TOP SOURCE TECHNOLOGIES, INC.

                           ANNUAL REPORT ON FORM 10-K



                                  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, 1995

                         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)

        2000 PGA Boulevard, Suite 3200 Palm Beach Gardens, Florida 33408
               (Address of Principal executive office) (zip code)

       Registrant's telephone number, including area code: (407) 775-5756

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

                                                  Name of each exchange
    Title of each class                           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)

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 29, 1995,  27,970,477 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 29, 1995 (based upon
the  closing  sales  price)  held  by  non-affiliates  of  the  Registrant,  was
approximately $183,497,408.

                       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 March 15, 1996



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                                                               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,  the  Company  now owns  three oil  analysis  laboratories  and has
developed  a   proprietary   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.).

Top Source Technologies,  Inc. is the parent company with four subsidiaries: Top
Source Automotive,  Inc. ("TSA") in Troy,  Michigan,  United Testing Group, Inc.
("UTG") with its main office and  laboratory  in Atlanta,  Georgia and satellite
offices in Sparks, Nevada and Addison,  Illinois,  On-Site Analysis, Inc. ("OSA,
Inc.") in Atlanta, and ARCS Safety Seat, Inc. ("ARCS,  Inc.") in Troy, Michigan.
In fiscal 1995, the Company derived  substantially all of its revenue from sales
of its OHSS at TSA and from the sale of oil analysis services at UTG.

The Company  receives  new  technology  ideas for  possible  inclusion  into Top
Source's business lines from individuals,  universities and other companies. The
technologies  are screened for their  proprietary  nature,  market potential and
strategic fit with the Company  structure and business  before any  research
and development expenditures are committed.

B.  Financial Information About Industry Segments
The Company currently has two industry segments: automotive technology comprised
of TSA and ARCS,  Inc. and oil analysis  service  comprised of UTG and OSA, Inc.
(For information on industry  segments, see Item 8. - Financial Statements and
Supplementary Data, Note 20. Segment Information.)

C.  Narrative Description of Business

General
The Company  markets  one  product,  an OHSS,  and  provides  one  service,  oil
analysis. The Company has two proprietary technologies,  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
arrangement in May 1995.  (See Item 8. - Financial Statements and Supplementary
Data, Note 19).

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  obstructed by passengers or cargo. The OHSS eliminates the need for rear
speakers in traditional locations, reduces weight in the liftgate and because of
their fixed  overhead  mounting,  are 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.

ITEM 1.  BUSINESS, (continued)

In 1991, a custom designed OHSS was approved by Chrysler  Corporation 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 Company
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.

Based on an excellent rating from Chrysler for quality,  performance and on-time
delivery  over  several  years,  the Company  was  awarded a preferred  supplier
rating.  This  positions  TSA favorably as a tier one supplier for new business,
long-term  contracts and joint ventures.  The present  contract for the Cherokee
extends  through model year 1997.  The Company  started  shipments of a new Jeep
Wrangler  OHSS model in January  1996  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  positions small
speakers in the center part of the vehicle with sound channels  distributing the
sound to accoustically  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.  The Company has applied for a patent on this new
design.

In 1990,  the Company  shipped  approximately  7,480 OHSS units.  In 1995,  that
number grew to 197,327 OHSS units of which 3,850 were shipped to Venezuela.  The
Company intends to continue an aggressive  patent effort and expects to remain a
sole source  supplier  due to the unique  patent  position in regard to the OHSS
design.

The Company is confident it can meet additional demand for its OHSS from present
or new  customers  due to  available  excess  capacity at TSA's new plant.  OHSS
operations will remain  assembly-only,  which requires  minimal capital support.
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.  The Company is prepared with back-up
contingency  assembly plans and is capable of  establishing  satellite  assembly
facilities to support  just-in-time  delivery demand for incremental business in
the United States, Canada, Mexico and Europe.

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

ITEM 1.  BUSINESS, (continued)

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 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. ("THI") 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.

ITEM 1.  BUSINESS, (continued)

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.

The financial performance of UTG has been below the expectations of the Company.
In the  fourth  quarter  of  fiscal  1995,  the  Company  substantially  reduced
personnel  and  operating  costs  to  help  offset  the  loss of  several  major
customers.  These  expense  reductions  along  with  the  laboratory  efficiency
improvements  through the usage of the advanced analytical  technology developed
at OSA (see OSA  Development  below)  have  reduced the  revenue  threshold  for
potential profitability of UTG.

OSA Development
In July 1993, On-Site Analysis,  Inc. (OSA, Inc.) was formed as a wholly-owned
subsidiary of the Company to  exclusively  develop the OSA program.  The Company
has since staffed itself 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 OSA, Inc. produced an Alpha developmental  prototype
that appeared to be able to meet the requirements and specifications established
for the OSA. In December 1993, OSA, Inc. introduced the first OSA Beta prototype
at Chevron's  national oil  distributor  convention in San Diego.  Concurrently,
OSA,  Inc.  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.

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 Fall of 1994,  extensive  testing was  commenced at Exxon on three OSA 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 highly  complex  project  continued
throughout 1995 to the present.

Currently,  the Company believes that the OSA has met refinery  requirements for
reliability  and  repeatability;  and  that  it  has  successfully  developed  a
prototype  refinery OSA unit with several process control  applications that can
be used for certain refinery  petroleum  products.  The Company believes that it
will receive additional  purchase orders for refinery OSA units from one or more
oil refineries, although no assurances can be given.

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.



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ITEM 1.  BUSINESS, (continued)

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
retesting the OSAs in order to ensure the required  reliability  and performance
existed. Concurrently with the commencement of the retesting period, the Company
began modifying its proposed lease agreement for equipment  maintenance units to
conform to franchise laws in the United States.

The Company's  overall  marketing  strategy is to charge customers on a per test
basis, or on a minimum monthly lease basis, and maintain  ownership of the unit.
In certain markets, the Company has identified an opportunity to sell franchises
(See Letter of Intent for World Wide  Franchising  Right,  below).In  the second
week of January 1996,  the Company began  generating  revenue from two equipment
maintenance  OSAs at two customer  sites,  an oil  distributor and an automobile
dealership.

The Company has identified car dealers, heavy duty equipment dealers, large used
car auto  auctions,  truck fleets,  municipalities,  quick lubes,  truck service
centers,  and marine and industrial locations as potential markets for equipment
maintenance OSA usage.

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.

Based on the reliability  demonstrated by the equipment  maintenance  OSAs since
September 1995, the Company  anticipates  signing numerous leases and generating
an increasing  quarterly revenue stream throughout fiscal 1996 and future years.
Although the Company has experienced  four months of reliable  performance  from
the OSA units,  there are no assurances that other  technical  problems will not
develop or the above expectations will be met.

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 12, 1996, the Company knows of no other supplier capable of developing a
comparable unit in the near term.

The  Company  used its  existing  cash  resources  to fund the  development  and
purchase of the initial OSAs.  Future units will be paid for with available cash
and an established $6,000,000 line of credit from the First Union National Bank.
(See Item 8. Financial Statements and Supplementary Data, Note 9 Debt.) In 1995,
the Company  increased  personnel at OSA, Inc. to handle the anticipated  demand
for the OSA units.

Letter of Intent for World Wide Franchising Rights
On December 4, 1995,  the Company  entered into a  non-binding  Letter of Intent
with a group interested in becoming the exclusive  world-wide  franchisor of the
Company's  On-Site  Analyzer for use in the  equipment  maintenance  market.  In
consideration  of the  payment of $10,000,  this  group,  which has a history of
successful worldwide  franchising over a 25 year period,  received the exclusive
right to  negotiate  with  the  Company  for a  limited  period  of time for the
acquisition of these worldwide rights.

Specifically excluded from this Letter of Intent are the rights to negotiate for
the refinery  market,  oil blending  plants and numerous other markets where the
usage of the On-Site  Analyzer will be utilized only for internal use. There can
be no assurances that a final agreement will be reached.  Due to the preliminary
nature of these  discussions,  the potential  impact on the Company's  financial
statements  is   indeterminable.   (See  Item  8.   Financial   Statements   and
Supplementary Data, Note 22. Other Events)


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ITEM 1.  BUSINESS, (continued)

ARCS  (Acceleration  Restraint  Curve  Safety  Seat) Over the past six 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
since the test facility and staff are respected by the auto industry world-wide.
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 knee bolsters
were removed, and there was no shoulder harness or lap belt used. The Company is
unaware of any other moving seat technology that has been successfully tested by
a major automobile manufacturer.

The Company believes  research and development costs to the Company for the ARCS
Safety Seat are 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 at least four years  after a contract is
signed.

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.  pursuant  to a future  royalty
arrangement. (See Item 8. Financial  Statements and Supplementary Data, Note 19.
Sale of Engine  Fuel  Economy  Emissions  Control  Reduction  System  Technology
("EFECS") to Adrenaline, Inc., the original inventor of the EFECS.)


ITEM 1.  BUSINESS, (continued)

Significant Customer Information
During 1995,  approximately  66% of the  Company's  revenue was derived from the
Overhead Speaker System sold to Chrysler  Corporation.  For significant customer
information see Item 8. - Financial  Statements and Supplementary Data -Note 18.

Government Regulation
The  Company  is subject  to  government  regulations  generally  affecting  all
businesses.  The Company's industrial oil analysis subsidiary routinely disposes
of used oil in the  course of its  ordinary  business  and as such is subject to
federal,  state and local regulations.  To handle this oil disposal, the Company
hires a licensed,  insured  third party.  The Company  believes  that it and its
predecessors  are and  have  been in  material  compliance  with all  rules  and
regulations of the federal, state and local agencies.  Environmental  compliance
costs are not expected to have a material effect on the financial  condition and
results of operations of the Company.

Seasonal Information
The Company's management believes its products and services are not seasonal.

Offices and Employees The Company maintains principal  administrative offices in
Palm Beach Gardens,  Florida and handles investor relations in the New York City
office.  On December 8, 1995 the Company  signed a lease  effective  January 15,
1996 to move its  principal  administrative  offices to a new  location  in Palm
Beach Gardens could  accommodate  the current  office staff and allow for future
growth.  In July  1995 the  Company's  automotive  subsidiary,  TSA,  moved  its
administrative,  engineering  and  assembly  operation  to a 45,000  square foot
facility in Troy, Michigan. The UTG office is located near Atlanta, Georgia with
satellite  laboratories  in Addison,  Illinois,  and a West Coast  laboratory in
Sparks,  Nevada.  On-Site Analysis,  Inc. is located near the UTG facility.  The
Company employs approximately 145 full-time and five part-time people.

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 1996
OEM Assembly, Marketing and
Engineering                      Troy, Michigan                  June 2000
UTG-Administration and
 Main Laboratory                 Atlanta, Georgia                July 1999
 UTG-Satellite Laboratory        Addison, Illinois               November 1998
 UTG-Satellite Laboratory        Sparks, Nevada                  June 1996
 OSA, Inc.                       Atlanta, Georgia                May 1997

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 ("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  $56,367 in full  settlement of the suit. The Company  believes
that the amount received from PSI does not constitute an accord and satisfaction
of the amount which PSI owes to the Company and anticipates  filing an appeal of
the Court ruling by the middle of January 1996. The Company


ITEM 3. LEGAL PROCEEDINGS, (continued)

believes  that PSI owes the Company an  additional  $378,000  plus  interest and
legal fees.  The Company's  counsel  believes that the Company's  appeal is with
merit.  The Company has not recorded any  receivables  or income  related to the
potential recovery of additional amounts in this appeal.

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

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the fiscal year ended September 30, 1995.

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".

   
<TABLE>

                                                                             Fiscal 1995   Fiscal 1994
            
                                                                        High          Low      High     Low
<S>                                                                     <C>           <C>      <C>       <C>   
First Quarter  (December 31) ........................................   8-3/8         5-3/4    4-11/16   2-7/8
Second Quarter (March 31) ...........................................   7-3/4         5-3/8          9   4-1/4
Third Quarter  (June 30) ............................................   7-3/16        5-3/16   7-3/4     4-1/4
Fourth Quarter (September 30) .......................................   9-3/16        6-1/8    7-7/8     4-1/4

</TABLE>

Holders
As of December 29, 1995 there were approximately  1,558 holders of record of the
Company's common stock.

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.

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, 1995, 1994 and 1993,  December 31, 1991 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. 

<PAGE>
                                       




<TABLE>

AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993, DECEMBER 31, 1991
AND AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1992
<CAPTION>
<S>                             <C>           <C>            <C>           <C>             <C>             
Balance Sheet Data.....           1995           1994           1993            1992            1991
Current Assets .................$5,631,093    $ 5,759,900    $ 2,367,983   $  1,537,877    $  1,508,460
Total Assets ..............     19,245,439     18,479,955     10,842,168      2,353,657      2,085,738
Current Liabilities .......      2,780,341      2,975,785      2,534,987        515,997        608,368
Long-term Debt ............      2,060,000           --          458,368            --              --
Total Liabilities .........      4,840,341      2,975,785      2,993,355        515,997        608,368
Stockholders' Equity ......     14,405,098     15,504,170      7,848,813      1,837,660      1,477,370
Net Tangible Book
 Value* ................ ..      6,564,170      7,341,098        737,072      1,515,477      1,108,959
Net Tangible Book
 Value Per Share ...........           .24            .27            .03            .08            .07
Statement of Operations:
Net Sales .................   $ 18,968,806    $15,137,862   $  3,881,805    $ 1,826,623    $  1,397,890
Net Income (Loss)** .......     (3,399,796)     2,014,577     (3,610,226)    (2,118,154)     (1,482,418)
Net Income per
 Common and Common
 Equivalent Share:
   Primary ................           --              .07           --              --              --
   Fully Diluted ..........           --              .07           --              --              --
Common and Common
 Equivalent Shares Outstanding:
 Primary ........................     --       28,381,211           --              --              --
 Fully Diluted ...............        --       28,728,488           --              --              --
Net Loss per Weighted
 Average Common Share ..........     (.12)          --             (.18)           (.12)           (.09)
Weighted Average Common
  Shares Outstanding ..........27,249,541           --       19,613,887      17,518,810       15,920,784
Declared Cash Dividends
   Per Common Share ......           --             --             --              --              --
</TABLE>


* Net  tangible  book value equals  total  assets  minus total  liabilities  and
  intangible assets.
**The 1994  net  income  of  $2,014,577  includes  an  income  tax  benefit  of
$2,270,000,  resulting  primarily  from a reduction in the  valuation  allowance
against deferred income tax assets.
The 1995 net loss includes a tax expense of $550,000 due to a reversal of a
portion of the Company's previously established $2,270,000 tax asset.

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

Results of Operations
In January 1994, the Company acquired the assets of an oil analysis business and
in July 1993,  the  Company  consummated  the  acquisition  of two oil  analysis
businesses (See Item 8. - Financial  Statements and Supplementary  Data, Note 2.
Acquisitions).  The  operations  for  the  period  subsequent  to the  dates  of
acquisitions  are  included  in the 1994 and 1993  financial  statements.  Costs
associated with culminating the acquisitions of approximately $235,500 have been
capitalized.

1995 Compared to 1994
Total revenue for the year ended September 30, 1995 was $18,968,806  compared to
$15,137,862 for the year ended September 30, 1994, an increase of 25.3%.  This
is primarily  due to an increase of 51% in product  sales at the Company's


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

1995 Compared to 1994 (continued)
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  increase  in sales is  partially  offset by the  decrease of
$802,934  for the year  ended  September  30,  1995  compared  to the year ended
September 30, 1994 in the comparable  sales volume for oil analysis  services at
UTG which is primarily  attributable  to the loss of several  major oil analysis
customers.  The Company is aggressively attempting to replace the lost customers
by offering  expanded  services  to  existing  customers  and by  acquiring  new
customers. There can be no assurances that these efforts will be successful.

The gross profit margin for the year ended September 30, 1995 was  31.2%compared
to 32.6% for the year ended  September  30, 1994.  The decrease in margins below
comparable  levels  in the prior  year is  attributable  to a  decline  in gross
margins from 21.9% for the year ended  September  30, 1994 to 15.1% for the year
ended September 30, 1995 in oil analysis services at UTG.

General and administrative expenses increased 78.7% 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 $1,536,849 at OSA,
Inc., an increase of $1,468,931 over 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.

Selling and marketing  expense  increased 56.4% 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
OSAs  including an increase in the OSA sales force.  These selling and marketing
expenses include increased salaries, benefits and travel expenses.

Professional fees increased 20.7% for the year ended September 30, 1995 compared
to September 30, 1994. This increase is 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.  The  Company's  attorneys are  proceeding  with the appeal in the PSI
lawsuit,  and have  agreed  that their  legal fees will not exceed  $7,500.  Any
additional fees will only be paid from proceeds  collected by the Company in the
event of a successful appeal.

Depreciation and  amortization  increased 85.1% for the year ended September 30,
1995 compared to the year ended  September 30, 1994. This increase is due to the
purchase of  $2,017,411 in capital  assets during fiscal 1995 of which  $774,857
related to purchases by OSA, Inc.  Depreciation and amortization of $415,428 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.

Interest  income  increased 48.8% 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  40.7% for the year ended  September 30, 1995
compared  to the year ended  September  30,  1994.  In fiscal  1995 the  Company
recovered $229,500 from the lawsuit against PSI (See Item 3. Legal Proceedings).
However, this was offset by loan fee expenses of approximately $73,000.
<PAGE>


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

1995  Compared  to  1994  (continued)  In  fiscal  1994   OtherIncome   included
approximately  $278,000 which related to the recovery of loan fees that had been
previously written off in fiscal 1993.

Income tax expense  increased to $550,000 for the year ended  September 30, 1995
compared  to the year ended  September  30,  1994.  The tax expense was due to a
reversal of a portion of the Company's  previously  established  $2,270,000  tax
asset, as a result of the Company not meeting  expectations of taxable income in
1995.

The  net  deferred  tax  asset   consists   primarily  of  net  operating   loss
carryforwards.  The Company has determined  that over the relevant  period,  the
reversal  patterns of its  deferred  tax  liabilities  are such that they offset
similar  amounts of  deferred  tax assets.  To realize  the  benefits of the net
deferred tax asset, the Company must  generate approximately $4.2 million
of taxable  income in the  carryforward  period.  The regular  tax  carryforward
period  for  net  operating  losses  extends  for 15  years  from  the  year  of
origination.  Based  on  expectations  for  future  taxable  income,  management
believes  that it is more likely than not that the net  deferred  tax assets not
reserved  for will be realized  before  expiration.  The future  taxable  income
assumptions  for 1996 and beyond have remained in principal  unchanged  from the
previous year. (See Item 8. Financial  Statements and  Supplementary  Data, Note
12. Income Taxes)

At September  30, 1995,  the Company has net tax basis  Federal  operating  loss
carryforwards of approximately  $19,838,000,  which may be used to offset future
taxable  income,  if any. The Company's net operating loss  carryforwards  begin
expiring in 2001.

Following is a summary of the  Company's  pretax book losses and taxable  losses
for the last five years.
<TABLE>

            
                   
                        
                          1995         1994           1993           1992           1991
<S>                 <C>           <C>          <C>            <C>            <C>        
                   -----------    ---------    -----------    -----------    -----------
Pretax book loss   $(2,789,796)   $(255,423)   $(3,610,226)   $(2,118,154)   $(1,482,418)
Taxable loss ...   $(7,452,000)   $(686,000)   $(3,774,000)   $(2,144,000)   $(1,432,000)

</TABLE>

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.

1994 Compared to 1993
Net Sales  increased 290% for the year ended  September 30, 1994 compared to the
year ended  September 30, 1993.  This increase is due to revenue  generated from
the new Oil Analysis Group for a full fiscal year in 1994 (only two and one-half
months of revenue for fiscal year 1993) and the  increased  sales  volume of the
OHSS due to a new purchase  order from  Chrysler for the Jeep(R)  Cherokee.  The
Company  began  shipping  these  OHSS  units in  September  1993.  There were no
significant price increases in fiscal 1994.

The gross profit  margin  increased to 32.6% in fiscal 1994 from 18.5% in fiscal
1993.  This  increase is primarily  attributable  to the  Automotive  Technology
segment's  increased sales causing  production to operate at increased  capacity
levels  thereby  reducing  cost of sales on a per unit basis.  The Oil  Analysis
Service segment's gross margin percentage  decreased slightly.  The Oil Analysis
segment  experienced  a loss  during the fiscal year due to  administrative  and
selling expenses incurred in developing the OSA business base. 

UTG's loss of business from  existing  customers was caused for the most part by
the normal bidding  process which occurs every two to three years with major oil
companies.  In this bidding  process,  UTG was outbid by other  competitors.  In
addition,  UTG lost  business from  existing  customers due to service  problems
which  arose in  connection  with its 1993  oil  analysis  acquisitions  and the
consolidation  of two distinct  operations.  The Company has  responded to these
consolidation problems and recently implemented a program to reduce expenditures
commensurate  with the  current  level of  business.  (See  Item.  1  Business -
Products and Technologies)


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

General and administrative expenses increased 32.3% for the year ended September
30, 1994 compared to the year ended  September 30, 1993.  The increase is due to
additional  expenses  incurred  related to incentive  payments of $151,378 on an
employment  contract and the  termination  of the former  President of UTG whose
severance  compensation totaled $321,313.  (See Item 8. Financial Statements and
Supplementary Data, Note 13. Related Party Transactions).

1994 Compared to 1993 (continued)
Selling and marketing  expense increased 104.4% for the year ended September 30,
1994  compared  to the year ended  September  30,  1993.  This  increase  is due
primarily to the addition of the oil analysis  laboratories and customer service
function during late fiscal 1993.
In fiscal  year 1993,  there was only two and  one-half  months of  selling  and
marketing expenses.

Professional  fees  increased  by 80.1% for the year ended  September  30,  1994
compared to the year ended September 30, 1993. This increase is due to the rapid
growth and  complexity  of the  Company's  operations,  additional  professional
services were utilized in the areas of banking negotiations, personnel and human
resource matters.  Additionally,  only two and one-half months of UTG operations
were included in fiscal 1993.  This increase is also due in part to a legal suit
regarding the defense of the UTG operation  against an aviation  claim which was
settled in  September  1994 with the Company  being  released  in  exchange  for
payment of a nominal sum.

Depreciation and  amortization  increased 73.1% for the year ended September 30,
1994 compared to the year ended  September  30, 1993.  The increase is primarily
due to amortization of intangible assets relating to businesses acquired and the
capitalized  database (See Item 8. Financial  Statements and Supplementary Data,
Note 7.  Intangible  Assets).  The current year  reflects a full year of expense
whereas the prior year  reflects two and  one-half  months  amortization  of the
database  and no  amortization  expense  relating  to  intangible  assets of the
businesses acquired.

Research and  development  increased 71.6% for the year ended September 30, 1994
compared to the year ended  September  30, 1993 due to research and  development
costs associated with OSA.

Interest income  increased 215.8% for the year ended September 30, 1994 compared
to the year ended  September  30,  1993.  This  increase is due to the  interest
earned on the increased funds invested in the current fiscal period.

Interest  expense-affiliate  decreased 71% for the year ended September 30, 1994
compared  to the year ended  September  30,  1993.  This  decrease is due to the
payment-in-full  of the $400,000  affiliate note and payments of $347,550 on the
remaining affiliate note balance.  During October and November 1994, the Company
paid the remaining balance of approximately $88,000.

Other  income  increased  significantly  for the year ended  September  30, 1994
compared  to the year ended  September  30,  1993 due to a refund of $278,000 in
loan fees which had been  previously  written off in 1993.  In fiscal year 1993,
the  Company  paid  $278,000  in  loan  fees to a third  party  relating  to the
establishment of a line of credit. After working with this organization for over
90 days,  the  Company  found that they were not  licensed  by Florida as a loan
broker  and the third  party's  liquidity  was  questionable.  The  Company  was
uncertain  at the end of fiscal  year 1993 as to the  recovery  of the loan fees
advanced to the third party and  commenced  litigation  against  that party.  At
September  30,  1993,  due to  concerns  over the  recoverability  of loan  fees
advanced,  the $278,000 was written off. Five months later,  in fiscal 1994, the
Company  filed a lawsuit  against  the entity in which it made the  payment  and
recovered the entire amount of $278,000,  at which time the Company recorded the
recovery as other income.

Income tax benefit - During  fiscal  1994,  the  Company  adopted  Statement  of
Financial  Accounting  Standards No. 109 (SFAS No. 109) - Accounting  for Income
Taxes.  SFAS No. 109 requires an asset and liability  approach to accounting for
income taxes  whereas  Accounting  Principles  Board Opinion No. 11 (APB No. 11)
required a deferral approach.  SFAS No. 109 results in the recording of deferred
income tax assets for tax attributes,  such as net operating loss carryforwards,
which APB No. 11 did not require to be  recognized.  SFAS No. 109 also  requires
companies  to assess  their  deferred  tax  assets for  realizability  and where
management  cannot  conclude that it is "more likely than not" that the deferred
income tax asset will be  realized.  SFAS No. 109  requires  the  recording of a
valuation allowance equal to the portion of the deferred income tax asset deemed
not realizable.

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

The  net  deferred  tax  asset   consists   primarily  of  net  operating   loss
carryforwards.  The Company has determined that, over the relevant  period,  the
reversal  patterns of its  deferred  tax  liabilities  are such that they offset
similar  amounts of  deferred  tax assets.  To realize  the  benefits of the net
deferred tax asset, the Company will need to generate approximately $5.5 million
of taxable  income in the  carryforward  period.  The regular  tax  carryforward
period  for  net  operating  losses  extends  for 15  years  from  the  year  of
origination.  Based  on  expectations  for  future  taxable  income,  management
believes  that it is more likely than not that the net  deferred  tax assets not
reserved  for will be realized  before  expiration.  The future  taxable  income
assumptions  are largely  based on increased  sales of Overhead  Speaker  System
units as the  Company  attains  greater  penetration  in the Jeep  Cherokee  and
Wrangler  models and expands  into other  Chrysler  models and other  automobile
companies.  The  Overhead  Speaker  System  is  performing  well in its  current
applications  and is expected to gain broader  utilization  going forward.  (See
Item 8. Financial  Statements and Supplementary Data Note 12. Income Taxes for a
discussion of income taxes.)

The Company has reflected in the  accompanying  financial  statements for fiscal
1994 a tax benefit of $2,270,000  which  largely  consists of a reduction in the
valuation  allowance  that was  established  upon  adoption  of SFAS No.  109 of
$2,209,874.  This reduction is 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: (i) greater  certainty  regarding the Company's OHSS units for Jeep
Cherokee  production  installation  (this  application began in September 1993);
(ii) greater  penetration in the Grand Cherokee OHSS application being attained;
(iii)  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 Cherokees but also other Chrysler models); (iv) progress, during mid-fiscal
year 1994, in gaining new vehicle applications for the OHSS.

The Company is dependent upon the  automobile  industry,  particularly  Chrysler
Corporation.   In  recent  years,   sales  by  the  United   States   automobile
manufacturers  including Chrysler have been eroded,  due to economic  conditions
and foreign competition. However, the Company's sales of OHSS units are aimed at
a niche market  consisting of sports and utility  vehicles  rather than standard
passenger  vehicles.  Demand for these vehicles has been strong at Chrysler.  No
assurances can be given that consumer demand will continue.

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
$1,800,366.  The usage of cash is attributable to a net operating loss excluding
depreciation and amortization, of $2,086,838, a decrease in accounts payable and
accrued  liabilities of $107,402,  an increase in current assets of $327,035 and
an increase in the tax valuation allowance of $550,000.

Net cash used in investing  activities  was  $2,747,541  of which  approximately
$2,017,411  was expended  for capital  assets and $650,000 was a deposit made to
TSA.

Net cash provided by financing  activities  was  $4,272,682  which  included the
exercise of stock  options and  warrants  (exercise  prices  ranged from $.28 to
$6.50) that  generated  approximately  $2,300,724  in net  proceeds.  Also,  net
proceeds of  $1,971,958  were  primarily  generated  from the issuance of senior
subordinated  convertible  notes.  The Company has arranged bank  financing with
First Union  National Bank of Florida,  ("the Bank").  On October 12, 1995,  the
Company increased its line of credit with the Bank to $6,000,000 with $1,500,000
being  available  for short  term  working  capital  and  $4,500,000  to be used
exclusively for the purchase of OSAs. The entire facility bears interest at .85%
over the prime rate,  is governed by  specific  financial  covenants  and ratios
limiting accessibility, and is secured by substantially all of the assets of the
Company. The Company believes that the $1,500,000 working capital line of credit
will be renewed upon its expiration on January 31, 1996. The$4,500,000 line

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

of credit  expires on December  31,  1997.  The Company has  expanded its credit
facility  with the Bank in order to be able to finance the  roll-out of the OSAs
and purchase OSAs from TJA based on anticipated  orders received from customers.
The maximum  utilization of the working  capital line of credit  occurred in May
1995 in the amount of  $550,000.  This  amount was  subsequently  repaid in June
1995. As of the date of this report, no amounts were outstanding on either line.

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 per cent (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 in October 1995. The proceeds from these notes will be used to
fund operations and the deployment of the OSAs.

Based on current cash balances, current bank lines and cash flows generated from
expense  reductions and  efficiency  improvements,  the Company  believes it has
sufficient  cash flow to fund its current  operations and finance the deployment
of a substantial number of OSA units.

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.






ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX                                                                      Page

Report of Independent Certified Public Accountants...........................18

Consolidated Balance Sheets as of September 30, 1995 and 1994................19

Consolidated Statements of Operations for the Years Ended September 30, 1995,
 1994, and 1993 .............................................................20

Consolidated Statements of Stockholders' Equity for the Years Ended September
30, 1995, 1994 and 1993......................................................21

Consolidated Statements of Cash Flows for the Years Ended September 30, 1995,
1994 and 1993................................................................22

Notes to Consolidated Financial Statements...................................23




<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,  1995 and 1994,  and the  related  consolidated  statements  of  operations,
stockholders'  equity and cash flows for the three  years  ended  September  30,
1995,  1994 and 1993.  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,  1995 and 1994 and the results of their
operations  and their cash flows for the three years ended  September  30, 1995,
1994 and 1993 in conformity with generally accepted accounting principles.
As explained in Note 12 to the financial statements,  effective October 1, 1993,
the Company changed its method of accounting for income taxes.

Our audit was made for the purpose of forming an opinion on the basic  financial
statements  taken as a whole. The financial  statement  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.



West Palm Beach, Florida                                   ARTHUR ANDERSEN LLP
December 13, 1995





<PAGE>

 
TOP SOURCE TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1995  AND 1994
 

                               ASSETS                  1995        1994
Current Assets:                                        -------------------------
  Cash and cash equivalents                              1,154,137    1,429,362
  Accounts receivable trade (net of allowance of
   $145,703 and $150,000 in 1995 and 1994, respectively  3,489,791    3,363,560
  Advance to officer                                           --        40,000
  Inventories                                              468,169      356,498
  Prepaid expenses                                         436,738      307,605
  Other                                                     82,258      262,875
                                                       -------------------------
Total current assets                                     5,631,093    5,759,900

Property and equipment, net                              3,244,723    2,204,858
Manufacturing and distribution rights and patents, net     366,765      376,799
Capitalized database, net                                2,705,693    2,916,527
Intangible assets relating to businesses acquired, net   4,768,470    4,869,746
Deferred income tax assets, net                          1,720,000    2,270,000
Other assets, net                                          808,695       82,125
                                                       -------------------------
TOTAL ASSETS                                            19,245,439   18,479,955
                                                       =========================

     LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable                                       1,279,761    1,605,322
  Accrued salaries                                         318,621      119,483
  Accrued other liabilities                                681,961      538,296
  Deferred service revenue                                 499,998      624,642
  Note payable-affiliate                                       --        88,042
                                                       -------------------------
Total current liabilities                                2,780,341    2,975,785
  Senior subordinated convertible notes                  2,060,000         --   
                                                       -------------------------
Total liabilities                                        4,840,341    2,975,785

Commitments and contingencies (Notes 10 and 13) 

Stockholders' equity:
  Preferred stock, $.10 par value, 5,000,000  shares
    authorized; none outstanding                                           
  Common stock, $.001 par value, 50,000,000 shares
   authorized; 27,731,477 and 26,716,395 shares
   issued in 1995 and 1994, respectively                    27,731       26,716
  Additional paid-in capital                            27,514,154   25,214,445
  Accumulated deficit                                  (13,005,002)  (9,605,206)
  Treasury stock-at cost; 87,534 shares                   (131,785)    (131,785)
                                                       -------------------------
Total stockholders' equity                              14,405,098   15,504,170
                                                       -------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY              19,245,439   18,479,955
                                                       =========================

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


TOP SOURCE TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,1995,1994 AND 1993
 
                                           1995        1994        1993
                                           -------------------------------------
Product sales                               13,893,459   9,203,938    2,423,488
Service revenue                              5,075,347   5,878,281    1,345,465
Other                                              --       55,643      112,852
                                           -------------------------------------
  Net sales                                 18,968,806  15,137,862    3,881,805

Cost of product sales                        8,739,691   5,596,167    2,080,400
Cost of services                             4,308,591   4,593,539    1,018,466
Other                                              --       10,151       63,796
                                           -------------------------------------
  Cost of sales                             13,048,282  10,199,857    3,162,662
                                           -------------------------------------
Gross profit                                 5,920,524   4,938,005      719,143

Expenses:
  General and administrative                 5,766,626   3,227,761    2,750,428
  Selling and marketing                      1,681,149   1,075,076      525,883
  Professional fees                            448,114     371,323      206,184
  Depreciation and amortization                897,530     484,809      279,994
  Research and development                      76,151     265,330      154,643
                                           -------------------------------------
Total expenses                               8,869,570   5,424,299    3,917,132
                                           -------------------------------------
Loss from operations                        (2,949,046)   (486,294)  (3,197,989)

Other income (expense):
  Interest income                               62,845      42,219       13,367
  Interest expense                             (62,627)    (68,305)     (79,361)
  Interest expense-affiliate                       --      (11,066)     (38,150)
  Other income (expense), net                  159,032     268,023     (308,093)
                                           -------------------------------------
Net other income (expense)                     159,250     230,871     (412,237)
                                           -------------------------------------
Net loss before income taxes                (2,789,796)   (255,423)  (3,610,226)
Income tax benefit (expense)                  (610,000)  2,270,000          --
                                           -------------------------------------
Net income ( loss)                          (3,399,796)  2,014,577   (3,610,226)
                                           =====================================
Net loss per weighted average common share 
   outstanding                                   (0.12)                   (0.18)
                                           ============            =============
Weighted average common shares outstanding  27,249,541               19,613,887
                                           ============            =============
Net income per common and common                        
   equivalent share:                                    
   Primary                                                    0.07
                                                       ============
   Fully diluted                                              0.07
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.



TOP SOURCE TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993 
 
                                                       SHARES      AMOUNT
BALANCE, SEPTEMBER 30, 1992                             17,931,219      $17,931
                                                                    
Exercise of stock options ($.28125 to $1.25 per share)     467,541          468
Exercise of warrants ($.01 to $1.6875 per share)         1,158,700        1,159
Sale of common stock ($1.27 to $1.50  per share)         4,073,439        4,073
Common stock issued in acquisitions ($2.0625                        
    to $3.375 per share)                                   700,000          700
Write-off of deferred offering costs
Amortization of deferred officers' compensation              --          --
Net loss                                                     --          --
                                                       -------------------------
BALANCE, SEPTEMBER 30, 1993                             24,330,899       24,331
Exercise of stock options ($.28125 to $6.00 per share)     708,800          709
Exercise of warrants ($1.00 to $3.00 per share)          1,052,300        1,052
Sale of common stock ($1.75 per share)                     550,000          550
Common stock issued in acquisition ($6.62 per share)        74,396           74
Amortization of deferred officers' compensation              --          --
Net income                                                   --          --
                                                       -------------------------
BALANCE, SEPTEMBER 30, 1994                             26,716,395       26,716
Exercise of stock options ($.28 to $6.50 per share)      1,015,082        1,015
Net loss                                                     --          --
                                                       -------------------------
BALANCE, SEPTEMBER 30, 1995                             27,731,477      $27,731
                                                       ======================== 
                                                       ADDITIONAL   
                                                       PAID-IN     ACCUMULATED
                                                       CAPITAL     DEFICIT
BALANCE, SEPTEMBER 30, 1992                            $10,022,155  ($8,009,557)
                                                                    
Exercise of stock options ($.28125 to $1.25 per share)     458,791       --
Exercise of warrants ($.01 to $1.6875 per share)         1,618,169       --
Sale of common stock ($1.27 to $1.50  per share)         5,260,335       --
Common stock issued in acquisitions ($2.0625                        
    to $3.375 per share)                                 2,230,550       --
Write-off of deferred offering costs                         --          --
Amortization of deferred officers' compensation              --          --
Net loss                                                     --      (3,610,226)
                                                       -------------------------
BALANCE, SEPTEMBER 30, 1993                             19,590,000  (11,619,783)
Exercise of stock options ($.28125 to $6.00 per share)   1,275,722       --
Exercise of warrants ($1.00 to $3.00 per share)          2,894,346       --
Sale of common stock ($1.75 per share)                     961,950       --
Common stock issued in acquisition ($6.62 per share)       492,427       --
Amortization of deferred officers' compensation              --          --
Net income                                                   --       2,014,577
                                                       -------------------------
BALANCE, SEPTEMBER 30, 1994                             25,214,445   (9,605,206)
Exercise of stock options ($.28 to $6.50 per share)      2,299,709       --
Net loss                                                     --      (3,399,796)
                                                       -------------------------
BALANCE, SEPTEMBER 30, 1995                            $27,514,154 ($13,005,002)
                                                       =========================
                                                        DEFERRED    
                                                        OFFICERS'  TREASURY
                                                       COMPENSATIONSTOCK
BALANCE, SEPTEMBER 30, 1992                               ($38,834)   ($131,785)
                                                                    
Exercise of stock options ($.28125 to $1.25 per share) --                --
Exercise of warrants ($.01 to $1.6875 per share)       --                --
Sale of common stock ($1.27 to $1.50  per share)       --                --
Common stock issued in acquisitions ($2.0625                        
    to $3.375 per share)                               --                --
Write-off of deferred offering costs                   --                --
Amortization of deferred officers' compensation             24,884       --
Net loss                                               --                --
                                                       -------------------------
BALANCE, SEPTEMBER 30, 1993                                (13,950)    (131,785)
Exercise of stock options ($.28125 to $6.00 per share) --                --
Exercise of warrants ($1.00 to $3.00 per share)        --                --
Sale of common stock ($1.75 per share)                 --                --
Common stock issued in acquisition ($6.62 per share)   --                --
Amortization of deferred officers' compensation             13,950       --
Net income                                             --                --
                                                       -------------------------
BALANCE, SEPTEMBER 30, 1994                            --              (131,785)
Exercise of stock options ($.28 to $6.50 per share)    --                --
Net loss                                               --                --
                                                       -------------------------
BALANCE, SEPTEMBER 30, 1995                            $--            ($131,785)
                                                       =========================
                                                       DEFERRED    TOTAL
                                                       OFFERING    STOCKHOLDERS'
                                                       COSTS       EQUITY
BALANCE, SEPTEMBER 30, 1992                               ($22,250)  $1,837,660
                                                                    
Exercise of stock options ($.28125 to $1.25 per share)       --         459,259
Exercise of warrants ($.01 to $1.6875 per share)             --       1,619,328
Sale of common stock ($1.27 to $1.50  per share)             --       5,264,408
Common stock issued in acquisitions ($2.0625                        
    to $3.375 per share)                                     --       2,231,250
Write-off of deferred offering costs                        22,250       22,250
Amortization of deferred officers' compensation              --          24,884
Net loss                                                     --      (3,610,226)
                                                       -------------------------
BALANCE, SEPTEMBER 30, 1993                                  --       7,848,813
Exercise of stock options ($.28125 to $6.00 per share)       --       1,276,431
Exercise of warrants ($1.00 to $3.00 per share)              --       2,895,398
Sale of common stock ($1.75 per share)                       --         962,500
Common stock issued in acquisition ($6.62 per share)         --         492,501
Amortization of deferred officers' compensation              --          13,950
Net income                                                   --       2,014,577
                                                       -------------------------
BALANCE, SEPTEMBER 30, 1994                                  --      15,504,170
Exercise of stock options ($.28 to $6.50 per share)          --       2,300,724
Net loss                                                     --      (3,399,796)
                                                       -------------------------
BALANCE, SEPTEMBER 30, 1995                                 $--     $14,405,098
                                                       ========================
TOP SOURCE TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,1995,1994 AND 1993

                                               1995        1994        1993
OPERATING ACTIVITIES:                      -------------------------------------
  Net income (loss)                         (3,399,796)  2,014,577   (3,610,226)
  Adjustments to reconcile net income 
     (loss) to net cash used in operating 
     activities:
   Depreciation                                941,992     447,919      267,109
   Amortization                                370,966     427,474       76,726
   Discount amortization                         --         52,052       44,044
   Amortization of deferred officers' 
      compensation                               --         13,950       24,884
   Disposal of property and equipment           70,487      45,151      349,318
   Provision for doubtful accounts              (4,297)    136,855       22,250 
   Deferred income taxes                       (75,000)    (33,126)      --   
   Increase (decrease) in deferred income 
      tax assets, net                          625,000  (2,236,874)      --    
   Advances to officers                        (45,000)   (140,000)      --     
   Repayments from officers                     85,000     100,000       --    
   Increase  in accounts receivable, net      (121,934) (2,143,976)    (831,478)
   Increase in inventories                    (111,671)    (92,974)    (249,032)
  Decrease (increase) in prepaid expenses     (129,133)   (208,269)      25,285
  Decrease (increase) in other assets          100,422    (270,776)      54,138
  Increase (decrease) in accounts payable     (325,561)    498,526      561,766
  Increase (decrease) in accrued liabilities   342,803    (395,080)     331,213
  Increase (decrease) in deferred revenue     (124,644)    415,391       --    
                                           -------------------------------------
Net cash used in operating activities       (1,800,366) (1,369,180)  (2,934,003)

INVESTING ACTIVITIES:
  Purchases of property and equipment, net  (2,017,411) (1,335,484)    (617,257)
  Additions to patent costs                    (80,130)   (138,088)      (6,225)
  Decrease (increase) in other assets         (650,000)      --          57,107
  Purchase of businesses, net                    --        (96,324)  (3,835,260)
                                           -------------------------------------
Net cash used in investing activities       (2,747,541) (1,569,896)  (4,401,635)

FINANCING ACTIVITIES:
  Proceeds from sale of common stock, net    2,300,724   5,237,858    7,935,763
  Commissions and expenses on stock sales        --       (103,529)    (632,614)
  Proceeds from borrowings                   4,460,000     600,000      500,000
  Repayments of borrowings                  (2,488,042) (1,728,242)    (633,880)
                                           -------------------------------------
Net cash provided by financing activities    4,272,682   4,006,087    7,169,269
                                           -------------------------------------
Net increase (decrease) in cash and 
  cash equivalents                            (275,225)  1,067,011     (166,369)
Cash and cash equivalents at beginning 
   of period                                 1,429,362     362,351      528,720
                                           -------------------------------------
Cash and cash equivalents at end of period   1,154,137   1,429,362      362,351
                                           =====================================

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




<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 concentrates on two industry segments: automotive technology and oil
analysis  service.  Within these two segments,  the Company has two  proprietary
technologies:  one  patented  product  - an  Overhead  Speaker  System;  and one
service, oil analysis which includes both the United Testing Group, Inc. ("UTG")
(consisting  of three  oil  analysis  laboratories);  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;  and  one  technology   licensed  from  the
Massachusetts  Institute of Technology ("M.I.T."),  ARCS (a safety and restraint
technology).

The Company provides the initial financing,  management and outside  consultants
needed to adequately research, develop and test technologies,  and the marketing
and sales expertise  required to develop and implement programs to commercialize
technologies.

The Company seeks  technologies  that satisfy  global market demands and provide
solutions  to problems  in areas such as safety,  efficiency,  diagnostics,  and
others.  Technologies  in both initial and mature  stages are reviewed for their
potential commercialization in accordance with this philosophy.

Revenue is currently derived primarily from sales of the Overhead Speaker System
for both production line and dealership installed units and from the sale of oil
analysis services.

Basis of Presentation - Certain 1994 and 1993 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. On October
1, 1994,  the  Company  changed  its method of revenue  recognition  for its oil
analysis  test kits (oil  analysis  service  segment).  Previously,  the Company
recorded  revenue from the advance  billing of  unprocessed  test kits mailed to
customers  to collect  oil  samples  and  accrued an  estimated  cost amount for
processing such kits. Under the new policy,  the Company recognizes revenue from
the performance of its oil analysis  services (oil analysis  service segment) at
the time the service is rendered. Advance billings for oil analysis services are
considered  deferred  revenue  until  such time as the oil  analysis  service is
rendered.

Through  the use of computer  modeling  techniques,  creation of a new  software
program to track test kits by  identification  numbers  and based on an analytic
review of the  activity of major  customers,  the Company  has  determined  that
retroactive  application of this revised method to correct the accounting  error
from using the previous method from the period October 1, 1993 through September
30, 1994 would have resulted in an  immaterial  net change in net income for the
period.  In order to  reflect  the  change in revenue  recognition  method,  the
caption in the liability section of the Company's balance sheet at September 30,
1994 was changed from "Accrued  Testing  Costs" to "Deferred  Service  Revenue".
Advance  billings  for oil  analysis  service  will now be  considered  deferred
revenue until such time as the oil analysis is rendered.

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


<PAGE>



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

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

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.

Intangible  Assets - Intangible assets primarily consist 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  is  being  amortized  on a
straight-line  basis over 40 years. 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.

Quarterly  Information - During the fourth  quarter of fiscal 1994,  the Company
expensed  as  compensation  an amount  for the  acceleration  of option  vesting
related to an  officer's  severance  agreement  and  capitalized  certain  costs
related to the On-Site Analyzer (OSA) operation that relate to prior quarters of
fiscal 1994.  The following  indicates  the impact on the fiscal 1994  quarters'
pretax income (loss) of these two items:

<TABLE>
<S>                                <C>          <C>          <C>          <C>
                                      Q1          Q2           Q3           Q4
Pretax income (loss), as reported  $251,265     $ 513,265    $(482,681)   $(537,272)   
  Option Compensation                   -        (262,813)       --         262,813
  OSA Capitalized Costs               6,124       (42,418)      57,068      (20,774)
                                   --------      ---------   ---------     ---------    
Pretax income (loss), as adjusted  $257,389     $ 208,034    $(425,613)   $(295,233)
                                   =========     =========    ========     =========    
</TABLE>

During the fourth  quarter of fiscal 1995,  the Company  recorded an  additional
valuation allowance in the amount of $550,000. (See Note 12.)

2. ACQUISITIONS

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 were valued at $6.625 per share,  the closing market price on
the date of the transaction.

In July 1993,  the  Company  acquired  certain  assets  (exclusive  of  accounts
receivable) of the oil analysis  business of  Professional  Service  Industries,
Inc.  ("PSI")  for  approximately  $2,905,000  in cash.  The  assets  consist of
tangible assets,  including  laboratory  equipment,  computers,  automobiles and
office equipment.  The Company also assumed the vacation  liability to employees
to be retained and the  requirement  to process a certain amount of samples sold
prior to closing but not as of that date returned for processing.




<PAGE>



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

2. ACQUISITIONS, (continued)

The Company  acquired  all of the  outstanding  stock of  Spectro/Metrics,  Inc.
("SMI")  in July  1993.  The cost of the  acquisition,  a  ten-year  non-compete
agreement  and a four-year  employment  agreement was  $4,800,000.  The purchase
price was paid by a  $1,670,000  note,  $780,000 in cash and  100,000  shares of
common  stock of the  Company  valued  at $1.50 per  share.  These  shares  were
recorded at the fair market  value on the date of  issuance,  $2.0625 per share,
which differed from the rate attributed to them in the purchase  agreement.  The
non-compete  agreement cost was $600,000,  to be paid over a three-year  period,
and the employment agreement contained an annual base salary of $400,000.

In September 1993, the original  purchase  agreement was amended.  The amendment
included the issuance of 600,000  shares of common stock of the Company,  with a
guaranteed  minimum value of $3.375 per share, a portion of which was considered
full  consideration  for the  cancellation of the previous  $1,670,000 note. Two
promissory notes totaling  $835,592 were issued (See Note 9) and additional cash
payments of $210,000 were made. The original ten-year non-compete  agreement was
canceled and the annual base salary, under the four-year employment agreement to
an officer of the  Company  (see Note 13) was reduced to  $200,000.  PSI and SMI
were later merged and a new subsidiary, UTG was formed.

The  above  acquisitions  were  accounted  for  under  the  purchase  method  of
accounting  and,  accordingly,  the  results  of  operations  of the  businesses
acquired are  included in the  consolidated  statements  of  operations  for the
respective   years  of  acquisition  for  the  period  from  the  dates  of  the
acquisitions. (See Note 7).

The unaudited pro forma consolidated results of operations of the Company, as if
the PSI and SMI  acquisitions  had been made at the beginning of the fiscal year
in the period ended September 30, 1993, are as follows:

                                                             Year Ended
                                                                1993
Net sales                                                   $ 9,392,146
                                                            ===========
Net loss                                                    $(3,292,857)
                                                            ============
Net loss per common share                                          (.14)
                                                          ===============

The Pro-Tech  acquisition  was not material and therefore is not included in the
above table.

3. STATEMENTS OF CASH FLOWS

There were no noncash  investing  activities  for the year ended  September  30,
1995.  Noncash  investing  activities for the years ended September 30, 1994 and
1993 are as follows:
                                                   1994                1993
                                                   ----                ----
  Accounts Receivable                           $ (208,484)         $ 148,298
  Property and equipment                                 -            652,115
  Capitalized database                                   -          3,162,500
  Other                                                  -            120,100
  Intangibles                                    1,337,092          3,697,559
  Liabilities assumed                             (539,783)          (878,470)
  Issuance of stock in  connection with the
    acquisitions                                  (492,501)         2,231,250)
  Issuance of notes payable in connection
   with the acquisition of SMI                           -            (835,592)
                                              --------------          ---------
  Cash used in acquisitions                     $   96,324         $3,835,260
                                                ==========          =========

The 1994 amounts  include the  preliminary  purchase price  allocations  for the
Pro-Tech acquisition.



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

3. STATEMENTS OF CASH FLOWS (continued)

There  were no  noncash  financing  activities  during  1995 and  1994.  Noncash
financing activities during 1993 consisted of the following:
                                                                      1993
                                                                      ----

Issuance of warrants in connection with notes payable             $ 96,096
Discount on notes payable in connection with the issuance
 of warrants                                                       (96,096)
                                                                   ------- 
                                                                   
Cash paid                                                          $   -   
                                                                   =======    
                                                                    
4. INVENTORIES

Inventories consisted of the following at September 30, 1995 and 1994:
                  1995         1994
                 --------   --------
     
Raw materials    $395,999   $292,211
Finished goods     72,170     64,287
                 --------   --------
                 $468,169   $356,498

5. PROPERTY AND EQUIPMENT

Property  and  equipment  consisted of the  following at September  30, 1995 and
1994:
<TABLE>

                                                                 Useful
                                                                 Life (Years)      1995          1994
                                                                                   ----          ----
                                                                 ------------
<S>           
                                                                        <C>     <C>            <C> 
Equipment ....................................................          2-12    $ 1,360,009    $1,142,086
Computer Equipment ...........................................           3-4      1,261,950       565,472
On-Site Analyzers ............................................           4-5      1,015,101       746,033
Tooling ......................................................             2        832,891       231,669
Furniture and fixtures .......................................           3-5        286,731       198,079
Vehicles and delivery equipment ..............................             3        102,893       107,409
Leasehold improvement ........................................           2-5        163,945       107,715
                                                                                -----------    ----------
                                                                                  5,023,520     3,098,463
               Less:  accumulated depreciation ..............................    (1,778,797)     (893,605)
                                                                                -----------    ----------
                                                                                $ 3,244,723    $2,204,858
</TABLE>


Depreciation  of tooling and production  equipment in the amount of $415,428 and
$337,380 for the years ended September 30, 1995 and 1994, respectively, has been
allocated  to cost of sales as it directly  relates to the services and products
sold.


<PAGE>



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

6. MANUFACTURING AND DISTRIBUTION RIGHTS AND PATENTS

Manufacturing and distribution  rights and patents consisted of the following at
September 30, 1995 and 1994:

<TABLE>
                                                                         Useful
                                                                      Life (Years)     1995        1995
                                                                        ---------    ---------    --------
<S>           <C>    <C>    <C>   
                                                                               <C>   <C>           <C>            
Manufacturing rights ................................................          13    $  58,438    $ 58,438
Distribution rights .................................................          13      437,501     437,501
Patents .............................................................          10      218,964     175,392
                                                                                     ---------    --------
                                                                                       714,903     671,331
Less: accumulated amortization ......................................                (348,138)    (294,532)
                                                                                     ---------    --------
                                                                                     $ 366,765    $376,799
                                                                                     =========    ========
</TABLE>

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 13 years,  and have a remaining  net book
value of $26,697.

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 13 years,  is $152,825 at September 30,
1995.  The Company  also has patents on the OHSS  relating to  improvements  and
perfections on the Overhead Speaker System. The net book value of these patents,
which is being amortized over ten years is $53,304.

OSA (On-Site Analyzer)
OSA,  Inc.  has been  granted two patents on unique  technology  critical to the
operations  of its  On-Site  Analyzer.  The  Company is  carrying  net assets of
$36,937  relating  to patents on the OSA in the  accompanying  balance  sheet at
September 30, 1995.

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 1995.

The  Company  has a net book value of  $91,576  manufacturing  and  distribution
rights  and  patents  related to the ARCS Seat  Safety  Device  included  in the
accompanying balance sheet as of September 30, 1995.

EFECS (Engine Fuel Economy Emission Control Reduction System) Fuel Saving Device
(See Note 19.)



<PAGE>



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

7. INTANGIBLE ASSETS

Intangible assets consisted of the following at September 30, 1995 and 1994:
<TABLE>
                                                     Useful
                                                  Life (Years)        1995        1994
                                                                      ----        ----
                                                  ------------        
<S>                                                <C>            <C>            <C>
Capitalized database ......................         15            $ 3,162,500    $3,162,500
Less:  accumulated amortization                                      (456,807)     (245,973)
                                                                     --------      --------
                                                                  $  2,705,693   $2,916,527     
                                                                  ============   ==========     
               .............                        40             $ 5,034,651   $5,034,651
Intangible assets relating to business.                               (266,181)    (164,905)
Less:  accumulated amortization                                    -----------   ----------
                                                                   $ 4,768,470   $4,869,746
                                                                   ===========    ==========
</TABLE>
The capitalized  database contains an active library of engine and machine tests
that have a diagnosed history.  The value of the capitalized base 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.  Intangible assets related to businesses  acquired consist
of the excess of purchase  price over  estimated  fair value of net tangible and
identifiable intangible assets acquired. (See Notes 2 and 3).

8.  OTHER ASSETS

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

9.  DEBT
<TABLE>

<S>                                
                                                                 <C>          <C>              
Notes payable at September 30, 1995 and 1994 are as follows:       1995         1994
                                                                 ----------    ------

Senior Subordinated convertible notes, due June 2000, bearing
 interest at 9% .............................................    $2,060,000   $ --
                                                                 ==========   ======
Note payable-affiliate, payable to sellers of SMI,
 non-interest bearing                                            $    -       $ 88,042
                                                                 ==========   ========

</TABLE>

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.  If there is a change in control of the
Company,  as defined in the agreement,  there is a mandatory  prepayment due for
any amounts outstanding relating to the notes.

In November 1994, the Company entered into a $5,000,000  Loan  Agreement,  which
was  subsequently  amended,  with the First Union  National Bank of Florida (the
"Bank").  The agreement  stipulated  that  $4,500,000 (OSA Line) of the proceeds
could be used for the purchase of certain  OSAs.  The agreement  also  indicates
that $500,000 would be available for short-term  working capital through January
31, 1996.  In April 1995 the  short-term  working  capital 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.  The Bank is not required
to fund any part of the OSA Line  until  such  time as the  Company  has paid to
Thermo  Jarrell Ash (TJA)  $1,900,000 or purchased 31 OSAs for a total  purchase
price of $1,250,000 without Bank funding.  As of September 30, 1995, the Company
has paid $1,285,018 toward the above $1,900,000 requirement.


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

9.  DEBT  (continued)

Those 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  creditworthiness  of lessee.  OSAs  purchased  with
sources  of funds  other  than  Bank  financing  do not need to be leased to the
Company's customers. The Loan 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.  During
the  term of the  loan,  the  Company  is  required  to meet  certain  financial
covenants as well as pay a commitment fee on the OSA line unused funds.

Amounts  outstanding  under the Loan  Agreement  bear interest at the prime rate
plus .85% and  interest  only is payable  monthly.  A principal  payment will be
required that is sufficient to reduce the principal amount outstanding,  if any,
to $2,250,000 on December 31, 1996 with any remaining amounts  outstanding being
due and payable on December 31, 1997. The Company has expanded its bank facility
in order to be able to finance the roll-out of the OSAs and  purchase  OSAs from
TJA.  As of  September  30,  1995 no amounts  were  outstanding  under this Loan
Agreement.

In July 1993, a $1,670,000  note was issued to the former  owners of SMI as part
of the acquisition of SMI. The note was subsequently canceled in connection with
the  issuance  of  600,000  shares  of the  Company's  common  stock  valued  at
$2,025,000.  Two non-interest  bearing notes were then issued totaling $835,592.
Interest on the note due  October 31, 1994 was imputed at the fair market  value
rate of 3.87% in fiscal 1994 and the balance outstanding of $88,042 at September
30, 1994 for this note was paid in full in November 1994.

Cash paid for interest for the years ended September 30, 1995, 1994 and 1993 was
$60,300, $16,253 and $73,467, respectively.

10. COMMITMENTS AND CONTINGENCIES

The Company leases office space under  noncancelable  operating  leases.  Future
minimum rental commitments under these leases is as follows:
         Fiscal Year Ending September 30:
         1996               $451,171
         1997                373,094
         1998                320,365
         1999                275,942
         2000                143,325
         Thereafter                -
The lease  commitments  schedule  above  excludes  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  amounted to $447,170,  $347,555 and $107,982 for the years
ended September 30, 1995, 1994, and 1993, respectively.

The Company has commitments  under certain  employment  agreements  entered into
with  individuals  in  management  positions.   The  payments  due  under  these
agreements aggregate $474,300 and are payable during fiscal 1996. 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  for a 3%
commission on the  cumulative  gross profit from OSA, Inc. There were no amounts
due related to the incentive  payments or the 3% commission in fiscal 1995, 1994
and 1993.
<PAGE>



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

10. COMMITMENTS AND CONTINGENCIES (continued)

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 1995 and 1994 was
approximately $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.  Net loss per share is  computed  by  dividing  net loss by the  weighted
average number of common shares outstanding after reduction for treasury shares.
The common stock  options and warrants (See Note 17) have been excluded from the
net  loss  per  share   calculation   since  their  inclusion  would  have  been
anti-dilutive.

12. INCOME TAXES

In February 1992, the Financial  Accounting Standards Board adopted Statement of
Financial  Accounting  Standards ("SFAS") No. 109 "Accounting for Income Taxes".
The  Company  implemented  SFAS No.  109 in fiscal  1994 by  accounting  for the
cumulative effect of the change in the period of adoption. The cumulative effect
upon  adoption  was not  material.  SFAS No. 109 changed the method of computing
deferred  income taxes from a deferred method to a 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, 1995 and 1994
consists of the following components:

Current:                        1995                          1994
                                ----                          ----
         Federal               $(839,000)                $ (27,000)
         State                    60,000                         -
                              -----------                 ----------
                               $(779,000)                  (27,000)
                               ----------                 ----------
Deferred:
         Federal                 (64,000)                  (28,157)
         State                   (11,000)                   (4,969)
                              -----------                ----------
                                 (75,000)                  (33,126)
                              -----------                 -----------
Increase (reduction
 in beginning
of the year valuation
 allowance                      1,464,000                (2,209,874)
                               ----------               ----------
                               $  610,000               $(2,270,000)
                               ==========               ============



<PAGE>



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

12.  INCOME TAXES (continued)

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, 1995 and 1994 are as follows:

                                                          1995           1994
                                                   -----------    -----------
Income tax benefit at statutory rate ...........   $(949,000) $       (86,844)
State income tax expense (benefit) .............        40,000        (15,325)
Increase (reduction) in valuation allowance, net     1,464,000     (2,209,874)
Non-deductible expenses ........................        55,000         33,696
Other ..........................................          --            8,347
                                                   -----------    -----------
                                                   $   610,000    $(2,270,000)
                                                   ===========    ===========

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, 1995 will be realized  before the expiration of the underlying net
operating loss carryforwards

The  reduction in the  valuation  allowance of  $2,209,874  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.

An additional valuation allowance in the amount of $550,000 has been established
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
1995.

The Company  has  recorded a deferred  income tax  benefit and related  deferred
income  tax  asset  based on the  pre-tax  loss for  fiscal  1995.  A  valuation
allowance in the same amount has been established since the Company's assessment
for future  taxable  income  expected in fiscal 1996 and beyond has  remained in
principal unchanged.

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax  liabilities  at September  30, 1995
and 1994 are as follows:
                                                   1995           1994
                                            -----------    -----------
Deferred tax assets:
  Book operating losses .................   $ 5,547,000    $ 4,784,500
  Expenses for book, not for tax                116,000         92,000   
                                            -----------    -----------
                                              5,663,000      4,876,500
                                            -----------    -----------
Deferred tax liabilities:
  Capitalized database ..................    (1,082,000)    (1,167,000)
  Excess book over tax basis of
   acquired property and equipment ......          --          (60,000)
  Tax over book depreciation ............      (118,000)      (129,374)
  Other, primarily deductible intangibles
   amortization .........................      (115,000)       (86,000)
                                            -----------    -----------
                                             (1,315,000)    (1,442,374)
                                            -----------    -----------


<PAGE>


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

Net deferred assets before                      1995               1994
                                               -----               ----
   valuation allowance                      4,348,000         3,434,126
Less valuation allowance                   (2,628,000)       (1,164,126)
                                          -----------       -----------
  Net deferred tax assets                  $1,720,000        $2,270,000
                                           ==========        ==========

At September  30, 1995,  the Company has net tax basis  Federal  operating  loss
carryforwards of approximately  $19,838,000,  which may be used to offset future
taxable  income,  if any. The Company's net operating loss  carryforwards  begin
expiring in 2001.  Expiration of the net operating loss carryforwards will occur
as follows:


            Year                            Net Operating
         Expiring                         Loss

              2001                           $   124,000
              2002                               306,000
              2003                               721,000
              2004                             1,466,000
              2005                             1,733,000
              2006                             1,432,000
              2007                             2,144,000
              2008                             3,774,000
              2009                               686,000
              2010                             7,452,000
                                               ---------
                                             $19,838,000
                                             ===========

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,  if quarterly revenue exceeds $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  1995 and 1994  was  $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 options vest annually,  with 500,000 being vested at September 30,
1995 and 100,000 options vesting on August 18, 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.


<PAGE>



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

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.

A  former  owner  of SMI  (See  Note 2),  entered  into a four  year  employment
agreement in July 1993, as amended  subsequently,  and was appointed Chairman of
UTG and a director of the Company.  The  employment  agreement  calls for a base
salary of $200,000  per year and  issuance of stock  options to purchase  70,000
shares of the  Company's  common stock which vest on July 18, 1997.  The Company
had a note  payable to the sellers of SMI, one of which is this  individual,  at
September  30, 1994 which  resulted from the purchase of SMI by the Company (See
Note 9). This note was paid in full in November 1994.

14. STOCK OFFERINGS

The Company  completed two private  placements in fiscal 1994.  The total common
shares issued  through  these  placements  were 550,000 at $1.75 per share.  The
gross proceeds generated in these placements were $962,500.

The Company  completed  various  private  placements  in fiscal 1993.  The total
common shares issued through these placements were 4,073,439,  at prices ranging
from $1.27 to $1.50 per share. The gross proceeds  generated on these placements
was approximately  $5,897,000.  The commissions and expenses on those placements
was approximately $632,600.

15. 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  two  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").


<PAGE>


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

15. STOCK AND STOCK OPTION PLANS (continued)

The 1993 Plan is administered by a committee of two 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.

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.

16. STOCK GRANTS

In 1990,  the Company  issued Awards of 300,000 and 150,000 shares of restricted
common stock to the  President/CEO  and Executive Vice President,  respectively,
under the 1990 Stock Plan. At September 30, 1995,  300,000 of the shares awarded
to the  President/CEO  and Executive Vice President were vested.  In fiscal 1994
and 1993,  the  President/CEO  deferred  vesting  of  50,000  shares (a total of
100,000  shares)  granted in 1990.  Also,  in fiscal 1993,  the  Executive  Vice
President  canceled 50,000 shares previously  granted to him which were reissued
to a consultant for previous services rendered.

17. STOCK OPTIONS AND WARRANTS

The  Company  has  issued the  following  options  and  warrants  to  directors,
officers,  employees  and  consultants  during 1995,  1994 and 1993.  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>
                                                             1995           1994           1993
                                                             ----           ----           ----
               
<S>                                                      <C>            <C>            <C>     
Outstanding, beginning of year:                          
  Shares .............................................   3,537,562      4,687,072      3,896,791
  Price ..............................................   $.28125-8.75   $.28125-4.00   $.28125-7.00

Granted:
  Shares .............................................   583,750        831,757        3,404,155
  Price ..............................................   $6.625-8.25    $2.9375-8.75   $.01-4.00

  Expiration Dates ...................................   10/25/2004-    4/1/1994 -     4/29/1996 -
                                                          8/31/2005     9/1/2004       9/28/2003
Exercised:
  Shares .............................................   (1,015,082)    (1,761,100)    (1,626,241)
  Price ..............................................   $.28-6.50      $.28125-6.00   $.01-2.00

</TABLE>


<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
17.  STOCK OPTIONS AND WARRANTS (continued)

Expired or Canceled:
  Shares ........................      (59,280)     (220,167)     (987,633)
  Price .........................   $.5625-6.50   $2.3125-6.00  $.28125-7.00

Outstanding, end of year:
  Shares ........................    3,046,950     3,537,562     4,687,072
  Price .........................   $.28125-8.75  $.28125-8.75  $.28125-4.00
Exercisable, end of year
  Shares ........................    2,298,700     2,452,411
Available for grant,  end of year
  Shares ........................      438,691

18. CONCENTRATION OF CREDIT RISK

The majority of the Company's  overall revenue was derived from customers in the
automotive  manufacturing  and automotive parts and accessories  industries.  In
fiscal 1995,  one customer  accounted  for 66% of net sales.  That same customer
accounted  for 60% and 63% of net sales in both 1994 and 1993.  In the Company's
automotive  technology  segment the same customer,  an OEM, accounted for 91% of
the total  business  activity  in fiscal  1995.  As of  September  30,  1995 the
Company's receivable balance from this customer was $2,722,045.  The majority of
this receivable was subsequently collected. The loss of this customer would have
a material  adverse  effect on the  Company.  Oil  analysis  services  are being
provided to over 1,500  active  customers on a normal  credit  terms  basis.  In
fiscal 1995 five customers  accounted for  approximately 42% of the oil analysis
service segments  business  activity.  The loss of any two of the five customers
would have a material adverse effect on the Company.

Export sales in 1995, 1994 and 1993 were insignificant.

19. 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.  The agreement extends until such time as
the patent  rights  expire due to the passage of time or  otherwise,  unless the
license to  Adrenaline  from M.I.T.  under the Patent  Agreement is  terminated.
Under the terms of the  agreement  the  Company  assigned  its  interest in this
technology in return for future  royalties.  Beginning in December 31, 1996, the
Company will receive an annual  royalty equal to the greater of  (i)$50,000,  or
(ii) an amount based upon royalties  received from sublicensing and a percentage
of  Adrenaline's  net sales  derived  from the  technology.  After  the  Company
receives $400,000 in cumulative  royalty payments,  the Company will receive (i)
25% of any royalty income received by Adrenaline from  sublicensing  and (ii) 2%
of Adrenaline's net sales of the technology.  As of December,  1995,  Adrenaline
had  not  commenced  marketing  this  technology.  At such  time  as  Adrenaline
generates  revenues in the future,  the agreement permits Adrenaline to withhold
paying  the  Company   prospective  royalty  payments  in  the  event  a  patent
infringement suit is brought  challenging the technology.  Adrenaline is further
permitted  to  withhold  paying   royalties  until  the  patent   litigation  is
terminated. To the extent that Adrenaline has paid the Company any royalties, it
will not be  obligated  to reimburse  Adrenaline  for such sums.  Because of the
contingent  nature of the  agreement,  the Company  intends to record all future
royalty income on a cash basis. The cost of $35,000 related to the assignment of
interest of the EFECS patents is included in the statement of operations for the
fiscal year ended September 30, 1995.





<PAGE>


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

The Company currently classifies its operations into the following segments: (1)
automotive  technology which primarily  consists of the Overhead Speaker System,
(2) Oil Analysis  Service which  primarily  consists of UTG and OSA  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  1995 direct
corporate expenses (salaries,  benefits and general and administrative expenses)
have been allocated to the segments.

Financial  information about the Company's  operations by segments for the years
ended September 30, 1995, 1994 and 1993 is as follows:

             Automotive    Oil Analysis      Corporate
Revenue:     Technology         Service      and Other    Consolidated
    1995   $ 13,893,459    $  5,075,347    $      --      $ 18,968,806
    1994   $  9,203,938    $  5,878,281    $    55,643    $ 15,137,862
    1993   $  2,423,488    $  1,345,465    $   112,852    $  3,881,805
Operating Income
(Loss):
    1995   $  4,008,392    $ (3,468,432)   $(3,489,006)   $ (2,949,046)
    1994   $  2,821,308    $   (384,367)   $(2,923,235)   $   (486,294)
    1993   $   (833,343)   $     25,848    $(2,390,494)   $ (3,197,989)
Depreciation and
Amortization:
    1995   $     79,085    $    700,004    $   118,441    $    897,530
    1994   $     66,647    $    323,314    $    94,848    $    484,809
    1993   $     80,012    $     83,205    $   116,777    $    279,994

Identifiable
Assets:
    1995   $  4,336,403    $ 11,335,226    $ 3,573,810    $ 19,245,439
    1994   $  1,737,336    $ 10,217,289    $ 6,525,330    $ 18,479,955
    1993   $  1,843,608    $  8,634,738    $   363,822    $ 10,842,168

Capital
Expenditures:
    1995   $    778,804    $  1,110,250    $   128,357    $  2,017,411
    1994   $    323,723    $    891,169    $   120,592    $  1,335,484
    1993   $    269,742    $    282,170    $    65,345    $    617,257



21. OTHER INCOME

Included  in Other  Income in  fiscal  1995 is  $229,500  which  relates  to the
recovery of funds from the PSI, Inc.  lawsuit.  (See Item 3. Legal  Proceedings)
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.



<PAGE>



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

22. OTHER EVENT

On December 4, 1995,  the Company  entered into a  non-binding  Letter of Intent
with a group interested in becoming the exclusive  world-wide  franchisor of the
Company's  On-Site  Analyzer for use in the  equipment  maintenance  market.  In
consideration of the payment of $10,000, this group received the exclusive right
to negotiate  with the Company for a limited time for the  acquisition  of these
worldwide rights.

Specifically  excluded  from this  agreement are the rights to negotiate for the
refinery market,  oil blending plants and numerous other markets where the usage
of the On-Site  Analyzer will be utilized only for internal use. There can be no
assurances that a final agreement will be reached. Due to the preliminary nature
of these discussions, the potential impact on the Company's financial statements
is indeterminable.


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE None


<PAGE>



                                                              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 March 15, 1996, 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 March 15, 1996,  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 March 15, 1996, sections entitled
         "Voting Securities and Principal Holders".

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
               None

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
                                                                           Page
(a)      (1)  Financial Statements. See Item 8 of Form 10-K..................17

(a)      (2)  Financial Statement Schedules required to be filed.
                  Schedule II - Valuation and Qualifying Accounts............40
                  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 to 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 Lease of Office/Laboratory Space - of United Testing 
              Group, Inc. - Addison, Illinois...............................(8)
         10.5 Lease of Office/Warehouse Space of United Testing 
              Group, Inc. (Spectro Metrics, Inc.) - Atlanta, Georgia........(8)
         10.6 Master License Lease Agreement - Exxon.......................(10)
         10.7 Equipment Purchase Agreement - Thermo Jarrell Ash 
              Corporation..................................................(10)
         10.8 First Amendment to Lease of On-Site Analysis, Inc., 
              Atlanta, Georgia.............................................(10)
         10.9 Lease of Office and Warehouse Space of United Testing  
              Group, Inc., Sparks, Nevada..................................(10)
         10.10Lease of Office Space of Top Source Technologies, Inc., 
              New York City, New York......................................(10)
         10.11Shareholder Rights Plan.......................................(7)
         10.12Note 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)


<PAGE>


(a)      (3)  Exhibits  (continued)

         10.13  Agreement by and between Top Source Technologies, Inc., dated
                May 10, 1995, Adrenaline, Inc.and Edward Van Duyne 
                (EFECS Technology) ........................................(11)
         10.14  First Amendment to Shareholder Rights Plan.................(12)
         10.15  Second Amendment to Shareholder Rights Plan................(13)
         10.16  Loan Agreement dated November 24, 1994 between Top 
                Source Technologies, Inc. and On-Site Analysis, Inc. and
                First Union National Bank of Florida.......................(14)
         10.17  Loan Agreement dated April 13, 1995 between Top Source
                Technologies, Inc. and On-Site Analysis, Inc. and First
                Union National Bank of Florida.............................(14)
         10.18  Lease Agreement dated February 10, 1995 for Michigan 
                facility, Troy, MI.........................................(14)
         10.19  Employment Agreement of David Natan........................(15)
         10.20  Master Purchase Agreement - Thermo Jarrell Ash Corporation.....
        10.21   Lease of Office Space dated December 20, 1995 of Top Source 
                Technologies, Inc., Palm Beach Gardens, FL.....................
         10.22  Loan Agreement dated October 12, 1995 between Top Source 
                Technologies, Inc. and On-Site Analysis, Inc...................
         11.0   Statement Re Computation of Net Income Per Share...........(10)
         27.0   Financial Data Schedule........................................

(b)      Reports on Form 8-K
           A report  on Form  8-K,  an  update  of other  events,  was  filed on
           September 27, 1995.

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 & 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.




<PAGE>







     




                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

<TABLE>
<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 (1)                  Period
Description                                                                       Deductions
=========================== ---------------- ---------------- ----------------- ----------------- =======================
Deducted from Accounts
Receivable -
Allowance for Doubtful 
Accounts
=========================== ---------------- ---------------- ----------------- ----------------- =======================
Year Ended September 30,
1995
                              $150,000         $159,645              -            ($163,942)               $145,703
                                                                                           
=========================== ---------------- ---------------- ----------------- ----------------- =======================
Year Ended September 30,
1994                           $13,145         $136,855              -                 -                   $150,000
                                                                                         
=========================== ================ ================ ================= ================= =======================
Year Ended September 30, 
1993                           $     -          $5,645           $7,500                -                   $ 13,145
=========================== ================ ================ ================= ================= =======================
</TABLE>

  (1) Allowance upon acquisition of receivables of Spectro/Metrics, Inc.






<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.


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

Dated:   January 12, 1996

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.


GNATURE                         TITLE                            DATE
\s\ Stuart Landow            Chairman of the                   January 12, 1996
 Stuart Landow               of the Board of Directors

\ Christer Rosen           Director                            January 12, 1996
Christer Rosen

\s\ David Natan              Treasurer, Vice President of      January 12, 1996
David Natan                  of Finance(Principal Financial
                             Officer) and Director

\s\ Ronald P. Burd           Director                          January 12, 1996
Ronald P. Burd

\s\ Carlton S. Joyce         Director                          January 12, 1996
Carlton S. Joyce

\s\ Arthur S. Kirsch         Director                          January 12, 1996
Arthur S. Kirsch

\s\ Clinton D. Lauer         Director                          January 12, 1996
Clinton D. Lauer

\s\ Paul F. Moore            Director                          January 12, 1996
Paul F. Moore

Mani A. Sadeghi              Director                          January 12, 1996
Mani A. Sadeghi