SECURITIES AND EXCHANGE COMMISSION
                      WASHINGTON, D.C. 20549

                               FORM 10-K

             Annual Report Pursuant to Section 13 or 15(d)
                 of the Securities Exchange Act of 1934
                For the Fiscal year ended March 31, 1997

                      Commission File No. 0-15596


              Spectrum(TM) Information Technologies Inc.


   Delaware                                             75-1940923
(State of                                            (I.R.S. Employer
incorporation)                                 Identification Number)

                     2700 Westchester Avenue
                     Purchase, New York 10577
                          (914) 251-1800
        (Address including zip code of principal executive
 offices and Registrant's telephone number, including area code)

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

Title of each class       Name of each exchange on which registered

       None                           Not applicable

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

             Common Stock, Par Value $.001 Per Share

      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 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 the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [ X ]

      The aggregate market value of voting common stock held by
nonaffiliates of the Registrant as of June 6, 1997 was
approximately $ 4,315,000 based on the average of the high and
low prices of the Common Stock on June 6, 1997 of $3.88 as
reported by the National Quotation Bureau.

      APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
           PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
YES  X   NO
   -----   -----

As of June 6, 1997, the registrant had outstanding approximately
1,114,000 shares of its Common Stock, par value $.001 per share.


               DOCUMENTS INCORPORATED BY REFERENCE



<PAGE>



Certain information as set forth in Part IV (Item 14) has been
incorporated by reference from the Company's Annual Report on
Form 10-K, as amended, for the fiscal years ended March 31, 1990,
1993, 1995 and 1996 and the Company's Registration Statements on
Form 10 dated April 10, 1987 and on Form S-8 dated March 31, 1997
as set forth herein.



<PAGE>



                SPECTRUM INFORMATION TECHNOLOGIES, INC.

                        INDEX TO FORM 10-K
             FOR THE FISCAL YEAR ENDED MARCH 31, 1997

 Item                                                              Page
 No.                                                                No.
-------                                                           -------


                              Part I

   1  Business....................................................   2

   2  Properties..................................................  13

   3  Legal Proceedings...........................................  13

   4  Submission of Matters to a Vote of Security Holders.........  17



                                Part II


   5  Market for the Registrant's Common Equity and Related
      Stockholder Matters.........................................  18

   6  Selected Financial Data.....................................  19

   7  Management's Discussion and Analysis of Financial
      Condition and Results of Operations.........................  19

   8  Financial Statements and Supplementary Data.................  23

   9  Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosure.........................  24


                             Part III


  10  Directors and Executive Officers of the Registrant..........  24

  11  Executive Compensation......................................  24

  12  Security Ownership of Certain Beneficial Owners
      and Management..............................................  26

  13  Certain Relationships and Related Transactions..............  27


                                Part IV


  14  Exhibits, Financial Statements Schedules and Reports
      On Form 8-K.................................................  27




<PAGE>



                SPECTRUM INFORMATION TECHNOLOGIES, INC.
                               FORM 10-K
                FOR THE FISCAL YEAR ENDED MARCH 31, 1997

                              PART I

Item 1.  Business.

Overview

      Spectrum Information Technologies, Inc., a Delaware
corporation ("Spectrum" or the "Company"), owns a portfolio of
patents relating to commercially practicable methods to
wirelessly transmit data over circuit-switched cellular networks.
Spectrum has been operating primarily as an intellectual property
company generating much of its revenues from royalties associated
with the licensing of its proprietary technology and some
revenues from the sale of products based on this technology (the
"legacy business"). Beginning in January 1995, Spectrum's then
new management and Board of Directors began implementing a
strategic plan to fundamentally refocus the Company. Spectrum's
current business objective is to become a key provider of value
added remote access communications software and related products.

      On January 26, 1995, Spectrum and three of its operating
subsidiaries sought protection under chapter 11 of the Federal
Bankruptcy Code to allow the Company time to resolve the many
financial and legal problems that led to the bankruptcy filing
and develop a new business strategy. Since the filing, Spectrum
has resolved all major claims against it, downsized and
reorganized. On March 31, 1997, Spectrum successfully implemented
its plan of reorganization and emerged from bankruptcy. (See
Spectrum's Reorganization and Item 3 - Legal Proceedings
Bankruptcy Proceedings.) Spectrum is focused on improving the
operating performance of the legacy business concurrently while
investing in the development of products consistent with its
business objective.

      Since mid-1995, Spectrum has redesigned several aspects of
its marketing program related to the legacy business, including
its licensing program, in an effort to increase product demand
and the revenues derived from its proprietary technology. Despite
these changes, market demand for Spectrum's cellular data
transmission products has not grown. The Company has completed an
evaluation of the long range potential of the legacy technology
and has concluded that the royalties that Spectrum receives from
companies that license its technology and the revenues that
Spectrum generates from the sale of its activation kit product
line will continue to be insufficient to reverse Spectrum's
continuing operating losses. The Company's management is
considering options to reverse the negative cash flow associated
with the legacy business.

      Consistent with its business objective, the Company has been
investing in the development of remote access communications
software. As the Company's development efforts are evolving, the
Company has expanded the intended functionality of the software
to address Internet and Intranet related communications software
solutions in the corporate and also possibly in the service
provider market. This software is expected to enable more
efficient Internet/Intranet information access and is designed
primarily for use over dial up land lines, but will also be
applicable for use over wireless links. The intended software
will not be covered by Spectrum's existing patent portfolio. (See
Products and Products Under Development; Risk Factors.)

      The Company's executive offices are located at 2700
Westchester Avenue, Purchase, New York 10577.

Spectrum's Reorganization

      On January 26, 1995, the Company together with its
wholly-owned subsidiaries Computers Unlimited of Wisconsin, Inc.
d/b/a Computer Bay, Dealer Services Business Systems, Inc. d/b/a
Data One and Spectrum Cellular Corporation (collectively, the
"Debtors"), filed petitions for relief under Chapter 11 of the
Federal Bankruptcy Code (the "Bankruptcy Proceeding"). Upon
motion by the Debtors, the Bankruptcy Court converted the action
for Computer Bay to a case under Chapter 7 of the Bankruptcy
Code. A trustee is overseeing the liquidation of Computer Bay's
assets and the Company no longer has control over the Computer
Bay estate. Data One consummated a separate liquidating plan of
reorganization on October 4, 1996. The estates of Spectrum and
Spectrum Cellular were substantively consolidated as part of the
bankruptcy proceeding and are operating as a single entity.

      On March 31, 1997 (the "Effective Date"), Spectrum
consummated its proposed Chapter 11 plan of reorganization (the
"Plan"). The Plan provided all administrative creditors with full
payment, settled all material litigation pending against the
Company and provided all general unsecured creditors with 100% of
the value of their claims plus 6% interest per annum from the
bankruptcy filing date thereon. It also settled the $676 million
class action lawsuits filed against the Company by the payment of
$250,000 and

                                2

<PAGE>



the delivery of approximately 45% of the equity ownership in
Spectrum to a trustee to be distributed to the members of the
class. Although existing Spectrum shareholders were substantially
diluted under the terms of the Plan, the shareholders as of the
Effective Date obtained the majority of the 45% equity ownership
in Spectrum set aside for existing shareholders and certain
creditors. The Plan also provides that the remaining 10% of the
equity ownership will be distributed among officers, employees
and non-executive directors. (See Item 3 - Legal Proceedings
Bankruptcy Proceedings).

Company History

      Spectrum has been actively involved in cellular
telecommunications since its inception in 1984. The Company first
investigated the capabilities of then-existing land-line modem
protocols (the set of rules that specify how information is
transferred between modems), and determined that they did not
provide the reliability needed for dependable transmission of
computer data through cellular communications. The Company also
recognized that none of the cellular telephone products then
available offered the intelligent interface capabilities required
to interface with modems that are needed for data communications
over cellular networks. In response to this need, the Company
developed and patented (i) other specific modem control
technology and (ii) various cellular telephone-modem interface
technologies. The Company has six U.S. patents (See Proprietary
Rights).

      Today, the Company's patented technology is marketed under
the DIRECT CONNECT (TM) AXSYS(R) brand name which, in addition to
the enhancements to the modem chipset, includes (i) the Company's
direct connect software driver product and (ii) associated
cables, both of which are used to connect cellular-capable modems
to cellular telephones, which together form the "activation kit",
which makes a modem cellular ready. A second non-direct connect
interface, the AXCELL(R) brand cellular interface, was designed
to allow the user to utilize other land-line compatible devices
(such as a facsimile, telephone set or answering machine) as well
as modems with a cellular telephone. In July 1995, pursuant to an
agreement approved by the Bankruptcy Court, the Company sold its
non-profitable AXCELL(R) product line and certain related patent
rights to Telular Corporation. The patent rights transferred by
the Company relate to wireless interface technology and were
obtained in a license agreement from Telular dated March 23,
1992, and were not a part of Spectrum's core patent portfolio.

      In an effort to establish distribution channels for its
proprietary technology and products, the Company acquired
Computer Bay and Data One (and two smaller companies that were
merged into Data One). Computer Bay, a national franchiser of
independent resellers of microcomputers and related products and
services, was acquired in 1992. Data One designed, marketed and
serviced portable communications and computing systems (primarily
for use by field personnel in sales and service companies) and
office systems utilizing microcomputers and peripheral products,
and was acquired in 1989. The Company has since discontinued
operations of Computer Bay and Data One due to significant losses
from continuing operations. Computer Bay is being liquidated
under Chapter 7 and Data One has been liquidated under Chapter 11
of the Federal Bankruptcy Code.

      In addition, the Company identified the area of
telecommunications infrastructure services as an attractive niche
in the wireless and telecomputing industries. As an initial step
towards developing a business to provide such technical services,
the Company acquired Spectrum Global, formerly known as "Yield
Industries", in October 1993. Spectrum Global primarily provided
low-level skilled technical specialists to companies on a
temporary basis to assist clients in wireless infrastructure
services, network management and custom application development.
Effective October 17, 1995, the Company with the approval of the
Bankruptcy Court sold Spectrum Global because it was not
essential to Spectrum's core business.

      In 1993, the Company commenced a licensing program for its
patented technology and has entered license agreements with many
major modem and integrated circuit manufacturers. Current
revenues from royalties under these agreements and existing
product sales have failed to meet prior expectations.
Accordingly, as reported during this fiscal year, the Company has
increased its focus on the development of remote access
communications software consistent with its strategy to become a
provider of such software.

      In May 1993, the Company was named as a defendant in a
consolidated class action (in which the plaintiffs filed a proof
of claim alleging $676 million in damages in the Company's
pending bankruptcy) and became involved in related legal
proceedings and lawsuits (See Item 3 - Legal Proceedings
Securities Related Proceedings). The expense associated with
these proceedings, in addition to continuing operating losses,
contributed to the Company's decision to file its Chapter 11
bankruptcy petition in January 1995.

      In January 1995, the Company engaged Donald J. Amoruso as
President and Chief Executive Officer. At the time of Mr.
Amoruso's employment, a new Board of Directors was elected to
replace the then existing Board. In late January 1995, the
Company, Cellular, Computer Bay and Data One filed the Chapter 11
bankruptcy petitions to conserve limited resources needed to


                                3

<PAGE>



resolve outstanding litigation and to allow the Company time
to develop its core business. Spectrum consummated its plan of
reorganization on March 31, 1997. (See Item 3 - Legal Proceedings -
Bankruptcy Proceedings).

Spectrum's Strategy

      Statements contained in this Item 1 Business section and
elsewhere throughout this report contain forward looking
statements that are based on current expectations about
Spectrum's business, its business strategy and management's
beliefs and assumptions. Words such as "expects," "anticipates,"
"intends," "potential," "believes" and similar expressions are
intended to identify forward looking statements. These statements
are not guarantees of future performance and are subject to
significant risk and uncertainty and actual results may differ
materially from what is expressed. A discussion of the risk
factors regarding the implementation of the Company's business
strategy is set forth below. Failure to successfully implement
this strategy raises substantial doubt about the Company's
ability to continue as a going concern.

      With respect to Spectrum's legacy business, during the
fiscal years ended March 31, 1996 and 1997, Spectrum implemented
a redesigned intellectual property licensing program in an effort
to grow the market for circuit switched analog cellular data
transmission and specifically improve Spectrum's share of this
market. Spectrum and some of its licensees believed that the
slower than expected growth in the number of cellular data users
may have been due in part to costly royalty barriers to entering
the market. Spectrum addressed this problem by developing a
product-oriented strategy as part of its licensing program
intended to motivate its original equipment manufacturer ("OEM")
modem customers (licensees) to purchase and actively market
Spectrum's proprietary activation kit. Notwithstanding this more
attractive licensing program, Spectrum's market share for
cellular data products has not grown. The continued poor
performance has led Spectrum to consider options to reverse the
negative cash flow associated with this legacy business. These
options include, but are not limited to, restructuring the
licensing program, converting certain existing licenses to paid
up agreements, and engaging one or more distributors to take over
the activation kit sales business. Spectrum's management is
currently discussing elements of these options with key licensees
and potential distributors. These options are intended to
minimize operational expenses.

      Initially, the Company planned to broadly disseminate its
legacy products through its OEM customers to develop an embedded
customer base to which Spectrum could market wireless
communications software followed by more advanced remote access
software. As noted above, however, Spectrum's share of this
market has not grown and, consequently, the opportunity to market
to a broad embedded user base has not materialized. As Spectrum
reported during the past fiscal year, the Company has accelerated
its focus on the development of its remote access communications
software and expanded the intended functionality to address
Internet communications software solutions in the corporate and
service provider markets. (See Products and Products Under
Development). Spectrum's software is intended to provide
improvements to the Web browsing experience for users accessing
the World Wide Web through dial up land line modems.

Products and Products Under Development

      Spectrum's current product offerings are proprietary direct
connect "activation" kits (software drivers and cables) providing
interface connection to a variety of cellular phones and PC card
modems sold directly to licensed modem manufacturers. These
product offerings have been enhanced by the Company's
cross-license agreement with Motorola which allows Spectrum to
offer kits for operation with certain Motorola proprietary
cellphones subject to a prescribed certification program.
Spectrum's patents extend to activation kits.

      Spectrum's remote access software, branded as the
INTELLIGENT PIPE(TM), is currently in the development stage. The
INTELLIGENT PIPE(TM) combines proprietary architecture with
optimized processing techniques and is intended to enable more
efficient information transfer over wide area networks using
Internet and Intranet technologies. The INTELLIGENT PIPE(TM) is
designed to minimize the inefficiencies inherent in Internet
interactions between standard Web browsers and Web servers. The
pipe attacks the problem of limited bandwidth on the final
connection between the remote user and the Internet or corporate
Intranet. Developed primarily for dial up access, this pipe
provides persistent connections, end to end control of the data
stream and uses Content Management Agents (CMAs) that restructure
the data on one side of an Internet connection and reconstitute
it at the other side. This technology can be adopted to provide a
wide variety of value added capabilities between network
connected clients and servers. Spectrum's initial set of CMAs are
designed to accelerate Web browsing speed for most end users by
at least a factor of two for modem connections with speeds up to
56K. The INTELLIGENT PIPE(TM) is intended to address
communications solutions for remote access in the corporate
environment and also possibly service provider markets.

      Spectrum believes that it has identified an opportunity to
deliver a technology that provides improvements to the Web
browsing experience for dial up land line access to Internet
connections. Spectrum sees opportunities for future proprietary
CMAs


                                4

<PAGE>



that may include functions such as mapping of page formats to
non-standard display platforms (i.e., Windows CE based Handheld
Personal Computers ("HPC")).

      Spectrum expects that the capability provided by the
INTELLIGENT PIPE(TM) will be most valuable to individual users
connected to the Internet through an Internet service provider
("ISP") and to corporations providing dial in Intranet access. It
is expected that by including the INTELLIGENT PIPE(TM) in their
infrastructure, ISPs and corporate IS departments will provide
improvements in performance, lower cost of operation, and more
satisfied users. To the corporate IS department, this would
translate into greater organizational efficiency. To an ISP, it
will represent an opportunity to establish a market
differentiator for their service. Spectrum intends to direct its
marketing efforts for the INTELLIGENT PIPE(TM) at these two
markets. The INTELLIGENT PIPE(TM) is a client/server software
architecture initially intended for Windows NT servers and
standard Microsoft and Netscape browsers.

      As with any client/server software, implementation is
complex and time consuming. Spectrum's current goals include
having a beta version product available later this calendar year
and a product for commercial shipment by the end of the 1998
fiscal year. There can be no assurances that Spectrum will
successfully complete the development of this software and
introduce it according to Spectrum's development schedule. Even
if the software is completed and performs up to the Company's
expectations, there can be no assurances that a market will
develop for the Company's product or that competing technologies
or products will not capture the opportunity before Spectrum.
(See Risk Factors).

      Since development and marketing of the INTELLIGENT PIPE(TM)
is a significant challenge for a company with limited resources,
Spectrum's management continually monitors development progress
and market threats for deployment. If Spectrum determines during
the development process that product performance or market
acceptance are not meeting expectations, or capital resources are
not available if needed, the Company will assess alternative
strategies to utilize its existing assets to maximize shareholder
value.

The Industry

Mobile Data Communications  (Legacy Business)

      The development of networks linking portable computers,
workstations, minicomputers and mainframes at separate locations
has occurred primarily in connection with the decentralization of
business operations, the evolving enterprise environment of
client/server computing and the need to perform data-intensive
business functions at distant offsite locations. As a result,
demand is also increasing for more sophisticated, cost-effective
and reliable mobile data communication system solutions,
including portable computers, wireless data communication devices
(modem PC cards), associated peripheral equipment, and mobile
software utilities for mobile applications.

      Computer and telecommunications companies have been making
significant investments in the manufacturing and development of
new mobile computing devices and wireless networks. As a result,
the wireless communication industry has experienced the emergence
of a number of competing digital wireless data network
technologies and services such as CDPD, CDMA, GSM and PCS. The
Company's proprietary technology (the legacy business) is
particularly applicable to data transmission over analog
circuit-switched cellular networks. Emerging digital wireless
communications networks are beginning to compete with analog
circuit switched cellular wireless data transmission.

      The Company's research indicates that numerous industry
activities and technologies are converging to support the mobile
work force. Although the mobile workforce continues to grow, the
projected market for Spectrum's activation kits, which are sold
by many leading modem manufacturers to their end user customers,
has not materialized. Some of Spectrum's OEM customers which
purchase activation kits under licensing arrangements report that
end-users have shown minimal interest in activating their
cellular modems. Industry and mainstream publications, such as
Business Week, have also recently begun to reject analog cellular
as a suitable means for data transmission. Spectrum's management,
based on industry trends and customer feedback, believes that
many end users may be waiting for advances in methods of wireless
data transmission, such as digital wireless devices and services,
before actively using wireless data or have not experienced a
compelling need to send or receive data wirelessly anytime,
anywhere. The Yankee Group, a leading industry analyst, reports
that 36% of mobile data users polled responded that they were not
very or not at all interested in a wireless device that enables
the sending and receiving of data via a cellular telephone. An
additional 38% responded that they were only somewhat interested.
The Yankee Group reports that current wireless data users are not
satisfied with the availability, affordability or ease of use
with wireless data transmission.


                                5

<PAGE>



Remote Access Communications

      The market for remote access hardware and software and
software related to Internet/Intranet technologies is rapidly
growing. The Yankee Group estimates that the number of
corporations with Internet access will grow from 15 million in
1996 to 43 million by 2000. Zona Research, an Intranet
consultant, estimates that the total Internet/Intranet market,
including hardware, software, tools, browsers, services and
connectivity, was approximately $35 billion in 1996 and predicts
that it will exceed $100 billion by 1999. The communications
segment alone is projected to grow from $20 billion to $63
billion over the same period of time.

      The rapid growth and public interest in these Internet
related technologies encourage intense competition. The industry
is marked by market leaders including Microsoft and Netscape,
which are continually introducing new products and upgrades. Many
smaller companies are also competing for pieces of the
Internet/Intranet market. Time to market is of the essence in
such a competitive environment. Many companies are not profitable
and never achieve profitability. The investment in the software
market has also created an extremely high employment rate within
the industry. Competent software developers are commanding
salaries higher than ever as companies strive to hire and retain
the best talent and rush to be the first to introduce products to
the market. Spectrum must introduce software products in this
competitive market that perform well in a timely fashion if it is
to successfully compete in this arena.

Competition

      The mobile data communications market is intensely
competitive and is characterized by rapid technological advances.
These advances result in the frequent introduction of new
products with increased performance capabilities and significant
price/performance improvements. Competition in this market is
based upon several factors, including product features, price,
quality and reliability, service and support, marketing and
distribution and time to market. Most of Spectrum's competitors
and potential competitors have more extensive engineering and
marketing capabilities and greater financial, technological and
personnel resources than does the Company.

      Spectrum believes that certain of its competitors in the
Company's legacy business may be infringing upon the Company's
patents and/or may infringe upon patent rights that will be
acquired by Spectrum by virtue of its pending patent
applications. In addition, certain of the Company's licensees
have been granted the right to make or have made and sell
activation kits in competition with the Company. The major
companies that are licensed to sell competing products include
AT&T, U.S. Robotics/Megahertz and Motorola, Inc. The break-up of
AT&T has provided the Company an opportunity to discuss
modification to the existing license agreement between Spectrum
and AT&T and/or new relationships with the entities that were
spun off. There can be no assurance that these discussions will
result in favorable business arrangements.

      The remote access Internet communications software market
is also intensely competitive. Many companies are working on the
problem of limited bandwidth and sub-par Internet/Intranet
performance. IBM Corporation has informed the industry that it
has a product designed primarily for wireless usage with some of
the similar functions to the software that Spectrum is
developing. Compaq Computer Corporation recently announced its
Web Acceleration Server technology, which is designed to improve
Web browsing performance. Additionally, less recognizable
companies also have products on the market addressing similar
functionality to Spectrum's INTELLIGENT PIPE(TM).

      Spectrum's initial product designed to accelerate web
browsing will face competition from related technologies that
enable faster Internet access. These technologies include faster
(56 kbps) modems, ISDN connections and, potentially, cable modems
and ADSL. Spectrum believes that the INTELLIGENT PIPE(TM) may
complement some of these related technologies, offer greater
flexibility and price advantages and is attempting to position
its product with key providers of certain such technologies. As
this Internet market segment is still in its embryonic stages, it
is impossible to predict which technology will become prevalent.
Recently, the World Wide Web (WWW) Consortium, established to
develop common standards for the evolution of the World Wide Web,
released a proposed new specification for the WWW Hypertext
Transfer Protocol (HTTP) for data access over the Web. The new
protocol, HTTP 1.1, promises faster Web performance. It is a
specification that could eventually yield technologies that could
compete with Spectrum and is expected to be included in future
upgrades of Microsoft and Netscape software. However, Spectrum
expects to leverage the same specifications to generate new
capabilities as well as to provide an alternative methodology or
a migration path for supporting HTTP 1.1 features to sites and
individuals that are not ready to overhaul their environments.

      Recently some software vendors have announced development
of Web server based software that proposes to accelerate Web
access. Their objective is essentially the same as Spectrum's,
but the implementation strategy is somewhat limited. Spectrum's
technology, on the other hand, creates this relationship between
the viewer and the communications aggregator of all Web sites.


                                6

<PAGE>



      Dynamic Hyper Text Markup Language (HTML) is a new set of
capabilities being implemented by Microsoft and Netscape in their
next generation Web browsers. It allows Web page developers to
include interactive content, and provides for increased control
of page layout. As a by-product, dynamic HTML may reduce the
number of network connections required to access certain Web
pages, resulting in faster page loads. By contrast, Spectrum's
technology will provide a performance gain on all Web pages,
including those using dynamic HTML.

      On April 7, 1997, Compaq announced the development of a
product for service providers called the Acceleration Server. It
is the only product currently announced that uses an architecture
similar to Spectrum's but its implementation uses both hardware
and software. It validates the concept that Spectrum is pursuing.
The Compaq method, however, does not appear to act on all the
same pieces of the data stream and may create opportunity for
Spectrum to market a complementary product. The Compaq product
may, however, evolve into direct competition.

      Several companies have also announced other technologies,
such as bandwidth utilization, which are intended to accelerate
Internet browsing.

      Spectrum's products will have to achieve significant
commercial acceptance in the face of such intense competition to
be successful.

Risk Factors

      Overview. Spectrum has suffered significant losses from
continuing operations in each fiscal year since inception. Even
after the Company's recent restructuring, management does not
believe that the sales of its existing products and expected
royalty revenues associated with the licensing of its existing
proprietary technology will be sufficient to reverse losses given
the Company's operating performance and expenses. Management
expects to have a continued negative cash flow while the Company
(i) considers options regarding its legacy business and (ii)
attempts to successfully develop and market a new line of
Internet/Intranet communications software and related products.
This anticipated negative cash flow combined with the Company's
limited capital resources creates a significant risk that the
Company will have difficulty funding the marketing and
development of its communications software with its existing
capital resources. (See Limited Capital Resources).

      Other risks associated with Spectrum's strategy include,
but are not limited to, improving support to existing and new
customers and substantially improving the financial performance
in the legacy business; overcoming the negative image Spectrum
has developed in the past, and its ability to rebuild credibility
in the marketplace; successfully developing software products
that bring value to remote users of data communications in
corporate and service provider Internet markets; developing new
channels for distribution; hiring and retaining key technical and
marketing staff to implement the strategy; competing successfully
within markets where competitors have significantly more
resources and access to capital than the Company; realization of
market forecasts regarding remote access (landline and wireless)
market growth in the corporate and service provider market
segments; and the ability of the Company to raise additional
capital, if necessary. The following specific risk factors should
be considered in evaluating Spectrum's ability to achieve a
successful turnaround.

      Past Operating History. The Company's future must be
considered in light of the risks associated with the past
difficulties and negative press encountered by the Company. To
address these risks, the Company must, among other things,
address the financial performance of its legacy business.
Concurrently, to effectively enter the communications software
market, Spectrum must establish management and technical
credibility with potential customers, continue to attract, retain
and motivate qualified persons, and develop new technologies and
commercialize products and services incorporating such
technologies. There can be no assurance that the Company will be
successful in addressing such risks. The Company has incurred net
losses since inception and expects to continue to operate at a
loss for the foreseeable future.

      Changing and Segmented Market; Acceptance of the Company's
Products. The market for the Company's remote access Internet
software and related products is substantially and rapidly
changing (primarily due to the Internet phenomena, convergence of
computers, communications and entertainment, deregulation of the
telecommunications industry, and structural changes in the
domestic and global economy) and is characterized by both large
established providers and an increasing number of market entrants
who, exploiting market and technology discontinuities and
segmentation, have introduced or developed remote access software
products. As is typical in the case of a growing and changing
industry, demand and market acceptance for recently introduced
products and services are subject to a high level of uncertainty.
While the Company believes that its software and related products
will offer substantial advantages, there can be no assurance
that the Company's products will be successfully completed or
become widely adopted.


                                7

<PAGE>



      Because the market for the Company's existing products and
prospective software products is rapidly changing, it is
difficult to predict the future segmentation and size of this
market. There can be no assurance that the market segments for
the Company's products will develop or that the Company's
products will be adopted. If the market segments fail to develop,
develop more slowly than expected or become saturated with
competitors, or if the Company's products do not achieve market
acceptance, the Company's business, operating results and
financial condition will be materially adversely affected.

      Competition. The Company's key current competitors in its
legacy business include Megahertz, a subsidiary of U.S. Robotics,
Motorola, Compaq and AT&T prior to its breakup. Effective
September 30, 1996, AT&T completed the divestiture of Lucent
Technologies, Inc. ("Lucent"), which had previously sold its AT&T
Paradyne unit. Spectrum is engaged in discussions with AT&T,
Lucent and Paradyne regarding the effect of the breakup on an
intellectual property license between AT&T and Spectrum. This
breakup has provided an opportunity to discuss modification to
the existing license agreement between Spectrum and AT&T and new
relationships with the entities that were spun off, however,
there can be no assurance that these discussions will result in
favorable business arrangements. The Company currently considers
Sierra Wireless, Inc. and PCSI (a subsidiary of Cirrus Logic,
Inc.) as other potential competitors primarily due to their
alternative methods of wireless data signal delivery, such as
CDPD.

      The market for remote access Internet software is intensely
competitive and subject to rapid technological change. The
Company expects competition to persist, intensify and increase in
the future. Most of the Company's current and potential
competitors have longer operating histories producing software
products, greater name recognition, significant installed
customer bases and significantly greater financial, technical and
marketing resources than the Company. Such competition could
materially adversely affect the Company's business, operating
results or financial condition. There can be no assurances that
other companies are not developing similar or competing products
satisfying the same market needs or that Spectrum's products will
become widely accepted in the face of this competition.

      Synergies may exist between the Company and its
competitors. Spectrum is engaged in assessing and evaluating such
synergies and potential partnerships. However, there can be no
assurance that these activities will result in favorable business
arrangements.

      New Product Development and Technological Change.
Substantially all of the Company's current and near term revenues
are expected to be derived from the licensing of its proprietary
technology and sale of its associated activation kit products.
Given the limited revenue being generated and expected to be
generated from this existing business, it is essential for
Spectrum to generate revenues from other sources.

      The Company's ability to design, develop, test and support
its remote access Internet communications software and related
products and enhancements on a timely basis that meet changing
customer needs and respond to technological developments and
emerging industry standards is also critical to the Company's
long term success. Time to market is essential to the success of
the INTELLIGENT PIPE (TM) software products. There can be no
assurance that the Company will be successful in developing and
marketing new software and related products and enhancements that
meet changing customer needs and respond to such technological
changes or evolving industry standards. Future sales of the
Company's new remote access software products will be highly
dependent on software products that add substantial value to end
users and data communications infrastructure providers. Also, the
Company's new technology may be covered by patents owned by
others which may require licenses. The Company's inability to
introduce and sell the products that it is currently developing
in a timely manner or to successfully expand its product
offerings on a timely basis will have a material adverse effect
on the Company's business, operating results or financial
condition.

      Evolving Distribution Channels. Spectrum has historically
sold its activation kit products to its licensees, most of which
are original equipment manufacturers ("OEMs") in the modem
industry. Given the limited distribution of its products through
these channels, the Company is considering alternative marketing
plans as part of the options regarding the legacy business. Even
if the Company decides to adopt a different method of
distribution for its legacy products, there are no assurances
that its sales performance will improve.

      Spectrum does not expect that its existing OEM channels
will be the primary channels for distribution of its new line of
remote access software that is under development, and will need
to develop new channels that may include other data
communications OEM's, infrastructure service providers and
software companies. Spectrum has not previously sold products
into these channels. Failure to develop new channels will inhibit
the Company's ability to generate revenues from the Company's new
software products and will likely result in continued operating
losses and negative cash flow.

      The Company plans to develop a limited sales force and
expand its marketing at the appropriate time. There can be no
assurance that such internal expansion will be successfully
completed, that the cost of such expansion will not exceed the
revenues


                                8

<PAGE>



generated, or that the Company's sales and marketing organization
will be able to successfully compete against the significantly
more extensive and well-funded sales and marketing operations of
many of the Company's current or potential competitors. The
Company's inability to effectively manage its internal expansion
could have a material adverse effect on the Company's business,
operating results or financial condition.

      Management of Growth. The timely execution necessary for
the Company to fully exploit the market window for its products
and services requires an effective planning and management
process. The Company continues to seek to hire highly skilled
technical staff but due to the competitive high demand for
software skills, the Company is also dependent upon outside
services for aspects of its software development. To manage its
growth, the Company must continue to implement and improve its
operational and financial systems and to expand, train and manage
its employee base. There can be no assurance that the Company
will be able to successfully implement these activities on a
timely basis. Further, the Company will be required to manage
multiple relationships with various customers and other third
parties. Although the Company believes that it has made adequate
allowances for the costs and risks associated with this
expansion, there can be no assurance that the Company's systems,
procedures or controls will be adequate to support the Company's
operations or that the Company's management will be able to
achieve in a timely manner the expansion necessary to fully
exploit the market window for the Company's products and
services. If the Company is unable to manage growth effectively,
the Company's business, operating results and financial condition
will be materially adversely affected.

      Dependence on Key Personnel. The Company is dependent on
its ability to retain and motivate high quality personnel,
especially its management and highly skilled engineering and
software development teams. The loss of the services of any of
its executive officers or other key employees could have a
material adverse effect on the business, operating results or
financial condition of the Company.

      The Company's future success also depends on its continuing
ability to identify, attract, hire, train and retain other highly
qualified technical personnel. Competition for such personnel is
intense, and given Spectrum's past history and performance, there
can be no assurance that the Company will be able to attract,
assimilate or retain other highly qualified technical and
managerial personnel in the future. The inability to attract and
retain the necessary technical and managerial personnel could
have a material adverse effect upon the Company's business,
operating results or financial condition.

      Limited Capital Resources. The Company has limited capital
resources to invest in product development and marketing and
selling. It is critical, therefore, to the Company's business,
operating results and financial condition that timely new product
introduction and market acceptance is achieved. Any delays or
reduction in product shipments will have a material adverse
effect on the Company's business, operating results and financial
condition. As the Company's existing capital resources are
depleted by continuing operations, investment in new product
development and losses associated with its legacy business, it
becomes increasingly likely that the Company will need to raise
capital to fund the development and marketing of its new
communications software product. Spectrum's management believes
that it will need to raise capital during the 1998 fiscal year
and has begun to investigate alternatives for so doing. As part
of Spectrum's bankruptcy reorganization efforts, between October
of 1995 and January of 1996, the Company through its financial
advisor contacted 48 potential investors regarding interest in
investing or developing a strategic relationship with Spectrum,
none of whom expressed an interest at that time when product
strategies were in their early stages. There can be no assurances
that Spectrum's new communications software development efforts
will interest potential investors.

      Market Listing; Volatility of Stock Price. Spectrum was
delisted from the NASDAQ National Market in April 1995. Since
then, the Company's common stock has been traded on the OTC
Bulletin Board. Since the Company's emergence from Chapter 11,
the market for the Company's common stock has been relatively
illiquid and subject to wide fluctuations. There can be no
assurance that an active public market for the common stock will
develop or be sustained. Further, the market price of the
Company's common stock is likely to continue to be highly
volatile based on quarterly variations in operating results,
announcements of technological innovations or new products by the
Company or its competitors, or other events or factors.

      Shares Eligible for Future Sale. The preferred stock that
was issued to the plaintiffs in the Class Action Suits pursuant
to the Plan is convertible to common stock upon request of the
holder and automatically converts to common stock on March 31,
1999. Conversion to common stock of a significant number of
shares of preferred stock and a subsequent sale in the public
market could adversely affect the future market price for the
common stock. (See Item 3 - Legal Proceedings - Bankruptcy
Related Proceedings).

Customers

      During the fiscal years ended March 31, 1997 and 1996,
sales to SMART Modular Technologies (including Apex Data, Inc.,
which was acquired by SMART during the 1996 fiscal year) and
Global Village Communications accounted for approximately 55% and
27% of the Company's merchandise sales, respectively. During the
fiscal year ended March 31, 1995, sales to OKI Telecom


                                9

<PAGE>



accounted for approximately 39% of the Company's merchandise
sales. Spectrum has not sold any of its remote access
communications software that is being developed.

      The Company works closely with existing and potential
customers, often for extended periods of time, in order to sell
legacy products marketed by Spectrum. In many cases, product
shipments are made in a short period of time in response to a
customer's orders. The Company does not have a material backlog
of orders.

Manufacturing

      The Company utilizes contract manufacturers for the
assembly of its direct connect activation kit products. Each
perform to the Company's quality control standards. Hence, no
product assembly is performed by the Company.

      A cross-license that the Company entered with Motorola
requires the Company to purchase cables and connectors for its
direct connect activation kits to be used with Motorola cellular
telephones from authorized vendors of Motorola. Spectrum is
presently having these cables manufactured by one or more of
several authorized vendors and the Company believes it will be
able to procure product in sufficient quantities to meet its
customers' demands. A failure to fill product orders in a timely
manner would materially and adversely affect the Company's
results of operations.

Seasonality

      Spectrum's financial performance has not exhibited
significant seasonality in the past and the Company does not
anticipate future seasonality.

Proprietary Rights

      The Company relies on patent, trade secret, copyright and
trademark laws, in addition to technical measures, to protect its
legacy products. The Company currently has six issued U.S.
patents, three issued foreign patents, and several pending U.S.
and foreign applications.

      Although the Company believes that its patents and licensed
patent rights have value, there can be no assurance that the
Company's patents, or any additional patents issued in the
future, will provide meaningful protection from competition. The
Company believes its success will depend primarily upon the
experience, creative skills, technical expertise, and marketing
and sales abilities of its personnel. Furthermore, given the
rapid development of technology in the data communications
industry, there can be no assurance that certain aspects of the
Company's products do not infringe the proprietary rights of
others.

      The Company's six U.S. patents are summarized below:

      Portable Hybrid Communication System and Methods: On
November 20, 1990, the Patent Office issued to the Company this
patent which covers the Company's unique method of combining a
cellular transceiver, modem and variety of telephone devices into
a single functioning, user-controlled device providing wired or
wireless voice and data communications.

      System and Method for Interfacing Computers to Diverse
Telephone Networks: On June 30,1992, the Patent Office issued to
the Company this patent which covers (i) the Company's original
AXSYS(R) brand cable interface circuit and (ii) modems that are
adapted to operate with the AXSYS(R) brand cable interface
circuit. This patent further covers other connectivity features
useful in connecting a modem to various cellular telephones.

      Cellular Telephone Data Communication System and Method: On
August l8, 1992, the Company obtained this patent which has
claims covering fundamental techniques required for commercially
acceptable and reliable data transmission over any conventional
cellular communication channel. The Company was originally issued
a patent for these concepts on September 29, 1987 and this patent
is a reissue of that original patent.

      Programmable Universal Interface System: On September 28,
1993, the Company was issued this patent, which has claims
covering the Company's "direct connect" technology and which
enables specially programmed modems to be connected to a cellular
telephone by a simple passive cable. Software in the modem
generates control signals appropriate to the model of cellular
telephone in use. This technology also allows a single computer
modem to be connected to different types of cellular telephones
without intervening electronic circuits to permit computer
control of the cellular telephone for data transmission purposes.
This product is currently being marketed under the AXSYS(R) brand
name.


                               10

<PAGE>



      System and Method for Interfacing Computers to Diverse
Telephone Networks: On October 4, 1994, the Company was issued
this patent which expands the Company's basic patent rights in
the area of direct connect modem technology originally covered by
the Company's 1993 Programmable Universal Interface patent.

      Programmable Universal Interface System: On November 22,
1994, the Patent Office issued this patent which broadens and
expands the Company's coverage for direct connect modems, adds
coverage for methods used in direct connect technology and
provides coverage for upgrade kits that provide a software driver
and cable to make the direct connect modem compatible with a
specific cellular telephone.

      The Company has non-exclusively licensed various aspects of
this proprietary technology to modem and modem integrated circuit
manufacturers. Licensees of the Company include AT&T, Rockwell
International, U.S. Robotics, Motorola, IBM, Zoom Telephonics,
and SMART.

      The Company has developed a library of software drivers
related to its direct connect technology. Each software driver is
designed to permit control of a particular cellular telephone by
a direct connect modem, when installed in the modem. The software
drivers are subject to copyright protection and the Company
claims the right, pursuant to national and international
copyright laws, to control copying and distribution of its
software drivers.

      The Company has additional patents pending in the U.S.
Patent and Trademark Office and in foreign patent offices, and
intends to apply for additional patents as its development
efforts progress. The Company is also seeking additional patent
rights in the technologies covered by the issued patents.

      The Company has regularly used the following trademarks and
service marks to describe certain of its products and services,
and considers each of these marks to be proprietary: SPECTRUM
CELLULAR(R), SPCL(R), AXSYS(R), SPECTRUM CONNECTED(R), the
SPECTRUM CONNECTED logo and DIRECT CONNECT AXSYS. The Company has
obtained U.S. Federal trademark registrations for its SPECTRUM
CELLULAR(R), SPCL(R) and AXSYS(R), SPECTRUM CONNECTED(R) and
SPECTRUM CONNECTED logo marks and has an application pending for
federal trademark registration for DIRECT CONNECT AXSYS(TM) and
INTELLIGENT PIPE(TM). These trademark registrations and
applications provide legal notice to other parties that the
Company claims exclusive rights in these marks. Since its
bankruptcy filing, the Company has selectively proceeded to seek
foreign patent and trademark rights based on its limited
financial resources.

Research and Development Expenditures

      During fiscal 1997, 1996 and 1995, the Company spent
approximately $1,252,000, $366,000 and $306,000, respectively, on
research and development. These expenditures are expected to
significantly increase in fiscal year 1998 in accordance with
management's current strategy to develop and market remote access
communication software products.

Government Regulations

      The Company operates solely as an adjunct to the telephone
and computer industries. Federal and state regulation of
telephone service currently has no direct adverse impact on the
Company, although regulations affecting the cost of cellular
telephone service could have an impact on the Company. The
Company believes that deregulation in the telecommunications
industry will increase competition and make mobile communications
more accessible.

Employees

      The Company currently employs 21 employees and enjoys a
good relationship with its employees. No employee of the Company
is a member of a labor union or other collective bargaining
association.

      Implementation of the Company's strategy contemplates that
the Company will increase the engineering staff during the 1998
fiscal year (See Spectrum's Strategy).

Directors and Executive Officers of the Company

      The following table sets forth information with respect to
the directors and executive officers of the Company:


                               11

<PAGE>



   Name                     Age   Position with the Company

   Donald J. Amoruso        59    Chairman,  Chief Executive Officer

   Sheldon A. Buckler       65    Director

   George Bugliarello       69    Director

   Robert D. Dalziel        62    Director

   Mikhail Drabkin          50    Chief Technical Officer

   Richard duFosse          48    Vice President - Software Engineering

   Christopher M. Graham    32    General Counsel and Secretary

   Barry J. Hintze          40    Controller and Principal Accounting
                                  Officer


Business Experience of Directors and Executive Officers

           Donald J. Amoruso became Spectrum's President, Chief
Executive Officer and Chairman of its Board of Directors in
January 1995. From 1991 to 1994, Mr. Amoruso founded and was the
principal consultant of DMA Associates, a consulting firm
specializing in management, marketing and turnaround strategies
and alliances for small and mid-sized technology firms. Before
1991, Mr. Amoruso held several senior executive positions with
Norden Systems, a subsidiary of United Technologies Corporation.
As Senior Vice President and General Manager, he was responsible
for three high technology business units: the Command, Control
and Communications Systems operation based in Connecticut; the
Marine and Ground Systems operation based in New York; and Norden
Services Company of Maryland. All these units were extensively
involved in computer software activities. Mr. Amoruso holds a
Bachelors and Masters degree in electrical engineering from
Manhattan College and Polytechnic University respectively.

           Mikhail Drabkin joined the Company as its Chief Technical
Officer in March, 1996. Since 1988, Mr. Drabkin has held various
positions with Hayes Microcomputer Products, Inc. ("Hayes").
Through March 1996 as Vice President - Corporate Engineering, Mr.
Drabkin had responsibility for new platform design and
implementation of strategic partnerships with key technology
providers. Mr. Drabkin also held the positions as Vice President
- Product Development from 1992 to 1994, General Manager - Hayes
ISDN Technologies from 1990 to 1992 and Director of
Engineering-San Francisco Hayes Development Center from 1988 to
1990. Before joining Hayes, Mr. Drabkin was employed by SOFTCOM
and Macleod Laboratories as a design engineer and engineering
manager, respectively. Mr. Drabkin is a member of IEEE and Beta
Gamma Sigma and holds a Dipl.-Ing. in electrical communications
from the St. Petersburg Institute for Telecommunications and an
M.B.A. from the University of San Francisco.

           Richard F. duFosse joined the Company as Vice President
of Software Engineering in February 1996. Immediately prior to
joining Spectrum, Mr. duFosse provided consulting services
related to software product development and mobile computing to
Fortune 1000 clients. From 1990 through 1995, Mr. duFosse held
several positions with Lotus Development Corporation. From 1994
through 1995, as Director of Mobile Computing, Lotus Business
Partners Programs, Mr. duFosse created a business partner program
to implement and deliver products to wirelessly enable Lotus
Notes and cc:Mail. Mr. duFosse previously held the positions of
Development Director, Mobile Computing Group and Senior
Development Manager where he managed development of Lotus
products for mobile computing. Mr. duFosse is a former Member of
the Board of Directors of the Portable Computer and
Communications Association and former Chairman of the Modem
Architecture Subcommittee of the PCCA. Mr. duFosse received a
Bachelor's Degree in Humanities and Technology, a Masters degree
in Computer Science and an M.B.A. from Worcester Polytechnic
Institute.

           Christopher M. Graham has served as General Counsel
and Secretary of Spectrum since May 1995. From July 1994 until
May 1995, Mr. Graham served as Spectrum's Associate General
Counsel. From 1992 until 1994, Mr. Graham was an attorney
associated with the New York law firm of Kelley Drye & Warren.
Mr. Graham served previously as an operations manager with The
Chase Manhattan Bank in its Capital Markets and Foreign Exchange
Sector. Mr. Graham received a Bachelor of Science degree in
finance from Lehigh University and a Juris Doctorate degree from
the University of Connecticut School of Law.


                               12

<PAGE>



           Barry J. Hintze has served as Spectrum's Controller since
May 1995 and also as Principal Accounting Officer since September
1995. From 1988 to 1995 Mr. Hintze was Controller of CEL
Communications, Inc. Before joining CEL Communications, Mr.
Hintze served as the Assistant Controller of Delson Business
Systems and held various accounting positions with Ticketron. Mr.
Hintze holds a Bachelor of Science degree and an M.B.A. in
finance from C.W. Post Center, Long Island University.

           Sheldon A. Buckler is Chairman of Commonwealth Energy System
and was Vice Chairman of Polaroid before his retirement in 1994.
At Polaroid he held various positions in a thirty-year career
including Vice President, Research and Executive Vice President,
Technical and Industrial Products. Dr. Buckler has been awarded
thirty-seven patents and has authored numerous papers. He has a
Ph.D. in Chemistry from Columbia University and a B.A. from New
York University. Dr. Buckler is also a member of the Board of
Directors of Aseco Corporation, Cerion, Lord Corporation, Nashua
Corporation, Parlex Corporation and Chairman of the Massachusetts
Eye and Ear Infirmary.

           George Bugliarello is the Chancellor of Polytechnic
University, and was President from 1973 to 1994. Before joining
Polytechnic University, Mr. Bugliarello was the Dean of
Engineering, and a Professor of Civil Engineering and
Biotechnology at the University of Illinois. Mr. Bugliarello was
also a Professor of Biotechnology and Civil Engineering, and
Chairman of the Biotechnology Program at Carnegie-Mellon
University. Mr. Bugliarello holds degrees from the Massachusetts
Institute of Technology, University of Minnesota, and the
University of Padua. Mr. Bugliarello is the recipient of many
professional honors, and has been associated with and held
positions in numerous professional societies throughout his
career. Mr. Bugliarello is on the Board of Directors of ANSER,
Comtech Corporation, Educational Commission for Foreign Medical
Graduates, Greenwall Foundation, Jura Corporation, Long Island
Lighting Company, Lord Corporation, Symbol Technologies, Inc.,
and Teagle Foundation.

           Robert D. Dalziel is an international executive with
operations and sales experience. From 1991 to 1995, Mr. Dalziel
was the Chairman of Telecommunications Cooperative Network, Inc.
He has also consulted for Bechtel, the Government of Kazahstan
and the Kvant Company in Ukraine. From 1956 to 1991, Mr. Dalziel
served in numerous capacities for AT&T, including the positions
of Vice President -- International Operations, President -- AT&T
Europe, and Vice President -- Global Networks. Mr. Dalziel has a
degree in electrical engineering from Polytechnic University,
where he is currently a trustee.

Item 2. Properties.

      The Company's headquarters occupy approximately 4,200
square feet of office space in an office building located on
Westchester Avenue in Purchase, New York. The Company holds a
lease for such offices expiring on April 30,1998. The Company
leases approximately 2,700 square feet of office space for its
research and software product development in an office building
located on Mount Royal Avenue in Marlboro, Massachusetts. This
lease expires on July 31, 1999. The Company believes that its
properties and facilities are suitable and adequate for its
purposes for the foreseeable future The Company also leases
approximately 2,821 square feet of office space in an office
building located on Hutton Drive in Carrollton, Texas. This lease
expires on October 31, 1998 but the Company is investigating
relocation to smaller facilities.

      The Company is also temporarily leasing an individual
office in an executive office park near Atlanta, Georgia for its
research and software product development. This Norcross, Georgia
lease expires on July 31, 1997. The Company plans to relocate
this office in July/August 1997 to the San Francisco, California
area and is currently searching for leased property that is
suitable and adequate for research and development activities.

Item 3.  Legal Proceedings.

Bankruptcy Proceedings

      On January 26, 1995 (the "Petition Date"), the Company and
three of its four operating subsidiaries (Computer Bay, Data One
and Cellular) filed petitions for relief under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the
Eastern District of New York (the "Bankruptcy Court"), Case Nos.
195 10690 260, 195 10691 260, 195 10692 260 and 195 10693 260,
respectively (the "Chapter 11 case"). A fourth subsidiary at the
time, Spectrum Global Services, Inc., did not file for bankruptcy
protection. On February 8, 1995, the United States Trustee
appointed an Official Committee of Unsecured Creditors to
represent the creditors of Spectrum, Data One and Cellular (the
"Committee"), and another committee for Computer Bay to represent
the interests of all unsecured creditors whose claims arose
before the Petition Date. No other committees were appointed. On
May 25, 1995, the Bankruptcy Court, upon motion by the Debtors,
converted the Computer Bay proceeding to a case under Chapter 7
of the Bankruptcy


                               13

<PAGE>



Code. A trustee has been appointed to oversee liquidation of the
Computer Bay assets. Data One consummated a separate plan of
liquidation under Chapter 11 on October 4, 1996.

      In March 1996, the United States Bankruptcy Court approved
the Third Amended Disclosure Statement (the "Disclosure
Statement") with respect to the Third Amended Consolidated Plan
of Reorganization (the "Plan") Proposed by Spectrum Information
Technologies, Inc. and Spectrum Cellular Corporation
(collectively, the "Company") dated as of March 18, 1996 finding
the Disclosure Statement adequate for distribution and vote by
interested parties. As contemplated by the Plan, the bankruptcy
estates of Spectrum Information Technologies, Inc. and Spectrum
Cellular Corporation were substantively consolidated. On August
14, 1996, the Bankruptcy Court entered an order confirming the
Plan, as amended. The effective date of the Plan was March 31,
1997 (the "Effective Date"). On the Effective Date, total cash
distributions for unsecured claims, class action claims,
administrative claims and priority claims in connection with
consummation of the Plan were approximately $3.9 million, as
described in more detail below. A few outstanding claims remain
that the Company is attempting to reconcile. The Company does not
believe the reconciliation of such claims will result in
additional material payments to creditors.

      The Bankruptcy Court set April 22, 1996 as the deadline for
voting on the Plan. Each class entitled to vote on the Plan
accepted the Plan. Over 97% of Spectrum's voting unsecured
creditors, representing over 99% of the total dollar amount
voted, voted to accept the Plan. Under the Bankruptcy Code, a
class accepts a plan if two-thirds in amount and a majority in
number of the holders of claims voting cast ballots in favor of
acceptance. Holders of Spectrum's common stock representing
approximately 27,600,000 shares returned ballots, with over 95%
of those shares voted in favor of confirmation. A class of equity
interests is deemed to have accepted a plan if the plan is
accepted by holders of at least two-thirds of the allowed
interests that have voted on the plan.

      The Plan provided all administrative creditors with full
payment (unless a lesser amount was agreed upon or ordered by the
Bankruptcy Court), settled all material litigation pending
against the Company and provided all general unsecured creditors
with 100% of the value of their claims plus 6% interest per annum
from the bankruptcy filing date thereon. It also settled the
class action lawsuits of approximately $676,000,000 filed against
the Company by the payment of $250,000 and the delivery of
approximately 45% of the equity ownership in Spectrum to a
trustee to be distributed to the members of the class. Although
existing Spectrum shareholders were substantially diluted under
the terms of the Plan, such shareholders obtained the majority of
the 45% equity ownership in Spectrum set aside for existing
shareholders and certain creditors. This held true even after the
issuance of $300,000 of stock (66,667 shares) to the Chapter 7
trustee of Computer Bay in connection with the settlement of his
claim and after the issuance of approximately $112,000 (24,939
shares) of stock to the Company's former financial advisor in
connection with the settlement of its administrative claim. The
Company authorized these stock distributions on May 5, 1997. The
Plan also called for management, employees and non-executive
directors of the Company participating in developing the Plan to
receive the remaining 10% ownership.

      The Company amended its certificate of incorporation and
by-laws on the Effective Date. The Amended Certificate contains
certain provisions affecting the rights of shareholders,
corporate governance, and the transferability of Class A
Convertible Preferred Stock and Reorganized Spectrum Common Stock
(as defined below). Under the amended certificate of
incorporation, the authorized capital stock of the Company shall
be comprised of (i) 10 million shares of reorganized Spectrum
common stock ("Reorganized Spectrum Common Stock"), (ii) 1.5
million shares of Class A convertible preferred stock reserved
for issuance in connection with the settlement of the Class
Action that was filed against the Company in 1993 ("Class A
Convertible Preferred Stock") and (iii) 2 million shares of
preferred stock ("Preferred Stock"). A description of the amount
of shares that will be issued within each class is set forth
below.

      Issued and outstanding shares of the Company's existing
common stock were canceled on the Effective Date and replaced
with one (1) share of Reorganized Spectrum Common Stock for each
seventy-five (75) shares of existing common stock. The Company
previously had authorized 110 million shares of common stock, of
which approximately 76.7 million had been issued and were
outstanding on the Effective Date. Therefore, approximately 1
million shares of Reorganized Spectrum Common Stock were issued
to existing shareholders on the Effective Date. An additional
66,667 shares ($300,000) of Reorganized Spectrum Common Stock was
issued to the Computer Bay trustee in connection with the
settlement of his claim (collectively, the Reorganized Spectrum
Common Stock issued to existing shareholders and the Computer Bay
trustee is defined as "Distributable Common Stock"). The Company
also issued 24,939 shares (approximately $112,000) of stock to
the Company's former financial advisor in connection with the
settlement of its administrative claim. The Company authorized
these stock distributions on May 5, 1997. Stock options issued
under the Company's previously existing stock option plans were
reverse split at a seventy-five (75) to one (1) ratio and
repriced accordingly (i.e., a $1.00 exercise price was adjusted
to a $75.00 exercise price).

      Pursuant to the Class Action Settlement (see Securities
Related Proceedings), the Company issued approximately 1,089,000
shares of Class A Convertible Preferred Stock (valued at
approximately $6,434,000) equal to the number of shares of
Distributable Common Stock. The Class A Convertible Preferred
Stock is convertible to Reorganized Spectrum Common Stock at any
time within two years of its date of issuance and automatically
converts to Reorganized Spectrum Common Stock at the expiration
of two years.


                               14

<PAGE>




      As part of a bankruptcy court approved success bonus to
employees, officers and all non-executive directors for effecting
a confirmed plan of reorganization, the Company issued
Reorganized Spectrum Common Stock pursuant to the two incentive
compensation programs described in the Plan, the Spectrum 1996
Stock Incentive Plan and the Spectrum 1996 Incentive Deferral
Plan, which collectively authorize the issuance of an aggregate
number of shares of Reorganized Spectrum Common Stock equal to
one-ninth (1/9) of the aggregate number of shares of
Distributable Common Stock and Class A Convertible Preferred
Stock (i.e., 10% of the reorganized Spectrum equity ownership) to
directors, officers and employees of the Company on the Effective
Date. Except for 300 shares of Reorganized Spectrum Common Stock
that were distributed to non-executive directors on the Effective
Date, the stock issued to directors, officers and employees
pursuant to such incentive programs shall be distributed in three
equal semi-annual installments following the Effective Date.
Under the Stock Incentive Plan, employees, officers and directors
will also be eligible to receive future grants of performance
based incentive awards with respect to an aggregate number of
shares equal to an additional one-ninth (1/9) of the aggregate
number of shares of Distributable Common Stock and Class A
Convertible Preferred Stock. Also, as set forth in the Plan, the
Company distributed a $300,000 success bonus among all employees
involved in the development and implementation of the Plan.

      The details of the Plan, the recapitalization, and the
Company's by-laws are set forth in detail in the Plan and
associated Disclosure Statement, which the Company filed with the
SEC on its Current Report on Form 8-K dated as of March 26, 1996.
The Company's amended certificate of incorporation is contained
in the Company's Registration Statement on Form S-8 dated March
31, 1997.

      Securities Related Proceedings

      On February 9, 1994, the class action filed against the
Company and two of its former officers in May 1993 (In re
Spectrum Information Technologies, Inc. Securities Litigation,
United States District Court for the Eastern District of New
York, Civil Action No. 93-2295) (the "Class Action Suits") was
supplemented (i) to extend the end of the class period from May
21, 1993 to February 4, 1994, (ii) to add additional claims
against Spectrum and the individual defendants, and (iii) to add
certain of its then officers as party defendants. In April 1994,
a Second Consolidated Amended Class Action Complaint was filed
adding additional employees as party defendants. The class and
certain subclasses were certified. A similar putative class
action filed in the United States District Court for the Southern
District of Texas was transferred and consolidated with the Class
Action Suits.

      The plaintiffs in the Class Action Suits claimed to have
purchased the Company's securities at prices which the Company
and the individual defendants allegedly artificially inflated by,
among other things: (i) misrepresenting the potential value of
the patent license agreement the Company entered into with AT&T;
(ii) improperly accounting for revenues and expenses in
connection with certain license and advertising agreements; (iii)
failing to disclose the existence of an inquiry initiated by the
Securities and Exchange Commission (the "SEC"); and (iv) making
misleading statements regarding the employment of John Sculley.
In addition, there were claims against certain of the individual
defendants for improper insider trading.

      On July 20, 1994, the Company, certain of its then officers
and directors, and two former officers and directors were served
with a class action complaint. The complaint asserted that
Spectrum knowingly or recklessly made material false statements
or omitted material facts in its financial reporting relating to
Computer Bay prior to announcing the restatement of earnings for
the fiscal year 1992 and the first three quarters of fiscal 1993
to correct inaccurate accruals of certain items into income. For
pretrial and settlement purposes, this litigation was
consolidated with the Class Action Suits described above.

      In November 1995, the Company announced that an agreement
in principle had been reached on a framework for settlement of
the Class Action Suits (the "Class Action Settlement"). District
Court approval of the Class Action Settlement was required for
the Company to consummate its Plan of Reorganization. Delays
obtaining this approval delayed the effective date of Spectrum's
plan of reorganization, which was confirmed in August 1996. The
Class Action Settlement had been approved by then by the District
Court on February 28, 1997. The Company consummated the plan of
reorganization on March 31, 1997.

      Under the terms of the Class Action Settlement and Plan, the
Company will issue to the plaintiffs a number of shares of its
Class A Convertible Preferred Stock equal to the number of shares
of Distributable Common Stock that was distributed to Spectrum's
stockholders and certain creditors following confirmation of the
Plan. In addition, under the Class Action Settlement, the
plaintiffs received the proceeds, net of certain fees and
expenses, from insurance policies worth $10 million covering the
liabilities of the Company's directors and officers and, as a
result of court supervised negotiations and at the recommendation
of the District Court, approximately $1,350,000 (in cash or
publicly traded securities) from the various individual
defendants in the action plus $250,000 from the Company.


                               15

<PAGE>



      The issuers of insurance policies representing $6 million
out of the $10 million of the insurance available to the class
plaintiffs pursuant to the Class Action Settlement disclaimed
coverage. On July 15, 1996, the District Court issued a decision
favorable to the Company in this coverage dispute. The insurance
carriers and the plaintiff class settled this dispute when the
carriers agreed to contribute $5.4 million of disputed coverage
to the settlement. (See Other Proceedings.)

      In May 1993, the SEC initiated a confidential and informal
fact gathering inquiry apparently directed toward statements the
Company purportedly made regarding the potential value of the
patent license agreement it had entered into in fiscal 1994 with
AT&T. On December 6, 1993, following the Company's dismissal of
its outside auditors, the SEC issued a formal order of
investigation. In April 1996, the SEC staff informed the Company
that it intended to commence an administrative proceeding to
determine whether during 1993 the Company had violated certain
sections of the Securities Exchange Act of 1934 and rules
promulgated thereunder, including violations of Rule 10b-5,
related to accounting and disclosure issues with respect to
certain patent and advertising agreements it entered into during
fiscal 1994. In April 1996, the Company's current management
began discussions with the SEC to resolve the SEC's ongoing
investigation. During these discussions the SEC informed the
Company that it intended to add alleged violations of the
registration provisions of the Securities Act of 1933 in the
administrative proceedings. During May 1997, the SEC and Spectrum
reached a settlement agreement under which Spectrum agreed to the
entry of an administrative order requiring it to cease and desist
from committing any and future violations of the registration,
antifraud, reporting and record-keeping provisions of the federal
securities laws. Spectrum neither admitted nor denied the SEC's
findings, which relate in part to the Class Action Suits. The SEC
did not seek monetary penalties and recognized that Spectrum's
current Chief Executive Officer and Board of Directors had
cooperated in the SEC's investigation.

      As part of the order, the SEC found that in 1992 Spectrum
violated the registration provisions of the Securities Act of
1933 when Spectrum controlled the issuance and exercise of stock
options and the sale of underlying shares without having a valid
registration statement in effect for these shares. The SEC also
found that Spectrum, through the actions of certain former
officers, violated the anti-fraud, reporting and record-keeping
provisions of the federal securities laws in connection with the
false and misleading accounting treatment for license fees
pursuant to certain intellectual property license agreements that
it entered in 1993.

      In connection with this investigation, Salvatore T. Marino,
a current employee and former officer of the Company informed the
Company in April 1996 that the SEC staff intended to commence a
proceeding against him for violations of certain sections of the
Securities Exchange Act of 1934 and rules promulgated thereunder,
including violations of Rule 10b-5, related to accounting and
disclosure issues with respect to certain patent and advertising
agreements the Company entered into during fiscal 1994 and the
exercise of options to purchase and subsequent sale of Spectrum
stock in the relevant time frame. Mr. Marino has denied any
wrongdoing and responded to the staff's allegations. Upon
learning of the SEC staff's position and pending resolution of
this issue, the Company removed Mr. Marino as an executive
officer. Mr. Marino is represented by independent counsel in this
matter.

      The United States Attorney's Office for the Eastern
District of New York has previously informed the Company that it
is the subject of an investigation regarding violations of
securities laws that may have occurred prior to the appointment
of the Company's current Chief Executive Officer and Board of
Directors. The Company is cooperating fully with the
investigation.

Other Proceedings

      On July 21, 1995, The Home Insurance Company of Illinois
("The Home"), the Company's former directors' and officers'
primary insurance carrier, commenced an adversary proceeding (the
"Home Action") in the Company's bankruptcy proceeding. The
Honorable Frederick Block, United States District Judge of the
District Court, subsequently withdrew the reference with respect
to the Home Action such that the litigation was heard before him.
The Home sought to rescind a renewal of a directors' and
officers' liability and company reimbursement policy issued in
June 1993 to the Company for the benefit of its directors and
officers (the "Renewal Policy") and alleged certain material
misrepresentations and/or omissions in the application for the
Renewal Policy. The Home also sought a declaration that coverage
is not afforded under the Renewal Policy for the claims made
against the policy by the Company and certain of its officers and
directors.

      In addition to the primary policy, the Company obtained
three excess policies for the insurance year at issue in the Home
Action. Two of the excess carriers, the Agricultural Excess and
Surplus Insurance Company ("AESIC") and The Aetna Casualty and
Surety Company ("Aetna") intervened in the Home Action. AESIC
agreed to be bound by any final judicial resolution regarding The
Home (a similar agreement was previously reached with the third
excess carrier).

      On July 15, 1996, the District Court ruled against the
insurance carriers in their attempt to rescind the directors' and
officers' insurance policies at issue in the Home Action. The
Court also ruled that any losses in the Class Action Suits
related to Spectrum's


                               16

<PAGE>



February 1994 restatement of earnings would be covered by the
policies at issue. The Court concluded that it could not decide,
based on the record before it, whether the policies at issue
would cover claims in the Class Action Suits related to alleged
insider trading by certain of the Company's former officers and
alleged misstatements regarding John Sculley's employment with
the Company. The insurance carriers appealed certain aspects of
the decision.

      Notwithstanding the appeal, the parties to the Class Action
Suits and the insurance carriers agreed to and implemented the
Class Action Settlement on March 31, 1997. The insurance carriers
and the plaintiff class later settled the Home Action when the
carriers agreed to contribute $5.4 million of disputed coverage
to the Class Action Settlement.

      From time to time, the Company has been a party to other
legal actions and proceedings incidental to its business. As of
the date of this report, however, the Company knows of no other
pending or threatened legal actions that could have a material
impact on the financial condition of the Company.

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

      None.


                               17

<PAGE>



                             PART II

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

      The Common Stock, par value $.001 per share, of the Company
(the "Company Stock") was traded in the Nasdaq System from
September 8, 1987 through December 18, 1990. Prior to this
period, and from December 19, 1990 through June 11, 1991, the
Common Stock traded in the over-the-counter market. From June 12,
1991 through April 27, 1992, the Common Stock again was traded in
the Nasdaq System. The Common Stock was traded in the Nasdaq
National Market System from April 28, 1992 through April 26,
1995. On April 27, 1995, during the first quarter of fiscal 1996,
the Nasdaq delisted the Company from the National Market System
because the Company failed to meet certain net tangible asset and
bid and ask price criteria. The stock is currently being traded
on the OTC Bulletin Board. There are currently 14 registered
market makers for the Common Stock.

      On March 31, 1997, the Company's Plan of Reorganization
became effective, which included a 75:1 reverse stock split. On
that day, the Company's reorganized common stock became eligible
for trading under the symbol SITI. The range of high and low
closing bid prices for the Common Stock for the fiscal years 1997
and 1996 are set forth below reflecting the 75:1 reverse stock
split effective March 31, 1997 for all bids. The National
Quotation Bureau provided this information which may not reflect
actual transactions.

                   HIGH AND LOW BID PRICES (1)

                               1997                  1996
---------------------------------------------------------------
                            Low     High         Low      High
---------------------------------------------------------------

First Quarter            $ 9.00   $29.25      $ 4.50    $30.75
Second Quarter            11.25    21.00       12.00     20.25
Third Quarter              3.75    12.00        6.00     18.00
Fourth Quarter             6.00    18.75        5.25     30.00

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

 (1) Bid prices reflect the 75:1 reverse stock split effective
     March 31,1997. For example, the low bid price in the first
     quarter fiscal 1996 of $0.06 was multiplied by 75 to reflect
     a low bid of $4.50.

      On June 6, 1997, the last reported bid and ask prices of
the Company's Common Stock were $3.50 and $4.25, respectively.

      As of June 6, 1997 there were approximately 5,131 holders
of record of the Company's common stock (which amounts do not
include the number of shareholders whose shares are held of
record by brokerage houses but include each brokerage house as
one shareholder).

      The Company has paid no dividends for the years ended March
31, 1997 and 1996 and the Company has no current plans to pay
dividends in the foreseeable future. The Company plans to retain
earnings, if any, to finance development and expansion of the
Company's operations. Payment of cash dividends, if any, in the
future will be determined by the Company's Board of Directors in
light of future earnings, capital requirements, financial
condition and other relevant considerations.

      Also, on March 31, 1997, pursuant to the Plan, the Company
issued 1,022,339 shares of Class A Convertible Preferred Stock,
par $.001 per share, in connection with the settlement of the
Class Action lawsuit. (See Item 3 Legal Proceedings - Bankruptcy
Proceedings). The exemption from the requirements of Section 5 of
the Securities Act of 1933 and any state or local law requiring
registration for the offer or sale of a security is provided for
in Section 1145 of the Bankruptcy Code and applies to Reorganized
Spectrum Common Stock and Class A Convertible Preferred Stock
issued under the Plan. For two years after the Effective Date,
Class A Convertible Preferred Stock will have a liquidation
preference over Reorganized Spectrum Common Stock to the extent
that, in the event that within two years of the Effective Date,
Reorganized Spectrum again becomes a debtor in a bankruptcy case
under the United States Bankruptcy Code (unless the case is an
involuntary case and is dismissed before an order for relief is
entered therein against Reorganized Spectrum), interests of
holders of Class A Convertible Preferred Stock will have priority
in such proceedings over interests of holders of Reorganized
Spectrum Common Stock. The Class A Convertible Preferred Stock is
convertible to Reorganized Spectrum Common Stock at any time
within two years of its date of issuance and automatically
converts to Reorganized Spectrum Common Stock at the expiration
of two years. Holders of Class A Convertible Preferred Stock will
be entitled to vote in


                               18

<PAGE>



the same manner as holders of Reorganized Spectrum Common
Stock, although, for the period of time that the Class A
Convertible Preferred Stock is in the hands of the Class Action
Trustee and has not been distributed to members of the class,
such stock will be required to be voted in the same proportions
as the holders of the Reorganized Spectrum Common Stock have
voted. Class A Convertible Preferred Stock will be fully
tradable.

Item 6.  Selected Financial Data.

      The following table presents selected financial information
relating to the financial condition and results of operations of
the Company and should be read in conjunction with the
consolidated financial statements and notes included elsewhere.


                                  Years Ended March 31,

                        -----------------------------------------------------
                           1997      1996       1995      1994       1993
-----------------------------------------------------------------------------
                           (Amounts in thousands, except per share amounts)

Summary of Operations:

Total revenues           $ 1,873   $ 8,458     $2,623    $2,924     $1,229

Loss from continuing
operations                (5,911)   (1,160)   (10,673)  (18,253)    (7,149)

Loss from continuing
operations per common
share                      (5.78)    (1.14)    (10.47)   (19.21)     (8.94)

Weighted average common
shares outstanding         1,022     1,022      1,019       950        800

Summary of Financial
Position:

Total assets               6,043    16,105     14,706    30,575     13,724
Long-term debt                 -         -          -       151        187
Stockholders' equity
deficit)                   2,161     2,089       (901)   12,787     11,340

-----------------------------------------------------------------------------
Dividends per share         None      None       None      None       None
-----------------------------------------------------------------------------


Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations.

Organization And Business Combination

      The Company owns a portfolio of patents (legacy assets)
relating to commercially practicable methods of data transmission
over circuit-switched cellular networks. For several years
preceding current management, Spectrum was operating as a holding
company of several operating subsidiaries with primary emphasis
on being an intellectual property company focused on generating
revenues from royalties associated with the licensing of its
proprietary technology. Since January 1995, Spectrum's new
management has been implementing strategies to resolve the many
financial and legal problems inherited from prior years and to
refocus the business direction of the Company. While continuing
to rely on license fees, royalties and the sale of products
related to its patents for revenues (the legacy business),
Spectrum's business objective is to become a provider of
value-added remote access communications software and related
products.

      Spectrum's proprietary wireless data transmission
technology enables transmission of data between portable computer
devices over existing analog cellular telephone networks.
Spectrum licenses its technology to leading manufacturers of
integrated circuits, modems and other related data communications
product providers. Spectrum also develops direct connect cellular
data transmission activation kits (cellphone software drivers and
cables) and markets them to some of the Company's licensees.
These two components - development and marketing of activation
kits and technology licensing - comprised the Company's operating
revenues during this fiscal year.

      The Company expects to continue to experience operating
losses while it (i) considers options regarding its legacy
business and (ii) attempts to successfully develop and market a
new line of remote access communications software and related
products to increase long term revenues. (See Liquidity and
Capital Resources and Item 1 - Business Products Under
Development.)

      As part of refocusing the Company, beginning in January
1995, when Spectrum and three of its subsidiaries filed petitions
for relief under Chapter 11 of Federal Bankruptcy Code, and
continuing throughout the fiscal year ended March 31, 1997,
Spectrum's


                               19

<PAGE>



management restructured the Company to focus on its legacy
business and remote access software strategy. As part of the
restructuring, Spectrum closed one of its unprofitable
subsidiaries, Computers Unlimited of Wisconsin, Inc. d/b/a
Computer Bay ("Computer Bay"), the liquidation of which is under
the supervision of the Bankruptcy Court, and sold a second
wholly-owned subsidiary, Spectrum Global Services, Inc., a
Delaware corporation ("Spectrum Global"), effective October 17,
1995. Spectrum Global had not filed for bankruptcy and was not
essential to Spectrum's legacy business or new direction. The
Company also significantly downsized its Spectrum Cellular
Corporation ("Cellular") subsidiary in Texas. In July 1995, the
Company also sold its non-profitable AXCELL(R) cellular interface
product line and certain related patent rights to Telular
Corporation ("Telular"). In fiscal 1992, Spectrum had licensed
these patent rights from Telular. In management's opinion,
AXCELL(R) was being replaced in the market by the Company's
direct connect technology. Management therefore did not believe
that AXCELL(R) was a viable product in the long run and was
inconsistent with management's strategy. In October 1996, the
Company liquidated a fourth wholly-owned subsidiary, Dealer
Services Business Systems, Inc., a Delaware corporation ("Data
One"). (See Item 3 - Legal Proceedings - Bankruptcy Proceedings.)

      The Company consummated its plan of reorganization on March
31, 1997. As part of the plan of reorganization, Spectrum
consolidated the Company's bankruptcy estate with that of
Cellular. Spectrum and Cellular are now conducting the Company's
core business on an operating basis as a single entity.

Chapter 11 Proceedings

      On January 26, 1995 (the "Petition Date"), as part of
management's effort to stem the Company's substantial financial
losses and focus on developing its core technology, the Company,
together with its wholly-owned subsidiaries, Computers Unlimited
of Wisconsin, Inc., a Wisconsin corporation d/b/a Computer Bay
("Computer Bay"), Dealer Services Business Systems, Inc., a
Delaware corporation d/b/a Data One ("Data One") and Spectrum
Cellular Corporation ("Cellular") (collectively, the "Debtors"),
filed petitions for relief under Chapter 11 of the Federal
Bankruptcy Code (the "Chapter 11 proceeding"). Upon motion by the
Debtors, the United States Bankruptcy Court for the Eastern
District of New York (the "Bankruptcy Court") converted the
action for Computer Bay to a case under Chapter 7 of the
Bankruptcy Code. A trustee is overseeing the liquidation of
Computer Bay's assets and the Company no longer has control over
the Computer Bay estate. Data One consummated a separate
liquidating plan of reorganization on October 4, 1996, which had
been unanimously supported by Data One's voting creditors.

      In March 1996, the Bankruptcy Court approved the Company's
Third Amended Disclosure Statement (the "Disclosure Statement")
with respect to the Third Amended Consolidated Plan of
Reorganization Proposed by Spectrum and Cellular (the "Plan")
dated as of March 18, 1996 finding the Disclosure Statement
adequate for distribution and vote by interested parties. As
contemplated by the Plan, the bankruptcy estates of Spectrum and
Cellular have been substantively consolidated. On August 14,
1996, the United States Bankruptcy Court of the Eastern District
of New York entered an order confirming the Plan, as amended. On
March 31, 1997, the Company consummated the Plan,(the "Effective
Date"). The Plan provided all administrative creditors with full
payment (unless a lesser amount was agreed upon or ordered by the
Bankruptcy Court) and all general unsecured creditors with 100%
of the value of their claims plus 6% interest per annum from the
filing date thereon. It also settled the class action lawsuits of
approximately $676,000,000 filed against the Company by the
payment by the Company of $250,000 and the delivery of
approximately 45% of the equity ownership in Spectrum to a
trustee to be distributed to the members of the class. In
addition, under the settlement, the plaintiffs are to receive the
proceeds, net of certain fees and expenses, from insurance
policies covering the liabilities of the Company's directors and
officers and, as a result of court supervised negotiations and at
the recommendation of the District Court, approximately
$1,350,000 (in cash or publicly traded securities) from the
various individual defendants in the action plus the $250,000
from the Company. Although existing Spectrum shareholders were
substantially diluted under the terms of the Plan, such
shareholders obtained the majority of the 45% equity ownership in
Spectrum set aside for existing shareholders and certain
creditors. The Plan also called for management, employees and
non-executive directors of the Company participating in
developing the Plan to receive the remaining 10% ownership.

Summary of Operations

      The following table sets forth, for the periods indicated,
the percentage relationship that certain items bear to revenue.
This summary provides trend data relating to the Company's normal
recurring operations. Amounts set forth below reflect the
Company's Data One and Computer Bay subsidiaries as discontinued
operations.


                               20

<PAGE>



                                          Years Ended March 31,
---------------------------------------------------------------------------
                           1997       %      1996     %      1995     %
---------------------------------------------------------------------------
                                     (Amounts in thousands)

Revenues                  $1,873   100.0   $8,458  100.0   $2,623   100.0
                         --------------------------------------------------
Operating costs and
expenses:
  Cost of revenues           161     8.6     290     3.4      522    19.9
  Selling, general and
  administrative           5,677   303.1   7,591    89.8   11,849   451.7
  Provision for
  restructuring                -       -       -       -      105     4.0
                         --------------------------------------------------
Total operating costs
and expenses               5,838   311.7   7,881    93.2   12,476   475.6
                         --------------------------------------------------

Operating income (loss)  $(3,965) (211.7)   $577     6.8  $(9,853) (375.6)
                         ==================================================


Consolidated Revenues

      Consolidated revenues decreased approximately $6,585,000 or
78% for the twelve months ended March 31, 1997 as compared to the
prior year due to a $6,452,000 or 81% decrease in licensing
revenues and a $133,000 or 26% decrease in merchandise sales.
Consolidated revenues increased approximately $5,835,000 or 222%
for the twelve months ended March 31, 1996 as compared to the
prior year due to a $6,606,000 or 496% increase in licensing
revenues, offset by a $771,000 or 60% decrease in merchandise
sales.

      The decrease in licensing revenues for the twelve months
ended March 31, 1997, as compared to 1996, and the increase for
the twelve months ended March 31, 1996, as compared to 1995, are
primarily attributable to the recognition of a one time fee of
$6,000,000 pursuant to a licensing settlement agreement with U.S.
Robotics (and its Megahertz, Inc. subsidiary) in fiscal 1996.
Licensing revenues further changed during these periods due to
the recognition of deferred revenue pursuant to a licensing
agreement. Licensing revenues for fiscal years 1997, 1996 and
1995 have included payments of approximately $850,000, $965,000
and $485,000, respectively, of an up-front license fee pursuant
to an agreement that the Company entered into during fiscal 1994.
The Company received the last of these up front installments in
the fiscal quarter ended September 30, 1996. The Company is
required to pay this licensee a portion of the royalties or
revenues that the Company may receive in certain circumstances in
connection with this license agreement in an amount not to exceed
the up front payment.

      Merchandise sales decreased for the twelve months ended
March 31, 1997, as compared to 1996, and for the twelve months
ended March 31, 1996, as compared to 1995, primarily due to
management's decision to sell the AXCELL(R) product line and
related patents in July of 1995. The Company did not sell
AXCELL(R) products during the year ended March 31, 1997.
AXCELL(R) sales for the year ended March 31, 1996 were
approximately $132,000 as compared to $1,063,000 for the year
ended March 31, 1995.


Operating Costs and Expenses

      Operating costs and expenses decreased approximately
$2,043,000 or 26% for the year ended March 31, 1997 as compared
to the year ended March 31, 1996 primarily due to a $1,914,000 or
25% decrease in selling, general and administrative expenses and
a $129,000 or 44% decrease in cost of sales.

      The decrease in selling, general and administrative
expenses for the twelve months ended March 31, 1997 was primarily
due to a decrease in professional fees (other than professional
fees associated with the Company's bankruptcy proceedings) of
$1,661,000 or 68%. This decrease was primarily due to the
reduction of non-bankruptcy related litigation during fiscal year
1997. Insurance expense decreased approximately $345,000 or 37%
for the year ended March 31, 1997 as compared to the same period
in the prior year primarily due to the $273,000 reduction of
policy premiums associated with the Company's directors' and
officers' insurance. During the fourth quarter of the prior
fiscal year, the Company disposed of certain assets resulting in
decreased depreciation expense for fiscal 1997 as compared to
fiscal 1996 of approximately $202,000 or 59%. These decreases
were partially offset by a $334,000 write-down of intangible
assets that were related to legal expenses incurred defending the
Company's patents.

      Operating costs and expenses decreased $4,595,000 or 37%
for the twelve months ended March 31, 1996 as compared to the
prior year due to a $4,258,000 or 36% decrease in selling,
general and administrative expenses as well as a $232,000 or 45%
decrease in cost of sales for the twelve months ended March 31,
1996 as compared to the prior year.


                               21

<PAGE>



      The decrease in selling, general and administrative
expenses for the twelve months ended March 31, 1996 was primarily
due to a decrease in professional fees (other than professional
fees associated with the Company's bankruptcy proceedings) of
$1,077,000 or 29%. This decrease was primarily due to the stay of
legal actions while the Company was in Chapter 11 bankruptcy
proceedings. Insurance expense decreased $414,000 or 30%
primarily due to the $367,000 reduction of policy premiums
associated with the Company's directors' and officers' insurance.
Decreases in personnel and related expenses of $412,000 or 15%
and travel and related expenses of $249,000 or 59% are due to the
overall downsizing of the Company. Advertising expenses decreased
$587,000 or 99% during the year ended March 31, 1996 as a result
of the sale of the AXCELL(R) product line. Other operating
expenses decreased $1,519,000 or 50% as a result of the Company's
general downsizing of operations.

Operating Income  (Loss)

      The Company's operating loss was approximately $3,965,000
in 1997 as compared to operating income of $577,000 in 1996. The
difference is a result of the decreased revenues of $6,585,000 or
78% offset by decreased selling, general and administrative
expenses of $1,914,000 or 25%.

      The Company's operating income was approximately $577,000
in 1996 as compared to an operating loss of $9,853,000 in 1995.
The difference is a result of the decreased selling, general and
administrative expenses of $4,258,000 or 36% and increased
revenues of $5,835,000 or 222%.

Other Income and Expense

      Other income decreased approximately $1,439,000 or 80% for
the year ended March 31, 1997 as compared to 1996 and increased
approximately $2,184,000 or 553% for the year ended March 31,
1996 as compared to 1995. The changes were primarily due to the
$1,616,000 gain on the sale of the AXCELL(R) product line during
the year ended March 31, 1996 and losses of approximately
$142,000 and $380,000 on the sale of marketable securities during
1997 and 1995, respectively.

Discontinued Operations

      On October 4, 1996, Data One, a subsidiary of the Company,
consummated its Chapter 11 liquidation plan, which resulted in a
gain of $531,000. On October 17, 1995, the Company sold its
Global subsidiary for approximately $4,549,000 in net proceeds
resulting in a $773,000 gain. As of January 25, 1995, the Company
closed its Computer Bay subsidiary which is reflected as a
discontinued operation in the consolidated financial statements.
The Company did not record a provision related to its anticipated
loss on a disposal because the case was converted into a Chapter
7. Computer Bay was turned over to a trustee and the Company no
longer maintains control over that subsidiary. As a result, the
Company recorded a gain of $2,539,000 by writing off the net
liabilities of Computer Bay.

Extraordinary Loss

      For the fiscal year ended March 31, 1997, the Company
reported an extraordinary loss of approximately $800,000 in
connection with the consummation of the Plan. (See Item 3 - Legal
Proceedings - Bankruptcy Proceedings). As of March 31, 1996, the
Company had reserved approximately $8,400,000 related to
litigation and pre-petition accounts payable and accrued
liabilities. On the Effective Date of the Plan, the Company made
payments of $3,000,000 in cash and issued approximately
$6,134,000 in Class A Convertible Preferred Stock. The Company
also recorded approximately $1,100,000 in connection with future
cash payments and stock issuances pursuant to the Plan.
Collectively, these transactions resulted in an extraordinary
loss of $1,800,000, which was partially offset by a gain of
approximately $1,000,000 associated with a reduction in
professional fees approved by the Bankruptcy Court.

Cumulative Effect of Change in Accounting Principle

      In May 1993, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity
Securities," effective for fiscal years beginning after December
15, 1993. The cumulative effect of adopting SFAS No. 115 as of
April 1, 1994 resulted in an increase in income of approximately
$316,000.


                               22

<PAGE>



Liquidity and Capital Resources

      Since inception, the Company has experienced significant
losses from continuing operations and operating cash flow
deficits which ultimately caused the Company to reorganize under
Chapter 11 bankruptcy protection. The Company expects operating
losses to continue until such time as it successfully develops
and markets a new line of communications software. The Company
continues to review expenses in order to conserve cash and is
investigating alternatives to address the continued negative cash
flow associated with its legacy business as well as continuing to
monitor the Company's opportunity to successfully build revenues
from its new software development and marketing efforts.

      From 1996 to 1997 working capital (current assets less
current liabilities) decreased by approximately $6,434,000,
primarily due to the payments of approximately $2,972,000 to
holders of secured, administrative and unsecured claims pursuant
to the Plan and the decrease in accounts payable, accrued
liabilities and other liabilities of approximately $3,055,000.

      Net cash used by continuing operations for operating
activities was $8,358,000 in 1997 as compared to net cash
provided by continuing operations of $2,544,000 in 1996. The
change of $10,902,000 is primarily due to the decrease of
$6,573,000 in accounts payable, accrued liabilities and other
liabilities, the decrease of $2,812,000 in liabilities subject to
compromise and the increase of $1,107,000 in net loss plus
non-cash adjustments. The decrease in all liabilities is
primarily due to payments pursuant to the Plan and the payment of
professional fees. The increase in net loss plus non-cash
adjustments is due to the reserve for stock issuances of
$1,525,000. Net cash used by operations was approximately
$14,288,000 for fiscal 1995. This was primarily due to the loss
from operations of approximately $14,276,000.

      Net cash of approximately $1,512,000 was used by investing
activities in 1997 primarily due to the purchase of U.S. treasury
notes of approximately $1,504,000. Net cash provided by
continuing operations for investing activities decreased
approximately $1,480,000 in 1996 to approximately $8,249,000 when
compared to the prior fiscal year. Cash proceeds during fiscal
1996 from the sales of Spectrum Global the AXCELL(R) product line
and real property in Dallas were lower than the cash proceeds
from the sale of marketable securities in fiscal 1995.

      There were no financing activities for the fiscal years
ended March 31, 1997 and 1996. Financing activities for fiscal 1995
were primarily for the exercise of stock options and warrants of
approximately $784,000.

      Capital expenditures amounted to approximately $116,000 for
the twelve months ended March 31, 1997. These expenditures are
primarily related to the outfitting of new engineering
development offices in the Atlanta, Georgia and Boston,
Massachusetts areas. The Company expects capital expenditures for
the fiscal year ended March 31, 1998 to be approximately
$125,000.

      The Company projects it will have adequate near term (i.e.,
over the next 12 months) capital resources to fund its
operations. Management believes the Company's long term (i.e.,
beyond 12 months) liquidity depends upon the Company's ability to
develop and sell value-added remote access communications
software and related products to generate a positive cash flow
from its reorganized business. The Company's long term liquidity
also depends on its ability to improve the performance of its
legacy business and raise additional capital to accomplish these
objectives. (See Item 1 Business - Risk Factors.) The
accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern, however,
there can be no assurance that the Company will be able to
successfully achieve management plans. The consolidated financial
statements do not include any adjustments that might result from
the outcome of these uncertainties.

 Recent accounting pronouncement

      In March 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard
("SFAS") 128, "Earnings per Share" which is effective for fiscal
years ending after December 15, 1997. The adoption of this
standard is not expected to have a material impact on the
Company's income (loss) per common share computation.

Item 8.  Consolidated Financial Statements and Supplementary Data.

      Information called for by this item is set forth in the
Company's consolidated financial statements and supplementary
data contained in this report, and can be found at the pages
listed in the following index on page F-1.


                               23

<PAGE>



Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure.

      None.
                             PART III

Item 10.  Directors and Executive Officers of the Registrant.

      The information concerning the directors and executive
officers of the Company is set forth under Directors and
Executive Officers of the Company heading in Item 1 and is
incorporated herein by reference.

Item 11.  Executive Compensation.

      The following table sets forth information regarding the
cash compensation paid by the Company for services rendered to
the Company in all capacities during fiscal 1997, 1996 and 1995
to its Chief Executive Officer and its executive officers whose
cash compensation exceeded $100,000.


                    SUMMARY COMPENSATION TABLE

------------------------------------------------------------------------------
                                                Annual Compensation
                                      --------------------------------------


Name and Principal Position   Year    Salary         Bonus         Other
                                       ($)            ($)          Annual
                                                                   Comp.
                                                                    ($)
------------------------------------------------------------------------------

Donald J. Amoruso             1997   295,000       132,686  (1)   681,558 (2)
President,                    1996   295,000       100,000  (4)         -
Chief Executive Officer,      1995    73,750 (6)   100,000  (4)         -
Chairman of the Board

Mikhail Drabkin               1997   195,000        72,500  (7)    46,080 (2)
Chief Technical Officer       1996    15,625 (6)    22,500  (8)         -
                              1995         -             -              -

Richard duFosse               1997   142,083        50,000  (9)    46,080 (2)
Vice President,
Software Engineering          1996    22,346 (6)    10,000  (8)         -
                              1995         -             -              -
Christopher M. Graham         1997   121,250        50,000  (1)   136,314 (2)
General Counsel, Secretary    1996   106,667             -              -
                              1995    65,481 (6)         -              -

Barry J. Hintze               1997   102,500        30,000  (1)    68,154 (2)
Principal Accounting
 Officer, Controller          1996    74,702 (6)         -              -
                              1995         -             -              -
------------------------------------------------------------------------------




-----------------------------------------------------------------------------
                                   Long-Term Compensation
                                ---------------------------
                                Grants & Awards      Payouts
                              --------------------   -------
Name and Principal Position   Restricted   Shares     LTIP     All
                                Stock       Under-   Payouts   Other
                               Award(s)     lying              Comp.
                                 ($)       Options              ($)
-----------------------------------------------------------------------------

Donald J. Amoruso                 -            -        -      19,965 (3)
President,                        -            -        -      19,965 (3)
Chief Executive Officer,          -       20,000(5)     -        -
Chairman of the Board

Mikhail Drabkin                   -            -        -        -
Chief Technical Officer           -            -        -        -
                                  -            -        -        -

Richard duFosse                   -            -        -        -
Vice President,
Software Engineering              -            -        -        -
                                  -            -        -        -
Christopher M. Graham             -            -        -        -
General Counsel, Secretary        -            -        -        -
                                  -        1,333(5)     -        -

Barry J. Hintze                   -            -        -        -
Principal Accounting
 Officer, Controller              -            -        -        -
                                  -            -        -        -
-----------------------------------------------------------------------------


(1) Pursuant to the Plan approved by the Bankruptcy Court, as
    part of a success fee for effecting a confirmed plan of
    reorganization, $300,000 was set aside to be awarded to the
    officers and employees of the Company that were responsible
    for consummation of the Plan. The amounts in the table above
    that reference this footnote are cash awards made pursuant to
    the Plan.


                               24

<PAGE>



(2) Pursuant to the Plan approved by the Bankruptcy Court, as
    part of a success fee for effecting a confirmed plan of
    reorganization and as incentive compensation, ten percent
    (10%) of Spectrum's reorganized equity (242,002 shares) was
    set aside to be awarded to officers, employees and
    non-executive directors responsible for consummation of the
    Plan. Pursuant to the Plan the following individuals were
    awarded the following number of shares of reorganized common
    stock:

                Mr. Amoruso         113,593
                Mr. Drabkin           7,680
                Mr. duFosse           7,680
                Mr. Graham           22,719
                Mr. Hintze           11,359

    The shares described above were awarded and will be
    distributed pursuant to the Company's 1996 Incentive Deferral
    Plan, which provides for distribution in three equal
    installments in August 1997, February 1998 and August 1998.
    These shares have been recorded at their fair value.  Actual
    value of the awards will be determined on the date of
    distribution for each installment in August 1997, February 1998
    and August 1998.

(3) Represents premiums paid under a variable life insurance
    policy paid by the Company pursuant to Mr. Amoruso's
    employment agreement.

(4) Represents $200,000 signing bonus paid by the Company in
    equal installments in fiscal 1995 and 1996.

(5) Represents options that were treated in accordance with the
    reverse stock split as set forth in the Company's Plan of
    Reorganization.

(6) Partial year.

(7) Represents the final installment of starting bonus and
    performance bonus paid pursuant to Mr. Drabkin's employment
    contract.

(8) Represents all or part of a starting bonus paid pursuant to
    employment agreement.

(9) Represents performance bonus paid pursuant to employment
    agreement.


               AGGREGATED OPTIONS EXERCISES IN 1996 FISCAL YEAR
                AND FISCAL YEAR-END OPTION VALUES

                                                                 Value of Un-
                                                                  exercised
                                                                     In-
                                                                  the-Money
                     Shares on           Number of Unexercised    Options at
                     Acquired   Value           Options            Fiscal
  Name               Exercise  Realized  at Fiscal Year-End      Year-End (1)
  ----               --------------------------------------------------------
                                       Exercisable  Unexercisable
                                       --------------------------
Donald J. Amoruso      0           0       16,667         3,333        0
Mikhail Drabkin        0           0            0             0        0
Richard F. duFosse     0           0            0             0        0
Christopher M. Graham  0           0        1,333             0        0
Barry J. Hintze        0           0            0             0        0


  (1)   All of the options included in this chart were out-of-the
        money on March 31, 1996. As a result of the reverse
        split, exercise prices range from $75.00 to $337.50.

Compensation of Directors

      Each of the Company's outside directors is paid $18,000 per
year plus $1,000 per meeting attended. Each outside director is
also paid $500 per diem for any special assignments. The Board of
Directors intends to adopt and implement a plan during the
upcoming fiscal year pursuant to which the Company will pay
one-half of the directors fixed annual compensation in common
stock of the Company.


                               25

<PAGE>



Employment Agreements

      The Company currently has employment agreements with each
of the individuals identified above. Messrs. Amoruso, Drabkin,
duFosse, Graham and Hintze are employed in the position
noted in the Summary Compensation Table at annual salaries of
$295,000, $195,000, $165,000, $130,000 and $128,000,
respectively. In addition to salary, the above-described
employment agreements provide for health and medical insurance,
life insurance benefits, certain other benefits and require
indemnification in certain circumstances. These agreements also
provide that if the Company discharges the individual without
cause they are entitled to full compensation and medical benefits
for one year.

Item 12.  Security Ownership of Certain Beneficial Owners and
          Management.

      The following table sets forth information as of June 15,
1997 with respect to beneficial ownership of Common Stock of each
of the Company's directors, the executive officers identified in
the Summary Compensation Table in Item 11 and all directors and
executive officers as a group.

                       Amount and Nature of
            Name        Beneficial Ownership(1)(2)  Percent  of Class
---------------------------------------------------------------------

     Donald J. Amoruso            56,197                4.77%

     Sheldon A. Buckler              767                   *

     George Bugliarello              767                   *

     Robert D. Dalziel               767                   *

     Mikhail Drabkin               2,560                   *

     Richard F. duFosse            2,560                   *

     Christopher M. Graham         8,906                   *

     Barry J. Hintze               3,786                   *

     All Directors and            76,310                6.48%
       Executive Officers
       of the Company as a
       Group
      (8 persons)

    -------------------------
           * Less than 1%

   (1) Unless otherwise indicated, each named person has voting
       and investment power over the listed shares and such
       voting and investment power is exercised solely by the
       named person or shared with a spouse.

   (2) Includes the following number of shares subject to options
       exercisable within sixty days from June 15, 1997.

               Mr. Amoruso      -     18,333
               Mr. Buckler      -        667
               Mr. Bugliarello  -        667
               Mr. Dalziel      -        667
               Mr. Graham       -      1,333


Item 13.  Certain Relationships and Related Transactions.

    None.


                               26

<PAGE>



                             PART IV

Item 14.  Exhibits, Financial Statements Schedules and Reports
          on Form 8-K.

(a)  The following documents are filed as part of this Annual
     Report on Form 10-K:

     1. Consolidated Financial Statements:

        The consolidated financial statements filed as a part of
        this report are listed in the "Index to Consolidated
        Financial Statements and Financial Statement Schedules"
        at Item 8.

     2. Consolidated Financial Statement Schedules:

        The consolidated financial statement schedules filed as
        part of this report are listed in the "Index to
        Consolidated Financial Statements and Financial Statement
        Schedules" at
        Item 8.

        Schedules other than those listed on the accompanying
        Index to Consolidated Financial Statements and Financial
        Statement Schedules are omitted for the reason that they
        are either not required, not applicable, or the required
        information is included in the consolidated financial
        statements or notes thereto.

     3. Exhibits

         2.1   Consolidated Plan of Reorganization Proposed by
               Spectrum Information Technologies, Inc. and Spectrum
               Cellular Corporation, dated as of February 8, 1996 (7)
         2.2   Stock Purchase Agreement, dated September 11, 1995, by
               and among the Company and the Lori Corporation,
               COMFORCE Corporation, et al. (6)
         3.1   Certificate of Incorporation of Spectrum Information
               Technologies, Inc., as amended (3)
         3.2   Amended and Restated By-laws of Spectrum Information
               Technologies, Inc., as amended effective December 29,
               1994 (5)
         3.3   Restated Certificate of Incorporation of the Company (9)
         3.4   Restated Bylaws of the Company (7)
         4.1   Specimen common stock certificate of Spectrum Information
               Technologies, Inc. (2)
         4.2   Specimen reorganized common stock certificate of Spectrum
               Information Technologies, Inc. (1)
         4.3   Specimen Class A Convertible Preferred Stock certificate
               of Spectrum Information Technologies, Inc. (1)
        10.1   Patent License Agreement between the Company and
               American Telephone & Telegraph Company (4)
        10.2   Purchase and Sale Agreement dated April 11, 1995 by
               and between the Company and Telular Corporation (5)
        10.3   Employment Agreement entered into between the Company
               and Donald J. Amoruso (5)
        10.4   Amendment to Employment Agreement between the Company
               and Donald J. Amoruso dated as of March 1, 1997 (1)
        10.5   Stock Option Agreement entered into between the
               Company and Donald J. Amoruso (5)
        10.6   Employment Agreement between the Company and Mikhail
               Drabkin dated as of January 21, 1996 (8)
        10.7   Amendment to Employment Agreement between the Company and
               Mikhail Drabkin dated as of May 23, 1996 (8)
        10.8   Employment Agreement between the Company and
               Richard duFosse dated as of January 18, 1996 (8)
        10.9   Amendment to Employment Agreement between the
               Company and Richard duFosse dated as of May 23,
               1996 (8)
        10.10  Employment Agreement entered into between the Company
               and Christopher M. Graham (5)
        10.11  Stock Option Agreement entered into between the Company
               and Christopher M. Graham (5)
        10.12  Amendment to Employment Agreement between the Company
               and Christopher M. Graham dated as of December 7, 1995 (8)
        10.13  Employment Agreement between the Company and Barry J.
               Hintze dated as of April 27, 1995 (8)
        10.14  Amendment to Employment Agreement between the Company
               and Barry J. Hintze dated as of December 4, 1995 (8)
        10.15  Amendment to Employment Agreement between the Company
               and Barry J. Hintze dated as of May 16, 1997 (1)
        10.16  Employment Agreement entered into between the Company
               and Salvatore T.  Marino (5)


                               27

<PAGE>



        10.17  Amendment to Employment Agreement between the Company
               and Salvatore T. Marino dated as of December 7, 1995 (8)
        10.18  Amended and Restated 1992 Stock Option Plan of the
               Company (5)
        10.19  Amendment to 1992 Stock Option Plan dated July 6, 1994 (5)
        10.20  Amendment to 1992 Stock Option Plan dated April 26, 1995 (5)
        10.21  Spectrum 1996 Stock Incentive Plan (7)
        10.22  Spectrum 1996 Incentive Deferral Plan (7)
        21.1   Subsidiaries of the Company (8)
        23.1   Consent of BDO Seidman, LLP (1)
        27.1   Financial Data Schedule (1)
        99.1   Disclosure Statement with Respect to the Consolidated
               Plan of Reorganization Proposed by Spectrum Information
               Technologies, Inc. and Spectrum Cellular Corporation,
               dated as of February 8, 1996 (7)

        (1)  Filed herewith.
        (2)  Previously filed as an exhibit to the Company's
             Registration Statement on Form 10 dated April 10,
             1987, and incorporated herein by reference.
        (3)  Previously filed as an exhibit to the Company's
             Annual Report on Form 10-K for the fiscal year ended
             March 31, 1990, and incorporated herein by
             reference.
        (4)  Previously filed as an exhibit to the Company's
             Annual Report on Form 10-K for the fiscal year ended
             September 30, 1993, and incorporated herein by
             reference.
        (5)  Previously filed as an exhibit to the Company's
             Annual Report on Form 10-K for the fiscal year ended
             March 31, 1995, and incorporated herein by
             reference.
        (6)  Previously filed as an exhibit to the Company's
             Current Report on Form 8-K filed October 17, 1995,
             and incorporated herein by reference.
        (7)  Previously filed as an exhibit to the Company's
             Current Report on Form 8-K filed March 26 1996, and
             incorporated herein by reference.
        (8)  Previously filed as an exhibit to the Company's
             Annual Report on Form 10-K for the fiscal year ended
             March 31, 1996, and incorporated herein by
             reference.
        (9)  Previously filed as an exhibit to the Company's
             Registration Statement on Form S-8 dated March 31,
             1997, and incorporated herein by reference.

    (b) Reports on Form 8-K

         The Company filed a Current Report on Form 8-K dated
         February 28, 1997, which included: Item 5, "Other Items"
         reporting that on February 28, 1997, Judge Frederick
         Block of the United States District Court for the
         Eastern District of New York approved the settlement of
         the securities related class action that was originally
         commenced against Spectrum in 1993. As a result,
         Spectrum expected the effective date of its confirmed
         plan of reorganization, including the implementation of
         the class action settlement, to occur on March 31, 1997.

         The Company filed a Current Report on Form 8-K dated
         March 31, 1997, which included: Item 5, "Other Items"
         reporting that the Third Amended Consolidated Plan of
         Reorganization Proposed by Spectrum Information
         Technologies, Inc. and Spectrum Cellular Corporation,
         dated as of March 18, 1996, was effective on March 31,
         1997.


                               28

<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.

                               SPECTRUM INFORMATION TECHNOLOGIES,
                               INC.


                               By

Dated:  June 26, 1997             /s/ Barry J. Hintze
                                 --------------------------------
                                         Barry J. Hintze
                                 (Controller and Principal
                                  Accounting 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.


                               By

Dated:  June 26, 1997             /s/ Donald J. Amoruso
                                 --------------------------------
                                        Donald J. Amoruso
                                  (President, Chief Executive Officer and
                                  Chairman of the Board of Directors)
                               By

Dated:  June 26, 1997             /s/ Sheldon A. Buckler
                                 --------------------------------
                                        Sheldon A. Buckler
                                            (Director)
                               By

Dated:  June 26, 1997             /s/ George Bugliarello
                                 --------------------------------
                                        George Bugliarello
                                            (Director)
                               By

Dated:  June 26, 1997             /s/ Robert D. Dalziel
                                 --------------------------------
                                        Robert D. Dalziel
                                            (Director)


                               29

<PAGE>


                                EXHIBIT INDEX

         2.1   Consolidated Plan of Reorganization Proposed by
               Spectrum Information Technologies, Inc. and Spectrum
               Cellular Corporation, dated as of February 8, 1996 (7)
         2.2   Stock Purchase Agreement, dated September 11, 1995, by
               and among the Company and the Lori Corporation,
               COMFORCE Corporation, et al. (6)
         3.1   Certificate of Incorporation of Spectrum Information
               Technologies, Inc., as amended (3)
         3.2   Amended and Restated By-laws of Spectrum Information
               Technologies, Inc., as amended effective December 29,
               1994 (5)
         3.3   Restated Certificate of Incorporation of the Company (9)
         3.4   Restated Bylaws of the Company (7)
         4.1   Specimen common stock certificate of Spectrum Information
               Technologies, Inc. (2)
         4.2   Specimen reorganized common stock certificate of Spectrum
               Information Technologies, Inc. (1)
         4.3   Specimen Class A Convertible Preferred Stock certificate
               of Spectrum Information Technologies, Inc. (1)
        10.1   Patent License Agreement between the Company and
               American Telephone & Telegraph Company (4)
        10.2   Purchase and Sale Agreement dated April 11, 1995 by
               and between the Company and Telular Corporation (5)
        10.3   Employment Agreement entered into between the Company
               and Donald J. Amoruso (5)
        10.4   Amendment to Employment Agreement between the Company
               and Donald J. Amoruso dated as of March 1, 1997 (1)
        10.5   Stock Option Agreement entered into between the
               Company and Donald J. Amoruso (5)
        10.6   Employment Agreement between the Company and Mikhail
               Drabkin dated as of January 21, 1996 (8)
        10.7   Amendment to Employment Agreement between the Company and
               Mikhail Drabkin dated as of May 23, 1996 (8)
        10.8   Employment Agreement between the Company and
               Richard duFosse dated as of January 18, 1996 (8)
        10.9   Amendment to Employment Agreement between the
               Company and Richard duFosse dated as of May 23,
               1996 (8)
        10.10  Employment Agreement entered into between the Company
               and Christopher M. Graham (5)
        10.11  Stock Option Agreement entered into between the Company
               and Christopher M. Graham (5)
        10.12  Amendment to Employment Agreement between the Company
               and Christopher M. Graham dated as of December 7, 1995 (8)
        10.13  Employment Agreement between the Company and Barry J.
               Hintze dated as of April 27, 1995 (8)
        10.14  Amendment to Employment Agreement between the Company
               and Barry J. Hintze dated as of December 4, 1995 (8)
        10.15  Amendment to Employment Agreement between the Company
               and Barry J. Hintze dated as of May 16, 1997 (1)
        10.16  Employment Agreement entered into between the Company
               and Salvatore T.  Marino (5)


                               27

<PAGE>



        10.17  Amendment to Employment Agreement between the Company
               and Salvatore T. Marino dated as of December 7, 1995 (8)
        10.18  Amended and Restated 1992 Stock Option Plan of the
               Company (5)
        10.19  Amendment to 1992 Stock Option Plan dated July 6, 1994 (5)
        10.20  Amendment to 1992 Stock Option Plan dated April 26, 1995 (5)
        10.21  Spectrum 1996 Stock Incentive Plan (7)
        10.22  Spectrum 1996 Incentive Deferral Plan (7)
        21.1   Subsidiaries of the Company (8)
        23.1   Consent of BDO Seidman, LLP (1)
        27.1   Financial Data Schedule (1)
        99.1   Disclosure Statement with Respect to the Consolidated
               Plan of Reorganization Proposed by Spectrum Information
               Technologies, Inc. and Spectrum Cellular Corporation,
               dated as of February 8, 1996 (7)

        (1)  Filed herewith.
        (2)  Previously filed as an exhibit to the Company's
             Registration Statement on Form 10 dated April 10,
             1987, and incorporated herein by reference.
        (3)  Previously filed as an exhibit to the Company's
             Annual Report on Form 10-K for the fiscal year ended
             March 31, 1990, and incorporated herein by
             reference.
        (4)  Previously filed as an exhibit to the Company's
             Annual Report on Form 10-K for the fiscal year ended
             September 30, 1993, and incorporated herein by
             reference.
        (5)  Previously filed as an exhibit to the Company's
             Annual Report on Form 10-K for the fiscal year ended
             March 31, 1995, and incorporated herein by
             reference.

        (6)  Previously filed as an exhibit to the Company's
             Current Report on Form 8-K filed October 17, 1995,
             and incorporated herein by reference.
        (7)  Previously filed as an exhibit to the Company's
             Current Report on Form 8-K filed March 26 1996, and
             incorporated herein by reference.
        (8)  Previously filed as an exhibit to the Company's
             Annual Report on Form 10-K for the fiscal year ended
             March 31, 1996, and incorporated herein by
             reference.
        (9)  Previously filed as an exhibit to the Company's
             Registration Statement on Form S-8 dated March 31,
             1997, and incorporated herein by reference.


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries


                Index to Consolidated Financial Statements
                 And Financial Statement Schedule



Report of Independent Certified Public Accountants for the
  Years Ended March 31, 1997, 1996 and 1995                             F-2

Consolidated Balance Sheets as of March 31, 1997 and 1996         F-3 - F-4

Consolidated Financial Statements for Each of the Three
  Years in the Period Ended March 31, 1997

  Consolidated Statements of Operations                                 F-5

  Consolidated Statements of Stockholders' Equity (Deficit)             F-6

  Consolidated Statements of Cash Flows                                 F-7

Notes to Consolidated Financial Statements                       F-8 - F-22

Schedule II - Valuation and Qualifying Accounts for Each of the
Three Years in the Period Ended March 31, 1997                         F-23

                                  F-1


<PAGE>



            REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of
Spectrum Information Technologies, Inc.
Purchase, New York

We have audited the accompanying consolidated balance sheets of
Spectrum Information Technologies, Inc. and subsidiaries as of
March 31, 1997 and 1996, and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for
each of the three years in the period ended March 31, 1997. We
have also audited the schedule listed on the accompanying index.
These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.

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

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Spectrum Information Technologies, Inc. and
subsidiaries at March 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended March 31, 1997 in conformity with
generally accepted accounting principles.

Also, in our opinion, the schedule presents fairly, in all
material respects, the information set forth therein.

As discussed in Note 1(c) to the consolidated financial
statements, the Company experienced significant losses from
continuing operations for the three years ended March 31, 1995,
largely due to professional fees incurred in defending itself in
the numerous litigation cases discussed in Note 8 to the
consolidated financial statements. Due to the continuing losses,
litigation and other factors, the Company filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code on
January 26, 1995. The Company's Plan of Reorganization under
Chapter 11 was declared effective as of March 31, 1997. However,
the Company has continued to generate losses from continuing
operations while under bankruptcy protection and its ability to
achieve management's plans raise substantial doubt about the
Company's ability to continue as a going concern. The
accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern.
Management's plans in regard to these matters are described in
Notes 1(a), 1(b) and 1(c) to the consolidated financial
statements. The consolidated financial statements do not include
any adjustments that might result from the outcome of the
uncertainties discussed herein.



/s/ BDO Seidman, LLP
BDO Seidman, LLP



New York, New York
June 19, 1997


                                  F-2


<PAGE>




Spectrum Information Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets
(Amounts in thousands)


March 31,                                           1997             1996
-------------------------------------------------------------------------
Assets
Current assets:
  Cash and cash equivalents                      $ 3,132           $13,002
  Marketable securities                            2,176               873
  Accounts receivable (net of allowance for
    doubtful accounts of $86 in 1997 and $80
    in 1996)                                         288             1,437
    Prepaid expenses and other current assets        239               229
                                              --------------    ------------
      Total current assets                         5,835            15,541
                                              --------------    ------------

Property and equipment, at cost:

  Furniture, fixtures and equipment                  542               426
  Less - accumulated depreciation                   (334)             (222)
                                              --------------    ------------

      Net property and equipment                     208               204
                                              --------------    ------------


Intangible assets, net                                 -               360
                                              --------------    ------------


      Total assets                               $ 6,043           $16,105
                                              ==============    ============


See accompanying notes to consolidated financial statements.



                                  F-3


<PAGE>



Spectrum Information Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets
(Amounts in thousands, except par value)


March 31,                                      1997              1996
-------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
  Accounts payable                          $    49           $ 3,643
  Accrued liabilities                         1,243             1,386
  Reserve for unpaid Chapter 11 claims          465                 -
                                           -------------     ------------
           Total current liabilities          1,757             5,029
                                           -------------     ------------


Reserve for Chapter 11 and other
 stock claims                                 2,125                 -
                                           -------------     ------------
Liabilities subject to compromise:
  Accounts payable and accrued liabilities        -             1,485
  Reserve for litigation                          -             4,719
  Reserve for restructuring                       -             2,067
  Net liabilities of discontinued
   operations                                     -               531
  Other liabilities                               -               185
                                           -------------     ------------
           Total liabilities subject to
           compromise                             -             8,987
                                           -------------     ------------
           Total liabilities                  3,882            14,016
                                           -------------     ------------


Commitments and contingencies

Stockholders' Equity:
 Class A Convertible Preferred Stock,
  $.001 par value, 1,500 shares
  authorized and 1,022 and none
  issued and outstanding,
  respectively                                    1                 -
 Common stock, $.001 par value,
  10,000 and 110,000 shares
  authorized and 1,022 and
  76,675 issued and outstanding,
  respectively                                    1                77

 Paid-in capital                             70,170            63,961
 Accumulated deficit                        (67,681)          (61,501)
                                           -------------     ------------
                                              2,491             2,537

 Treasury stock, 1 and 100 shares
  at cost, respectively                        (300)             (300)
 Unrealized loss on marketable
  securities                                    (30)             (148)
                                           -------------     ------------
           Total stockholders' equity         2,161             2,089
                                           -------------     ------------


           Total liabilities and
           stockholders' equity              $6,043           $16,105
                                           =============     ============

See accompanying notes to consolidated financial statements.

                                  F-4


<PAGE>



Spectrum Information Technologies, Inc. and Subsidiaries

Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)


Year ended March 31,                   1997            1996             1995
--------------------------------------------------------------------------------

Revenues:
  Licensing revenue                $  1,485         $ 7,937         $  1,331
  Merchandise sales, net                388             521            1,292
                                   -----------     ------------    -------------
        Total revenues                1,873           8,458            2,623
                                   -----------     ------------    -------------

Operating costs and expenses:
  Cost of revenues                     161              290              522
  Selling, general and
  administrative                     5,677            7,591           11,849
  Provision for restructuring            -                -              105
                                   -----------     ------------    -------------
        Total operating costs
         and expenses                 5,838           7,881            12,476
                                   -----------     ------------    -------------

Operating income (loss)              (3,965)            577            (9,853)
                                   -----------     ------------    -------------


Chapter 11 administrative
expenses                             (2,296)         (3,526)             (425)
                                   -----------     ------------    -------------


Other income (expense):
   Gain on Sale of Axcell
   Product Line                           -           1,616                 -
   Other income (expense), net          350             173              (395)
                                   -----------     ------------    -------------
   Total other income (expense),
   net                                  350           1,789              (395)
                                   -----------     ------------    -------------

Loss from continuing operations      (5,911)         (1,160)          (10,673)
                                   -----------     ------------    -------------


Discontinued operations:
   Loss from operations of Data
   Oneand Computer Bay                    -               -            (4,721)
   Gain (loss) on disposal of Data
   One and Computer Bay                 531           2,539              (118)
   Income from operations of
   Spectrum Global                        -             790               920
   Gain on sale of Spectrum Global        -             773                 -
                                   -----------     ------------    -------------
 Income (loss) from discontinued
  operations                            531           4,102            (3,919)
                                   -----------     ------------    -------------

Extraordinary loss on 
extinguishment of debt                 (800)              -                 -
                                   -----------     ------------    -------------

Cumulative effect of change in
accounting principle                      -               -               316
                                   -----------     ------------    -------------
Net income (loss)                  $ (6,180)        $ 2,942         $ (14,276)
                                   ===========     ============    =============


Net (loss) income per common share:
   Loss  from continuing
   operations                        $(5.78)        $ (1.13)        $  (10.47)
   Income (loss) from
   discontinued operations                -             .77             (3.85)
   Gain on disposal of
   discontinued operations              .52            3.24                 -
   Loss on extinguishment of debt      (.78)              -                 -
   Gain on cumulative effect
   of change                              -               -               .31
                                    ------------    ------------    ------------

   Net income (loss)               $  (6.04)        $  2.88         $  (14.01)
                                    ============    ============    ============

See accompanying notes to consolidated financial statements.


                                  F-5


<PAGE>



Spectrum Information Technologies, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity (Deficit)
(Amounts in thousands)

                         Class A Convertible
                         Preferred Stock      Common Stock
                        ------------------   --------------

                                                             Paid-in Accumulated
                           Shares      $      Shares    $    Capital   Deficit

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


Balance, March 31, 1994         -   $  1   $  75,983   $76   $63,178  $(50,167)
                                          
    Exercise of stock options   -      -         692     1       783         -
    Net loss                    -      -           -     -         -   (14,276)
    Unrealized loss on 
       marketable                         
       securities               -      -           -     -         -         -
                        ------------------------------------------------------
Balance, March 31, 1995         -      -      76,675    77    63,961   (64,443)
                                          
    Net income                  -      -           -     -         -     2,942
    Unrealized loss on                    
      marketable                          
      securities                -      -           -     -         -         -
                        ------------------------------------------------------
Balance, March 31, 1996         -      -      76,675    77    63,961   (61,501)
                                          
    Net loss                    -      -           -     -         -    (6,180)
    Unrealized loss on                    
      marketable securities     -      -           -     -         -         -
    Issuance of Class                     
    A convertible                         
      preferred stock       1,022      1           -     -     6,133         -
    One for seventy five                  
    stock split                 -      -     (75,653)  (76)       76         -
                        --------------------------------------------------------
Balance, March 31, 1997     1,022   $  1       1,022  $  1   $70,170  $(67,681)
                        ========================================================





                             Treasury
                               Stock
                            -----------
                                            Unrealized
                                              Loss on
                              Shares   $    Marketable   Total
                                            Securities
                            --------------------------------------


Balance, March 31, 1994         100  $(300)     $ -     $12,787

    Exercise of stock option      -      -        -         784
    Net loss                      -      -        -     (14,276)
    Unrealized loss on
       marketable
       securities                 -      -     (196)       (196)
                            ------------------------------------
Balance, March 31, 1995         100   (300)    (196)       (901)

    Net income                    -      -        -       2,942
    Unrealized loss on
      marketable
      securities                  -      -       48          48
                            ---------------------------------------
Balance, March 31, 1996         100   (300)    (148)      2,089

    Net loss                      -      -        -      (6,180)
    Unrealized loss on
      marketable securities       -      -      118         118
    Issuance of Class
    A convertible
      preferred stock             -      -        -       6,134
    One for seventy five
    stock split                 (99)     -        -           -
                            ---------------------------------------
Balance, March 31, 1997           1  $(300)    $(30)     $2,161
                            =======================================
See accompanying notes to consolidated financial statements.


                               F-6

<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Consolidated Statements of Cash Flows
(Amounts in thousands)

Year ended March 31,                         1997            1996       1995
--------------------------------------------------------------------------------

Cash flow from operating activities:
  Net income (loss)                        $(6,180)        $ 2,942    $(14,276)
  Adjustments to reconcile net
  loss to net cash used by
  continuing activities:
    Loss on extinguishment of debt             800               -          -
    Reserve for stock issuance               1,525               -          -
    Reserve for unpaid Chapter 11 claims       305               -          -
    Gain on liquidation of Data One           (531)              -          -
    Loss on sale of marketable securities      142               -          -
    Depreciation and amortization              138             341        603
    Gain on Chapter 7 conversion of
    Computer Bay                                 -          (2,539)         -
    Gain on sale of Global subsidiary            -            (773)         -
    Gain on sale of building                     -             (86)         -
    Gain on sale of Axcell product line          -          (1,616)         -
    Deferred income                              -            (850)      (825)
    Write-off of intangible assets             334               -          -
    Loss on sale of equipment                    -             221        274
    (Increase) decrease in:
      Accounts receivable                    1,077            (173)     1,197
      Prepaid expenses and other assets         59           1,719         45
    Increase (decrease) in:
      Accounts payable, accrued
      liabilities and other liabilities     (3,055)          3,518     (9,922)
      Liabilities subject to compromise     (2,972)           (160)     8,616
                                          -----------     ------------ ---------
        Net cash (used)
        provided by continuing
        operations                          (8,358)           2,544    (14,288)
        Net cash (used) provided by
        discontinued operations               (121)          (1,800)    17,536
--------------------------------------------------------------------------------
        Net cash (used) provided by
        operating activities                (8,479)             744      3,248
--------------------------------------------------------------------------------
Cash flows from investing activities:
  Proceeds from sale of Axcell product line      -           3,000          -
  Proceeds from sale of Global subsidiary        -           4,549          -
  Proceeds from sale of building                 -             733          -
  Proceeds from sale of marketable securities  108               -      9,817
  Purchase of marketable securities         (1,504)              -          -
  Purchase of property and equipment          (116)            (33)       (88)
                                          -----------     ------------- --------
        Net cash (used) provided by
        continuing operations               (1,512)           8,249      9,729
        Net cash  used by discontinued
        operations                                -            (275)      (100)
--------------------------------------------------------------------------------
        Net cash (used) provided by
         investing activities               (1,512)           7,974      9,629
--------------------------------------------------------------------------------
Cash flow from financing activities:
  Decrease in debt financing, net                -               -       (151)
  Proceeds from exercise of stock
  options and warrants                           -               -        784
                                          -----------     ------------ ---------
        Net cash provided by
        continuing operation                     -               -        633
        Net cash used by discontinued
        operations                               -              (3)   (12,967)
--------------------------------------------------------------------------------
        Net cash used by financing
        activities                               -              (3)   (12,334)
--------------------------------------------------------------------------------
Net  (decrease) increase in cash
and cash equvalents                         (9,991)          8,715        543
Cash and cash equivalents, unrestricted,
 beginning of year                          13,123           4,408      3,865
                                          -----------     ------------ ---------
Cash and cash equivalents, unrestricted,
 end of year                                 3,132          13,123      4,408
Cash and cash equivalents,
restricted                                       -               -        288
--------------------------------------------------------------------- ----------
Total cash and cash equivalents, end of year
 (including cash amounts in net assets
  of discontinued operations)             $  3,132         $13,123    $ 4,696
                                          ===========     =========== ==========


See accompanying notes to consolidated financial statements.


                               F-7

<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements




1.  Summary of Significant Accounting Policies

    (a) Business
        Spectrum Information Technologies, Inc., a Delaware
        corporation ("Spectrum") and its subsidiaries (collectively, the
        "Company"), own a portfolio of patents (legacy assets) relating
        to commercially practicable methods of data transmission over
        circuit-switched cellular networks. For several years preceding
        current management, Spectrum was operating as a holding company
        of several operating subsidiaries with primary emphasis on being
        an intellectual property company focused on generating revenues
        from royalties associated with the licensing of its proprietary
        technology. Since January 1995, Spectrum's new management has
        been implementing strategies to resolve the many financial, legal
        and litigation problems inherited from prior years and to refocus
        the business direction of the Company. While continuing to rely
        on license fees, royalties and the sale of products related to
        its patents for revenues (the "legacy business"), Spectrum's
        business objective is to become a key provider of value-added
        remote access communications software and related products.

        Spectrum's proprietary wireless data transmission
        technology enables transmission of data between portable computer
        devices over existing analog cellular telephone networks.
        Spectrum licenses its technology to leading manufacturers of
        integrated circuits, modems and other related data communications
        product providers. Spectrum also develops direct connect cellular
        data transmission activation kits (cellphone software drivers and
        cables) and markets them to some of the Company's licensees.
        These two components - development and marketing of activation
        kits and technology licensing - are the current sources of
        operating revenues.

        Spectrum hired two senior technologists at the end of
        fiscal 1996 to formulate product strategy and to implement
        product development plans consistent with Spectrum's new
        strategy. The Company is currently adding engineering staff
        through new hires or by outsourcing technical consultants with
        the necessary skills to support the business objectives.
        
        The Company expects to continue to experience operating
        losses while it (i) considers options regarding its legacy
        business and (ii) attempts to successfully develop and market a
        new line of remote access communications software and related
        products to increase revenues.
        
        As part of refocusing the Company, beginning in January
        1995, when Spectrum and three of its subsidiaries filed petitions
        for relief under Chapter 11 of Federal Bankruptcy Code, and
        continuing throughout the fiscal year ended March 31, 1997,
        Spectrum's management restructured the Company to focus on its
        core business and new business strategy. As part of the
        restructuring, Spectrum closed one of its unprofitable
        subsidiaries, Computers Unlimited of Wisconsin, Inc. d/b/a
        Computer Bay ("Computer Bay") the liquidation of which is under
        the supervision of the bankruptcy court, and sold a second
        wholly-owned subsidiary, Spectrum Global Services, Inc., a
        Delaware corporation ("Spectrum Global"), effective October 17,
        1995 (Note 2). Spectrum Global had not filed for bankruptcy and
        was not essential to Spectrum's core business or current business
        strategy. The Company has also significantly downsized its
        Spectrum Cellular Corporation ("Cellular") subsidiary in Texas.
        In July 1995, the Company also sold its non-profitable AXCELL(R)
        cellular interface product line and certain related patent rights
        to Telular Corporation ("Telular"). In fiscal 1992, Spectrum had
        licensed these patent rights from Telular. In management's
        opinion, AXCELL(R) was being replaced in the market by the
        Company's direct connect technology. Management therefore did not
        believe that AXCELL(R) was a viable product in the long run and
        was inconsistent with management's strategy. In October 1996, the
        Company liquidated a fourth wholly-owned subsidiary, Dealer
        Services Business Systems, Inc., a Delaware corporation ("Data
        One") (Note 2).



                               F-8


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



        The Company consummated its plan of reorganization on March 31,
        1997 (Notes 1(b) and 8). As part of the plan of reorganization,
        the Company consolidated Spectrum's bankruptcy estate with that
        of Cellular. Spectrum and Cellular are now conducting the
        Company's core business on an operating basis as a single entity
        (Notes 1(b) and 8).
        
    (b) Bankruptcy Proceedings
        On January 26, 1995 (the "Petition Date"), as part of
        management's effort to stem the Company's substantial
        financial losses and focus on developing its core
        technology, the Company, together with its wholly-owned
        subsidiaries Computer Bay, Data One and Cellular
        (collectively, the "Debtors"), filed petitions for relief
        under Chapter 11 of the Federal Bankruptcy Code (the
        "Chapter 11 proceeding"). Upon motion by the Debtors, the
        United States Bankruptcy Court for the Eastern District of
        New York (the "Bankruptcy Court") converted the action for
        Computer Bay to a case under Chapter 7 of the Bankruptcy
        Code. A trustee is overseeing the liquidation of Computer
        Bay's assets and the Company no longer has control over
        the Computer Bay estate. Data One consummated a separate
        liquidating plan of reorganization on October 4, 1996,
        which had been unanimously supported by Data One's voting
        creditors (Note 8).
   
        In March 1996, the Bankruptcy Court approved the Company's
        Third Amended Disclosure Statement (the "Disclosure
        Statement") with respect to the Third Amended Consolidated
        Plan of Reorganization Proposed by Spectrum and Cellular
        (the "Plan") dated as of March 18, 1996 finding the
        Disclosure Statement adequate for distribution and vote by
        interested parties. As contemplated by the Plan, the
        bankruptcy estates of Spectrum and Cellular have been
        substantively consolidated. On August 14, 1996, the United
        States Bankruptcy Court of the Eastern District of New
        York entered an order confirming the Plan, as amended. On
        March 31, 1997, the Company consummated the Plan (the
        "Effective Date"). The Plan, as approved by the Bankruptcy
        Court, provided for the following:
     
        (i) Full payment of all general unsecured and priority
        claims plus 6% interest per annum from the filing date
        thereon totaling approximately $2,954,000.
    
        (ii) $300,000 of common stock to be issued to the trustee
        of Computer Bay as a portion of the settlement of the
        trustee's claim. The number of shares issued in May 1997,
        66,667, was determined based on the average bid or
        reported low price of the reorganized common stock for the
        last five business days preceding the thirty-first day
        following the Effective Date of the Plan set forth in the
        Bankruptcy Court approved settlement agreement. This
        amount has been recorded as a reserve for Chapter 11
        claims to be paid in stock.
     
        (iii) $112,000 of common stock to be issued to the
        Company's former financial advisor in settlement of an
        administrative claim. The number of shares issued in May
        1997, 24,939, was determined based on the average bid or
        reported low price of the reorganized common stock for the
        last five business days preceding the thirty-first day
        following the Effective Date of the Plan as set forth in
        the Bankruptcy Court approved settlement agreement. This
        amount has been recorded as a reserve for Chapter 11
        claims to be paid in stock.
     
        (iv) The settlement of the class action lawsuits of
        approximately $676,000,000 filed against the Company by
        the payment by the Company of $250,000 and the delivery of
        approximately 45% of the equity ownership in Spectrum to a
        trustee to be distributed to the members of the class.
      
        This resulted in a total of 1,089,006 shares of Class
        A Convertible Preferred Stock to be granted to the class.
        These shares were recorded at their fair value of
        $6,434,000. 1,022,339 of these shares were recorded as
        Class A Convertible Preferred Stock and paid-in capital
        since they were issued on the Effective Date.


                               F-9


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



        The remaining 66,667 shares were issued in May 1997 and
        therefore recorded as a reserve for Chapter 11 claims to
        be paid in stock.
        
        (v) A 75 to 1 reverse stock split for all outstanding
        shares of the Company's common stock on the Effective Date
        of Plan.
      
        (vi) Success bonus payable of $300,000 in cash and
        approximately 227,000 shares of reorganized common stock
        pursuant to the incentive plans discussed in Note 4. The
        shares were valued at $1,363,122. This value was recorded
        as a reserve for Chapter 11 claims to be paid in stock.
        The cash portion is recorded as an accrued liability.
      
        (vii) Waiver and non-payment of approximately $1,082,000
        of accrued professional fees approved by the Bankruptcy
        Court.
     
        As a result of the consummation of the Plan and the
        consummation of the liquidating plan of reorganization of
        Data One, the Company recorded an extraordinary loss of
        approximately $800,000 calculated as follows:
      
           Liabilities subject to compromise
           at March 31, 1996 (excluding
           Data One because a separate
           liquidating plan of
           reorganization was consummated
           on October 14, 1996 resulting
           in a gain on disposal of $531,000)   $ 8,456,000
       
           Waiver and non-payment of accrued
           professional fees                      1,082,000
         
           Class Action settlement               (6,684,000)
         
           General unsecured and priority
           claims plus interest and
           reserve for disputes                  (3,654,000)
                                                 ---------- 
           Total extraordinary loss on
           extinguishment of debt                $ (800,000)
                                                 ========== 
     

    (c) Basis of Presentation
        The accompanying consolidated financial statements of the
        Company have been prepared on the basis that it is a going
        concern, which contemplates the realization of assets and
        the satisfaction of liabilities, except as otherwise
        disclosed, in the normal course of business. However,
        because of the Company's recurring losses from continuing
        operations, such realization of assets and liquidation of
        liabilities is subject to significant uncertainty.
        Further, the Company's ability to continue as a going
        concern is dependent upon the achievement of the business
        objectives described in Note 1(a) and profitable
        operations therefrom and the ability to generate
        sufficient cash from operations and financing sources to
        meet obligations. The Company continues to monitor
        expenses in order to conserve cash and is assessing
        alternatives to address the continued negative cash flow
        associated with its legacy business. However, there can be
        no assurance that these objectives will be met or that
        acceptable alternatives will be found. Except as otherwise
        disclosed, the consolidated financial statements do not
        include any adjustments to reflect the possible future
        effects on the recoverability and classification of assets
        or the amounts and classification of liabilities that may
        result from the possible inability of the Company to
        continue as a going concern. The financial statements for
        the years ended March 31, 1997, reflect accounting
        principles and practices set forth in AICPA Statement of
        Position 90-7, "Financial Reporting by Entities in
        Reorganization Under the Bankruptcy Code", which the
        Company adopted as of January 26, 1995, the date of the
        Company's Chapter 11 filing (Note 8).

    (d) Use of Estimates
        In preparing financial statements in conformity with
        generally accepted accounting principles, management is
        required to make estimates and assumptions that affect the
        reported amounts of assets and liabilities and the disclosure
        of contingent assets and liabilities at the date of the
        financial statements and revenues and expenses during the
        reporting period. Actual results could differ from those
        estimates.



                              F-10


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



    (e) Principles of Consolidation
        The accompanying consolidated financial statements include
        the accounts and results of operations of the Company's
        wholly owned subsidiary, Cellular. Its three former
        subsidiaries, Data One (through October 4, 1996 when the
        subsidiary was liquidated in Chapter 11), Computer Bay
        (through May 25, 1995 when its bankruptcy was converted to a
        liquidation under Chapter 7) and Spectrum Global (through
        October 17, 1995 when it was sold) have been reflected as
        discontinued operations for all periods presented (Note 2).
        All significant intercompany accounts and transactions have
        been eliminated in consolidation.
    
    (f) Cash and Cash Equivalents
        Cash and cash equivalents include the Company's cash
        balances and short-term investments that mature in 90 days
        or less when acquired. Cash and cash equivalents are carried
        at cost plus accrued interest, which approximates market.

    (g) Marketable Securities
        The Company adopted Statement of Accounting Standards
        ("SFAS") No. 115, "Accounting for Certain Investments in
        Debt and Equity Securities", resulting in a change in the
        way the Company values its investments. Under this
        pronouncement, since the Company does not have the positive
        intent to hold its investments to maturity, they are
        classified as available-for-sale and carried at fair value.
        Unrealized holding gains and losses (determined by specific
        identification) on investments classified as
        available-for-sale, would be carried as a separate component
        of stockholders' equity. The cumulative effect as of April
        1, 1994 of adopting this change resulted in an increase in
        income of approximately $316,000. Additionally, there was no
        tax effect based upon the adoption of SFAS No. 115 due to
        the Company's substantial net operating loss carryforwards.
    
    (h) Revenue Recognition
        Deferred revenue on licensing agreements is recognized when
        earned based on each individual agreement. Sales of product
        are recognized upon shipment to the customer.

    (i) Property and Equipment
        Property and equipment are recorded at cost. Depreciation
        is recorded using the straight-line method over the
        estimated useful lives of the assets of 5 to 7 years.

    (j) Intangible Assets
        The Company adopted the provisions of Statement of
        Financial Accounting Standards ("SFAS") No. 121 "Accounting
        for the Impairment of Long-Lived Assets and for Long-Lived
        Assets to Be Disposed Of" (SFAS 121) as of April 1, 1996.
        SFAS 121 establishes accounting standards for the
        impairment of long-lived assets, certain identifiable
        intangibles, and goodwill related to those assets to be
        held and used and for long lived assets and certain
        identifiable intangibles to be disposed of.
     
        The Company reviews the carrying values of its long-lived
        and identifiable intangible assets for possible impairment
        whenever events or changes in circumstances indicate that
        the carrying amount of the assets may not be recoverable.
        Based on the Company's current business objectives and
        expected long range potential of the legacy business, the
        Company has determined that the carrying amount of its
        intangible assets may not be recoverable and as a result
        wrote-off the entire carrying amount of approximately
        $334,000.
    
    (k) Licensing Agreements
        The Company entered eight new non-exclusive license
        agreements and renewed or renegotiated ten prior
        non-exclusive agreements during fiscal 1997, and entered
        one non-exclusive license agreement and renegotiated and
        consolidated two prior non-exclusive agreements during
        fiscal 1996, pursuant to which it licensed others to
        utilize Spectrum's patented technology. The license
        agreements (except for one cross-license agreement) require
        up-front license fees or ongoing royalty obligations, or a
        combination thereof.
      

                              F-11


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



         The Company is also required to repay a license fee that
         it received pursuant to a license agreement that it
         entered during fiscal 1994 with Rockwell International
         from a portion of the royalties the Company may receive
         from license agreements with Rockwell customers. For
         fiscal 1997, the Company repaid $103,748 and in fiscal
         1996 the Company repaid $62,484.
        
         For the fiscal year ended March 31, 1997, the Company has
         included revenues of approximately $25,000 in licensing
         revenues and approximately $1,460,000 in royalties
         pursuant to license agreements that it entered during
         fiscal 1997 and earlier. For the fiscal year ended March
         31, 1996, the Company has included revenues of
         approximately $6,821,000 in licensing revenues and
         approximately $1,116,000 in royalties pursuant to license
         agreements that it entered during fiscal 1996 and earlier.
         Included in license revenues is a one time fee of
         $6,000,000 pursuant to a licensing settlement agreement
         with U.S. Robotics.
    
    (l) Research and Development Expenses
        Research and development expenditures are recorded as period
        costs when incurred. Such expenses were approximately
        $1,252,000, $366,000 and $306,000 in 1997, 1996 and 1995,
        respectively.

        Statement of Financial Accounting Standard No. 86,
        "Accounting for the Costs of Computer Software to be Sold,
        Leased or Otherwise Marketed," requires capitalization of
        certain software development costs subsequent to the
        establishment of technological feasibility. Based on the
        Company's product development process, technological
        feasibility is established upon completion of a working
        model. Costs incurred by the Company between completion of
        the working model and the point at which the product is
        ready for general release have been insignificant. All
        research and development costs have been expensed.
     
    (m) Income (Loss) Per Common Share
        The computation of income (loss) per common share is based
        on the weighted average number of common shares and common
        stock equivalents (convertible preferred shares, stock
        options and warrants), if applicable, assumed to be
        outstanding during the year. The weighted average number
        of shares used in the computation of income (loss) per
        share for 1997, 1996 and 1995 are approximately 1,022,000,
        1,022,000, and 1,019,000, respectively. Common stock
        equivalents were not included in the computation of
        weighted average shares outstanding for all periods
        presented because such inclusion would be anti-dilutive.
        All references in the consolidated financial statements
        with regard to average number of shares have been
        calculated giving retroactive effect to the reverse stock
        split discussed in Note 1(b)(v).

    (n) Recent accounting pronouncement
        In March 1997, the Financial Accounting Standards Board
        ("FASB") issued Statement of Financial Accounting Standard
        ("SFAS") No. 128, "Earnings per Share" which is effective
        for fiscal years ending after December 15, 1997. The
        adoption of this standard is not expected to have a
        material impact on the Company's income (loss) per common
        share computation.

2.  Dispositions

    Computer Bay

    Due to Computer Bay's continuing losses and loss of market
    share, the Company officially discontinued the operations of
    the Computer Bay subsidiary on January 25, 1995. Accordingly,
    Computer Bay has been reported as a discontinued operation,
    effective January 25, 1995, and the consolidated financial
    statements have been reclassified to report separately the
    operating results of the subsidiary for all periods
    presented. Upon conversion of Computer Bay's Chapter 11 case
    to a case under Chapter 7 on May 25, 1995, which mandates the
    liquidation of Computer Bay, control of Computer Bay was
    transferred from the Company to the Computer Bay trustee. As
    a result, the Company recorded a gain of $2,539,000 by
    writing off the net


                              F-12


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



    liabilities of Computer Bay. The Computer Bay trustee filed a
    claim with the Bankruptcy Court to substantively consolidate
    the Computer Bay liabilities with the liabilities of the
    Debtors in Chapter 11. The Company settled this claim for a
    $600,000 allowed cash claim and $300,000 allowed stock claim.
    (Notes 1(b) and 11).

    The following table summarizes the net liabilities of
    Computer Bay for the period presented:

                                           May 25, 1995
----------------------------------------------------------
                                          (Amounts in thousands)
Cash                                      $     218
Restricted cash                                 291
Accounts receivable                           1,078
Income taxes receivable                         409
Property and equipment                          100
Other assets                                    129
Accounts payable                             (3,368)
Other liabilities                            (1,396)
                                         -----------------
           Net liabilities                  $(2,539)
                                         =================

    Computer Bay generated revenues of approximately $59,921,000
    resulting in a net loss of approximately $4,721,000 for the
    year ended March 31,1995.

    Data One

    Data One consummated a separate liquidating plan of
    reorganization on October 4, 1996, which had been unanimously
    supported by Data One's voting creditors (Note 8). The
    consummation of the Plan resulted in a gain on disposal of
    $531,000 to be recorded by the Company.

    The following table summarizes the net liabilities of Data
    One.

March 31,                                       1996

-------------------------------------------------------------
                                          (Amounts in thousands)

Cash                                              $  121
Accounts receivable                                   10
Other assets                                           2
Accounts payable                                    (144)
Deferred income                                     (253)
Reserve for discontinued operations                 (157)
Other liabilities                                   (110)
                                         ---------------------
    Net liabilities                               $ (531)
                                         =====================

    Spectrum Global

    Effective October 17, 1995, the Company sold its Spectrum
    Global subsidiary for net proceeds of approximately
    $4,549,000, after expenses of $325,000, to certain former
    members of management. Spectrum Global was acquired in fiscal
    1994 from the nephew of the former President of the Company
    for


                              F-13


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



    approximately $4,120,000. Spectrum Global has been
    reported as a discontinued operation for all periods presented.

    The following table summarizes the net assets of
    Spectrum Global Services, Inc. for the period presented:

                                          October 17, 1995
----------------------------------------------------------
                                          (Amounts in thousands)
Cash                                      $   1,227
Accounts receivable                           1,899
Other assets                                  2,237
Accounts payable                               (243)
Other liabilities                              (117)
                                         -----------------
           Net assets                     $   5,003
                                         =================

    The following table summarizes the results of discontinued
    operations of Spectrum Global for the periods presented:

                      Years ended March 31,
                      -------------------------------------
                                     1996             1995
-----------------------------------------------------------
                      (Amounts in thousands)
Total revenues                     $6,877           $9,003
Net  income                        $  790           $  920



3.  Investment in Marketable Securities

    As of March 31, 1997, the Company's equity reflects a charge
    of $30,000, which represents the recognition of unrealized
    holding losses for the Company's investments determined to be
    available for sale, previously carried at the lower of cost
    or market. The realized loss from sales of available-for-sale
    securities for the year ended March 31, 1997 was
    approximately $142,000.

    Marketable securities as of March 31, 1997 were comprised of
    investments in government securities which consisted
    primarily of U.S. Treasury Notes. The aggregate cost, fair
    value and unrealized holding losses for U.S. Treasury Notes
    held at March 31, 1997 and 1996, are as follows:


                                          Aggregate  Gross Unrealized
                          Cost Basis     Fair Value  Holding Losses

-----------------------------------------------------------------
March 31, 1997:                  (Amounts in thousands)


Government securities,
maturing between
1 and 3 years                $2,206         $2,176          $(30)
                        ============================================

March 31, 1996:

  Equity Securities            $250           $106         $(144)
  Government securities,
  maturing
  between 1 and 5 years         702            698            (4)

Other                            69             69             -
                        --------------------------------------------
                             $1,021           $873         $(148)
                        ============================================


                              F-14


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



4.  Stockholders' Equity

    (a) Class A Convertible Preferred Stock
        Shares of Class A Convertible Preferred Stock are
        convertible to common stock on a one-to-one basis upon the
        request of the holder and automatically convert to common
        stock on March 31, 1999. Until March 31, 1999, holders of
        such shares shall have liquidation preference in
        bankruptcy and have the same voting rights as the common
        stockholders.
      
    (b) Stock Option Plans
        The Company applies the Accounting Principles Board
        ("APB") Opinion 25, "Accounting for Stock Issued to
        Employees", and related Interpretations in accounting for
        their stock option plans. Under APB Opinion 25, no
        compensation cost is recognized if the exercise price of
        the Company's employee stock options equals the market
        price of the underlying stock on the date of the grant.
       
        SFAS No. 123 of the Financial Accounting Standards Board,
        "Accounting for Stock-Based Compensation", which is
        effective for transactions entered into after December 15,
        1995, requires the Company to provide pro forma
        information regarding net income and earnings per share as
        if compensation cost for the Company's stock option plans
        had been determined in accordance with the fair value
        method prescribed by SFAS No. 123. There were no stock
        options granted during the two years ended March 31, 1997.
        The effect of the adoption of the accounting provisions of
        Statement No. 123 on the Company's net income and earnings
        per share was not material.
      
    (i) 1991 and 1992 Stock Option Plans

        The Company has two Stock Option Plans (the "1991 and 1992
        Plans") covering the issuance of incentive and
        non-qualified stock options to key employees, consultants
        and nonemployee directors of the Company and its
        subsidiaries. The aggregate number of shares of common
        stock granted under the 1991 and 1992 Plans is 294,560
        shares. The exercise price of each option is determined
        by the Plan committee, and shall not be less than 100% of
        the fair market value of a share of Common Stock at the
        time such stock options are granted. Vesting periods for
        options granted under the 1991 and 1992 Plans range from 1
        to 10 years with certain plans providing for exercise on
        the date of grant. Additional information follows:
      
                                                               Weighted
                                                               Average
                                            Shares Subject     Exercise
                                              to Options       Price
                                            -------------      -----------
Outstanding at March 31, 1994,
    at $84.38-$731.25 per share                100,079          $149.35
    Granted at $75.00 - $337.50 per share       34,891          $175.94
    Extinguished at $84.38 - $731.25 per
    share                                      (30,339)         $198.26
    Exercised at $84.38 - $105.00 per share     (9,238)         $ 84.75
                                            --------------     ----------
Outstanding at March 31, 1995 and 1996 at
   $75.00-$234.38 per share                     95,393          $149.78
   are Extinguished at $84.38 - $234.38
   per share                                   (41,496)         $119.14
                                              ------------------------
Outstanding at March 31, 1997
 at $75.00 - $337.50 per share                  53,897          $173.37
                                              ========================

        The following table summarizes information about stock
        options outstanding at March 31, 1997:



                              F-15


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



Range of          Outstanding and    Weighted Average  Weighted Average
Exercise          Excercisable at    Contractual Life  Exercise Price
Prices            March 31, 1997      (Years)

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

$75.00 to $337.50    32,417               2.18            $168.08
$84.38 to $324.75     9,212               3.49            $129.02
$84.38 to $225.00     8,935               6.80            $177.08
                 --------------
                     50,564               3.23            $173.37
                 ==============


   (ii) 1996 Stock Incentive Plan and 1996 Incentive Deferral Plan
        As part of a Bankruptcy Court approved success fee to
        employees, officers and all non-executive directors for
        confirming a plan of reorganization, the Company will also
        issue Reorganized Spectrum Common Stock pursuant to the
        two incentive compensation programs described in the
        Company's Plan of Reorganization. The 1996 Incentive
        Deferral Plan authorizes the issuance of 207,925 shares of
        Reorganized Spectrum Common Stock to officers and
        employees who were in the employ of the Company on the
        Effective Date, March 31, 1997. In April 1997 the Company
        awarded 192,790 of the 207,925 authorized shares. The
        distribution of stock to the officers and employees
        pursuant to the Plan shall be distributed in three equal
        semi-annual installments beginning in August 1997. The
        1996 Stock Incentive Plan authorizes the issuance of
        34,077 shares of Reorganized Spectrum Common Stock to
        non-executive directors who were in the employ of the
        Company on the Effective Date, March 31, 1997. Except for
        300 shares that were distributed to the directors on the
        Effective Date pursuant to the Plan, the distribution of
        stock to the directors shall be distributed in three equal
        semi-annual installments beginning in June 1998. These
        shares were recorded at their fair value of $1,363,000.
        Also, under the Stock Incentive Plan, employees, officers
        and directors will be eligible to receive future grants of
        performance based incentive awards with respect to an
        aggregate number of 242,002 shares.
 
5.  Concentrations of Credit Risk, Fair Value of Financial
    Instruments and Major Customers

    Financial instruments which potentially subject the Company
    to concentrations of credit risk consist principally of
    temporary cash investments and marketable securities. The
    Company currently invests most of its cash investments in
    money market funds with financial institutions insured by the
    FDIC and government securities. At times, such cash
    investments were in excess of the FDIC insurance limit.

    The carrying amount of these cash investments approximates
    the fair value due to their short maturity. The investments
    in government securities are valued at market.

    During the fiscal years ended March 31, 1997 and March 31,
    1996, sales to SMART Modular Technologies (including its
    recently acquired subsidiary Apex Data, Inc.) and Global
    Village Communications accounted for approximately 55% and
    27%, respectively, of the Company's merchandise sales. During
    the fiscal year ended March 31, 1995 sales to OKI Telecom
    accounted for approximately 39% of the Company's merchandise
    sales.



6.  Commitments and Contingencies

    The Company leases office space and certain equipment under
    operating leases. Total rent expense for 1997, 1996, and 1995
    was approximately $173,000, $121,000 and $353,000,
    respectively.

    Future minimum annual rental commitments for all
    noncancellable operating leases are as follows:

      Years Ended March 31,
      --------------------------------------------
                      (Amounts in thousands)
    1998                              $     154
    1999                                     61
    2000                                     14
    --------------------------------------------

    Total                             $     229
                            ====================




                              F-16


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



    The Company has entered into employment agreements (the
    "Employment Agreements") with certain officers and employees.
    Under the terms of the Employment Agreements, these officers
    are to receive annual salaries of approximately $1,291,000 in
    the aggregate and certain employee benefits. The Employment
    Agreements provide that if the Company discharges any of
    these individuals without cause, the discharged individual
    will be entitled to full compensation, including
    participation in all benefit programs, for periods of up to
    one year. The Bankruptcy Court approved the Company's
    assumption of these Employment Agreements. Certain Employment
    Agreements provide that certain employees are entitled to an
    annual bonus to be paid in cash or common stock based on the
    pretax profits of the Company in an amount established at the
    discretion of the Board of Directors of the Company.


7.  Income Taxes

    Deferred income taxes are provided for temporary differences
    between amounts reported for financial statement and income tax
    purposes. Deferred tax assets consist of:

March 31,                                   1997         1996

------------------------------------------------------------------
                                       (Amounts in thousands)

Net operating loss carryforwards       $26,673            $25,158
Reserve for employee stock compensation    545                  -
Reserve for litigation                       -              1,888
Reserve for restructuring                    -                827
Reserve for discontinued operations          -                 70
Other                                      106                 67
----------------------------------------------------------------------
                                       $27,324         $   28,010
Valuation allowance                    (27,324)           (28,010)
-------------------------------------------------     ----------------
                                       $     -             $    -
                                  ===============     ================


    Given the developmental stage of the Company's business
    strategy and the expectation of continued operating losses for
    the foreseeable future, it is unknown as to whether the benefit
    of any of the deferred tax assets will be realized. Therefore, at
    March 31, 1997 and 1996, the Company recorded a deferred tax
    asset with a valuation allowance of equal value. The change in
    the valuation allowance for the three years in the period ended
    March 31, 1997 was $ 686,000, $264,000 and $2,110,000.

    The Company's net operating loss carryforwards on March 31,
    1997 were approximately $66,683,000. These net operating loss
    carryforwards expire between 1999 and 2012 with approximately
    $3,916,000 expiring in 2012.


                              F-17


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



8.  Litigation

    Bankruptcy Proceedings
    On January 26, 1995 (the "Petition Date"), the Company and
    three of its four operating subsidiaries (Computer Bay, Data
    One and Cellular) filed petitions for relief under Chapter 11
    of the Bankruptcy Code in the United States Bankruptcy Court
    for the Eastern District of New York (the "Bankruptcy
    Court"), Case Nos. 195 10690 260, 195 10691 260, 195 10692
    260 and 195 10693 260, respectively (the "Chapter 11 case").
    A fourth subsidiary at the time, Spectrum Global Services,
    Inc., did not file for bankruptcy protection. On February 8,
    1995, the United States Trustee appointed an Official
    Committee of Unsecured Creditors to represent the creditors
    of Spectrum, Data One and Cellular (the "Committee"), and
    another committee for Computer Bay to represent the interests
    of all unsecured creditors whose claims arose before the
    Petition Date. No other committees were appointed. On May 25,
    1995, the Bankruptcy Court, upon motion by the Debtors,
    converted the Computer Bay proceeding to a case under Chapter
    7 of the Bankruptcy Code. A trustee has been appointed to
    oversee liquidation of the Computer Bay assets. Data One
    consummated a separate plan of liquidation under Chapter 11
    on October 4, 1996.

    In March 1996, the United States Bankruptcy Court approved
    the Third Amended Disclosure Statement (the "Disclosure
    Statement") with respect to the Third Amended Consolidated
    Plan of Reorganization (the "Plan") Proposed by Spectrum
    Information Technologies, Inc. and Spectrum Cellular
    Corporation (collectively, the "Company") dated as of March
    18, 1996 finding the Disclosure Statement adequate for
    distribution and vote by interested parties. As contemplated
    by the Plan, the bankruptcy estates of Spectrum Information
    Technologies, Inc. and Spectrum Cellular Corporation were
    substantively consolidated. On August 14, 1996, the
    Bankruptcy Court entered an order confirming the Plan, as
    amended. The effective date of the Plan was March 31, 1997
    (the "Effective Date"). On the Effective Date, total cash
    distributions for unsecured claims, class action claims,
    administrative claims and priority claims in connection with
    consummation of the Plan were approximately $3.9 million, as
    described in more detail below. A few outstanding claims
    remain that the Company is attempting to reconcile. The
    Company does not believe the reconciliation of such claims
    will result in additional material payments to creditors.

    The Bankruptcy Court set April 22, 1996 as the deadline for
    voting on the Plan. Each class entitled to vote on the Plan
    accepted the Plan. Over 97% of Spectrum's voting unsecured
    creditors, representing over 99% of the total dollar amount
    voted, voted to accept the Plan. Under the Bankruptcy Code, a
    class accepts a plan if two-thirds in amount and a majority
    in number of the holders of claims voting cast ballots in
    favor of acceptance. Holders of Spectrum's common stock
    representing approximately 27,600,000 shares returned
    ballots, with over 95% of those shares voted in favor of
    confirmation. A class of equity interests is deemed to have
    accepted a plan if the plan is accepted by holders of at
    least two-thirds of the allowed interests that have voted on
    the plan.

    The Plan provided all administrative creditors with full
    payment (unless a lesser amount was agreed upon or ordered by
    the Bankruptcy Court), settled all material litigation
    pending against the Company and provided all general
    unsecured creditors with 100% of the value of their claims
    plus 6% interest per annum from the bankruptcy filing date
    thereon. It also settled the class action lawsuits of
    approximately $676,000,000 filed against the Company by the
    payment of $250,000 and the delivery of approximately 45% of
    the equity ownership in Spectrum to a trustee to be
    distributed to the members of the class. Although existing
    Spectrum shareholders were substantially diluted under the
    terms of the Plan, such shareholders obtained the majority of
    the 45% equity ownership in Spectrum set aside for existing
    shareholders and certain creditors. This held true even after
    the issuance of $300,000 of stock (66,667 shares) to the
    Chapter 7 trustee of Computer Bay in connection with the
    settlement of his claim and after the issuance of
    approximately $112,000 (24,939 shares) of stock to the
    Company's former financial advisor in connection with the
    settlement of its administrative claim. The Company
    authorized these stock distributions on May 5, 1997. The Plan
    also called for management, employees and non-executive
    directors of the Company participating in developing the Plan
    to receive the remaining 10% ownership.

    The Company amended its certificate of incorporation and
    by-laws on the Effective Date. The Amended Certificate
    contains certain provisions affecting the rights of
    shareholders, corporate governance, and the


                              F-18


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



    transferability of Class A Convertible Preferred Stock and
    Reorganized Spectrum Common Stock (as defined below). Under the
    amended certificate of incorporation, the authorized capital stock
    of the Company shall be comprised of (i) 10 million shares of
    reorganized Spectrum common stock ("Reorganized Spectrum Common
    Stock"), (ii) 1.5 million shares of Class A convertible preferred
    stock reserved for issuance in connection with the settlement
    of the Class Action that was filed against the Company in
    1993 ("Class A Convertible Preferred Stock") and (iii) 2 million
    shares of preferred stock ("Preferred Stock"). A description of the
    amount of shares that will be issued within each class is set
    forth below.

    Issued and outstanding shares of the Company's existing
    common stock were canceled on the Effective Date and replaced
    with one (1) share of Reorganized Spectrum Common Stock for
    each seventy-five (75) shares of existing common stock. The
    Company previously had authorized 110 million shares of
    common stock, of which approximately 76.7 million had been
    issued and were outstanding on the Effective Date. Therefore,
    approximately 1 million shares of Reorganized Spectrum Common
    Stock were issued to existing shareholders on the Effective
    Date. An additional 66,667 shares ($300,000) of Reorganized
    Spectrum Common Stock was issued to the Computer Bay trustee
    in connection with the settlement of his claim (collectively,
    the Reorganized Spectrum Common Stock issued to existing
    shareholders and the Computer Bay trustee is defined as
    "Distributable Common Stock"). The Company also issued 24,939
    shares (approximately $112,000) of stock to the Company's
    former financial advisor in connection with the settlement of
    its administrative claim. The Company authorized these stock
    distributions on May 5, 1997. Stock options issued under the
    Company's previously existing stock option plans were reverse
    split at a seventy-five (75) to one (1) ratio and repriced
    accordingly (i.e., a $1.00 exercise price was adjusted to a
    $75.00 exercise price).

    Pursuant to the Class Action Settlement, the Company issued
    approximately 1,089,000 shares of Class A Convertible
    Preferred Stock (valued at approximately $6,434,000) equal to
    the number of shares of Distributable Common Stock. The Class
    A Convertible Preferred Stock is convertible to Reorganized
    Spectrum Common Stock at any time within two years of its
    date of issuance and automatically converts to Reorganized
    Spectrum Common Stock at the expiration of two years.

    As part of a bankruptcy court approved success bonus to
    employees, officers and all non-executive directors for
    effecting a confirmed plan of reorganization, the Company
    issued Reorganized Spectrum Common Stock pursuant to the two
    incentive compensation programs described in the Plan, the
    Spectrum 1996 Stock Incentive Plan and the Spectrum 1996
    Incentive Deferral Plan, which collectively authorize the
    issuance of an aggregate number of shares of Reorganized
    Spectrum Common Stock equal to one-ninth (1/9) of the
    aggregate number of shares of Distributable Common Stock and
    Class A Convertible Preferred Stock (i.e., 10% of the
    reorganized Spectrum equity ownership) to directors, officers
    and employees of the Company on the Effective Date. Except
    for 300 shares of Reorganized Spectrum Common Stock that were
    distributed to non-executive directors on the Effective Date,
    the stock issued to directors, officers and employees
    pursuant to such incentive programs shall be distributed in
    three equal semi-annual installments following the Effective
    Date. Under the Stock Incentive Plan, employees, officers and
    directors will also be eligible to receive future grants of
    performance based incentive awards with respect to an
    aggregate number of shares equal to an additional one-ninth
    (1/9) of the aggregate number of shares of Distributable
    Common Stock and Class A Convertible Preferred Stock. Also,
    as set forth in the Plan, the Company distributed a $300,000
    success bonus among all employees involved in the development
    and implementation of the Plan.

    The details of the Plan, the recapitalization, and the
    Company's by-laws are set forth in detail in the Plan and
    associated Disclosure Statement, which the Company filed with
    the SEC on its Current Report on Form 8-K dated as of March
    26, 1996. The Company's amended certificate of incorporation
    is contained in the Company's Registration Statement on Form
    S-8 dated March 31, 1997.




                              F-19


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



  Securities Related Proceedings

    On February 9, 1994, the class action filed against the
    Company and two of its former officers in May 1993 (In re
    Spectrum Information Technologies, Inc. Securities
    Litigation, United States District Court for the Eastern
    District of New York, Civil Action No. 93-2295) (the "Class
    Action Suits") was supplemented (i) to extend the end of the
    class period from May 21, 1993 to February 4, 1994, (ii) to
    add additional claims against Spectrum and the individual
    defendants, and (iii) to add certain of its then officers as
    party defendants. In April 1994, a Second Consolidated
    Amended Class Action Complaint was filed adding additional
    employees as party defendants. The class and certain
    subclasses were certified. A similar putative class action
    filed in the United States District Court for the Southern
    District of Texas was transferred and consolidated with the
    Class Action Suits.

    The plaintiffs in the Class Action Suits claimed to have
    purchased the Company's securities at prices which the
    Company and the individual defendants allegedly artificially
    inflated by, among other things: (i) misrepresenting the
    potential value of the patent license agreement the Company
    entered into with AT&T; (ii) improperly accounting for
    revenues and expenses in connection with certain license and
    advertising agreements; (iii) failing to disclose the
    existence of an inquiry initiated by the Securities and
    Exchange Commission (the "SEC"); and (iv) making misleading
    statements regarding the employment of John Sculley. In
    addition, there were claims against certain of the individual
    defendants for improper insider trading.

    On July 20, 1994, the Company, certain of its then officers
    and directors, and two former officers and directors were
    served with a class action complaint. The complaint asserted
    that Spectrum knowingly or recklessly made material false
    statements or omitted material facts in its financial
    reporting relating to Computer Bay prior to announcing the
    restatement of earnings for the fiscal year 1992 and the
    first three quarters of fiscal 1993 to correct inaccurate
    accruals of certain items into income. For pretrial and
    settlement purposes, this litigation was consolidated with
    the Class Action Suits described above.

    In November 1995, the Company announced that an agreement in
    principle had been reached on a framework for settlement of
    the Class Action Suits (the "Class Action Settlement").
    District Court approval of the Class Action Settlement was
    required for the Company to consummate its Plan of
    Reorganization. Delays obtaining this approval delayed the
    effective date of Spectrum's plan of reorganization, which
    was confirmed in August 1996. The Class Action Settlement was
    approved by the District Court on February 28, 1997, and the
    Company consummated its Plan of Reorganization on March 31,
    1997.

    Under the terms of the Class Action Settlement and Plan, the
    Company will issue to the plaintiffs a number of shares of its 
    Class A Convertible Preferred Stock equal to the number of shares 
    of Distributable Common Stock that was distributed to Spectrum's
    stockholders and certain creditors following confirmation of
    the Plan. In addition, under the Class Action Settlement, the
    plaintiffs were to receive the proceeds, net of certain fees
    and expenses, from insurance policies worth $10 million
    covering the liabilities of the Company's directors and
    officers and, as a result of court supervised negotiations
    and at the recommendation of the District Court,
    approximately $1,350,000 (in cash or publicly traded
    securities) from the various individual defendants in the
    action plus $250,000 from the Company.

    The issuers of insurance policies representing $6 million out
    of the $10 million of the insurance available to the class
    plaintiffs pursuant to the Class Action Settlement disclaimed
    coverage. On July 15, 1996, the District Court issued a
    decision favorable to the Company in this coverage dispute.
    The insurance carriers and the plaintiff class settled this
    dispute when the carriers agreed to contribute $5.4 million
    of disputed coverage to the settlement. (See Other
    Proceedings).

    In May 1993, the SEC initiated a confidential and informal
    fact gathering inquiry apparently directed toward statements
    the Company purportedly made regarding the potential value of
    the patent license agreement it had entered into in fiscal
    1994 with AT&T. On December 6, 1993, following the Company's
    dismissal of its outside auditors, the SEC issued a formal
    order of investigation. In April 1996, the SEC staff informed
    the Company that it intended to commence an administrative
    proceeding to determine whether during 1993 the


                              F-20


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



    Company had violated certain sections of the Securities
    Exchange Act of 1934 and rules promulgated thereunder,
    including violations of Rule 10b-5, related to accounting and
    disclosure issues with respect to certain patent and
    advertising agreements it entered into during fiscal 1994. In
    April 1996, the Company's current management began
    discussions with the SEC to resolve the SEC's ongoing
    investigation. During these discussions the SEC informed the
    Company that it intended to add alleged violations of the
    registration provisions of the Securities Act of 1933 in the
    administrative proceedings. During May 1997, the SEC and
    Spectrum reached a settlement agreement under which Spectrum
    agreed to the entry of an administrative order requiring it
    to cease and desist from committing any and future violations
    of the registration, antifraud, reporting and record-keeping
    provisions of the federal securities laws. Spectrum neither
    admitted nor denied the SEC's findings, which relate in part
    to the Class Action Suits. The SEC did not seek monetary
    penalties and recognized that Spectrum's current Chief
    Executive Officer and Board of Directors had cooperated in
    the SEC's investigation.

    As part of the order, the SEC found that in 1992 Spectrum
    violated the registration provisions of the Securities Act of
    1933 when Spectrum controlled the issuance and exercise of
    stock options and the sale of underlying shares without
    having a valid registration statement in effect for these
    shares. The SEC also found that Spectrum, through the actions
    of certain former officers, violated the anti-fraud,
    reporting and record-keeping provisions of the federal
    securities laws in connection with the false and misleading
    accounting treatment for license fees pursuant to certain
    intellectual property license agreements that it entered in
    1993.

    In connection with this investigation, Salvatore T. Marino, a
    current employee and former officer of the Company informed
    the Company in April 1996 that the SEC staff intended to
    commence a proceeding against him for violations of certain
    sections of the Securities Exchange Act of 1934 and rules
    promulgated thereunder, including violations of Rule 10b-5,
    related to accounting and disclosure issues with respect to
    certain patent and advertising agreements the Company entered
    into during fiscal 1994 and the exercise of options to
    purchase and subsequent sale of Spectrum stock in the
    relevant time frame. Mr. Marino has denied any wrongdoing and
    responded to the staff's allegations. Upon learning of the
    SEC staff's position and pending resolution of this issue,
    the Company removed Mr. Marino as an executive officer. Mr.
    Marino is represented by independent counsel in this matter.

    The United States Attorney's Office for the Eastern District
    of New York has previously informed the Company that it is
    the subject of an investigation regarding violations of
    securities laws that may have occurred prior to the
    appointment of the Company's current Chief Executive Officer
    and Board of Directors. The Company is cooperating fully with
    the investigation.

  Other Proceedings

    On July 21, 1995, The Home Insurance Company of Illinois
    ("The Home"), the Company's former directors' and officers'
    primary insurance carrier, commenced an adversary proceeding
    (the "Home Action") in the Company's bankruptcy proceeding.
    The Honorable Frederick Block, United States District Judge
    of the District Court, subsequently withdrew the reference
    with respect to the Home Action such that the litigation was
    heard before him. The Home sought to rescind a renewal of a
    directors' and officers' liability and company reimbursement
    policy issued in June 1993 to the Company for the benefit of
    its directors and officers (the "Renewal Policy") and alleged
    certain material misrepresentations and/or omissions in the
    application for the Renewal Policy. The Home also sought a
    declaration that coverage is not afforded under the Renewal
    Policy for the claims made against the policy by the Company
    and certain of its officers and directors.

     In addition to the primary policy, the Company obtained
     three excess policies for the insurance year at issue in the Home
     Action. Two of the excess carriers, the Agricultural Excess and
     Surplus Insurance Company ("AESIC") and The Aetna Casualty and
     Surety Company ("Aetna") intervened in the Home Action. AESIC


                              F-21


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



    agreed to be bound by any final judicial resolution regarding
    The Home (a similar agreement was previously reached with the
    third excess carrier).

    On July 15, 1996, the District Court ruled against the
    insurance carriers in their attempt to rescind the directors'
    and officers' insurance policies at issue in the Home Action.
    The Court also ruled that any losses in the Class Action
    Suits related to Spectrum's February 1994 restatement of
    earnings would be covered by the policies at issue. The Court
    concluded that it could not decide, based on the record
    before it, whether the policies at issue would cover claims
    in the Class Action Suits related to alleged insider trading
    by certain of the Company's former officers and alleged
    misstatements regarding John Sculley's employment with the
    Company. The insurance carriers appealed certain aspects of
    the decision.

    Notwithstanding the appeal, the parties to the Class Action
    Suits and the insurance carriers agreed to and implemented
    the Class Action Settlement on March 31, 1997. The insurance
    carriers and the plaintiff class later settled the Home
    Action when the carriers agreed to contribute $5.4 million of
    disputed coverage to the Class Action Settlement.

    From time to time, the Company has been a party to other
    legal actions and proceedings incidental to its business. As
    of the date of this report, however, the Company knows of no
    other pending or threatened legal actions that could have a
    material impact on the financial condition of the Company.

   9.  Statements of Cash Flows

                                       Years ended March 31,

                                  ------------------------------------
                                      1997          1996          1995
                                  ------------------------------------

                                       (Amounts in thousands)


Supplemental disclosures of cash flow information:
  Cash paid during the year for
   interest                          $   -    $     -    $          25
  Cash paid during the year for
   income taxes                      $   3    $     2    $          44


Non-cash transactions:
  Stock issuance to Class Action
  Plaintffs                          $ 6,434  $     -    $           -
  Stock reserved for Computer Bay
  Trustee                            $   300  $     -    $           -





                              F-22


<PAGE>


Spectrum Information Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements





     Spectrum Information Technologies, Inc. and Subsidiaries
          Schedule II - Valuation and Qualifying Accounts
         For the Years Ended March 31, 1997, 1996 and 1995


                                                          Additions
                                                 Balance at        Charged to
                                                  Beginning         Costs and
          Description                              of Period         Expenses
---------------------------------              -------------     -------------

                                                 Year Ended March 31, 1995
   Allowance for Doubtful Accounts Receivable   $  80,293          $ -        
   Reserve for Inventory Obsolescence           $ 100,310          $ -         

                                                 Year Ended March 31, 1996
   Allowance for Doubtful Accounts Receivable   $  80,293          $ -         
   Reserve for Inventory Obsolescence           $ 100,310          $ -         


                                                 Year Ended March 31, 1997
   Allowance for Doubtful Accounts Receivable   $ 80,293           $ 5,606
   Reserve for Inventory Obsolescence           $ 46,076           $50,000


                                                                    Balance at
                                          Write-                      End of
                                           offs          Other        Period
                                       ------------   ------------ -------------

   Allowance for Doubtful
   Accounts Receivable                   $ -           $ -           $ 80,293
   Reserve for Inventory
   Obsolescence                          $ -           $ -           $100,310

   Allowance for Doubtful
   Accounts Receivable                   $ -           $ -           $ 80,293
   Reserve for Inventory
   Obsolescence                          $ (54,234)    $ -           $ 46,076

   Allowance for Doubtful
   Accounts Receivable                   $ -           $ -           $ 85,899
   Reserve for Inventory
   Obsolescence                          $ -           $ -           $ 96,076





                              F-23


<PAGE>