including minimum debt
service  coverage  ratio  and  minimum  tangible  net  worth,  as  well as pay a
commitment  fee on the OSA Line unused funds.  On January 31, 1996,  the Company
received an amendment  from the Bank  waiving the minimum debt service  coverage
requirement as it pertains to the $1,500,000 Line of Credit. Management's intent
is to renegotiate with the Bank in order to extend the working line of credit of
$1,500,000 until January 31, 1998.

The Bank is not required to fund any part of the OSA Line until such time as the
Company has paid to TJA  $1,900,000  or purchased  31 OSAs for a total  purchase
price of $1,250,000 without Bank funding.  As of September 30, 1996, the Company
has paid  $2,067,368  and  purchased a total of 38 OSA units  which  satisfy the
above  requirements.  As of  September  30,  1996,  the  Company has not met the
minimum debt service coverage ratio on the OSA Line. Accordingly, the Company is
not entitled to access the $4,500,000 OSA Line at this time.

The OSAs  purchased with proceeds from the OSA Line are required to be leased to
the Company's customers and meet certain conditions,  such as acceptable term of
lease, inspection,  and credit worthiness of lessee. OSAs purchased with sources
of funds  other than Bank  financing  do not need to be leased to the  Company's
customers.  The  Agreement is secured by each OSA unit  purchased by the Company
along with all of the Company's  other assets,  including  leases for any of the
OSA units and a $650,000 deposit paid by the Company to TJA.

As of September 30, 1996, no amounts were  outstanding  under this Agreement and
at no time during the year was there any balance due on these lines of credit.

Cash paid for interest for the years ended September 30, 1996, 1995 and 1994 was
$276,566, $60,300 and $16,253, respectively.
27
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------

10. COMMITMENTS AND CONTINGENCIES

The Company leases office space under  noncancelable  operating  leases.  Future
minimum rental commitments under these leases are as follows:

         Fiscal Year Ending September 30:

         1997               $480,907
         1998                484,022
         1999                326,183
         2000                170,251
         2001                  3,225
         Thereafter            -

The lease  commitments  schedule  above  includes  the  lease for the  Company's
corporate offices in Palm Beach Gardens,  Florida,  which can be canceled at any
time  through  April 15th of each lease year upon 30 days  notice.  (See Item 2.
Description of Property)


Total rental expense from continuing operations amounted to $ 479,135,  $321,293
and  $215,104  for  the  years  ended  September  30,  1996,   1995,  and  1994,
respectively.

The Company has commitments  under certain  employment  agreements  entered into
with  individuals  in  management  positions.   The  payments  due  under  these
agreements aggregate $369,533 and are payable during fiscal 1997. Two executives
are eligible to receive an incentive payment of half of their base salary if the
Company's  net  operating  income as a  percentage  of net sales  exceeds  eight
percent.  This  incentive  payment  could be as high as twice the base salary if
this  percentage  is  20  percent  or  greater.   (See  Note  13  for  incentive
compensation  based on  revenue.)  Also,  an executive is eligible to receive an
override  equivalent to 3% of pre-tax income of TSI net of any cumulative losses
and direct corporate overhead expenses. There were no amounts due related to the
incentive payments or the 3% override in fiscal 1996, 1995 and 1994.

The Company  enacted a  Retirement  Salary  Savings Plan  (401(k))  (the "Plan")
effective  October 1, 1993.  All employees that were employed on October 1, 1993
were eligible to join the Plan. Otherwise,  they will be eligible to participate
in the Plan if they have completed three months of service and have attained the
age of 21. The enrollment  dates are the first day of each quarter.  The Company
will match 25% of each  dollar  contributed  by an  employee  to the Plan on the
first 6% of the salary  deferral,  not to exceed 1 1/2% of the employee's  total
salary  eligible  under the Plan.  The cost the Company  incurred  for  matching
employee  contributions  and  administrative  costs during fiscal 1996, 1995 and
1994 was $55,521, $57,384 and $42,530, respectively.

The Company has from time to time incurred  expenses  associated with litigation
defense  and  payment  of  settlements  or  judgments  in  connection  with  its
businesses.  The Company  believes that such  litigation and other legal matters
should not have a significant adverse effect on the Company's financial position
or results of operations.


11.  NET INCOME (LOSS) PER SHARE

The Company  utilizes the treasury  stock  method for  computing  net income per
share.  In fiscal  1994,  fully  diluted  net  income  per  common  share is not
materially  different  from  primary net income per common  share.  Net loss per
share is computed by dividing  the net loss by the  weighted  average  number of
common shares  outstanding after reduction for treasury shares. The common stock
options and  warrants  (See Note 14.) have been  excluded  from the net loss per
share calculation for fiscal 1996 and 1995 since their inclusion would have been
anti-dilutive.


28
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------
12. INCOME TAXES

The Company  accounts for income  taxes under the  liability  method.  Under the
liability  method,  deferred  income  taxes are  determined  based on  temporary
differences  between  the  financial  statement  and tax  bases  of  assets  and
liabilities,  using  enacted  tax rates in effect  during the years in which the
differences  are expected to reverse,  and on available tax  carryforwards.  The
income tax expense  (benefit) for the years ended  September 30, 1996,  1995 and
1994 consists of the following components:
<TABLE>
<S>                                     <C>                      <C>                        <C>        
Current:                                 1996                         1995                  1994
                                        -------------                 ----                  ----
         Federal                     $(952,000)                $  (839,000)           $    (27,000)
         State                          177,500                     60,000                    --
                                      ---------                     --------               ----------
                                      (774,500)                   (779,000)                (27,000)
                                     ----------                    ---------                ------
Deferred:
         Federal                       (825,000)                   (64,000)                  (28,157)
         State                         (145,000)                   (11,000)                   (4,969)
                                      ----------                   ----------                 ------
                                       (970,000)                   (75,000)                  (33,126)
                                      ----------                  -----------                  ------
Increase in beginning of the
year valuation allowance             3,287,800                    1,464,000               (2,209,874)
                                     ---------                    ---------                ---------
                                    $1,543,300                  $   610,000            $  (2,270,000)
                                     ==========                   ===========             ===========

</TABLE>


A  reconciliation  of the federal income tax expense  (benefit) at the statutory
rate to the Company's effective income tax benefit for the years ended September
30, 1996, 1995 and 1994 are as follows:
<TABLE>
<S>                                                         <C>                      <C>            <C>
                                                                 1996                1995             1994
                                                                -----                ----             ----
Income tax benefit at statutory rate                      $ (1,753,000)        $(949,000)          $     (86,844)
State income tax (benefit) expense                             (16,500)           40,000                 (15,325)
Increase (reduction) in valuation allowance, net             3,287,800         1,464,000              (2,209,874)
Non-deductible expenses                                         25,000            55,000                  33,696
Other                                                             --                --                     8,347
                                                            -----------        ----------            ------------
                                                            $1,543,300         $ 610,000             $(2,270,000)
                                                           ============        ==========            ============
</TABLE>


A valuation  allowance  is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized. The Company has determined, based
on  expected  future  taxable  income  which can be  predicted  with  reasonable
certainty,  that it is more likely than not that the net  deferred tax assets at
September 30, 1996 will be realized  before the expiration of the underlying net
operating loss carryforwards which will begin expiring in 2001.

The reduction in the valuation  allowance in 1994 was based on  expectations  of
future taxable income. The Company estimates future taxable income by projecting
the results of its business  activities  based on known factors  existing at the
current date.  The Company's  estimate of future taxable income changed from the
beginning of fiscal 1994 due to: (1) greater  certainty  regarding the Company's
OHSS units for Jeep(R) Cherokee production  installation (this application began
in September 1993);  (2) greater  penetration in the Jeep(R) Grand Cherokee OHSS
application  being attained;  (3) the decision by Chrysler to convert its Toledo
facility to full utilization for Jeep Cherokee  production,  thereby  increasing
the  number of units the  Company  would be  supplying  (previously  the  Toledo
facility produced not only Jeep(R) Cherokees but also other Chrysler models; and
(4) progress,  during mid-fiscal year 1994, in gaining new vehicle  applications
for the OHSS.

29
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------
12. INCOME TAXES (continued)

At September 30, 1996,  the  Company's  Consolidated  Balance  Sheet  contains a
deferred income tax asset of $355,000.  An additional valuation allowance in the
amount of $1,365,000  and $550,000 has been  established  for September 30, 1996
and 1995 for a portion of the  deferred  income tax asset  recorded at September
30, 1994 as a result of the Company not meeting  expectations  of taxable income
for fiscal 1996 and 1995.

The Company  has  recorded a deferred  income tax  benefit and related  deferred
income tax asset based on the pre-tax  loss for fiscal 1996 and  recorded a full
valuation allowance in the same amount.

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax  liabilities  at September  30, 1996
and 1995 are as follows:

<TABLE>
<S>                                                         <C>                        <C>     
                                                            1996                         1995
                                                             ----                         ----
Deferred tax assets:
  Book operating losses                               $ 6,600,000                $  5,547,000
  Expenses for book, not for tax                        1,040,800                     116,000
                                                        ---------                  -----------
                                                        7,640,800                   5,663,000
                                                       ----------                  ----------
Deferred tax liabilities:
  Capitalized database                                   (998,000)                 (1,082,000)
  Tax over book depreciation                             (184,000)                   (118,000)
  Other, primarily deductible intangibles
   amortization                                          (188,000)                   (115,000)
                                                         --------                  -----------
                                                       (1,370,000)                 (1,315,000)
                                                        ---------                   ---------

Net deferred assets before
   valuation allowance                                  6,270,800                   4,348,000
Less valuation allowance                               (5,915,800)                 (2,628,000)
                                                        ---------               -------------
  Net deferred tax assets                             $   355,000                  $1,720,000
                                                      ===========                 ===========


</TABLE>

At September  30, 1996,  the Company has net tax basis  Federal  operating  loss
carryforwards of approximately  $25,674,000,  which may be used to offset future
taxable income,  if any. The Company's net operating loss  carryforwards  expire
between 2001 and 2011.


13. RELATED PARTY TRANSACTIONS

In fiscal 1993, the President and Chief  Executive  Officer (CEO) of the Company
entered into a new employment  agreement.  The term of this employment agreement
is five years through August 18, 1998. The agreement  provides for a base annual
salary of $200,000 per year.  The Company's  Compensation  Committee will review
the base salary  annually  during the term, and may increase,  but not decrease,
the  base  salary.   Additionally,   the  new  agreement   calls  for  incentive
compensation  payments based upon the following:  (1) revenue (at the rate of 1%
of quarterly  revenue,  for quarterly revenue up to $6.25 million and descending
downward to the rate of .75% of quarterly revenue if it is between $6.25 million
to $12.5 million and .5% of quarterly revenue if quarterly revenue is over $12.5
million),  and (2)  profitability  (at the rate of 50% of the  incentive  amount
based on revenue  if net  income is 8% of net  sales,  up to a rate of twice the
incentive  amount  based on  revenue  if net  income is 20% or  greater)  of the
Company during the term,  payable after the end of each of the Company's  fiscal
quarters  according  to  specific  formulas  contained  in  the  agreement.  The
incentive compensation expense for fiscal 1996, 1995 and 1994 was $206,965,
30
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS (continued)

$189,688 and $151,378,  respectively.  In fiscal 1994,  the Company  granted the
President/CEO  non-qualified  options to purchase 600,000 shares of common stock
of the  Company,  at the then current  market  price of $2.0625,  under the 1993
Plan, as later defined. The 600,000 options are vested at September 30, 1996. In
the event of termination without cause or if the President/CEO resigns for "good
reason",  as defined  in the  agreement,  the  Company  is  required  to make 36
consecutive monthly payments equal to his base and incentive  compensation.  The
President/CEO  will  also  continue  to  receive  medical,  life and  disability
insurance coverage during the 36 month term.

In January 1994, an employee,  the former President of the Company's subsidiary,
UTG,  was  terminated.  The employee was paid his monthly base salary of $11,700
through June 30, 1994 for a total of $58,500.  The employee exercised all vested
stock options and the Company  accelerated  vesting of 70,200 of the  employee's
remaining stock options. Compensation expense of $262,813 is included in general
and administrative  expenses in the accompanying statement of operations for the
year ended September 30, 1994 related to this acceleration.

14. STOCK AND STOCK OPTION PLANS

The "1990 Stock Plan", as amended,  covers  3,300,000 shares of common stock and
is intended to provide:  (a) officers and other employees of the Company and its
Related Corporations  opportunities to purchase stock in the Company pursuant to
options  granted  hereunder  which qualify as incentive  stock options  ("ISOs")
under the Internal  Revenue Code of 1986, as amended;  (b) directors,  officers,
employees  and   consultants  of  the  Company  and  its  Related   Corporations
opportunities  to  purchase  stock in the Company  pursuant  to options  granted
hereunder  which  do  not  qualify  as  ISO's  ("Non-Qualified   Options");  (c)
directors,  officers,  employees and  consultants of the Company and its Related
Corporations awards of stock in the Company ("Awards"); (d) directors, officers,
employees  and   consultants  of  the  Company  and  its  Related   Corporations
opportunities  to make direct  purchases of stock in the Company  ("Purchases");
and (e)  directors  of the  Company  and its  Related  Corporations  who are not
employees  of the Company or its  Related  Corporations  with  Non-Discretionary
Options.

The  1990  Stock  Plan is  administered  by a  committee  of  four  non-employee
directors.  The  committee,  subject to certain  restrictions  in the 1990 Stock
Plan, has the authority to grant or issue,  as applicable,  ISOs,  Non-Qualified
Options,  Awards,  Purchases and  Non-Discretionary  Options. The committee also
establishes exercise or issue prices, vesting schedules and expiration dates.

In August  1993,  the Company  established  a 1993 Stock  Option Plan (the "1993
Plan") covering  1,500,000 shares of common stock.  The 1993 Plan provides:  (a)
officers  and  other  employees  of the  Company  and its  Related  Corporations
opportunities  to  purchase  stock in the Company  pursuant  to options  granted
hereunder which qualify as "ISOs";  and (b) directors,  officers,  employees and
consultants of the Company and Related  Corporations  opportunities  to purchase
stock in the Company pursuant to options granted  hereunder which do not qualify
as ISOs ("Non-Qualified Options").

The 1993 Plan is administered by a committee of four non-employee directors. The
committee,  subject to certain  restrictions in the 1993 Plan, has the authority
to (i) determine the employees of the Company and Related  Corporations  to whom
ISOs may be granted, and determine to whom Non-Qualified Options may be granted;
(ii)  determine  the  time or  times  at which  Options  may be  granted;  (iii)
determine  the  exercise  price of shares  subject to  Options;  (iv)  determine
whether Options granted shall be ISOs or  Non-Qualified  Options;  (v) determine
the time or times when the Options shall become exercisable, the duration of the
exercise  period  and  when the  Options  shall  vest;  (vi)  determine  whether
restrictions  such as repurchase  options are to be imposed on shares subject to
Options and the nature of such  restrictions,  if any, and (vii)  interpret  the
1993 Plan and promulgate and rescind rules and regulations relating to it.

31
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
14. STOCK AND STOCK OPTION PLANS (continued)

The 1993 Plan also  provides  for the  automatic  grant of 30,000  non-qualified
options to any  director who is not an employee of the  Company.  These  options
vest in increments of 5,000 options per director every six months commencing six
months from the date of the director's election to the board, provided that they
are still  serving as a director at that time. In December  1994,  the 1993 Plan
was amended to change the vesting  periods for both directors and employees from
every six months to June 30 and December 31. However,  in the event any director
resigns prior to full vesting, the options will vest on a pro-rata basis.

The  Company  has  issued the  following  options  and  warrants  to  directors,
officers,  employees  and  consultants  during 1996,  1995 and 1994.  All of the
following options and warrants were generally issued at the fair market value of
the  underlying  stock at the date of  grant;  therefore,  no  expense  has been
recognized.

The information for shares under option is as follows:
<TABLE>
<S>                                          <C>                      <C>                           <C>
                                             1996                      1995                          1994
                                             ----                      ----                          ----
Outstanding, beginning of year:
  Shares                                  3,079,450                    3,537,562                  4,687,072
  Price                                   $.28125-8.75                 $.28125-8.75               $.28125-4.00

Granted:
  Shares                                      514,572                  613,750                    831,757
  Price                                    $5.562-7.75                 $6.25-8.25                 $2.9375-8.75

  Expiration Dates                           10/24/2005-               10/25/2004-                4/1/1994 -
                                              6/30/2006                 8/31/2005                 9/1/2004
Exercised:
  Shares                                   (715,000)                   (1,015,082)                (1,761,100)
  Price                                     $.53-6.50                   $.28-6.50                 $.28125-6.00

Expired or Canceled:
  Shares                                     (197,708)                  (56,780)                   (220,167)
  Price                                     $6.50-7.75                  $5.75-6.50                 $2.3125-6.00


Outstanding, end of year:
  Shares                                     2,681,314                   3,079,450                 3,537,562
  Price                                    $.28125-8.75                   $.28125-8.75              $.28125-8.75


Exercisable, end of year:                    1,969,226                    2,298,700                 2,452,411

Available for grant, end of year:              329,327
</TABLE>


32
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------
14.  STOCK AND STOCK OPTION PLANS (continued)

On November  12,  1996,  the Company  announced  that it put into effect a stock
repurchase program.  Initially, the Company intended to repurchase up to 300,000
shares of its common  stock in the open  market and hold the shares as  Treasury
stock. In December 1996, the Company  increased its share repurchase  program by
100,000 shares. On December 13, 1996, the Company had repurchased 295,700 shares
at an average purchase price of $3.37 per share.

15. CONCENTRATION OF CREDIT RISK

In fiscal 1996, the majority of the Company's overall revenue was derived in the
automotive  technology  segment from one customer,  an OEM, which  accounted for
99.3% of the total business  activity.  That same customer accounted for 91% and
98% of net sales in both 1995 and 1994. Revenue from the UTG operations has been
excluded  from  total  revenue.  (See  Note  2.) As of  September  30,  1996 the
Company's   receivable   balance  from  this  OEM  customer  was   approximately
$3,447,434. The majority of this receivable was subsequently collected. The loss
of this customer  would have a material  adverse  effect on the Company.  Export
sales in 1996, 1995 and 1994 were insignificant.


16.   SALE OF ENGINE FUEL ECONOMY EMISSIONS CONTROL REDUCTION SYSTEM TECHNOLOGY
          ("EFECS")  TO ADRENALINE, INC.

On May 10, 1995, the Company entered into an "Agreement" with  Adrenaline,  Inc.
("Adrenaline"),  the  original  inventor  of the Engine  Fuel  Economy  Emission
Control  Reduction  System ("EFECS")  technology,  to assign its interest in the
proprietary  technology to  Adrenaline.  Under the terms of the  Agreement,  the
Company assigned its interest in this technology in return for future royalties.

In  order  to  facilitate  and  accelerate  the  commercialization  of  EFECS by
Adrenaline  and  Edward  Van Duyne  (the  founder  of  Adrenaline,  Inc.) and to
maximize  the  opportunity  for the Company,  on February 22, 1996,  the Company
agreed to amend the  original  terms  stated in the  Agreement  to items 1 and 2
below:
         1. On  June 1,  1996,  the  Company  began  receiving  monthly  royalty
         payments in the amount of $4,167 per month as a minimum royalty payment
         up to a maximum  of  $400,000  instead  of annual  payments  of $50,000
         annually (originally scheduled to commence in January, 1997);

         2.   Commencing  on  the  first   anniversary  of  the  date  on  which
         Adrenaline's patent revenues for the prior 12 months exceed $2,500,000,
         Adrenaline  will pay to the Company an annual royalty  payment equal to
         two  percent  (2%)  of all  patent  revenues.  Patent  revenue  royalty
         payments  shall  not  exceed  $150,000  in  any  12  month  period  and
         $1,500,000  during the entire term of the Agreement  unless  Adrenaline
         consummates an initial public  offering or sells  substantially  all of
         the assets or capital  stock of  Adrenaline.  As of September 30, 1996,
         Adrenaline  had not received any revenue  relating to the EFECS patent.
         The  timing  of  the  commencement  of  EFECS  revenues,   if  any,  is
         indeterminable.

Additionally, the Company was granted 45,000 options, or not less than an amount
equal to 3% of the Company's  shares on a fully diluted basis,  on  Adrenaline's
common  stock  at a price  of $1.20  per  share.  These  option  shares  are not
exercisable  until  Adrenaline  either  consummates a successful  initial public
offering  or  sells  substantially  all  of  the  assets  or  capital  stock  of
Adrenaline. The option agreement is subject to the Company's approval.

The Company is  currently  recognizing  the monthly  royalty  payments on a cash
basis until it can readily determine the predictability of payments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------
17. SEGMENT INFORMATION

The Company currently classifies its operations into the following segments: (1)
automotive  technology which primarily  consists of the Overhead Speaker System,
and (2) Oil Analysis Service which primarily  consists of TSI operations.  Items
below exclude amounts from UTG operations.  Corporate and other includes general
corporate assets consisting primarily of cash and cash equivalents, property and
equipment,  deferred  income tax assets,  and corporate  expenses.  The material
components  of corporate  general and  administrative  expenses are salaries and
benefits; travel and entertainment; consulting; and proxy, printing and transfer
costs.  In fiscal 1996 and 1995,  corporate  expenses  (salaries,  benefits  and
general and  administrative  expenses) have been  allocated to the segments.  In
1996,  management  changed certain  assumptions on these  allocations.  If these
assumptions  were used in 1995,  corporate  expenses would have been reallocated
from the Corporate and Other segment into the Automotive  Technology segment and
the Oil  Analysis  Service  segment  in the  amount of  $779,165  and  $658,727,
respectively.  Financial  information about the Company's operations by segments
for the years ended September 30, 1996, 1995 and 1994 is as follows:
<TABLE>
<S>                           <C>            <C>             <C>                <C>
                            Automotive      Oil Analysis      Corporate
                            Technology        Service         and Other          Consolidated
  Revenue:
        1996                  $16,102,523     $     44,001        $ --            $ 16,146,524 
        1995                  $13,893,459     $     13,895        $ --            $ 13,907,354
        1994                  $ 9,203,938     $      --           $ 55,643        $  9,259,581
                                                        

Operating Income
(Loss):
        1996                 $  3,093,833    $ (4,605,624)   $ (1,544,428)        $  (3,056,219)
        1995                 $  4,008,392    $ (2,565,929)   $ (3,808,990)        $  (2,366,527)
        1994                 $  2,821,308    $  (521,167)    $(2,923,235)         $    (623,094)

Depreciation and
Amortization:
        1996                $      94,080    $     701,510     $   135,973        $   931,563
        1995                $      79,085    $     572,760     $   118,441        $   770,286
        1994                $      66,647    $     211,118     $    94,848        $   372,613
                                                           

Identifiable
Assets:
        1996                 $  1,373,326     $    60,571      $10,740,351      $ 12,174,248
        1995                 $  4,336,403     $ 5,397,470      $ 3,573,810      $ 13,307,683
        1994                 $  1,737,336     $ 4,335,409      $ 6,525,330      $ 12,598,075

Capital
Expenditures:
        1996                $     516,968     $  1,190,629   $     149,407     $   1,857,004
        1995                $     778,804     $    774,857   $     128,357     $   1,682,018
        1994                $     323,723     $    460,262   $     120,592     $     904,577

</TABLE>

33
<PAGE>





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------
18. OTHER INCOME

Included  in Other  Income  in fiscal  1996 and 1995 is  $56,367  and  $229,500,
respectively,  which  relates to the  recovery  of funds  from the  Professional
Services  Inc.  ("PSI")  lawsuit.  (See Item 3. - Legal  Proceedings)  PSI was a
privately owned oil analysis  laboratory acquired by the Company in July of 1993
and  later  merged  into  UTG.  Included  in  Other  Income  in  fiscal  1994 is
approximately  $278,000  related  to the  recovery  of loan  fees  that had been
previously written-off in fiscal 1993.
19. RESTRUCTURING RESERVE

On September  12, 1996,  the Board of Directors  approved a  restructuring  plan
which included the  restructuring  of management,  relocating the TSI office and
laboratories as well as certain personnel.  The Company has recorded $725,000 of
restructuring charges in fiscal 1996 which consist primarily of severance costs,
lease cancellation costs and other expenses that have no future benefit.


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE


         None


                                                              PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
         Incorporated  by  reference  from the Proxy  Statement,  for the annual
         meeting of stockholders to be held on May 15, 1997,  sections  entitled
         "Election of Directors".

ITEM 11.  EXECUTIVE COMPENSATION
         Incorporated  by  reference  from the Proxy  Statement,  for the annual
         meeting of  stockholders to be held on May 15, 1997,  section  entitled
         "Executive Officer Compensation".

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         Incorporated  by  reference  from the Proxy  Statement,  for the annual
         meeting of stockholders to be held on May 15, 1997,  sections  entitled
         "Voting Securities and Principal Holders".

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
               None


34
<PAGE>



ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
                                                                          Page
(a) (1) Financial Statements. See Item 8 of Form 10-K..................... 16

(a) (2) Financial Statement Schedules required to be filed.
          Schedule II - Valuation and Qualifying Accounts................. 38
          All other schedules have been omitted because the required
          information is shown in the consolidated financial statements
          or notes thereto or they are not applicable.





(a)      (3)  Exhibits
         3.0  Amended and Restated Certificate of Incorporation.....(1)   
         3.1  Amendment of Certificate of Incorporation...  .........(8)
         3.2   Bylaws of Registrant.................................(2)
         3.3   Amendment to Bylaws of Registrant...................(8)
         3.4   Amendment to the Amended and Restated Certificate
                of Incorporation...................................(10)
         4.0   1990 Stock Plan......................................(3)
         4.1   1993 Stock Option Plan..............................(4)
         10.0   Employment Agreement Between Registrant and Mr.
                Stuart Landow.......................................(5)
         10.1   Employment Agreement of Carlton S.Joyce............(6)
         10.2   First Amendment to Employment Agreement of
                Stuart Landow......................................(8)
         10.3   First Amendment to Employment Agreement of 
                    Carlton S. Joyce.................................(9)
         10.4   Master License Lease Agreement - Exxon...............(10)
         10.5   Equipment Purchase Agreement - Thermo Jarrell
                Ash Corporation.......................................(10)
         10.6   First Amendment to Lease of On-Site Analysis, Inc.,
                Atlanta, Georgia.................................(10)
         10.8   Shareholder Rights Plan...........................(7)
         10.7   Lease Agreement between Hospitality Franchise Systems,
                Inc. and Top Source Technologies, Inc.
                dated April 2, 1996 (New York Office Lease)............(20)
         10.9   Note Purchase Agreement dated as of June 9, 1995
                Regarding 9% Senior Subordinated
                Convertible Notes Due June 9, 2000 by and
                among Top Source Technologies, Inc.
                Purchasers and Ganz Capital Management, Inc.........(11)
         10.10  Agreement by and between Top Source Technologies,
                Inc., dated May 10, 1995, Adrenaline, Inc.
                and Edward Van Duyne (EFECS Technology) ................(11)
         10.11  First Amendment to Shareholder Rights Plan..............(12)
         10.12  Second Amendment to Shareholder Rights Plan............(13)
         10.13  Loan Agreement dated November 24, 1994 between Top
                Source Technologies, Inc. and On-Site
                Analysis, Inc. and First Union National Bank of Florida..(14)
         10.14  Loan Agreement dated April 13, 1995 between Top
                Source Technologies, Inc. and On-Site
                Analysis, Inc. and First Union National Bank of Florida...(14)
         10.15  Lease Agreement dated February 10, 1995 for Michigan 
                    facility, Troy, MI...............................   ..(14)
         10.16  Employment Agreement of David Natan.......................(15)
         10.17  Master Purchase Agreement - Thermo Jarrell Ash
                Corporation.............................................(16)
         10.18  Lease of Office Space dated December 20, 1995 of Top
                Source Technologies, Inc.,
                Palm Beach Gardens, FL.....................................(16)
         10.19  Loan Agreement dated October 12, 1995 between Top
                Source Technologies, Inc. and On-Site 
               Analysis, Inc and First Union National Bank of Florida.....(16)
         10.20 Amendment dated January 31, 1996 to the Loan Agreement
                dated October 12, 1995 between Top Source Technologies,
                Inc. and On-Site Analysis, Inc. and the First Union
                National Bank of Florida...................................(17)
 
(a) (3) Exhibits (continued)

(a)      (3)  Exhibits  (continued)



10.21    Asset Purchase Agreement between Top Source Technologies,
           Inc., Conam Inspection, Inc. and
           United Testing Group, Inc. dated  October 30, 1996.............(18)
10.22    Amendment No. 1 to the Agreement between Adrenaline
           Research, Inc., Top Source
           Technologies, Inc. and Edward Van Duyne dated February 22, 1996.(20)
10.23    Marketing Agreement between On-Site Analysis, Inc. and 
          Conam Inspection, Inc.dated  November 14, 1996..................(20
10.24    Lease Agreement between Top Source Technologies, Inc.
          and R. M. Taylor, Inc. dated January 1, 1997
                (Farmington Hill, Michigan Lease).........................(20)
11.0     Statement Re: Computation of Net Income Per Share................(10)
27.0     Financial Data Schedule..........................................(20)







(b)      Reports on Form 8-K
         There  were no  reports  filed  on Form  8-K  for the  quarter  ended
         September 30, 1996.

Exhibit Index
(1) Contained in the Form 8-A dated July 10, 1993.
(2) Contained in the documents previously filed with the
Securities and Exchange Commission in conjunction with the
Form 8-B on 11/16/92.
(3) Contained in the documents previously filed with the
Securities and Exchange Commission in conjunction with the
12/31/90 Form 10-K.
(4) Contained as an exhibit to the Proxy Statement dated January 11, 1994.
(5) Contained in Amendment No. 1 to the Registration Statement on Form S-3
 filed on November 16, 1993.
(6) Contained in the Form 8-K/A No. 3 dated November 13, 1993.
(7) Contained in Form 8-K dated January 5, 1995.
(8) Contained in the documents filed with the Securities and
Exchange Commission in conjunction with the 9/30/93 Form 10-K.
(9) Contained in Amendment No. 3 to the Registration Statement on Form S-3
 filed on January 10, 1994.
(10) Contained in the documents filed with the Securities and Exchange
 Commission in conjunction with
the 9/30/94 Form 10-K.
(11) Contained in documents filed with the Securities and Exchange
Commission in conjunction with the 6/30/95 Form 10-Q.
(12) Contained in the Form 8-A/A No. 1 dated July 17, 1995.
(13) Contained in the Form 8-A/A No. 2 dated December 5, 1995
(14) Contained in Amendment No. 1 to the Registration Statement on Form S-3 
filed May 4, 1995.
(15) Contained in Amendment No. 3 to the Registration Statement on Form S-3
 filed September 27, 1995.
(16) Contained in documents filed with the Securities and Exchange Commission
 in conjunction with the September 30, 1995 Form 10-K.
(17) Contained in documents filed with the Securities and Exchange
Commission in conjunction with the December 31, 1995 Form 10-Q.
(18) Contained in the Form 8-K dated November 12, 1996.
(19) Financial Date Schedule Attached
(20) Contained in documents filed with the Securities and
Exchange Commission in conjunction with
September 30, 1996 Form 10-K





<PAGE>





<TABLE>




                           SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                       FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<S>                                     <C>            <C>                 <C>            <C>                 <C>                 

====================================== ---------------- ---------------- ----------------- ----------------- =======================
                                       Balance at       Charged to       Additions
                                       Beginning of     Costs and        Charged to                          Balance at End of
                                       Period           Expenses         Other Accounts                      Period
Description                                                                                Deductions
====================================== ---------------- ---------------- ----------------- ----------------- =======================
Deducted from Accounts Receivable -
Allowance for Doubtful Accounts
====================================== ---------------- ---------------- ----------------- ----------------- =======================
Year Ended September 30, 1996
                                       $145,703         $     -          $      -              ( $62,053)    $ 83,650
====================================== ---------------- ---------------- ----------------- ----------------- =======================
Year Ended September 30 1995
                                       $150,000         $159,645         $       -                           $145,703
                                                                                               ($163,942)
====================================== ---------------- ---------------- ----------------- ----------------- =======================
Year Ended September 30,
1994                                   $ 13,145        $136,855         $       -               $            $150,000
                                                                                           -
====================================== ================ ================ ================= ================= =======================

====================================== ================ ================ ================= ================= =======================



</TABLE>



<PAGE>







                                                             SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the Registrant  has duly caused this  Registrant's  report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated:   January  8, 1997


                           TOP SOURCE TECHNOLOGIES, INC.
                           By: \s\Stuart Landow
                           Stuart Landow, President and
                           Chief Executive Officer                             


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following  persons on behalf of the 
 Registrant and in the capacities and on the dates indicated.
<TABLE>
<S>                                          <C>                                                         <C>
SIGNATURE                                    TITLE                                                        DATE

\s\ Stuart Landow                            President , CEO and                                            January 8, 1997
 Stuart Landow                               Chairman of the Board of Directors

\s\ Christer Rosen                           Executive Vice President and                                 January 8, 1997
Christer Rosen                               Director

\s\ David Natan                              Treasurer, VP of Finance
                                             (Principal                                                   January 8, 1997
David Natan                                  Financial Officer) and Director

\s\ Ronald P. Burd                           Director                                                     January 8, 1997
Ronald P. Burd

\s\ Carlton S. Joyce                         Director                                                     January 8, 1997
Carlton S. Joyce

\s\ Clinton D. Lauer                         Director                                                     January 8, 1997
Clinton D. Lauer

\s\ Paul F. Moore                            Director                                                       January 8, 1997
Paul F. Moore

\s\ Mani A. Sadeghi                          Director                                                     January 8, 1997
Mani A. Sadeghi
</TABLE>




<PAGE>



<TABLE>


FINANCIAL DATA SCHEDULE
Article 5 of Regulation S-X
<S>                                                                             <C>

CASH                                                                            653,129
SECURITIES                                                                              0
RECEIVABLES                                                                     4,100,672
ALLOWANCES                                                                         83,650
INVENTORY                                                                         511,958
CURRENT-ASSETS                                                                  5,703,390
PP&E                                                                            2,503,033
DEPRECIATION                                                                    1,859,955
TOTAL-ASSETS                                                                   16,012,716
CURRENT-LIABILITIES                                                             4,075,991
BONDS                                                                                   0
COMMON                                                                             28,446
PREFERRED-MANDATORY                                                                     0
PREFERRED                                                                               0
OTHER-SE                                                                        8,888,279
TOTAL-LIABILITY-AND-EQUITY                                                     16,012,716
SALES                                                                          16,146,524
TOTAL-REVENUES                                                                 16,146,524
CGS                                                                            10,776,203
TOTAL-COSTS                                                                    10,776,203
OTHER-EXPENSES                                                                          0
LOSS-PROVISION                                                                          0
INTEREST-EXPENSE                                                                 (276,566)
INCOME-PRETAX                                                                  (3,288,486)
INCOME-TAX                                                                     (1,543,300)
INCOME-CONTINUING                                                              (4,831,786)
DISCONTINUED                                                                   (1,867,001)
EXTRAORDINARY                                                                           0
CHANGES                                                                                 0
NET INCOME                                                                     (6,698,787)
EPS- PRIMARY                                                                         (.24)
EPS- DILUTED                                                                            0


</TABLE>

<PAGE>



  EXHIBIT 10.23.                                           

                            MARKETING AGREEMENT



         THIS  MARKETING  AGREEMENT  entered  into  as of this 14th 
 November  1996,  between  On-Site
Analyzer, Inc. (the "Company") and Conam Inspection, Inc. ("Conam").

         WHEREAS,  the Company  has  developed  a unique  on-site  oil  analyzer
("OSA") that has  application  in  petrochemical  processing  industry (the "Oil
Industry");

         WHEREAS, Conam has relationships in the Oil Industry; and

         WHEREAS,  the Company and Conam wish to enter this Agreement to provide
for the marketing of the OSAs in the Oil Industry.

         NOW,  THEREFORE,  in consideration of the mutual covenants and promises
contained in this Agreement, the parties hereto agree as follows:



<PAGE>




         1.  Appointment as Sales Agent. The Company appoints Conam as its sales
agent ("Sales Agent") for its OSAs solely for utilization in process control and
equipment  maintenance and authorizes it to market such OSAs to the Oil Industry
throughout  North America (except for the Exxon Corp.  refinery located in Baton
Rouge,  Louisiana) (the "Exclusive  Territory") or other  comparable uses in the
Oil Industry or chemical  industry if approved in writing at the sole discretion
of the Company.

2.  Commissions.  For its  services  rendered  pursuant to this  Agreement,  the
Company shall pay to Conam 10% of the revenue it receives,  calculated on a cash
basis, after credits given to any user.

         3. Duties of Conam.  At all times,  Conam shall use its best efforts to
obtain  orders for  purchase  or lease of OSAs within its  Exclusive  Territory.
Conam shall promptly notify the Company  whenever it has obtained any agreements
from users in the Oil Industry and shall use the Company's  Equipment  Lease and
Software  License  Agreement form (the "Lease") for the lease of OSAs within the
Exclusive  Territory.  Conam  shall  not have any  authority  to sign a Lease on
behalf  of the  Company  but  shall  submit  all such  Leases  to the  Company's
corporate officers for execution. Conam shall be authorized to negotiate pricing
from time to time with users and as long as the pricing is  consistent  with the
pricing  previously  agreed upon by Conam and the  Company,  the  Company  shall
promptly  execute any Lease  submitted on its standard  form, a copy of which is
annexed hereto as Exhibit A. Provided further that minor non-substantive changes
may be made  from  time to time by Conam  as is  necessary  in  order to  secure
Leases.

         4.  Duties of the  Company.  The Company  shall  comply with all of its
covenants including the warranties contained within the Leases. Furthermore, the
Company shall from time to time provide  service  personnel to users in order to
promptly  repair OSAs as may be  reasonably  necessary  subject to the terms and
conditions of the Leases.

         5. Use of Office Space. At no charge to the Company, Conam shall supply
office  space and  office  support  services  including  the use of  telephones,
facsimile  machines,  copiers,  etc.,  at  Conam's  facilities  in the  Chicago,
Illinois, Los Angeles, California,  Houston, Texas and San Francisco, California
areas.

         6.       Term.  Either the Company or Conam may terminate this
 Agreement on 90 days' notice.

         7.       Confidential Information.

                  (a) Conam shall  strictly  abide by this  Section 7 and ensure
         that its officers,  employees,  independent  contractors and agents are
         advised of the confidentiality provisions of this Section 7.

                  (b) For so long as this Agreement  remains in effect and for a
         period of two years after the termination thereof (provided that in the
         case of a trade secret,  such period shall  continue for so long as the
         information,  matter or thing  remains  a trade  secret),  and  without
         limiting any rights or  protections  afforded the Company by law, Conam
         shall maintain in strictest  confidence  and safeguard as  confidential
         the Confidential Information,  as defined (exercising at least the same
         degree of care Conam would use in protecting the confidentiality of its
         own similar  information)  and will  refrain  from  using,  disclosing,
         duplicating,   reproducing,   copying  or   distributing   any  of  the
         Confidential  Information in any manner to any person whatsoever except
         as permitted by the express provisions of this Agreement.

                  (c) For purposes of this Agreement, AConfidential Information@
         means all information and matters of a confidential nature,  whether or
         not in  written  form,  and  regardless  of the media (if any) on which
         stored,  which  pertain,  or  relate  in any  way,  to the  OSAs or the
         Company's  services,  products,  or business,  including trade secrets,
         processes,  techniques,  designs,  specifications,  drawings, know-how,
         show-how,  technical  information,  technology,  research developments,
         inventions,  engineering  concepts,  software  operating  manuals,  and
         improvements,  modifications and enhancements to the foregoing, and the
         terms of this  Agreements.  All data (input and output) to and from the
         OSAs in  connection  with the use  thereof  by Conam  shall  constitute
         Confidential  Information subject to all restrictions contained in this
         Agreement, and all right, title and interest therein shall be vested in
         the Company.

                  (d) Additionally,  all information relating to the identity of
         users and pricing of the OSAs including the prices charged to each user
         shall be considered Confidential Information.

         8. Non-Competition.  During the term of this Agreement and for a period
of 24  months  commencing  on  the  date  of  termination,  Conam,  directly  or
indirectly,  and  its  "affiliates",  as  that  term  is  defined  in  Rule  405
promulgated under the Securities Act of 1933, shall not compete with the Company
or any its  affiliates in the offer,  sale or marketing of on-site oil analyzers
or instruments  which analyze  petroleum and are installed at a customer's place
of business. Provided, however, nothing contained herein shall preclude Conam or
its affiliates  from operating oil analysis  laboratories  and seeking to market
its services to the Oil Industry.

9. Severability.  In the event any parts of this Agreement are found to be void,
the remaining  provisions of this Agreement  shall  nevertheless be binding with
the same effect as though the void parts were deleted.

10.  Counterparts.  This Agreement may be executed in one or more  counterparts,
each of which  shall be  deemed  an  original  but all of which  together  shall
constitute one and the same  instrument.  The execution of this Agreement may be
by actual or facsimile signature.

11.  Benefit.  This Agreement  shall be binding upon and inure to the benefit of
the parties hereto and their legal representatives, successors and assigns.
    
     12.  Notices and  Addresses.  All notices,  offers,  acceptance and any
other acts under this Agreement (except payment) shall be in writing,  and shall
be  sufficiently  given if delivered  to the  addressees  in person,  by Federal
Express or similar  receipted  delivery,  by  facsimile  delivery or, if mailed,
postage prepaid, by certified mail, return receipt requested, as follows:

CONAM:                              Conam Inspection, Inc.
                             1247 W. Norwood Avenue
                                            Itasca, IL  60143
                                            Attn:  James O'Rourke
                            Facsimile: (630) 773-6519

with a copy to:            Glenn A. Santoro, Esq.
                                            Robinson & Cole
                                            One Commercial Plaza
                                            280 Trumbull Street
                                            Hartford, CT  06103-3597
                                            Facsimile:  (860) 275-8299

The Company:                        On-Site Analyzer, Inc.
                               c/o David Natan, Chief Financial Officer
                          7108 Fairway Drive, Suite 200
                                            Palm Beach Gardens, FL  33418-3757
                            Facsimile: (561) 691-5220

with a copy to:            Michael D. Harris, Esq.
                             Cohen, Chernay, Norris,
                               Weinberger & Harris
                               712 U.S. Highway One
                           North Palm Beach, FL 33408
                            Facsimile (561) 845-0108


or to such other address as either of them, by notice to the other may designate
from time to time.  The  transmission  confirmation  receipt  from the  sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.

         13.  Attorney's  Fees.  In the event that there is any  controversy  or
claim arising out of or relating to this  Agreement,  or to the  interpretation,
breach or  enforcement  thereof,  and any  action  or  proceeding  including  an
arbitration proceeding is commenced to enforce the provisions of this Agreement,
the  prevailing  party shall be entitled to an award by the court or arbitrator,
as appropriate, of reasonable attorney's fees, costs and expenses.

         14. Oral Evidence.  This  Agreement  constitutes  the entire  Agreement
between the parties and supersedes all prior oral and written agreements between
the parties  hereto with  respect to the subject  matter  hereof.  Neither  this
Agreement  nor any  provision  hereof  may be  changed,  waived,  discharged  or
terminated  orally,  except by a  statement  in  writing  signed by the party or
parties against which enforcement or the change, waiver discharge or termination
is sought.
15.  Additional  Documents.  The parties  hereto shall  execute such  additional
instruments as may be reasonably required by their counsel in order to carry out
the purpose and intent of this  Agreement and to fulfill the  obligations of the
parties hereunder.
         16.  Governing  Law. This Agreement and any dispute,  disagreement,  or
issue of construction or  interpretation  arising  hereunder whether relating to
its execution,  its validity,  the  obligations  provided  herein or performance
shall be governed or interpreted  according to the internal laws of the State of
Delaware without regard to choice of law considerations.

         17.  Arbitration.  Any controversy,  dispute or claim arising out of or
relating to this Agreement, or its interpretation,  application, implementation,
breach or  enforcement  which  the  parties  are  unable  to  resolve  by mutual
agreement,  shall be settled by submission  by either party of the  controversy,
claim or  dispute to  binding  arbitration  in New York,  New York  (unless  the
parties agree in writing to a different  location),  before three arbitrators in
accordance  with  the  rules of the  American  Arbitration  Association  then in
effect.  In any such  arbitration  proceeding  the parties  agree to provide all
discovery deemed  necessary by the  arbitrators.  The decision and award made by
the arbitrators shall be final, binding and conclusive on all parties hereto for
all  purposes,  and  judgment  may  be  entered  thereon  in  any  court  having
jurisdiction thereof.

         18. Equitable  Relief.  The Company and Conam recognize that the rights
granted to Conam under this Agreement are special,  unique and of  extraordinary
character,  and that in the  event of the  breach  by  Conam  of the  terms  and
conditions of this Agreement which is a violation of Sections 7 or 8 hereof, the
Company shall be entitled to institute and prosecute proceedings in any court of
competent jurisdiction to enjoin Conam from breaching the provisions of Sections
7 or 8. In such  action,  the  Company  shall not be  required to plead or prove
irreparable  harm  or  lack  of an  adequate  remedy  at law or post a bond as a
condition of obtaining equitable relief.
19. Section or Paragraph  Headings.  Section  headings herein have been inserted
for reference only and shall not be deemed to limit or otherwise  affect, in any
matter,  or be  deemed  to  interpret  in whole  or in part any of the  terms or
provisions of this Agreement.

         IN WITNESS  WHEREOF the parties hereto have set their hand and seals as
of the date first above written.

WITNESSES:                                           ON-SITE ANALYZER, INC.


                                    By:
                                                                 David Natan
                                       Vice President of Finance

                                                       CONAM INSPECTION, INC.


                                    By:
                                                                 James O'Rourke
                                       Chief Financial Officer






<PAGE>



EXHIBIT 10.24



                      SECOND SUBLEASE AGREEMENT

          This Second Sublease Agreement  ("Agreement") is made and entered into
 this _ _ day of , 1996, by and between R.M.  Taylor,  Incorporated,  a Missouri
 corporation,  whose  address  is 5135  Deramus,  Kansas  City,  Missouri  64120
 ("Taylor") and Top Source Technologies,  Inc., a Delaware corporation,  and its
 wholly owned  subsidiary  Top Source  Industries,  Inc. a Georgia  corporation,
 formerly  known as On Site  Analysis,  Inc.,  both of whose  addresses are 7108
 Fairway Drive, Suite 200, Palm Beach Gardens,  Florida 33410 (collectively "Top
 Source").

                                            WITNESSETH

          For and in  consideration  of the mutual  covenants and agreements set
 forth  herein,  and other good and  valuable  consideration,  the  receipt  and
 sufficiency  of which is  hereby  acknowledged,  the  parties  hereby  agree as
 follows:

    1. Second Sublease

                   (a) Subject to the  written  consent of the Lessor and Lessee
  (each as hereafter  defined),  Taylor hereby subleases to Top Source,  and Top
  Source  leases from  Taylor,  pursuant to the terms and  conditions  set forth
  herein,  the land  and  premises  commonly  known  as  23400  Commerce  Drive,
  Farmington Hills,  Michigan, as legally described in Exhibit A attached hereto
  ("Leased Premises"); and

                    (b) The  Leased  Premises  were  originally  let by  Kitchen
  Investment,  Inc:, a Michigan limited  partnership,  as Lessor, to John Crane,
  Inc., a Delaware corporation, as Lessee, pursuant to a written lease agreement
  ("Lease").  The Leased  Premises have been sublet to Taylor by Lessee pursuant
  to a certain sublease agreement dated August 30, 1995 ("Sublease").


<PAGE>



          2. Incorporation by Reference:  The terms,  provisions,  covenants and
 conditions of the Lease and Sublease are incorporated into this Second Sublease
 Agreement  by  reference  as though  again  fully  restated.  In the event of a
 conflict  between the  provisions  of this Second  Sublease  Agreement  and the
 provisions of the Lease and Sublease,  taken  together,  the  provisions of the
 Lease and Sublease, taken together, shall prevail.


<PAGE>


 forth:
 3. Undertakings-of Taylor and Top Source. Except as specifically herein set
                  (a)  Top  Source  hereby  agrees  to  assume  each  and  every
 obligation of the Lessee under the Lease and the  Sublessee  under the Sublease
 and agrees that Taylor  shall have every right of Lessor set forth in the Lease
 and those of the Sublessor under the Sublease; and

                   (b) Taylor  hereby  agrees to use its best efforts to enforce
 every  obligation  of the Lessor under the Lease as they may be modified by the
 Sublease  and agrees that Top Source shall have every right of Lessee under the
 Lease as they may be modified by the Sublease.

          4. Changes to the Lease and Sublease:

                   The following although not an exhaustive listing of the same,
  are changes to the rights and  obligations  of the parties herein as set forth
  in the Lease and Sublease:
                  (a) The "basic  rental" or  "minimum  net rental" as stated in
 Section  3.01 of the  Lease  and  payable  by Top  Source  to  Taylor  shall be
 $10,243.75 per month which amount shall be net to Taylor.
                                                          2


<PAGE>



   (b) The insurance required under Section 6.01 and Section 10.01 of the

 Lease shall name Lessor,  Lessee,  Taylor and the Lessor's mortgagee as insured
parties.

   (c) Any further assignment or subletting of the demised premises by Top

 Source  shall be subject to the  consent of Lessor,  Lessee and  Taylor,  which
 consents shall not be unreasonably withheld.

   (d) The Lessor, Lessee and Taylor shall have the right to inspect the

 demised premises as set forth in Section 14.01 of the Lease.

   (e) Notices or demands upon the parties hereto, as provided in Section

  16 01 of the Lease, shall be made as follows:

To Lessor:                                 Kitchen Investment Company, L.L.C.
                                           1925 Heide Street
                                           Troy, MI 48084






                   6400 Oakton Street


                   Morton Grove, IL 60053
                                                          3


<PAGE>


 To Lessee:                            John Crane
                                       6400 Oakton Street
                                       Morton Grove, IL 60053

 To Subtenant\ Taylor:

                                            R.M. Taylor, Incorporated
                                      Attn: Mr. R.M. Taylor
                                            5135 Deramus
                                            Kansas City, MO 64120

To Top Source                                 Top Source Technologies, Inc.
                                              7108 Fairway Drive, Suite 200
                                              Palm Beach Gardens, FL 33418
          
     (f) The mortgage  rights set forth in Section 21.01 of the Lease shall
be retained by the Lessor.

          (g) The  security  deposit to be made by Top Source upon  execution of
 this Second  Sublease shall be $10,243.75,  to be paid and held by Taylor in an
 interest  bearing  escrow  account the principal and accrued  interest of which
 shall be returned to Top

 Source upon the  termination  of this Second  Sublease  Agreement  unless,  Top
 Source is in default at  termination  at which time the  principal and interest
 shall be used as provided in Section 23.01 of the Lease.  All other  provisions
 of Section 23 of the Lease shall  remain  applicable  to this  Second  Sublease
 Agreement.

          (h) The right to show the premises  under  Section  26.01 of the Lease
shall be retained by Lessor and Taylor.

          (i)  Section 28  relating to an option to extend the term of the Lease
 is hereby deleted in its entirety,  unless by written agreement before or after
 the date hereof, Lessor agrees that Lessee and Taylor shall each be relieved of
 all  obligations  under the Lease as of the end of the original term and Lessee
 agrees  that  Taylor  shall be  relieved  of all  obligations  under the Second
 Sublease as of the end of the original term,  and,  pursuant to requirements of
 the Lease and Sublease,  Lessor,  and all other  required  parties agree to the
 assignment of the option.

           (i) Lessor's  obligations found in Exhibit B to the Lease relating to
  leasehold  improvements  are hereby  declared  fulfilled  with  respect to Top
  Source.

           (k)  Lessee's  obligations  under  Section 4.01 of the Lease shall be
  apportioned as between Taylor and Top Source with Top Source being responsible
  for the same from the  inception of the Term of this Second  Sublease  through
  its conclusion and any extension  unless the Second  Sublease is terminated by
  Top Source as provided in  Paragraph 6 of this Second  Sublease in which event
  Top  Source's   responsibility   therefore   concludes  at  said  termination.
  Thereafter the  responsibility for the same through the conclusion of the Term
  or any extension shall be that of Taylor.


<PAGE>

                                                     4
         5.  Additions to the Lease:  The following are  additional  terms to
 the Second  Sublease not found in the Lease or the Sublease:

                   (a) Top Source  shall have the right to inspect  the  demised
 premises  prior to the  execution  of this  Agreement.  Taylor (or  Lessor,  as
 determined  by the  Lease)  shall  be  responsible  for any  repair;  currently
 necessary as disclosed by such inspections.  Upon completion of such repairs to
 the  satisfaction  of Top  Source,  Top Source  shall then  accept the  demised
 premises in an "as is" condition.

                   (b) Top Source  shall  maintain in full force and effect that
  certain HVAC  maintenance  agreement  currently  maintained by Taylor and upon
  expiration  or  termination  thereof,  Top Source  shall obtain and maintain a
  comparable maintenance agreement throughout the entire term of this Agreement.

                   (c) Taylor hereby  represents and warrants to the best of its
  knowledge and belief and having  performed no independent  investigations,  as
  follows:

                   (i) The Leased  Premises are and have been always been
                    in compliance  with all applicable environmental laws.

                   (ii) There are no pending  environmental civil,  criminal
                    or administrative  proceedings, lawsuits or claims brought
                    by any governmental agency,  private party or other
                    entity against Taylor, Lessor or Lessee relating to any
                    environmental law.

                   (iii)  Taylor  knows of no civil,  criminal or administrative
                    proceedings,  lawsuits or claims threatened against Taylor,
                    Lessor or Lessee by any governmental agency, private party 
                    or other entity relating to any environmental law.
                                                          5


<PAGE>





                            (iv)  Taylor  knows  of no facts  or  circumstances
 which  may  give  rise to any  civil, criminal or administrative  proceedings,
 lawsuits or claims  against  Taylor, Lessor or Lessee by any  governmental 
 agency,  private  party or other  entity relating to any environmental law.

                            (v) The Leased Premises comply with all requirements
 of the Americans With  Disabilities  Act.

                            (vi) The  Leased  Premises  and  Taylor's  use of 
said  Leased  Premises  comply  with the ordinances  or other  regulations  of
the  City of  Farmington  Hills or of any  other  lawful  authorities,  and the
Declaration of Covenants and Restrictions, recorded August 26, 1968 in Liber
5242 P. 658 Oakland County Records.

                    (d) Top Source intends to improve the warehouse  space which
  forms a portion of the Leased  Premises by  constructing  (x) a fully enclosed
  and air  conditioned  make-ready area  containing  approximately  1500 to 2000
  square feet (y) a fully  enclosed and air  conditioned  laboratory  containing
  approximately  500 square  feet,  and (z) a  fenced-in  and gated  spare parts
  storage area (collectively the "Warehouse Improvements"),  Construction of the
  Warehouse  Improvements  by or at the instance of Top Source is subject to the
  following conditions precedent:

                             (i) all costs and expenses of construction of the
Warehouse  Improvements  shall be borne by Top Source including the costs of
obtaining all required building permits;

                             (ii) Top Source shall obtain  Lessor's and 
Lessee's consent to the construction of the Warehouse Improvements, Lessor's
release of Lessee and Taylor, and


<PAGE>


                                                          6


 Lessee's  release of Taylor  such  releases  being on account of any  liability
 which results from Top Source's construction of the Warehouse Improvements;

                            (iii) Lessor,  Lessee and Taylor,  at no cost to
any of them,  shall  cooperate  with and  reasonably assist Top Source in
 obtaining all required building permits. ,

          6. Term. The within  subletting  shall commence on January 1, 1997 and
 continue  until  August  31,  2000.  An  additional  deposit is to be made upon
 execution of this Second Sublease in the amount of $38,5OO to be paid to Taylor
 and held in an interest  bearing  account.  Top Source shall have the option to
 terminate this Second Sublease as of April 1, 1998 if:

    (a) Top Source is not in default of any provision of this Second Sublease;


<PAGE>


 and

                    (a) Top  Source  has given  written  notice to Taylor of its
  election to exercise this option no later than January 2, 1998.

  The deposit provided in this paragraph shall be distributed by Taylor on April
  1, 1998 or as soon thereafter as reasonable possible, as follows:

                   The entire deposit plus all accrued interest shall be paid to
  Taylor if Top Source has given the notice  provided in 6(b)  above;  otherwise
  the entire deposit plus all accrued interest shall be paid to Top Source.

           7. Counterparts. Two or more duplicate originals of this Agreement
           may be signed by the parties, each of which shall be an original but
           all of which together shall constitute one and the same instrument.
 7


<PAGE>



 IN WITNESS WHEREOF, the parties have executed and entered into this Second


<PAGE>


 Sublease as of the date first above written.

 TAYLOR:                             TOP SOURCE:


                                    
  R.M. TAYLOR, INCORPORATED,      TOP SOURCE TECHNOLOGIES, INC.,
  a Missouri corporation          a Delaware corporation


                                                       
  By:
  Its:  _________________________
--------------------------------


<PAGE>

                                             Robert Book
                                    By: ______________________________
                                           Robert Book
                                         Its: Vice President
                                              and


                                    TOP SOURCE INSTRUMENTS,  INC.,
                                    a Georgia  corporation, 
                                    f/k/a On Site Analysis, Inc.

                                        Robert Book
                                By: ________________________________
                                        Robert Book

                                Its:  Assistant Secretary
 8


<PAGE>



                                             CONSENT OF LESSOR AND LESSEE

          Lessor,  Kitchen Investment,  Ltd. and/or Kitchen Investment Company,
 L.L.C. and Lessee, John Crane, Inc.,
 each do hereby consent to the Second Sublease  Agreement of R.M.  Taylor, 
 Incorporated to Top Source  Technologies,
 Inc. and Top Source  Instruments,  Inc. of the premises in accordance with the
 provisions,  conditions and covenants
 of the foregoing Second Sublease Agreement upon the following basis:

          1. That this consent shall in no way be construed to relieve John
 Crane,  Inc. of its primary  liability as  "Lessee" for the performance of the
 provisions, conditions and covenants contained in the Lease; and

           2. That this  consent  shall not be construed to relieve R.M.Taylor,
  Incorporated  of its  liability as   Subtenant under the Sublease.

           3. That should Top Source  elect to exercise  its option to terminate
  as provided in paragraph 6 of Second  Sublease,  then Lessor and Lessee herein
  consent to R.M. Taylor,  Incorporated  being the tenant for the balance of the
  Term and any extension thereof.


<PAGE>


 KITCHEN INVESTMENT, LTD. a Michigan limited  partnership
 By: ____________________________
 Its: General Partner
 KITCHEN INVESTMENT COMPANY,
 L.L.C. , a Michigan limited liability company
 By: ________________________________

 Its: Manager
 JOHN CRANE, INC., a Delaware corporation
 By: ____________________________________

 Its: _____________________________________
 9


<PAGE>


                                                 SUBLEASE
          This  Sublease is made and entered into this 30th day of August,  1995
 by and between John Crane, Inc., a Delaware corporation  ("Sublessor") and R.M.
 Taylor, Incorporated, a Missouri corporation ("Subtenant").

                                       WITNESSETH

          For and in  consideration  of the mutual  covenants and agreements set
 forth  herein,  and other good and  valuable  consideration,  the  receipt  and
 sufficiency  of which is  hereby  acknowledged,  the  parties  hereby  agree as
 follows:

          1.  Sublease:  Subject  to the  written  consent  of the  Lessor,  the
 Sublessor  hereby  subleases to the  Subtenant,  and the Subtenant  leases from
 Sublessor,  pursuant to the terms and conditions set forth herein, the land and
 premises commonly known as 23400 Commerce Drive, Farmington Hills, Michigan, as
 legally  described  in Exhibit A to the Lease  attached  hereto,  dated May 13,
 1993, by and between Kitchen  Investment Ltd., a Michigan Limited  Partnership,
 as Lessor, end Sublessor, as Lessee (the "Lease").

          2. Terms and Conditions: Except as specifically set forth herein:

                   (a)  Subtenant   hereby  agrees  to  assume  each  and  every
 obligation of the Lessee under the Lease and agrees that  Sublessor  shall have
 every right of Lessor set forth in the Lease; SS-301.1


<PAGE>



                  (b) Sublessor hereby agrees to use its best efforts to enforce
 every  obligation  of Lessor under the L ease and agrees that  Subtenant  shall
 have every right of Lessee under the Lease;

(c)  The following are  exceptions to the rights and  obligations of the parties
     hereto as set forth in the Lease:  (i) Section 1.01 of the Lease related to
     construction  of  improvements  is hereby  deleted  in its  entirety.  (ii)
     Section 2.03 of the Lease  relating to  confirmation  of  commencement,  is
     hereby deleted.  (iii) The "basic rental" or "minimum net rental" as stated
     in Section 3.01 payable by Subtenant to Sublessor  shall be per month which
     amount  shall  be net to  Sublessor.  (iv)  The  insurance  required  under
     Sections  6.01 and 10.01 of the Lease  shall name  ------------------------
     the Lessor,  the Sublessor and the Lessor's  mortgagee as insured  parties.
     (v) Section 11.02 of the Lease  relating to an option to extend,  is hereby
     deleted in its entirety.  (vi) Any further  assignment or subletting of the
     demised premises by the Subtenant shall be subject to the consent of Lessor
     as well as Sublessor, which consents shall not be unreasonably withheld.

<PAGE>


 
(vii)Both the Lessor  and the  Sublessor  shall  have the right to  inspect  the
     demised  premises  under  Section  14.01 of the  Lease.
 (viii)  Notices or demands upon the parties hereto as provided in Section 
16.01, shall be made as follows:
<PAGE>


 To Lessor
                                                      
                                                      
 Kitchen Investment, Ltd.  COMPANY, L.L.C.
 1925 Heide Street
 Troy, MI  48084


To Sublessor:
 John Crane, Inc.
 6400 Oakton Street
 Morton Grove, IL 60053

To Subtenant
 R.M. Taylor, Incorporated
 Attn: Mr. R.M. Taylor
 5135 Deramus
 Kansas City, MO 64120


(ix) The  mortgage  rights  set forth in  Section  21.01 of the L ease  shall be
     retained by the Lessor.
(x)  The  security  deposit  to be  made by  Subtenant  upon  execution  of this
     Sublease  shall be , to be paid to and  held by  Sublessor  in an  interest
     bearing  escrow  account  which  principal  and accrued  interest  shall be
     returned  to  Subtenant  upon  the  termination  of  the  Sublease,  unless
     Subtenant is in default at  termination,  at which time the  principal  and
     interest shall be used as provided in Section 23.01. The terms of 
      Section  23 of the  Lease,  other  than the  amount of such
     deposit, shall remain applicable to this Sublease.

(xi) The right to show the premises  under  Section  26.01 of the Lease shall be
     retained by Lessor.
(xii)Section 27.01 of the Lease related to environmental  laws is hereby deleted
     in its entirety. (xiii) Section 28 relating to an option to extend the term
     of the Lease is hereby deleted  in its entirety,  unless by written 
     agreement before or after the date hereof, Lessor agrees that Sublessor
     shall be relieved of all obligations  under the Lease as of the end of the
     original term, and,  pursuant to Section 28.04 of the Lease Lessor agrees
     to the  assignment of the option. (xiv) Exhibit B relating to leasehold 
     improvements is hereby deleted in its entirety; and

(d) The following are additional terms to the Sublease not found in the Lease:
(i) Subtenant shall have the right to inspect the demised  premises prior to the
execution of this  Sublease.  Sublessor (or Lessor,  as determined by the Lease)
shall be responsible  for any repairs  currently  necessary as disclosed by such
inspections.  Upon completion of such repairs to the  satisfaction of Subtenant,
Subtenant shall then accept the demised premises "AS-IS".

<PAGE>


(ii)  Subtenant  shall  maintain  in full force and  effect  that  certain  HVAC
maintenance  agreement currently  maintained by Sublessor and upon expiration or
termination   thereof,   Subtenant   shall  obtain  and  maintain  a  comparable
maintenance  agreement throughout the entire term hereof. 

(iii) Sublessor  hereby  represents and warrants as follows,  to the best of its
knowledge and belief and having performed no independent investigations:
(a)     To the best of Sublessor's  knowledge,  the Leased Premises are and have
        always been in compliance with all applicable environmental laws.

(b)     There are no pending  environmental  civil,  criminal or  administrative
        proceedings,  lawsuits  or claims  brought by any  governmental  agency,
        private party or other entity  against  Sublessor or Lessor  relating to
        any environmental law.

(c)  Sublessor  knows  of no  civil,  criminal  or  administrative  proceedings,
     lawsuits  or  claims   threatened   against  Sublessor  or  Lessor  by  any
     governmental  agency,  private  party  or  other  entity  relating  to  any
     environmental law.

(d)  Sublessor knows of no facts or circumstances which may give rise

     to any civil, criminal or administrative proceedings, lawsuits or



<PAGE>



       claims against  Sublessor or Lessor by any governmental  agency,  private
       party or other entity relating to any environmental law.

(e)  The Leased  Premises  comply with all  requirements  of the  American  With
     Disabilities Act.

                   (f)     The  Leased  Premises  and  Sublessor's  use of  said
                           Leased  Premises  comply with the ordinances or other
                           regulations  of the City of Farmington  Hills,  or of
                           any other lawful authorities,  and the Declaration of
                           Covenants and Restrictions,  recorded August 26, 1968
                           in Liber 5242 P. 658 Oakland County Records.

          3. Term.  This  Sublease  shall  commence  as of  December 1, 1995 and
 continue until August 31, 2000.  Notwithstanding the above, Sublessor agrees to
 allow  Subtenant on and after  November 20, 1995 through  November 30, 1995, to
 occupy a sufficient  portion of the demised premises for the storage of certain
 of Subtenant's furniture and equipment.  In the event that Subtenant does enter
 the demised  premises  prior to the  commencement  of the  Sublease and use the
 demised premises for the storage of its assets, Subtenant hereby agrees:

                   (a) That Sublessor  shall have no  responsibility  whatsoever
 for such assets of Subtenant and Subtenant shall be solely  responsible for the
 care, security and maintenance of such assets; and

<PAGE>


4. Lease. Nothing set forth herein shall be deemed to alter, amend or modify the
rights and obligations of the parties to the Lease.

         IN WITNESS  WHEREOF,  the parties  have  executed and entered into this
 Sublease as of the date first above written.


<PAGE>


                  (b) That  Subtenant  and its  employees and agents shall enter
 the  demised  premises  and the sole risk of  Subtenant  and  Subtenant  hereby
 indemnifies  and  holds  Sublessor  harmless  from and  against  any  damage to
 property  or injury to person  caused by or  arising  out of such entry upon or
 stooge  within  the  demised  premises,  unless  such  damage  is caused by the
 negligence of Sublessor, its agents or employees.


 Subtenant:
 R.M. TAYLOR, INCORPORATED
 By:  William C. Cottle
Its: EXECUTIVE VICE PRESIDENT and CFO    
Address:
 5135 Deramus
 Kansas City, MO 64120
 SS-30l.1


By:  Fred S. Decrisatis
             Its: Vice Pres. of Finance
 JOHN CRANE, INC.
 Sublessor:
 Address:
 6400 Oakton Street
 Morton Grove, IL 60053


<PAGE>



                                               CONSENT OF LESSOR



<PAGE>


 Lessor,  KITCHEN  INVESTMENT,  LTD., and KITCHEN  INVESTMENT  COMPANY,  L.L.C.,
 hereby consent to the Sublease by Lessee,  JOHN CRANE, INC., of the premises to
 R.M.  TAYLOR,  INCORPORATED in accordance  with the provisions,  conditions and
 covenants of this Sublease upon the following basis:

1. That this consent  shall in no way be construed to relieve John Crane,  Inc.,
of its primary  liability as "Lessee"  for the  performance  of the  
provisions,conditions and covenants contained in the Lease; and

 2.      That  this  consent  shall  not be deemed  an  assumption  by  Kitchen
          Investment, Ltd., of any of the obligations of John Crane, Inc., under
          this Section.



 KITCHEN INVESTMENT, LTD.
 BY: Milton G. Kitchen
 ITS: General Partner


 AND
 

 KITCHEN INVESTMENT COMPANY, L.L.C.

 BY: Barbara J. Kitchen
 ITS: MANAGER
 BY: Milton G. Kitchen
<PAGE>

19


<PAGE>

EXHIBIT 10.7



 Overpayments   will  be  credited  to  your   account  and  you  will  pay  any
 underpayments within 30 days of the date of the Landlord's final statement.
          On  November  l,  1996,  Tenant  is to  post  a  security  deposit  of
 $21,037,50 in the form of cash.  Landlord will invest same in a Certificate  of
 Deposit, with interest being paid to Tenant.
          It is further agreed -that this lease  agreement is subordinate to any
 mortgages on the property.  Tenant agrees to provide Estoppel Certificates,  if
 required by  Landlord.  If for any reason we find it  necessary to litigate any
 issue,  it is agreed that both of us waive our right to a trial by jury. If, at
 any time prior to the termination of this Lease,  any senior interest holder or
 any other person or the  successors or assigns of the  foregoing  (collectively
 referred to as  "Successor  Landlord")  shall succeed to the rights of Landlord
 under this Lease,  Tenant agrees,  at the election and upon request of any such
 Successor  Landlord,  to fully and completely  attorn to and recognize any such
 Successor  Landlord,  as  Tenant's  Landlord  under  this  Lease  upon the then
 executory terms of this Lease;  provided such Successor Landlord shall agree in
 writing  to accept  Tenant's  attornment  and shall  assume  all of  Landlord's
 obligations under this Lease.
          Notwithstanding anything to the contrary contained herein it is agreed
 that you will look only to  Landlord  's  interest  in 450 Park  Avenue (or the
 proceeds  thereof) for the satisfaction of Tenant's remedies for the collection
 of a judgment (or other  judicial  process)  requiring  the payment of money by
 landlord  in the  event of any  default  by  Landlord  hereunder,  and no other
 property  or  assets  of  Landlord   or  its   agents,   directors,   officers,
 shareholders,  partners  or  principals  (disclosed  or  undisclosed)  shall be
 subject to levy, execution or other enforcement  procedure for the satisfaction
 of Tenant's  remedies under or with respect to this lease,  the relationship of
 Landlord and Tenant  hereunder or under law or Tenant's use or occupancy of the
 Subject Premises or any other liability of Landlord to Tenant.
          The parties  agree that neither  party shall be liable to the other to
 the extent of a recovery for any loss suffered which is covered by an insurance
 policy  carried  by the  party  suffering  the loss and for which  recovery  is
 available.  The parties agree to attempt to obtain waivers of subrogation  from
 the respective insurance  companies.  Landlord and Tenant represent that in the
 negotiation  of his Lease they  dealt  with no broker or brokers  other than J.
 Everett Hill of Peter Sharp & CO., Inc. (whose commission or other compensation
 shall be paid by Landlord)  and Alan  Grossman of The  Georgetown  Group,  Inc.
 (whose commission or other compensation shall be paid by Landlord) Landlord and
 Tenant  hereby agree to indemnify  and hold the other part;  harmless  from and
 against any and all claims,  liabilities,  suits, costs and expenses including,
 reasonable  attorneys fees and  disbursements  arising out of any inaccuracy or
 alleged  inaccuracy  of  the  above  representation.  Landlord  shall  have  no
 liability for any brokerage commissions arising out of a sublease or assignment
 by Tenant.  The  provisions  of this Article  shall  survive the  expiration or
 Sooner termination of the Lease.

                                                       - 3 -
          During the term of this Lease,  Landlord shall, at Landlord's expense,
 provide heat, light,  cleaning,  water, rubbish removal and air conditioning to
 the Premises in accordance with building standards.
          All notices are to he sent by Certified Mail,  Return Receipt
 Requested.  If to Landlord,  such notice is
 to be addressed  to: 450 Park Avenue  Associates  c/o Peter Sharp & Co., 
 Inc.,  1370 Avenue of the  Americas,  New oYrk,  New York 10019.  If to
Tenant,  such notice is to be addressed to:
 Top Source  Technologies,  Inc., 450 Park Avenue,
New York, New York 10019, Attn: Stuart Landow.  Landlord warrants and represents
that it is the  owner of the  subject  premises  and is free to enter  into this
Lease. The submission by Landlord to Tenant of this Lease in draft form shall be
deemed  submitted solely for Tenant's  consideration  and not for acceptance and
execution.  The submission by Landlord of this Lease for execution by Tenant and
the actual  execution and delivery  thereof by Tenant to Landlord  shall have no
binding  force and effect  unless and until  Landlord  shall have  executed this
Lease and a  counterpart  thereof shall have been  delivered to Tenant.  If at a
future date it is found to be  necessary,  we agree to  negotiate  and execute a
long form Lease which is mutually agreeable to both sides.
<PAGE>


          Tenant  is to have  the  right  to  sublease  the  Premises  with  the
 Landlord's consent which is not to he unreasonably  withheld.  However, any net
 profits are to be shared equally  between Tenant and Landlord  within 5 days of
 receipt by Tenant.
          Should Tenant fail to vacate the Premises on the  Expiration  Date and
 there has been no  agreement as to an  extension,  the total amount of the Rent
 and  Additional  Rent  will  double,  commencing  on  the  date  following  the
 Expiration Date.
       Tenant is  responsible  for the immediate  bonding  and/or removal of any
 liens placed on the building by any of the Tenant's contractors.

                                                       - 4 -
                                Very truly yours,
 Jerome L.Greene
 General Partner
 450 PARK AVENUE ASSOCIATES ("Landlord")

Jerome L.Greene
--------------------------------------------------------------------




<PAGE>


          If you are in agreement  with the above,  please sign each of the four
 copies of this letter and return them to the undersigned for  counter-signature
 along with a check in the amount of $7,012.50,  which  represents  the Rent for
 the first  month.  We will return two fully  executed  copies of this letter to
 you. JLG/ck Enclosures
 ACCEPTED AND AGREED TO:
 TOP SOURCE TECHNOLOGIES, INC. ("Tenant")
 By:.
  Title     CFO            4/2/96

<PAGE>


                                      LEASE

         THIS  LEASE  is  made as of the  13th  day of May  1993 by and  between
Kitchen Investment Ltd., A Michigan Limited  Partnership,  1925 Heide St., Troy,
MI 48084 as Lessor and John Crane  Inc.,  A Delaware  Corporation,  6400  Oakton
Street, Morton Grove, Illinois 60053 as Lessee,

         IN  CONSIDERATION  OF the  rents to be paid and the  mutual  covenants,
promises and agreements herein set forth, Lessor and Lessee agree as follows:

         Lessor  hereby  leases  unto  Lessee  premises  situated in the City of
Farmington Hills, County of Oakland,  State of Michigan,  described as set forth
on Exhibit "A" attached hereto and made a part hereof.

         TO HAVE AND TO HOLD for a term of Seven  (7)  years  and One (1)  month
from and after the commencement of the term as hereinafter provided.

                                    SECTION 1

                          CONSTRUCTION OF IMPROVEMENTS

         1.01  Lessor  agrees,  prior  to the  commencement  of the term of this
lease, at Lessor's sole cost and expense,  to complete  certain  improvements to
the building  located on the land  described in Exhibit "A" in  accordance  with
Plans and Leasehold  Improvements  enumerated on Exhibit "B page 1 and 2", which
Plans and  Leasehold  Improvements  have been approved by both parties and which
are  by  this  reference  made  a  part  hereof.   No  minor  change  from  such
specifications which may be necessary during the preparation of the premises for
Lessee shall affect, change or invalidate this Lease.

                                    SECTION 2

                                  TERM OF LEASE

         2.01 The term of this lease shall begin  August 1, 1993,  and shall end
on August 31, 2000 unless  sooner  terminated  as herein set forth.  The term as
fixed by this Section 2 shall hereafter be referred to as the "original term".

         2.02 If lessor shall be unable for any reason to give possession of the
premises on the date of the commencement of the term hereof, Lessor shall not be
subject to any liability for the failure to give possession on such date but the
rent to be paid herein shall not commence until one month after the premises are
ready for occupancy by Lessee. No such failure to give possession on the date of
the  commencement  of the term shall  affect the  validity  of this Lease or the
obligations of Lessee hereunder.  If permission is given to Lessee to enter into
possession  of the  premises,  or to  occupy  premises  other  than  the  leased
premises,  prior to the date specified as the  commencement  of the term of this
Lease,  Lessee  covenants and agrees that such  occupancy  shall be deemed to be
under all the terms, covenants, conditions and provisions of this Lease.

         2.03 On the  commencement  date or within a reasonable  time thereafter
upon request by Lessor, Lessee shall execute a written instrument confirming the
Commencement Date and the date on which the term shall end.

                                    SECTION 3

                                  BASIC RENTAL

         3.01 In consideration of the leasing aforesaid, Lessee hereby covenants
and agrees to pay  Lessor,  at such place as Lessor may  hereafter  from time to
time  designate in writing,  a minimum net rental for the  original  term of the
lease equal in total amount to _________________________________ payable monthly
in  advance  on the  First  (1st)  day of each  month in equal  installments  of
_____________  _________________________  for months two (2) through  forty nine
(49)         inclusive         of        the        lease        term        and
_________________________________________________  for months fifty (50) through
eighty    five   (85)    inclusive    of   the   lease    term.    Receipt    of
______________________________   representing  September  1993  rent  is  hereby
acknowledged.

         3.02 Lessor and Lessee  intend that the minimum net rental shall be net
to Lessor,  so that this lease shall  yield,  net, to Lessor,  not less than the
minimum net rent  specified  in Sect 3.01 hereof  during the term of this lease,
and that all costs,  expenses  and charges of every kind and nature  relating to
the demised premises which may be attributable to, or become due during the term
of this lease shall be paid by Lessee and that Lessor shall be  indemnified  and
saved harmless by Lessee from and against the same.

                                    SECTION 4

                        TAXES, ASSESSMENTS AND UTILITIES

         4.01 Lessee agrees to pay as additional  rent for the demised  premises
all taxes and  assessments,  general and special,  and all water rates,  and all

         4.01 Lessee agrees to pay as additional  rent for the demised  premises
all taxes and  assessments,  general and special,  and all water rates,  and all
other  governmental  impositions  which may be levied upon said  premises or any
part thereof, or upon any building or improvements at any time situated thereon,
until the  termination  of the original  term and of any  extended  term of this
Lease. All of such taxes, assessments,  water rates, and other impositions shall
be paid by Lessee before they shall become  delinquent.  The property  taxes and
assessments  for the first and last year of the  original  term or any  extended
term as the case may be,  shall be  prorated  between  Lessor and Lessee so that
Lessee will be responsible  for any such tax or assessments  attributable to the
period  during which Lessee has  possession of the premises in the year in which
this lease in terminated.  The so-called "due date" method of proration shall be
used, it being presumed that taxes and  assessments  are payable in advance.  In
the event that during the term of this lease (i) the real property  taxes levied
or assessed  against the real property shall be reduced or  eliminated,  whether
the cause thereof is a judicial determination of  unconstitutionality,  a change
in the  nature of the taxes  imposed,  or  otherwise,  and (ii) there is levied,
assessed or otherwise  imposed upon the Lessor,  in substitution for all or part
of the tax thus reduced or eliminated, a tax (hereinafter called the "Substitute
Tax") which  imposes a burden upon Lessor by reason of its ownership of the real
property,  then to the extent of such burdens the Substitute Tax shall be deemed
a real estate tax for the purposes of this paragraph:

         4.02 Lessee also agrees to pay all charges  made  against the  premises
for gas, heat,  electricity  and all other  utilities  during the continuance of
this lease as the same shall become due.

         4.03 In the event that  payment of any or all of the  foregoing  taxes,
assessments  and  utilities  are to be made from an escrowed fund required to be
established by Lessor as Mortgagor  under the terms of any first mortgage on the
demised  premises,  then  Lessor  shall so notify  Lessee.  Lessee  shall not be
required to directly pay such taxes,  assessments and utilities as are paid from
such escrowed fund, but shall instead,  as additional rent, pay to Lessor on the
first  (1st) day of each month of the lease  term an amount  equal to the amount
required  to be paid by Lessor  under the terms of such  first  mortgage  to the
escrowed fund on account of such charges.  If the actual taxes,  assessments and
utilities,  when due,  exceed the total amounts from time to time paid therefore
by Lessee,  then the Lessee shall, upon demand, pay any deficiency to Lessor. If
such payments by Lessee, over the term of the lease, exceed the amount of taxes,
assessments  and  utilities  paid  therefrom,  such excess  shall be refunded by
Lessor to Lessee at the  expiration  of the lease  term,  or when such excess is
refunded by the mortgagee to Lessor, whichever first occurs.

                                    SECTION 5

                                 USE OF PREMISES

         5.01 It is understood  and agreed between the parties that the premises
during the  continuance  of this lease  shall be used and  occupied  for office,
engineering,  sales, warehouse, assembly and light industrial usage only and for
no other purpose without the prior written consent of Lessor. Lessee agrees that
it will not use or permit any  person to use the  demised  premises  or any part
thereof for any use or purposes,  in violation of the laws of the United States,
the  State of  Michigan,  the  ordinances  or other  regulations  of the City of
Farmington  Hills,  or of any other lawful  authorities,  or the  Declaration of
Covenants  and  Restrictions,  recorded  August 26,  1968 in Liber 5242 Page 658
Oakland  County  Records (a copy of which is attached  hereto as Exhibit "C", to
which  Declaration  this lease is hereby  expressly  made  subject).  During the
original term or any extended  term,  the Lessee will keep the demised  premises
and every part thereof and all buildings at any time situated thereon in a clean
and wholesome  condition  and  generally  will comply with all lawful health and
police  regulations.  All  signs  and  advertising  displayed  in and  about the
premises  shall be such only as to advertise  the  business  carried on upon the
premises and Lessor shall control the location,  character and size thereof.  No
signs shall be  displayed  except as  approved in writing by the Lessor,  and no
awning  shall be  installed  or used on the  exterior  of said  building  unless
approved  in writing  by Lessor.  The  Lessor  shall not  unreasonably  withhold
signage  approval  for  the  building.  Lessee  shall  conform  to the  City  of
Farmington Hills sign ordinance requirements.

                                    SECTION 6

                        LIABILITY INSURANCE AND INDEMNITY

         6.01 At and after the  commencement  of the original term of the Lease,
Lessee agrees to defend,  indemnify and save Lessor  harmless from any liability
for damages,  including costs and reasonable  attorneys' fees of Lessor,  to any
person or property upon the leased  premises  caused solely by the negligence of
Lessee, its agents, invitees, guests, contractors, subcontractors, successors or
assigns.  Lessee  further  agrees  that  it  will  obtain  at or  prior  to  the
commencement  of the lease term and maintain at all times  thereafter  until the
termination of this lease, for the mutual benefit of Lessor, Lessor's mortgagee,
and of Lessee,  and naming  Lessor and Lessor's  mortgagee  as insured  parties,
general  public  liability  insurance  including  blanket  contractual  coverage
against claims for or arising out of personal injury,  death or property damage,
occurring in, on, or about the demised premises or property in, on, or about the
streets,  sidewalks or premises adjacent to the demised premises, such insurance
to afford  protection to the limit at the beginning of the term of not less than
Two Million and 00/100 Dollars  ($2,000,000.00)  with respect to injury or death
of a single  person,  and to the limit of not less than Two  Million  and 00/100
Dollars ($2,000,000.00) with respect to any one occurrence,  and to the limit of
not less than Five  Hundred  Thousand  and  00/100  Dollars  ($500,000.00)  with
respect to any one occurrence of property  damage and thereafter in such changed
amounts as the Lessor may  reasonably  require.  Lessee shall  furnish  evidence
suitable to Lessor  that such  insurance  policy or policies  are in force at or
prior to the  commencement  of the original term of the lease and shall continue
to provide  Lessor with such  evidence with respect to such policies as are from
time to time in force  until  the  termination  of this  lease.  Such  policy or
policies  shall provide for thirty (30) days' prior written  notice to Lessor of
cancellation.

                                    SECTION 7

                                     REPAIRS

         7.01  Lessee  covenants  and  agrees  at its own  expense  to keep  the
building  or  buildings  on the  demised  premises,  including  all  structural,
electrical, mechanical and plumbing systems, at all times in good appearance and
repair except for reasonable and normal wear and tear. Lessee shall also pay all
other  expenses in connection  with the  maintenance  of the premises  including
repair  and upkeep of  grounds,  sidewalks,  driveways  and  parking  areas in a
first-class condition.  Lessor shall be responsible for, and Lessee shall not be
responsible for maintenance or repair of the roof or the four outer walls.

         Notwithstanding  any other  provision of the lease,  from and after the
Lessee has taken  occupancy of the demised  premises  any repairs,  additions or
alterations  to the building or any of its systems (e.g.  plumbing,  electrical,
mechanical)  structural  or  non-structural,  which  are  required  by any  law,
statute,  ordinance,  rule,  regulation or  governmental  authority or insurance
carrier,  including,  without  limitation,  OSHA, shall be the obligation of the
Lessee.  Lessor  shall  assign to  Lessee  the  benefit  of all  guarantees  and
warranties covering the building and its systems.

                                    SECTION 8

                                   ALTERATIONS

         8.01 The  parties  agree that  Lessee  shall not make any  alterations,
additions or improvements to the premises  without the written consent of Lessor
and,  if  required by the terms of any  mortgage  on the  premises,  the written
consent of the mortgagee.  All  alterations,  additions or improvements  made by
either of the parties  hereto upon the premises  shall be the property of Lessor
and shall remain upon and be surrendered with the premises at the termination of
this lease,  except that  alterations,  additions or improvements made by Lessee
shall be removed and the premises restored by Lessee if so requested by Lessor.

                                    SECTION 9

                                      LIENS

         9.01 After the  commencement of the term of the lease,  the Lessee will
keep the  premises  free of liens of any sort and will hold the Lessor  harmless
from any  liens  which  may be  placed  on the  premises  solely  as a result of
Lessee's acts.

                                   SECTION 10

                      FIRE INSURANCE AND EXTENDED COVERAGE

         10.01  Lessee  agrees that it will at all times  during the term of the
lease, at its own expense,  keep the building and all other  improvements on the
demised  premises  insured  for the full  replacement  cost  thereof  and at the
beginning of the term for at lease Eight Hundred  Seventy Five Thousand  Dollars
($875,000.00),  against  loss by fire  with  standard  extended  risk  coverage,
vandalism and malicious mischief and sprinkler leakage.  Lessee shall also carry
"business  interruption"  insurance throughout the term in an amount adequate to
cover the  obligations  of Lessee  under this  Lease.  Such  insurance  shall be
procured  from an insurance  company or  companies  reasonably  satisfactory  to
Lessor  and  shall  insure  Lessor,  Lessor's  mortgagee,  and  Lessee  as their
interests  may  appear.  Each such  policy  shall  provide for thirty (30) days'
written  notice to  Lessor  of any  cancellation.  Duplicate  original  policies
evidencing  such insurance  shall be delivered to Lessor  together with receipts
evidencing  payment of the premiums relating to such insurance.  Certificates of
renewal  thereof shall be delivered to Lessor at least thirty (30) days prior to
the expiration dates of the respective policies to which they relate.

         10.02 Lessee  shall cause each  insurance  policy  described in Section
10.01 to be  written  in a manner so as to  provide  that the  insuring  company
waives all right or recovery by way of subrogation  against Lessor in connection
with any loss or damage covered by any such policies.

         10.03 In case  Lessee  shall at any time  fail,  neglect  or  refuse to
insure  such  buildings  and  improvements  and to  keep  the  same  insured  as
hereinbefore  provided,  or  to  carry  the  required  "business   interruption"
insurance then Lessor may at its election  procure or renew such insurance,  and
any amounts paid therefor by Lessor shall be so much additional  rental due from
Lessee to Lessor at the next rent day after any such  payment  with  interest at
the rate of ten (10% ) percent  per annum  from the date of  payment  thereof by
Lessor until the repayment thereof to Lessor by Lessee.

         10.04 In the event of loss  under  any such  policy  or  policies,  the
insurance  proceeds shall be paid to Lessor or Lessor's  mortgagee;  thereafter,
such proceeds other than the proceeds of the "business  interruption"  insurance
which may be used to discharge the Lessee's  continuing  obligations  under this
Lease shall be paid out for the expense of repairing or rebuilding the buildings
or  improvements  which have been damaged or destroyed if it shall appear to the
satisfaction of Lessor and Lessor's mortgagee that the amount of insurance money
shall at all times be  sufficient  to pay for the  completion of said repairs or
rebuilding.

         10.05 In the event that payment of premiums  relative to any  insurance
required  under this Section 10 is to be made from an escrowed  fund required to
be established  by Lessor as mortgagor  under the terms of any first mortgage on
the demised  premises,  then Lessor shall so notify Lessee.  Lessee shall not be
required to directly pay such  premiums as are paid from such  escrowed fund but
shall instead,  as additional  rent, pay to Lessor an amount equal to the amount
required  to be paid by Lessor  under the terms of such  first  mortgage  to the
escrowed fund on account of such  premiums.  If the actual  premiums,  when due,
exceed the total  amounts  from time to time paid  therefor by Lessee,  then the
Lessee shall,  upon demand,  pay any  deficiency to Lessor.  If such payments by
Lessee over the term of the lease,  exceed the amount of premiums paid therefrom
, such excess  shall be refunded  by Lessor to Lessee at the  expiration  of the
lease term, or when such excess is refunded by the mortgage to Lessor, whichever
first occurs.

                                   SECTION 11

                        DAMAGE BY FIRE OR OTHER CASUALTY

         11.01 It is understood and agreed that if the premises hereby leased by
damaged or  destroyed in whole or in part by fire or other  casualty  during the
term hereof, the Lessor, if there are sufficient insurance proceeds, will repair
and restore the same to good tenantable condition with reasonable dispatch.  The
rent herein provided for shall not abate, whether or not the entire premises are
untenantable,  unless such premises are not repaired or restored within nine (9)
months  following  the  date of the  fire or other  casualty.  If the  insurance
proceeds are  insufficient  to cover the cost of  repairing  and  restoring  the
premises to good tenantable condition,  Lessor may cancel the lease effective as
of the date of the fire or other casualty, without further liability to Lessee.

         11.02 Lessee shall have the option,  exercisable  by written  notice to
Lessor upon  restoration  of the  premises,  to extend the original term of this
Lease (or the  extension  of the term  during  which the  damage or  destruction
occurred;  as the case may be) for a period equal to the period,  if any, during
which  Lessee was  deprived  of the use of all or a  significant  portion of the
premises  by  reason of such  damage or  destruction.  Lessee's  option  must be
exercised within twenty (20 days following completion of the work of restoration
and repair.

                                   SECTION 12

                                 EMINENT DOMAIN

         12.01 In the event, during the term of this Lease, proceedings shall be
instituted under the power of eminent domain which shall result in the taking of
any part of the building on the leased  premises,  or the taking of a portion of
the  parking  area if the number of spaces is thereby  reduced to such an extent
that Lessee's business is significantly  and adversely  affected and which shall
result in an eviction total or partial of the Lessee therefrom, then at the time
of such  eviction,  this Lease  shall be void and the term above  demised  shall
cease and terminate;  and if Lessee shall  thereafter  continue in possession of
the premises or by part thereof, it shall be a lease from month to month and for
no longer term, anything in this instrument to the contrary notwithstanding.  If
there is only a partial  taking,  not  including  a portion of the  building  or
reducing  parking to the extent described in the previous  sentence,  the Lessor
shall restore the premises to the extent  necessary to permit Lessee to continue
its use of the premises.  Provided, further, that the whole of any award for any
portion of the leased premises taken by reason of said condemnation  proceedings
shall be solely the property of and payable to the Lessor; and provided further,
that the whole of any award for  removal  and  relocation  expenses  in any such
condemnation  proceedings  shall be the sole  property of, and be payable to the
Lessee.  It is further  agreed  that in any such  condemnation  proceedings  the
Lessor and Lessee shall each seek its own award and at its own expense.

                                   SECTION 13

                                   ASSIGNMENT

         13.01  Lessee  shall not assign or sublet the  demised  premises or any
part thereof without first obtaining the Lessor's written consent, which consent
shall not be unreasonably withheld, except that the Lessee may, without Lessor's
consent,  assign  or  sublet  all or any  part  of the  premises  to  wholly  or
substantially owned subsidiaries, or inter-related companies, of the Lessee, and
provided  that  Lessee is not at such time in default  hereunder,  and  provided
further that such successor shall execute an instrument in writing  assuming all
of the obligations and liabilities to the Lessor, and provided further that such
assignment  or  subletting   shall  not  operate  to  release  Lessee  from  its
obligations under the lease.


                                   SECTION 14

                             INSPECTION OF PREMISES

         14.01 Lessee agrees to permit Lessor and the authorized representatives
of Lessor to enter the demised  premises at all reasonable times during business
hours for the purpose of inspecting the same.

                                   SECTION 15

                             FIXTURES AND EQUIPMENT

         15.01  All  fixtures  and  equipment  paid  for by the  Lessor  and all
fixtures and  equipment  which may be paid for and placed on the premises by the
Lessee  from time to time but  which  are so  incorporated  and  affixed  to the
buildings,  other than trade  fixtures and  equipment,  that their removal would
involve damage or structural  change to the  buildings,  shall be and remain the
property of the Lessor.

         15.02  All  furnishings,   equipment  and  fixtures  other  than  those
specified  in Section  15.01,  which are paid for and placed on the  premises by
Lessee from time to time (other than those which are  replacements  for fixtures
originally paid for by Lessor) shall remain the property of the Lessee.

                                   SECTION 16

                                NOTICE OR DEMANDS

         16.01 All  notices  to or  demands  upon  Lessor or Lessee  desired  or
required to be given under any of the provisions hereof shall be in writing. Any
notices or demands  form Lessor to Lessee  shall be deemed to have been duly and
sufficiently given if a copy thereof has been mailed by United States Mail in an
envelope  properly stamped and addressed to Lessee at the address of the demised
premises of  Lessee's  registered  office in  Michigan at such time,  or at such
other  address  as Lessee may have last  furnished  in writing to the Lessor for
such  purpose,  and any notices or demands from Lessee to Lessor shall be deemed
to have been duly and  sufficiently  given if mailed by United States mail in an
envelope  properly stamped and addressed to Lessor at the address last furnished
by written notice from Lessor to Lessee. The effective date of such notice shall
be one business day following the delivery of the same to the United States Post
Office for mailing.

                                   SECTION 17

                                   BANKRUPTCY

         17.01    Lessee covenants and agrees that if any one or more of the
 following events occur, namely:
                  (a)      Lessee shall be adjudged a bankrupt or insolvent
or a trustee shall be appointed for
Lessee  after  a  petition  has  been  filed  for  Lessee's   reorganization  or
arrangement under the Federal Bankruptcy Laws, as now or hereafter  amended,  or
under the laws of any State, and any such  adjudication or appointment shall not
have been vacated or stayed or set aside  within  thirty (30) days from the date
of the entry or granting thereof; or

                  (b)      Lessee shall file, or consent to any petition in 
bankruptcy or arrangement under the
Federal Bankruptcy Laws, as now or hereafter amended, or under the laws of any 
State; or

                  (c) A Decree or order appointing a receiver of the property of
Lessee  shall be made and such  decree or order  shall  not have  been  vacated,
stayed or set aside within thirty (30) days of a receiver for Lessee; or

                   (d)     Lessee shall make any assignment for the benefit of
 creditors;

Then it shall be lawful for Lessor, at his election,  to declare the term of the
lease ended,  and the said  premises and the  buildings  and  improvements  then
situated thereon or any part thereof,  either with or without process of law, to
re-enter,  and Lessee and all persons  occupying in or upon the same under it to
expel,  remove and put out, and the said premises and buildings and improvements
then situated thereon again to repossess and enjoy.

                                   SECTION 18

                          DEFAULT, RE-ENTRY AND DAMAGES

         (18.01) In case any rent  shall be due and remain  unpaid for more than
ten (10) days  after due or if  default  be made in any of the other  covenants,
agreements,  stipulations or conditions  herein contained and such default shall
continue for a period of thirty (30) days after written  notice of such default,
or if the leased premises shall be deserted or vacated,  Lessor,  in addition to
other rights or remedies it may have, shall have the immediate right to re-entry
and may remove all persons and property from the premises;  such property may be
removed and stored in any other place in the building in which  leased  premises
are situated,  or in any other place, for the account of, and at the expense and
at the risk of Lessee.  Lessee hereby waives all claims for damages which may be
caused by the  re-entry  of Lessor  and taking  possession  of the  premises  or
removing or storing of furniture and property as herein provided,  and will save
Lessor harmless from any loss, costs or damages  occasioned Lessor thereby,  and
no such re-entry shall be considered or construed to be a forcible entry.

         (18.02) Should Lessor elect to re-enter as herein provided or should it
take possession pursuant to legal proceedings or pursuant to any notice provided
for by law,  it may  either  terminate  this  lease or it may from time to time,
without terminating this lease, re-let the premises or any part thereof for such
term or terms  and at such  rental or  rentals  and upon  such  other  terms and
conditions as Lessor in its sole discretion may deem  advisable,  with the right
to make alterations and repairs to the premises. Rentals received by Lessor from
such re-letting shall be applied as follows:

                  First, to the payment of any indebtedness, other than rent due
hereunder from Lessee to Lessor,  including all damages sustained by Lessor as a
result of the default of Lessee:

                  Second, to the payment of rent due and unpaid hereunder;

                  Third, to the payment of the sum specified in Section 3.02
 hereof;

                  Fourth, to the payment of any cost of such re-letting;

                  Fifth,  to the  payment  of the  cost  of any  alterations  or
repairs to the premises;  and the residue,  if any,  shall be held by Lessor and
applied  in  payment  of  future  rent as the same may  become  due and  payable
hereunder. Should such rentals received from such re-letting during any month be
less than that  amount  agreed to be paid that  month by Lessee  hereunder,  the
Lessee shall pay such deficiency to Lessor.  Such deficiency shall be calculated
and paid monthly.

                  No such  re-entry  or taking  possession  of the  premises  by
Lessor shall be  construed  as an election on its party to terminate  this lease
unless a written  notice  of such  intention  be given to  Lessee or unless  the
termination   thereof  be  decreed  by  a  Court  of   Competent   Jurisdiction.
Notwithstanding any such re-letting without termination,  Lessor may at any time
thereafter elect to terminate this lease for such previous breach. Should Lessor
at any time  terminate  this  lease for any  breach,  in  addition  to any other
remedy,  it may  recover  from Lessee all damages it may incur by reason of such
breach,  including the cost of recovering the premises,  and including the worth
at the time of such termination of the excess, if any, of the amount of rent and
charges  equivalent  to rent  reserved  in this Lease for the  remainder  of the
stated  term,  over the then  reasonable  rental  value of the  premises for the
remainder of the stated term.

                                   SECTION 19

                      SURRENDER OF PREMISES ON TERMINATION

         19.01  Whenever  this lease  shall be  terminated,  whether by lapse of
time,  forfeiture,  or in any other way,  Lessee  will yield and  deliver up the
demised  premises,  including  the  building  and  improvements  thereon and the
fixtures and  equipment  belonging  to Lessor  therein  contained,  peaceably to
Lessor in as good repair as when taken,  except for  reasonable  and normal wear
and tear, and except for damage or  destruction  resulting from causes which are
covered by insurance obtained in accordance with section 10 hereof.

                                   SECTION 20

                PERFORMANCE BY LESSOR OF THE COVENANTS OF LESSEE

         20.01 Should  Lessee at any time fail to do any of the things  required
to be done by it under the provisions of this lease,  Lessor at its option,  and
in  addition to any and all other  rights and  remedies of Lessor in such event,
may (but shall not be required to) do the same or cause the same to be done, and
the reasonable  amount of any money  expended by Lessor in connection  therewith
shall be due from  Lessee  to Lessor as  additional  rent on or before  the next
rental due date  bearing  interest  at the rate of Eight (8%)  percent per annum
from the date of payment  until the  repayment  thereof to Lessor by Lessee.  On
default in such  payment,  Lessor shall have the same  remedies as on default in
payment of rent.

                                   SECTION 21

                               RIGHTS TO MORTGAGE

         21.01 Lessor reserves the right to subject and  subordinate  this lease
at all times,  to the lien of any mortgage or mortgages now or hereafter  placed
upon  Lessor's  interest in the said  premises and on the land and  buildings of
which the said premises are a part or upon any buildings  hereafter  placed upon
the land of which the leased  premises  form a part,  provided in each  instance
that the mortgagee shall in writing agree that Lessee's quiet  possession of the
premises  shall not be  disturbed so long as the Lessee is not in default in the
performance  of the terms and  conditions  of this Lease.  Lessee  covenants and
agrees to execute and deliver upon demand such further instrument or instruments
subordinating  this lease to the lien of any such mortgage or mortgages as shall
be desired by Lessor and any mortgagees or proposed mortgagees.

                                   SECTION 22

                          COVENANTS OF QUIET ENJOYMENT

         22.01 Lessor  covenants and agrees to and with Lessee that at all times
when  Lessee is not in  default  under  the terms of an during  the term of this
lease,  Lessee's quiet and peaceable enjoyment of the demised premises shall not
be disturbed or interfered with by Lessor or any person claiming by, through, or
under Lessor.

                                   SECTION 23

                                SECURITY DEPOSIT

         23.01 The Lessor herewith  acknowledges the receipt of ________________
which Lessor is to retain as security for the faithful performance of all of the
covenants,  conditions,  and agreements of this lease, but in no event shall the
Lessor be obliged  to apply the same upon  rents or other  charges in arrears or
upon damages for the Lessee's failure to perform the said covenants, conditions,
and  agreements;  the Lessor may so apply the  security at its  option;  and the
Lessor's  right to the  possession of the premises for nonpayment or rent or for
any other  reason  shall not in any event be affected by reason of the fact that
the Lessor holds this  security.  The said sum if not applied toward the payment
of rent in arrears or toward the  payment of damages  suffered  by the Lessor by
reason of the Lessee's  breach of the covenants  conditions,  and  agreements of
this  lease is to be  returned  to the  Lessee  when this  lease is  terminated,
according  to these terms,  and in no event is the said  security to be returned
until the Lessee has  vacated  the  premises  and  delivered  possession  to the
Lessor.

         In the event that the Lessor  repossesses  itself of the said  premises
because of the Lessee's  default or because of the Lessee's failure to carry out
the covenants, conditions, and agreements of the lease, the Lessor may apply the
said  security  upon all damages  suffered to the date of said  repossession  by
reason of the  Lessee's  default or breach.  The Lessor  shall not be obliged to
keep the said  security as a separate  fund,  but may mix the said security with
its own funds.

                                   SECTION 24

                                  HOLDING OVER

         24.01 In the event of Lessee herein holding over after the  termination
of this  lease,  thereafter  the  tenancy  shall  be from  month to month in the
absence of a written  agreement to the contrary,  subject to all the conditions,
provisions and obligations of this lease insofar as the same are applicable to a
month to month tenancy.

                                   SECTION 25

                         REMEDIES NOT EXCLUSIVE; WAIVER

         25.01 Each and every of the rights,  remedies and benefits  provided by
this lease shall be cumulative,  and shall not be exclusive of any other of said
rights,  remedies and benefits,  or of any other  rights,  remedies and benefits
allowed by Law.

         25.02 One or more  waivers of any covenant or condition by Lessor shall
not be  construed  as a waiver of a  further  or  subsequent  breach of the same
covenant or condition, and the consent or approval by Lessor to or of any act by
Lessee  requiring  Lessor's  consent or approval shall not be deemed to waive or
render unnecessary  Lessor's consent or approval to or of any subsequent similar
act by Lessee.

                                   SECTION 26

                             RIGHT TO SHOW PREMISES

         26.01 The Lessee hereby agrees that for a period commencing one hundred
and fifty (150) days prior to the termination of this Lease, the Lessor may show
the premises to prospective  Lessees, and one hundred and fifty (150) days prior
to the  termination  of this Lease,  Lessor may display  about said premises the
usual and ordinary "For Lease" signs.

                                   SECTION 27

                               ENVIRONMENTAL LAWS

         27.01    Lessor hereby represents and warrants, to the beset of its
 knowledge and belief as follows:

         (a)      To the best of Lessor's  knowledge,  the premises are and have
                  always been in compliance  with all  applicable  environmental
                  laws.

         (b)      There  are  no  pending   environmental  civil,   criminal  or
                  administrative proceedings,  lawsuits or claims brought by any
                  governmental  agency,  private  party or other entity  against
                  Lessor relating to any environmental law.

         (c)      Lessor   knows  of  no  civil,   criminal  or   administrative
                  proceedings,  lawsuits or claims threatened  against Lessor by
                  any  governmental  agency,   private  party  or  other  entity
                  relating to any environmental law.

         (d)      Lessor knows of no facts or circumstances  which may give rise
                  to any civil, criminal or administrative proceedings, lawsuits
                  or claims against Lessor by any governmental  agency,  private
                  party or other entity relating to any environmental law.

             Lessor  shall  defend and  indemnify  Lessee  from and  against all
             losses, claims, damages, penalties,  liabilities,  costs (including
             cleanup costs) and expenses (including  reasonable attorney's fees)
             resulting from any material breach of the

         foregoing warranties and representations.

         27.02 Lessee, it agents, employees,  invitees, sublessees or assignees,
shall not do, or cause to be done any work or  activity on the  Premises,  which
may cause the Premises, or any parts thereof, to be in violation of any federal,
state  or  local  environmental  health  or  safety  statute,  ordinance,  rule,
regulation,  order or decree, relating to the environment, or imposing liability
or standards  concerning or in  connection  with  hazardous,  dangerous or toxic
materials,  waste or  substances,  including  any common law  theories  based on
nuisance negligence or strict liability (collectively the "environmental laws").
Lessee shall defend and  indemnify  Lessor from and against any losses,  claims,
damages,  penalties,  liabilities,  cost (including clean-up costs) and expenses
(including reasonable attorneys' fees) resulting solely form Lessee, its agents,
employees,  invitees,  sublessees  or assignees  breach or violation of any such
environmental laws.

                                   SECTION 28

                              OPTION TO EXTEND TERM

         28.01  Grant of Option  Lessee  shall be entitled to extend the term of
this Lease for one (1)  additional  period of five (5) years  (hereinafter  from
time to time referred to as the "extension period"), at the rental rate and upon
the other terms and conditions set forth in this Section 28.

         28.02  Exercise  or Option.  The  option to extend the term  granted in
Subsection  28.01 shall be exercised by written  notice to Lessor given not less
than  one-hundred  eight (180) days prior to the expiration date of the original
term.

         28.03 Adjusted Minimum Net Rental.  Lessee's possession of the Premises
during  the  extension  period,  if any,  shall be under and  subject to all the
terms, covenants and conditions set forth in this Lease, with the exception that
the  minimum  net  rental  under  Section 3 for the  extension  period  shall be
adjusted  to the  fair  market  rental  value  of the  Premises  at the  time of
commencement of the extension period.  Within sixty (60) days following Lessee's
notice to Lessor of exercise of its option to extend the term for the  extension
period. Lessor shall notify Lessee of Lessor's  determination of the fair market
rental value for such extension  period except that, upon request,  Lessor shall
notify Lessee of such determination at any time during the last twelve months of
the term.  Lessee  shall have fifteen  (15) days  following  receipt of Lessor's
determination in which to accept or reject such  determination.  If Lessee fails
to notify Lessor of its rejection of the determination  within said fifteen (15)
day period,  Lessee shall be deemed conclusively to have rejected the rental set
forth  therein.  If Lessee  rejects  Lessor's  determination,  and if Lessor and
Lessee in good faith  cannot  agree upon the fair  market  rental  value  within
fifteen (15) days following Lessee's rejection of Lessor's  determination,  then
Lessor and Lessee shall each select an MAI appraiser  within the  subsequent ten
(10) days period. Each appraiser must have at least ten (10) years of experience
appraising  industrial  properties in the  Metropolitan  Detroit  area.  The two
appraisers  so selected  shall have thirty (30) days in which to  determine  the
fair market rental value of the Premises.  Their determination shall be binding;
however, if they cannot agree upon the fair market value within said thirty (30)
day period, the two appraisers  promptly shall jointly select a third appraiser,
whose  determination  shall be made within thirty (30) days and shall be binding
upon  Lessor and  Lessee.  In no event,  however,  shall the minimum net monthly
rental rate be less that which is the monthly rental rate in effect for the 85th
month of the original term. All of the cost, fees, and expenses of the appraiser
designated  by Lessee  shall be paid by  Lessee.  All of the  costs,  fees,  and
expenses of the appraiser  designated by Lessor shall be paid by Lessor.  Lessor
and Lessee  shall each pay  one-half  of the cost,  fees,  and  expenses  of the
appraiser designated by the two appraisers designated by Lessor and Lessee.

         28.04 Option Personal to Lessee.  The option to extend the term of this
Lease set forth in the Section 28 is personal to Lessee, and Lessee itself shall
be the occupant of the Premises at the time the option is exercised  sand at the
time  the  option  period  commences.  This  option  shall  not be  assigned  or
transferred to any other party in any manner whatsoever.

                                   SECTION 29

                                  MISCELLANEOUS

         29.01    This lease shall be construed and enforced in accordance
 with the laws of the State of Michigan.

         29.02 If any term or  provision  of this  lease  shall to any extent be
held invalid or  unenforceable,  the remaining  terms and provision shall not be
affected  thereby,  but each term and provision of this lease shall be valid and
enforced to the fullest extent permitted by law.

         29.03 The captions of this lease are for  convenience  only and are not
to be  construed as part of this lease and shall not be construed as defining or
limiting in any way the scope or intent of the provisions hereof.

         29.04  Whenever  herein  the  singular  member is used,  the same shall
include the plural and the  masculine  gender  shall  include the  feminine  and
neuter genders.

         29.05 This lease  contains  the entire  agreement  between  the parties
hereto and previous  negotiations leading thereto and it may be modified only by
an agreement in writing  signed by Lessor and Lessee.  Lessor and Lessee  hereby
expressly  declare  that no  representations  have been made  other  than  those
expressly set forth herein.

         29.06 It is understood  and agreed  between  Lessor and Lessee that the
month of August 1993 shall be free of all base rental  charges,  except that the
Lessee shall be responsible for the payment of all utilities,  real estate taxes
and insurance premiums including  liability insurance and indemnity and fire and
extended  coverage  insurance on the Premises.  Lessor shall have full access to
the building during month of August 1993 to complete all leasehold improvements.
Lessee may have access to premises as of July 15, 1993 to install  phone  lines,
alarm  wiring,  etc.,  but in no way shall they  interfere  or delay the work by
Lessor  of  Leasehold  Improvements,  Section  1.01 of Lease and  enumerated  on
Exhibit "B" page 1 and 2.

<PAGE>



EXHIBIT  "A"  attached  to and made a part of Lease,  dated May 13,  1993 by and
between  KITCHEN  INVESTMENT  LTD. as Lessor,  and JOHN CRANE  INC.,  as Lessee,
covering  premises  located at 23400 Commerce Drive,  City of Farmington  Hills,
Oakland County Michigan.

------------------------------------------------------------------------

LEGAL DESCRIPTION

Part of Lot #43k,  "Farmington  Freeway Industrial Park No.3", part of the North
1/2 of  Fractional  Section 30, Town 1 North,  Range 9 East,  City of Farmington
Hills,  Oakland County,  Michigan  (Liber 127, Page 9, Oakland County  Records),
described as beginning at the Northeast corner of Lot #43 thence S. 0 degrees 05
minutes 37 seconds  West,  2446.11  feet;  thence North 89 degrees 58 minutes 00
seconds  West,  275.00 feet;  thence North 0 degrees 05 minutes 37 seconds East,
246.40 feet to the Southerly  Right-Of-Way Line of Research Drive;  thence along
said line South 89 degrees 54 minutes 23 seconds East,  275.00 feet to the Point
of Beginning, containing 1.55 acres.




<PAGE>



EXHIBIT "B" Page 2 attached  to and made a part of Lease,  dated May 13, 1993 by
and between KITCHEN  INVESTMENT LTD., as Lessor, and JOHN CRANE INC., as Lessee,
covering  premises  located at 23400 Commerce Drive,  City of Farmington  Hills,
Oakland County Michigan.

----------------------------------------------------------------------------

LEASEHOLD IMPROVEMENTS

Lessor shall provide the following  list of leasehold  improvements  at his sole
cost and expense as per the attached  building  plan referred as Exhibit "B Page
1",

1.       Replace the existing carpeting throughout the entire facility.

         A.       Allowance for carpeting including all material and labor 
is $13.50 per square yard
                  for all areas except two (2) Managers' Offices and 
Conference room.

         B.       Allowance for carpeting in two (2) Managers' Offices and
 Conference Room is
                  $15.50 per square yard including all material labor.

2.       Replace ceiling tile where required.

3.       Uniform color of fluorescent lighting throughout.

4.       Additional partition walls per the attached floor plan referred to 
as Exhibit "B" Page 1.

5.       Install new kitchen with  cabinets,  kitchen  sink,  garbage  disposal,
         refrigerator with automatic ice maker, dishwasher and microwave oven as
         per  attached  floor plan  referred to as Exhibit  "B" Page 1.  Kitchen
         cabinets  to be same as those used at  existing  coffee  stations.  New
         kitchen area shall have vinyl floor tile.

6.       Install sound insulation in the ceilings of the two (2) Managers' 
Offices and Conference
         Room.

7.       Install field  applied  vinyl wall  covering  over existing  vinyl wall
         board in two (2) Managers'  Offices and Conference room.  Allowance for
         vinyl wall covering material is $0.70 per square foot.

8.       Install  cold water  hook-up  for  Lessee's  coffee  machine at circled
         location on the attached floor plan referred to as Exhibit "B" Page 1.

9.       Box in exposed telephone equipment in existing telephone equipment
 room.

10.      Repair existing holes in prefab vinyl drywall.

11.      Reseal floors in the warehouse area with a clear sealer.

12.      Install  additional door in West Wall of Men's Locker Room #33 so as to
         provide  handicap  access to Men's  Warehouse  Restroom #32 from Office
         area.



<PAGE>



EXHIBIT  "C"  attached  to and made a part of Lease  dated  May 13,  1993 by and
between  KITCHEN  INVESTMENT  LTD.,  as Lessor,  and JOHN CRANE INC., as Lessee,
covering  premises  located at 23400 Commerce Drive,  City of Farmington  Hills,
Oakland County Michigan.

Covenants and  restrictions  recorded  August 26, 1960 in Liber 5242,  Page 650,
Oakland County records.

               FARMINGTON FREEWAY INDUSTRIAL PARK #3 RESTRICTIONS:

         1. Purposes: These restrictions are imposed upon the property to insure
proper use and appropriate  development and improvement of each building _______
thereof,  to protect the owners of building  ____ against  such  improper use of
surrounding  building sites as will depreciate the value of their  property,  to
guard against the erection thereon of structures built of improper or unsuitable
materials to insure  adequate and reasonable  development  of said property;  to
encourage  the erection of attractive  improvements  thereon,  with  appropriate
locations   thereof  on  building  silos  to  prevent   haphazard   inharmonious
improvements  on building  sites;  to secure and maintain  proper  setbacks from
streets;  and in  general to  provide  adequately  for a high type of quality of
improvement  in said  property  and for the orderly  development  and  efficient
maintenance thereof.

         2. Property covered:  These  restrictions cover all the lots or parcels
of property  within that part of the North  Fractional 1/2 of Section 30, Town 1
North Range 9 East, Farmington Township,  Oakland County,  Michigan described as
beginning at the North 1/4 corner of said Section 30, Thence proceeding North 89
degrees  56 minutes 15  seconds  East along the north line of said  Section  30,
94.95 feet to a point on the westerly line of the "Farmington Freeway Industrial
Park No.1"  (recorded in Liber 120, Page 34,  Oakland  County  Records);  thence
South 00 degrees 05 minutes 37 seconds West along said westerly boundary 2009.60
feet;  thence South 00 degrees 08 minutes 25 seconds East continuing  along said
boundary  559.63 feet to a point on the east-west 1/4 line of Section 30; thence
South 89 degrees  59  minutes 45 seconds  West along said 1/4 line 95.19 feet to
the center of Section 30, Town 1 North, Range 9 West; thence North 89 degrees 58
minutes 00 seconds West  continuing  along said east-west 1/4 line 1539.12 feet;
thence  North 01 degrees 22 minutes 30 seconds  East 785.96 feet thence North 06
degrees 01  minutes 07 seconds  East  802.64  feet;  thence  North 01 degrees 22
minutes 30  seconds  East  390.75  feet;  thence  North 89 degrees 47 minutes 30
seconds  East 638.74  feet;  thence  North 05 degrees 11 minutes 49 seconds East
201.68 feet; thence North 01 degrees 13 minutes 25 seconds East 459.79 feet to a
point on the North line of  Section  30;  thence  North 89 degrees 47 minutes 30
seconds East along said north line 762.81 feet to the point of  beginning,  said
point also being the North 1/4 corner of Section 30 Town 1 North,  Range 9 Esat,
Farmington Township,  Oakland County,  Michigan.  Said parcel of land containing
85.377 acres more or less and subject to easements of record,  lying East of the
East right-of-way line of proposed I-275 expressway.

         3.       Plan and Site Approvals:
                  A. No  construction of any kind shall be commenced upon any of
the lots or  parcels  of land  included  within  the  property  covered by these
restrictions  until a site plan has been submitted and real outlining of any and
all buildings and  structures  including  walls and screens and those plans have
been approved in writing to Grantor.  Further no  construction of any kind shall
be commenced until plans and specifications of all buildings have been submitted
to and  approved  in writing  by the  Grantor.  Grantor  shall have the right to
refuse to approve any such plans or specifications, regarding plans, material or
color scheme that is not suitable or desirable in their opinion for aesthetic or
other reasons.

                  B. In  passing  upon such  plans,  specifications,  or grading
Grantor shall have the right to take into  consideration  the suitability of the
proposed  building or other  structure  to be built on the site upon which it is
proposed  to erect the name and the  harmony as  planned in view of the  outlook
from the adjacent or neighboring properties.

                  C. In reviewing said plans, specifications,  grading plans and
site plans,  Grantor  shall,  among other things,  determine that said plans and
specifications  meet the minimum express  requirements of these restrictions and
in addition  shall approve or disapprove  the proposed  location of parking lot,
loading and unloading  facilities,  proposed areas for the storage of materials,
location of driveways,  and other means of access and landscaping plans in order
that said  subdivision  shall  develop  in  conformity  and  harmony  with other
existing  structures  and  uses  in the  Subdivision  and  that  ultimately  the
Subdivision will develop into an efficient and attractive  industrial park. If a
disagreement  on the  question of  suitability  and  harmony  shall  arise,  the
decision of the Grantor shall be final.

                  D.  In the  event  that  Grantor  has  failed  to  approve  or
disapprove said plans and specifications  within sixty (60) days after they have
been  submitted,  the approval of the Grantor  shall not be required;  provided,
however,  that lack of  approval  by the  Grantor  shall  not waive any  express
restriction contained herein.

                  E. Grantors,  their successors or assigns, shall not be liable
in damages to any person submitting plans for approval or to any owner or owners
of land covered by this instrument by reason of mistake in judgment,  negligence
or  nonfeasance  of  itself,  its  agents  or  employees  arising  out  of or in
connection  with the approval or  disapproval or failure to approve any plans or
specifications.

         4.       Uses permitted:
                  A. It is understood that the property  covered herein is to be
developed for industrial  for  industrial use and may, upon written  approval of
the Grantor of specific  parcels,  be used for commercial,  business,  office or
retail  use.  No  building  for such use or uses  shall be  constructed  without
approval in writing by Grantor.

                  B.  Recognizing  the  necessity  for the  removal of scrap and
trash  from  an  industrial  subdivision,  the  Grantor  may  designate  a trash
collection  station  upon a lot or  parcel  within  the  area  covered  by these
restrictions  to serve this industrial  subdivision  and the Farmington  Freeway
Industrial Park  Subdivisions No. 1 and 2 which adjoin this subdivision upon the
east.  Grantor may also  designate a weigh station for trucks upon any parcel or
lot contained within said property.

                  C. The  Grantor  reserves  the power to approve a location  or
locations for Helipads or Heliport use.  Which use shall allow  construction  of
storage of (inside  or  outside),  repair and  maintenance  of,  servicing  with
petroleum products,  fuel and other activities connected with aircraft. Such use
shall require the written approval of Grantor.

                  D. The Grantor  hereby  reserves  the right and  authority  to
permit or deny the owner(s) or assigns of the property  covered herein the right
to use parcels for public or private  streets or highways.  Permission  for such
use must, prior to commencement of construction of such streets or highways,  be
obtained in writing from Grantor.

                  E. No noxious or offensive  trade or activity shall be carried
on, nor shall anything be done on property located in the subdivision  which may
be or borders on  annoyance  or nuisance to the said area hereby  restricted  by
reason of noxious, offensive,  unhealthy and harmful odors, (fumes, dust, smoke,
waste,  noise or vibration  beyond that  normally and  reasonably  expected in a
light industrial area.

                  F.       The following specifications uses shall not be
 permitted:
                           (1)      Asphalt or tar manufacturing or refining.
                           (2)      Manufacture of gas, coke, or coal tar
 products.
                           (3)      Slaughtering of animals for the reduction
 or recovering of products
from dead animals or animals of offal or garbage.
                           (4)      Blast Furnaces.
                           (5)      Petroleum refining or other similar
 factories or uses.
                           (6)      Auto wrecking, salvage yards, junk yards,
 storage or baling of waste or
scrap paper, rags, scrap metals, bottles or junk except as provided in 
paragraph
4-B hereof.
                           (7)      Central mixing plant for asphalt, mortar,
 plaster or concrete, except as
may be  required  in  connection  with  paving of roads or other  reconstruction
within the subdivision.
                           (8)      Heavy stamping plant or foundry, unless
 designed to the satisfaction of
                                    and approved in writing by Grantor.

                  G. All  manufacturing  operations  shall be  carried on within
fully enclosed  buildings and no outside  activities  shall be carried on except
the parking of motor  vehicles,  the loading or unloading of motor  vehicles and
the storage of materials  within the restrictions  provided for herein,  without
the approval of the Grantor.

         5. Building  Construction:  All buildings shall have exterior facing of
Architectural   approved   materials  such  as:  face  brick,   concrete  block,
architectural  concrete,  steel or aluminum factory finished panels,  and glass.
All  exterior  treatment  must be  approved  by the  Grantor.  All  sides of any
building  facing upon a public  street or a public  highway must be treated with
finished  material.  Finished  materials  are  defined  as  face  brick,  glass,
ornamental stone or other decorative  material and shall not include concrete or
cinder block,  unless such blocks are designed or arranged with appointments and
specifically  approved in writing by Grantor,  Metal or preengineered  buildings
shall have a masonry wainscot to a minimum of 5 minutes 0 seconds above finished
grade,  unless otherwise approved in writing by Grantor. In the event of dispute
as to whether or not a particular  material  qualifies as "finish  material" the
decision of the Grantor shall be final. All exposed concrete block or metal must
be painted or varnished within sixty (60) days from the date of occupancy except
those  materials  not  normally  painted  or those  materials  which  have  been
pre-finished.  All buildings  shall be constructed in accordance with applicable
codes and  ordinances  of local  governmental  bodies but shall in  addition  be
constructed  with  high  quality  materials  and in a  manner  so as to have the
ability to withstand the normal causes of deterioration  with normal maintenance
procedures.  No used material shall be incorporated  within any building without
the express permission of the Grantor.  No structure,  covering garage,  barn or
other outbuilding of a temporary nature shall be situated, erected or maintained
on any parcel of the subject property,  but this shall not apply to construction
building  or  storage  facilities  used in the  course  of  construction  of any
permanent building.

         6.       Building setbacks and greenbelts:
                  A. No  building  shall be located  nearer to any front  street
right-of-way line that fifty (50) feet therefrom;  provided,  however, that this
setback may be reduced to not less than  thirty-live  feet (35) by the  Grantor.
This setback  shall be primarily  maintained as a greenbelt.  If a  disagreement
arises as to the  definition of "front street" the decision of the Grantor shall
prevail. No uses shall be made of said property except for driveways,  walks, or
other means of access to the interior of the  property and for a minimum  amount
of parking for  visitors.  The amount of such  parking and its  location and the
location  and   specifications   for  driveways,   walks,   or  other  permitted
improvements   must  be  approved  by  the  Grantor  prior  to  commencement  of
construction.  The front yard  setback can be used for public  utility  purposes
which shall be placed  underground.  However,  parking  shall be allowed on side
street  setbacks  provided it is approved in writing by the Grantor and provided
that a  greenbelt  shall be  maintained  between the road  right-of-way  and the
parking surface.  The width of such greenbelt shall be set by the Grantor in the
site plan approvals.

                  B. No  building  shall be  located  nearer to any side  street
right-of-way line than twenty-five (25) feet therefrom;  provided, however, that
this  setback  requirement  may be reduced to not less than fifteen (15) feet by
written approval of Grantor.

                  C. The  portion  of the  described  setback  not  occupied  by
permitted  improvements  constructed  in accordance  with plans  approved by the
Grantor,  must be  landscaped  with  lawn,  shrubbery,  trees  bushes,  vines or
suitable  plants,  detailed plans of which must be approved by the Grantor.  All
owners,  lessees,  tenants  or  users of any  parcel  in this  subdivision  must
maintain such landscaping in a condition so as to prevent a pleasing appearance.

                  D. No building shall be constructed  nearer than ten (10) feet
from any side or rear property line. The area within side and rear setbacks may,
however,  be used for loading and unloading or the parking of motor vehicles and
for open storage if approved in writing by Grantor.

         7. Fence: No fence of any kind shall be constructed  within the setback
described  in  Paragraph  6A.  Where  fences  are  erected  they shall be of the
"Cyclone" or other metal type and shall not be higher than eight (8) feet unless
approved in writing by the Grantor.  Fences shall not be of the obscuring "wall"
type unless required by these  restrictions or unless  specifically  approved by
the Grantor.

         In the case of open storage, the Grantor is hereby granted the power to
require an obscuring type fence to shield any open storage. The type of material
for such fence shall be set by the Grantor.

         8.       Signs:
                  A. The number,  location,  size,  construction and lighting of
all signs whether  temporary or permanent,  to be erected upon any lot or parcel
within area covered by the restrictions  must have,  prior to erection,  written
approval of the Grantor.  No  billboards or other  advertising  signs other than
those  identifying  the names,  business  and  products of the person or persons
occupying the premises shall be permitted  without the specific written approval
of the Grantor.

                  B.. No signs of any kind  shall be erected  within  forty (40)
feet of the east  right-of-way  line of the I-275 Freeway bordering the westerly
boundary of this  property,  without the express prior  written  approval of the
Grantor.  The  Grantor  reserves  the  right to erect  signs of his own,  or his
assigns,  within said forty (40) foot area and  reserves  an easement  over said
area for said purpose and an easement  over all parcels  adjoining  the proposed
I-275 Freeway for reasonable access to that forty (40) foot area for the purpose
of constructing,  removing , repairing or maintaining any signs erected thereon.
This paragraph shall not apply to that parcel  adjoining  proposed I-275 Freeway
and conveyed by the Grantor to the Minnesota Mining and Manufacturing Company.

                  C. The Grantor  reserves the right to standardize all signs to
be erected within the area covered by these  restrictions  by any contractors or
sub-contractor  and/or  to  indicate  the  name of the  proposed  occupant  of a
building  under  construction  and/or to indicate a building  which is for sale,
rent or lease.  The  Grantor  shall have the right to specify  the size,  shape,
color and design of all such  signs and to limit the  information  appearing  on
such signs. The Grantor has the right to remove signs,  which in his opinion are
in poor repair, from lots owned by others than the Grantor.

         9.       Parking areas and loading zones:
                  A.  Each  owner  must  provide  adequate  off  street  parking
facilities so as to eliminate any necessity for the parking of vehicles upon the
public streets within this Subdivision. No parking shall be permitted within the
setback  provided in  Paragraph  6A,  except  visitor  parking or as approved in
writing by the Grantor.  Grantor has authority to consider  topography and other
hardships in limiting or granting front yard parking.

                  B.  Location  and  adequacy  of all  parking  areas  shall  be
determined  and  approved by Grantor in  connection  with its review of the site
plans.  The  Grantor  shall  take into  consideration  the  intended  use of the
premises,  and their  suitability  for other uses in determining the adequacy of
the proposed parking  arrangements.  In general, each premises shall provide off
street  parking for its employees (at least one space for every two employees in
the largest expected working shift) and adequate parking for visitors.

                  C. Loading and unloading  areas shall be afforded and designed
in such a manner as to permit the pickup and delivery of materials from the site
by motor vehicles  consisting of normal tractor and  semi-trailer  types without
the necessity of any  maneuvering  being done on public  streets.  No loading or
unloading docks shall face any public street without the express approval of the
Grantor.  A suitable  screening or obscuring well shall be provided so that said
operations are not readily  visible from the public thorough fare if required by
Grantor.

                  D.       All driveways, walks, parking areas and loading
 areas shall be paved with concrete,
asphalt or other hard surface material.

         10.       Outdoor Storage:
                  A. Outdoor storage of equipment, raw materials,  semi-finished
or finished products may be permitted by the Grantor under such conditions as it
shall deem necessary to prevent nuisance or other adverse conditions,  only when
such outdoor storage is necessary and incidental to the operations being carried
on in the building  located upon the site.  No storage shall be permitted on the
setback  required by  Paragraph 6 and all storage  shall be shielded by fence or
landscaping  so as to  effectively  screen  the view of such  storage  area from
public streets and adjoining properties.

                  B. No waste  materials,  rubbish,  or discarded  matter of any
kind shall be permitted to be stored in open areas except in containers approved
by the Grantor, and beyond a time reasonably required to arrange for removal..

         11.      Maintenance of property-maintenance fees:
                  A. All owners of property in this  subdivision  shall maintain
all buildings,  landscaping,  fences,  drives, parking lots, or other structures
located  upon said  property in good and  sufficient  repair and shall keep such
premises painted,  lawns cut,  shrubbery  trimmed,  windows glazed and otherwise
maintain the property in an  aesthetically  pleasing manner and in the condition
approved by the Grantor, reasonable wear and tear excepted.

                  B. Any structure,  planting or driveway or parking lot service
which is damaged by the  elements,  by  vehicles or from fire or any other cause
shall be repaired as promptly as the extent of damage will permit.

                  C. Buildings within this subdivision which should happen to be
vacant for any reason,  shall be kept locked and the windows  shall be glazed in
order to prevent the entrance thereto by vandals.

                  D. In the event of the  violation  of any of the  restrictions
set forth in this  paragraph,  the Grantor or its  succumbers of interest  shall
have the right to go upon the property to eliminate nuisance conditions,  to mow
lawns or trim shrubbery or to remove signs or do anything  necessary to maintain
the aesthetic  standards of the  subdivision  for the benefit of other  property
owners and the cost of any such work shall be enforceable in the manner provided
by law.

                  E. Each lot owner of any parcel or lot heretofore or hereafter
sold,  transferred  or conveyed by the Grantor  within the area covered by these
restrictions,  shall pay to the Grantor or its  successor  in interest an annual
maintenance charge which charge shall become due and payable annually in advance
on the first day of January in each year,  beginning  with January 1,  19______.
The  maintenance  fund may be used for  improving and  maintaining  roadways and
entranceways to the  subdivision,  for planting trees and shrubbery and the care
of garbage,  ashes and rubbish,  for employing  watchmen,  for caring for vacant
property,  insurance,  maintenance  of helio area,  or for doing any other thing
necessary or  advisable in the opinion of the Grantor for keeping this  property
neat or in good order.

                  F. The  maintenance  charge  shall be  computed at the rate of
Twenty Five ($25.00)  dollars for each acre or part thereof  included within the
property owned by each lot owner.  The amount of the  maintenance  charge may be
adjusted from time to time by the Grantor or its  successor in interest,  as the
needs of the  subdivision  may require,  but shall not be increases in excess of
Fifty ($50.00)  dollars per acre or part thereof  without the consent in writing
of the property  owners of not less than  fifty-one  (51%)  percent of the total
area of all lots included within the subdivision.

         12.      Easements:
                  A.  Easements  and  rights-of-way  are hereby  reserved by the
Grantor in an over a strip of land ten feet in width  along all rear,  front and
side lot lines,  wherever it may be deemed  necessary  for the  installation  or
maintenance  of telephone  or electric  poles,  lines or conduits or sewer,  gas
lines or water mains, for drainage purposes,  or for the use of any other public
utility deemed  necessary or advisable by the Grantor.  The use of all or a part
of such  easements  and  right-of-way  may be  granted or  assigned  at any time
hereafter  by the Grantor to any person,  firm,  governmental  unit or agency or
corporation furnishing any such service or such easements may be released by the
Grantor to the property owner involved should Grantor  determine the easement is
necessary.

                  B. There shall be no access to or from the property covered by
these  restrictions  from the property adjacent and South or Southerly from said
property without the specific  written  approval of the Grantors  herein,  which
approval the Grantor  reserves  the power to give or deny.  No public or private
road shall be constructed or allowed to exist from the properties covered hereby
to  properties  to south or  southerly  of this  property  without  such written
approval.  No owner of any parcel  shall have the right to  dedicate or grant to
any public body any easement or road-way  from this  property to the area to the
south or southerly of this property without such specific written approval.

         13.  Grantor  may at any  time  assign  all or part of its  rights  and
responsibilities hereunder to an association, incorporated or unincorporated, of
the lot owners of said  subdivision.  At such times as the Grantor no longer has
interest in any property  contained within the  subdivision,  Grantor shall upon
request of the  majority of the acreage  owners make such  assignment.  Any such
assignment  shall be in  writing  and  shall be  recorded  in the  office of the
Register of Deeds of Oakland County, Michigan.

         14. Each of the conditions,  covenants,  restrictions, and reservations
set forth above shall  continue  and be binding  upon the Grantor and upon their
successors and assigns and upon each of them and all parties claiming under them
until  January 1, 1980,  and shall  automatically  be continued  thereafter  for
successive  periods of ten (10) years each.  From and after  January 1, 1980 the
owners  of  seventy-five  (75%)  per  cent of the  fee  simple  of the  property
subjected to this restrictive covenant, based on the number of square feet owned
as  compared  to the total area  restricted,  may release all or any part of the
land so restricted  from any one or more of said  restrictions  or may change or
modify any one or more of said  restrictions by executing and  acknowledging  an
appropriate  agreement or agreements in writing for such purposes and filing the
same for  record  in the  office  of the  Register  of  Deeds,  Oakland  County,
Michigan.  Any change in  restrictions  shall not  operate to  prohibit  any use
theretofore  carried on lawfully and in accordance with these  restrictions with
respect to any party not joining in the execution of said amendment.

         15. It is  specifically  provided,  and the acceptance by any person of
title on any of the lots included  within the subdivision  shall  constitute the
agreement of such person,  that in the event of  disagreement  is to the precise
meaning of any term contained herein that the interpretation of the Grantor,  or
its successor in interest,  including the association  provided for in Paragraph
13 hereof, shall be final. It is specifically provided and agreed that the usual
rule requiring such documents shall not apply to the restriction..

         16. The covenants set forth herein shall run with the land and bind the
present owner,  its successors and assigns and all parties  claiming by, through
or under it shall be taken to hold,  agree and  covenant  with the owner of said
building  site,  its  successors and assigns and with each of them to conform to
and observe said  restrictions  as to the use of building  sites and the use and
construction of improvements  thereon.  Grantor or the owner or owners of any of
the  above  land  shall  have  the  right  to  sue  for  the  observance  of the
restrictions  above set forth, in addition to ordinary legal action for damages,
and the  failure of Grantor  and the owner of any other lot or lots or  building
site restricted hereby to enforce any of the restrictions  deemed to be a waiver
of the right so to do as to any subsequent violation.





<PAGE>

EXHIBIT 10.7



 Overpayments   will  be  credited  to  your   account  and  you  will  pay  any
 underpayments within 30 days of the date of the Landlord's final statement.
          On  November  l,  1996,  Tenant  is to  post  a  security  deposit  of
 $21,037,50 in the form of cash.  Landlord will invest same in a Certificate  of
 Deposit, with interest being paid to Tenant.
          It is further agreed -that this lease  agreement is subordinate to any
 mortgages on the property.  Tenant agrees to provide Estoppel Certificates,  if
 required by  Landlord.  If for any reason we find it  necessary to litigate any
 issue,  it is agreed that both of us waive our right to a trial by jury. If, at
 any time prior to the termination of this Lease,  any senior interest holder or
 any other person or the  successors or assigns of the  foregoing  (collectively
 referred to as  "Successor  Landlord")  shall succeed to the rights of Landlord
 under this Lease,  Tenant agrees,  at the election and upon request of any such
 Successor  Landlord,  to fully and completely  attorn to and recognize any such
 Successor  Landlord,  as  Tenant's  Landlord  under  this  Lease  upon the then
 executory terms of this Lease;  provided such Successor Landlord shall agree in
 writing  to accept  Tenant's  attornment  and shall  assume  all of  Landlord's
 obligations under this Lease.
          Notwithstanding anything to the contrary contained herein it is agreed
 that you will look only to  Landlord  's  interest  in 450 Park  Avenue (or the
 proceeds  thereof) for the satisfaction of Tenant's remedies for the collection
 of a judgment (or other  judicial  process)  requiring  the payment of money by
 landlord  in the  event of any  default  by  Landlord  hereunder,  and no other
 property  or  assets  of  Landlord   or  its   agents,   directors,   officers,
 shareholders,  partners  or  principals  (disclosed  or  undisclosed)  shall be
 subject to levy, execution or other enforcement  procedure for the satisfaction
 of Tenant's  remedies under or with respect to this lease,  the relationship of
 Landlord and Tenant  hereunder or under law or Tenant's use or occupancy of the
 Subject Premises or any other liability of Landlord to Tenant.
          The parties  agree that neither  party shall be liable to the other to
 the extent of a recovery for any loss suffered which is covered by an insurance
 policy  carried  by the  party  suffering  the loss and for which  recovery  is
 available.  The parties agree to attempt to obtain waivers of subrogation  from
 the respective insurance  companies.  Landlord and Tenant represent that in the
 negotiation  of his Lease they  dealt  with no broker or brokers  other than J.
 Everett Hill of Peter Sharp & CO., Inc. (whose commission or other compensation
 shall be paid by Landlord)  and Alan  Grossman of The  Georgetown  Group,  Inc.
 (whose commission or other compensation shall be paid by Landlord) Landlord and
 Tenant  hereby agree to indemnify  and hold the other part;  harmless  from and
 against any and all claims,  liabilities,  suits, costs and expenses including,
 reasonable  attorneys fees and  disbursements  arising out of any inaccuracy or
 alleged  inaccuracy  of  the  above  representation.  Landlord  shall  have  no
 liability for any brokerage commissions arising out of a sublease or assignment
 by Tenant.  The  provisions  of this Article  shall  survive the  expiration or
 Sooner termination of the Lease.

                                                       - 3 -
          During the term of this Lease,  Landlord shall, at Landlord's expense,
 provide heat, light,  cleaning,  water, rubbish removal and air conditioning to
 the Premises in accordance with building standards.

All notices are to he sent by Certified Mail,  Return Receipt  Requested.  If to
Landlord,  such notice is to be  addressed  to: 450 Park Avenue  Associates  c/o
Peter Sharp & Co., Inc., 1370 Avenue of the Americas,  New York, New York 10019.
If to Tenant, such notice is to be addressed to: Top Source Technologies,  Inc.,
450 Park  Avenue,  New York,  New York  10019,  Attn:  Stuart  Landow.  Landlord
warrants and represents that it is the owner of the subject premises and is free
to enter into this Lease.

          The submission by Landlord to Tenant of this Lease in draft form shall
 be deemed  submitted solely for Tenant's  consideration  and not for acceptance
 and execution. The submission by Landlord of this Lease for execution by Tenant
 and the actual  execution and delivery thereof by Tenant to Landlord shall have
 no binding force and effect unless and until  Landlord shall have executed this
 Lease and a counterpart thereof shall have been delivered to Tenant.
        If at a future date it is found to be  necessary,  we agree to negotiate
 and execute a long form Lease which is mutually agreeable to both sides.


<PAGE>


          Tenant  is to have  the  right  to  sublease  the  Premises  with  the
 Landlord's consent which is not to he unreasonably  withheld.  However, any net
 profits are to be shared equally  between Tenant and Landlord  within 5 days of
 receipt by Tenant.
          Should Tenant fail to vacate the Premises on the  Expiration  Date and
 there has been no  agreement as to an  extension,  the total amount of the Rent
 and  Additional  Rent  will  double,  commencing  on  the  date  following  the
 Expiration Date.
       Tenant is  responsible  for the immediate  bonding  and/or removal of any
 liens placed on the building by any of the Tenant's contractors.

                                                       - 4 -
                                Very truly yours,
 Jerome L.Greene
 General Partner
 450 PARK AVENUE ASSOCIATES ("Landlord")

Jerome L.Greene
------------------------------------------------------------------




<PAGE>


          If you are in agreement  with the above,  please sign each of the four
 copies of this letter and return them to the undersigned for  counter-signature
 along with a check in the amount of $7,012.50,  which  represents  the Rent for
 the first  month.  We will return two fully  executed  copies of this letter to
 you. JLG/ck Enclosures
 ACCEPTED AND AGREED TO:
 TOP SOURCE TECHNOLOGIES, INC. ("Tenant")
 By:.
  Title     CFO            4/2/96

<PAGE>