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

                                    FORM 10-K/A No. 2

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

                      For the year ended September 30, 1996

                         Commission File Number 1-11046

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

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

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

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

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

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

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

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

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

 
                                     <PAGE>



                                     PART I


ITEM 1.  BUSINESS

A.  General Description of Business

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

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


C.  Narrative Description of Business

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

Products and Technologies

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

2
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ITEM 1.  BUSINESS (continued)

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

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

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


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

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

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


3
<PAGE>



ITEM 1.  BUSINESS (continued)

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

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

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

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

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

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

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

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



ITEM 1. BUSINESS  (continued)

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

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

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

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

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

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


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


5
<PAGE>



ITEM 1. BUSINESS  (continued)

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

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

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

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

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

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

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


6
<PAGE>



ITEM 1. BUSINESS  (continued)

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

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

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

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

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

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


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

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

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


7
<PAGE>



ITEM 1.  BUSINESS (continued)

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

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

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

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

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

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

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


8
<PAGE>



ITEM 1. BUSINESS  (continued)

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

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

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

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

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

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

9
<PAGE>



ITEM 1. BUSINESS (continued)

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

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

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

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

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


10
<PAGE>



ITEM 2. DESCRIPTION OF PROPERTY

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

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

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

ITEM 3. LEGAL PROCEEDINGS

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

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

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


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

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

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

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


11
<PAGE>



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

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

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


ITEM 6.  SELECTED FINANCIAL DATA

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

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

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

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

Statement of Operations Data

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

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


12
<PAGE>



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

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

1996 Compared to 1995

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

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

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

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

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

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

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

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

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

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


13
<PAGE>




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


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

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

1995 Compared to 1994

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

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

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

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

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

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



14
<PAGE>



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


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

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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


15
<PAGE>

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


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

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

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

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

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

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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



                              REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders of Top Source Technologies, Inc.:

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

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

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

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



ARTHUR ANDERSEN LLP



West Palm Beach, Florida
December 13, 1996

17
<PAGE>



<TABLE>

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

                                                CONSOLIDATED BALANCE SHEETS
                                             AS OF SEPTEMBER 30, 1996 and 1995

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

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


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

Commitments and contingencies (Note 10)

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


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

</TABLE>
18
<PAGE>
<TABLE>


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

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


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

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


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

</TABLE>

19
<PAGE>
<TABLE>




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

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


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

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

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

                                                                                    



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

                                         
20

</TABLE>

<PAGE>

<TABLE>



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

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

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

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

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




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


21
</TABLE>
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

23
<PAGE>




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

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)


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

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

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

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

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

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

24
<PAGE>



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

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

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

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

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

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

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

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

</TABLE>


3. STATEMENTS OF CASH FLOWS

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

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

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

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



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

4. INVENTORIES

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

                                1996                   1995
                                -----                  ----

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


5.  PROPERTY AND EQUIPMENT

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

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

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

6. MANUFACTURING AND DISTRIBUTION RIGHTS AND PATENTS

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

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

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


26
<PAGE>



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

6. MANUFACTURING AND DISTRIBUTION RIGHTS AND PATENTS  (continued)

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

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

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

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

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

7.  INTANGIBLE ASSETS

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


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

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

8. OTHER ASSETS

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


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


9.  DEBT

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

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


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

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

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

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

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

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



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

10. COMMITMENTS AND CONTINGENCIES

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

         Fiscal Year Ending September 30:

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

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


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

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

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

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


11.  NET INCOME (LOSS) PER SHARE

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


28
<PAGE>

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

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

</TABLE>


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


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

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

29
<PAGE>



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

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

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

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

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

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


</TABLE>

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


13. RELATED PARTY TRANSACTIONS

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



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

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

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

14. STOCK AND STOCK OPTION PLANS

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

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

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

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

31
<PAGE>



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

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

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

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

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

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

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


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


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

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


32
<PAGE>



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

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

15. CONCENTRATION OF CREDIT RISK

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


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

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

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

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

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

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

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

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

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

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

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

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

</TABLE>

33
<PAGE>





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

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

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


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


         None


                                                              PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
         
                             BOARD OF DIRECTORS

      The Company's by-laws provide that the Board of Directors shall consist of
no less than three and no more than nine  members,  with the actual number to be
established  by  resolution  of the Board of  Directors.  The  current  Board of
Directors has by resolution  established the number of directors at nine.  There
is currently one vacancy with the resignation of Arthur Kirsch in December 1996.
The Company's Directors serve three-year terms with three Directors elected each
year.

<TABLE>
                                                         Board of Directors

<S>                           <C>       <C>                      <C>                 <C>               <C>            
---------------------------- -------- --------------------------- ---------------- ----------------- ---------------
Name                           Age          Position with
                                               Company                 Since             Term            Ending
---------------------------- -------- --------------------------- ---------------- ----------------- ---------------
Stuart Landow(1) (4)           50     President (Chief                 1990          Three Years          1997
                                      Executive Officer) and
                                      Chairman of the Board of
                                      Directors
---------------------------- -------- --------------------------- ---------------- ----------------- ---------------
Christer Rosen(4)              45     Executive Vice President,        1987          Three Years          1997
                                      Secretary and Director
---------------------------- -------- --------------------------- ---------------- ----------------- ---------------
David Natan                    43     Vice President of Finance        1995          Three Years          1997
                                      (Chief Financial
                                      Officer), Treasurer and
                                      Director
---------------------------- -------- --------------------------- ---------------- ----------------- ---------------
Ronald P. Burd(2)(3)           50     Director                         1992          Three Years          1999
---------------------------- -------- --------------------------- ---------------- ----------------- ---------------
Carlton S. Joyce               66     Director                         1993          Three Years          1998
---------------------------- -------- --------------------------- ---------------- ----------------- ---------------
Paul F. Moore(1)(3)(4)         70     Director                         1993          Three Years          1999
---------------------------- -------- --------------------------- ---------------- ----------------- ---------------
Mani A. Sadeghi(1)(3)          33     Director                         1993          Three Years          1998
---------------------------- -------- --------------------------- ---------------- ----------------- ---------------
Clinton D. Lauer(2)(3)         70     Director                         1994          Three Years          1999
---------------------------- -------- --------------------------- ---------------- ----------------- ---------------


(1)   Member of the Nominating Committee
(2)   Member of the Audit Committee.
(3)   Member of the Compensation Committee.
(4)   Member of the Executive Committee.

</TABLE>
34
<PAGE>



                          TOP SOURCE TECHNOLOGIES, INC.
                       ANNUAL REPORT ON FORM 10-K/A No. 1

 Stuart Landow - Mr. Landow has been President,  Chief  Executive  Officer and a
member of the  Board of  Directors  of the  Company  since  July 27,  1990,  and
Chairman of the Board of Directors since October 2, 1991. As Chairman, President
and Chief  Executive  Officer of the Company,  Mr. Landow is responsible for the
overall  management of the business,  with an emphasis on business  strategy and
long term  planning.  Mr.  Landow  introduced  the oil  analysis  concept to the
Company  and  devotes a  significant  amount of time to  project  management  of
On-Site  Analysis,  Inc.,  whose name  changed to Top Source  Instruments,  Inc.
("TSI"), and to the development and marketing of On-Site Analyzers. In addition,
Mr. Landow introduced the licensing  through MIT of the ARCS technology,  and of
the  EFECS  Technology  which  was  subsequently  sold by the  Company  in 1995.
Presently,   Mr.  Landow's  primary  efforts  are  being   concentrated  on  the
development  of  contractual  relationships  for the  marketing of the Company's
present   products  and   technologies   with   industrial   partners,   and  on
communications  with  analysts,  brokers and others.  Additionally,  Mr.  Landow
concentrates  on utilizing his contacts with the automobile  industry and others
for the  purpose  of  learning  about and  obtaining  new  technologies  for the
Company.

In December  1996,  the Board of Directors  determined  that it would best serve
stockholder  interests to augment top management by retaining the services of an
additional  executive as Chief Executive Officer, or in some other capacity,  to
work with Mr.  Landow in executing the Company's  business  plan.  The Company's
search for this  executive is continuing.  For a discussion of certain  payments
and other  benefits to which Mr. Landow may be entitled if his  responsibilities
and  duties  are  materially  diminished  if and when  such a new  executive  is
retained, see "Executive Compensation Agreements" in this section.

Christer  Rosen - Mr. Rosen has been  Executive  Vice President and Secretary of
the Company and a director  since 1987.  From 1995 to September  1996, Mr. Rosen
was appointed President of Top Source Automotive,  Inc. ("TSA") and in September
1996 was appointed officer in charge of both the TSI and TSA  subsidiaries.  Mr.
Rosen was responsible for bringing the Overhead Sound System to the Company. Mr.
Rosen is the only  original  member of the  management  team which  founded  the
Company.

David Natan - Mr. Natan joined the Company in June of 1995 and brings  nearly 20
years of management and analytical  experience to his  responsibilities  as Vice
President  and Chief  Financial  Officer of the  Company.  Prior to joining  the
Company,  from  November 1992 through June 1995,  Mr. Natan was Chief  Financial
Officer of MBf USA,  Inc.,  which is a NASDAQ listed  subsidiary of MBf Holdings
Berhad,  a  four-billion-dollar  multi-national  conglomerate.  From August 1987
through  October 1992, Mr. Natan was Treasurer and Controller for  Jewelmasters,
Inc., an American Stock Exchange listed company. Mr. Natan is a Certified Public
Accountant  licensed in the State of Florida since 1987.  In January  1996,  Mr.
Natan became a Director of IMX Corporation ("IMX") in Boca Raton,  Florida.  IMX
is a NASDAQ listed distributor of pharmaceutical products.

Ronald P. Burd - Mr. Burd has been a director  of the Company  since March 1992.
From 1984 through the present,  Mr. Burd has been President and Chief  Executive
Officer of the Devereux Foundation.  Devereux, founded in 1912, is a nationwide,
private,  not-for-profit  organization  that treats  individuals of all ages who
have a wide range of  emotional  disorders  and/or  developmental  disabilities.
Headquartered in Devon,  Pennsylvania,  Devereux operates  residential,  day and
community-based  treatment  programs  located in 13 states and the  District  of
Columbia.

Carlton  S.  Joyce - Mr.  Joyce was  appointed  a  director  of the  Company  in
September  1993.  From  1974 to 1993,  Mr.  Joyce  was  Chairman  of a major oil
analysis laboratory,  Spectro/Metrics,  Inc. ("SMI") in Atlanta,  Georgia, which
the  Company  acquired in July 1993.  Mr.  Joyce is now  Director of  Technology
spearheading  for concept and  development  of the On-Site  Analyzer for broader
application.


Clinton D. Lauer - Mr.  Lauer was  appointed  a director of the Company in March
1994.  From January 1992 to present,  Mr. Lauer has been  President of Lauer and
Associates,  a consulting firm working with automotive supplier companies.  From
1987 to January 1992, Mr. Lauer held the position of Vice President,  Purchasing
and Supply with Ford Motor  Company.  In January  1992 he retired  from the Ford
Motor Company after 36 years with that company.

35
<PAGE>



                          TOP SOURCE TECHNOLOGIES, INC.
                       ANNUAL REPORT ON FORM 10-K/A No. 1


Paul F. Moore - Mr.  Moore was  appointed a director of the Company in September
1993.  Currently,  Mr. Moore is President and CEO of P.F. Moore & Associates,  a
consulting  engineering  company.  From 1991 to 1994, Mr. Moore was President of
Advanced  Vehicle  Concepts,  a Michigan  based company  which builds  prototype
vehicles.  From 1986  through  1991,  Mr. Moore was chief  executive  officer of
American  Professional Services which was later acquired by First Technology PLC
of Great Britain.  Mr. Moore spent 25 years as a senior  executive with Chrysler
Corporation and retired from Chrysler in 1981.


Mani A.  Sadeghi - Mr.  Sadeghi  was  appointed  a  director  of the  Company in
September  1993.  Mr.  Sadeghi is  currently  group  president  for a  specialty
financial  service  business at AT&T Capital  Corporation.  From October 1994 to
October 1996, Mr. Sadeghi was Vice President of Corporate  Development  for AT&T
Capital Corporation. From 1992 to October 1994, Mr. Sadeghi had been Director of
Strategic  Planning and Business  Development at G.E. Capital Corp. From 1988 to
1992, Mr. Sadeghi was a management consultant with Bain & Company located in San
Francisco where he provided strategic  consulting  services to his clients.  Mr.
Sadeghi is the brother-in-law of Mr. Charles Ganz, the President of Ganz Capital
which is the beneficial  owner of  approximately  10.2% of the Company's  common
stock. 


Non-Director Executive Officers

Richard J. Ragan - Mr. Ragan was appointed Chief Executive Officer of Top Source
Instruments,  Inc.  ("TSI") in October,  1996,  which  consists of the Company's
On-Site Analyzer (OSA) product line. Mr. Ragan is responsible for the day to day
leadership of the TSI staff, setting the direction of the company, providing the
vision for the future and overall  profitability of the group.  Prior to joining
TSI,  Mr. Ragan was employed by AVL North  America,  Inc.  from 1992 to 1996 and
from 1993 to 1996,  Mr. Ragan was President and Chief  Executive  Officer.  From
1986 to 1992, Mr. Ragan was the Marketing Manager for Sverdrup Technology, Inc.,
a subsidiary of the Sverdrup  Corporation  responsible for business  development
and customer advocacy primarily in the automotive markets.

Dennis K. Littleworth - Mr. Littleworth was appointed Vice President and General
Manager of Top Source Automotive,  Inc. ("TSA"), in April 1996, and was promoted
to President in October 1996. Mr.  Littleworth is responsible  for directing the
overall operations of TSA. Prior to joining the Company in 1996, Mr. Littleworth
was  employed  by United  Technologies  Corporation  for  twenty-one  years in a
variety of managerial  positions.  From October 1994 through  February 1996, Mr.
Littleworth  was Director of  Manufacturing  Interiors  for United  Technologies
Automotive,   Inc.  (UTA).  From  December  1989  through  September  1994,  Mr.
Littleworth was General Manager of UTA's Engineered Elastomer Products unit.



ITEM 11.  EXECUTIVE COMPENSATION
        
Executive Officer Compensation

The  following  table sets forth  certain  summary  information  concerning  the
compensation  awarded to, earned by, or paid to the Chief Executive  Officer and
the other four most highly  compensated  executive officers of the Company whose
combined  salary and bonus for the fiscal year ended September 30, 1996 exceeded
$100,000 (collectively, the "Named Executive Officers") for the years indicated.

36
<PAGE>




                          TOP SOURCE TECHNOLOGIES, INC.

                       ANNUAL REPORT ON FORM 10-K/A No. 1

<TABLE>
<S>                           <C>        <C>               <C>             <C>            <C>               <C>             <C>  
                                                                         SUMMARY COMPENSATION TABLE
                             ----------- ================================================= --------------------------------- 
                                                                                Long Term Compensation
                            Annual Compensation                       Awards                          Payouts
                                                                       ---------------------------------------
===================== ----------- ---------------                                                

     (a)               (b)         (c)        (d)         (e)           (f)           (g)                (h)            (i)
====================  ----------- --------------- ---------------- ---------------- ---------------- --------------- ------==

                                                                                      Securities
                                                       Other Annual                   Underlying                      All Other
Name and Principal                                     Compensation  Restricted       Option/SARS       LTIP        Compensation
Position              Year      Salary($)   Bonus($)    ($)(1)         Stock            (#)                            ($)(2)
                                                                      Awards(s)($)                     Payouts($)             
                                                                                                                 
===============      ----------- --------------- ---------------- ---------------- ---------------- --------------- -------------

Stuart Landow         1996     $211,200    $238,5356)    $14,300    $   0 (3)              $0                 $0         $33,002
President             1995     $202,794    $189,688(5)   $ 7,200        0                  $0                 $0         $14,213
(CEO)                 1994     $218,000    $151,378(4)   $ 7,550    $   0                  $0                 $0         $21,105
                                                                                             

=================== -------    ---------   -----------   -------  ---------------- --------------- -------------   --------------

Christer Rosen        1996     $200,560     $ 25,000     $19,592   $   0(7)               $0                 $0         $ 7,837
Executive VP          1995     $180,940     $ 25,000     $14,064   $   0                  $0                 $0         $ 4,419
                      1994     $177,733     $      0     $11,538   $231,250(8)            $0                 $0         $ 3,039
                                                                                     
---------------------------- ----------- --------------- --------  --------------- --------------- --------------  ---------------
David Natan           1996     $125,000    $  25,000     $10,914   $   0            $ 10,000                 $0
Vice President of     1995         N/A         N/A           N/A      N/A               N/A                  N/A         $5,448
Finance and Treas.    1994         N/A         N/A           N/A      N/A               N/A                  N/A            N/A
(CFO)                                                                                                                       N/A
---------------------------- ----------- --------------- --------  ---------------- ---------------- -------------  --------------

Carlton S. Joyce      1996     $216,612   $      0       $11,649    $  0                 $0                   $0         $4,000
Director - Product    1995     $200,000   $      0       $ 9,811    $  0                 $0                   $0         $    0
Technology            1994     $207,692   $      0       $   385    $  0                 $0                   $0         $4,667
                                                                    
 --------------------------- ----------- --------------- --------  --------------------------------   ------------- -------------- 
 Steven Ludmerer(9)   1996     $103,266   $      0       $ 8,500    $  0           $100,000                   $0         $  617
 President            1995           N/A        N/A          N/A                      N/A                    N/A            N/A  
 Petrochemical Group  1994           N/A        N/A          N/A                      N/A                    N/A            N/A  

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

</TABLE>
37
<PAGE>




                          TOP SOURCE TECHNOLOGIES, INC.
                       ANNUAL REPORT ON FORM 10-K/A No. 1


(1) Amounts consist principally of automobile allowances paid by the Company. In
the case of Mr. Rosen,  the amounts for 1996, 1995 and 1994 also include $8,792,
$4,407 and $4,338 in club membership dues paid by the Company, respectively.

(2) These amounts, as follows, represent group term life insurance premiums paid
by the Company,  the  Company's  match of the  Retirement  Salary  Saving Plan -
401(k) and  reimbursement of out-of-pocket  medical,  dental,  etc. expenses not
covered by the  Company's  insurance: 

                (a) The 1996  group  term life  insurance
                    premiums was as follows: Mr. Landow $7,239, Mr. Rosen 
                    $5,066, and Mr.  Joyce $4,000.

                (b) The 1996 employer match of the Retirement Salary Savings
                    Plan - 401(K) was as follows: Mr. Landow $2,840,
                    Mr. Rosen $1,556 and Mr. Natan $1,782.
                
                (c) The 1996 reimbursement of out-of pocket medical, dental,
                    etc. not covered by the Company's insurance was as
                    follows:  Mr.  Landow $22,923, Mr. Rosen $1,215 and
                    Mr. Natan $3,666.


(3) At September 30, 1996, Mr. Landow owned 481,300 shares of restricted  stock.
The value of the restricted stock is $2,256,094,  based on $4.6875,  the closing
stock price of the  Company's  common  stock on the American  Stock  Exchange at
September  30,  1996.  Although  the  Company  does not  anticipate  declaring a
dividend,  if one is declared,  dividends will be paid on restricted stock. Also
in prior  years,  Mr.  Landow had deferred  vesting of 100,000  shares that were
granted to him in 1990.  In July 1996,  Mr. Landow agreed to the full vesting of
the 100,000 shares.


(4) In fiscal  1994,  Mr.  Landow was paid  $151,378 in  incentive  compensation
equaling 1% of net sales.

(5) In fiscal 1995 , Mr. Landow was awarded, an incentive  compensation  payment
of 1% of net sales. This amount totaled $189,688 of which $163,037 had been paid
at fiscal year-end and $26,651 was accrued.

(6) In fiscal  1996,  Mr.  Landow was paid  $238,535 in  incentive  compensation
payments  which  are  based on a % of net  sales as  defined  in his  employment
agreement,  included in these  payments is $27,568 which is directly  related to
the sale of the United Testing Group, Inc. assets .


(7) At  September  30, 1996,  Mr.  Rosen had an  aggregate of 340,000  shares of
restricted  stock.  The value of the  restricted  stock is  $1,593,750  based on
$4.6875,  the closing stock price of the Company's  common stock on the American
Stock  Exchange at September 30, 1996.  Although the Company does not anticipate
declaring a dividend,  if one is declared,  dividends will be paid on restricted
stock.

(8) The  aggregate  value of these shares of  restricted  stock was based on the
closing sales price of the Company's common stock on the date of vesting (50,000
shares at $4.625). The 50,000 shares vested on January 1, 1994.

(9) Mr. Ludmerer resigned in December 1996.

38
<PAGE>




                          TOP SOURCE TECHNOLOGIES, INC.
                       ANNUAL REPORT ON FORM 10-K/A No. 1

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                               SEPTEMBER 30, 1996
<TABLE>
<S>                      <C>                 <C>                 <C>                           <C>                 <C>            
                                                                                           Potential Realizable Value at Assumed
                                                                                           Annual Rates of Stock Price Appreciation
                            Individual Grants                                              for Option Term (1)
______________________________________________________________________________________     ________________________________________


(a)           (b)                 (c)                    (d)                   (e)                  (f)                   (g)
------------------------ ----------------- --------------------- ---------------------- -------------------- ---------------------

             Number of       % of Total
             Securities      Options/SARs
             Underlying      Granted to
             Options/SARs    Employees in        Exercise or Base
Name         Granted (#)     Fiscal Year          Price ($/Sh) are      Expiration Date               5% ($)             10% ($)
------------------------ ----------------- --------------------- ---------------------- -------------------- ----------------------

Stuart Landow       0              N/A                    N/A                   N/A                  N/A                   N/A

Christer Rosen      0              N/A                    N/A                   N/A                  N/A                   N/A

David Natan      10,000            1.94                  7.75               12/13/2005             48,739(2)           $123,515(3)

Carlton S. Joyce    0              N/A                    N/A                   N/A                  N/A                   N/A

Steven Ludmerer 100,000            19.4                 6.4375             1/31/2006(6)           404,851(4)          $1,025,972(6)
------------------------ ----------------- --------------------- ---------------------- -------------------- --------------------- 

(1)       The  values  shown  are based on  indicated  assumed  annual  rates of
          appreciation  compounded  annually  through the applicable  expiration
          date.  Actual gains  realized,  if any, on stock option  exercises and
          common stock  holdings are dependent on the future  performance of the
          common stock and overall market conditions.  There can be no assurance
          that the values shown on this table will be achieved.
(2)       Represents an assumed market price per share of common stock of $12.62.
(3)       Represents an assumed market price per share of common stock of $20.10.
(4)       Represents an assumed market price per share of common stock of $10.49.
(5)       Represents an assumed market price per share of common stock of $16.70.
(6)       Mr. Ludmerer resigned in December 1996 and the 100,000 options which
          were granted to him had not vested.
          Therefore, these options have expired.


</TABLE>
39
<PAGE>

<TABLE>

                          TOP SOURCE TECHNOLOGIES, INC.
                       ANNUAL REPORT ON FORM 10-K/A No. 1

The following table sets forth certain  information with respect to the exercise
of options  to  purchase  common  stock and SARs  during  the fiscal  year ended
September 30, 1996,  and the  unexercised  options held and the value thereof at
that date, by each of the Named Executive Officers.

<S>                 <C>                 <C>            <C>                                     <C>                 <C>            
                                                      AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                                                            AND FISCAL YEAR-END(1) OPTION/SAR VALUES
-------------- ------------------- ---------------- ----------------------------------------- ------------------------------------
(a)                    (b)                (c)                             (d)                                       (e)
-------------  ------------------- ---------------  ----------------------------------------- -------------------------------------
                                                       Number of Securities Underlying          Value of Unexercised In-the-Money
                                                         Unexercised Options/SARs at                       Options/SARS
                                                            Fiscal Year End (#)                  at Fiscal Year End ($) (2)
                                                    
-------------- ------------------- --------------- ---------------- ------------------------ --------------- ----------------------
                  Shares Acquired
                    on Exercise      Value Realized
Name                  (#)(1)             ($)           Exercisable         Unexercisable        Exercisable         Unexercisable
----          
-------------- ------------------- ---------------- ---------------- ------------------------ --------------- ---------------------
Stuart Landow      300,000           $1,653,500(3)       600,000                 0               $1,575,000              $ 0

Christer Rosen        0                   N/A            500,000                 0               $2,078,750              $ 0

David Natan           0                   N/A             36,250              67,500             $    0                  $ 0
                                                                                                          
Carlton S. Joyce      0                   N/A            100,000              70,000             $318,750            $157,535
                                                                                                         
Steven Ludmerer       0                   N/A                0               100,000             $    0                 $ 0

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

(1)       All options were granted at 100% of fair market value.
(2)       Based on the  difference  between the closing  market price of the 
          Company's  stock on the American  Stock Exchange at
          September 30, 1996 of $4.6875 and the option exercise price.
(3)       Includes  100,000 shares exercised at fair market value of $7.00;  
          100,000 shares exercised at fair market value of $4.625;  and 100,000
          shares exercised at fair market value of $6.50 all with exercise 
          prices of $.53.

</TABLE>
40
<PAGE>



                          
                     

Executive Compensation Agreements

Effective  August 18th,  1993, the Company  entered into a five-year  employment
agreement with its president and chief executive officer, Mr. Stuart Landow. The
agreement  provides for a base annual salary of $200,000 per year with an annual
cost of living increase.  The Company's  Compensation Committee reviews the base
salary  annually  during the term and may increase,  but not decrease,  the base
salary.  Currently Mr. Landow receives a salary of $211,200.  Additionally,  Mr.
Landow receives incentive  compensation  payments based upon both the revenue at
the rate of 1% of revenue descending downward if quarterly revenue exceeds $6.25
million,  and profitability (at the rate of 50% of the incentive amount based on
revenue if net  operating  income is 8% of net sales,  up to a rate of twice the
incentive  amount based on revenue if net operating 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.  Mr.
Landow is not eligible to receive a profitability  incentive  payment for fiscal
year 1996 since the Company had a net operating  loss.  However,  Mr. Landow did
receive  incentive  compensation  payments  based on  revenue.  Mr.  Landow also
receives an automobile allowance of $600 per month and an automobile maintenance
allowance of $400 per month.  In August  1993,  the Company  granted Mr.  Landow
non-qualified  options to purchase 600,000 shares of common stock exercisable at
$2.0625 per share under the 1993 Plan. The 600,000  options were fully vested as
of September 30, 1996. In the event Mr. Landow is terminated without cause or if
he resigns  for "good  reason" as defined  in the  agreement  (which  includes a
material  diminution of his duties or  responsibilities),  the Company agreed to
pay Mr. Landow 36 consecutive  monthly  payments equal to his base and incentive
compensation.  He will also  continue to receive  medical,  life and  disability
insurance coverage during the 36 month term.

Mr. Christer Rosen,  Executive Vice President and Secretary,  currently receives
an annual salary of $200,560 per year pursuant to an oral  agreement.  Mr. Rosen
also  receives  an  automobile  allowance  of $600 per month  and an  automobile
maintenance allowance of $400 per month. Additionally, Mr. Rosen participates in
a profit  sharing  incentive  program  whereby  he is  eligible  to  receive  an
incentive  payment of half of his base  salary if the  Company's  net  operating
income,  as a  percentage  of net sales,  exceeds 8%.  According  to the formula
utilized  the  incentive  payment may be as high as twice the base salary if the
percentage  is 20% or greater.  Mr.  Rosen  received a  performance-based  bonus
payment of $25,000 in December 1996.

Mr. David Natan, Vice President and Chief Financial Officer,  receives an annual
salary of $125,000  pursuant to an  employment  agreement and a car allowance of
$600 per month and an automobile  maintenance  allowance of $400 per month.  Mr.
Natan  received a performance  bonus of $25,000 in December  1996. In 1995,  Mr.
Natan was  granted  10,000  options  exercisable  at $7.75  per share  under the
Company's 1993 Stock Option Plan.


Mr. Carlton S. Joyce entered into a four year  employment  agreement on July 17,
1993 and was appointed Chairman of UTG (the Company's subsidiary).  Mr. Joyce is
currently the Director of Technology for TSI. Under his employment agreement, as
amended,  Mr. Joyce receives a base salary of $200,000 per year  adjustable each
year  for  increases  in the cost of  living.  Mr.  Joyce's  current  salary  is
$218,154.  Mr. Joyce also receives an automobile allowance of $600 per month and
an automobile  maintenance allowance of $400 per month. Mr. Joyce is eligible to
receive  an  override  equivalent  to 3% of  pre-tax  income of TSI,  net of any
cumulative  losses and direct  corporate  overhead  expenses.  Due to the losses
incurred by TSI, no amounts have been paid, as an override, since the
inception of the agreement.

41
<PAGE>



                          TOP SOURCE TECHNOLOGIES, INC.
                       ANNUAL REPORT ON FORM 10-K/A No. 1

Mr. Richard J. Ragan entered into an employment agreement on October 1, 1996 and
was appointed CEO of TSI. Mr. Ragan  receives an annual salary of $200,000.  Mr.
Ragan  received  a grant  of  25,000  stock  options  which  vest  in six  month
increments over a three-year  period  beginning June 30, 1997. In addition,  Mr.
Ragan is eligible to receive  additional stock options and an incentive bonus if
certain targets and objectives are met as defined in his contract.


Mr. Dennis K. Littleworth entered into an employment agreement on April 12, 1996
and was appointed Vice President and General  Manager of TSA. In October 1996 he
was appointed  President of TSA. Mr.  Littleworth  currently  receives an annual
salary of $140,000. Mr. Littleworth received 70,000 stock options vesting in six
month increments over a three-year period beginning December 31, 1996. Also, Mr.
Littleworth  will be eligible to receive certain  program  incentives if certain
target and profit goals are met as defined in his contract.

 Additionally,  effective in October 1993,  the Company began  providing each of
Messrs. Landow and Rosen with a $950,000 term life insurance policy.


Retirement Salary Savings Plan

 In October 1993,  the Company  established a 401(k)  Retirement  Salary Savings
Plan (the "Plan").  All current employees,  including executive  officers,  were
eligible  to  participate  as of  October  1,  1993.  Any  individuals  employed
thereafter  must  complete  three  months  of  service  to meet the  eligibility
requirements.  Employees may voluntarily  contribute from 1% to 15% of their pay
each plan year although certain  requirements may limit the contribution  levels
of highly  compensated  employees.  During  fiscal 1996 the Company  contributed
matching  dollars equal to 25% of every dollar invested in the Plan on the first
6% of salary  savings.  The cost the  Company  incurred  for  matching  employee
contributions  and  administrative  costs during  fiscal 1996 was  approximately
$55,521.  The Plan provides that the Company's matching  contribution may change
from year to year and that the Company may declare  additional  matching dollars
at year-end.  Any forfeited  non-vested  amounts  contributed are used to reduce
required Company  matching  contributions.  All  participants  employed with the
Company who enrolled on or before October 1, 1993 were  immediately  100% vested
for all future  employer  matching  contributions.  All  employees  hired  after
October 1, 1993 vest ratably over a five-year term.



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         

Voting Securities and Principal Holders
         The  following  table sets forth the number of shares of the  Company's
common  stock  beneficially  owned as of December 31, 1996 by (i) owners of more
than 5% of the  Company's  common  stock,  (ii) by each  director  and (iii) all
directors and executive officers of the Company as a group.
<TABLE>
<S>                      <C>                                     <C>                      <C>
--------------------- ---------------------------------------- ----------------------- ------------------------
                       Name and Address of Beneficial Owner     Amount and Nature of
                                                                Beneficial Ownership         Percent of
Title of Class                                                                                   Class
--------------------- ---------------------------------------- ----------------------- ------------------------

Common Stock          STUART LANDOW(1)                                      1,081,300           3.7%
and Vested            450 Park Avenue, Suite 2100
Options               New York, New York  10022
--------------------- ---------------------------------------- ----------------------- ------------------------

Common Stock          CHRISTER ROSEN(2)                                       840,000           2.9%
and Vested            7108 Fairway Drive, Suite 200
Options               Palm Beach Gardens, FL  33418
--------------------- ---------------------------------------- ----------------------- ------------------------

Common Stock          DAVID NATAN(3)                                           60,225             *
and Vested            7108 Fairway Drive, Suite 200
Options               Palm Beach Gardens, FL  33418
--------------------- ---------------------------------------- ----------------------- ------------------------
Common Stock and                                                                                  *
Vested Options        CARLTON S. JOYCE(4)                                     218,500
                      3125 Presidential Parkway
                      Atlanta, GA  30340-3907
--------------------- ---------------------------------------- ----------------------- ------------------------

Common Stock          RONALD P. BURD(5),(6)                                   170,500             *
and Vested            251 Linden Lane
Options               Merion Station, PA  19066
--------------------- ---------------------------------------- ----------------------- ------------------------

Common Stock          CLINTON D. LAUER(7)                                      33,000             *
and Vested            4053 Hidden Woods Drive
Options               Bloomfield Hills, MI  48301
--------------------- ---------------------------------------- ----------------------- ------------------------

Common Stock          PAUL F. MOORE(8)                                         36,000             *
and Vested            325 N. Cliften Rd.
Options               Bloomfield Hills, MI  48301
--------------------- ---------------------------------------- ----------------------- ------------------------

Common Stock          MANI A. SADEGHI(9)                                       55,000             *
and Vested            35 Manor Drive
Options               Morris Township, NJ  07960
--------------------- ---------------------------------------- ----------------------- ------------------------

Common Stock          GANZ CAPITAL MGMT., INC.(10)                          2,917,554           10.2%
and Vested            2875 N.E. 191st Street
Options               Penthouse I
                      N. Miami Beach, FL  33130
-------------------------------------------------------------- ----------------------- ------------------------
All directors and existing officers of the Company as a
group (9 persons)(1)(2)(3)(4)(5)(6)(7)(8)(9)                                2,494,525           8.4%
*Less than 1% of class
-------------------------------------------------------------- ----------------------- ------------------------

</TABLE>

42
<PAGE>



                          TOP SOURCE TECHNOLOGIES, INC.
                       ANNUAL REPORT ON FORM 10-K/A No. 1




(1) Includes  600,000  options all of which are vested  options  exercisable  at
approximately $2.0625 per share held by Mr. Landow.

(2) Includes  500,000  options all of which are vested  options  exercisable  at
approximately $.53 per share.

(3)  Includes   46,875  vested   options  held  by  Mr.  Natan   exercisable  at
approximately $6.9375 per share and 10,000 vested options at approximately $7.75
per share,  2,350 shares held by Mr. Natan and 1,000 shares held by Mr.  Natan's
wife.

(4) Includes  100,000  vested  options held by Carlton S. Joyce  exercisable  at
approximately $1.50 per share.

(5) Includes 25,000 vested options exercisable  atapproximately $3.38 per share,
50,000 vested options  exercisable at  approximately  $1.78 per share and 20,000
vested options exercisable at approximately $6.25 held by Mr. Burd.

(6)  Includes  72,000  shares  held  jointly by Mr.  Burd and his wife and 3,500
shares  gifted by Mr.  Burd to the  Devereux  Foundation,  of which Mr.  Burd is
President and Chief Executive Officer.

(7) Includes 30,000 vested options  exercisable at approximately $8.75 per share
and 3,000 shares held by Mr. Lauer.

(8) Includes 30,000 vested options exercisable at approximately $3.125 per share
and 5,000 vested  options at  approximately  $7.125 per share.  and 1,000 shares
held  by  Mr.  Moore.  
(9) Includes 30,000 vested options exercisable at approximately $3.125 per share
and 5,000  vested  options at $7.125 per share  held by Mr.  Sadeghi  and 20,000
shares held by Mr. Sadeghi.

(10) Ganz Capital Management,  Inc. ("Ganz Capital") is a registered  investment
advisor.  Based on  information  provided  to the Company by Ganz  Capital,  the
Company  believes  that at December  31,  1996,  Ganz  Capital  held  beneficial
ownership of  2,917,554  shares of common  stock and 22,100  warrants.  Of these
warrants, 8,100 are exercisable at $4.00 per share and 14,000 are exercisable at
$1.00 per share. This represents beneficial ownership of 40.1% and 68.3% of each
class of warrants outstanding,  respectively. 
43
<PAGE>



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
               Not Applicable


44
<PAGE>



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

(a) (2) Financial Statement Schedules required to be filed.
          Schedule II - Valuation and Qualifying Accounts................. 46
          All other schedules have been omitted because the required
          information is shown in the consolidated financial statements
          or notes thereto or they are not applicable.





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

(a)      (3)  Exhibits  (continued)



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







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

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




45
<PAGE>





<TABLE>




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

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

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



</TABLE>


46
<PAGE>







                                                             SIGNATURE
                                    SIGNATURE

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/A  No.1 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  28, 1997





47