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

                                       FORM 10-KSB

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES  EXCHANGE ACT
OF 1934 [Fee Required] For the fiscal year ended December 31, 1996.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES  EXCHANGE
ACT OF 1934 [No Fee Required] For the transition  period from  ______________ to
_____________.

                              Commission file Number 0-25384

                                LAFAYETTE INDUSTRIES, INC.
                  (Exact name of registrant as specified in its charter)


                   Delaware                                      11-3190678
(State or other jurisdiction of incorporation or o(I.R.S.tEmployer
                     Identification Number)

          160 Broadway, New York, NY                               10038
   (Address of principal executive offices)                      (Zip Code)


            Registrant's telephone number, including area code: (212) 233-4500

             Securities registered pursuant to Section 12(b) of the Act: None

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


             Title of Each Class        Outstanding shares as of March 31, 1997
             -------------------      ---------------------------------------

    Common Stock, par value 0.01 per share                       13,440,000


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 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 X No ___

Indicate by a 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. [ ]

For fiscal year ended December 31, 1996, the Company had revenues of $6,073,000.

As of March 31, 1997,  the  aggregate  market value of the  Registrant's  Common
Stock held by non-affiliates of the Registrant was $12,926,158.

DOCUMENTS INCORPORATED BY REFERENCE

Items 10 and 11 are incorporated by reference to registrant's proxy statement to
be filed with the  Commission  within 120 days from the end of the  registrant's
fiscal year.





<PAGE>



Item 1. Business

Introduction

Since December 20, 1996, the principal business of Lafayette  Industries,  Inc.,
(the "Company" or "Lafayette") has consisted of four primary business  segments:
(1) Electro-Mechanical and Electro-Optical Products Manufacturing which consists
of subsidiaries  that manufacture and sell products such as devices that measure
distance and velocity,  instrumentation devices and debit card vending machines;
(2)  Audio  Products   Manufacturing   which  consists  of  a  subsidiary   that
manufactures  and  sells  a  professional  line  of  loudspeakers;  (3)  Prepaid
Telephone  Calling Cards,  which consists of a subsidiary  that sells  telephone
debit cards;  and (4)  Fingerprint  Identification  Products which consists of a
subsidiary that is developing a fingerprint  identification  system.  During the
years ended December 31, 1996, 1995 and 1994, the Company's  segments revenue as
a percentage of total was as follows:


                                                 1996         1995         1994
                                                   ----       ----          ---
Audio Products Manufacturing                      53%          14%           --
Electro-Mechanical and Electro-Optical Products
 Manufacturing                                    39           86%          100%
Prepaid Telephone Calling Cards                   8%           --           --
Fingerprint Identification Product                 --           --           --

Additional  financial  information  regarding the Company's business segments is
presented in the Company's financial  statements  including revenues,  operating
income or loss and  identifiable  assets  attributable  to each of the Company's
business  segments.  Lafayette's  revenue and net loss reflect the  consolidated
revenue and results of operations of its subsidiaries.

All of Lafayette's  operating  subsidiaries  are indirectly  owned or controlled
through SES Holdings,  Corp., ("SESH"), which is a Delaware corporation that was
organized in July 1992 and is a wholly owned subsidiary of Lafayette.  Set forth
below is a description of the Company's business segments.

AUDIO PRODUCTS MANUFACTURING

The  audio  products  manufacturing  segment  reflects  the  operations  of  WWR
Technology,  Inc., ("WWR"),  which is a wholly owned subsidiary of SESH. WWR was
incorporated  in 1992 for the purpose of  acquiring  the  professional  products
business   segment  of  the  Klipsch(tm)   loudspeaker  line  from  Klipsch  and
Associates,  Inc.  ("KA").  WWR acquired the inventory,  tooling,  equipment and
certain  licenses from KA as part of such  purchase.  The  predecessor to KA was
founded in the mid 1940's by Paul W.  Klipsch  and has  established  itself as a
leader in loudspeaker design and innovation.  KA's primary market  traditionally
has been the home  high  fidelity  loudspeaker  business.  Concurrently,  it has
developed a reputation as a manufacturer of rugged,  well designed  loudspeakers
for the professional,  commercial and theater sound markets.  The acquisition of
the   Klipsch(tm)   Professional   product  line  gives  WWR  one  of  the  most
long-established  and, WWR believes,  recognizable  brand names in the industry.
After WWR's  acquisition of the Klipsch(tm)  professional  loudspeaker line from
KA, KA continued to manufacture  products and provide other related  services to
WWR pursuant to a  manufacturing  agreement  between WWR and KA. In August 1994,
WWR entered  into a lease for a  manufacturing  facility in Hope,  Arkansas  and
between  August and  October  1994 moved all of its  manufacturing  and  related
services into the newly leased  facility.  In connection  with the completion of
this move, the manufacturing agreement with KA was terminated.

The nature of WWR's  business  is to market and sell  loudspeakers  and  related
products to the  professional  audio market.  The  professional  audio market is
defined as any application for  loudspeakers  other than those used for home and
automotive  entertainment  purposes.  Generally,  this  is a  definition  of the
difference between "home  entertainment" and commercial sound  reproduction.  As
part of the future  development of commercial sound  reproduction,  WWR believes
that the  application of digitally  controlled and processed  signals to control
and  enhance  the  performance  of  professional   loudspeakers  will  become  a
significant  factor  in the  marketplace.  WWR  believes  it has  access  to the
resources  needed,  on an as-needed  contractual  basis with original  equipment
manufacturers,  to successfully  develop these products although there can be no
assurance that it will be able to do so.

Markets and Marketing

Products are sold through a network of domestic  and  international  independent
manufacturers'  representatives,  who are  compensated on a commission  basis to
retailers,  distributors,  sound contractors  installers and occasionally to end
users. WWR assumed the  responsibility  for  international  sales from KA in the
spring of 1993,  and such sales  currently  constitute a significant  portion of
WWR's total sales.  During 1996, 1995 and 1994  international  sales constituted
approximately 20%, 20% and 23% of total sales, respectively. International sales
are made to appointed  distributors in individual countries and the distributors
resell and service the products within their respective countries.




                                            1

<PAGE>



The  Markets  for the  products  include,  but are not  limited  to:  contractor
installation  of  sound  systems,  paging  systems,   musical  instrument  sound
re-enforcement,  public  address,  concert sound,  fixed  installation,  touring
sound,  theater and sound  re-enforcement.  End users of the  products  include:
churches,  synagogues,  stadiums,  concert halls, restaurants,  schools, musical
performers,  movie theaters and all other  applications where information and/or
entertainment is presented to the public in a commercial venue.

The  contractor  installation  market is comprised  of  customers of WWR.  These
customers bid on installation of audio systems based on specifications  provided
by acoustical  consultants in the process of designing or renovating  commercial
properties, restaurants, nightclubs, churches, concert halls, stadiums and other
similar buildings.  The requirements for each project vary according to the need
and purpose of the facility and the sound systems and the types of  loudspeakers
range from small  speakers for simple paging  systems to very large speakers for
concert halls, theaters or stadiums.  WWR sees this market as having significant
growth  potential  for its products and has  developed  and continues to develop
products targeted to the various needs of this market.

The musical  instrument  market includes retail sale of products to professional
and amateur  musicians.  Loudspeakers in this market have two general  purposes:
(1)  the  reproduction  of  amplified  or  electronic  instruments,  and (2) the
re-enforcement  of voice and acoustic  instruments.  A portion of WWR's  product
line is targeted  specifically  to this  product  and the product  line for this
market has been  expanded by WWR with new  loudspeakers  introduced  in 1994 and
plans to continue to introduce additional new products in 1995.

The motion  picture  theater  market has  improved  over the past few years as a
result of the increase in the number of motion pictures  including  digital film
sound  tracks.  Digital  based  sound  reproduction  systems  were  subsequently
introduced  in motion  picture  theaters  and while  there has been  little  new
construction  of movie  theaters,  the  current  trend is to  upgrade  the sound
reproduction  systems in current  theaters.  WWR is upgrading its motion picture
product  line to meet the needs of this  market.  The concert and touring  sound
market  is  comprised  of  two  segments:  (1)  the  tours  of  the  "big"  name
entertainers handled by major international touring sound companies, and (2) the
smaller  regional or national sound  companies  that provide  services to lesser
known  performers  and events.  While there are  significant  sales in the major
international touring sound companies market as a whole, the loudspeaker portion
is dominated by the proprietary enclosure (cabinet) designs of the large touring
sound  companies  using  the raw frame  components  made by  original  equipment
manufacturers,  including WWR. WWR has a number of raw frame  component  drivers
that have significant  potential in this market.  Success in this portion of the
market must be viewed as a marketing  tool; by having its products  selected for
use on major tours, WWR has the opportunity to be associated with the success of
the tour and/or the artist.  The smaller regional touring companies  represent a
greater  opportunity for WWR as these customers are not as likely to be building
their own enclosures and, therefore, purchase whole speaker systems.

New Products

WWR is engaged in market  research to determine  the  specific  needs of the end
user so as to develop new market oriented  products.  Two new trapezoidal shaped
loudspeakers  have been introduced for use in various  commercial  applications.
Currently  under  development  are the  following:  a new  line of  loudspeakers
designed for the musical  instrument  market, two new medium format (size) horns
for use in fixed  installations  and updating of the motion picture product line
utilizing newly developed  components.  A line of loudspeakers  designed for the
musical  instrument  market were put into  production  and became  available for
purchase in October 1994 and it is expected that the new construction techniques
and materials for this line of  loudspeakers  will enable WWR to achieve  higher
gross profit margins.

Competition

The industry is comprised  of a large  number of  competing  manufacturers,  the
majority of which are of little  overall  impact in the market.  Generally,  the
smaller  firms  specialize  in  selected  portions  of the  market as opposed to
offering a wide array of products.  However,  there are two dominant competitors
in  the  overall  professional   loudspeaker  industry  -  Harmon  International
Industries, Inc. (Harmon) which owns a number of product lines including JBL and
Mark IV industries,  Inc. which owns Electro Voice (EV),  Altec Lansing  (Altec)
and  University  Sound  (University).  Other  competitors  include,  but are not
limited to, Bose Corporation,  Peavey  Electronics,  Inc.,  Apogee Sound,  Inc.,
Meyer Sound  Laboratories,  Inc. and Eastern  Acoustic Works,  Inc. WWR provides
high quality  products for all segments of the market but, due to the relatively
smaller  size of the product line offered by WWR, it is not able to compete with
JBL and EV on a model by model  basis.  It is the plan of WWR to continue  niche
marketing,  while expanding is product  offerings as business  conditions allow.
WWR's  general  pricing  policy and  distribution  is to offer its high  quality
products at  competitive  prices and to limit the  distribution  of  Klipsch(tm)
Professional products to a selected group of retail and contractor customers. By
doing  so,  WWR is able  to  position  Klipsch(tm)  Professional  as a  "limited
distribution"  product line offering the contractor and retailer the opportunity
to  differentiate  themselves in the range of products they offer and to further
enhance  their  profit  margins  by  offering  products  that are not as  easily
"shopped for price".




                                            2

<PAGE>



Licenses

As part of the purchase of  substantially  all of the assets of the  Klipsch(tm)
Professional   loudspeaker  business  from  KA,  WWR  received  a  non-exclusive
trademark  license for the use of KA's  trademark  "Klipsch(tm)"  in conjunction
with various professional  loudspeaker  products ("Licensed  Products") provided
that the  trademark  is used only in  combination  with the terms  "Professional
Loudspeakers,"  "Professional  Products," "Pro Loudspeakers," Pro Products" or a
similar  designation  pre-approved  by KA. WWR also has agreed to indicate  that
"Klipsch(tm)"  is a registered  trademark of KA. The licenses are world-wide and
royalty free, and KA has agreed not to grant licenses  and/or  otherwise  permit
others to use in the  professional  market the  trademarks  and  certain  design
patents licensed to WWR. However, the licenses are terminable if WWR defaults in
certain of their respective  obligations to KA, becomes bankrupt or insolvent or
reorganizes  or  ceases  to use  the  "Klipsch(tm)"  trademark  for  18 or  more
consecutive  months. The loss of these licenses would effectively  eliminate the
ability of WWR to continue  to sell under the  Klipsch(tm)  Professional  brand,
however it would not prohibit WWR from seeking  other  professional  loudspeaker
products to distribute  through its  distribution  network.  WWR believes  that,
while WWR's  relationship  with KA is good, there can be no assurance that there
will be no future developments which will cause a termination of the licenses.

Employees

As of  December  31,  1996  WWR had 42  employees  None of WWR's  employees  are
represented  by a  labor  organization,  and  WWR  believes  that  its  employee
relations are good.

ELECTRO-MECHANICAL AND ELECTRO-OPTICAL PRODUCTS MANUFACTURING

The  electro-mechanical  and  electro-optical   products  manufacturing  segment
reflects the operations of Sequential  Electronic Systems,  Inc.,  ("SES"),  and
S-Tech, Inc., ("S-Tech"), which are wholly owned subsidiaries SESH.

Sequential Electronic Systems, Inc.

SES  is a  Delaware  corporation  organized  in  1985.  The  principal  products
manufactured by SES are optical encoders, encoded motors and limit programmers.

Products Manufactured

Optical  encoders,  like those that are  produced by SES, are utilized in almost
every  manufacturing  process  where  position  is  required  as a  part  of the
manufacturing  process.  Encoders are used as position  sensors on CNC machines,
packaging machinery, etc., in industries such as food packaging,  manufacture of
paper products,  and as measurement devices on medical equipment.  Additionally,
SES  furnishes  encoders  to the  military  for such  applications  as  position
transducers  for the  Multi-Launch  Rocket  System and for the  Patriot  Missile
Defense System. Both of these systems were extensively used in the Gulf War. SES
encoders are also used in the latest state-of-the-art NEXRAD weather system. SES
high  resolution  encoders  provide  azimuth and elevation  data on the National
Aeronautics  and Space  Administration's  telemetry  tracking  antennas  located
around the world.

Encoded  motors  are  used as  capstan  drives  in  weather  map  recorders  and
state-of-the-art instrumentation tape recorders. These recorders are used by the
government in antisubmarine warfare detection systems and in seismic measurement
recording systems.

Limit programmers are primarily  designed in industry to control the sequence of
events  required during the  manufacturing  process.  SES limit  programmers are
found in machinery to manufacture tires,  toilet tissue,  disposable diapers, as
well as machinery used to package bread, cake,  coffee,  soap and other consumer
purchased  products.  SES limit  programmers  provide  direct  digital  position
output,  allowing for the direct  transfer of digital  position  information  to
microcomputer based control systems.




                                            3

<PAGE>



Markets, Marketing and Competition

Revenue for SES has decreased from the prior  periods,  amounting to $1,363,000,
$2,556,000 and $3,035,000 for 1996,  1995 and 1994  respectively.  Revenues from
two U.S.  government  agencies  amounted to $893,000  and  $563,000 for 1995 and
1994,  respectively,  which  comprised  20% and  15% ,  respectively,  of  total
revenues  for 1995 and 1994.  No  revenues  were  earned  from these  government
agencies  in 1996.  SES  believes  that the high  resolution  encoder  market is
becoming a  significant  market to the U.S.  government  again after a no-budget
year for 1996.  Primary  areas of sales  for high  resolution  encoders  are the
missile test ranges  under the heading of Missile  Range  Instrumentation.  U.S.
government  facilities  that are  anticipated  to be covered are Air Force bases
that are tied into respective  weapons test centers.  In order to take advantage
of fiscal 1997 U.S. government budgets and new programs, an effort is being made
to determine  the level of upcoming new  procurements  and upgrading of existing
range instrumentation.  Photo-Sonics,  a Burbank,  California company is a major
supplier of missile range  instrumentation  devices to the U.S. government and a
significant portion of Photo Sonics devices use encoders manufactured by SES. In
order for SES to  reestablish  itself as a leader in the military type hardware,
it will  require  visits and  presentations  to  weapons  test  centers  and the
utilization of the Photo-Sonics sales force.

Related to  non-military  applications,  SES  presently  completed  an order for
prototype  units for ABB Daimen Benz for encoders.  These units are currently in
evaluation for use as part of the speed control system for rail cars.

The future growth of SES will require a restructuring  of existing product lines
as the current product lines may not be sufficient to sustain the growth of SES.
The future spending of the U.S. government on military related projects has been
and will continue to be volatile due to unpredictability of amounts budgeted for
military spending.  As such, no assurances can be given that SES will be able to
produce sales volumes that will sustain its planned growth.

Government Regulation

As a manufacturer of products that are used in devices  purchased by the Defense
Department  or  its  contractors,  SES  is  subject  to  the  provisions  of the
procurements regulations of the Defense Department.  These regulations generally
provide  the  government  with  the  right to  terminate  the  contract  for the
convenience  of the  Defense  Department,  and,  in  certain  cases may  include
provisions for  renegotiation.  The  Department of Defense also has  regulations
pursuant  to  which  the  Defense  Department  may  inspect  a  contractor's  or
sub-contractor's   manufacturing  facilities.  Such  inspectors  frequent  SES's
facilities on a regular basis.

Employees

As of December 31,  1996,  SES had 21  employees.  None of SES's  employees  are
represented  by a  labor  organization,  and  SES  believes  that  its  employee
relations are good.

S-Tech, Inc.

S-Tech is a Delaware  corporation  that was organized in June 1992.  S-Tech is a
design and  manufacturing  facility  which has  several  unique and  specialized
product lines which consist of specialized vending machines,  avionics equipment
and industrial lighting.

Markets, Marketing and Competition

Specialized  vending  is used to  describe  a  vending  product  which  includes
sophisticated  electronic  circuitry  and  or  computer  software.  The  vending
products  presently being  manufactured under contract include prepaid telephone
debit card machines,  automated  payment centers,  information  kiosks and stamp
machines.  S-Tech  has  entered  into  contracts  with such major  companies  as
ConEdison, NYNEK and Kinkos. Previously, S-Tech manufactured in excess of 11,000
stamp   machines  for  the  United  States  Postal   Service  and  designed  and
manufactured the token vending machines for the New York City Transit Authority.

The avionics  equipment  manufactured  by S-Tech  consists  primarily of various
cockpit  instruments  and oil  pressure  transmitters.  The  majority  of  these
products  require a qualified  product list  designation  ("QPL").  The QPL list
consists of qualified products, with a limited number of approved sources, which
are purchased by the Department of Defense,  contractors and subcontractors.  In
many instances this QPL designation places the company in a highly  advantageous
competitive  position as it pertains to  government  contracts  by limiting  the
number of qualified bidders.  In addition,  S-Tech responds to  "build-to-print"
solicitations  which are subject to  competitive  bidding.  These  products  are
manufactured  in  accordance  with  drawings and data  packages  provided by the
Department of Defense or other procuring agencies.

S-Tech's revenues for 1996 and 1995 was $1,015,000 and $2,556,000, respectively.




                                            4

<PAGE>



Telephone Debit Card Vending

The  specialized  vending  product  line  offers  the  maximum  opportunity  for
long-term  growth  and  profitability.  The  specific  products  that  S-Tech is
currently  targeting  are the prepaid  telephone  calling card  machines and the
automated  bill payment  centers.  The prepaid  telephone  calling card machines
require  that  S-Tech  be able to  provide  its  customers  with a card  that is
dispensed from the machine. In response to a recent industry demand,  S-Tech has
designed a prepaid  telephone calling card machine for the purpose of dispensing
calling  cards.  Pre-paid  calling cards are already used  worldwide as the most
convenient and affordable  means of making  long-distance  telephone  calls made
away from home. The telephone debit card vending  machines are used in a variety
of locations such as bus stations, airports, cruise lines, rental car locations,
hotel lobbies, gift shops, nursing homes, train stations and gas stations.

Automated Payment Centers

S-Tech's  experience  in the USPS  programs  and in specialty  vending  products
permitted  the company to expand their  product base into a number of new areas.
The most  important of these is the  Automated  Bill Payment  Center.  S-Tech is
presently under contract to design,  develop and manufacture a customer operated
Bill Payment Center for a major utility  company and is being  considered by two
(2) other public  service  companies for a similar  unit.  The unit is simple in
operation,  aids  the user  with  visual  prompts,  accepts  currency,  prints a
transaction report, and provides change to the customer. Customer interface with
the system begins with a touch screen  selection  button,  Start  Transaction or
English/Spanish  selection.  The  system  responds  with the first  help  screen
showing an animated  version of the bill form. The screen will then show how the
bill is to be  inserted  into  the bar  code  scanner  on the  payment  machine.
Software identifies when the bill form is in place, and will automatically begin
the scan.  Three attempts will be programmed,  after which, the system will flag
the second help  screen.  The second help screen will show in animated  form the
proper  method for reading  and  manually  punching in the account  number as it
appears on the bill form. The animation  shows where the account number appears,
the number of characters, and how to use the touch screen keypad.

Once the account  number has been  entered the system uses the  existing  public
service  company's  software to interface  with their  main-frame  system.  This
interface retrieves the customer name, address,  and all other pertinent billing
facts such as usage,  current  balance  due,  and account  status (ie.  the same
information  that is available to the current clerk operated  system).  When the
system  asks for a  confirmation,  the touch  screen will again be enabled for a
response.  Upon a positive  response the system provides a help screen to aid in
the  selection of the account  payment.  An animated  screen will  demonstrate a
complete or partial payment, enable the currency validator and display how bills
are to be inserted.  The system will also  instruct the customer to insert large
bills first so that an undesired change situation will be avoided.  Once payment
is received and validated,  the account is credited and the account  transaction
is forwarded to the main frame where it is registered. Change is always given in
the largest denomination available. The payment centers use intelligent routines
which will  prevent the input of currency in an  undesirable  manner and in turn
prevent  situations  where  a  larger  than  normal  amount  of  change  must be
dispensed.  The program  will be used to dispense  change in the most  efficient
manner  to assure  that the  system  will  remain  in  operation  for as long as
possible.  For the average $6.50 of change  dispensed,  the unit will be able to
service several hundred clients in terms of change in $5 and $1 bills, quarters,
nickels and pennies.

The final step in the  transaction  sequence  is the  printing  of a receipt and
recording  of the  transaction.  The machine  will  automatically  switch to the
display mode in English until a customer initiates the transactions or bilingual
mode. A telephone  line is provided on the payment center to permit the customer
to speak with a representative of the public service company if clarification is
required or verification is needed such as  "reinstalling a disconnect  notice".
The system  automatically  requests  service  when any of the utility  functions
approach a level which can cause an "out of service"  condition  within  several
transactions.  If service is not  accomplished a threshold is  established  upon
which the system  disables.  Items such as a low  currency  dispenser,  low coin
hopper,  printer  paper  low,  floppy  disc  near  full  condition,  or the bill
validator is full will  generate an alert  signal to be sent to the  appropriate
monitor.  Special software monitors bill volume so that a stacker full signal is
avoided  (which will remove the unit from  operation).  This  condition  must be
avoided because it could occur in the middle of a transaction where it will lead
to an unacceptable level of customer stress and inconvenience.

The   following options can also be provided: Single frame video of customer(s).
      Audio  (interactive)  or message upon initial  customer contact with touch
      screen. Special signage.
      Credit/Debit card payments.
      Permit payment for other public service companies
      Bilingual graphics.
      Vending of standard Prepaid Telephone Calling Cards
      Alarm system (security)




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<PAGE>



The most  significant  of these  options is the ability to support  other public
service companies by providing an interactive  communications  network that will
permit  interfacing with different  devices,  external  networks and proprietary
hosts on the same network as well as easily add on new devices with a minimum of
change and in a relative  short  period of time.  This  system  will  permit the
Payment Center to facilitate  collections  for other public  service  companies,
payment by credit card and payment by bank debit card thus expanding the centers
capability  and sharing of the systems cost.  This proposed  system would ensure
that an internationally  standards-oriented  baseline technology architecture is
implemented to facilitate connection to a much broader variety of host-based and
network-based  technologies  and  expand the  potential  products  and  services
offered by the system  within the context of its current  strategies  as well as
beyond.

S-Tech  believes  this  system  represents  the  best  possible  combination  of
architecture, technology, support and experience available. The proposed network
system  enables  access to all types of shared  cash  dispensing  networks.  The
system  will  control and manage all aspects of bill  payment  authorization  on
behalf of the host system, with features such as:

      Authorization Processing
      Network Interface
      Host System Interface
      Message Management
      Security Processing
      Failure Monitoring
      Reporting/MIS
      Bill Payment Device Handling

The market  potential is significant  since over 30% of the customer base do not
have checking  accounts or credit cards.  Most public service  companies  prefer
their  customers to pay by mail.  However,  a  considerable  number of customers
continue  to use the  service  company's  payment  centers  which  operate  like
mini-banks or use various retail stores such as pharmacies, card shops and check
cashing  facilities  for the payment of bills.  These  methods  cost the service
company a commission or fee. The service company's payment centers are generally
busy during lunch hour,  on Fridays (pay day), at the end of the month or before
and after normal  working hours  resulting in a large waiting lines to pay their
bills thus  adding to their  frustration.  The  Customer  Operated  Bill  Paying
Machine  provides a means for the  customer  to pay,  either in full or in part,
their  bill,  reconcile  accounts,  and to do so with 24 hour  availability  and
independent of any clerical assistance unless required by the customer.

Information Kiosks

The  automated  payment  center  paves the way into  another  market.  The kiosk
provides access to forms for municipalities and the federal government, Internet
accessibility,  "how to get-to" information centers, postal information centers,
court house  directories,  and for college  registration  and student  services.
Expanding  capabilities  in this  field  leads to other  similar  kiosk  related
products.  S-Tech  negotiated  for a contract to design and develop the hardware
for a Municipality  Forms Kiosk that will permit  individuals to obtain computer
generated  forms used by the various  agencies of a municipality  at one central
location. At present, 21 units are on order with the potential sales of over 100
units.  These new  products  have broad  base  applications  for public  service
companies,  municipalities governments and postal services for both domestic and
on an  international  basis.  S-Tech is  presently  negotiating  to  design  and
fabricate a cash payment machine that can be utilized as a customer  interactive
customer selection and payment machine in fast food locations. This concept will
also be applicable to customer  interactive machines for checkout and payment in
supermarkets.  Special  signage and kiosk  designs are also  included to provide
other revenue  sources and unique vending  designs will be incorporated in these
designs for money handling and MIS data transmission.

Stamp Vending Products

S-Tech manufactures automatic postage stamp booklet vending machines,  automatic
postage stamp vending  machines and currency to coin change  machines.  S-Tech's
postage  stamp booklet  vending  machines  dispense one or two  different  stamp
booklet  denominations   booklets  and  are  programmable  for  price.  S-Tech's
programmable  stamp booklet vending machines contain an electronic control board
of electronic  components,  integrated circuits and micro-switches,  which allow
for channel and price selection  instead of requiring  replacement of the entire
coin  changer.  In addition,  this design  permits  adaptation of the machine to
foreign currencies. The units have a self- testing capability,  cold temperature
compensation and anti-tampering devices. The coin changer has slug and bent coin
protection  and is adjustable in $.05  increments up through  $12.75 with change
being returned in nickels and quarters. The units are usually "through the wall"
mounted, allowing for servicing from the rear.




                                            6

<PAGE>



The automatic  postage  stamp  vending units operate in a similar  manner to the
automatic  postage stamp booklet  vending units and also contain  multi-channels
for the  dispensing  of various  denominations  of stamps.  For  example,  if so
selected,  one channel may dispense  four 32 cent stamps,  a second  channel may
dispense  one 32 cent  stamp  and a third  channel  may  dispense  three 32 cent
stamps.  In the event that the post office changes the stamp price,  the machine
has the capability of returning penny stamps and/or change to the customer.  For
example, if the stamp price is 32 cents and the customer inserts four dimes into
the  machine,  he would  receive one 32 cent stamp,  three penny  stamps and one
nickel change.  The bulk of S-Tech sales of postal products to date have been to
the United States Postal Service.  However,  over the past two years the company
has  developed  commercial  applications  and  is  presently  marketing  in  the
commercial area. These locations include  hospitals,  colleges and universities,
office supply stores and a number of other specialty stores. Sales to Kinkos, an
office  supply  store,  over the past two  years  were  approximately  250 stamp
machines with bill validators.

Token Vending

Several years ago the S-Tech management team designed and manufactured the token
vending machines for the New York City Transit Authority.  The contract provided
for the design,  manufacture and the installation and maintenance of 59 machines
that are  located in the NYC  transit  system.  The system is fully  operational
today and has never experienced a break-in.  S-Tech's marketing will be expanded
for this product line.  The United States Postal  Service has recently  embarked
upon a program called "the Future  Electronic  Marketplace"  in order to improve
their image as a public  communications  facilitator and regain revenues lost to
other  carriers  through the use of  computers  and fax  machines.  This program
consists of three revenue sources:  vending machines for their prepaid telephone
calling card in association with American Express; a customer interactive system
linked to 200 million home TV's,  40 million  PC's and 15,000  kiosks which will
provide  information on government forms,  payment of fees, retail catalog sales
and postal services.  S-Tech is meeting with the United States Postal Service in
an attempt to participate in this program.

Avionics Products

The S-Tech  avionics  product line consists of both new and spare  (replacement)
items to maintain  existing  aircraft in an  operational  status.  The  products
consists of a variety of approximately 20 synchro repeater instruments and 2 oil
pressure transmitters.  This product line had been relatively flat in sales with
a range of $1 to $3 million dollars annually.  The last few years have been seen
a  significant  reduction in sales due to a reduction in  Department  of Defense
(DOD)  expenditures.  Although  there is no  guarantee of an upswing in the late
90's,  it must be  anticipated  that  inventories  are  low and  spares  will be
required.  Projected  annual  sales  for this  product  area is  anticipated  to
increase  slightly  because of the low  inventory  levels  coupled with S-Tech's
strategy to expand the instrument product line. In the event that the DOD 5 year
forecast indicate future procurement of these items, S-Tech will be requalifying
nine (9) indicators and one transmitter in anticipation of future  procurements.
In  addition  to the DOD  sales,  a  limited  number  of  sales  are made in the
galvanometer type indicator area to commercial accounts.
Approximately 95% of S-Tech's business in this product line is defense related.

The total market is in the billions of dollars. Selection of biddable items will
include only those products which are within our capability and when competition
has not forced the price down to a level which does not meet our ROI objectives.
Competition  is fairly  aggressive and  solicitations  may have as few as 2 or 3
bidders  or as many as 15 to 20  bidders.  It is  reasonable  to expect an award
percentage,  based upon previous  experience,  of  approximately 4% for build to
print programs.

The majority of S-Tech sales are  obtained  through the bidding  process for the
military items that are identified by CBD announcements,  filing of 129 Forms at
cognizant  agencies and by repeat bid requests as a prior  manufacturer.  S-Tech
carefully  reviews the CBD  publications  and seeks out those  instruments  that
align themselves with the QPL and desired technology.

As    part of its marketing strategy,  S-Tech actively identifies other avionics
      products that will be: Separated as small business set-aside.
      Competition Advocacy break-outs.
      SBIR requirements.
      Major OEM subcontract requirements.

Catalogs,  advertising  and  visits  to  major  avionics  centers  and  aircraft
manufacturers  is essential to maintain this product line growth.  Attendance at
major avionics related shows and membership in key national  organizations  such
as SAE, Air Force  Association and the Navy League is essential.  Financing will
provide the assets to accomplish these tasks.

Recent  solicitations  for oil pressure  transmitters  similar to ones currently
manufactured  by  S-Tech  were bid and are  presently  pending.  These  units if
awarded to S-Tech will require  design  modifications  to our  existing  design.
However one contract in this family of units will permit us a better competitive
opportunity  to bid on the  other  items  in this  family  of  units  since  the
differences are only the operating pressure range.




                                            7

<PAGE>



The requirements for night vision  compatible  instruments  (green  illumination
instead of white or red) is becoming  an  increasing  requirement  for low level
support aircraft and helicopters. This is a requirement to avoid blooming (pilot
blindness) when using night vision image intensified  goggles.  S-Tech presently
has a proposal submitted to Lockheed to modify two QPL instruments for this type
of application.

S-Tech  intends  initially to: (1) bid on items that are repeat items or similar
to repeat items to minimize our  risk(s);  (2) bid on items to reduce  inventory
excess  levels;  and (3) select items that are well within our  capability  (low
risks).   In  the  long  term,  S-Tech  will  expand  its  QPL  instruments  and
transmitters to allow for increased sales.

Government Regulation

As a  manufacturer  of products  purchased by the  Department  of Defense or its
contractors,  S-Tech is subject to the provisions of the procurement regulations
of the Department of Defense. These regulations generally provide the government
with the right to terminate the contract for the  convenience  of the Department
of Defense, and, in certain cases may include provisions for renegotiation.  The
Department of Defense also has regulations  pursuant to which the Department may
inspect a contractor's  or  subcontractor's  manufacturing  facilities.  Such an
inspector is present at S-Tech's facility on a regular basis.

Employees

As of December 31, 1996, S-Tech had 11 employees. None of S-Tech's employees are
represented  by a labor  organization,  and S-Tech  believes  that its  employee
relations are good.

PREPAID TELEPHONE CALLING CARDS

Televend, Inc.

Televend is a Delaware  corporation that was organized in December 1995 and is a
wholly owned  subsidiary  of SESH.  Televend has developed and markets a line of
telephone  cards for  general  use.  Televend  intends  to  ultimately  sell the
telephone cards using S-Tech's  telephone  calling card vending  machines and is
currently   selling  the  cards   through  an   independent   network  of  sales
representatives.

Markets, Marketing and Competition

Prepaid phone cards were first issued in Italy nearly 20 years ago. They are now
used in over 200  countries  and enable the holder to place a call from a public
telephone  without  the use of a coin or token.  These  prepaid  phone cards are
"smart  cards"  with the value  stored  in the card  itself  utilizing  optical,
magnetic  strip or chip  technology.  These  types of cards  were  issued by the
country's PTT (Public  Telephone & Telegraph) and require  telephones  specially
designed for their  acceptance.  European  sales are estimated at $5 billion per
year, Japanese sales alone are approximately $4 billion.

The vast majority of cards issued in the United States are "remote memory" cards
with all information stored in a network-based central computer. These cards are
used from any touchtone phone by dialing a toll-free 800 number and entering the
PIN number  unique to the card and then  dialing any  domestic or  international
call.  Many cards are  "rechargeable"  which enable the holder to add additional
time to the card after the initial  amount  purchased  runs out.  The market for
prepaid  cards in the United  States is  estimated  at $10 billion per year.  To
date, U.S.
market penetration is estimated to be less than 4%.

The prepaid phone cards have a promotional value.  Several national  promotional
programs have already been  implemented by companies  such as American  Express,
Ryder, NBC, Mienekie, Dollar Rent-A-Car,  and Monroe Mufflers. Over the next few
years,  public  awareness will increase  dramatically as consumers are inundated
with  millions of cards to be given away or sold by corporate  and retail giants
such as Coca- Cola, Pepsi, Philip Morris,  RJR, Nabisco,  APT, Kodak, K Mart and
Walmart, Sears and major car rental companies.




                                            8

<PAGE>



The market for  telephone  cards in the United States is arguably the largest in
the world at between $5.0 billion to $15.0  billion.  A survey of the market for
prepaid phone cards in the United  States has shown that it has  developed  into
five primary  segments.  These  markets are:  utility,  promotional,  corporate,
affinity and collector.  The utility component of the market is based upon sales
to consumers through retail  establishments such as convenience  stores,  travel
agents,  newsstands,  check  cashing  stores and  supermarkets.  The consumer is
typically  charged  rates ranging from $.29 to $.60 per minute for domestic long
distance calling time. The promotional  premium segment is based upon cards that
are given away to reward customer loyalty or promote specific products.  Prepaid
phone cards have been given away with  purchases of frozen  dinners,  baby food,
dog food, sneakers, soft drinks and clothing just to name a few. This has proven
to be a  particularly  effective  marketing  tool since long distance calls have
nearly universal  appeal.  The corporate segment of the market is based upon the
use of prepaid cards by  corporations  for use by their employees for calls made
outside the office.  Not only does this achieve a cost savings for the business,
but additionally allows for effective  budgeting.  The affinity component of the
market is based upon a group or organization  distributing  prepaid cards to its
members.  Affinity  groups such as motor clubs religious  organizations,  alumni
groups,  unions,  etc.,  receive  commissions  and  residuals  for  the  use  of
group-issued  cards by their  members.  The  collector  portion of the market is
based upon the card itself (the image, its desirability and its availability) as
well as the  underlying  economics.  Many  collectors  expect the value of their
cards to increase which also brings into consideration  soundness as a financial
investment.

The market for prepaid phone cards in the United  States has  developed  slowly.
Although prepaid cards have been issued for several years,  current estimates of
annual sales of approximately $150 million indicate a market penetration of less
than 4 percent,  with rapid growth  predicted.  The U.S. has been the last major
market to develop due to the general lack of public  awareness about the use and
benefits of prepaid calling.  Public awareness will increase  dramatically  with
the development and implementation of promotional and premium programs currently
being planned by many Fortune 500  companies.  Consumers  will be inundated with
millions of cards which will be given away by such  corporate and retail giants.
Additionally,  companies  currently issuing membership and charge cards to their
customer base (e.g. AAA, Exxon,  Sunoco,  Fingerhut and Blockbuster) are planing
to market and distribute telephone cards to their existing data base.

Once there is a  widespread  recognition  of prepaid  phone cards and their use,
distribution of cards to the utility segment will increase dramatically. Since a
typical call (3 to 5 minutes in duration)  with a prepaid card is  substantially
less expensive and does not have the attendant  fraud problems  associated  with
conventional  credit  cards.  It can be assumed that a large part of that market
will convert to the use of a prepaid card.  Given the fact that Nippon Telephone
& Telegraph sells over $4.0 billion of cards through more than 140,000 points of
distribution  (retail  stores and  vending  machines)  with a  customer  base of
approximately  125  million,  the  utility  market in the  United  States can be
conservatively projected to a similar level.

As the market expands, consumers will become sensitive to items such as the cost
per minute and the availability of network-based enhanced features such as voice
mail,  store and  forward of voice and data,  audio  text and other  interactive
services.  These features,  combined with the rechargeable  feature of the cards
will also lead to a dramatic  increase in the corporate and affinity segments of
the  market.  Numerous  corporations  and  organizations  will  custom  tailor a
telephone card program for their employees and members.

Another factor  affecting the market is regulation by various  federal and state
agencies,  including  the Federal  Communications  Commission,  as well as state
Public Utility and Tax Commissions.

Although  competition is high for this product area, Televend intends to capture
its share of the market by innovative design,  improved reliability,  customized
features for large quantity purchases,  special signage, and use of state of the
art components. The United States Postal Service is presently in a pilot program
with  American  Express and MCI  (telephone  carrier) to sell prepaid  telephone
calling cards over the counter.

Televend  has  generated  revenues  of $387,000  and  $356,000 in 1996 and 1995,
respectively,  and has incurred net losses of $268,000 and $134,000 for 1996 and
1995. No assurances can be given that Televend will be able to generate revenues
significant enough to penetrate the competitive environment of selling telephone
calling  cards as Televend is  competing  with  competitors  that have a current
market share, a more competitive pricing  arrangement and significantly  greater
capital resources.

Employees

As of December 31, 1996, Televend had one employee. None of Televend's employees
are represented by a labor organization, and Televend believes that its employee
relations are good.




                                            9

<PAGE>



FINGERPRINT IDENTIFICATION PRODUCTS

FMX Corp.

FMX is a  Delaware  corporation  that was  organized  in 1995 and is a 51% owned
subsidiary  of SESH.  The only  employee and founder of FMX owns or controls the
remaining 49% of FMX. FMX is a development stage company which designs, develops
and  integrates all of the critical  building  blocks of a Fingerprint ID System
("FIDS"). In conjunction,  FMX has completed development of a proprietary unique
optical fingerprint scanner,  VLS-10, which has a live-scan ten print touch/roll
and single print touch/roll capability. Presently in development is the VLS-IFP,
which is of the same genre as the VLS-10. This unit is significantly smaller and
is designed to be integrated with SmartCard technology.  Presently, there are no
comparable units available to OEM system integrators.  FMX expects that its FIDS
can be implemented  into a super high  reliability  product because of the tight
control of the individual building blocks and the connecting interfaces. This is
a cost  effective  package  which  will be  offered  to  OEMs  in the  security,
entitlement,  and law enforcement  markets as well as positioning FMX to be able
to participate and directly compete in the "low end" access control market.

FMX  considers  that one of the  major  impediments  to  general  acceptance  of
fingerprint  as opposed to retinal and hand geometry  biometric  constructs  has
been the inability of all  fingerprint  scanners to  satisfactorily  scan and/or
reliably image the broad spectrum of fingerprint  quality  evidenced in any user
population of the representative  randomly chosen subjects. FMX expects that its
scanners will allow a much increased spectrum of user acceptance,  which in this
crucial area, will be on a par with the very much less accurate systems based on
retinal patterns or hand geometry.

FMX  anticipates  an  immediate  market  for the sale of the  VLS-10 to OEMs who
currently buy fingerprint  scanners from only one source.  FMX's  penetration of
this market is based upon the superior  performance and ergonomic comfort of the
VLS-10. There are at least 10 OEMs using fingerprint  identification systems and
significantly more using only the scanner.

The  VLS-IFP is  structured  to appeal to the  credit  card  companies,  who are
interested  in  integration  of  fingerprint  scanners  into  smart  cards,  and
periodically  attempt  to  tantalize  television  audiences  with the  predicted
technical advancements.

A patent application on the unique  electro-optical  mechanization of VLS-10 and
VLS-IFP is in progress but has not been completed to date.

FMX has not  generated  any  revenues  and no  assurances  can be given that the
future revenues generated by FMX, if any, will be substantial.  Additionally,  a
lack of sufficient  funding will delay the  development  of the  prototypes  and
could  result  in the  competitor  companies  developing  a product  of  similar
capability  prior  to  FMX's  prototype  completion.   Further  development  and
perfection  of other  biometric  devices may effect the  marketability  of FMX's
product.  During  1996,  FMX  has  incurred  $144,000  in  research  development
expenses.  The research  and  development  and all  substantial  engineering  is
performed by the 49%  minority  interest  owner of the  company.  Administrative
support is provided by Consolidated.

HOLDING COMPANIES

The  activity of the holding  companies  reflects  the  operations  of Lafayette
Industries,  Inc., the  Registrant,  and SESH, a wholly owned  subsidiary of the
Registrant.  The operating  activity of the holding companies consists primarily
of management and administration functions and related expenses.

REVERSE ACQUISITION

On December 20,  1996,  the Company  acquired all of the issued and  outstanding
capital  stock of SESH  (which at the date of the  acquisition  was an 80% owned
subsidiary of SIS Capital Corp., ("SISC"), which is a wholly owned subsidiary of
Consolidated  Technology Group,  Ltd., a publicly held company) and issued 1,000
shares of Series A  preferred  stock which is  convertible  at a ratio that will
give SISC a 65%  ownership  of  Lafayette's  fully  diluted  common  stock  upon
stockholder approval of an increase in the authorized number of common shares of
Lafayette.  Contemporaneously  with the reverse  acquisition,  Lafayette  issued
1,000  shares of  Series B  preferred  stock  which  has a  redemption  value of
$6,750,000.  The  Series B  preferred  stock was  issued as  payment to SISC for
$4,000,000 of subordinated debt due to SISC and in exchange for the cancellation
of $2,750,000 of preferred  stock of the  underlying  entities of SESH which was
held by SISC. The redemption  provisions of the Series B Preferred stock are the
following:

      [i] - The Company may, at any time  commencing  March 1, 1997,  redeem the
      Series B  Preferred  stock in whole or in part  from time to time upon not
      less  than ten nor more  than  sixty  days  prior  written  notice  at the
      redemption  price of $6,750 per Series B preferred  share.  The Company is
      not required to provide for the  redemption  of any shares of the Series B
      preferred stock through the operation of a sinking fund.



                                            10

<PAGE>





      [ii] - Until all of the Series B preferred stock shall have been redeemed,
      the Company  shall apply 25% of the net  proceeds  from any sale of equity
      securities  (including  stock  issued on the  exercise of any  warrants or
      options,  whether  presently  outstanding or hereafter  issued,  and stock
      issued in  connection  with a public  offering  or  private  placement  of
      securities,  but excluding stock issued in an acquisition or in connection
      with the  purchase  of  assets),  occurring  after  March  1,  1997 to the
      redemption  of the shares of the Series B preferred  stock.  Net  proceeds
      shall mean the gross proceeds less any underwriting, brokerage, finders or
      investment  banking  fee,  discount,  expense  allowance  (whether  or not
      accountable),  consulting  contract  or  other  similar  payments  however
      designated,  provided that,  for purposes of  determining  net proceeds no
      value  shall be given  to any  securities  issued  or  transferred  to the
      underwriter, broker, finder or investment banker.

      [iii] - Until all of the shares of the Series B preferred stock shall have
      been  redeemed,  for each  calendar  year  commencing  with the year ended
      December 31, 1997, the Company shall apply to the redemption of the Series
      B  preferred  stock an  amount  equal to 25% of the  amount  by which  the
      greater of (a) the Company's income before taxes, determined in accordance
      with generally accepted accounting principles consistently applied, or (b)
      the Company's  cash flow from  operations,  determined in accordance  with
      generally  accepted  accounting  principles   consistently  applied,  less
      interest  other than interest  owed to the Company's  parent or affiliate,
      exceeds  $250,000  to the  redemption  of shares of the Series B preferred
      stock.

FORMER BUSINESS OF THE COMPANY

Prior to the reverse  acquisition,  the  Company's  principal  business  was the
design,  manufacture  and sale of customized  store  fixtures and  merchandising
systems, through certain wholly owned subsidiaries.  During 1995 the Company had
a net loss of $1.9 million,  or $1.38 per share,  on revenues of $16.6  million,
and during 1994 had net income of $466,000,  or $0.45 per share,  on revenues of
$12.3 million.  The Company's  business focus prior to the reverse  acquisition,
was to capitalize on its expertise in the design and sale of store  fixtures and
merchandising  systems  by  expanding  its  sales  force and by  increasing  its
manufacturing operations to become a company with a national market presence. As
it became evident that the Company would not be able to operate  profitably,  it
sought a business  opportunity  which it felt it could develop into a profitable
business.  Following this strategy,  Lafayette  implemented plans to discontinue
all of its prior business operations and entered into the reverse acquisition.

Item 2.  Property

WWR   Technology   occupies   approximately   70,000   square   feet  of  usable
manufacturing,  office and storage space located in Hope,  Arkansas at an annual
rental of approximately  $76,000. SES occupies  approximately 15,000 square feet
of office and manufacturing  space in Elmsford,  New York at an annual rental of
approximately  $141,000.  S-Tech  occupies  approximately  6,500  square feet of
manufacturing and office space in West Babylon,  New York at an annual rental of
approximately  $28,000.  Televend  leases 500 square feet of office space in New
York  City,  which it rents on a  month-to-month  basis  from  SISC at an annual
rental of approximately  $7,500 which represents the cost of such space to SISC.
The companies operating in the electro-mechanical  and electro-optical  products
manufacturing  segment  believe that their space is adequate for their immediate
needs and that, if additional space is required,  it would be readily  available
on commercially reasonable rates.




                                            11

<PAGE>



Item 3.  Legal Proceedings

Litigation

Lafayette Industries, Inc.:

The Company's  prior principal  business,  which was the manufacture and sale of
store fixtures, was discontinued in 1996. The manufacturing facilities for these
operations were located in Mexico and were seized by the landlord.  Although the
Company is contesting  the seizure,  no assurances can be given that the Company
will be able to realize any future  benefits  from these assets and has placed a
reserve for the full amount of such assets.

During the year ended December 31, 1996  Lafayette  either sold or closed all of
its operating  subsidiaries from its prior principal  business.  The Company and
its  subsidiaries,  are also contingently  liable  individually and jointly with
others as guarantors of long-term debt and obligations  principally  relating to
various debt  agreements,  leased  equipment and facilities.  In connection with
those  transactions,  the Company has been  notified that it is party to various
litigations,  with one claim ranging up to approximately $1,600,000. The Company
believes it may also be identified as a party to as yet unasserted  claims which
may be  substantial  in amount.  The  Company  has  estimated  its  exposure  to
contingent  liabilities  and  guarantees  and  believes  the amount  could range
between $300,000 and $1,600,000 and management has accrued the minimum amount of
$300,000. Although management has made what it feels is its best estimate of the
liabilities,   the  nature  of  the   liabilities  are  subject  to  substantial
uncertainty.  The amount of potential additional  liabilities above the $300,000
accrued can not be reasonably estimated. It is at least reasonably possible that
the liability could be revised in the near term.

WWR Technology, Inc.:

There  was an  action  pending  against  WWR  alleging  claims  against  WWR for
unauthorized  use of the Klipsch  trademark.  WWR denies these  allegations  and
asserted  there had been no breach of contract.  This case was dismissed in 1996
by the granting of a motion for summary  judgment.  The plaintiff  maintains the
right to appeal this decision.

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

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




                                            12

<PAGE>



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

The  Company's  Common Stock was traded as part of a unit (a "Unit")  until July
13,  1995.  Each unit  included  one share of Common  Stock and one  warrant  to
purchase  one share of Common  Stock  through May 12,  19999 at $6.00 per share.
During 1995 and 1996 Lafayette's Units, Common Stock and Warrants were traded on
the  Nasdaq  SmallCap  Market.  Effective  March  18,  1997,  a Nasdaq  Listings
Qualifications  Panel  determined  to delete the Company's  securities  from The
Nasdaq Stock  Market.  Such decision was based on (1) the failure of the Company
to  maintain  compliance  with  continued  listing  requirements  based  on  the
September 30, 1996 10-QSB/A;  and (2) the failure of the Company to meet initial
listing  requirements  which were  triggered by the reverse  acquisition.  As of
March 18, 1997, the securities of the Company  became  immediately  eligible for
trading on the OTC Bulletin Board.  Set forth below is the reported high and low
bid prices of the Units, Common Stock and Warrants for the quarters listed.

                                          Units

Quarter Ending                    High Bid     Low Bid

March 31, 1995                     $11.50       $4.50
June 30, 1995                      $7.00        $3.25
September 30, 1995                 $7.75        $4.50
December 31, 1995                  $7.00        $2.13

March 31, 1996                     $4.13        $4.06
June 30, 1996                      $4.75        $3.56
September 30, 1996                 $3.00        $1.25
December 31, 1996                  $1.00        $0.50

                                       Common Stock

Quarter Ending                    High Bid     Low Bid

Beginning July 13, 1995:
September 30, 1995                 $7.00        $4.25
December 31, 1995                  $6.25        $1.75

March 31, 1996                     $4.75        $4.00
June 30, 1996                      $4.38        $3.50
September 30, 1996                 $2.25        $1.38
December 31, 1996                  $1.19        $0.63

                                         Warrants

Quarter Ending                    High Bid     Low Bid

Beginning July 13, 1995:
September 30, 1995                 $0.75        $0.38
December 31, 1995                  $0.50        $0.25

March 31, 1996                     $0.63        $0.25
June 30, 1996                      $0.06        $0.06
September 30, 1996                 $0.06        $0.06
December 31, 1996                  $0.06        $0.06

These quotations reflect inter-dealer prices, without retail mark-up,  mark-down
or commission and may not represent actual transactions.

As of December 31, 1996,  there were over 300 holders of record of the Company's
common stock.

No cash  dividends  have been paid to the holders of the Common Stock during the
years ended December 31, 1996, 1995 and 1994.


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




                                            13

<PAGE>



Financial Condition - Liquidity

As of December 31, 1996,  it was  determined  that the ability of the Company to
continue  as a going  concern is  dependent  upon the  success of the  Company's
marketing efforts and its access to sufficient  funding to enable it to continue
operations. The ability of the Company to effect its transition,  ultimately, to
profitable  operations  is  dependent  upon  obtaining  adequate  financing  and
achieving a level of revenues to support its cost structure.  The failure of the
Company to generate  revenues at a level in excess of its ongoing  expenses  may
force the Company to reduce or cease  operations.  Management  plans to increase
revenues of WWR by way of a sound marketing plan to increase the domestic dealer
base and, by concentrating on its international distribution.  Furthermore,  WWR
plans to release a new "high tech" range of  loudspeakers  to gain  attention to
the line and  increase  its  worldwide  market  share.  SES and  S-Tech  plan to
increase  revenues through the introduction of new products and through revenues
which are  expected to be  generated  in  connection  with  certain  development
agreements.  Management  is also in the process of obtaining  financing  through
financial  institutions  and  other  sources.  As a part of  obtaining  adequate
capital,  on February 7, 1997, the Company sold an aggregate of 2,000,000 shares
of Common Stock at $.25 per share,  for an aggregate of $500,000 to two offshore
investors  pursuant to Regulation S of the  Securities Act of 1933 each of which
purchased  1,000,000  shares of Common Stock for $250,000.  No  underwriter  was
involved in connection with such issuances and no brokerage or underwriting fees
or commissions were paid.

Financial Condition - Capital Resources

Sources of Cash

The Company's  principal  working capital consists of cash and cash equivalents.
Cash and cash  equivalents  were  $1,094,000  at December  31, 1996  compared to
$75,000 at December  31,  1995.  During  1996,  the  Company's  operations  used
$1,378,000 of cash in operations.  Significant  sources of cash includes $20,000
of cash from a merged  Company,  (see  footnote  1 to the  financial  statements
regarding  the reverse  acquisition),  $1,000,000  from a  Regulation  S private
placement,  and $1,701,000 of advances from the Company's  parent  company,  SIS
Capital  Corp.  Although  in the past,  SIS Capital  Corp.  has been the primary
source of the Company's  operating  capital,  SIS Capital has no  obligations to
continue  the  funding  of  the  Company's  working  capital,  and  further,  no
assurances can be given that SIS Capital Corp. will have the ability to continue
funding the Company's operations.  The Company has also received $190,000 in net
advances from an asset based  lendor.  Other sources of cash amounted to $10,000
for 1996.

Uses of Cash

Uses of cash  includes  the  repayment  of notes  payable of  $324,000,  capital
expenditures  of  $109,000,  payments  on capital  leases of  $16,000  and other
expenditures approximating $75,000.

Effect of Loan Defaults

The  Company is in  technical  default  on loans  approximating  $478,000  as of
December 31,  1996.  Such  defaults  have not had, and is not expected to have a
significant impact on the operations of the related segment.  The creditors have
not called such loans and are working under extended repayment terms.

Results of Operations

Audio  Visual  Manufacturing  and  Services  - This  segment  is  engaged in the
business of  manufacturing  and marketing a professional  line of  loudspeakers.
This  segment was  acquired on  September  30,  1995.  As such,  the  operations
reported  herein reflect only the results from the date of  acquisition  through
December 31, 1996 and the prior periods are not  comparable.  During 1996,  this
segment's  revenues,  gross  profit and loss from  operations  were  $3,308,000,
$549,000  and  $1,082,000,  respectively.  During  1996,  approximately,  79% of
revenues were generated from domestic customers, approximately 15% of sales were
from  customers  in the Far East and  approximately  6% of sales were from other
foreign market customers. From the date of acquisition through December 31, 1995
revenues, gross margins and losses from operations were $626,000, ($106,000) and
$437,000,  respectively. From the date of acquisition through December 31, 1995,
approximately,   75%  of  revenues  were  generated  from  domestic   customers,
approximately 12% of sales were from customers in the Far East and approximately
13% of sales were from other foreign market customers.

During the period from the acquisition through December 31, 1995, costs of sales
included $200,000 of write-offs of obsolete inventory which resulted in negative
gross profit.  Excluding such write-off, the gross margin percentage was 15% and
during 1996 was 17%. Since the  acquisition  of this segment,  the gross margins
have been less than that required to operate profitably.  A significant cause of
the low margins relates to idle plant capacity,  an outdated  production machine
and a lack of funds to purchase the parts required to build product.  During the
fourth  quarter of 1996,  financing  has been  obtained  which has  allowed  the
segment to purchase  product for  production  but not at a level that will allow
the segment to significantly  increase  production.  Management is attempting to
obtain  financing  to purchase a new  production  machine  which  would  produce
products  significantly  faster and  additionally,  reduce the need to  purchase
assembly parts from an outside source



                                            14

<PAGE>



since the new production machine would be able to produce such parts on a timely
basis. Although no assurance can be given that such financing will be obtained.

Selling,  general and administrative  expenses were $1,222,000 for 1996 and were
$331,000 from the date of acquisition  through December 31, 1995. This excess of
expenses  over  gross  profit is a  reflection  of the  volume  problem  of this
segment. In January management implemented a price increase of approximately 10%
and  management  believes that this will not have a significant  impact on sales
volume  due to  high  product  quality  and the  name  recognition  of  "KLIPSCH
PROFESSIONAL"  in the market place.  Interest  expense for 1996 was $150,000 and
for the period from acquisition to December 31, 1995 was $19,000.

Management  believes  that if  this  segment  is  able  to  find an  appropriate
financing  package,  it will be able to significantly  increase its revenues and
overall profitability during 1997. However, due to the uncertainties surrounding
the ability of the segment to obtain adequate financing, management is unable to
determine at this time whether the segment will ever be profitable.

Electro-Mechanical  and  Electro-Optical  Products  Manufacturing - This segment
consists of two companies which  manufactures  optical encoders,  encoded motors
and  limit  programmers,  debit  card  vending  machines  and  various  avionics
instrumentation  devices.  Comparing 1996 and 1995,  revenues decreased 38% from
$3,862,000  for 1995 to  $2,378,000  for 1996.  Additionally,  gross  profit was
negative  for 1996 due  primarily  to the  write-off  of obsolete  inventory  of
$350,000  for  1996.  Write-off  of  obsolete  inventory  for 1995  amounted  to
$270,000.  Excluding such write-offs,  the gross profit percentages for 1996 and
1995 were 6% and 12%,  respectively.  The  significant  decrease in revenues and
gross margins is  attributed to lower levels of shipments to existing  customers
while new customers  have not been obtained to replace the lost revenues and the
gross margins on current  period  contracts  have lower margins than on revenues
that were lost.

Selling,   general  and  administrative   expenses  remained   relatively  level
approximating  $1,341,000  and  $1,380,000  for  1996  and  1995,  respectively,
reflecting  increased  spending  of  approximately  $200,000 on  developing  new
technologies,  which was  offset by  planned  cutbacks  in  expenses  related to
existing operations.  Interest expense was approximately  $150,000 for both 1996
and 1995.  A  significant  portion of the  interest  expense  is  related  party
interest  charged  from the  parent  company,  (SIS  Capital  Corp.)  charged on
advances made to this segment to fund its operations.

Net losses increased from $1,050,000 for 1995 to $1,709,000 for 1996, reflecting
the decrease in gross profit while other expenses remained  relatively level. In
prior  periods,  this segment  focused  primarily  on sales to the  governmental
sector and currently management is attempting to place more emphasis on sales to
the  private  sector  through  the sale of  encoders  to  private  manufacturing
companies while also trying to capitalize on the recent  potential for increased
governmental  military  spending and while there exists a possibility that there
will be reversals in government  spending cutbacks no assurance can be made that
this  segment  will be able to qualify  for the  related  government  contracts.
Management  plans to  continue  placing  more  emphasis  on sales to the private
sector although no assurances can be given that the segment will ever be able to
operate profitably.

Prepaid  Telephone  Calling  Cards - This  segment  consists of one company that
markets  telephone  debit cards which was acquired in April 1996.  This segments
revenues,  gross profit and operating loss, from the date of acquisition through
December 31, 1996, approximated $387,000,  ($152,000) and $313,000. This segment
operates in a highly  competitive market and is competing against companies that
are larger, more well established and have significantly greater resources.  The
impact of this competition has required the segment to sell the calling cards at
below cost in order to attempt to establish a market presence which has resulted
in a negative  gross  margin.  Selling,  general and  administrative  costs were
$153,000  from the period of  acquisition  to December  31, 1996 which  consists
primarily of salaries and related expenses. Based on the competitive environment
that this segment  operates in, no assurances  can be given that its  operations
will ever reach profitable levels.  Finger Print Identification  Products - This
segment consists of one company that designs, develops and integrates all of the
critical building blocks of a Fingerprint ID System. All of the activity of this
segment to date have been the costs of developing its products. Such amounts for
1996 approximated $144,000. Due to the nature of a development stage company, no
assurances  can be given  that  this  segment  will  ever be able to  develop  a
marketable product and achieve revenues that will allow to operate profitably.



                                            15

<PAGE>




Impact of Inflation:

The Company is subject to normal  inflationary  trends and anticipates  that any
increased costs would be passed on to its customers.

Item 7.  Financial Statements and Supplementary Data

The financial  statements and supplementary  data begin on page F-1 of this Form
10-K.

Item 8.  Changes and Disagreements with Accountants on Accounting and 
Financial Disclosure

The Company's  independent  public  accountants for the years ended December 31,
1995 and 1994 was Lazar,  Levine & Company LLP,  whose report on such  financial
statements is included in the 10-KSB for the year ended December 31, 1995.  Such
report included an explanatory  paragraph  concerning the ability of the Company
to continue as a going concern.

The  Company  changed  accountants  following  the  completion  of  the  reverse
acquisition  for the  following  reasons.  Pursuant to the  reverse  acquisition
accounting  rules,  SESH is the  successor  corporation  and Moore  Stephens and
Associates,  PC were the  independent  accountants for SESH prior to the reverse
acquisition and substantially all of the Company's post acquisition  business is
that of SESH. The decision to change accountants was made by the Company's board
of directors and is subject to stockholder approval. There were no disagreements
with Lazar,  Levine & Company  LLP,  whether or not  resolved,  on any matter of
accounting  principles or practices,  financial statement disclosure or auditing
scope or procedure.

Item 9.  Directors and Executive Officers Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act

      Directors  are  elected on an annual  basis.  The  present  terms for each
director will expire at the next annual meeting of  Shareholders or at such time
as a successor is duly elected. Officers serve at the discretion of the Board of
Directors.  The  directors  and  executive  officers  of the  Company  and their
respective positions are as of follows.

     Mr Lewis S. Schiller is chairman of the board.  chief executive officer and
a director as of December 20, 1996. Mr.  Schiller is also chairman of the board,
chief  executive  officer  and  a  director  of  Consolidated  Technology  Group
Ltd.("Consolidated") and SIS Capital Corp.("SISC"),  the majority stockholder of
Lafayette.  Mr. Schiller is also chairman of the board,  chief executive officer
and a director  of Netsmart  Technologies,  Inc.("Netsmart"),  a  majority-owned
publicly  traded  subsidiary of  Consolidated  that markets  health  information
systems and other network based  software  systems,  and Trans Global  Services,
Inc., a  majority-owned  publicly-traded  subsidiary of SISC which is engaged in
providing  contract  engineering  services- Mr.  Schiller is also a director and
chairman of the board and/or chief  executive  officer of other  subsidiaries of
Lafayette.  Mr. Schiller has held his position with  Consolidated  for more than
the past five years. Mr. Schiller  devotes a significant  portion of his time to
the business of Consolidated and its other  subsidiaries,  and he devotes only a
portion of his time to the 'business of Lafayette.


     Mr. Norman J. Hoskin has served as director since December 20, 1996. Hoskin
is chairman of Atlantic Capital Group, a financial  advisory services company, a
position he has held for more than the past five years.  He is also  chairman of
the  board  and a  director  of  Tapistron  International,  Inc.,  a  high  tech
manufacturer of carpeting,  and is a director of Consolidated,  Netsmart,  Trans
Global,  Aqua Care  Systems.,  Inc., a water media  filtration  and  remediation
company,  and Spintek Gaming,  Inc., a manufacturer of gaming  equipment.  He is
also a director of other subsidiaries of Lafayette.


     Mr.  Colin Halpern served as Secretary of the Company from January 1997 to 
July 1993 and as Executive Vice President from July 1993  to December 20, 1996 
and as a director since July 1993.  Mr. Halpern serves as the President of 
Crescent Capital, Inc. and International Franchise Systems, Inc.  Mr. Halpern
 also serves as the President and Treasurer and as Director of Red Hot Concepts,
 Inc., a public company that intends to operate certain restaurants in the
 United Kingdom.  Mr. Halpern was formerly the President and Chief Executive 
Officer of DRC Industries, Inc., a company which, from November 1975 through
 October 1985 had a Budget Rent-A-Car master license agreement for the
New York metropolitan area, including LaGuardia and John F. Kennedy airports.

     Mr. Bernard M. Goldman has served as director since July 1993. From 1957 to
1979 he was CFO of Goldman 7 s Discount  Department  Stores, a 14 store chain of
department stores located throughout  southwestern Ohio. Presently,  in addition
to owning and  operating a variety of real  estate  investment  properties,  Mr.
Goldman is involved with a variety of philanthropic organizations.



                                            16

<PAGE>




Mr. Lloyd C. Robinson served as the Vice President of Finance from July 1993 to
 June 1995 when he became Vice President of Operations.
Mr Robinson resigned as Vice President in April 1996 and became Chief Financial 
Officer effective December 20,1996, Mr. Robinson was
Chief Financial Officer of LDF from April 1986 through June 1988 and was a 
 financial consultant to LDF from January 1989 through December 1991. 
 Mr. Robinson was a consultant to LDF when it filed Chapter 1 1 of the United
 States Bankruptcy Code in January 1991.  Mr. Robinson
graduated from Wharton School of Business at the University of Pennsylvania 
with a B.S. in Economics.

Item 10.  Executive Compensation

To be incorporated by reference.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

To be incorporated by reference.

Item 12.  Certain Relationships and Related Transactions

The Company is owed $85,000 for non-interest bearing advances to a director of
 the Company.  Such amount is expected to be collected
during 1997.

The amount due to a related party  represents  $690,000 of  short-term  advances
made to the Company by a director of the Company and his wife.  The advances are
non-interest  bearing  and were  made  through  several  entities  in which  the
directors hold a controlling interest.

During  1996,  SES  received  consulting  services  from The Trinity  Group,  an
unconsolidated   affiliate.  The  Company's  statement  of  operations  includes
consulting  expense of $127,000 in each of the years ended December 31, 1996 and
1995 for such services.


Item 13.  Exhibits and Reports on Form 8-K

Form 8K for December  11, 1996,  filed  December  19, 1996,  reporting  that the
Company entered into a letter of intent to acquire SES Holdings, Inc. subject to
a definitive purchase agreement.

Form 8K for December  20, 1996,  filed  January 31,  1997,  reporting  change in
control,  acquisition of assets, expansion of the board of directors,  change in
certified accountants, and sale of equity securities pursuant to Reg. S.

Form 8K/A Amendment No. 1 for December 20, 1996, filed February 25, 1997,
 includes historical financial statements and pro forma
financial statements for SES Holdings, Inc. transaction.






                                            17

<PAGE>



                       LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
                        Index to Consolidated Financial Statements


                                                                    Page

Independent Auditor's Report                                        F-2

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

Consolidated Statements of Operations for the Years Ended
  December 31, 1996 and 1995                                        F-5

Consolidated Statements of Shareholders' Deficit
  for the Years Ended December 31, 1996 and 1995                    F-6

Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1996 and 1995                                        F-7

Notes to Consolidated Financial Statements                          F-9







                                           F-1

<PAGE>



                               INDEPENDENT AUDITOR'S REPORT


To the Board of Directors and Stockholders of
  Lafayette Industries, Inc.
  New York, New York


            We were engaged to audit the accompanying consolidated balance sheet
of Lafayette Industries,  Inc. and its subsidiaries as of December 31, 1996, and
the related consolidated  statements of operations,  shareholders'  deficit, and
cash  flows for each of the two years in the period  ended  December  31,  1996.
These consolidated  financial statements are the responsibility of the Company's
management.

            We were unable to obtain written representations from certain of the
Company's outside legal counsel regarding pending or threatened  litigation,  or
obtain confirmation  regarding certain related party transactions.  In addition,
we were not able to confirm  the  existence  of  certain  notes  receivable  and
payable.  The Company's  records do not permit the application of other auditing
procedures to determine the existence and/or  completeness of the aforementioned
assets and liabilities.

            The  accompanying   consolidated   financial  statements  have  been
prepared  assuming  that  the  Company  will  continue  as a going  concern.  As
discussed  in Notes 3, 12 and 22 to the  financial  statements,  the Company has
suffered  recurring  losses since its inception,  has an accumulated  deficit of
$6.5 million,  has a total shareholders'  deficit of $6.9 million, is in default
on substantially all of its debt, and is party to various litigation,  including
but not limited to financial  guarantees.  These  conditions  raise  substantial
doubt about the Company's  ability to continue as a going concern.  Management's
plans in regard to these  matters are also  described  in Note 3. The outcome of
these events and management's plans are subject to substantial uncertainty.  The
financial  statements do not include any  adjustment  that might result from the
outcome of these uncertainties.

            Because  of  the  significance  of  the  matters  described  in  the
preceding  paragraph,  and the scope limitations  described in second paragraph,
and our  inability  to apply  other  auditing  procedures  to satisfy  ourselves
regarding the fair  presentation  of the  consolidated  financial  statements in
conformity with generally accepted accounting principles,  the scope of our work
was not sufficient to enable us to express, and we do not express, an opinion on
the consolidated financial statements referred to in the first paragraph.








                                          MOORE STEPHENS, P. C.
                                          Certified Public Accountants.

Cranford, New Jersey
April 9, 1997



                                           F-2

<PAGE>



LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


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




Assets:
Current Assets:
  Cash                                                        $  1,094,000
--------------------------------------------------------------------------
  Receivables - Net of Allowances                                  631,000
--------------------------------------------------------------------------
  Inventories                                                    3,125,000
--------------------------------------------------------------------------
  Loan Receivable - Related Party                                   85,000
--------------------------------------------------------------------------
  Prepaid Expenses and Other Current Assets                         51,000
--------------------------------------------------------------------------

  Total Current Assets                                           4,986,000

Property and Equipment - Net                                       495,000
                                                              ------------

Other Assets:
  Note Receivable - Long-Term                                      490,000
  Trademark - Net                                                  368,000
  Deferred Financing Costs                                         469,000
  Investment in Common Stock                                     1,988,000
  Other Assets                                                     120,000
                                                              ------------

  Total Other Assets                                             3,435,000

  Total Assets                                                $  8,916,000
                                                              ============




See Notes to Consolidated Financial Statements.



                                        F-3

<PAGE>



LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


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




Liabilities and Shareholders' Deficit:
Current Liabilities:
  Accounts Payable and Accrued Expenses                       $  3,268,000
  Accrued Payroll and Related Obligations                          200,000
  Accrued Interest                                                 417,000
  Due to Related Party                                             690,000
  Notes Payable                                                  1,161,000
  Convertible Debentures - Net                                     441,000
  Current Portion of Obligations Under Capital Leases              119,000
                                                              ------------

  Total Current Liabilities                                      6,296,000

Long-Term Liabilities:
  Subordinated Notes Payable to Affiliated Companies             2,744,000
  Obligations Under Capital Leases                                  34,000

  Total Long-Term Liabilities                                    2,778,000

Commitments and Contingencies [22]                                      --

Class B Redeemable Preferred Stock, $0.01 Par Value,
  1,000 Shares Authorized, Issued and Outstanding
  [Aggregate Liquidation Preference $6,750]                      6,750,000
                                                              ------------

Shareholders' Deficit:
  Preferred Stock, Class A Convertible, $0.01 Par Value, 1,000 Shares
   Authorized, Issued and Outstanding [Aggregate Liquidation Preference
   $100,000]                                                            --
  Common Stock, $0.01 Par Value, 20,000,000 Shares Authorized, 9,440,000
   Shares Issued and Outstanding                                    94,000
  Additional Paid-in Capital                                      (952,000)
  Accumulated Deficit                                           (6,492,000)
  Unrealized Gain on Investment in Common Stock                    442,000
                                                              ------------

  Total Shareholders' Deficit                                   (6,908,000)

  Total Liabilities and Shareholders' Deficit                 $  8,916,000
                                                              ============




See Notes to Consolidated Financial Statements.






                                        F-4

<PAGE>



LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


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


                                                          Years ended
                                                           December
                                                    1 9 9 6        1 9 9 5
                                                    -------        -------

Revenues                                           $6,073,000   $ 4,488,000

Cost of Goods Sold                                  5,591,000     3,644,000

Inventory Write Downs                                 381,000       470,000
                                                   ----------   -----------

   Gross Profit                                       101,000       374,000

Selling, General and Administrative Expenses        2,874,000     1,711,000

   Loss from Operations                             (2,773,000)  (1,337,000)
                                                    ----------  -----------

Other Income [Expense]:
   Interest Expense                                  (302,000)     (169,000)
   Other Income                                         9,000            --
                                                   ----------   -----------

   Total Other [Expense]                             (293,000)     (169,000)
                                                   ----------   -----------

   Net Loss                                        $(3,066,000) $(1,506,000)
                                                   ===========  ===========

   Net Loss Per Share                        $         (0.$          (0.06)
                                                   ============ ================

   Weighted Average Number of Shares Outstanding   29,927,747    24,066,433
                                                   ==========   ===========




See Notes to Consolidated Financial Statements.






                                        F-5

<PAGE>

<TABLE>


LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995.
------------------------------------------------------------------------------



 
                                        Unrealized
                                          Gain on
                       Preferred Stock                  Additional         Investment   Total
                       Class A [1][20]    Common Stock    Paid-inAccumulatedin CommonShareholders'
                       Shares   Amount  Shares   Amount   Capital  Deficit    Stock    Deficit
<S>                     <C>     <C>      <C>     <C>     <C>       <C>          <C>    <C> 

Balance -
 December 31, 1994       1,000 $    --    1,500 $ 15,000 $ 223,000 $(1,920,000$    --  $(1,682,000)

Net Loss                    --      --       --       --        -- (1,506,000)     --  (1,506,000)

Recapitalization
 Adjustment                 --      --   (1,500) (15,000)   15,000        --       --         --
                       ------- ------- -------- -------- --------- ---------  -------  ---------

 Balance -
   December 31, 1995     1,000      --       --       --   238,000 (3,426,000)     --  (3,188,000)

Acquired Equity in Stock
 Acquisition                --      -- 5,440,000  54,000 (2,150,000)      --       --  (2,096,000)

Issuance of Common
 Stock Pursuant to
 Regulation S - See
 Note [20H]                 --      -- 4,000,000  40,000   960,000        --       --  1,000,000

Unrealized Gain on
 Investments                --      --       --       --        --        --  442,000    442,000

Net Loss                    --      --       --       --        -- (3,066,000)     --  (3,066,000)
                       ------- ------- -------- -------- --------- ---------- -------  ----------

 Balance -
   December 31, 1996      1,000 $    -- 9,440,000$ 94,000 $(952,000)$(6,492,000)$442,000 $(6,908,000)
                         ======= ===== ========  ======== =======   ========  =========  ===========



See Notes to Consolidated Financial Statements.

</TABLE>




                                           F-6

<PAGE>




LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


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

                                               Years ended
                                                December
                                          1 9 9 6        1 9 9 5
                                          -------        -------
Operating Activities:
  Net Loss                              $(3,066,000)  $(1,506,000)
                                        -----------   -----------
  Adjustments to Reconcile Net Loss to Net Cash
   Used in Operating Activities:
   Depreciation and Amortization            268,000        84,000

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Accounts Receivable                    (35,000)      418,000
     Inventories                            543,000       520,000
     Prepaid Expenses and Other Current Assets 37,000     (28,000)

   Increase [Decrease] in:
     Accounts Payable and Accrued Expenses  515,000       144,000
     Accrued Payroll and Related Obligations 200,000           --
     Accrued Interest                       135,000       116,000

   Total Adjustments                      1,663,000     1,254,000
                                        -----------   -----------

  Net Cash - Operating Activities        (1,403,000)     (252,000)
                                        -----------   -----------

Investing Activities:
  Increase in Other Assets                  (68,000)      (13,000)
  Cash of Merged Company                     20,000            --
  Cash of Company Acquired                   10,000        47,000
  Advances on Notes Receivable               (7,000)           --
  Capital Expenditures                     (110,000)      (71,000)
                                        -----------   -----------

  Net Cash - Investing Activities          (155,000)      (37,000)
                                        -----------   -----------

Financing Activities:
  Net Advances from Affiliates            1,701,000        71,000
  Net Advances from Asset Based Lendor      190,000            --
  Payments Under Capital Lease Obligations  (16,000)      (19,000)
  Proceeds from Issuance of Notes Payable        --        10,000
  Repayment of Notes Payable               (298,000)      (39,000)
  Common Stock Issuance                   1,000,000            --

  Net Cash - Financing Activities         2,577,000        23,000
                                        -----------   -----------

  Net Increase [Decrease] in Cash         1,019,000      (266,000)

Cash - Beginning of Years                    75,000       341,000
                                        -----------   -----------

  Cash - End of Years                   $ 1,094,000   $    75,000
                                        ===========   ===========

Supplemental Disclosures of Cash Flow Information:
  Cash paid during the years for:
   Interest                             $   167,000   $    53,000
   Income Taxes                         $        --   $        --

See Notes to Consolidated Financial Statements.



                                        F-7

<PAGE>



LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


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



Supplemental Disclosures of Noncash Investing and Financing Activities:
During the year ended December 31, 1996:
  [1] - Acquired Televend,  Inc., and in conjunction therewith,  recorded assets
of $33,000, [including cash of $10,000], and liabilities of $204,000.
  [2] - Effected a reverse acquisition between SES Holdings Corp. and Lafayette
 Industries, Inc. and in conjunction therewith recorded assets of $619,000,
 [including cash of $20,000], and liabilities of $3,392,000.
  [3] -  Converted  $4,000,000  of  subordinated  debt  due to  affiliates  into
preferred stock.

During the year ended December 31, 1995:
  [1] - Acquired equipment under capital lease obligations with a net present 
value of $63,000.   [2] - Acquired WWR Technology, Inc., and in conjunction
therewith, recorded assets of $3,628,000 and
liabilities of $3,674,000.



See Notes to Consolidated Financial Statements.



                                        F-8

<PAGE>


                       Lafayette Industries, Inc. and Subsidiaries
                        Notes to Consolidated Financial Statements
------------------------------------------------------------------------------


[1] Basis of Presentation, Organization and Nature of Operations

On  December  20,  1996,   Lafayette   Industries,   Inc.,   (the  "Company"  or
"Lafayette"),  acquired all of the issued and  outstanding  capital stock of SES
Holdings Corp., ("SESH"), (which at the date of the acquisition was an 80% owned
subsidiary of SIS Capital Corp., ("SISC"), which is a wholly owned subsidiary of
Consolidated  Technology Group,  Ltd., a publicly held company) and issued 1,000
shares of Class A preferred stock which is convertible at a ratio that will give
SISC a 65% ownership of Lafayette's  fully diluted common stock upon stockholder
approval of an increase in the authorized  number of common shares of Lafayette.
Contemporaneously with the reverse acquisition, Lafayette issued 1,000 shares of
Class B preferred stock which has a redemption value of $6,750,000.  The Class B
preferred  stock was issued as payment to SISC for  $4,000,000  of  subordinated
debt due to SISC and in exchange for the cancellation of $2,750,000 of preferred
stock of the underlying entities of SESH which was held by SISC.

The Class A Preferred  shares  issued are treated as issued by SESH for cash and
are shown as outstanding  for all periods  presented in the same manner as for a
stock split. The consolidated  financial  statements will reflect the results of
operations  of the  Company  and  SESH  from  the  date of  merger  onward.  The
consolidated  financial  statements  prior to the  date of  merger  reflect  the
results of operations and financial  position of SESH. Pro forma  information on
this  transaction  is not  presented  as, at the date of this  transaction,  the
Company was considered a public shell and, accordingly,  the transaction was not
considered a business combination. The Company's prior principal business, which
was  principally   the  manufacture  and  sale  of  store  fixtures,   has  been
discontinued.

As a result of the  acquisition of SESH,  the principal  business of the Company
became  the  business  of SESH.  SESH was  organized  in 1994 as a  wholly-owned
subsidiary  of SISC, a non-public  holding  company  owned 100% by  Consolidated
Technology Group, Ltd, ("Consolidated"),  a publicly held holding company. As of
December 31, 1996, SESH's subsidiaries consist of Sequential Electronic Systems,
Inc.  ("SES"),  S-  Tech,  Inc.,  ("S-Tech"),  WWR  Technology,  Inc.,  ("WWR"),
Televend, Inc., ("Televend") and FMX, Corp., ("FMX").

SES was organized during 1986 as a wholly-owned subsidiary of Consolidated.  SES
took  over  all of the  manufacturing  assets  and  related  liabilities  of the
precision electronic instrument operations of Consolidated.  During 1990, all of
Consolidated's  shares and notes in SES were assigned to SISC.  During 1994, the
stock of SES was transferred to SESH from SISC. SES is primarily  engaged in the
manufacture of electro-mechanical and electro-optical devices. Sales are made to
customers throughout the United States.

S-Tech was organized as a wholly-owned subsidiary of Consolidated.  During 1990,
all of  Consolidated's  shares in S-Tech were assigned to SISC. During 1994, the
stock of S-Tech was transferred to SESH from SISC.  S-Tech is primarily  engaged
in the manufacture and assembly of aircraft  instruments and vending devices for
sale to commercial and  governmental  institutions.  Sales are made to customers
throughout the United States.

WWR was  incorporated  in 1992 for the  acquisition  of  certain  assets  of the
professional audio speaker business of Klipsch and Associates, Inc. During 1993,
all of the stock of WWR was  acquired by and  operated as a business  segment of
Trans Global Services,  Inc., ("Trans Global"), a publicly held company.  During
1995, Trans Global,  a subsidiary of Consolidated,  sold all of the stock of WWR
to SESH. WWR is primarily  engaged in the manufacture of a professional  line of
audio speaker products. Sales are made to customers throughout the world.

Televend was organized in December 1995 as a wholly owned subsidiary of SISC and
effective April 1, 1996, the stock of Televend was transferred to SESH. Televend
has  developed and markets a line of telephone  cards for general use.  Televend
intends to ultimately sell the telephone cards using S-Tech's  telephone calling
card vending machines and is currently  selling the cards through an independent
network of sales representatives.

FMX was  organized  in 1995 and is a 51%  owned  subsidiary  of  SESH.  The only
employee and founder of FMX owns or controls the  remaining 49% of FMX. FMX is a
development  stage company which  designs,  develops and  integrates  all of the
critical building blocks of a Fingerprint ID System.

The  Company's  principle  business  prior  to the  acquisition  of SESH was the
design,  manufacture  and sale of customized  store  fixtures and  merchandising
systems, through certain wholly owned subsidiaries. The Company's business focus
prior to the  acquisition  of SESH was to  capitalize  on its  expertise  in the
design and sale of store  fixtures and  merchandising  systems by expanding  its
sales force and by increasing its  manufacturing  operations to become a company
with a national market presence. As it became evident that the Company would not
be able to operate profitably, it sought a business opportunity which it felt it
could develop into a profitable  business.  Following this  strategy,  Lafayette
implemented  plans to  discontinue  all of its  prior  business  operations  and
entered into an agreement to purchase SESH.

The  acquisition of SESH was accounted for as a reverse  acquisition,  with SESH
being the surviving  company for  accounting  purposes.  In  accounting  for the
reverse  acquisition,  the  equity  of  SESH,  as  the  surviving  company,  and
Lafayette, as the acquired company, was recapitalized as of December 31, 1996.

The balance sheet  information  at December 31, 1996  reflects the  consolidated
financial  position  of the  Company  with  SESH as the  surviving  entity.  The
statement  of  operations  and the  statement  of cash flows for the years ended
December  31,  1996 and 1995  reflect  the  operations  of SESH,  the  successor
corporation.  Accordingly,  the financial information presented in the Company's
Form 10-KSB for the year ended December 31, 1996 is not comparable with its Form
10-KSB for the year ended  December 31,  1995,  which  reflected  only the prior
Lafayette business.




                                           F-9

<PAGE>


                       Lafayette Industries, Inc. and Subsidiaries
                        Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------


[2] Summary of Significant Accounting Policies

Principles of Consolidation - The Company's  consolidated  financial  statements
include the accounts  Lafayette  Industries,  Inc. and SESH and its  affiliates,
SES,  S-Tech,  WWR,  Televend and FMX. All  material  intercompany  balances and
transactions have been eliminated.

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

Inventories - Inventories consist of raw materials, work-in-process and finished
goods.  Raw materials are valued at the lower of cost (average price) or market.
The  work-in-process  and  finished  goods  represent  accumulated  costs of raw
materials,  direct  labor and factory  overhead on current  work  orders.  Costs
accumulated under government contracts are net of progress payments.  Management
has established an estimated  reserve for  obsolescence as of December 31, 1996.
Management  feels that the remaining  value of the  inventory is reasonable  and
that no further reserve is needed. This is based upon the existence of contracts
and  projected  sales  which will  require a portion of this  inventory  and the
expectation of future similar type  contracts.  Actual results could differ from
these estimates.

Property,  Plant and Equipment and Depreciation - Property,  plant and equipment
are stated at cost less  accumulated  depreciation.  The cost of equipment  held
under  capital  leases is equal to the fair value of the leased  property at the
inception of the lease.  Depreciation is computed generally by the straight-line
method at rates  adequate to allocate the cost of  applicable  assets over their
expected  useful  lives which range from five to seven  years.  Amortization  of
capitalized leases is included with depreciation expense. Leasehold improvements
are amortized over the lesser of the improvements useful life or the term of the
lease.

Investments  -  The  Company  maintains  its  investments  in  common  stock  in
accordance with Statement of Financial  Accounting  Standards  ("SFAS") No. 115,
"Accounting  for  Certain  Investments  in Debt and  Equity  Securities,"  which
requires certain  investments that have readily  determinable  fair values to be
categorized as either trading, available-for-sale,  or held-to-maturity.  All of
the  Company's   equity   investments   in  common  stock  are   categorized  as
available-for-sale  and are  recorded  at fair value with  unrealized  gains and
losses recorded as a separate component of shareholders'  equity.  Additionally,
available-for-sale  investments  that are deemed to be permanently  impaired are
written  down to fair market value and such write down is charged to earnings as
a realized loss.

Trademark - The  acquired  trademark of WWR was valued at  acquisition  based on
fair value and is being amortized on a straight-line  basis over 25 years.  This
acquired  trademark  gives WWR a nonexclusive  trademark  license for the use of
Klipsch and  Associates  trademark  "Klipsch" for use with various  professional
loudspeaker products provided that the trademark is used only in connection with
professional loudspeakers.  Klipsch and Associates' predecessor was incorporated
during the 1940's and has an established name as a leader in loudspeaker  design
and  innovation.  Management  believes  that  the  acquisition  of  the  Klipsch
Professional  product  line  gives  WWR one of the most  long-  established  and
recognizable brand names in the industry.  WWR is currently  defending its right
to continue the use of such trademark.  The Financial Accounting Standards Board
["FASB"] has issued SFAS No. 121,  "Accounting  for the Impairment of Long-Lived
Assets and for Long-Lived  Assets to be Disposed of,"  addressing the accounting
for the  impairment of long-lived  assets that will be held and used,  including
certain identifiable intangibles. Management of the Company evaluates the period
of  amortization  for the  trademark  to  determine  whether  latter  events and
circumstances warrant revised estimates of useful lives. This evaluation is done
by comparing the carrying  value of the trademark to the value of projected cash
flows from the related  operations  (undiscounted and without interest charges).
Impairment is recognized if the carrying  value of the trademark is greater than
the projected  cash flows for related  operations.  Management  does not believe
that there is any impairment of the trademark at December 31, 1996.

Organization  Costs -  Organization  costs  are  recorded  at cost and are being
amortized on a straight-line basis over five years.

Deferred  Financing Costs - Deferred financing costs are amortized over the life
of the  related  debt  which is three  years.  However,  the life may be reduced
pending resolution of the debt default [See Note 12].

Warranties - WWR provides  customers  with various  warranties  and therefore is
exposed to the risk that its  ultimate  warranty  liability  may exceed  amounts
accrued in the  accompanying  financial  statements.  Management  believes  that
future  warranty  payments in excess of such amounts  accrued,  if any, will not
have a  significant  impact on the Company's  financial  position and results of
operations.  At December 31, 1996,  WWR has  approximately  $15,000  accrued for
estimated  warranty  liabilities which amount is included with accrued expenses.
Actual results may differ from amounts accrued.

Revenue Recognition - Sales and profits under all fixed price type contracts are
accounted  for under the unit of  delivery  method.  Under the unit of  delivery
method,  sales and profits are  recognized  in proportion to the number of units
shipped in relation to total units ordered.  Anticipated  losses on contracts in
progress  are charged to  operations  as soon as such losses can be  determined.
Revenues not  generated  under fixed price type  contracts are  recognized  when
product is shipped.  The Company reserves amounts against revenues for estimated
product returns and sales discounts.

Research  and  Development  -  Research  and  development  expense  approximated
$262,000  and  $87,000  for  the  years  ended   December  31,  1996  and  1995,
respectively.




                                           F-10

<PAGE>


                       Lafayette Industries, Inc. and Subsidiaries
                        Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------


Concentrations of Credit Risk - Financial  instruments which potentially subject
the  Company to  concentrations  of credit  risk  consist  of cash and  accounts
receivable. Generally, the Company does not require collateral or other security
to support customer  receivables.  The Company routinely  assesses the financial
strength of its customers and based upon factors  surrounding the credit risk of
its  customers  establishes  an allowance for  uncollectible  accounts and, as a
consequence,  believes that its accounts  receivable credit risk exposure beyond
such  allowances  is  limited.  The  Company  places its cash with a high credit
quality  financial  institution.  The amount on deposit that  exceeds  federally
insured  limits is subject to credit risk. At December 31, 1996, the Company had
approximately $150,000 deposited in excess of federally insured limits. Revenues
from two U.S.  government  agencies  approximated  to $321,000  and $893,000 and
comprised  approximately  5% and 20% of the total  revenues  for the years ended
December  31,  1996 and  1995,  respectively.  Sales to the two U.S.  Government
Agencies  were  made  by the  Electra-Mechanical  and  Electro-Optical  Products
Manufacturing Segment.

Advertising - The Company expenses advertising costs as incurred. 
 Advertising expense approximated $176,000 and $86,000 for the years
ended December 31, 1996 and 1995, respectively.

Use of Estimates - The  preparation 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  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Stock  Options  Issued  to  Employees  -  The  Company  adopted  SFAS  No.  123,
"Accounting for Stock-Based Compensation," on January 1, 1996 for financial note
disclosure  purposes and will  continue to apply the  intrinsic  value method of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," for financial reporting purposes.

Fair Value of Financial  Instruments - Generally accepted accounting  principles
require  disclosing  the  fair  value of  financial  instruments  to the  extent
practicable  for financial  instruments  which are recognized or unrecognized in
the balance sheet. The fair value of the financial  instruments disclosed herein
is not  necessarily  representative  of the  amount  that could be  realized  or
settled,  nor  does the fair  value  amount  consider  the tax  consequences  of
realization  or  settlement.  In  assessing  the fair  value of these  financial
instruments,  the Company used a variety of methods and assumptions,  which were
based on estimates of market  conditions  and risks  existing at that time.  For
certain  instruments,  including cash, trade  receivables and trade payables and
officer  advances,  it was estimated that the carrying amount  approximated fair
value for the majority of these  instruments  because of their short maturities.
For long-term investment in marketable securities, fair value is estimated based
on current  quoted market  price.  It was not  practicable  to estimate the fair
value of long-term  debt,  and amounts due to affiliated  companies,  due to the
substantial  uncertainties  involved,  such as  resolution  of the various  debt
defaults and litigation to which the Company is a party.

Loss Per Share - Loss per share of common stock is based on the weighted average
number of common shares outstanding for the period presented, plus the number of
shares issued in the reverse merger, as if they were outstanding for all periods
presented  and assuming  conversion  of the Class A Preferred  Stock into Common
Stock.  Common  stock  equivalents  are included in the  computation  when their
effect is dilutive.

[3] Going Concern

The  accompanying  financial  statements  have been  prepared on a going concern
basis which  contemplates  the  realization  of assets and the  satisfaction  of
liabilities in the normal course of business.  The Company has sustained  losses
since  inception  and  has an  accumulated  deficit  at  December  31,  1996  of
approximately $6.5 million.  In addition,  it is party to various litigation and
is in default on  substantially  all of its debt.  The ability of the Company to
continue  as a going  concern is  dependent  upon the  success of the  Company's
marketing  efforts,  access to  sufficient  funding  to  enable  it to  continue
operations and its ability to resolve litigation  favorably.  The ability of the
Company  to effect its  transition,  ultimately,  to  profitable  operations  is
dependent upon obtaining adequate financing and achieving a level of revenues to
support its cost structure. The failure of the Company to generate revenues at a
level in excess of its ongoing expenses may force the Company to reduce or cease
operations.  Management  plans  to  increase  revenues  of WWR by way of a sound
marketing plan to increase the domestic dealer base and by  concentrating on its
international distribution.  Furthermore, WWR plans to release a new "high tech"
range of  loudspeakers  to gain attention to the line and increase its worldwide
market share. SES and S-Tech plan to increase  revenues through the introduction
of new  products  and through  revenues  which are  expected to be  generated in
connection  with  certain  development  agreements.  Management  is  also in the
process of obtaining financing through financial institutions and other sources.
To date, no financing has been obtained other than that discussed in Note 24A.

There can be no assurance that management's  plans to reduce operating losses or
obtain additional financing to fund operations will be successful. The financial
statements do not include any  adjustments  relating to the  recoverability  and
classification  of  recorded  assets,  or  the  amounts  and  classification  of
liabilities  that might be necessary in the event the Company cannot continue in
existence.




                                           F-11

<PAGE>


                       Lafayette Industries, Inc. and Subsidiaries
                        Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------



[4] Receivables
Accounts receivable consist of the following as of  December 31, 1996:
      Trade accounts receivable                 $682,000
      Less - Allowance for bad debts             51,000
      Receivables, net of allowances            $631,000

[5] Inventories

Inventories as of December 31, 1996 are as follows:

      Finished goods                            $ 69,000
      Work-in-process                             1,663,000
      Raw materials                             2,174,000
                                                ---------
      Total                                     3,906,000
      Less:  Reserve for obsolescence           (781,000)
                                                --------
      Inventories, net                          $3,125,000
                                                ==========

During the years ended  December 31, 1996 and 1995,  approximately  $381,000 and
$470,000,  respectively, was charged to operations for the write-off of obsolete
inventory.

[6] Loan Receivable, Related Party

The Company is owed $85,000 for non-interest bearing advances to a director of
 the Company.  Such amount is expected to be collected during
1997.

[7] Plant, Plant and Equipment and Depreciation

Property,  plant and equipment and  accumulated  depreciation as of December 31,
1996 are as follows:

      Machinery and equipment                   $1,672,000
      Vehicles                                    25,000
      Tools and dies                             654,000
      Furniture and fixtures                     288,000
      Leasehold improvements                     163,000
      Computer equipment                          10,000
      Equipment under capital lease obligations   326,000
      Total cost                                  3,138,000
      Less: Accumulated depreciation            (2,643,000)
                                                  --------
      Property, plant and equipment, net      $    495,000

Depreciation expense charged to operations approximated $240,000 and $56,000 for
1996 and 1995, respectively.




                                           F-12

<PAGE>


                       Lafayette Industries, Inc. and Subsidiaries
                        Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------



[8] Notes Receivable

In December 1996, the Company accepted  assignment of a purchase  mortgage loan.
The loan bears  interest  at prime  plus 2% (an  effective  rate of 10.25%)  and
matures on May 1, 2002. Maturities on this note are as follows:

      1997                                      $ 49,000
      1998                                        98,000
      1999                                        98,000
      2000                                        98,000
      2001                                        98,000
      Thereafter                                  49,000
                                                --------
         Total                                  $490,000

The entire balance of this note  receivable has been  classified as long-term as
the collection of this note receivable in 1997 is uncertain due to pending legal
issues [See Note 22].

[9] Investment in Common Stock

As of December  31,1996,  the Company's  investment in common stock  consists of
1,060,000 shares of Trans Global Services, Inc. (See Notes 14, 17 and 24) :

    Cost basis                                  $1,546,000
     Net unrealized holding gain included as a 
     separate
        component of shareholders' equity        442,000
     Fair Value                                 $1,988,000

[10] Intangible Assets

Intangible assets as of December 31, 1996 are as follows:

      Trademark                                 $429,000
      Less:  Accumulated amortization            (61,000)
                                                --------
      Trademark, net                            $368,000
                                                ========

      Organization costs 
        (included in other assets)               67,000
      Less:  Accumulated amortization            (57,000)
      Organization costs, net                   $ 10,000

      Deferred financing costs                  $526,000
      Less: Accumulated amortization             (57,000)
                                                --------
      Deferred financing costs, net             $469,000
                                                ========

Amortization  expense  charged to  operations  was  $28,000 for both years ended
December 31, 1996 and 1995.

The deferred  financing costs  represent  warrants issued in connection with the
convertible  debentures which are in default as of December 31, 1996. Therefore,
if the default is not cured,  these costs will be charged to  operations  in the
future period [See Note 13].

[11] Due to Related Party

The amount due to a related  party  represents  short-term  advances made to the
Company by a director of the Company and his wife. The advances are non-interest
bearing and were made through  several  entities in which the  directors  hold a
controlling interest.




                                           F-13

<PAGE>


                       Lafayette Industries, Inc. and Subsidiaries
                        Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------


[12] Notes Payable

Notes payable is comprised of the following as of December 31, 1996:

[A]   Note payable to Rosenthal and Rosenthal payable in quarterly
        installments, due November 1999, currently in defaul          $  458,000

    Note payable to Small Business Administration, currently in default.153,000

      Note payable to National Westminster bank, USA payable in
        monthly installments of $20,000 at  prime plus 2%, [an effective
        rate of 10.5%] at December 31, 1996, due March 20, 1997.          8,000

[B]   Note payable to AllState Financing
        The note carries an effective interest rate
        of 24.5% at December 31, 1996.                                  217,000

[C]   Note payable to former stockholder, requires monthly interest
        payments at 13.5% with the principal due November 1997, currently
        in default.                                                      325,000

      Total notes payable                                              1,161,000
      Current portion                                                 1,161,000
                                                                      ---------
      Long-term portion                                               $      --
                                                                      =========

[A] The note  payable  to  Rosenthal  is  guaranteed  by  Sunbelt  Fixtures  and
Lafayette  Products (pre reverse merger  subsidiaries  of  Lafayette).  The note
agreement includes covenants which include among others,  covenants  restricting
dividend  payments and requiring a stated net worth.  At December 31, 1996,  the
Company was in default of a negative  covenant  preventing  mergers with outside
parties and a covenant requiring consolidated net worth in excess of $1,000,000.
Additionally, the Company failed to make a required payment in the first quarter
of 1997.  Due to the above  defaults,  the interest  rate is increased by 3% per
annum (effective rate of 13.25%).

[B] In  1996,  the  Company  entered  into an  agreement  to sell  its  accounts
receivable  with  recourse  to a financing  company  for cash.  Since the future
obligation under the recourse  provisions  cannot be reasonably  estimated,  the
amount of cash  received  under the  agreement is recorded as a  liability.  The
amount  received  was  $215,000  for fiscal  1996.  The  financing  agreement is
collateralized by substantially all the assets of WWR.

[C] The note  payable to a former  stockholder  is  collateralized  by  accounts
receivable and is guaranteed by Consolidated,  Trans Global  Services,  Inc. and
others.  The note  agreement  includes  covenants  which  include,  among  other
covenants,  restrictions on dividend payments and borrowings of additional debt.
As of December 31, 1996, a required  monthly  interest  payment on this note was
paid late and caused said note to be in default.

[13] Convertible Debentures

At  December  31,  1996,  the Company had  outstanding  $700,000 of  convertible
debentures.  These  debentures  bear  interest  at  8-1/2%  per  annum  and  are
convertible  at a  conversion  price per each share of common stock equal to the
lesser of $4.00 per share or a specified  percentage  of the market value of the
stock on the day immediately  preceding the conversion  date. The debentures are
due in  April  and July of 1998.  The  Company  issued  detachable  warrants  in
conjunction with the debentures. Each debenture was issued with one such warrant
for the  purchase  of 8,333  shares of  common  stock at $2.00  per  share.  The
warrants  expire in 1999. The value of the warrants is recorded as a discount on
bonds  which  offsets  the  amount of the  liability  under the  debentures.  At
December  31,  1996,  the  amount  of  unamortized  discount  was  approximately
$259,000.

The  Company is in default at  December  31,  1996 for  accrued  interest on the
convertible debentures of approximately $35,000.




                                           F-14

<PAGE>


                       Lafayette Industries, Inc. and Subsidiaries
                        Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


[14] Subordinated Notes Payable to Affiliated Companies

SIS Capital Corp.                               $  2,187,000
The Trinity Group                                  557,000
                                                ----------
                                                $2,744,000

SIS Capital Corp. - SIS Capital Corp. owns a controlling interest in the Company
and such amounts have arisen from cash advances and intercompany  charges to the
Company's  subsidiaries.  The  subordinated  debt  has  no  specified  repayment
provisions.  Of the total amounts due to SISC, $1,109,000 bears interest at 10%,
$75,000 bears interest at 8% and $1,560,000 is non-interest  bearing. Due to the
non-interest   bearing  nature  and  unspecified   payment  terms,  it  was  not
practicable  to  estimate  the fair  value of the  subordinated  amounts  due to
affiliate.  In addition,  the Company has pledged its investment in Trans Global
Services, Inc. as collateral on this obligation [See Note 9].

The  Trinity  Group - The  amounts  owed to The  Trinity  Group  are for  unpaid
consulting fees for services provided to the Company's subsidiaries. The Trinity
Group is a wholly owned  subsidiary of Consolidated  which is the parent company
of SISC.  There  are no  specified  repayment  terms  and the  amounts  owed are
non-interest bearing.

[15] Lease Obligations

Capitalized  Lease Obligations - The Company leases equipment and vehicles under
noncancellable capital leases which are collateralized by equipment and vehicles
having cost of $326,000 and accumulated amortization of $283,000 at December 31,
1996.

Future minimum payments under capitalized lease obligations are as follows as of
December 31, 1996:

      1997                                      $  125,000
      1998                                          22,000
      1999                                          12,000
      2000                                           2,000
      Total future minimum lease payments          161,000
      Less:  Amount representing interest           (8,000)
      Net present value of minimum lease payments  153,000
      Current portion of obligations under capital
      leases                                       119,000
      Long-term portion of obligations under 
      capital leases                                 34,000

Included in the 1997  obligations is  approximately a $100,000 lease  obligation
which is in default.

Operating  Lease  Obligations  -  SES  leases  equipment  under   noncancellable
operating leases expiring in 1997. SES currently is on a month to month lease on
its primary facility.  S-Tech leases a facility under a noncancellable operating
lease  expiring  in 1997  and  such  lease  includes  a  renewal  option  for an
additional two years. WWR leases its manufacturing and  administrative  facility
and certain office and computer equipment under noncancellable  operating leases
expiring in 1999.

Minimum future rental payments under  noncancellable  operating  leases having a
remaining term in excess of one year are as follows as of December 31, 1996:

         1997                                   $   91,000
         1998                                       77,000
         1999                                       45,000
                                                ----------
      Total minimum rental commitments           $  212,000
                                                 ==========

Rental   expense  for  1996  and  1995   approximated   $252,000  and  $245,000,
respectively.




                                           F-15

<PAGE>


                       Lafayette Industries, Inc. and Subsidiaries
                        Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


[16] Income Taxes

The Company and its consolidated subsidiaries apply the provisions of
 Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes".

The major  components  of  deferred  income  tax asset  and  liabilities  are as
follows:

      Deferred Tax Liability
        Marketable securities                   $ (199,000)
                                                ----------
      Deferred Tax Asset
        Reserves and allowances                    410,000
        Stock based compensation                   268,000
        Net operation loss carry forwards         2,430,000
                                                -----------
        Total Deferred Tax Assets                3,108,000
                                                ----------
      Net Deferred Tax Asset Before
        Valuation Allowance                      2,909,000
        Valuation Allowance                     (2,909,000)
                                                ----------
        Net                                     $       --
                                                ==========

The Company  recorded an increase in its valuation  allowance of $1,244,000 over
the allowance at December 31,1995.

The Company has a net operating loss carry forward of  approximately  $5,400,000
of which  approximately  $700,000  will expire in 2009,  $2,400,000  in 2010 and
$2,300,000 in 2011.

[17] Acquisitions

WWR Technology, Inc.:

Effective September 30, 1995, the Company purchased all of the stock of WWR 
Technology, Inc. from Trans Global Services, Inc., ("TGS"), a subsidiary of 
Consolidated in exchange for the repayment of approximately $2,100,000 of 
subordinated notes payable that WWR owed to TGS.  The repayment of such 
intercompany debt was satisfied by the issuance of certain preferred convertible
 stock by Consolidated to TGS through SISC.  As a result of this repayment,
 WWR, effective as of September 30, 1995, effectively replaced subordinated 
notes payable to TGS with subordinated notes payable to SISC.  At the time of
 the purchase, WWR's liabilities exceeded its assets by $1,545,923 and TGS
issued 1,060,000 shares of its common stock to the Company which was valued at
 $1,545,923 at the time of issuance.  As a result of the transaction, all
 historical asset and liability balances, which approximate fair market value,
 were retained and no goodwill was recorded.  The underlying assets and
 liabilities acquired are as follows:

      Assets:
      Cash                                      $   47,000
      Accounts receivable                          474,000
      Inventories                                  810,000
      Property, plant and equipment                344,000
      Trademark                                    386,000
      Other assets                                  69,000
      Liabilities:
      Accounts  payable and accrued expense         732,000)
      Notes payable and capital lease  obligation   (567,000) 
       Subordinated  notes  payable  to  affiliate  (2,375,000) 
          Value of common stock received from TGS
        which is included in investments on the
        Company's balance sheet                          $  1,546,000
                                                         ============

The  transaction  was accounted for using the purchase  method of accounting and
WWR's  operating  activity is included in the Company's  statement of operations
since September 30, 1995.



                                           F-16

<PAGE>


                       Lafayette Industries, Inc. and Subsidiaries
                        Notes to Consolidated Financial Statements
------------------------------------------------------------------------------


Televend Inc.:

Effective  April 1, 1996,  SISC  transferred  all of its ownership in Televend's
common  stock  to  SESH.  At the date of the  transfer,  Televend's  accumulated
deficit was  $171,000 for which SESH  received a reduction  in the  subordinated
amounts due to SISC of $171,000.  The underlying assets and liabilities acquired
are as follows:

      Assets:
        Cash                                    $ 10,000
        Inventories                               19,000
        Property, plant & equipment, net           4,000
      Liabilities:
        Accounts payable and accrued expenes    (49,000)
        Subordinated debt                       (155,000)

      Reduction of subordinated debt to SISC    $171,000

For  accounting  purposes,  Televend's  operating  activity  is  included in the
Company's statement of operations since March 31, 1996.

FMX Corp.:

Effective  January 1, 1996,  SISC  transferred  its  ownership  in the FMX Corp.
equity to SESH. All material  operating activity of FMX did not occur until 1996
and as such no assets or liabilities existed at the date of the transfer and the
Company's  statements  of operations  includes all of the operating  activity of
FMX.

Pro Forma Results:

The following pro forma unaudited  results assume that the above
 acquisitions occurred at the beginning of the indicated periods:
                                    December 31,
                                  1 9 9 6       1 9 9 5
                                  -------       -------

      Revenues                $6,145,000   $7,031,000
      Net Loss                $(3,103,000) $(3,806,000)
      Net Loss Per Share      $           ($           (.16)

The pro forma information is not necessarily indicative of either the results of
operations  that would have occurred had the  acquisition  been effective at the
beginning of the indicated periods or of the future results of operations.

[18] Related Party Transactions

During  1996,  SES  received  consulting  services  from The Trinity  Group,  an
unconsolidated   affiliate.  The  Company's  statement  of  operations  includes
consulting  expense of $127,000 in each of the years ended December 31, 1996 and
1995 for such services.

[19] Industry Segments

Since December 20, 1996, the principal business of Lafayette  Industries,  Inc.,
(the "Company" or "Lafayette") has consisted of four primary business  segments:
(1)  Audio  Products   Manufacturing   which  consists  of  a  subsidiary   that
manufactures   and   sells   a   professional   line   of   loudspeakers;    (2)
Electro-Mechanical and Electro-Optical  Products Manufacturing which consists of
subsidiaries  that  manufacture  and sell  products such as devices that measure
distance and velocity,  instrumentation devices and debit card vending machines;
(3) Prepaid Telephone  Calling Cards,  which consists of a subsidiary that sells
telephone  debit  cards;  and  (4)  Fingerprint  Identification  Products  which
consists of a subsidiary that is developing a fingerprint identification system.
The following  provides  certain  information  regarding the Company's  business
segments for 1996 and 1995.




                                           F-17

<PAGE>


                       Lafayette Industries, Inc. and Subsidiaries
                        Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------



Revenues                                               1996        1995
Audio Products Manufacturing                       $3,308,000    $ 626,000
Electro-Mechanical and Electro-Optical
 Products Manufacturing                              378,000     3,862,000
Prepaid Telephone Calling Cards                      387,000            --
Fingerprint Identification Products                       --            --
                                                   $6,073,000    $4,488,000

Loss from Operations                                   1996        1995
Audio Products Manufacturing                       $(751,000)    $(437,000)
Electro-Mechanical and Electro-Optical Products
 Manufacturing                                      (1,557,000)   (900,000)
Prepaid Telephone Calling Cards                     (268,000)           --
Fingerprint Identification Products                 (189,000)           --
Corporate and Other                                   (8,000)           --
                                                   $(2,773,000)  $(1,337,000)


Capital Expenditures                                   1996         1995
                                                       ----         ----
Audio Products Manufacturing                       $ 103,000     $  68,000
Electro-Mechanical and Electro-Optical Products 
Manufacturing                                               --      3,000
Prepaid Telephone Calling Cards                        6,000            --
Fingerprint Identification Products                    1,000            --
Corporate and Other                                       --            --
                                                   ---------     ---------
                                                   $ 110,000     $  71,000
                                                   =========     =========

Depreciation & Amortization                            1996        1995
Audio Products Manufacturing                       $ 201,000     $  47,000
Electro-Mechanical and Electro-Optical Products
 Manufacturing                                         65,000       37,000
Prepaid Telephone Calling Cards                        1,000            --
Fingerprint Identification Products                    1,000            --
Corporate and Other                                       --            --
                                                   $ 268,000     $  84,000
                                                   =========     =========


                                                      At
                                                   December 31,
                                                      1996
Identifiable Assets
Audio Products Manufacturing                       $1,478,000
Electro-Mechanical and Electro-Optical Products
 Manufacturing                                      3,245,000
Prepaid Telephone Calling Cards                      119,000
Fingerprint Identification Products                   27,000
Corporate and Other                                4,047,000

                                                   $8,916,000



                                           F-18

<PAGE>


                       Lafayette Industries, Inc. and Subsidiaries
                        Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------



[20] Capital Stock Transactions

The  accompanying  footnotes  [A]  through  [G]  detail  stock  transactions  of
Lafayette prior to the reverse acquisition discussed in Note 1 and are presented
for informational purposes.

[A] In connection  with a consulting  agreement  entered into in March 1996, the
Company conveyed a common stock purchase warrant,  for which the consultant paid
$13,000,  which  entitled  the  consultant  to  purchase  130,000  shares of the
Company's  common  stock  at a price of  $2.625  per  share.  In May  1996,  the
consultant  exercised such warrant and purchased  130,000 shares of common stock
which  yielded the Company net  proceeds  [after  deducting  issuance  costs] of
$307,000.

[B] On April 17, 1996,  the Company  received  $160,000 in exchange for two 8.5%
promissory  notes with a face value of $80,000  each.  These notes also gave the
holders the right to acquire an  aggregate  of 160,000  shares of the  Company's
common stock at a price of $.25 per share,  which  rights were  exercised at the
time of execution of the notes.  In June 1996, the holders,  in accordance  with
the provisions of the notes, as amended,  converted the principal  amount of the
notes to 320,000 shares of common stock.

[C] In May 1996,  the Company  issued  8.5%  promissory  notes in the  aggregate
amount of $320,000,  these notes being  convertible  to shares of the  Company's
common stock at a price of $.50 per share.  The holders of these notes were also
given the right to  purchase an  aggregate  of 400,000  shares of the  Company's
common stock at a price of $.50 per share,  which rights were exercised prior to
June 30, 1996. In July 1996, the holders converted the $320,000 promissory notes
to 640,000 shares of the Company's common stock at a price of $.50 per share.

[D] During the second quarter,  983,000 shares previously held in escrow,  which
were not released, were returned to the Company and canceled.

[E] During the period of May 1996 through July 1996,  $1,025,000 in  convertible
debentures  were sold of which  $325,000  were  converted  to 182,918  shares of
common  stock.  These  debentures  bear  interest  at  8-1/2%  per annum and are
convertible  at a  conversion  price per each share of common stock equal to the
lesser of $4 per share or a  specified  percentage  of the  market  value of the
common  stock  on  the  day  immediately  preceding  the  conversion  date.  The
debentures are due in April and July of 1998.

[F] In July 1996,  57,000  shares of the  Company's  common stock were issued to
consultants  in return for  services  rendered.  [G] In August  1996,  2,000,000
shares of common stock were issued at $.25 per share pursuant to Regulation S of
the Securities Act of 1933.

[H] In December  1996,  the Company sold an  aggregate  of  4,000,000  shares of
common  stock at $.25 per  share,  for a total of  $1,000,000  to four  offshore
investors  pursuant to Regulation S of the Securities Act of 1933. Each investor
purchased  1,000,000  shares of common stock for $250,000.  No  underwriter  was
involved in connection with such issuances and no brokerage or underwriting fees
or commissions were paid.

[I] On December 20, 1996, SIS Capital Corp. ["SISC"], a wholly-owned  subsidiary
of Consolidated Technology Group, Ltd.  ["Consolidated"],  DLB, Inc. ["DLB"] and
Lewis S.  Schiller,  the  sole  stockholders  of SES  Holdings  Corp.  ["SESH"],
transferred  all of the  issued  and  outstanding  capital  stock of SESH to the
Company pursuant to an agreement dated as of December 20, 1996, among SISC, DLB,
Mr.  Schiller  and the  Company,  in  exchange  for shares of two  newly-created
classes of the Company's  preferred  stock,  the Class A  Convertible  Preferred
Stock  ["Class A Preferred  Stock"] and the Class B Redeemable  Preferred  Stock
["Class B Preferred Stock"] [See Note 1].

The Class A Preferred Stock provides for annual non-cumulative dividends of $100
per share which, at the Company's election, can be paid in Company common stock.
The Class A Preferred Stock carries one vote per share and the Class A Preferred
Stockholders  have the right to elect one director.  The Class A Preferred Stock
automatically  converts to a number of shares of common stock based on a formula
which gives the Class A Preferred  Stockholders  a 65% ownership  [approximately
20,500,000 shares at December 31, 1996] of the Company upon stockholder approval
of an amendment to the Company's  certificate of  incorporation  to allow for at
least  80,000,000  shares of common  stock.  The Class A  Preferred  Stock has a
liquidation preference of $100 per share or $100,000 in the aggregate. The Class
A Preferred  Stock  participates  equally with the Class B Preferred Stock as to
dividends, liquidation and dissolution.



                                           F-19

<PAGE>


                       Lafayette Industries, Inc. and Subsidiaries
                        Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------


SISC received 80% of the shares of Class A Preferred Stock and all of the shares
of Class B  Preferred  Stock.  DLB and  Schiller,  each of whom owned 10% of the
outstanding  common  stock  of  SESH,  did not  receive  the  shares  of Class A
Preferred  Stock  issuable in respect of their shares of SESH common stock,  but
received  the  right  to  receive,  at the time the  Company's  common  stock is
issuable to SISC upon conversion of its Class A Preferred  Stock,  the number of
shares of Common  Stock which would have been  issuable to them if they held the
Class A  Preferred  Stock  issuable  in respect of their  shares of SESH  common
stock. In addition,  SISC holds a warrant to acquire, for nominal consideration,
15% of the common stock of each of Lafayette's  [formerly  SESH's]  subsidiaries
under certain conditions.

SESH's common stock was owned by SISC [80%], DLB [10%] and Mr. Schiller [10%]. 
 DLB is owned by Ms. Carol Schiller, wife of Mr.Lewis S. Schiller, the Chairman 
of the Board and Chief Executive Officer of Consolidated, SISC and SESH.  
Mr. Schiller disclaims beneficial interest in DLB or in any securities owned 
by DLB.  Mr. Schiller acquired  his stock in SESH pursuant to his employment 
agreement with Consolidated.

Although the Class A Preferred Stock is entitled to one vote per share, upon the
conversion of the Class A Preferred  Stock,  SISC,  DLB and Mr.  Schiller  would
receive such number of shares of Common  Stock as equals 65% of the  outstanding
Common Stock,  on a  fully-diluted  basis after giving effect to the issuance of
the Company's  Common Stock upon such conversion and all shares of the Company's
Common  Stock  reserved for  issuance,  including  shares  reserved for issuance
pursuant  to  certain  anticipated  financings,   including  the  Regulation  S.
Accordingly,  the  issuance of the Series A Preferred  Stock and the issuance of
the Common Stock upon  conversion  of the Class A Preferred  Stock  results in a
change in control of the Company.

[J]  Class B  Redeemable  Preferred  Stock  - The  Class B  Preferred  Stock  is
non-voting  and provides for annual  non-cumulative  dividends of $100 per share
which, at the Company's election, can be paid in Company common stock. The Class
B Preferred  Stock has a redemption  value of $6,750 per share or  $6,750,000 in
the aggregate. The Class B Preferred Stock may be redeemed, in whole or in part,
at any time commencing  March 1, 1997. Until all shares of the Class B Preferred
Stock have been redeemed the Company must apply 25% of the net proceeds from any
equity sales subsequent to March 1, 1997, and commencing  December 31, 1997, the
greater  of  25% of  the  Company's  income  before  taxes  or  cash  flow  from
operations,  as defined,  in excess of $250,000 to the redemption of the Class B
Preferred  Stock.  The Class B Preferred  Stock has a liquidation  preference of
$6.75 per share or $6,750 in the aggregate.

[21] Stock Options and Warrants

Under the Company's  employee  incentive stock options plan, options to purchase
stock were granted to employee  beginning in 1994.  The options vest over a five
year period and have a contract life of 10 years.

The Company applies Accounting  Principles Board Opinion No. 25, "Accounting for
Stock  Issued to  Employees,"  and related  interpretations,  for stock  options
issued to employees in accounting  for its stock option plans.  No  compensation
expense has been recognized for the Company's  stock-based  compensation  plans.
The exercise  price for all stock  options  issued to employees  during 1996 and
1995 was equal to the market price of the Company's stock at the date of grant.




                                           F-20

<PAGE>


                       Lafayette Industries, Inc. and Subsidiaries
                        Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------



A summary of the activity under the plan is as follows:
                                                                   Weighted
                                                       Weighted     Average
                                                        Average    Remaining
                                                       Exercise   Contractual
                                             Shares      Price       Life

Balance - December 31, 1994                   172,500 $    6.00

Granted  426,500                                 4.22
Exercised                                          --        --
Forfeited/Expired                                  --        --
                                           ---------- ---------

Outstanding - December 31, 1995               599,000      4.73
-------------------------------

Granted                                            --        --
Exercised                                          --        --
Forfeited/Expired                            (250,500)    (4.34)
                                           ---------- ---------

Outstanding - December 31, 1996               348,500 $    4.97    7.13 Years
-------------------------------            ========== =========    ==========

Exercisable - December 31, 1996                    --        --          --
-------------------------------            ========== =========    ========

Had  compensation  cost for the Company's stock options issued to employees been
determined  based upon the fair value at the grant date for stock options issued
under these plans  pursuant to the  methodology  prescribed  under SFAS No. 123,
Accounting  for  Stock-Based  Compensation,  the Company's net loss and loss per
share  would  have  been  increased,  on a pro  forma  basis,  by  approximately
$120,000,  or $.01  per  share  for the  year  ended  December  31,  1996 and by
approximately  $150,000, or $.01 per share for the year ended December 31, 1995.
The weighted  average fair value of stock options  granted to employees  used in
determining  the pro forma  amounts is estimated at $-0- and $4.22 for the years
ended  December  31,  1996  and  1995,   respectively  using  the  Black-Scholes
option-pricing  model  for the pro forma  amounts  with the  following  weighted
average assumptions:

                                             December 31,
                                          1 9 9 6      1 9 9 5

Risk-free Interest Rate                     N/A         6.36%
Expected LifeN/A                          6 Years
Expected Volatility                         N/A        292.12%
Expected Dividends                                None

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

                                           December 31,
                                       1 9 9 6        1 9 9 5
Net [Loss]:
As Reported                         $ (3,066,000)  $ (1,506,000)
                                    ------------   ------------
Pro Forma                           $ (3,186,000)  $ (1,656,000)
                                    ------------   ------------

Net [Loss] Per Share:
As Reported                         $       (.10)  $       (.06)
                                    ------------   ------------
Pro Forma                           $       (.11)  $       (.07)
                                    ------------   ------------




                                           F-21

<PAGE>


                       Lafayette Industries, Inc. and Subsidiaries
                        Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


During 1996,  the Company  issued  499,990 stock  warrants to  non-employees  at
exercise prices below or equal to the market price at the date of grant, ranging
from $2 to $3, and having a weighted  average  exercise  price of $2.50.  All of
these warrants  became fully vested on date of grant.  The total cost of issuing
these stock warrants to non-employees  during 1996 is approximately  $1,309,000.
Of this amount,  $900,000 relates to a warrant issued in conjunction with a debt
issuance  and is being  charged  to  additional  paid-in  capital  and  deferred
financing costs. The remaining $409,000 was for detachable  warrants issued with
the same  debt  issuance.  This is also  being  charged  to  additional  paid-in
capital.  The cost of the  warrants is being  amortized  over 3 year life of the
related  debt.  The  weighted  average fair value of stock  warrants  granted to
non-employee   during  1996  is  estimated  at  $2.62  using  the  Black-Scholes
option-pricing  model and using a weighted  average  risk-free  interest rate of
5.96%  and a  weighted  average  expected  life  of 3 years  with  an  estimated
volatility  of 292%.  No  dividends  are expected to be paid during the expected
life of the warrants.

At December 31, 1996, the company has warrants  outstanding  and  exercisable to
purchase the following:

249,990  shares of common stock at an exercise price of $2 per share expiring in
April 1999 250,000  shares of common stock at an exercise  price of $3 per share
expiring in April 1999 632,500 shares of common stock at an exercise price of $6
per share expiring in May 2004
 62,500 shares of common stock at an exercise price of $9 per share expiring in
 May 2004

[22] Commitments and Contingencies

Litigation

Lafayette Industries, Inc.:

The Company's  prior principal  business,  which was the manufacture and sale of
store fixtures, was discontinued in 1996. The manufacturing facilities for these
operations were located in Mexico and were seized by the landlord.  Although the
Company is contesting  the seizure,  no assurances can be given that the Company
will be able to realize any future  benefits  from these assets and has placed a
reserve for the full amount of such assets.

During the year ended December 31, 1996  Lafayette  either sold or closed all of
its operating  subsidiaries from its prior principal  business.  The Company and
its  subsidiaries,  are also contingently  liable  individually and jointly with
others as guarantors of long-term debt and obligations  principally  relating to
various debt  agreements,  leased  equipment and facilities.  In connection with
those  transactions,  the Company has been  notified that it is party to various
litigations,  with one claim ranging up to approximately $1,600,000. The Company
believes it may also be identified as a party to as yet unasserted  claims which
may be  substantial  in amount.  The  Company  has  estimated  its  exposure  to
contingent  liabilities  and  guarantees  and  believes  the amount  could range
between $300,000 and $1,600,000 and management has accrued the minimum amount of
$300,000. Although management has made what it feels is its best estimate of the
liabilities,   the  nature  of  the   liabilities  are  subject  to  substantial
uncertainty.  The amount of potential additional  liabilities above the $300,000
accrued can not be reasonably estimated. It is at least reasonably possible that
the liability could be revised in the near term.

WWR Technology, Inc.:

There  was an  action  pending  against  WWR  alleging  claims  against  WWR for
unauthorized  use of the Klipsch  trademark.  WWR denies these  allegations  and
asserted  there had been no breach of contract.  This case was dismissed in 1996
by the granting of a motion for summary  judgment.  The plaintiff  maintains the
right to appeal this decision.




                                           F-22

<PAGE>


                       Lafayette Industries, Inc. and Subsidiaries
                        Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------



[23] New Authoritative Accounting Pronouncements

The Financial Accounting Standards Board ["FASB"] has issued Statement of 
Financial Accounting Standards ["SFAS"] No. 125, "Accounting for Transfers and
 Servicing of Financial Assets and Extinguishment of Liabilities."  SFAS 
No. 125 is effective for transfers and servicing of financial assets and 
extinguishment of liabilities occurring after December 31, 1996. 
 Earlier application is not allowed.  The provisions of SFAS No. 125 must be
 applied prospectively; retroactive application is prohibited.  SFAS No. 125
supercedes SFAS No. 77, "Reporting by
Transferors for Transfers of Receivables with Recourse." While both SFAS No.
 125 and SFAS No. 77 required a surrender of "control" of
financial assets to recognize a sale, the SFAS 125 requirements of sale are 
generally more stringent.  The Company does not recognize sales
under SFAS No. 77 and, therefore, the changes in SFAS No. 125 are not expected 
to have a material impact on the Company.

The FASB issued Statement of Financial  Accounting  Standards  ["SFAS"] No. 128,
"Earnings Per Share," and SFAS No. 129, "Disclosure of Information about Capital
Structure"  in February  1997.  SFAS No. 128  simplifies  the earnings per share
["EPS"] calculations required by Accounting Principles Board ["APB"] Opinion No.
15, and related  interpretations,  by replacing the  presentation of primary EPS
with a  presentation  of basic EPS. SFAS No. 128 requires dual  presentation  of
basic and diluted EPS by entities  with complex  capital  structures.  Basic EPS
includes no dilution  and is computed  by dividing  income  available  to common
stockholders by the weighted-average number of common shares outstanding for the
period.  Diluted EPS reflects the potential  dilution of  securities  that could
share in the  earnings  of an entity,  similar to the fully  diluted  EPS of APB
Opinion No. 15. SFAS No. 128 is effective  for financial  statements  issued for
periods  ending after  December 15, 1997,  including  interim  periods;  earlier
application  is  not  permitted.   When  adopted,  SFAS  No.  128  will  require
restatement of all prior-period EPS data presented; however, the Company has not
sufficiently  analyzed  SFAS No. 128 to determine  what effect SFAS No. 128 will
have on its historically reported EPS amounts.

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

[24] Subsequent Events

[A] On February 7, 1997,  the Company sold an  aggregate of 2,000,000  shares of
Common  Stock at $.25 per share,  for an  aggregate  of $500,000 to two offshore
investors  pursuant to Regulation S of the  Securities Act of 1934 each of which
purchased  1,000,000  shares of Common Stock for $250,000.  No  underwriter  was
involved in connection with such issuances and no brokerage or underwriting fees
or commissions were paid.

[B] SESH has an agreement  pursuant to which SESH is to pay a The Trinity Group,
Inc., a monthly  management fee of $25,000 for the five-year  period  commencing
January 1, 1997.

[C] The Company's investment in Trans Global Services, Inc. had a fair value of
 approximately $1,300,000 on April  4, 1997.  This estimated value represents a
 decrease of $688,000 from the December 31, 1996 
fair value of $1,988,000.





                                           F-23

<PAGE>






                                        SIGNATURES

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

                              LAFAYETTE INDUSTRIES, INC.

Date: April 15, 1997          By:/s/ Lewis S. Schiller
                                 ---------------------
                                 Lewis S. Schiller
                                 Chief Executive Officer

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

Signature                     Title                   Date


/s/ Lewis S. Schiller         President and Director  April 15, 997
Lewis S. Schiller                   (Principal Executive Officer)

/s/ Lloyd C. Robinson         Chief Financial Officer April 15, 1997
Lloyd C. Robinson             (Principal Financial and
                               Accounting Officer)

                              Director                      _______________



                              Director                      _______________





<PAGE>



Lafayette Industries, Inc.
Index to Exhibits
December 31, 1996



EX-21.1 List of Subsidiaries of Registrant.

EX-27   Financial Data Schedule
        (filed only to the SEC in electronic format)