<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB


              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                       SECURITIES AND EXCHANGE ACT OF 1934
                    For the years ended May 31, 1998 and 1997

                          Commission File Number 0-8559

                                 P. H. C., INC.
             (Exact name of registrant as specified in its charter)

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


           Minnesota                                       41-0843021
-------------------------------                ---------------------------------
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

    301 City Avenue, Bala Cynwyd, PA                          19004
----------------------------------------                    ----------
(Address of principal executive offices)                    (Zip Code)



       Registrant's telephone number, including area code: (610) 667-8225

       Securities registered under Section 12(b) of the Exchange Act: None

       Securities registered under Section 12(g) of the Exchange Act: None


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12
months (or for 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 __ No__ [X]__

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

Revenues for the most recent fiscal year were $41,302.

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the average bid and asked prices of such stock as of May
31, 1994, the last date on which price information was available from the
National Quotation Bureau, Inc., was $130,588. Shares of Common Stock held by
each officer and director and by each person who owns 10% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily
conclusive and does not constitute an admission of affiliate status.

As of March 5, 1999, there were issued and outstanding 2,295,788 shares of the
registrant's Common Stock, par value $.10 per share.


<PAGE>

                                     PART I

ITEM 1- BUSINESS

         P.H.C., Inc. (the "Company") was incorporated in April 1961, under the
laws of the State of Minnesota. The original name of the Company was "Profile
Extrusions, Inc". The name was changed to P.H.C., Inc. in March 1968. In January
1985, the Company was the surviving entity in a merger with a 90% owned
subsidiary, Southern Diversified Industries, Inc., a Florida corporation, which
had been inactive since 1982.

         The Company currently has no full-time employees. Its Chairman,
President and Chief Executive Officer is Albert M. Zlotnick.

         At the present time, the Company has no business or operations. The
Company is currently seeking merger or acquisition partners so as to best
utilize the Company's cash and corporate structure.

ITEM 2 - PROPERTY

         The Company presently maintains its corporate and administrative
offices at 301 City Avenue, Bala Cynwyd, PA. The Company utilizes a portion of
the premises occupied by Davic Associates, an investment firm owned by Albert M.
Zlotnick. Due to the curtailed nature of the Company's operations, Davic
Associates has, until further notice, waived the payment of rent by the Company.
No rent was paid in the years ended May 31, 1998 and 1997

ITEM 3 - LEGAL PROCEEDINGS

         The Company is not party to any material legal proceedings.

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

         No matters were submitted to a vote of security holders by the Company
during the year ended May 31, 1998 and 1997.


                                     PART II

ITEM 5 - MARKET OF THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDERS
         MATTERS

         Due to the infrequent and limited number of shares of common stock
traded, the common stock has been unpriced during the last two fiscal years. The
last available market price data for the common stock was on May 31, 1994 as
follows: high bid: 1/8; low bid: 1/8, as reported by the National Quotation
Bureau, Inc. Such quotations represent prices in the over-the-counter market
between dealers in securities, and do not include retail mark-up, mark-down or
commission, and do not necessarily represent actual transactions, and cannot be
considered indicative of any reliable market value for the common stock.

         As of March 5, 1999, the Company's common stock, $.10 par value, was
held of record by approximately 700 record holders.

         Holders of the Company's common stock are entitled to receive dividends
as and when they may be declared by the Company's Board of Directors. The
Company did not pay a cash dividend on its common stock during its last two
fiscal years and by reason of its present financial condition and contemplated
financial requirements, the Company does not anticipate paying any cash
dividends upon such stock in the foreseeable future.


                                      - 2 -
<PAGE>


ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

General

         The Company presently conducts no business except for necessary
administrative matters and has ceased to be an operating company. As such, for
the years ended May 31, 1998 and 1997, the Company had no revenues from
operations. Given the virtual suspension of the Company's operations except for
necessary administrative matters, the Company's officers have waived further
compensation.

Results of Operations

         The Company had an increase in net income of $5,641 for the year ended
May 31, 1998 compared with the year ended May 31, 1997 predominately due to an
increase in interest income earned. The net decrease in general and
administrative expenses of $508 for the year ended May 31, 1998 as compared to
the year ended May 31, 1997 was primarily due to an increase in management fees
of $8,000 and a decrease in professional fee expenses, resulting in a net income
of $2,415 for the year ended May 31, 1998 compared with net loss of $3,226 for
the year ended May 31, 1997.

Liquidity and Capital Resources

         During the year ended May 31, 1998, the Company satisfied its working
capital needs from cash on hand at the beginning of the year and cash generated
from interest income. As of May 31, 1998, the Company had working capital of
$704,279. This working capital is expected to provide the Company with
sufficient capital while it seeks a merger, acquisition or other arrangement by
and between the Company and a viable operating entity, although there is no
assurance that this will occur.


Market Risk

         The Company's market risk includes the potential decrease in interest
earned on its cash and cash equivalents arising from a decline in interest
rates.

Forward-Looking Statements

         The Company desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 and is making this
cautionary statement in connection with such safe harbor legislation. This Form
10-KSB, and the Annual Report to Shareholders, Form 10- QSB or Form 8-K of the
Company, or any other written or oral statements made by or on behalf of the
Company may include forward-looking statements which reflect the Company's
current views with respect to future events and financial performance. The words
"believe," "expect," "anticipate," "intends," "estimate," "forecast," "project,"
"should" and similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Report Act
of 1995. All forecasts and projections in this Form 10-KSB are "forward-looking
statements," and are based on management's current expectations of the Company's
near-term results, based on current information available pertaining to the
Company, including the risk factors noted below.

         The Company wishes to caution investors that any forward looking
statements made by or on behalf of the Company are subject to uncertainties and
other factors that could cause actual results to differ materially from such
statements. These uncertainties and other risk factors include, but are not
limited to: changing economic and political conditions in the United States and
in other countries, changes in governmental spending and budgetary policies,
governmental laws and regulations surrounding various matters such as
environmental remediation, contract pricing and international trading
restrictions, customer product acceptance and continued access to capital
markets and foreign currency risks. The Company wishes to caution investors that
other factors may, in the future, prove to be important in affecting the
Company's results of operations. New factors emerge from time to time and it is
not possible for management to predict all such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor, or
a combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements.


                                      - 3 -

<PAGE>

         Investors are further cautioned not to place undue reliance on such
forward-looking statements as they speak only to the Company's views as of the
date the statements are made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.


ITEM 7 - FINANCIAL STATEMENTS

         The Financial Statements of P.H.C., Inc. for the years ended May 31,
1998 and 1997 are included as part of this report following the signature page
of this report:

         Cover page                                               F-1
         Independent Auditor's Report
           (Margolis & Company P.C.)                              F-3
         Balance sheet                                            F-4
         Statement of operations                                  F-5
         Statement of shareholders' equity                        F-6
         Statement of cash flows                                  F-7
         Notes to financial statements for the
           years ended May 31, 1998 and 1997                      F-8 & F-9


ITEM 8 - DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

         The Company has had no disagreements with its independent accountants
during the Company's most recent fiscal years.


                                    PART III

ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
         SECTION 16(a) OF THE EXCHANGE ACT

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

       Name              Age                  Position
       ----              ---                  --------
Albert M. Zlotnick       75      Chairman, President and Chief Executive Officer
Robert Zlotnick          38      Assistant Secretary

         Albert M. Zlotnick has served as the Company's Chairman and President
since 1967. Due to the curtailed nature of the Company's business activities,
Mr. Zlotnick does not devote full time to the affairs of the Company. Mr.
Zlotnick's primary occupation is as a private investor and financial consultant.
Mr. Zlotnick currently serves as the Chairman of the Board of Directors of the
following companies: Bala Cynwyd Corporation, Upward Technology Corporation,
Robin Industries, Inc., Electronic Data Controls Corp. and Convention Centers,
Inc. He also serves as a director of Comprehensive Holding Corporation, S.A. of
Geneva, Switzerland.

         Robert Zlotnick is a psychologist and is the son of Albert M. Zlotnick.
He has served as a director since April, 1993.

         The Company's By-Laws provide for the election of directors at the
annual meeting of shareholders, such directors to hold office until the next
annual meeting and until their successors are duly elected and qualified. The
By-Laws also provide that the annual meeting of shareholders be held each year
at such time, date and place as the Board of Directors shall determine by
resolution. Directors may be removed at any time for cause by the Board of
Directors and with or without cause by a majority of the votes cast by the
shareholders entitled to vote for the election of directors.

                                      - 4 -

<PAGE>

         Officers will normally be elected at the annual meeting of the Board of
Directors held immediately following the annual meeting of shareholders, to hold
office for the term for which elected and until their successors are duly
elected and qualified. Officers may be removed by the Board of Directors at any
time with or without cause.

ITEM 10 - EXECUTIVE COMPENSATION

         Due to the reduced level of the Company's operations, no salary has
been paid to any of the Company's executive officers during the years ended May
31, 1998 and 1997. During the years ended May 31, 1998 and 1997 the Company
accrued management fees of $38,000 and $30,000 to its president and principle
shareholder for his administrative services in maintaining the corporate books
and records and in investigating possible merger and acquisition candidates for
the Company.

         The Company does not presently have any option, bonus, retirement or
profit sharing plan.

         The Company has not paid and does not presently propose to pay any
director for acting in such capacity compensation, except for nominal sums for
attending Board of Directors meetings and reimbursement for reasonable expenses
in attending those meetings.

ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding beneficial
ownership of Common Stock as of March 5, 1999 by (i) each person or entity known
by the Company to own beneficially 5% or more of its outstanding Common Stock,
(ii) each director, and (iii) each executive officer, and (iv) all directors and
executive officers of the Company as a whole. Except as otherwise noted below,
the listed beneficial owner has sole voting and investment power with respect to
such shares and the address of the listed beneficial owner is that of the
Company.

Name and Address                        No. of Shares Owned     Percent of Class
----------------                        -------------------     ----------------

Albert M. Zlotnick                            1,251,081              54.5%
301 City Avenue
Bala Cynwyd, PA 19004

Clayson, Inc.                                   250,000              10.9%
c/o Barry D. Rose
50 Bartor Rd.
Weston, Ontario Canada M9M2G5

Osterloh & Durham Insurance                     150,000               6.5%
   Brokers of North America, Inc.
P.O. Box 8400
Van Nuys, California 91406

All directors and executive                   1,251,081              54.5%
   officers as a group

         Robert Zlotnick, a Director of the Company by reason of being the son
of Albert M. Zlotnick, could be deemed to be a beneficial owner of these shares
owned by Albert M. Zlotnick, although Robert Zlotnick has no legal or equitable
interest in such shares and disclaims beneficial ownership of such shares.

ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company utilizes a portion of the premises occupied by Davic
Associates, with which Mr. Zlotnick is a principal. Due to the curtailed nature
of the Company's operations Davic Associates has, until further notice, waived
the payment of rent by the Company.

                                      - 5 -

<PAGE>


ITEM 13 - EXHIBITS, REPORTS ON FORM 8-K AND FINANCIAL STATEMENTS

         (a) Exhibits:

         The following Exhibits are filed as part of this report. Where such
filing is made by incorporation by reference (I/B/R), reference is made to
Commission file number 0-8559 unless another statement or report is identified
in parentheses.


Exhibit No.                  Description
-----------                  -----------
    3A            Articles of Incorporation of Registrant                  I/B/R
    3B            By - Laws of Registrant                                  I/B/R

         (b) Reports on Form 8-K

         No reports on Form 8-K were filed by the Company during the fourth
quarter of the year ended May 31, 1998.

         (c) Financial Statements

         The financial statements and related notes of the Company begin on page
F-1 in the appendix. The report of the independent certified public accountants
on the Company's financial statements is on page F-3 in the appendix.







                                      - 6 -

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                        P.H.C., INC.

                                        By: /s/ Albert M. Zlotnick
                                            -----------------------------------
                                            ALBERT M. ZLOTNICK, Chairman
                                            and Chief Executive Officer
                                            Dated: January 15, 2001


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated:


       Signature                Title                                Date
       ---------                -----                                ----

/s/ Albert M. Zlotnick   Chairman and Chief Executive Officer   January 15, 2001
----------------------   (Principal Executive Officer and
ALBERT M. ZLOTNICK       Principal Accounting Officer)












                                      - 7 -

<PAGE>



                                    PHC, INC.


                              FINANCIAL STATEMENTS


                               FOR THE YEARS ENDED
                              MAY 31, 1998 AND 1997





















                                       F-1

<PAGE>

                                    PHC, INC.

                                TABLE OF CONTENTS
                    FOR THE YEARS ENDED MAY 31, 1998 AND 1997
--------------------------------------------------------------------------------







                                                                    Page
                                                                   Number
                                                                   ------


Independent Auditor's Report                                          2

Financial Statements:
   Balance sheet                                                      3
   Operations                                                         4
   Shareholders' equity                                               5
   Cash flows                                                         6
   Notes to financial statements                                    7 & 8















                                       F-2

<PAGE>


                          INDEPENDENT AUDITOR'S REPORT



To the Board of Directors
PHC, Inc.
Bala Cynwyd, PA

We have audited the accompanying balance sheet of PHC, Inc. as of May 31, 1998
and 1997, and the related statements of operations, shareholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PHC, Inc. as of May 31, 1998
and 1997, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.




                                        Certified Public Accountants


Bala Cynwyd, PA
March 5, 1999



                                       F-3

<PAGE>
                                    PHC, INC.

                                  BALANCE SHEET
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                       MAY 31,
                                                             --------------------------
                                                               1998              1997
                                                             --------          --------
<S>                                                          <C>               <C>
                             ASSETS

Cash and cash equivalents                                    $912,465          $871,917
Prepaid income taxes                                            -                    83
                                                             --------          --------

                                                             $912,465          $872,000
                                                             ========          ========



            LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Accrued expenses                                          $  6,473          $  8,572
   Due to shareholder                                          87,363            49,363
   Due to affiliate                                             7,654             5,505
   Distribution payable                                       106,696           106,696
                                                             --------          --------

           Total liabilities                                  208,186           170,136
                                                             --------          --------

Shareholders' equity:
   Common stock, $.10 par value; 5,000,000 shares
     authorized, 2,295,788 shares issued and outstanding      229,578           229,578
   Additional paid-in capital                                 520,472           520,472
   Accumulated deficit                                        (45,771)          (48,186)
                                                             --------          --------

           Net shareholders' equity                           704,279           701,864
                                                             --------          --------

                                                             $912,465          $872,000
                                                             ========          ========
</TABLE>



The notes to financial statements are an integral part of the above statement.

                                       F-4

<PAGE>


                                    PHC, INC.

                             STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------


                                                              YEAR ENDED
                                                                MAY 31,
                                                         1998            1997
                                                       -------          -------


Revenue, interest income                               $41,302          $36,169

General and administrative expenses                     38,887           39,395
                                                       -------          -------

Net income (loss)                                      $ 2,415          ($3,226)
                                                       =======          =======

Net income (loss) per share, basic and diluted         $     -          $     -
                                                       =======          =======













 The notes to financial statements are an integral part of the above statement.

                                       F-5

<PAGE>

                                    PHC, INC.

                        STATEMENT OF SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------

                                                      ADDITIONAL
                                         COMMON        PAID-IN       ACCUMULATED
                                         STOCK         CAPITAL         DEFICIT
                                        --------      ----------     -----------


Balance, May 31, 1996                   $229,578       $520,472       ($44,960)


Net (loss) for year ended
   May 31, 1997                                                         (3,226)
                                        --------       --------       --------


Balance, May 31, 1997                    229,578        520,472        (48,186)


Net income for year ended
   May 31, 1998                                                          2,415
                                        --------       --------       --------


Balance, May 31, 1998                   $229,578       $520,472       ($45,771)
                                        ========       ========       ========
















The notes to financial statements are an integral part of the above statement.

                                       F-6

<PAGE>

                                    PHC, INC.

                             STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                       YEAR ENDED
                                                                         MAY 31,
                                                                  1998           1997
                                                                --------       --------
<S>                                                            <C>             <C>
                       INCREASE (DECREASE) IN CASH

Cash flows from operating activities:
   Net income (loss)                                            $  2,415       $ (3,226)
   Adjustments to reconcile net income (loss) to net cash
       provided by (used in) operating activities:
     Decrease in prepaid income taxes                                 83          -
     Increase (decrease) in accrued expenses                      (2,099)         1,573
                                                                --------       --------

           Net cash provided by (used in)
             operating activities                                    399         (1,653)
                                                               ---------      ---------

Cash flows from financing activities:
   Advances from shareholder                                      38,000         35,368
   Due to affiliate                                                2,149           -
                                                                --------       --------

           Net cash provided by financing activities              40,149         35,368
                                                                --------       --------


Net increase in cash and cash equivalents                         40,548         33,715


Cash and cash equivalents, beginning of year                     871,917        838,202
                                                                --------       --------


Cash and cash equivalents, end of year                          $912,465       $871,917
                                                                ========       ========
</TABLE>








The notes to financial statements are an integral part of the above statement.

                                       F-7

<PAGE>

                                    PHC, INC.

                          NOTES TO FINANCIAL STATEMENTS
                    FOR THE YEARS ENDED MAY 31, 1998 AND 1997
--------------------------------------------------------------------------------


1.       Nature of Business and Summary of Significant Accounting Policies

         Nature of business - The Company presently conducts no business, but is
         searching for appropriate investment and acquisition opportunities. Its
         only income consists of interest from investment income.

         Earnings per share - The Company adopted Statement of Financial
         Accounting Standards No. 128, "Earnings per Share," which establishes
         standards for computing basic and diluted earnings per share. Per share
         data is computed using the weighted average number of common shares
         outstanding. The weighted average number of common shares was 2,295,788
         for each year.

         Cash equivalents - For purposes of the statement of cash flows, the
         Company considers all highly liquid debt instruments purchased with
         maturities of three months or less to be cash equivalents.

         Short-term investments potentially subject the Company to
         concentrations of credit risk. To limit this risk, the Company places
         its short-term cash investments with high credit quality financial
         institutions.

         The carrying value of the financial instruments, including cash and
         cash equivalents, approximates fair value as of May 31, 1998 and 1997,
         because of the short maturity of these financial instruments.

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

         Recent accounting pronouncements - In June, 1997 and February, 1998,
         respectively, the FASB issued SFAS No. 130, "Reporting Comprehensive
         Income," and SFAS No. 132, "Employers' Disclosures about Pensions and
         Other Postretirement Benefits," both of which are effective for fiscal
         years beginning after December 15, 1997. In June, 1998, the FASB also
         issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
         Activities," effective for fiscal years beginning after December 15,
         1998. The adoption of these pronouncements will have no impact on the
         Company's results of operations, financial position, or cash flows.

         Income taxes - The Company follows the provisions of Statement of
         Financial Accounting Standards No. 109, "Accounting for Income Taxes"
         ("SFAS 109"), which requires the recognition of deferred tax
         liabilities and assets for the expected future tax consequences of
         events that have been included in the financial statements or tax
         returns. Under this method, deferred tax liabilities and assets are
         determined based on the differences between the financial statement and
         tax bases of assets and liabilities using tax rates in effect for the
         year in which the differences are expected to reverse.


                                       F-8
<PAGE>

                                    PHC, INC.

                          NOTES TO FINANCIAL STATEMENTS
                    FOR THE YEARS ENDED MAY 31, 1998 AND 1997
--------------------------------------------------------------------------------

2.       Due to Shareholder

         Due to shareholder is non-interest bearing with no formal repayment
         terms.


3.       Due to Affiliate

         There are no formal repayment terms and the advance is non-interest
         bearing.


4.       Management Fees

         The Company has agreed to compensate its president and principal
         shareholder for his services in maintaining the corporate books and
         records and in investigating possible merger and acquisition candidates
         for the Company, and to reimburse him for expenses incurred. Management
         fees of $38,000 and $30,000 were included in general and administrative
         expenses for the years ended May 31, 1998 and 1997, respectively.


5.       Distribution on Common Stock

         The Board of Directors declared a partial liquidating distribution of
         $1 per common share to all stockholders of record as of July 27, 1990.

         The distribution, which aggregated $2,295,788, was accounted for as
         follows:

         Distribution of retained earnings                            $  713,302
         Return of investment (charged to additional paid-in
           capital)                                                    1,582,486
                                                                      ----------
                                                                      $2,295,788
                                                                      ==========
         As of May 31, 1998 and 1997, $106,696 of distribution had not been
         claimed by certain stockholders.


6.       Income Taxes

         The Company is classified as a personal holding company for federal
         income tax purposes for each of the years presented. The Company is
         subject to a federal tax equal to 39.6% of its undistributed earnings,
         in addition to any other income taxes payable.

         At May 31, 1998, the Company had net operating loss carryforwards of
         approximately $30,000 which will expire in years 2008 through 2010 for
         federal income tax purposes. For personal holding company tax purposes,
         only the preceding year's net operating loss is allowed to reduce
         undistributed personal holding company income.

         A valuation allowance is provided to reduce deferred tax assets to a
         level which, more likely than not, will be realized. The valuation
         allowance provided effectively eliminated the deferred tax asset
         resulting from net operating loss carryforwards.


                                       F-9