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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549
                                    FORM 10-K

     |X|      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
              SECURITIES EXCHANGE ACT OF 1934

                    FOR THE FISCAL YEAR ENDED MARCH 31, 2000

                                       OR

     | |      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
              OF THE SECURITIES EXCHANGE ACT OF 1934

                 FOR THE TRANSITION PERIOD FROM _____ TO _____ .

                         COMMISSION FILE NUMBER 0-22698
--------------------------------------------------------------------------------
                              GOLDEN SYSTEMS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------------------------------------------------------------------

           CALIFORNIA                                      95-4021568
(State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                         Identification No.)

                               2125-C MADERA ROAD
                              SIMI VALLEY, CA 93065
                    (Address of principal executive offices)
                                 (805) 582-4400
              (Registrant's telephone number, including area code)

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

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                  COMMON STOCK
                                (Title of Class)
                                OVER THE COUNTER
                     (Name of exchange on which registered)

     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 and (2) has been  subject to such  filing
requirements for the past 90 days:  Yes      No  X
                                       -----   -----

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

     The aggregate  market value of the voting stock held by  non-affiliates  of
the  registrant,  based  on  the  closing  price  at  September  30,  2000,  was
approximately  $175,000.  The number of shares  outstanding of the  registrant's
Common Stock at September 30, 2000 was 5,299,998.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE

<PAGE>

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                              GOLDEN SYSTEMS, INC.
                            INDEX TO ANNUAL REPORT ON
                                    FORM 10-K

                            For the fiscal year ended
                                 March 31, 2000

                                                                            Page
                                                                            ----
                                     PART I
Item 1.   Business...........................................................  3
Item 2.   Properties......................................................... 15
Item 3.   Legal Proceedings.................................................. 15
Item 4.   Submission of Matters to a Vote of Security Holders................ 16

                                     PART II

Item 5.   Market for Registrant's Common Equity and
          Related Stockholder Matters........................................ 16
Item 6.   Selected Financial Data............................................ 17
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations.......................................... 17
Item 8.   Financial Statements and Supplementary Data........................ 23
Item 9.   Changes in and Disagreements with Accountants
          on Accounting and Financial Disclosure............................. 23

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant................. 24
Item 11.  Executive Compensation............................................. 25
Item 12.  Security Ownership of Certain Beneficial Owners and Management..... 30
Item 13.  Certain Relationships and Related Transactions..................... 31

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 32
          Signatures......................................................... 34
          Index to Consolidated Financial Statements........................ F-1
          Financial Statements and Supplementary Data....................... F-1
          Reports of Independent Public Accountants................ F-2 and F-23

<PAGE>

                                     PART I

     Unless  otherwise  indicated as used in this Form 10-K all  references to a
fiscal year shall mean the fiscal year of Golden Systems, Inc. ("Golden Systems"
or the  "Company")  that  ends  in such  year  (for  example,  the  fiscal  year
commencing  April 1, 1999 and ending  March 31,  2000 is  referred  to herein as
"fiscal 2000" or "2000").

     This Annual Report on Form 10-K contains forward-looking  statements within
the  meaning of  Section  27A of the  Securities  Act of 1933,  as amended  (the
"Securities  Act") and Section 21E of the  Securities  Exchange Act of 1934,  as
amended  (the  "Exchange  Act").  Discussions  containing  such  forward-looking
statements  may be found in the  material  set forth  under  "Business-General,"
"Business-Marketing and Sales," "Legal Proceedings" and "Management's Discussion
and  Analysis of  Financial  Condition  and Results of  Operations,"  as well as
within  this Form 10-K  generally.  Such  statements  are subject to a number of
risks and  uncertainties.  Actual results in the future could differ  materially
from those described in the forward-looking  statements (as a result of the risk
factors  set forth  below  under "Risk  Factors").  The  Company  undertakes  no
obligation   to  publicly   release  the  result  of  any   revisions  to  these
forward-looking  statements  that may be made to reflect  any  future  events or
circumstances.

ITEM 1    BUSINESS

BACKGROUND

     Golden Systems was incorporated in October 1985 and commenced  operating in
February  1991.  Since then the Company has  engaged in the  marketing  of power
supplies  to personal  computer  and  peripheral  equipment  original  equipment
manufacturers  ("OEMs") and to distributors  of standard power supply  products.
During the fiscal year ended March 31, 1992, the Company  entered into its first
high  volume OEM sales  arrangement.  The  engineering,  sales and  distribution
operations of the Company were integrated with the engineering and manufacturing
operations of its newly acquired  subsidiary,  Ultra Tek Devices,  Ltd.  ("Ultra
Tek"),  effective on July 1, 1993, in  contemplation  of the  Company's  Initial
Public Offering. Prior to the integration, Ultra Tek manufactured power supplies
for sale  primarily  to  Tandon  Corporation  or  Tandon  Associates  for use in
personal computers and peripheral equipment manufactured by companies affiliated
with the Tandon family.  J. L. Tandon, a United States resident and citizen,  is
the Chief  Executive  Officer and a director of the  Company.  M. L.  Tandon,  a
resident and citizen of India, has been Chairman of the Board of Ultra Tek since
its incorporation on August 9, 1985 and is J. L. Tandon's  brother.  The Company
began doing business as "Cortech  Systems" in August 1996. Ultra Tek has changed
its name to Cortech Systems (India) Ltd. and a new certificate of  incorporation
was issued on June 6, 2000.

GENERAL

     The Company is in the business of  designing,  manufacturing  and marketing
switching power supplies. Historically, its customers have been OEMs of personal
computers and peripheral  equipment.  The Company's  principal  customers in the
past were Compaq  Computer  Corporation  ("Compaq") and  International  Business
Machines  Corporation  ("IBM").  Sales to Compaq declined  significantly  during
fiscal 1996 and 1997.  Although the Company expanded its business  activity with
IBM during fiscal 1996,  IBM ceased to be a customer  during fiscal 1997.  Since
fiscal  1997,  the  Company's  primary  customer  has  been  Iomega  Corporation
("Iomega").  However,  since December 1999, the Company has not received any new
orders from Iomega.

     The Company  uses  low-cost  manufacturing  and labor at its  manufacturing
facilities to produce its products,  which it designs  specifically  to meet the
quality  requirements  and other  specifications  of its OEM  customers.  During
fiscal 1999, the Company's  manufacturing  operations  were located in a foreign
export processing zone in Mumbai (formerly Bombay), India.  Manufacturing in two
other facilities located in Chennai (formerly Madras),  India and Sri Lanka were
discontinued   in  fiscal  1996  and  fiscal  1998  as  part  of  the  Company's
restructuring  and cost  reduction  efforts.  During  fiscal  1997,  the Company
relocated  its  product  design  and  development  engineering,  along  with its
self-certifying product safety laboratory, to

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Scotland.  Both  were  moved  back  to  the  Company's  headquarters  office  in
California  during the fourth  quarter of fiscal 1998,  as part of the Company's
ongoing effort to cut costs,  because  anticipated sales volume to support these
activities did not develop.

     As was previously  reported in the Company's  annual and quarterly  reports
filed with the  Securities and Exchange  Commission  (the  "Commission")  and in
timely press  releases  issued in December  1994,  the  Company's  cash flow was
significantly  impacted by the product  rejection  by Compaq,  its  then-largest
customer,  that took place in the last few months of fiscal 1995, which cost the
Company $4.2 million of lost accounts  receivable  directly related to the sales
of the rejected  units and $2.2 million  related to other direct costs  stemming
from the  rejection.  This  additionally  placed the  Company in an  unfavorable
position  with its raw material  vendors due to limited  cash,  high  short-term
debt, and a severe deferral of payments to its banking institutions and vendors.
Existing and potential new customers were very aware of the significant  product
return and the unfavorable financial position the Company was experiencing.

     In recognition of the unfavorable circumstances created by this event (high
short-term debt, limited capital,  vendor problems,  and negative  perception by
its existing and potential  customer  base),  the Company was required in fiscal
1996  to  develop  and   implement  a  strategy  to  overcome  its  severe  cash
difficulties.  The  strategy  included  utilization  or sale of its raw material
inventory,  cost  reductions,  organizational  restructuring,  price  increases,
volume  growth,  and obtaining  more  favorable  payment terms from its existing
customers. The Company recognized that these measures would be both difficult to
achieve in the very competitive  personal computer component market and would be
short-term solutions under the best of circumstances and results. Based on this,
the Company  recognized the necessity,  on a longer term basis,  of pursuing new
equity investment primarily through a merger or acquisition.

     The  Company  was  successful  in  achieving  certain  portions of its cash
recovery  strategy  as is  demonstrated  in its fiscal 1996  year-end  financial
statements.  In  particular,  $2,161,000  in cash was  provided by a decrease in
accounts  receivable  as a result of  specific  customers  granting  the Company
accelerated payment terms and an additional $2,270,000 in cash was provided by a
reduction in inventory  primarily as a result of using existing raw materials in
new power supply products. These same activities resulted in cash in the amounts
of $838,000 and $1,046,000,  respectively,  as reported in the Company's  Annual
Report on Form 10-K for fiscal 1997.  During fiscal 1996,  selling,  general and
administrative  expenses were reduced by $1,129,000  resulting from the eventual
shut-down of the  manufacturing  facility located in Chennai,  India,  staff and
cost reductions in the Simi Valley corporate offices, and cost reductions in the
England and Singapore  sales  offices.  But, while  achieving some success,  the
Company did not generate the anticipated amounts of cash recovery from inventory
reduction,  had only  limited  success in its  efforts  to resell the  reworked,
rejected product, and failed to rebuild the volume of its business.

     Sales to Compaq  decreased  significantly  in fiscal 1996 and fiscal  1997.
Although the Company was  successful in  increasing  its volume with IBM through
the third  quarter of fiscal 1996,  it was not  successful in building its sales
volumes to other existing  customers or to new  customers.  The Company also was
notified  by IBM in the  latter  half of fiscal  1996 that it was  reducing  its
number of  vendors  for power  supplies  to those  larger  and best  financially
prepared to support its activities and that the Company no longer met its vendor
selection criteria. Sales to IBM ceased during fiscal 1997.

     The Board of Directors  concluded  during the fourth quarter of fiscal 1996
that, if the Company were to remain  operational,  it must evaluate all measures
to obtain  additional  capital from sources outside the Company or, if none were
found,  that the Company  must  engage in a  transaction  that would  change its
fundamental structure.  On February 13, 1996, the Board of Directors established
an Independent  Directors  Committee,  made up of non-management  directors,  to
evaluate financing and restructuring options and opportunities  available to the
Company.

     The  Independent  Directors  Committee  was unable to identify  any outside
sources of  capital.  The  Company  pursued an equity  investment  by an outside
investment group;  discussed strategic  alliances with two different  companies;
considered  an  acquisition  proposal by an  investment  banker;  and explored a
merger with another electronics  manufacturer.  However,  the Company found that
the  following   factors  made  it  unattractive  to  potential   investors  and
traditional lenders: (i) the size of its Indian bank debt

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relative to the  Company's  consolidated  assets;  (ii) the fact that the Indian
banks' liens on Ultra Tek's assets are first in priority over all other debt, as
well as over shareholders'  equity rights;  (iii) the Company's operating losses
since the fiscal 1995 product  rejection  by Compaq;  and (iv) the fact that the
Company had consumed the totality of its resources  simply to survive during the
four  quarters of fiscal 1996. In May 1996,  J. L. Tandon,  the  Company's  CEO,
informed the Independent Directors Committee that the Tandon family, which owned
approximately 38.2% of the outstanding shares of the Company's common stock (the
"Common  Stock") and has  personally  guaranteed  Ultra Tek's bank debt in India
(amounting to  approximately  $7.5 million at March 31,  1996),  was prepared to
invest  additional  equity  in  the  Company  and  to  support  the  Company  in
negotiations  with the Indian banks. A number of  discussions of terms,  amounts
and timing took place,  leading to an initial  proposal  from the Tandon  family
dated July 31, 1996.  During August 1996, the  Independent  Directors  Committee
informed  J. L. Tandon  that,  in addition to  financial  terms,  an  acceptable
proposal must include (i) a business plan showing that the  investment  would be
sufficient  to restart the Company with new products,  and (ii) an  organization
chart showing that the Company had in place, or had  identified,  the management
and engineering talent necessary to implement the plan.

     During  September 1996, the Company  prepared and delivered a business plan
and reviewed personnel issues. The Independent  Directors  Committee pointed out
the weakness in senior  financial  management as a result of the  resignation of
Michael  D.  Thomas,  the  Company's  president  and  chief  financial  officer,
effective  July 1, 1996.  Prakash  Thanky had  become the  Company's  president,
effective that same date, but no senior financial executive was then employed by
the Company.  The committee directed management to initiate a search for a chief
financial officer and indicated its willingness to accept an interim  consultant
in that  position  while the search was under way.  Harvey  Marsh was hired as a
part-time  interim  financial  consultant  in October 1996 and continued in that
capacity  until  April 6,  1998,  at which  time he  became an  employee  of the
Company.  On  September  8, 1998,  the Board of  Directors  elected Mr.  Marsh a
director and appointed him Chief Financial Officer of the Company.

     In October 1996, the Tandon family  proposed a  recapitalization  plan (the
"Recapitalization  Plan") to the Independent Directors Committee.  This proposal
called for an investment in newly issued shares of the Company's Common Stock in
the amount of $2 million by the Tandons,  together  with a  commitment  from the
Tandon  family to obtain a standstill  arrangement  with Ultra Tek's Indian bank
lenders  whereby such banks would agree not to demand payment of any interest or
principal  from the  Company or Ultra  Tek,  or  declare a default  despite  the
Company's  failure to comply with its debt  covenants,  for a period of not less
than one year. The Company expected that the standstill  arrangement  would give
it enough time to  demonstrate  its viability as an ongoing  business so that it
could negotiate a reasonable payment schedule with the Indian banks, rather than
having the banks foreclose on Ultra Tek's assets. The Recapitalization  Plan did
not require that a formal standstill agreement be reached with the Indian Banks.
Instead,  it  required  that the Tandon  family  loan to the  Company  any funds
necessary  to meet  any  payment  demands  by the  Indian  Banks.  The  proposed
per-share stock purchase price was $0.15, which exceeded the public bid price of
$0.07 and the public asked price of $0.14 at the time of the proposal. The terms
presented by the Tandon  family would result in Tandon  interests in the Company
increasing from approximately 38.2% (as of March 1, 1997) to approximately 77.3%
of the Company's outstanding shares.

     Because implementation of the Recapitalization Plan would cause an increase
in  ownership  by  the  Tandon  family  relative  to  other  shareholders,   the
Recapitalization  Plan  represents  a conflict of  interest  as a related  party
equity  investment.  The  Independent  Directors  Committee,  as a result of the
Company's lack of success in identifying and  consummating a transaction with an
unrelated  party,  concluded  that the  Company  must  confront  and resolve the
conflict of interest.  The Committee  recognized  that the Company's  ability to
continue its Indian manufacturing  operations was dependent upon the involvement
of the Tandon family.  The Tandon family provided expertise in Indian operations
and had  personally  guaranteed  the debts to the Indian  banks.  As a practical
matter, no resolution of the Company's situation would be achievable without the
cooperation and participation of the Tandon family. In fact,  proposals received
from third parties and rejected by the Company (as described above) had provided
for separate  treatment of the Tandon family and its  interests  relative to the
Indian bank debt.  Consequently,  the Independent Directors Committee determined
that any potential conflict of interest presented by the  Recapitalization  Plan
could be minimized by the function of the Committee itself in reviewing and

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negotiating the terms of the Recapitalization  Plan on the Company's behalf with
the  Tandon  family.   Further,  the  Company  appeared  to  have  no  practical
alternative  in order to obtain the cash  necessary for it to continue to exist.
Shareholder approval for the Recapitalization Plan would be necessary because of
the substantial number of shares issuable under its terms.

     On February 21, 1997, the  Independent  Directors  Committee  determined to
recommend  to the  Board of  Directors  that the  Recapitalization  Plan and the
transactions  contemplated thereby be approved.  On February 27, 1997, the Board
of Directors  approved the  Recapitalization  Plan. The Company prepared a proxy
statement describing the Recapitalization Plan, which was to be presented to the
Company's  shareholders  for a vote at the 1996 Annual Meeting of  Shareholders.
The document was filed with the  Commission,  as required by federal  securities
law, on April 8, 1997. One month later, the Company  received  comments from the
Commission, which the Company needed to address before the proxy statement could
be  delivered  to the  shareholders.  As a  result  of  the  time  taken  by the
Commission  to prepare its  comments and the time  necessary  for the Company to
respond to them,  the  financial  information  included  in the proxy  statement
became too old to use under federal  securities  rules.  Because the information
provided  was from the third  quarter of fiscal  1997,  updating  the  financial
disclosure   required  the  completion  of  the  1997  fiscal  year  end  audit.
Unfortunately,  the Company's  worsening  financial  situation prevented it from
undertaking  this  audit for some time and then,  upon  undertaking  the  audit,
prevented the audit from being completed until June 1998. Having its fiscal 1997
audit in place  and  having  filed the  fiscal  1997  year end  report  with the
Commission in June 1998, the Company  proceeded to prepare  quarterly reports on
Form 10-Q for each of the first three quarters of fiscal 1998,  which were filed
with the Commission in September 1998. Because of the foregoing delays, a change
in  auditors,  and  delays  in  completing  the audit in India  using  Generally
Accepted  Accounting  Principles,  the fiscal 1998 audit was not completed until
August 1999,  which  delayed the filing of the fiscal 1999 annual report on Form
10-K.  The  completion of the 2000 fiscal year audit was delayed  because of the
on-going  negotiations to restructure the Company's debts with the Indian banks.
Because of these  discussions,  the Indian  statutory  audit and a special fixed
asset  audit  was  given  priority  over  the  audit  using  Generally  Accepted
Accounting Principles.  A further delay was encountered with the Indian auditing
firm as a result of the need to  present  their  report  and  audited  financial
statements  of Ultra Tek in this fiscal 2000 annual report on Form 10-K with the
Commission.  This audit was not completed  until  November 28, 2000.  Before the
Company  will  be able to  solicit  the  approval  of its  shareholders  for the
Recapitalization  Plan or any  other  matters  requiring  shareholder  approval,
fiscal 2000 quarterly and annual reports will have to be filed.

     In  order  to  ease  the  Company's  worsening  cash  situation  while  the
shareholder  approval  process was being  pursued,  the Tandon  family agreed to
invest immediately the $2,000,000  contemplated by the Recapitalization Plan. On
or about March 31, 1997, the Tandon family contributed  $2,000,000 consisting of
cash and  canceled  promissory  notes from the Company in  exchange  for 850,000
shares of the Company's  Common Stock that had been  authorized for issuance but
never issued and a bridging  promissory  note from the Company in the  principal
amount of $1,873,000 that would be canceled when the remaining 12,483,333 shares
of Common Stock issuable under the terms of the  Recapitalization  Plan had been
authorized by the Company's shareholders and issued to the Tandon family. By its
terms,  the  original  bridge  note has  converted  into an 8% per annum  demand
promissory  note.  All of the  proceeds  were  used  for the  Company's  working
capital. The balance owing under that note as of March 31, 2000, was $2,322,000,
including accrued interest.  Further, as of that date, the Company had borrowed,
net of repayments,  an additional  $2,363,000 from the Tandon family.  This cash
allowed  the  Company  to  continue  operations,  but aside from  related  party
financing,  the Company  currently has no viable source of financing to continue
its current revenue growth and achieve  profitable  operations and positive cash
flow.  At  September  30,  2000,  the  outstanding  balance,  including  accrued
interest, due to the Tandon family was approximately  $2,700,000, in addition to
$2,435,000  owing on the note  payable  under  the  Recapitalization  Plan.  All
additional  loaned  amounts  have  either  been  under the terms of a  factoring
agreement  at a monthly  interest  rate of 1% on the average  outstanding  daily
balance,  or been under the terms of  unsecured  loans,  payable on demand at an
interest rate of 15% per annum, commencing April 1, 2000.

     In the third  quarter  of  fiscal  1998,  the  Company  began  implementing
additional  cost  reductions,  including  the  discontinuance  of  manufacturing
operations at the Sri Lanka facility, in an effort to overcome its negative cash
flow.  Also,  Prakash  Thanky  resigned  and J. L.  Tandon  assumed the title of
President. In

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the fourth  quarter of fiscal 1998, the Company sold its Singapore and Sri Lanka
subsidiaries  to related  parties,  closed  its  Scotland  office and  initiated
additional employee reductions.  In addition,  the Company commenced discussions
with its Indian  banks  regarding a financial  rehabilitation  plan  pursuant to
guidelines established by the Board for Industrial and Financial  Reconstruction
("BIFR"),  which  is  an  Indian  authority  that  adjudicates  all  matters  of
financially distressed companies.

     The BIFR  appointed an  Operating  Agency  ("OA") to examine the  Company's
viability  and  prepare a  viability  study  report.  Accordingly,  the  Company
prepared a draft rehabilitation  proposal, which was submitted to the OA. The OA
reviewed the proposal and  forwarded the same to the BIFR along with the minutes
of a joint meeting convened by the OA in March 1999. Based on the minutes of the
joint meeting, the BIFR prepared its Draft Rehabilitation Scheme and advised all
concerned,  inviting  suggestions/objections  to  the  scheme,  which  envisaged
restructuring of existing debts. The BIFR held a hearing on August 16, 1999 and,
after  hearing  all  interested  parties,  advised  the Company and the banks to
discuss  further  and modify the Draft  Scheme to take into  account the various
points made at the hearing.  The BIFR also  instructed  the OA to conduct  joint
meetings  with the banks and the  Company  and to  forward  a  modified  scheme.
Accordingly,  the Company made revisions in the Draft Scheme to the extent that,
no  further  funding  would be  required  from the banks  and there  would be no
dilution of the existing security  available to the consortium banks. On October
5, 1999, the OA held a joint meeting of consortium  member banks and the Company
to discuss the revised  proposal and  forwarded  minutes of the joint meeting to
BIFR, indicating that no consensus had been arrived at on the proposal submitted
by the  Company.  During a hearing on May 19, 2000,  before the BIFR,  the bench
observed  that no  acceptable  revival  proposal was in sight and directed OA to
initiate  necessary steps towards change of management.  The bench also directed
that the Company,  being the existing  promoter,  can also submit their proposal
based on a One Time Settlement  (OTS)  acceptable to the banks and a third party
lending  institution.  The  Company  is in the  process  of  submitting  the OTS
proposal.  The Company is hopeful of a favorable  response in this matter. As of
September 30, 2000,  the debt to the Indian  lenders  amounted to  approximately
$10,737,000.

     During  February  1999,  a major  customer  notified  the Company  that the
plastic housing on approximately 150,000 external power supplies manufactured by
the Company is subject to separation under some  circumstances.  The Company has
worked with the customer in their  recall of 60,000 units at risk of  separation
and in the hands of  consumers.  Through  September  30,  2000,  the cost of the
recall to the Company has been approximately $50,000.

     During the second  quarter of fiscal 1997, the Company began doing business
as "Cortech Systems." Pending shareholder  approval of a change in the Company's
name, Cortech Systems is a fictitious business name.

UNITED STATES OPERATIONS

     The Company's operations in the United States are focused on administration
and marketing,  product design and development,  and the coordination of product
engineering  and  manufacturing  between the Company's  customers and its Indian
manufacturing  facilities.  The Company  markets its  products  directly to OEMs
through its established network of contacts in the electronics industry. Product
development  and  design  engineers  work  closely  with  OEMs,  visiting  their
facilities and organizing lines of communication  (typically  through the use of
electronic mail).  Concurrently,  the design engineers  communicate with process
and  manufacturing  engineers in India,  also via electronic mail, to coordinate
the  design  and   manufacture   of  products.   Finally,   the  Company  has  a
self-certifying  product  safety  laboratory,  which allows it to obtain  safety
certification for its products on an expedited basis.

OFFSHORE OPERATIONS

     The electronics industry is extremely competitive, with price being a major
competitive  factor. The Company seeks a competitive  advantage by attempting to
offer  high-quality,  low-cost  products to existing and potential  customers by
capitalizing on lower cost offshore  manufacturing  capabilities.  During fiscal
1999,  the Company  maintained  its  manufacturing  facility  in Mumbai,  India.
India's large population and high unemployment rate enable the Company to employ
relatively well-educated workers at low

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wages.  The Company  believes its workers are well educated  relative to workers
performing similar manufacturing duties in other third world countries.  Most of
the  Company's   workers  are   graduates  of  secondary   school  (high  school
equivalent),  which the Company  believes  enables more  extensive and effective
worker training,  permitting greater productivity.  The Company further benefits
from these low wages by manufacturing many power supply components in-house. The
Company also employs  executives who reside in India,  thereby minimizing travel
expense as well as salary expense.

India Operations
----------------

     Ultra Tek  currently  manufactures  all of its power  supplies  in a leased
facility located in the Santa Cruz Electronics  Export Processing Zone ("SEEPZ")
in Mumbai, India. SEEPZ was established in Mumbai in 1974 as part of a series of
incentive programs by the government of India to encourage domestic  manufacture
of products for export.  These  programs  began in the early 1970s and, to date,
the  Indian  government  has  created  a  number  of free  trade  zones.  Recent
amendments to these programs continue the trend of expanding export  incentives.
The Company  believes that the Indian  government will continue to support these
export processing zones.

     SEEPZ is 100 acres in area and is located  in a northern  suburb of Mumbai.
It is less than five miles away from both  Mumbai's  domestic and  international
airports  and less than  twenty  miles  from its  commercial  docks.  Almost two
hundred companies employing over ten thousand people currently operate in SEEPZ.
Under Indian regulations relating to SEEPZ,  businesses in SEEPZ are required to
export a substantial part of production.

     Major benefits  provided by the Indian  government to businesses  operating
within SEEPZ include:

     INFRASTRUCTURE.  In addition to developed land parcels for self-constructed
facilities,  ready-built space is available in  government-constructed  Standard
Design Factories ("SDFs").  Ultra Tek currently does all of its manufacturing in
an SDF.  SDFs are  typically  leased  for  five-year  periods,  with the  tenant
responsible  for  the  construction  of  all  internal  improvements,  including
partitions,  air  conditioning  and internal  wiring.  The zones are exempt from
scheduled  electrical  power  cuts,  common  in  India,  and also  have  on-site
telecommunications  switching facilities and bank offices. The Indian government
typically renews such leases absent unusual circumstances.

     INCENTIVES.  The Indian  government waives licensing and duties on imported
capital goods, raw materials,  other production materials,  office equipment and
supplies, and also waives the excise tax applicable on the purchase of goods and
materials  in  India.  Sales tax on goods  purchased  in India is  eligible  for
reimbursement.  The  government  has  adopted  policies  that do not require any
domestic  ownership  to establish  and operate a facility  within  SEEPZ.  These
policies are intended to encourage the investment of foreign capital. To operate
within SEEPZ,  all products  manufactured by a company therein must be exported,
although with prior governmental approval up to 25% of products manufactured may
be sold within  India.  Income  derived  from export sales is exempt from income
tax. Income derived from domestic sales, however, is subject to income tax.

     ADMINISTRATIVE SUPPORT. An on-site Development Commissioner is empowered to
grant a number of government  approvals,  widely required in India,  including a
range of permits and  licenses,  and is available to coordinate  others.  Export
processing  zones also are special  customs areas that allow  customs  clearance
on-site, with bonded shipment to nearby harbor and airport facilities.

     In addition,  restricted  access to export  processing zones means that the
risk of labor unrest from outside  organizers is reduced.  The businesses in the
zones also have the advantage of "public utility" status under Indian law, which
restricts the rights of their workers to strike.

STRATEGY

     Since fiscal 1996,  the Company's  strategy has been continued cost control
and cash conservation as it seeks to rebuild its manufacturing  operations.  New
credit lines and other sources of working capital

                                       8
<PAGE>

are also being  explored.  Since the fourth  quarter of fiscal 1995, the Company
has pursued relationships with a broad range of OEMs of electronic products. The
Company  has  sought to shift its  product  focus  away  from  manufacturers  of
personal computers and to focus instead on manufacturers of computer  peripheral
equipment and other electronics  products where the Company believes the margins
of profit are higher.  Manufacturers of these products  typically  require lower
volumes but are not subject to the commodity  price  pressure that exists in the
personal  computer market.  The Company believes that, with improved  production
management,  higher margins can be obtained on shorter  production  runs because
these   circumstances  lower  the  portion  of  the  customer's  price  that  is
represented by the components in the product  units.  The Company's  lower labor
and  engineering  costs should thus provide an opportunity to offer  competitive
prices while retaining  enough margin to allow the Company to generate  positive
cash flow.  Achieving  positive cash flow from operations would make the Company
more attractive to existing and potential  customers and should give the Company
a better opportunity to reach a settlement with its Indian banks that will allow
the Company to continue to operate.

     It is  crucial  to the  Company's  prospects  that it  develop  a level  of
revenues from customers  offering  sufficient  opportunities for positive profit
margins  that will allow the Company to be cash flow  positive  on an  operating
basis and to report operating income. As of September 30, 2000, this has not yet
occurred.  In  addition  to the  production  management,  inventory  management,
customer  satisfaction and new business  development  risks the Company faces in
achieving  its  objectives,  the Company also faces  national and world  economy
risks,  industry  downturn risks and specific  customer  well-being  risks.  For
example, the economic crisis that began affecting some countries in Asia in 1997
was  helpful to some of the  Company's  competitors  and  harmful to some of its
customers.  It also  disrupted  the supply of raw  materials  from the  affected
countries.  Further,  the slump in business of the Company's largest customer in
the first half of fiscal  1998,  caused this  customer to cut back its orders by
approximately  50% from projected  levels for the fourth quarter of fiscal 1998.
For fiscal 1999, sales to this customer were  approximately  17% less than sales
for fiscal 1998,  and since  December  1999 through  September  30, 2000, no new
orders have been received.

POWER SUPPLIES

     Manufacturers of certain types of electronic  equipment do not design their
products for use with alternating current such as that provided by an electrical
outlet. Instead, these products require the use of a power supply to convert the
alternating current to a direct current of appropriate  voltage.  Power supplies
are either  linear or switching.  Linear power  supplies are  relatively  simple
devices having low electromagnetic  interference and low output ripple, but tend
to be large and heavy because the necessary voltage conversion transformers must
operate at below the frequency (50 or 60 Hz) of the  alternating  input current.
The  scientific  and  engineering  communities  use  linear  power  supplies  in
technical  instrumentation  where output  regulation is extremely  important and
size and efficiency are of less  importance.  Linear power supplies also tend to
produce a great amount of heat,  making them undesirable for many industrial and
consumer applications. The Company sells an insignificant number of linear power
supplies.

     Switching  power  supplies  are more  complex  devices  than  linear  power
supplies and produce greater power in relation to their physical size, described
as greater "power density". In a switching power supply,  alternating current is
first  converted to direct  current by diodes,  and is then  reconverted to much
higher  frequency  alternating  current  before being passed through the voltage
conversion  transformers,  which are therefore  much smaller and permit  greater
power  densities.  A  switching  power  supply  typically  consists of a printed
circuit board with the appropriate electronic components,  an on/off switch, and
leads or cables  to send  power to the  electronic  equipment.  Switching  power
supplies are much more  efficient and  therefore  produce less heat than equally
powerful  linear  power  supplies,  making them  preferable  for a wide array of
applications.  The Company  manufactures  three types of switching  power supply
products--closed frame, open frame and A/C adapters.

     CLOSED FRAME.  Closed frame power  supplies have a case enclosing the power
supply components and are used in product  applications where end users may need
access to the interior of the product and in products  requiring  greater  power
than can safely be  provided by open frame power  supplies.  Encasing  the power
supply  minimizes  the  risk of  injury  to end  users  from  the  high  voltage
components of the power

                                       9
<PAGE>

supply.  The Company  manufactures  closed frame power supplies  ranging from 25
watts to 350 watts,  with the 200 watt units accounting for a majority of sales.
The Company offers these power supplies in a variety of configurations and works
closely with its  customers to modify or customize  the power  supplies to adapt
them to particular customer specifications. Sales of closed frame power supplies
accounted  for  approximately  10% of the  Company's  sales in  fiscal  1999 and
approximately 3% in fiscal 2000.

     OPEN FRAME. Open frame power supplies are not enclosed in a case. They tend
to be used in products  that require  lower  wattage and that are unlikely to be
opened by end users. For example, open frame power supplies are used in tape and
disk drives, monitors, printers and other peripheral equipment. Open frame power
supplies tend to be more  standardized in configuration  than closed frame power
supplies.  The Company  produces open frame power supplies ranging from 25 watts
to 200 watts,  with the 65 watt unit  accounting  for a majority of sales.  Open
frame power supplies  accounted for  approximately 17% of the Company's sales in
fiscal 1999 and approximately 31% in fiscal 2000.

     A/C  ADAPTERS.  A/C  adapters  are  external  power  supplies  that connect
electronic  products to wall  outlets.  A/C  adapters are used with a variety of
products,  including notebook and portable computers.  The A/C adapters produced
by the Company contain a battery  recharging  circuit.  The Company produces A/C
adapters ranging from 15 watts to 70 watts, with the 15 watt unit accounting for
a majority of sales.  Sales of A/C adapters  accounted for  approximately 72% of
the Company's sales in fiscal 1999 and approximately 65% in fiscal 2000.

     Parts and License  Fees. In addition to providing  customers  with finished
power  supplies,  the Company has also been selling parts on hand in its efforts
to reduce  inventories.  This  activity,  along with minor import  license fees,
accounted for 1% of the Company's sales in fiscal 1999 and 2000.

MANUFACTURING

     The  manufacture  of power  supplies is labor  intensive  and will probably
remain so in the near future. It necessarily  involves  relatively large, heavy,
or irregularly  shaped items such as  transformers,  heat sinks and high voltage
capacitors.  Additionally, the manufacture of transformers involves winding wire
in complex  sequences,  involving four or more winding and insulating steps. For
this reason,  the Company has chosen to manufacture  its products in India.  The
Company  believes  that  the work  force  there is  inexpensive  and  relatively
well-educated.  Moreover,  because the Company's  management  team has extensive
experience in manufacturing  computer  components in India, the Company believes
that it is well positioned to benefit from the advantages  India provides.  That
being said,  however,  the largest  component of the production  cost of a power
supply  is the  materials  that go  into  each  unit.  The  Company's  financial
condition  has  made  advantageous  relationships  with  the  Company's  vendors
unavailable,  which has decreased the  Company's  ability to produce  low-priced
products.

     The Company uses its low-cost labor to manufacture magnetics,  to configure
sheet  metal,  and to mold  plastic  components,  which  enables  the Company to
respond quickly to design changes and reduces the risk of shipping delays. Other
purchased  parts  and raw  materials  are  normally  readily  available  and are
supplied to the Company under normal  circumstances by various vendors,  each of
which must be approved by the  Company's  OEM  customers.  Many of the Company's
purchased components are supplied by manufacturers located in the United States,
Japan and Taiwan.

     Through fiscal 1996, the Company saw a continuation  of price increases and
a tightening of supply for purchased parts  (components)  and other raw material
due to a steep  growth in  world-wide  demand for personal  computers  and other
consumer electronics products, as well as the continued strength of the Japanese
yen relative to the U.S. dollar.  The Company was more severely impacted by this
occurrence  than its  competitors  due to its  financial  condition and extended
deferral  of payments  to its  vendors.  This  unfavorable  situation,  with its
vendors in an already tight market,  caused the Company to pay premium costs and
to receive poor delivery  schedules.  The overall effect of these  circumstances
further reduced the Company's gross margins in an already low margin OEM product
and  adversely  affected the Company's  ability to meet its  committed  delivery
schedules to its customers.

                                       10
<PAGE>

     During fiscal 1996,  the Company placed  significant  emphasis on improving
the control of its manufacturing  functions.  Because of the significant decline
in  production  in fiscal  1997,  primary  emphasis  was  placed on  controlling
variable expenses and liquidating existing  inventories.  The Company's strategy
to redirect its business to supplying the needs of lower-volume  OEMs that offer
higher margins means that, if those customers can be secured,  the Company would
be  manufacturing a larger number of product runs,  each  representing a smaller
number of units. As a consequence, effective management of the manufacturing and
inventory  control processes is critical if these  lower-volume  production runs
are to generate  acceptable gross margins.  Since fiscal 1997, the Company began
to perform on this strategy.  The Company achieved general market  acceptance of
its product design and production  capabilities  and began shipping A/C adapters
and closed frame power  supplies  during the second and third quarters of fiscal
1998 to newly acquired customers. Unfortunately, the market for certain customer
products  began to  diminish  and other  customers  began  transitioning  to new
product  designs.  The  Company's  limited  resources  did not allow it to react
promptly to those changes,  which caused a significant  slowdown in sales during
the final quarter of fiscal 1998.  During fiscal 1999 and 2000,  sales  remained
soft. However, the Company believes that there is opportunity in the marketplace
to obtain orders from newly acquired  customers,  that offer acceptable margins.
Because of an evolving market and the Company's lack of capital resources, there
is no assurance  that sales volume can be built up to levels that would  provide
the Company with positive cash flow.

PRODUCT DESIGN AND DEVELOPMENT

     In fiscal 2000,  the Company  maintained  engineering  departments  in Simi
Valley,  California and Mumbai, India. The California  engineering department is
principally  responsible for the design  development of the Company's  products,
while the Mumbai  department  is  principally  responsible  for  production  and
manufacturing  engineering  of the Company's  products.  The  Company's  product
design  development  team in  California  work  closely  with the OEMs to design
products  that meet each  OEM's  specifications  for  power,  price,  size,  and
quality.  Typically  such  a  design  development  will  start  with  one of the
Company's standard power supplies, which will then be modified to meet the OEM's
requirements.  Prototypes  of the OEM's product are often sent to the Company so
that the Company may test the effectiveness of its proposed power supply design

     Concurrently  with the power  supply  design,  the  Company's  engineers in
Mumbai develop the manufacturing processes the Company will need for production.
These  engineers  remain  in  close  communication  with  the  Company's  design
development team and with the OEM's engineering team,  typically through the use
of  electronic   mail.   Throughout  the  design  process,   the   manufacturing
applications  team  advises  both the design  development  team and the customer
concerning the probable cost,  speed of manufacture  and ease of quality control
of various proposed designs and  modifications,  suggesting  alternatives  where
appropriate.  Development of a prototype  typically  takes  approximately  eight
weeks from the start of the design process.

     Once the OEM approves the product design,  the Company subjects a prototype
to those testing procedures  necessary to obtain product safety certification by
Underwriters Laboratories, Canadian Standards Association, T.U.V. Rhineland, and
Nemko.  This process normally takes  approximately  twelve weeks.  However,  the
Company  has  acquired  approval  to act  as a  self-certifying  laboratory  for
Underwriters  Laboratories and Nemko,  which facilitates the approval process by
all these safety  agencies,  thus reducing the typical approval time required by
four to six weeks. The Company's self-certification  laboratory, located in Simi
Valley,  California, is subject to regular inspection and review by each agency.
Customers typically pay all new product safety certification costs as incurred.

QUALITY CONTROL

     Personal  computers,  computer  peripheral  devices  and  other  electronic
equipment  are  precision  products  requiring  each  component  to  function as
specified.  The Company  endeavors  to  manufacture  power  supplies to exacting
standards and with very high  reliability  to minimize  both  return/replacement
costs and inspection time.

                                       11
<PAGE>

     In pursuit of quality control,  the Company tests each product individually
at a number of points  in the  manufacturing  process.  Completed  products  are
subjected  to load  tests and  burn-ins  prior to being  packaged  and  shipped.
Because the Company currently inserts electronic components into printed circuit
boards manually, one of the more prevalent problems discovered during testing is
erroneous  component  placement.  The Company  has  improved  its  manufacturing
efficiency by installing pin-in-hole  equipment,  which automates the process of
inserting small electronic  components into circuit boards.  By fiscal 1996, the
Company had installed a sufficient  number of  pin-in-hole  units to accommodate
its entire  production  capacity.  This automated  process has  eliminated  most
misplacement  defects.  The  Company's  manufacturing  facilities  are regularly
inspected by its OEM customers.

     Despite the Company's best efforts,  quality problems do arise from time to
time. For example,  during fiscal 1999 the Company  discovered  that the plastic
housing  on  approximately   150,000  external  power  supplies  is  subject  to
separation at unacceptably high levels.  In these situations,  the Company works
closely  with its  customer to  determine a course of action and to implement it
quickly  in order to reduce  the risk of a  widespread  product  failure  and to
resolve  the  matter  while  most of the  units  in  question  are  still in the
distribution channel.

MARKETING AND SALES

     The Company  markets and sells its products  directly to OEMs of computers,
peripherals,  and other electronic  equipment  primarily  through its U.S.-based
sales  force  and  manufacturing   representatives   and  distributors  with  an
established network of contacts in the electronics industry. The Company attends
several industry trade shows, including the annual COMDEX trade show, as a means
of developing customer  relationships.  Once the Company has established contact
with an OEM, the Company  targets  several  departments of the OEM for its sales
efforts,   usually  giving  special  emphasis  to  the  development  engineering
department,  but  with  emphasis  also on the  purchasing  and  quality  control
departments.

     The Company's  strategy for marketing and sales during fiscal 2000 was, and
continues to be, directed at lower-volume  OEM  manufacturers  that require more
engineering support and smaller product volumes,  but offer significantly higher
prices and  attractive  gross  margins.  At  present,  the Company has a limited
number of customers  that fit this profile and there can be no assurance that it
will be able to obtain a  sufficient  number of this type of  customer or orders
for a sufficient number of units to implement its strategy effectively. Further,
because of the Company's  precarious  financial  condition,  potential customers
have  expressed  concern  regarding  the Company's  ability to provide  on-going
support for their product programs.

     Historically,  the Company  has  marketed a small  portion of its  products
through  distributors.  Since fiscal  1998,  the Company has retained a contract
sales  representative,  entered  into  private  label  agreements,  and  engaged
manufacturing sales representatives and distributors.  As of September 30, 2000,
sales resulting from these  arrangements  accounted for approximately 63% of the
Company's sales volume.

COMPETITION

     The electronics industry is extremely  competitive,  with price and quality
being critical  competitive  factors.  In recent years,  price  competition  has
become  particularly  intense.  This  competition has affected  vendors to OEMs,
including those that manufacture  power supplies.  The Company believes that the
primary competitive factors in the power supply industry are price, reliability,
and the  ability  to  timely  modify  and  deliver  products  to  meet  customer
requirements.   The  Company  believes  that  it  has  improved  its  operations
management so that it has the ability to compete favorably with respect to these
factors.  The Company's lack of financial  resources,  however, has been a major
constraint  on its ability to compete  effectively  with its major  competitors,
many of whom are larger and better  financed  than the  Company.  The  Company's
inability to satisfy the  financial  strength  and  stability  requirements  IBM
applied to its  vendors was in large part  responsible  for the loss of IBM as a
customer in fiscal 1997.  Further,  the largest portion of the Company's cost in
producing  a power  supply is the cost of  materials.  The  Company's  financial
condition  has made it very  difficult  for the  Company to obtain  advantageous
arrangements  with its raw  material  suppliers,  which  reduces  the  Company's
ability to compete effectively.

                                       12
<PAGE>

     The Company's  primary  competitors  in the OEM power supply market include
Power-One, Artysen Technology,  Skynet and Astec America, Inc. These competitors
also conduct many of their  manufacturing  operations in countries with low-cost
labor forces,  but the Company believes its labor costs are  competitive.  Given
India's  large  population  and high  unemployment  rate,  the Company  does not
anticipate rising labor costs. Moreover, the Company believes it benefits from a
relatively   well-educated   labor  force  as  well  as  a  local   process  and
manufacturing   engineering  group,  thereby  minimizing  the  need  for  costly
expatriate  engineers.  Although  the  Company  has  automated  a portion of its
manufacturing   processes,   even  with  the  installation  of  the  pin-in-hole
equipment,  the  manufacture  of  power  supplies  will  continue  to  be  labor
intensive,  requiring  the use of skilled  workers to install  transformers  and
other components and to wind transformer coils.

BACKLOG

     Although the Company's OEM customers  provide estimated annual power supply
requirements,  the Company  usually  purchases  supplies  and  manufactures  its
products only against firm orders.  Arrangements between the Company and its OEM
customers  typically  provide that the customer  must furnish the Company with a
purchase order for the customer's  power supply  requirements  for a three-month
period.  The  customer  must  purchase  100% of the power  supplies  ordered for
delivery  within one month of the date of the purchase  order.  The customer may
increase or decrease the number of power  supplies  estimated to be purchased in
the second and third months from the date of the purchase  order by no more than
20% and 30%,  respectively.  The Company's  ability to enforce these provisions,
however, is limited by the good faith and the market power of the customer.  The
Company's  non-OEM customer orders also generally  provide for delivery within a
period of three  months  or less.  Therefore,  the  Company  operates  without a
significant backlog,  relying primarily on monthly purchase orders. At September
30, 2000, firm backlog was estimated at approximately $2.3 million.  Iomega, the
Company's  primary  customer  since  fiscal  1997,  had no orders in  backlog at
September  30, 2000,  and has not provided the Company with any new orders since
December 1999.

PATENTS AND PROPRIETARY RIGHTS

     The Company  believes that patent rights are not  significant  in the power
supply  industry.  Generally the industry's  customer base is more responsive to
suppliers  that  promptly  meet its  changing  needs  than to those  that  offer
proprietary technology.

WARRANTIES

     The Company  generally  provides its customers with a one-year  warranty on
its power supplies and,  through the end of fiscal 1999, had not experienced any
significant  warranty  claims,  except for the  following  event.  In the fourth
quarter of fiscal 1999, a major customer  discovered a housing  separation issue
on one  model of  external  power  supply  manufactured  by the  Company.  As of
September  30,  2000,  the  Company  has  spent  approximately   $50,000  making
modifications to all the affected units. No assurances can be given as to future
warranty  claim levels.  The Company  ordinarily  repairs or replaces  defective
goods.

EMPLOYEES

     At March 31, 2000, the Company  employed 14 people in its U.S.  operations,
including  three in engineering  and operations,  and 11 in  administration  and
finance.  Approximately  105 people  were  employed  in India,  including  71 in
manufacturing and planning, 19 in design engineering,  and 15 in administration.
There were no part-time  employees.  The Company also contracts for the services
of workers  through  independent  agencies in India.  At the end of fiscal 2000,
there were 318 agency workers who were engaged  primarily in  manufacturing  and
planning.

                                       13
<PAGE>

     As of September  30,  2000,  full-time  employees in the United  States and
India were 14 and 102, respectively, and there were no part-time employees.

     None of the Company's  employees are represented by a union, and management
believes the Company's relations with employees are good. Moreover, under Indian
Law,  businesses  operating  in  the  duty  free  export  processing  zones  are
considered  public  utilities,  which  restricts  the rights of their workers to
strike.

RISK FACTORS

Significant Losses
------------------

     The Company has incurred  significant  losses from operations over the past
four years.  It lost its two  largest  historical  customers  in fiscal 1996 and
1997,   and  has  been   unsuccessful   in  rebuilding   its  base  of  customer
relationships.  In  addition to the  promissory  note of  $2,435,000  (including
accrued interest) outstanding under the terms of the Recapitalization  Plan, the
Company has  additional  loan balances of  approximately  $2,700,000,  including
accrued  interest,  with the Tandon  family,  as of September 30, 2000. The only
unrelated  party  financing  available  to the  Company  has been a  receivables
factoring arrangement at unfavorable rates. The Company has been unsuccessful in
its  efforts  over the last four fiscal  years to  reestablish  its  business at
levels  approaching  financial  breakeven or approaching  positive cash flow. At
March 31, 2000, the Company had a shareholders' deficit of $18,411,000.  Without
a material  change in the economics of the Company's  business and the viability
of its  financial  position,  the  Company's  prospects  as a going  concern are
limited.

India and International Issues
------------------------------

     The  Company  manufactures  all of its  products in India and sells to OEMs
that operate in a number of foreign countries,  including countries in Asia. The
Company  procures a  significant  amount of raw materials  and  components  from
vendors located in Asia. The economic uncertainties that have affected Asia over
the last several years have  seriously  disrupted the Company's  ability to deal
with its vendors and its customers on an advantageous  basis.  These events have
had an adverse  effect on the  Company's  ability to procure raw  materials  and
components,  manufacture  its  products,  and export its products  from India to
customers  in  the  United  States  and  Western  Europe.  In  general,  foreign
manufacturing and sales are subject to risks,  including changes in governmental
policy, economic disruptions, transportation delays and interruptions, political
turmoil,  protective labor laws,  currency  restrictions,  and the imposition of
tariffs and import/export  controls. Any disruption of the Company's activities,
for example because of international  economic sanctions against India, tensions
between India and Pakistan, or economic uncertainties affecting Japan, Korea and
other Asian nations,  could adversely affect the Company. The Company's products
are not  currently  subject to any duties  upon  import to the United  States or
other countries to which the Company ships. Any change in this duty-free status,
as a result,  for example,  of economic  sanctions,  could adversely  affect the
Company.

Debt in India
-------------

     As of September 30, 2000, the Company owed its Indian lenders approximately
$10,737,000. While the Company is attempting to restructure its Indian debt, the
amount  of debt and the cost of  servicing  that debt is  beyond  the  Company's
capability to afford at its current level of  operations.  If the Company is not
able to generate  sufficient levels of revenue and positive cash flow from sales
to existing and new customers to service its debt, it is within the power of the
Indian lenders to seize  virtually all of Ultra Tek's assets in India.  Further,
the level of debt has been a major impediment to disposition of the Company, the
sale of Ultra Tek, a business  combination,  or other  restructuring  that could
change the fundamental  prospects of the Company.  Because the Company imports a
good  portion  of its raw  materials  and  components  into  India  and  exports
virtually all of its sales from India,  the availability of letter of credit and
letter of guarantee  facilities and of a positive working  relationship with its
lenders is more  important  to the Company than to  businesses  not so dependent
upon  international  transactions.  While  the  Company's  Indian  lenders  have
continued  to work with the Company,  there can be no  assurance  that they will
continue to do so in the future.

                                       14
<PAGE>

Affiliate Control
-----------------

     As  of  September   30,  2000,   the  Tandon  family   beneficially   owned
approximately  48% of the Common  Stock and has, to a  substantial  extent,  the
ability to effectively  control  substantially all matters requiring approval by
the  shareholders  of the Company.  Such matters  could  include the election of
members  of the  Board of  Directors,  proxy  contests,  mergers  or the sale of
substantially all the assets of the Company, tender offers, open market purchase
programs or other  transactions  that could give shareholders of the Company the
opportunity to realize a premium over the then-prevailing market price for their
shares of the Common Stock.

Short Product Life Cycles
-------------------------

     The  market  for  products   made  by  the   Company's   OEM  customers  is
characterized by rapidly changing  technology,  evolving industry  standards and
frequent  new product  introductions.  Products  produced by the  Company's  OEM
customers  typically have a life cycle of twelve months to  twenty-four  months.
Changes in demand for electronic  products,  or other negative factors affecting
the  electronics  industry in general,  or any of the Company's OEM customers in
particular, have had in the past and in the future could have a material adverse
effect on the Company.  The Company's financial position makes it less able than
most of its  competitors to deal  effectively  with these issues or to withstand
the economic hardships they may entail.

ITEM 2    PROPERTIES

     The Company currently rents on a month-to-month basis its 7,000 square foot
California  facility  for  $4,750  per  month,  including  utilities,  from  SDJ
Partners,  a related  entity.  A previous  lease was renewed on January 1, 1997,
amended  July 1,  1997 and  expired  December  31,  1999.  Ultra  Tek  leases an
aggregate of 83,325 square feet of  manufacturing  space in an SDF in SEEPZ from
the Indian government under a five-year lease,  which expired on March 31, 2000.
The Indian government is currently  formalizing the renewal lease.  Monthly rent
for Ultra Tek's SEEPZ facilities aggregates approximately $3,300.

ITEM 3    LEGAL PROCEEDINGS

     During fiscal 1995,  the  Company's  importing of computer  components  for
final  assembly and sale into the  domestic  tariff area ("DTA") of India (i.e.,
outside  the export  processing  zone) came  under  investigation  by the Indian
customs authorities.  Subsequently, inventories of $1,032,000 (47,447,000 Indian
rupees) were seized by the authorities.  On May 30, 1995, the authorities issued
a notice to the Company alleging misdeclaration of purported imports of complete
computer  systems as imports of computer  system  components.  The notice called
upon the Company to explain why the  authorities  should not (a)  confiscate all
the goods so imported, (b) levy additional duty of $1,063,000 (48,885,000 Indian
rupees)  on the goods  already  sold  into the DTA,  and (c) take  penal  action
against the Company  under the law. The Company has paid an advance of $700,000,
included in cost of goods sold in its fiscal 1995 financial statements,  against
customs duty that may  ultimately  be levied by the  authorities.  During fiscal
1996, the authorities released the inventories seized earlier.

     In September  1997,  the Indian customs  authorities  issued a "show cause"
notice alleging that Ultra Tek had not provided valid explanations for shortages
of raw  material  in its  inventories.  The notice  called  upon the  Company to
explain why the authorities  should not (a) impose duty of $559,000  (25,725,000
Indian rupees) leviable on imported  components which were alleged not accounted
for in the terms of bond executed,  (b) why penal action should not be initiated
against  the  Company,  and (c)  why a  penalty  equal  to the  duty  held to be
leviable,  $559,000  (25,725,000 Indian rupees), in respect of unaccounted goods
should not be imposed.

     In  fiscal  1997,  the  Company  came  under  investigation  by the  Indian
Department of Revenue  Intelligence  ("DRI") in  connection  with the import and
export of certain components and goods used in the

                                       15
<PAGE>

manufacture of power supplies and customer returns. The investigation focused on
the alleged  discrepancy  noted between the physical  stock records and books in
respect  of the  work-in-process  inventory  at March  31,  1996 and  1997,  and
customer returned product at March 31, 1992 through March 31, 1997. In May 1998,
the DRI issued a "show cause" notice requesting that the Company explain why the
DRI should not impose duties of $559,000  (25,720,000 Indian rupees).  Penalties
relating to the investigation, if any, have not yet been determined.

     The  aggregate  of  threatened  duties  and  penalties  to the  Company  is
approximately  $2,316,000  (106,474,000  Indian rupees),  using the Indian rupee
translation   rate  at  September  30,  2000.  The  Company  is  contesting  the
allegations  of the  authorities  and the  outcomes of all of these  matters are
uncertain.  Accordingly, no provisions for any losses that may ultimately result
have been made in the Company's financial statements.  In addition, penal action
under Indian law, which the Company  believes is very unlikely,  could result in
possible  monetary  fines of up to  approximately  $16,023,000  at September 30,
2000.

ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter was submitted to a vote of the Company's  shareholders during the
fourth quarter of the fiscal year ended March 31, 2000.

                                     PART II

ITEM 5    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

STOCK PRICE DATA

     The Company's Common Stock is traded in the  over-the-counter  market under
the symbol  "CRTSE".  On March 31, 2000, the closing bid price for the Company's
Common Stock was $.07.  The following sets forth the high and low bid prices for
the Common Stock over the two most recent  fiscal  years.  These prices  reflect
inter-dealer prices,  without retail mark-up,  mark-down or commission,  and may
not necessarily represent actual transactions.

     Fiscal Quarter                                         High        Low
     --------------                                         ----        ---

     2000 fourth quarter                                  $0.200     $0.010
     2000 Third quarter                                    0.010      0.010
     2000 Second quarter                                   0.050      0.031
     2000 First quarter                                    0.033      0.033

     Fiscal Quarter                                         High        Low
     --------------                                         ----        ---

     1999 Fourth quarter                                  $0.109     $0.047
     1999 Third quarter                                      N/A      0.016
     1999 Second quarter                                   0.016      0.016
     1999 First quarter                                    0.031      0.016

     The approximate  number of holders of record of the Company's  Common Stock
on September  30, 2000 was 67. The Company has not paid  dividends on its Common
Stock  and has no  present  intention  of  doing so in the  foreseeable  future.
Instead,  the Company  intends to utilize its cash resources in the operation of
its business.

                                       16
<PAGE>

ITEM 6    SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                            Years Ended March 31,
                                        1996          1997          1998          1999          2000
                                   ---------------------------------------------------------------------
SUMMARY OF OPERATIONS:                                (in thousands except share data)
<S>                                  <C>           <C>           <C>           <C>           <C>
Net sales                            $   16,814    $    2,568    $    4,581    $    3,935    $    4,680
Net income (loss)                        (4,890)      (12,627)       (3,700)          113        (1,969)
Net income (loss) per share               (1.10)        (2.84)         (.70)          .02          (.37)


                                                               As of March 31,
                                        1996          1997          1998          1999          2000
                                   ---------------------------------------------------------------------
BALANCE SHEET DATA:                                            (in thousands)

Working capital                      $   (2,282)   $  (12,489)   $  (15,383)   $  (14,766)   $  (16,358)
Total assets                             14,483         4,155         2,527         2,048         1,660
Long-term debt                              934            --            --            --            --
Minority interest                         2,599         2,599         2,599         2,599         2,599
Total shareholders' deficit              (2,010)      (14,168)      (17,317)      (16,737)      (18,411)
</TABLE>

     In  reviewing  this  data,  please  refer  to the more  detailed  financial
information disclosed pursuant to Item 8 "Financial Statements and Supplementary
Data." Please also refer to the discussions in Item 7  "Management's  Discussion
and Analysis of Financial Condition and Results of Operations" and Item 3 "Legal
Proceedings."

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

GENERAL

     Since  commencing  operations in February  1991, the Company has engaged in
the marketing of power supplies to personal  computer and  peripheral  equipment
OEMs and to  distributors of standard power supply  products.  During the fiscal
year ended March 31,  1992,  the Company  entered into its first high volume OEM
sales  arrangement.  Prior to fiscal  1993,  during which it was acquired by the
Company, Ultra Tek sold power supplies primarily to Tandon Corporation or Tandon
Associates for use in personal computers and peripheral  equipment  manufactured
by  companies  affiliated  with the  Tandon  family.  During  fiscal  1993,  the
Company's net sales increased  significantly,  due primarily to the commencement
of shipments to Compaq. The Company began shipments to IBM in the second quarter
of the fiscal  year ended March 31,  1994.  Net sales  continued  to increase in
fiscal 1994 primarily due to additional  sales to Compaq,  new sales to IBM, and
continued development of additional OEM customers.

     The  Company's  cash flow was  significantly  impacted by Compaq's  product
rejection that took place during the third quarter of fiscal 1995. Those returns
cost the Company  $4,200,000 in uncollected  accounts  receivable as a result of
the issuance of credits for the rejected units and $2,200,000  relating to other
direct  costs,  as well  as  additional  costs  for  transportation,  unutilized
capacity, business interruption,  reorganization,  inventory carrying costs, and
interest on short-term borrowings.

     In fiscal  1996,  the Company  implemented  a program to overcome  its cash
difficulties through inventory reduction,  organizational  restructuring,  price
increases,  volume  growth and more  favorable  payment terms from the Company's
existing customers. While a number of elements of that program were successfully
implemented,  the Company has not been able to generate  anticipated  amounts of
cash  from  inventory  reduction  and,  through  the  end of  fiscal  2000,  was
unsuccessful  in its  efforts  to  resell  the  reworked  rejected  product.  In
addition,  the Company has not yet been successful in significantly building its
sales volumes to its existing  customers or to new customers.  While the Company
has implemented a

                                       17
<PAGE>

plan to transition  its business  focus to power  supplies for products that are
less price  sensitive and  therefore  provide a greater  opportunity  to develop
positive profit margins, it has not been successful in doing so. There can be no
assurance that the Company will have sufficient  resources to carry out its plan
in the future or, even if the resources are available,  that the Company will be
able to successfully  develop the necessary  customer  relationships  and obtain
enough product contracts to allow it to continue to operate its business.  Based
on the Company's product mix, production capacity and fixed production costs for
the six months ended  September 30, 2000, it is estimated  that the Company will
need to  achieve  approximately  $6  million  in annual  net sales to  achieve a
break-even from operations (before interest expense and other income/expense).

     In fiscal  1997,  the  Tandon  family  invested  $2,000,000  as part of the
Recapitalization  Plan. As of March 31, 2000,  the Company had borrowed,  net of
repayments,  an  additional  $2,263,000  from the Tandon  family.  This cash has
allowed  the  Company  to  continue  operations,  but aside from  related  party
financing,  the Company  currently has no viable source of financing to continue
its current revenue growth and achieve  profitable  operations and positive cash
flow.  At  September  30,  2000,  the  outstanding  balance,  including  accrued
interest, due the Tandon family was approximately  $2,700,000,  exclusive of the
$2,435,000  demand  promissory  note  payable  and  accrued  interest  under the
Recapitalization Plan.

     In light of these facts,  and the operating  results  discussed  below, the
Company  continues to look at  opportunities to obtain  additional  capital from
sources  outside  the  Company  and  at  transactions   that  would  change  its
fundamental structure.

RESULTS OF OPERATIONS

     Results of operations  for fiscal 2000 have been  determined  assuming that
the Company will continue as a going concern.  However, the Company is currently
facing significant issues which raise substantial doubt that the Company has the
ability to continue as a going concern. These issues are summarized as follows:

     o    At March 31,  2000,  the Company had  outstanding  amounts due to four
          separate Indian lenders in the amount of $10,629,000, all of which are
          currently in default. Of that amount,  three banks have issued notices
          to  the  Company  demanding  immediate  repayment  of  $9,465,000.  At
          September  30,  2000,  the  amounts  due to the four  separate  Indian
          lenders was approximately $10,737,000, including accrued interest. The
          Company has insufficient funds available to repay the lenders. Because
          the Indian  debt is  secured by the assets of Ultra Tek,  alternatives
          available to the lenders  include  closing the operations of Ultra Tek
          and forcing Ultra Tek into liquidation.

     o    In fiscal  1995,  Ultra Tek's  importing of computer  components  into
          India came under investigation by the Indian customs  authorities.  In
          September 1997, the Indian customs authorities issued a separate "show
          cause"  notice   alleging  that  Ultra  Tek  has  not  provided  valid
          explanations   for   shortages   of  imported   raw  material  in  its
          inventories. In fiscal 1997, Ultra Tek came under the investigation of
          the Indian  Department of Revenue  Intelligence  concerning the import
          and  export of certain  components  used in the  manufacture  of power
          supplies and customer returned product. Subsequently, a separate "show
          cause" notice was issued  requesting  explanation of why duties should
          not be assessed. The above governmental allegations and investigations
          could lead to additional  duty and penalties  being  assessed  against
          Ultra  Tek in the  amount  of  approximately  $2,316,000  (106,474,000
          Indian rupees),  using the Indian rupee  translation rate at September
          30,  2000.  In addition,  penal  action  under  Indian law,  which the
          Company believes is very unlikely,  could result in possible  monetary
          fines of up to  approximately  $16,023,000.  The Company is contesting
          these  allegations,  but currently,  the matters remain unresolved and
          the outcomes uncertain.

                                       18
<PAGE>

     o    The Company has incurred  significant  losses from operations over the
          past five years; has lost its two main historical customers, which has
          significantly  impacted its  revenues;  and at March 31,  2000,  had a
          shareholders' deficit of $18,411,000.  During fiscal 2001, the Company
          continues  to  incur  significant   losses,  and  management  has  not
          successfully  executed on its efforts to achieve profitable operations
          and  positive  cash flows.  Outside of related  party  financing,  the
          Company has identified no viable source of financing.

     Due to the  significance  of  these  factors  in  the  Company's  financial
statements  at March 31,  2000,  all assets have been stated at their  estimated
realizable values.  Costs of resolving the contingencies noted above or settling
amounts  due to Indian  banks or Company  creditors  have not been  recorded  as
management is currently  unable to estimate these amounts.  Accounts  receivable
and inventories were valued at their subsequently  realized amounts (inventories
at cost),  and property,  plant and equipment  were valued based on estimates by
management  and in  accordance  with the  guidelines  of  Statement of Financial
Accounting Standards No. 121 "Accounting for Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" ("SFAS 121"). The estimated  realizable
values and  settlement  amounts may be different  from the  proceeds  ultimately
received or payments made.

     NET SALES. The Company records substantially all sales of finished goods in
the United  States.  Sales  originating  outside of the United  States  were not
material during fiscal 1998,  1999 and 2000.  During fiscal 1998, 1999 and 2000,
export  sales from the United  States  were 12%,  35%,  and 30% of total  sales,
respectively,  representing  sales to  foreign  subsidiary  companies  of United
States companies  located primarily in Europe and Asia. All product shipments to
fill  customer  orders are made from the  Company's  manufacturing  facility  in
India. Until manufacturing was discontinued there in the third quarter of fiscal
1998,  certain  components were produced at the Company's  facility in Sri Lanka
and sent to India for the final assembly of the finished power supply units.

     Fiscal 1998 sales were  $4,581,000,  a 78% increase over fiscal 1997 sales.
This increase was due almost entirely to shipments to Iomega,  a new customer in
fiscal  1998.  Net sales to  Iomega  and  Nexar  were 65% and 15% of net  sales,
respectively. There were no sales to Compaq or IBM.

     Sales in fiscal  1999 were  $3,935,000,  a 14%  decrease  from  fiscal 1998
sales.  This decrease was due almost  entirely to the  Company's  decision to no
longer do  business  with  Nexar,  and a decline in the volume of  shipments  to
Iomega.  These  declines  in sales  were  partially  offset  by sales to one new
customer and increased sales to two existing customers, none of which were major
customers of the Company during fiscal 1999.

     Fiscal  2000 sales were  $4,680,000,  an  increase  of 19% over fiscal 1999
sales.  This increase was due principally to an increase of  approximately 9% in
the volume of sales to Iomega,  the Company's  largest  customer in fiscal 2000,
and sales to Allied  Telesyn,  a newly acquired  customer in fiscal 2000,  which
accounted for approximately 12% of the Company's total sales.

     GROSS PROFIT. Gross profit for fiscal 1998 was $249,000 compared to a gross
loss of $4,537,000 in fiscal 1997. The improved gross margin in fiscal 1998 over
fiscal 1997 is due primarily to the reduction in carrying  value of  inventories
in fiscal 1997 in the amount of $4,325,000, which charge was included in cost of
goods sold. The Company  achieved only a slight gross profit on increased  sales
because of low overall gross margins and unabsorbed  production  overhead due to
excess plant  capacity and  inefficient  production  runs  resulting  from small
monthly orders.

     Fiscal  1999 gross  profit was  $1,301,000  compared  to $249,000 in fiscal
1998. The improved gross margin in fiscal 1999 on a 14% decrease in sales is due
to significantly  improved sales margins  resulting in part from the use of slow
moving  inventory,  the  carrying  value of which was reduced in fiscal  1997, a
reduction in production  start-up costs,  and a decrease in unabsorbed  indirect
manufacturing  overhead due to cost reductions and the sale of the manufacturing
facility in Sri Lanka in the fourth quarter of fiscal 1998.

                                       19
<PAGE>

     Gross  profit for fiscal 2000 was  $1,695,000  compared to  $1,301,000  for
fiscal 1999. This increase of approximately 30% was due primarily to a reduction
in  established  reserves  for  warranty  claims and sales  returns  aggregating
approximately $260,000, which the Company believes brings these reserves in line
with the current level of business.  Gross profit was also aided by the increase
in sales volume.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative expenses were $2,246,000 in fiscal 1998 compared to $3,348,000 in
fiscal 1997, or a 33% decrease. This decrease resulted from several factors, the
most  significant  of which  includes a restructure  of the Company's  marketing
strategy that resulted in the use of sales  representatives  and the elimination
of salaried  employees,  and other cost  containment  actions in fiscal 1998, as
well as the non-recurrence of expenses relating to the Recapitalization  Plan in
fiscal 1997.

     Selling, general and administrative expenses were $1,525,000 in fiscal 1999
compared to $2,246,000 for fiscal 1998. This 32% decrease in expenses was due to
the Company's  continuing actions to reduce costs, the most significant of which
were the decision to restructure its marketing  strategy resulting in the use of
sales  representatives,  the elimination of salaried employees,  and the sale of
the Sri Lanka subsidiary.

     For fiscal 2000,  selling,  general and  administrative  expenses  were not
materially different from those in fiscal 1999.

     RESEARCH AND DEVELOPMENT.  Research and development  expenses were $976,000
in fiscal 1998  compared to $865,000 in fiscal  1997.  The 13% increase in these
expenses was due to the Company's research and product  development  facility in
Scotland  being fully  staffed for the first nine months of fiscal 1998.  During
the prior year, the facility began staffing during the second fiscal quarter and
did not become fully operational until the final quarter of fiscal 1997. Because
of a lack of funding,  this facility was  discontinued in December 1997, and the
research and  development  engineering  was  relocated to the United States at a
much reduced level.

     Research and development expenses for fiscal 1999 were $341,000 compared to
$976,000 in fiscal 1998, a 65% decrease. This significant decrease resulted from
the Company's  decision during the third quarter of fiscal 1998 to shut down its
product research and development  facility in Scotland and relocate the research
and product  engineering to Simi Valley,  California at a significantly  reduced
level.

     For fiscal 2000,  research and  development  expenses  were not  materially
different from those in fiscal 1999.

     EXTINGUISHMENT  OF ACCOUNTS  PAYABLE.  In fiscal 1999 and 2000, the Company
decided to credit income for certain accounts payable aggregating $2,174,000 and
$72,000,  respectively,  for which no demand has been made  against the Company.
Creditors owed on those accounts became barred in fiscal 1999 and 2000 under the
Indian  Limitation  Act from  making  any future  demand on the  Company to make
payment on these obligations.

     INTEREST EXPENSE.  Interest expense in fiscal 1998 was $1,998,000  compared
to  $1,585,000  in fiscal 1997.  The 26% increase over the prior year was due to
interest  accrued on the demand  promissory  note  payable to the Tandon  family
under the  Recapitalization  Plan, entered into in March 1997, interest on other
related party financing that was implemented in order to continue the operations
of the Company,  and accounts receivable  factoring with a United States bank at
monthly  interest rates ranging from 2.25% to 1.75%,  plus  administration  fees
ranging from 1% to .75%.

     Interest  expense in fiscal 1999 was  $1,828,000  compared to $1,998,000 in
fiscal 1998.  The 9% decrease was due  principally to the change in the value of
the Indian rupee, which affected the translation of interest expense on the debt
in India.

     For fiscal 2000, interest expense was not materially different from that in
fiscal 1999.

                                       20
<PAGE>

     OTHER INCOME.  For fiscal 1998,  substantially  all of the Company's  other
income of  $285,000,  an  increase of 27% over 1997,  resulted  from the sale of
property  and  equipment,  which had been  recorded at  estimated  fair value in
fiscal 1997, as determined by applying SFAS 121.

     Other  income in fiscal 1999 was $164,000 or  approximately  42% lower than
the prior year. This decrease was due to a significant  reduction in the sale of
property and equipment.

     NET INCOME (LOSS).  For fiscal 1998, 1999 and 2000 the Company's net income
(loss) was  $(3,700,000),  $113,000 and $(1,969,000),  respectively.  For fiscal
1999,  net  loss  was  $2,061,000,   before  giving  effect  to  the  $2,174,000
extinguishment of accounts payable.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities
--------------------

     During  fiscal  1998,  the Company  used cash of  $4,194,000  in  operating
activities  compared to  $2,461,000  of cash used in fiscal 1997.  Unlike fiscal
1997,  there  were no  substantial  non-cash  valuation  reserves  recorded  for
inventories and property, plant and equipment. In addition, cash was consumed by
an increase in accounts receivable resulting from an increase in sales volume.

     During  fiscal  1999,  cash used in  operating  activities  was  $1,947,000
compared to  $4,194,000  of cash used in fiscal  1998.  This  reduction  in cash
consumed in fiscal  1999 was due  primarily  to a  reduction  in the net loss to
$2,061,000  (before  giving  effect to a $2,174,000  extinguishment  of accounts
payable) for the current year versus a loss of $3,700,000 in fiscal 1998. During
fiscal  1999,  the  Company  also  generated  cash from a decrease  in  accounts
receivable because of the decline in sales, whereas in fiscal 1998, there was an
increase in accounts receivable resulting from an increase in sales.

     During  fiscal  2000,  cash used in  operating  activities  was  $1,587,000
compared  to  $1,947,000  of cash  used in fiscal  1999.  The  reasons  for this
reduction in cash consumed vary.  However,  the most significant are a reduction
in the decrease of accounts  payable and reduced levels of accounts  receivable,
inventories  and prepaid  expenses and other assets.  These positive forces were
partially  offset by an increase  in the net loss for fiscal 2000  compared to a
net profit of $113,000, which, when adjusted for the extinguishments of accounts
payable, resulted in a loss of $2,061,000.

Investing Activities
--------------------

     In fiscal 1998, cash provided by investing activities was $319,000 compared
to $795,000  provided in fiscal 1997.  The primary source of this cash in fiscal
1998 was from the sale of property and equipment.

     In fiscal 1999, $78,000 in cash was used in investing activities,  compared
to $319,000 in cash being provided during fiscal 1998. As previously stated, the
fiscal  1998 cash  resulted  from the sale of  property,  plant  and  equipment,
whereas such sales during fiscal 1999 were significantly reduced.

     In fiscal 2000, cash used in investing  activities was $32,000  compared to
$78,000 used in fiscal 1999.  This  decrease  resulted  from fewer  purchases of
equipment during fiscal 2000.

Financing Activities
--------------------

     Cash  provided  by  financing  activities  for fiscal  1998 was  $3,168,000
compared to $2,003,000  in fiscal 1997.  This  increase was due  principally  to
loans received from Tandon  Associates,  Inc., a related  party,  to provide the
Company with working capital and to the transfer of bank debt as a result of the
sale of the  Company's  subsidiary  in Sri Lanka.  During  November and December
1997,  the Company  factored a total of $713,000 of its accounts  receivable  to
provide working capital.  Subsequently, the borrowings were repaid and there was
no outstanding balance at March 31, 1998.

     Cash  provided  by  financing  activities  for fiscal  1999 was  $2,300,000
compared to  $3,168,000  in fiscal 1998.  This  decrease is due primarily to the
reduction in working  capital  loans being made to the Company by related  party
entities.

                                       21
<PAGE>

     Cash  provided  by  financing  activities  for fiscal  2000 was  $1,764,000
compared to  $2,300,000  in fiscal  1999.  This  decrease is due  primarily to a
reduction in working capital loans being made to the Company by related parties.

     In summary,  the Company has suffered a  considerable  decline in cash flow
over the last three years for the aforementioned reasons. At March 31, 2000, the
Company had negative working capital of $16,358,000 and a shareholders'  deficit
of  $18,411,000.  While  current  actions are being taken to  implement a viable
operating  plan  to  increase   sales,   renegotiate  the  terms  of  short-term
obligations with the Indian banks, and raise additional capital, there can be no
assurance that any of these actions will be successfully completed.

     Since March 31,  1996,  the Company  has been  negotiating  with its Indian
banks for an extension of payment terms of existing debt as well as an extension
of credit to support  planned  production  and sales.  In July 1997,  the banks'
legal counsel issued  notices to Ultra Tek and the Company  calling upon them to
pay the  outstanding  amounts due. The banks have not initiated any legal action
against the Company for non-payment of the amounts due, since Ultra Tek has been
declared a sick company by the Board of Industrial and Financial  Reconstruction
("BIFR") of the Government of India.

     The BIFR  appointed an  Operating  Agency  ("OA") to examine the  Company's
viability  and  prepare a  viability  study  report.  Accordingly,  the  Company
prepared a draft rehabilitation  proposal, which was submitted to the OA. The OA
reviewed the proposal and  forwarded the same to the BIFR along with the minutes
of a joint meeting  between the Indian banks and the Company  convened by the OA
in March 1999. Based on the minutes of the joint meeting,  the BIFR prepared its
Draft    Rehabilitation    Scheme   and   advised   all    concerned    inviting
suggestions/objections  to the scheme,  which envisaged  restructuring  existing
debts.  The BIFR  held a hearing  on  August  16,  1999 and  after  hearing  all
interested  parties,  advised the  Company and the banks to discuss  further and
modify the Draft  Scheme to take into  account  the  various  points made at the
hearing.  The BIFR also  instructed  the OA to conduct  joint  meetings with the
banks and the Company and to forward a modified scheme. Accordingly, the Company
made revisions in the Draft Scheme to the extent that, no further  funding would
be  required  from the banks  and there  would be no  dilution  of the  existing
security  available to the consortium  banks.  On October 5, 1999, the OA held a
joint meeting of consortium  member banks and the Company to discuss the revised
proposal and forwarded the minutes of the joint meeting to BIFR, indicating that
no  consensus  had been  arrived at on the  proposal  submitted  by the Company.
During a hearing on May 19, 2000,  before the BIFR,  the bench  observed that no
acceptable  revival  proposal  was in  sight  and  directed  the OA to  initiate
necessary  steps towards change of management.  The bench also directed that the
Company,  being the existing  promoter can also submit their proposal based on a
One Time  Settlement  (OTS)  acceptable  to the banks and a third party  lending
institution.  The Company is in the process of submitting the OTS proposal.  The
Company is hopeful of favorable response in this matter.  Essentially all of the
Ultra Tek  short-term  borrowing  agreements  and  facilities are secured by the
assets of Ultra Tek and are covered by  corporate  guarantees  from the Company,
Fairplay Group, Inc.  ("Fairplay"),  an intermediate holding company, and Tandon
Associates,  a related party. They are also covered by the personal guarantee of
the Chairman and Managing  Director of Ultra Tek for the amount of approximately
$10,030,000.

     Subsequent to the fiscal year ended March 31, 2000,  the Company  continues
to experience  negative cash flow as a result of continuing  losses and sporadic
ramp-ups  of  production  in India.  In order to obtain  the  necessary  cash to
operate,  the Company has a factoring  agreement  with a United States bank at a
monthly financing fee of 1.75% and an administration fee applied to the total of
factored  accounts  of .75%.  Under  the  terms of the  agreement,  the bank may
purchase up to $1,333,333 in accounts  receivable from the Company in return for
cash equal to 80% of the face value of the  purchased  accounts  receivable.  At
September  30,  2000,  the Company had  factored  accounts  receivable  invoices
totaling $93,907.

                                       22
<PAGE>

YEAR 2000 COMPLIANCE

     The  Company  had in place a plan to  address  Year 2000  readiness  of its
internal  computer  systems and key suppliers.  It was not anticipated  that the
Company's  products would affect its customers' Year 2000  compliance.  The Year
2000 readiness team consisted entirely of internal  personnel,  as the Company's
lack of  resources  did not permit the use of external  consultants.  The team's
activities  were  directed to ensure  that there  would be no  material  adverse
effects  on  the  Company's  business  operations  and  that  transactions  with
customers and suppliers  would not be  materially  interrupted  by the advent of
Year 2000.

     The Company  upgraded its  accounting  and  telecommunications  software to
ensure Year 2000 compliance in the United States. In India,  personal  computers
were upgraded to allow for software upgrades.

     While the Company  believes  its  planning  efforts  have been  adequate to
address known Year 2000  concerns,  there can be no assurance  that all internal
systems,  as well as those of third parties upon which the Company relies,  will
continue to be Year 2000  compliant  and will not have a material  affect on the
Company's  operations,  especially those located in a third-world country. As of
September  30, 2000 the Company has not  experienced  any  significant  computer
failures due to the advent of Year 2000.

ITEM 8    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Information required by this item is included in Part IV of this report.

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

     On October 5, 1998, the Company received the written  resignation of Arthur
Andersen LLP, as its auditors, effective immediately.

     For each of the fiscal years ended March 31, 1996 and March 31,  1997,  the
accountant's  report  on  the  financial  statements  was  qualified  as to  the
uncertainty  of the  Company's  ability to  continue  as a going  concern.  This
uncertainty  was based on (1) the  Company's  default on payments due lenders in
the amount of $8,306,000, as of March 31, 1997 (2) Indian Customs and Department
of  Revenue  Intelligence  allegations  and  investigations  that  could lead to
additional  duty and  penalties  against the Company's  Indian  subsidiary in an
amount  then  believed  to  be  approximately   $8,400,000   (since  revised  to
approximately  $2,442,000) and possible penal action, (3) continuing significant
losses from operations,  which resulted in a shareholder  deficit of $14,168,000
at March 31,  1997 and (4) a lack of a viable  source of  financing,  other than
from a related party.

     Because of the resignation of the Company's  former  auditors,  the Company
engaged Farber & Hass LLP as its new  independent  accountants.  This engagement
for the audit of the  financial  statements  for the fiscal year ended March 31,
1998, was effective October 8, 1998.

     For the same reasons  referred to above,  the  accountant's  reports on the
Company's  financial  statements for the fiscal years ended March 31, 1998, 1999
and 2000 were  qualified  as to the  uncertainty  of the  Company's  ability  to
continue as a going concern.

     The Audit  Committee  of the Board of  Directors  was advised of the former
accountant's  resignation  and approved the  engagement  of the new  independent
accountant, Farber & Hass LLP, on October 8, 1998.

                                       23
<PAGE>

                                    PART III

ITEM 10   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth certain  information  concerning each person
who is an executive officer, director or significant employee of the Company:

Name                      Age     Position
----                      ---     --------
J.L. Tandon                51     Chairman, Chief Executive Officer and Director
M.L. Tandon                61     Chairman of the board of directors of Ultra
                                  Tek, the Company's manufacturing subsidiary
Naren Bansal               43     President and Chief Operating Officer
Harvey A. Marsh            62     Chief Financial Officer, Secretary and
                                  Director
R.D. Middlebrook, Ph.D.    70     Director*
Robert Sherburne           80     Director*

     *Member  of  the  Audit  Committee,   Compensation  Committee,   Subsidiary
Securities Committee and Independent Directors Committee

     J. L. Tandon has been Chief Executive Officer and a director of the Company
since  February  1991 and served as President  from February 1991 to April 1995,
and again from November 1997 to October 1999. On October 11, 1996,  J.L.  Tandon
was elected Chief  Financial  Officer of the Company and served in that position
until  September  1998.  From  December  1978 to July  1993,  J. L.  Tandon  was
President of Tandon Associates,  an affiliate of the Company. From March 1992 to
August 1993, J. L. Tandon was President of Tantec,  Inc., an affiliated company.
From 1983 to present,  J. L. Tandon has been  President  and a director of Clady
International  Corporation,   Fairplay  and  Lunenburg  S.  A.,  all  affiliated
companies. J. L. Tandon is M. L. Tandon's brother.

     M. L. Tandon  served as a director of the Company  from August 1993 through
April  1995.  M. L.  Tandon has been a  director  and  Chairman  of Ultra Tek, a
subsidiary of the Company,  since October 1985. From June 1988 to March 1995, M.
L. Tandon was Managing Director of Ultra Tek. M. L. Tandon was Managing Director
of Tandon Motors P. Ltd., an affiliated company,  from June 1982 to August 1989.
M. L. Tandon is J. L. Tandon's brother.

     Naren Bansal became President and Chief Operating Officer of the Company on
October 15, 1999.  Mr. Bansal has been an employee of the Company since 1990 and
most recently held the position Vice President, Operations and Sales.

     Harvey A. Marsh became Vice President,  Chief Financial Officer,  Secretary
and director in September 1998. From October 1996 to April 1998, Mr. Marsh acted
as a financial  consultant to the Company and other Tandon affiliated  companies
and joined the Company as an employee in April 1998.  From  January 1993 to June
1996, Mr. Marsh was Vice President,  Finance and Chief Financial Officer of FACT
Retirement Services. Mr. Marsh is also a director of Bender Growth Fund.

     R. D.  Middlebrook,  Ph.D. joined the Company as a director in August 1993.
From  1955 to  present,  Dr.  Middlebrook  has been a  professor  of  Electrical
Engineering at California Institute of Technology.

     Robert  Sherburne  joined the  Company as a director in August  1993.  From
January  1992 to  present,  Mr.  Sherburne  has  been a merger  and  acquisition
consultant.  From November 1990 to December 1991, Mr. Sherburne was the Chairman
of the Board of Everest & Jennings  International  and remained a director until
December 1996.

                                       24
<PAGE>

     All directors are elected  annually and serve until the next annual meeting
of shareholders  or until the election and  qualification  of their  successors.
Executive  officers of the Company are elected by and serve at the discretion of
the Board of Directors.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Naren Bansal  became  President  of the Company on October 21, 1999,  and a
Form 3 was not filed on Mr. Bansal's behalf on a timely basis.

ITEM 11   EXECUTIVE COMPENSATION

COMPENSATION

     The  following  table  sets  forth  information  concerning  the annual and
long-term  compensation  for services in all  capacities  to the Company paid or
accrued by the  Company to the Chief  Executive  Officer and to each of the four
other most  highly  compensated  officers  of the Company for each of the fiscal
years in the three-year period ended March 31, 2000.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                                                                         Long-Term Compensation
                                                                     ------------------------------
                                                                             Awards         Payouts
                                                                     ---------------------- -------
                                      Annual Compensation
                           -----------------------------------------
                                                                                 Securities
                                                                      Restricted Underlying
                                                        Other Annual     Stock    Options/    LTIP     All Other
   Name and Principal      Fiscal    Salary     Bonus   Compensation    Awards      SARs    Payouts  Compensation
       Positions            Year     (1)($)      ($)       (2)($)         ($)        (#)       ($)        ($)
------------------------   ------   --------   ------   ------------   --------   --------   ------   ----------
<S>                          <C>     <C>            <C>       <C>             <C>       <C>       <C>         <C>
J.L. Tandon                  2000    198,000        0         16,147          0         --        0           --
  President, Chief           1999    198,000        0         24,488          0         --        0           --
  Executive Officer and      1998    198,000        0         22,676          0         --        0           --
  Chief Financial
  Officer
Naren Bansal(3)              2000     95,381        0              0          0         --        0           --
  President and Chief
  Operating Officer
Harvey A. Marsh(4)           2000     36,017        0              0          0         --        0           --
  Chief Financial            1999     68,938        0              0          0         --        0           --
  Officer
Prakash Thanky(5)            1998    118,200        0              0          0         --        0           --
  President
</TABLE>

(1)  Includes compensation  deferred at the officer's election.  J.L. Tandon has
     deferred  compensation  of $96,500 for fiscal 1999 and  $171,346 for fiscal
     2000.

(2)  Represents supplemental income bonus,  automobile allowance,  club dues and
     payments  made  toward  medical  and  group  life  insurance  on  behalf of
     executive officers.

(3)  Mr.  Bansal was  appointed  President  and Chief  Operating  Officer of the
     Company on October 21, 1999.

(4)  Mr.  Marsh  became  an  employee  of the  Company  on April 6, 1998 and was
     appointed Chief Financial Officer on September 8, 1998.

(5)  Mr. Thanky  resigned from the Company in November 1997. His salary includes
     vacation and salary continuation pay through December 31, 1997.

                                       25
<PAGE>

CHANGE IN CONTROL ARRANGEMENTS

     Under the terms of the Company's  1994 Stock Option Plan (the "1994 Plan"),
upon a change  in  control  or  liquidation  of the  Company,  the  Compensation
Committee,  in its discretion,  may allow each person holding an option (who did
not receive a replacement  stock option from the Company's  successor entity) to
exercise that option without regard to its vesting provisions.

DIRECTOR COMPENSATION

     Each outside  director  receives $1,500 for each board meeting attended and
$1,000 for each  committee  meeting  attended;  provided,  however,  that if two
committee  meetings are held on the same day,  outside  directors in  attendance
only receive $1,000. In August 1993, the Board of Directors established an Audit
Committee, a Compensation Committee and a Subsidiary Securities Committee,  each
comprised of the outside directors.

     In September 1993, the Board of Directors  granted each outside director an
option to purchase  20,000 shares of Common Stock at the initial  offering price
to the public of $7.00.  The Company's  policy  through fiscal 1996 was to issue
its outside  directors  options to purchase  20,000  shares upon election to the
Board and options to purchase  5,000  additional  shares after each two years of
subsequent  service.  A  proposal  to adopt a  formula  grant  amendment  to the
Company's  1994 Plan  implementing  this policy was  approved  by the  Company's
shareholders at the 1995 Annual Meeting of  Shareholders.  All such grants would
be at fair market value. No options have been granted since fiscal 1996.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     None.

1994 STOCK OPTION PLAN

     Key employees, including Directors who are key employees, who are chosen by
the Compensation Committee are eligible to participate in the 1994 Plan. Messrs.
J. L.  Tandon and M. L.  Tandon  have  agreed  that they will not be eligible to
receive grants of options under the 1994 Plan.

     There were no stock  options  granted or  exercised  during the fiscal year
ended March 31, 2000. The only unexercised stock options at March 31, 2000, held
by any executive  officer,  were for 7,500 shares held by Mr. Bansal,  President
and Chief Operating Officer .

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

     The  Compensation  Committee of the Board for fiscal 2000 was  comprised of
Messrs.  Middlebrook and Sherburne.  The Compensation  Committee establishes the
general compensation policies of the Company, establishes the compensation plans
and specific  compensation  levels for executive  officers,  and administers the
1994 Plan.

     As required by Commission rules designated to enhance the disclosure of the
Company's executive  compensation  policies and practices,  the following is the
Compensation  Committee's report submitted to the Board of Directors  addressing
the compensation of the Company's executive officers for fiscal 2000.

                      Report of the Compensation Committee
                      ------------------------------------

     The  Compensation  Committee  of the  Board of  Directors  establishes  the
general  compensation  policies of the  Company,  establishes  the  compensation
plans,  establishes the specific  compensation of Mr. J.L. Tandon, the Company's
Chief Executive officer,  reviews the Chief Executive Officer's  recommendations
as to the specific  compensation  levels for the other executive  officers,  and
administers  the  Company's  incentive  plans.  The  Compensation  Committee  is
composed of two  independent  non-employee  directors  who have no  interlocking
relationships as defined by the Securities and Exchange Commission.

                                       26
<PAGE>

     COMPENSATION   POLICY   AND   PROGRAMS.   The   Compensation    Committee's
responsibility  is to  ensure  that  a  strong  and  direct  link  exists  among
shareholder values, Company performance,  and executive compensation through its
oversight of the design and implementation of a sound compensation  program that
will attract and retain highly qualified  personnel.  Compensation  programs are
intended to complement the Company's  short- and long-term  business  objectives
and to focus executive efforts on the fulfillment of these objectives.

     The  Compensation  Committee  has  conducted a full review of the Company's
executive  compensation program and will repeat this review annually.  It is the
Compensation Committee's practice to establish target levels of compensation for
senior  officers  consistent  with  that of  companies  comparable  in size  and
complexity  to the  Company,  as well as  companies  that  are  direct  business
competitors  of the Company.  Actual  compensation  of the  Company's  executive
officers is subject to increase or decrease by the  Compensation  Committee from
targeted  levels  according  to  the  Company's  overall   performance  and  the
individual's  efforts and  contributions.  A  significant  portion of  executive
compensation is directly related to the Company's  financial  performance and is
therefore at risk. Total  compensation  for the Company's  senior  management is
composed  of  base  salary,  near-term  incentive  compensation  in the  form of
bonuses, and long-term incentive  compensation in the form of stock options. The
Compensation  Committee retains the discretion to adjust the formula for certain
items of compensation so long as total  compensation  reflects overall corporate
performance and individual achievement.

     BASE  SALARY.  In  establishing  base  salary  levels  for  senior  officer
positions,  the  Compensation  Committee and Mr. J.L.  Tandon consider levels of
compensation at other similarly  situated  companies and at direct  competitors,
levels of  responsibility,  and internal issues of consistency and fairness.  In
determining  the  base  salary  of  a  particular  executive,  the  Compensation
Committee and Mr. J.L. Tandon  consider  individual  performance,  including the
accomplishment  of short-  and  long-term  objectives,  and  various  subjective
criteria including  initiative,  contribution to overall corporate  performance,
and leadership ability.

     In the fiscal year ended March 31, 2000, the annual base salary of Mr. J.L.
Tandon was unchanged at $198,000,  a level  determined to be  appropriate by the
Compensation  Committee based on comparable  chief executive  salaries of a peer
group of companies and of direct  competitors  referred to above,  the Company's
overall  performance in the prior fiscal year, and Mr. J.L. Tandon's efforts and
contributions to the Company.

     BONUSES.  The Company's  executive officers are eligible for annual bonuses
based upon  recommendations  made by Mr. J.L.  Tandon (as to the other executive
officers)  and  the  Compensation  Committee  (as  to  Mr.  J.L.  Tandon)  as to
individual  performance  and the  Company's  achievement  of  certain  operating
results.

     Amounts of individual  awards are based principally upon the results of the
Company's  financial  performance  during the prior fiscal  year.  The amount of
awards for senior officers are within guidelines established by the Compensation
Committee and Mr. J.L. Tandon as a result of their review of total  compensation
for senior  management  of peer  companies  and  competitors.  The actual amount
awarded,  within  these  guidelines,  will  be  determined  principally  by  the
Compensation  Committee's and Mr. J.L.  Tandon's  assessment of the individual's
contribution to the Company's  overall financial  performance.  Consideration is
also  given to  factors  such as the  individual's  successful  completion  of a
special  project,  any  significant  increase  or  decrease  in the level of the
participant's executive  responsibility and the Compensation Committee's and Mr.
J.L.  Tandon's  evaluation of the  individual's  overall  efforts and ability to
discharge the responsibilities of his position.  In fiscal 2000, in light of the
Company's  financial  results,  no  bonuses  were  paid to any of the  executive
officers named in the Summary Compensation Table.

     Mr. J.L. Tandon received no bonus with respect to the March 31, 2000 fiscal
year. In determining  bonuses in future years, the  Compensation  Committee will
give  particular  consideration  to the  following  factors:  (1) the  Company's
progress toward break-even financial results and sustainable positive cash flow;
(2) the narrowing of losses and the trend toward positive earnings growth of the
Company  during the fiscal year; (3) the efforts and  contributions  made by Mr.
J.L. Tandon in discharging his  responsibilities as Chief Executive Officer; and
(4) the efforts and contributions by the other executives of the Company.

                                       27
<PAGE>

     STOCK OPTIONS.  During fiscal 1994, the Compensation  Committee adopted the
Company's  1994 Stock  Option  Plan.  The purpose of the 1994 Plan is to provide
incentives  and reward the  contributions  of key employees and officers for the
achievement of long-term Company performance,  as measured by earnings per share
and the market value of the Common Stock.  The Compensation  Committee,  working
with the Option  Committee  (which,  prior to being  disbanded  in fiscal  1996,
consisted of Mr. J.L. Tandon and Mr. M.L. Tandon), set guidelines for the number
and terms of stock option  awards based on factors  similar to those  considered
with respect to the other  components  of the  Company's  compensation  program,
including  comparison  with the  practices  of peer group  companies  and direct
competitors.   In  the  event  of  unsatisfactory  corporate  performance,   the
Compensation Committee may decide not to award stock options or restricted stock
in any given  fiscal  year  although  exceptions  to this policy may be made for
individuals who have assumed  substantially  greater  responsibilities and other
similar  factors.  The  awards  under  the 1994 Plan are  designed  to align the
interests of executives with those of the shareholders. Generally, stock options
become  exercisable in cumulative  installments over a period of five years, but
the individual forfeits any installment that has not vested during the period of
his employment.

     In light of the  Company's  financial  performance  during  fiscal 1999 and
2000,  the  Compensation  Committee  has  tabled  its  review  of any  necessary
revisions to the  Company's  executive  compensation  policy or plans due to the
provisions of the Omnibus Budget  Reconciliation  Act of 1993. This  legislation
amended  Section 162 of the Internal  Revenue Code by limiting to $1,000,000 the
deductibility  of compensation  paid to certain  executives.  The Company's 1994
Plan was amended by the Board of  Directors to conform with new rules on Section
162 compliance and those  amendments  were approved at the Company's 1995 Annual
Meeting of Shareholders.  It is the current policy of the Compensation Committee
to maximize, to the extent reasonably possible,  the Company's ability to obtain
a corporate  tax deduction for  compensation  paid to executive  officers of the
Company to the extent  consistent with the best interests of the Company and its
stockholders.

                                        THE COMPENSATION COMMITTEE
                                        R. D. Middlebrook, Ph.D.
                                        Robert Sherburne

                                       28
<PAGE>

                               COMPANY PERFORMANCE

     The following graph shows a comparison of cumulative  total returns for the
Company, the NASDAQ Stock Market-U.S. Index, and a peer group index comprised of
the NASDAQ  Computer Index (as described  below) for the period during which the
Company's Common Stock has been registered under Section 12 of the Exchange Act.
The NASDAQ Computer Index includes approximately 170 companies, all of which are
manufacturers  of computer  hardware or software.  The Company believes that the
companies included in the NASDAQ Computer Index are reasonably representative of
companies in the Company's industry.

                 COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
                           AMONG GOLDEN SYSTEMS, INC.,
                      THE NASDAQ STOCK MARKET (U.S.) INDEX
                   AND THE NASDAQ COMPUTER MANUFACTURER INDEX

                                [GRAPHIC OMITTED]

<TABLE>
<CAPTION>
                                                       Cumulative Total Return
                                   -------------------------------------------------------------
                                   3/95       3/96       3/97       3/98       3/99       3/00

<S>                                <C>        <C>        <C>        <C>        <C>       <C>
GOLDEN SYSTEMS, INC.               100.00      53.85      23.08       4.92      13.54       9.85
NASDAQ STOCK MARKET (U.S.)         100.00     135.80     150.95     228.88     309.19     574.04
NASDAQ COMPUTER MANUFACTURER       100.00     153.72     167.92     297.18     589.61    1392.13
</TABLE>

* $100 Invested on 3/31/95 in Stock or Index -
inlcuding reinvestment of dividends.
Fiscal Year ending March 31.

                                       29
<PAGE>

ITEM 12   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding the beneficial
ownership of the  Company's  capital  stock as of September 30, 2000 by (i) each
person who is known by the Company to be the beneficial owner of more than 5% of
any class of the  Company's  capital  stock,  (ii) each  Director,  and  certain
executive  officers of the Company,  individually,  and (iii) all  Directors and
executive officers as a group:

                                                            Amount     Percent
                                                         Beneficially    of
     Name of Beneficial Owner (1)                           Owned       Class
     ----------------------------                           -----       -----
     J.L. Tandon (2)...................................   2,276,666 (3) 43.0 (3)
     Clady International Corporation ("Clady")(4) .....   2,125,000     40.1
     D.L. Tandon (5) ..................................     141,666      2.7
     M.L. Tandon (6) ..................................           0      0.0
     S.L. Tandon (6) ..................................     141,666      2.7
     Naren Bansal (7) .................................       7,500        *
     Harvey A. Marsh ..................................           0        0
     R.D. Middlebrook, Ph.D. (8) ......................      31,000        *
     Robert Sherburne (8) .............................      25,000        *
     All executive officers and directors as a group
     (five persons) (9) ...............................   2,623,498     49.5
     *Less than one percent

(1)  Except as otherwise  indicated  below,  the persons  named have sole voting
     power and  investment  power with  respect  to all shares of capital  stock
     shown as  beneficially  owned by them,  subject to community  property laws
     where applicable.

(2)  The address for J. L. Tandon is 2125-C Madera Road, Simi Valley, California
     93065.

(3)  Includes 2,125,000 shares owned by Clady, a Panamanian corporation of which
     J. L. Tandon is the President.

(4)  The address for Clady is c/o J. L. Tandon, 2125-C Madera Road, Simi Valley,
     California 93065.

(5)  D. L. Tandon is an officer and director of Clady.  He  expressly  disclaims
     beneficial  ownership  of any  shares  owned by Clady for the  purposes  of
     Sections 13(d) and 13(g) of the Exchange Act.

(6)  M. L. Tandon and S. L. Tandon expressly  disclaim  beneficial  ownership of
     any shares owned by Clady for the purposes of Section 13(d) and 13(g) under
     the Exchange Act.

(7)  Includes 7,500 shares issuable upon exercise of stock options excercisable.

(8)  Includes 24,000 shares issuable upon exercise of stock options  exercisable
     within sixty days of September 30, 2000.

(9)  For  purposes of this  calculation,  all shares  beneficially  owned by any
     member of the Tandon family are included in the amount beneficially owned.

                                       30
<PAGE>

ITEM 13   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Tandon family has been involved in the  manufacture  of a wide range of
personal computer components and of personal computers for many years. Since its
formation,  the Company and its  subsidiaries  have been operated in conjunction
with other privately held operations of the Tandon family.

     In order to  support  the  continuing  operations  of the  Company,  Tandon
Associates loaned the Company $1,525,000, net of repayments, during fiscal 1998.
The total due Tandon  Associates,  including accrued interest at 1% per month on
the average daily  balance,  at March 31, 2000 was  $1,443,000.  Payments on the
loan balance  during fiscal 2000 were $163,000 and  additional  borrowings  were
$105,000.

     In fiscal 1997 the Company  entered into a renewed lease agreement with SDJ
Partners,  a general  partnership,  whose  partners  are certain  members of the
Tandon  family.  The lease was for the Company's  headquarters  facility,  which
includes  office and  warehouse  space.  The  facility  lease was at the cost of
comparable  space at the time the lease was negotiated and utilities are charged
at $250 per month,  which  approximates  estimated usage and cost. During fiscal
1998,  SDJ  Partners  agreed to amend the lease  agreement,  which  allowed  the
Company to reduce the amount of leased space because of the  contraction  of its
business.  On December 31, 1999,  the lease expired and the Company is currently
renting space on a month-to-month  basis. For fiscal 2000, total facilities cost
was $57,000.

     Celetron,  Inc.,  (Celetron)  a  company  owned by the  Tandon  family,  is
currently  seeking  investors through a private  placement.  Representatives  of
Celetron advised the Company's Board of Directors,  at a special meeting held on
September  15,  2000,  that  Celetron  intends to extend an offer to acquire the
Company if this private  placement is  successfully  concluded.  There can be no
assurance  that  the  private  placement  will be  successfully  concluded  and,
therefore,  there can be no  assurance  that an offer will be made,  or if made,
when it will be made or the terms thereof, should it be made, as such terms will
necessarily be dependent on circumstances that exist at that time.

                                       31
<PAGE>

PART IV

ITEM 14   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     The following documents are filed as part of this report:

(a)  1.   Financial Statements:

          CONSOLIDATED FINANCIAL STATEMENTS

          Report of Independent Public Accountants

          Consolidated Balance Sheets as of March 31, 1999 and 2000:
               Assets
               Liabilities and Shareholders' Deficit

          Consolidated Statements of Operations for each of the three
               years in the period ended March 31, 2000

          Consolidated Statements of  Shareholders'  Equity for each
               of the three years in the period ended March 31, 2000

          Consolidated  Statements  of Cash  Flows  for  each of the
               three years in the period ended March 31, 2000

          Notes to Consolidated Financial Statements

          FINANCIAL  STATEMENTS OF CORTECH  SYSTEMS  (INDIA)  LIMITED  (FORMERLY
          ULTRA TEK DEVICES LIMITED)

          Independent Auditors' Report

          Statements of Financial Condition at March 31, 1999 and 2000

          Statements  of  Operations  for each of the years ended March 31, 1999
          and 2000

          Statements  of Cash Flows for each of the years  ended  March 31, 1999
          and 2000

          Notes to Financial Statements

     2.   Financial Statement Schedules:

          Report of Independent Public Accountants on Supplemental Schedule
          Schedule II - Valuation and  Qualifying  Accounts for the three fiscal
          years ended March 31, 2000

          All other schedules are omitted  because they are not applicable,  not
          required,  or the  required  information  is  shown  in the  Financial
          Statements or notes thereto.

     3.   Exhibits:

          See Item 14(c) below.

(b)  Reports on Form 8-K

                                       32
<PAGE>

     No  reports on Form 8-K were  filed  during the last  quarter of the fiscal
year ended March 31, 2000.

(c)  Exhibits

     The exhibits listed on the  accompanying  index  immediately  following the
signature page are filed as part of this report.

(d)  Financial Statement Schedules

     See Item 14(a) above

                                       33
<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, on December 20, 2000.

                                        GOLDEN SYSTEMS, INC.

                                        /s/  Jawahar L. Tandon
                                  ----------------------------------
                                           Jawahar L. Tandon
                                  Chairman of the Board of Directors
                                     and Chief Executive Officer

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

<TABLE>
<CAPTION>
         Signature                                 Title                               Date
         ---------                                 -----                               ----

<S>                              <C>                                            <C>
   /s/ Jawahar L. Tandon           Chairman of the Board of Directors and       December 20, 2000
---------------------------               Chief Executive Officer
     Jawahar L. Tandon                 (Principal Executive Officer)

    /s/ Harvey A. Marsh            Vice President, Chief Financial Officer      December 20, 2000
---------------------------      (Principal Financial Officer) and Director
      Harvey A. Marsh

   /s/ R. D. Middlebrook                         Director                       December 20, 2000
---------------------------
     R.D. Middlebrook

    /s/ Robert Sherburne                         Director                       December 20, 2000
---------------------------
     Robert Sherburne
</TABLE>

                                       34
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
   EXHIBIT                                                                            SEQUENTIAL
   NUMBER                                DESCRIPTION                                 PAGE NUMBER
   ------                                -----------                                 -----------
   <S>        <C>
     3.1(1)   Restated Articles of Incorporation of the Company ................
     3.2(1)   Bylaws of the Company, as amended to date ........................
    10.1(1)   Stock Exchange Agreement dated July 1, 1993 by and between the
              Company and Lunenburg S.A. .......................................
    10.2(1)   Stock Purchase and Sale Agreement dated July 1, 1993 by and
              between Lunenburg  S.A.  and  Clady  International Corporation ...
    10.3(1)   Letter Agreement dated July 1, 1993 by and between Clady
              International Corporation and the Company ........................
    10.4(1)   Form of Lease by and between the President of India as landlord
              and Ultra Tek Devices Ltd. as tenant .............................
    10.5(1)   Letter Agreement Sublease dated April 1, 1993 between Ultra Tek
              Devices Ltd. and Eastern Peripherals Ltd .........................
    10.6(1)   Declaration dated September 7, 1993 by Advance Power Devices Pvt.
              Ltd. .............................................................
    10.7(1)   Letter of Credit in the principal amount of $320,000 dated August
              20, 1993 issued by American Pacific State Bank for the account of
              Golden Systems, Inc. .............................................
    10.8(1)   Memorandum of Agreement dated February 5, 1993 by and between
              Ultra Tek Devices Ltd. as borrower and the Bank of India as lender
    10.9(1)   Hypothecation Agreement of Goods and Book Debts dated October 19,
              1992, by and between Ultra Tek Devices Ltd. as borrower and Canara
              Bank as lender ...................................................
   10.10(1)   Hypothecation Agreement of Goods and Book Debts dated October 19,
              1993, by and between Ultra Tek Devices Ltd. as borrower and Canara
              Bank as lender ...................................................
   10.11(1)   Purchase Agreement dated May 25, 1993 by and between Compaq Asia
              Pte. Limited and the Company .....................................
   10.12(1)   Employment Agreement dated as of July 23, 1993, between the
              Company and Raymond V. Thomas ....................................
   10.13(2)   Form of Warrant Agreement dated November 17, 1993 between Golden
              Systems, Inc. and the Representatives of the Underwriters ........
   10.14(2)   License Agreement, dated May 27, 1993, between Compaq Computer
              Corporation and the Company ......................................
   10.15(2)   Loan and Security Agreement, dated October 7, 1993, between
              Silicon Valley Bank and the Company ..............................
   10.16(3)   Agreement dated March 4, 1994, by and between the Board of
              Investment of Sri Lanka and Golden Systems Lanka (Private)
              Limited ..........................................................
   10.17(4)   Stock Purchase Agreement, dated as of March 31, 1997, among the
              Company, J. L. Tandon, Clady and certain members of management
              (with exhibits, including Subscription Agreement and Bridge
              Note) ............................................................
    21.1(1)   List of Subsidiaries .............................................
      27      Financial Data Schedule ..........................................
</TABLE>

     1    Incorporated by reference to the Company's  Registration  Statement on
          Form S-1 dated September 9, 1993.
     2    Incorporated  by  reference  to  Amendment  No.  1  to  the  Company's
          Registration Statement on Form S-1 dated October 20, 1993.
     3    Incorporated  by  reference to the  Company's  Form 10K for the Fiscal
          Year Ended March 31, 1994.
     4    Incorporated   by  reference  to  the  Company's   Preliminary   Proxy
          Materials, filed April 1, 1997.
-----------------------------

                                       35
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE

We have audited in accordance with generally  accepted auditing  standards,  the
consolidated  financial statements of Golden Systems,  Inc. and its subsidiaries
as of March 31, 2000 and for each of the three years then ended, and have issued
our report thereon,  qualified with respect to the Company's ability to continue
as a going  concern,  dated November 8, 2000. Our audit was made for the purpose
of  forming  an opinion on the  statements  taken as a whole.  The  supplemental
schedule is presented for purposes of complying with the Securities and Exchange
Commission's  Rules  and  Regulations  and is not  part of the  basic  financial
statements.  This schedule has been subjected to the auditing procedures applied
in the audit of the basic  financial  statements,  and, in our  opinion,  fairly
states in all material  respects  the  financial  data  required to be set forth
therein in relation to the basic financial statements taken as a whole.

                                        /s/ Farber & Hass LLP
                                        ---------------------
                                            Farber & Hass LLP

Oxnard, California
November 8, 2000

                                       36
<PAGE>
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                FOR THE YEARS ENDED MARCH 31, 1998, 1999 AND 2000
                                 (IN THOUSANDS)

                                            ADDITIONS
                            BALANCE AT      CHARGED TO               BALANCE AT
     DESCRIPTION         BEGINNING OF YEAR    INCOME   DEDUCTIONS   END OF YEAR
     -----------         -----------------    ------   ----------   -----------

  Inventory reserves

         2000                 $ 4,943           15         153        $ 4,805

         1999                 $ 5,671            5         733        $ 4,943

         1998                 $ 6,869           60       1,258        $ 5,671

                                       37
<PAGE>


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                    Page

Report of Independent Public Accountants                            F-2

Consolidated Balance Sheets as of March 31, 1999 and 2000:
  Assets                                                            F-3
  Liabilities and Shareholders' Deficit                             F-4

Consolidated Statements of Operations for each of
  the three years in the period ended March 31, 2000                F-5

Consolidated Statements of Shareholders' Equity (Deficit) for
  each of the three years in the period ended March 31, 2000        F-6

Consolidated Statements of Cash Flows for each of the
  three years in the period ended March 31, 2000                    F-7 and F-8

Notes to Consolidated Financial Statements                          F-9 to F-22

        INDEX TO FINANCIAL STATEMENTS OF CORTECH SYSTEMS (INDIA) LIMITED

Independent Auditors' Report                                        F-23

Statements of Financial Condition at March 31, 1999 and 2000        F-24

Statements of Operations for each of the years ended
  March 31, 1999 and 2000                                           F-25

Statements of Cash Flows for each of the years ended
  March 31, 1999 and 2000                                           F-26

Notes to Financial Statements                                       F-27 to F-34

                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
  of Golden Systems, Inc. and Subsidiaries:

We have audited the accompanying  consolidated balance sheets of Golden Systems,
Inc. and its subsidiaries  (the "Company") as of March 31, 1999 and 2000 and the
related  consolidated  statements of operations,  shareholders' equity (deficit)
and cash  flows  for the  years  ended  March 31,  1998,  1999 and  2000.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial  statements  based on our audits.  We did not audit the 2000 financial
statements  of Cortech  Systems  (India)  Limited  (formerly  known as Ultra Tek
Devices  Limited),  a wholly-owned  subsidiary,  which statements  reflect total
assets of $1,446,000 and total revenues of $45,000 (net of intercompany amounts)
for the year then ended.  Those  statements were audited by other auditors whose
report has been  furnished to us, and our opinion,  insofar as it relates to the
amounts  included for Cortech  Systems (India) Limited as of March 31, 2000, and
for the year then ended, is based solely on the report of the other auditors.

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

In our opinion,  based on our audits and the report of the other  auditors,  the
accompanying  consolidated  financial statements present fairly, in all material
respects,  the financial  position of the Company at March 31, 1999 and 2000 and
the results of its  operations  and its cash flows for the years ended March 31,
1998, 1999 and 2000 in conformity with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements,  the Company is currently facing significant financial and
operational  issues  which  raise  substantial  doubt that the  Company  has the
ability to continue  as a going  concern.  These  issues are  summarized  in the
paragraphs that follow. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.

At March 31,  2000,  the Company had  outstanding  amounts due to four  separate
Indian  lenders  in the amount of  $10,629,000,  all of which are  currently  in
default.  Of that amount,  three of the banks have issued notices to the Company
demanding immediate repayment of $9,465,000.  The Company has insufficient funds
available  to repay the banks.  Because the Indian debt is secured by the assets
of the  Company's  subsidiary,  Ultra Tek,  alternatives  available to the banks
include closing its operations and forcing it into  liquidation (see Note 4). In
the event of such  action by the  lenders,  liquidation  of assets may result in
amounts less than amounts shown in the attached financial statements.

In fiscal 1995 and 1997, Ultra Tek came under investigation by the Indian custom
authorities and the Indian Department of Revenue Intelligence  regarding alleged
improprieties  in their  inventories  and in the  import  and  export of certain
components.  The  government's  allegations  and  investigations  could  lead to
additional duty and penalties being assessed  against Ultra Tek in the amount of
$2,316,000 at September 30, 2000. In addition, penal action which could be taken
under Indian law could result in possible fines up to approximately  $16,023,000
at  September  30,  2000.  The  Company is  contesting  these  allegations,  but
currently, the matters are unresolved and the outcomes uncertain (see Note 11).

The Company has incurred  significant  losses from operations over the past five
years and has lost its two largest customers,  which has significantly  impacted
its  revenues.  At March 31, 2000,  the Company had a  shareholders'  deficit of
$18,411,000.  During fiscal 2001, the Company has continued to incur significant
losses and  management  has not  successfully  executed  its  efforts to achieve
profitable  operations  and  positive  cash  flows.  Outside  of  related  party
financing, the Company has identified no viable source of financing.

                                        /s/ Farber & Hass LLP
                                        ---------------------
                                            Farber & Hass LLP

Oxnard, California
November 8, 2000

                                      F-2
<PAGE>

                      GOLDEN SYSTEMS, INC. AND SUBSIDIARIES

            CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1999 AND 2000
                                 (IN THOUSANDS)

                                     ASSETS
                                                                1999      2000
                                                               ------    ------

CURRENT ASSETS:
  Cash and cash equivalents                                    $  117    $  255
  Restricted cash balances                                         12        12
  Accounts receivable, net of allowance of
    $129 and $114 at March 31, 1999 and
    2000, respectively                                            548       387
  Inventories                                                     612       386
  Prepaid expenses and other current assets                       131        74
                                                               ------    ------

         Total current assets                                   1,420     1,114
                                                               ------    ------

PROPERTY, PLANT AND EQUIPMENT, at estimated realizable value,
  net of accumulated depreciation and amortization                628       546
                                                               ------    ------
                                                               $2,048    $1,660
                                                               ======    ======

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

                                      F-3
<PAGE>

                      GOLDEN SYSTEMS, INC. AND SUBSIDIARIES

            CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1999 AND 2000
                                 (IN THOUSANDS)

                      LIABILITIES AND SHAREHOLDERS' DEFICIT

                                                                1999      2000
                                                               ------    ------

CURRENT LIABILITIES:
  Borrowings under demand, including accrued interest          $8,617    $9,465
  Note payable under Recapitalization Plan, including
    accrued interest                                            2,173     2,322
  Notes payable, including accrued interest                       962     1,164
  Accounts payable                                                885       736
  Accrued liabilities                                           1,044     1,049
  Net amounts due to related parties                            2,505     2,736
                                                               ------    ------

         Total current liabilities                             16,186    17,472
                                                               ------    ------

COMMITMENTS AND CONTINGENCIES (Note 11)

MINORITY INTEREST                                               2,599     2,599

SHAREHOLDERS' DEFICIT:
  Common stock, no par value:
    Authorized--6,000 shares
    Issued and outstanding--5,300
      shares in 1999 and 2000                                  16,405    16,405
  Retained deficit                                            (33,957)  (35,926)
  Cumulative translation adjustments                              815     1,110
                                                               ------    ------
                                                              (16,737)  (18,411)
                                                               ------    ------

                                                               $2,048    $1,660
                                                               ======    ======

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

                                      F-4
<PAGE>

                      GOLDEN SYSTEMS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE YEARS ENDED MARCH 31, 1998, 1999 AND 2000
                    (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

                                                   1998       1999       2000
                                                 --------   --------   --------

NET SALES                                        $  4,581   $  3,935   $  4,680

COST OF GOODS SOLD
  Material, labor, overhead and direct cost         4,272      2,629      2,970
  Inventory provisions                                 60          5         15
                                                 --------   --------   --------

                                                    4,332      2,634      2,985
                                                 --------   --------   --------

         Gross profit                                 249      1,301      1,695
                                                 --------   --------   --------

OPERATING (INCOME) EXPENSES:
  Selling, general and administrative               2,246      1,525      1,522
  Research and development                            976        341        360
  Extinguishment of accounts payable                   --     (2,174)       (72)
                                                 --------   --------   --------

                                                    3,222       (308)     1,810
                                                 --------   --------   --------

         Income (loss) from operations             (2,973)     1,609       (115)
                                                 --------   --------   --------

OTHER INCOME (EXPENSE):
  Interest expense                                 (1,998)    (1,828)    (1,853)
  Foreign currency transaction gains (losses)         235        169         --
  Gain on sales of subsidiary companies               752         --         --
  Other income                                        285        164         --
                                                 --------   --------   --------

                                                     (726)    (1,495)    (1,853)
                                                 --------   --------   --------

         Income (loss) before provision
         for income taxes                          (3,699)       114     (1,968)

PROVISION (BENEFIT) FOR INCOME TAXES                    1          1          1
                                                 --------   --------   --------

NET INCOME (LOSS)                                $ (3,700)  $    113   $ (1,969)
                                                 ========   ========   ========

BASIC INCOME (LOSS) PER COMMON SHARE             $   (.70)  $    .02   $   (.37)
                                                 ========   ========   ========

WEIGHTED AVERAGE NUMBER OF
  OUTSTANDING SHARES                                5,300      5,300      5,300
                                                 ========   ========   ========

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

                                      F-5
<PAGE>

                      GOLDEN SYSTEMS, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIT)
                FOR THE YEARS ENDED MARCH 31, 1998, 1999 AND 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  CUMULATIVE
                                  SHARES     COMMON    RETAINED  TRANSLATION
                               OUTSTANDING   STOCK     DEFICIT   ADJUSTMENTS    TOTAL
                                 --------   --------   --------    --------    --------

<S>                                 <C>     <C>        <C>         <C>         <C>
BALANCE, March 31, 1997             5,300   $ 16,405   $(30,370)   $   (203)   $(14,168)
  Translation adjustments              --         --         --         551         551
  Net Loss                             --         --     (3,700)         --      (3,700)
                                 --------   --------   --------    --------    --------

BALANCE, March 31, 1998             5,300     16,405    (34,070)        348     (17,317)
  Translation adjustments              --         --         --         467         467
  Net Income                           --         --        113          --         113
                                 --------   --------   --------    --------    --------
  Comprehensive income                                                              580
                                                                               --------

BALANCE, March 31, 1999             5,300     16,405    (33,957)        815     (16,737)
  Translation adjustments              --         --         --         295         295
  Net Loss                             --         --     (1,969)         --      (1,969)
                                 --------   --------   --------    --------    --------
  Comprehensive loss                                                              1,674
                                                                               --------

BALANCE, March 31, 2000             5,300   $ 16,405   $(35,926)   $  1,110    $(18,411)
                                 ========   ========   ========    ========    ========
</TABLE>

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

                                      F-6
<PAGE>

                      GOLDEN SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED MARCH 31, 1998, 1999 AND 2000
                                 (IN THOUSANDS)

                                                   1998       1999       2000
                                                 --------   --------   --------

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                              $ (3,700)  $    113   $ (1,969)
  Adjustments to reconcile net income (loss)
    to net cash used in
    operating activities:
  Depreciation                                        100         79         95
  Provision for losses on accounts
    receivable                                        148        123        153
  Provision for losses on inventories                  60          5         15
  Loss (Gain) on disposition of property
    and equipment                                    (232)        --          3
  Gain on disposition of subsidiaries                (752)        --         --
  Extinguishment of accounts payable                   --     (2,174)       (72)
Changes in operating assets and liabilities,
  excluding effects of dispositions:
  Decrease (increase) in:
    Accounts receivable                              (786)       200          8
    Inventories                                       306         74        199
    Prepaid expenses and other current assets         205        (21)        41
  Increase (decrease) in:
    Accounts payable                                  628       (398)       (71)
    Accrued liabilities                              (171)        52         11
                                                 --------   --------   --------

         Net cash used in operating activities     (4,194)    (1,947)    (1,587)
                                                 --------   --------   --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, plant and equipment          (51)       (78)       (32)
  Proceeds from the sale of property and
    equipment                                         354         --         --
  Restricted cash                                      16         --         --
                                                 --------   --------   --------

         Net cash provided by (used in)
           investing activities                       319        (78)       (32)
                                                 --------   --------   --------

                                      F-7
<PAGE>

                      GOLDEN SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED MARCH 31, 1998, 1999 AND 2000
                                 (IN THOUSANDS)

                                                   1998       1999       2000
                                                 --------   --------   --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Short-term borrowings, net of repayments          1,398      1,284       1102
  Borrowings (repayments) under notes payable        (118)       168        176
  Change in related party balances                  1,738        698        337
  Note payable under Recapitalization Plan            150        150        149
                                                 --------   --------   --------

         Net cash provided by financing
           activities                               3,168      2,300      1,764
                                                 --------   --------   --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH
  AND CASH EQUIVALENTS                               (577)      (237)        (7)
                                                 --------   --------   --------

NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                 (1,284)        38        138

CASH AND CASH EQUIVALENTS, beginning of year        1,363         79        117
                                                 --------   --------   --------

CASH AND CASH EQUIVALENTS, end of year           $     79   $    117   $    255
                                                 ========   ========   ========

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

                                      F-8
<PAGE>

                      GOLDEN SYSTEMS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 MARCH 31, 2000

1.   BASIS OF PRESENTATION, BACKGROUND, AND PRINCIPLES OF CONSOLIDATION

     BASIS OF PRESENTATION

The accompanying  financial  statements  include the accounts of Golden Systems,
Inc. (GSI) and Fairplay Group, Inc. (Fairplay),  collectively hereafter referred
to as "the Company".

The  accompanying  financial  statements  at March 31,  2000 have been  prepared
assuming that the Company will continue as a going concern. However, the Company
is currently facing  significant  issues which raise  substantial doubt that the
Company  has the  ability  to  continue  as a going  concern.  These  issues are
summarized as follows:

o    At March 31, 2000, the Company had outstanding amounts due to four separate
     Indian lenders in the amount of $10,629,000,  all of which are currently in
     default.  Of that  amount,  three banks have issued  notices to the Company
     demanding immediate  repayment of $9,465,000.  The Company has insufficient
     funds available to repay the lenders. Because the Indian debt is secured by
     the assets of Ultra Tek,  alternatives  available  to the  lenders  include
     closing the operations of Ultra Tek and forcing Ultra Tek into  liquidation
     (see Note 4).

o    In fiscal 1995,  Ultra Tek's  importing of computer  components  into India
     came under  investigation by the Indian customs  authorities.  In September
     1997, the Indian customs  authorities issued a separate "show cause" notice
     alleging that Ultra Tek has not provided valid  explanations  for shortages
     of imported raw material in its inventories. In fiscal 1997, Ultra Tek came
     under the  investigation of the Indian  Department of Revenue  Intelligence
     concerning  the  import  and  export  of  certain  components  used  in the
     manufacture of power supplies and returned customer product.  Subsequently,
     a separate  "show cause" notice was issued  requesting  explanation  of why
     duties  should not be  assessed.  The above  governmental  allegations  and
     investigations  could lead to additional  duty and penalties being assessed
     against  Ultra Tek in the  amount of  $2,316,000  using  the  Indian  rupee
     translation  rate at September 30, 2000,  and penal action being  initiated
     against  Ultra Tek. In addition,  penal action under Indian law,  which the
     Company believes is very unlikely,  could result in possible monetary fines
     of up to a maximum of $16,023,000  using the Indian rupee  translation rate
     at September 30, 2000.  The Company is contesting  these  allegations,  but
     currently,  the - matters are  unresolved  and the outcomes  uncertain (see
     Note 11).

o    The Company has incurred  significant  losses from operations over the past
     four  years;  has lost  its two main  customers,  which  has  significantly
     impacted its revenues;  and at March 31, 2000, had a shareholders'  deficit
     of  $18,411,000.  During  fiscal 2001,  the Company has  continued to incur
     significant  losses,  and management has not  successfully  executed on its
     efforts to achieve profitable  operations and positive cash flows.  Outside
     of related party financing,  the Company has identified no viable source of
     financing.

Due  to  the  significance  of  these  factors  in  the  accompanying  financial
statements  at March 31,  2000,  all assets have been stated at their  estimated
realizable values.  Costs of resolving the contingencies noted above or settling
amounts due to Indian banks or Company  creditors have not been reflected in the
accompanying  financial statements as management is currently unable to estimate
these  amounts.  Accounts  receivable  and  inventories  were  valued  at  their
subsequently  realized amounts  (inventories at cost),  and property,  plant and
equipment  were valued based on estimates by management  and in accordance  with
the  guidelines  of  Statement  of  Financial   Accounting   Standards  No.  121
"Accounting for Impairment of Long-Lived  Assets and for Long-Lived Assets to Be
Disposed Of" (SFAS 121). The estimated  realizable values and settlement amounts
may be different from the proceeds ultimately received or payments made.

     BACKGROUND

Fairplay, a Panamanian corporation, is solely a holding company and conducts its
business  through Ultra Tek Devices  Limited (Ultra Tek), an Indian  corporation
and wholly owned subsidiary of Fairplay.

                                      F-9
<PAGE>

The Company is  principally  in the  business of the  manufacture  and export of
switching  mode power  supplies and  adapters,  primarily for  incorporation  by
original  equipment  manufacturers  (OEMs) of personal  computers  and  computer
peripheral  devices into their products.  The Company's  power supplies  convert
alternating  current  electrical  power  from a primary  source,  such as a wall
outlet,  into the direct current,  stable  voltages  required to power the OEMs'
various products.

The  manufacturing  facilities  of Ultra Tek are  primarily  located  in Mumbai,
India, in the Santa Cruz Electronics  Export Processing Zone (SEEPZ).  Under the
regulations of the SEEPZ,  Ultra Tek is required to export a substantial part of
its production.  Ultra Tek imports  substantially  all of its raw materials from
East  Asia,  Europe  and  the  United  States  of  America.  Ultra  Tek  exports
substantially  all of its  production  to GSI and its  customers  in the  United
States of America, Asia and Europe.

GSI was incorporated in October 1985, but began its operations in February 1991.
GSI,  a  California   corporation,   designs  and  markets  the  power  supplies
manufactured  by Ultra Tek.  The power  supplies are  primarily  drop shipped by
Ultra Tek directly to GSI's customers.

The Company began using the fictitious name "Cortech  Systems" during the second
quarter of fiscal 1997.

     PRINCIPLES OF CONSOLIDATION

The  accompanying  financial  statements  include  the  accounts  of the Company
presented on a consolidated  basis.  All significant  intercompany  balances and
transactions have been eliminated.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     USE OF ESTIMATES

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

     FOREIGN CURRENCY TRANSLATION

The financial  statements of Ultra Tek and the Company's former  subsidiaries in
Sri Lanka and England have been prepared in their local currencies and have been
translated  into U.S.  dollars in  accordance  with the  Statement  of Financial
Accounting  Standards  No. 52. The  functional  currency is the local  currency.
Assets  and  liabilities  are  translated  from the local  currencies  into U.S.
dollars at the exchange rate at the balance sheet date.  Revenues,  expenses and
cash flows are translated at weighted  average  exchange rates for the period to
approximate  translation  at the exchange  rates  prevailing  at the dates those
elements are  recognized in the financial  statements.  Translation  adjustments
resulting  from  the  process  of  translating  the  local  currency   financial
statements into U.S.  dollars are not included in determining net income or loss
but are  accumulated  and  reported  as a separate  component  of  shareholders'
deficit in the accompanying balance sheets.

     STOCK-BASED COMPENSATION PLAN

The Company  accounts for its stock-based  compensation  plan (see Note 6) under
the  provisions  of APB  Opinion  No. 25. The  Company has elected to follow the
disclosure  provisions  of Statement of Financial  Accounting  Standards No. 123
(SFAS 123), "Accounting for Stock-Based  Compensation",  beginning April 1, 1995
for employee awards and April 1, 1996 for non-employee awards.

     REVENUE RECOGNITION

Revenues on product sales are recognized at the time of shipment from India.

The  Company  accounts  for  potential  product  returns  by  reserving  for the
potential  loss of sales  and  accounts  receivable  in the  period in which the
original  sale  occurred  based on  historical  results.  Historically,  product
returns have been relatively  insignificant,  except for in fiscal 1995 when the
Company's  most  significant  customer  returned  approximately  $4.2 million of
product to the Company.  These significant  returns only occurred in fiscal 1995
and,  through  fiscal 1999,  the Company has incurred  relatively  insignificant
product returns in every other year of its operations  since its inception.  The
Company's  management  believes  that the fiscal  1995 level of returns was of a
non-recurring  nature,  and as such,  only  reserves  relating  to an  estimated
recurring  level of returns were  recorded as of March 31, 1999 and 2000 and are
included in the accounts receivable allowance.

                                      F-10
<PAGE>

Sales to  countries  other than the  United  States  approximated  18, 36 and 31
percent  of the  Company's  revenues  in  fiscal  years  1998,  1999  and  2000,
respectively.

     RESEARCH AND DEVELOPMENT

Costs  associated  with  developing  and  testing new  concepts  and designs are
expensed as  incurred.  All research and  development  costs have been  expensed
through March 31, 2000.

     WARRANTIES

The Company generally  provides its customers with a one to three-year  warranty
on its power  supplies.  A provision  for  estimated  future  costs  relating to
warranty expense is recorded when products are shipped.

     SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK

In fiscal 1998,  sales to two customers  accounted for  approximately  15 and 65
percent,  respectively,  of the Company's net sales. As of March 31, 1998, these
customers  accounted  for  approximately  93 percent of the  Company's  accounts
receivable  balance.  In fiscal  1999,  the  customer  obtained  in 1998,  which
accounted for the smaller  percentage of sales,  was replaced.  Sales to the new
customer  and  the  existing  customer  accounted  for  approximately  12 and 64
percent,  respectively,  of the Company's net sales. As of March 31, 1999, these
customers  accounted  for  approximately  76 percent of the  Company's  accounts
receivable  balance.  In fiscal  2000,  the  customer  obtained  in 1999,  which
accounted for the smaller  percentage of sales,  was replaced.  Sales to the new
customer  and  the  existing  customer  accounted  for  approximately  12 and 59
percent,  respectively,  of the Company's net sales. As of March 31, 2000, these
customers  accounted  for  approximately  82 percent of the  Company's  accounts
receivable balance.

The Company's  strategy of selling to OEMs  anticipates that the Company will be
relying on high sales  volumes to a relatively  small number of  customers.  The
Company has no long-term contracts with major customers and since December 1999,
has  received no new orders from its largest  customer in fiscal 2000. A decline
in demand for computer peripheral  equipment and other electronic  products,  or
other factors affecting the electronics  industry in general, or major customers
in particular,  could have a material adverse effect on the Company's results of
operations (see Note 1).

The  Company  manufactures  all of its  products in India and sells to OEMs that
operate in a number of  foreign  countries,  including  countries  in Asia.  The
Company  procures a  significant  amount of raw materials  and  components  from
vendors located in Asia. The economic uncertainties that have affected Asia over
the last several years have  seriously  disrupted the Company's  ability to deal
with its vendors and its customers on an advantageous  basis.  These events have
had an adverse  effect on the  Company's  ability to procure raw  materials  and
components,  manufacture  its  products,  and export its products  from India to
customers  in  the  United  States  and  Western  Europe.  In  general,  foreign
manufacturing and sales are subject to risks,  including changes in governmental
policy, economic disruptions, transportation delays and interruptions, political
turmoil,  protective labor laws,  currency  restrictions,  and the imposition of
tariffs and import/export  controls. Any disruption of the Company's activities,
for example because of international  economic sanctions against India, tensions
between India and Pakistan, or economic uncertainties affecting Japan, Korea and
other Asian nations,  could adversely affect the Company. The Company's products
are not  currently  subject to any duties  upon  import to the United  States or
other countries to which the Company ships. Any change in this duty-free status,
as a result,  for example,  of economic  sanctions,  could adversely  affect the
Company.

     INVENTORIES

Inventories  are valued at the lower of cost  (first  in,  first out) or market.
Cost includes cost of material, freight and manufacturing overhead.  Inventories
consist of the following (in thousands):

                                                           March 31,  March 31,
                                                              1999      2000
                                                             ------    ------

     Raw materials                                           $  359    $  259
     Work-in-progress                                           156         7
     Finished goods                                              97       120
                                                             ------    ------

                                                             $  612    $  386
                                                             ======    ======

                                      F-11
<PAGE>

The Company  reviews its inventories on a periodic basis  (generally  quarterly)
for  slow-moving,  excess and obsolete items. A reserve is recorded  against the
cost of items  identified as such.  The amounts shown at March 31, 1999 and 2000
are presented net of a reserve of $4,943,000 and $4,805,000, respectively, which
records the inventories at their estimated net realizable values.

     PROPERTY, PLANT AND EQUIPMENT

Property,  plant and equipment is stated at acquisition cost, net of accumulated
depreciation  and  amortization,  which  is  computed  using  straight-line  and
accelerated methods over three to fifteen years. The amounts presented below are
shown net of  accumulated  depreciation  and  amortization  as the  amounts  are
presented at their fair value (as determined by applying SFAS 121).

Property, plant and equipment consists of the following (in thousands):

                                                            March 31,  March 31,
                                                               1999      2000
                                                              ------    ------

Machinery and equipment                                       $2,253    $2,205
Motor vehicles                                                    34        33
Furniture and fixtures                                           612       605
Computer software                                                 54        54
Leasehold improvements                                           253       253
                                                              ------    ------
                                                               3,207     3,150
Accumulated
  depreciation and amortization                               (1,330)   (1,383)
Reserve for impairment loss                                   (1,249)   (1,221)
                                                              ------    ------

                                                              $  628    $  546
                                                              ======    ======

Costs of normal  maintenance  and repairs  are  charged to expense as  incurred.
Major  replacements  or betterments  of property and equipment are  capitalized.
When items are sold or otherwise  disposed of, the cost and related  accumulated
depreciation  and reserve for impairment  loss are removed from the accounts and
any resulting gain or loss is included in operations.

     CASH EQUIVALENTS

The Company considers all highly liquid investments with an original maturity of
90 days or less to be cash equivalents.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

Based on borrowing rates currently  available to the Company for bank loans with
similar terms and  maturities,  the fair value of the Company's  long-term  debt
approximates  the carrying value.  Furthermore,  the carrying value of all other
financial  instruments   potentially  subject  to  valuation  risk  (principally
consisting of cash equivalents,  accounts  receivable and accounts payable) also
aproximates fair value.

     SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash  paid for  income  taxes  was $800 in 1998,  1999 and  2000.  Cash paid for
interest was  approximately  $302,000,  $223,000 and $177,000 in 1998,  1999 and
2000, respectively.

     BASIC INCOME (LOSS) PER SHARE

The  Company  adopted  the  provisions  of  Statement  of  Financial  Accounting
Standards  No. 128,  "Earnings  Per Share," that  established  standards for the
computation,   presentation  and  disclosure  of  earnings  per  share  ("EPS"),
replacing the  presentation  of Primary EPS with a presentation of Basic EPS. It
also requires dual  presentation of Basic EPS and Diluted EPS on the face of the
income  statement for entities  with complex  capital  structures.  Basic EPS is
based on the weighted  average  number of common shares  outstanding  during the
period,  which totaled  5,300,000  for 2000,  1999 and 1998,  respectively.  The
Company did not present Diluted EPS, since the result was  anti-dilutive in 1998
and 2000 and immaterial in 1999.

                                      F-12
<PAGE>

     NEW ACCOUNTING PRONOUNCEMENTS

The Company adopted the provisions of Statement of Financial  Account  Standards
("SFAS") No. 130,  "Reporting  Comprehensive  Income",  in fiscal year 1999. The
impact of SFAS No. 130, which establishes standards for reporting and displaying
comprehensive  income and its component  (foreign  currency  translation) in the
consolidated financial statements, is disclosed in the accompanying consolidated
statement of shareholders' equity (deficit).

     RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the current year
presentation.

3.   RECAPITALIZATION PLAN

In February  1997,  the  Company's  Board of Directors  approved a proposal (the
"Recapitalization Plan" or the "Plan") from the Company's President on behalf of
the Tandon family, the Company's principal  shareholders,  pursuant to which the
Tandon family would  contribute  $2,000,000  in cash in exchange for  13,333,333
shares of the Company's  common stock. In February 1997, the Company  received a
fairness  opinion from an investment  bank which stated the Plan was fair to the
Company's  shareholders  from a  financial  point of view.  In March  1997,  the
Company issued 850,000 of its common shares, which represented all of the shares
available to be issued by the Company under its current  capital  structure,  to
the Tandon  family.  The  Company's  authorized  shares  will be  increased,  if
approved by the Company's  shareholders,  at which time the remaining 12,483,333
shares will be issued to the Tandon family.  In connection with the Plan (due to
not all of the shares being issued),  the Company entered into an agreement with
the Tandon family under which $1,873,000 of the $2,000,000  contributed would be
set up as a note payable with the remaining  $127,000 recorded as an increase to
equity in fiscal 1997. Borrowings under the note payable agreement bear interest
at 8  percent,  are  convertible  into  12,483,333  shares of common  stock upon
approval by the Company's shareholders and are secured by essentially all assets
of GSI.

4.   SHORT-TERM BORROWINGS

     GSI FACTORING AGREEMENT

The Company has a  factoring  agreement  with a United  States  bank.  Under the
agreement,  the Company may sell its  accounts  receivable  to the bank,  at the
bank's option,  at the value of 80 percent of the face amount of each receivable
the bank desires to purchase.  The total amount of "unpaid advances" by the bank
cannot exceed  $1,333,333.  The Company must pay a monthly  finance charge (1.75
percent)  on  the  outstanding   unpaid  advances  in  addition  to  a  one-time
administration  fee (.75  percent)  on each  purchased  receivable.  The  unpaid
advances are secured by essentially  all of the assets of the Company.  The term
of the  factoring  agreement is on a  year-to-year  basis unless  terminated  in
writing by Buyer or Seller.  During fiscal 1999, the Company factored a total of
$265,000 of its accounts  receivable to provide working  capital.  Subsequently,
the  borrowings  were repaid and there was no  outstanding  balance at March 31,
1999.  During  fiscal 2000,  the Company  factored a total of  $1,111,000 of its
accounts  receivable to provide working  capital.  Subsequently,  the borrowings
were repaid and there was no outstanding balance at March 31, 2000.

     ULTRA TEK FINANCING AGREEMENTS

The Company has entered  into  borrowing  agreements  with three banks in India,
which are  denominated in Indian Rupees.  The agreements  provide for borrowings
based upon qualifying  intercompany  accounts  receivable which relate to export
sales.  At March 31, 1999 and 2000,  $8,191,000  and $9,098,000 of principal and
accrued interest  (349,102,000 and 398,620,000 in Indian rupees),  respectively,
were outstanding under these agreements and no amounts were available to borrow.
Borrowings  bear  interest at varying  rates  prescribed  by the Reserve Bank of
India for such  borrowings.  At March  31,  1999 and 2000,  the  normal  rate of
interest was 13 percent per annum,  with interest on overdue amounts  increasing
to a maximum of 26 percent. These agreements are secured by accounts receivable,
property, plant and equipment, and inventories.

The Company has also entered into  additional  credit  agreements  with the same
three banks,  which are denominated in Indian rupees.  These agreements  provide
for borrowings based upon qualifying  inventories  which relate to export sales.
At March 31, 1999 and 2000, $425,595 and $365,783  (18,139,000 and 16,025,000 in
Indian rupees),  respectively,  were  outstanding  under these agreements and no
amounts were  available to borrow.  Borrowings  bear  interest at varying  rates
prescribed by the Reserve Bank of India for such  borrowings.  At March 31, 1999
and 2000, the normal rate of interest was 13 percent per annum, with interest on
overdue amounts  increasing to a maximum of 26 percent.  These credit agreements
are secured by inventories and accounts receivable.

The above  agreements and  facilities  were due for renewal at various dates and
amounts  prior  to March  31,  1998,  and as  such,  effective  June  1996,  the
consortium of banks "froze" all credit facilities  available to the Company.  In
July 1997, the banks'

                                      F-13
<PAGE>

legal counsel issued  notices to Ultra Tek and the Company  calling upon them to
pay the  outstanding  amounts due. The banks have not initiated any legal action
against the Company for non-payment of the amounts due, since Ultra Tek has been
declared a sick company by the Board of Industrial and Financial  Reconstruction
(BIFR) of the Government of India.

The BIFR appointed an Operating Agency ("OA") to examine the Company's viability
and prepare a viability study report. Accordingly,  the Company prepared a draft
rehabilitation  proposal,  which was  submitted  to the OA. The OA reviewed  the
proposal  and  forwarded  the same to the BIFR along with the minutes of a joint
meeting  between  the banks and the  Company  convened  by the OA in March 1999.
Based  on the  minutes  of the  joint  meeting,  the  BIFR  prepared  its  Draft
Rehabilitation Scheme and advised all concerned inviting  suggestions/objections
to the scheme,  which envisaged  restructuring  existing debts.  The BIFR held a
hearing on August 16, 1999 and after hearing all interested parties, advised the
Company  and the banks to discuss  further  and modify the Draft  Scheme to take
into account the various  points made at the hearing.  The BIFR also  instructed
the OA to conduct joint meetings with the banks and the Company and to forward a
modified scheme. Accordingly,  the Company made revisions in the Draft Scheme to
the extent that no further  funding  would be required  from the banks and there
would be no dilution of the existing security available to the consortium banks.
On October 5, 1999,  the OA held a joint meeting of consortium  member banks and
the Company to discuss the revised  proposal and forwarded  minutes of the joint
meeting  to  BIFR,  indicating  that no  consensus  had been  arrived  at on the
proposal submitted by the Company.  During a hearing on May 19, 2000, before the
BIFR,  the bench observed that no acceptable  revival  proposal was in sight and
directed OA to initiate necessary steps towards change of management.  The bench
also directed that the Company, being the existing promoter, can also submit its
proposal  based on a One Time  Settlement  (OTS)  acceptable  to the banks and a
third party  lending  institution.  Accordingly,  the Company has  submitted its
proposal, which is being considered by the banks and lending institution.

Essentially all of the above  agreements and facilities are covered by corporate
guarantees from GSI, Fairplay and Tandon  Associates,  a related party. They are
also  covered by the  personal  guarantee  of the  Chairman of Ultra Tek for the
amount of approximately $10,030,000.

5.   NOTES PAYABLE

In fiscal 1995,  the Company  entered into borrowing  agreements  with an Indian
lending  institution  (which are  denominated  in U. S.  dollars) to finance the
purchase of certain property and equipment. At March 31, 1999 and 2000, $962,000
and $1,164,000,  respectively,  was owed under these agreements.  The borrowings
are repayable in five equal  installments  beginning on April 1, 1997 and ending
on April 1, 1998. Interest on outstanding amounts are payable annually at a rate
equal to the London Inter Bank Offer Rate (LIBOR) plus 2.75 percent. For overdue
amounts,  the rate of interest was 20.4 percent per annum.  The  borrowings  are
secured by the property and  equipment.  The Company  currently has defaulted on
all payments due subsequent to April 1, 1997. Currently, there has been no legal
action  taken  by the  lender  nor  has  the  lender  called  for  repayment  of
outstanding amounts due.

6.   EQUITY TRANSACTIONS

     STOCK OPTION PLAN

During  fiscal 1994,  the Company  adopted a stock option plan (the "1994 Plan")
that  provides for the  granting of options to purchase up to 455,000  shares of
common stock,  consisting  of both  incentive  stock  options and  non-qualified
options.   Incentive  stock  options  are  issuable  only  to  employees,  while
non-qualified stock options may be issued to non-employee directors, consultants
and others, as well as to employees. All stock options must be granted at prices
equal to the fair  market  value of the  common  stock on the  grant  date.  All
options  granted  expire ten years from the date of grant and vest in 20 percent
increments over five years.

The Company  accounts for the 1994 Plan under APB Opinion No. 25, under which no
compensation cost has been recognized.  Had compensation cost for this plan been
determined  consistent  with SFAS 123,  the effect on the  Company's  net income
(loss) and income (loss) per common share amounts would have been immaterial.

                                      F-14
<PAGE>

A summary of the status of the Company's  outstanding stock options at March 31,
1998,  1999 and 2000 and changes during the years then ended is presented in the
table and narrative below (shares are in thousands):

<TABLE>
<CAPTION>
                                                 1998               1999               2000
                                           -----------------  -----------------  ----------------
                                                      Wtd.               Wtd.              Wtd.
                                                      Avg.               Avg.              Avg.
                                           Shares  Ex. Price  Shares  Ex. Price  Shares Ex. Price
                                           ------    ------   ------    ------   ------   ------
<S>                                           <C>    <C>          <C>   <C>          <C>  <C>
Outstanding at beginning of year .......      124    $ 4.58       90    $ 4.75       81   $ 4.69
Granted ................................       --        --       --        --       --       --
Exercised ..............................       --        --       --        --       --       --
Forfeited ..............................      (34)     4.14       (9)     5.25       --       --
                                           ------    ------   ------    ------   ------   ------
Outstanding at end of year .............       90    $ 4.75       81    $ 4.69       81   $ 4.69
                                           ------    ------   ------    ------   ------   ------
Exercisable at end of year .............       59    $ 5.62       65    $ 5.82       72   $ 5.62
                                           ------    ------   ------    ------   ------   ------
Weighted average fair value of options
  granted ..............................                N/A                N/A               N/A
                                                     ------             ------            ------
</TABLE>

     COMMON STOCK PURCHASE WARRANTS

A summary of warrant activity is as follows:

                                                     Number of
                                                       Shares      Option Prices
                                                      -------      -------------

     Balance, March 31, 1997                          149,000      $ .50 to 8.40

          Issued                                           --                 --
          Exercised                                        --                 --
          Redeemed                                         --                 --
                                                      -------      -------------

     Balance, March 31, 1998, 1999 and 2000           149,000      $ .50 to 8.40
                                                      =======      =============

No warrants  were issued,  exercised or redeemed in fiscal years 1998,  1999 and
2000. All warrants are currently exercisable.

     STOCK PURCHASE PLAN

The Company has established an Employee Stock Purchase Plan (the Purchase Plan),
which allows  eligible  employees to purchase shares of the Company at the price
of 85 percent of the fair market value of the shares on the first or last day of
an option  period.  The maximum  number of shares  which may be issued under the
Purchase  Plan is 300,000.  The Purchase  Plan became  effective on September 1,
1994. No shares have been issued under this Plan.

7.   EXTINGUISHMENT OF ACCOUNTS PAYABLE

In 1994,  the  Company  attempted  to develop a product  line,  which  failed to
materialize. Inventory related to this product line was previously reserved for,
however certain accounts payable amounts  aggregating  $1,775,000  payable since
1994 had been retained in the financial  statements  pending any possible demand
for payment.  Since  demand for payment has not been made and any future  demand
will be barred  under the Indian  Limitation  Act,  the  Company in fiscal  1999
credited  operating  income  for the  balance  due.  Similarly,  there are other
accounts  payable  amounts  aggregating  $399,000  in fiscal 1999 and $72,000 in
fiscal  2000 that have not been paid for which no demand  has been made  against
the Company and which are  currently  barred  under the Indian  Limitation  Act.
These amounts have also been credited to operating income.

8.   INCOME TAXES

The Company  accounts  for income  taxes under the  provisions  of  Statement of
Financial Accounting Standards No. 109 (SFAS 109).

Under SFAS 109,  deferred income tax assets or liabilities are computed based on
the temporary difference between the financial statement and income tax bases of
assets and liabilities  using the enacted marginal income tax rate in effect for
the year in which the differences  are expected to reverse.  Deferred income tax
expenses or credits are based on the changes in the  deferred  income tax assets
or  liabilities  from  period  to  period.  The  valuation  allowance  increased
$1,184,000 in 2000.

                                      F-15
<PAGE>

The  components  of the net  deferred  income tax asset at March 31, 2000 are as
follows (in thousands):

                                                                           2000
                                                                          -----

     Allowance for bad debts                                                 28
     Vacation accrual                                                         5
     Net operating loss carryforwards                                     3,959
     Inventory reserve                                                    1,418
     Warranty reserve                                                        25
     Book over tax depreciation                                              58
                                                                          -----
                                                                          5,493

     Less:  Valuation allowance                                          (5,493)
                                                                          -----

                                                                          $  --
                                                                          =====


The provision for income taxes for the years ended March 31, 1998, 1999 and 2000
are as follows (in thousands):

                                                         1998     1999     2000
                                                         ----     ----     ----

     Current   - Federal                                 $ --     $ --     $ --
               - State                                      1        1        1
               - Foreign                                   --       --       --
                                                         ----     ----     ----

                                                         $  1     $  1     $  1
                                                         ====     ====     ====

Differences  between  the  provision  for income  taxes and income  taxes at the
statutory  federal income tax rate for the years ended March 31, 1998,  1999 and
2000 are as follows (in thousands):

                                                        1998      1999     2000
                                                        ----      ----     ----

     Income tax benefit
       at statutory federal rate                      $(1,258)    $ 39    $(669)
     State and local income taxes,
       net of federal income tax effect                     1        6        1
     Tax benefits not recognized                        1,258      (44)     669
                                                      -------     ----    -----

                                                      $     1     $  1     $  1
                                                      =======     ====     ====

In 1998,  the pre-tax  losses  relating  to U.S.  and  foreign  operations  were
$1,561,000 and $2,138,000,  respectively.  In 1999, the pre-tax loss relating to
U.S.  operations  was  $816,000  and the  pre-tax  profit  relating  to  foreign
operations  was  $930,000.  In 2000,  the pre-tax  losses  relating to U.S.  and
foreign operations were $694,000 and $1,274,000, respectively.

Ultra Tek's  manufacturing  facilities are located in an export processing zone.
Under  the  Indian  Income-tax  Act of 1961,  the  entire  profits  of a company
situated  in a free trade zone are exempt  from  income tax for a period of five
consecutive  years within the first eight years of  operations  at the option of
the Company.  Ultra Tek elected to claim the  exemption for the five years ended
March 31, 1992. Consequently, Ultra Tek did not have any income tax liability up
to March 31, 1992. Under another provision of the Indian Income-tax Act of 1961,
Ultra Tek will  continue  to be exempt  from income tax to the extent of profits
attributable  to its export sales.  For the years ended March 31, 1998, 1999 and
2000, no provision for income taxes was recorded,  as Ultra Tek incurred  losses
for tax purposes.

The Company does not provide for U. S. federal income taxes on the undistributed
earnings of its foreign operations.  The Company's policy is to leave the income
permanently  invested  in the  country  of  origin.  Such  amounts  will only be
distributed  to the United  States to the extent any  federal  income tax can be
fully offset by foreign tax credits.  Currently,  this policy is still in effect
due to the limited foreign funds available for repatriation to the U.S.

Net operating loss  carryforwards  as of March 31, 2000 for federal tax purposes
are approximately $15.8 million and begin expiring in fiscal year 2010.

                                      F-16
<PAGE>

9.   MINORITY INTEREST

On  September  7, 1993,  the holders of notes  payable due from Ultra Tek in the
amount of  approximately  $2.6 million  contributed such amounts to Ultra Tek in
exchange for Ultra Tek  redeemable  preference  shares.  The  preference  shares
exchanged for the debt are non-voting shares,  with an aggregate annual dividend
amount of $25 ($0.00003 per share) per year,  are  mandatorily  redeemable in 20
years and have a liquidation preference of approximately $2.6 million. Due to an
agreement with the preference  shareholders,  these shares are redeemable at the
option  of the  Company  but do not  have to be  redeemed  for 20  years.  Early
redemption  of the shares  prior to maturity can be  accomplished  only with the
approval of a majority of the Company's outside  directors.  The full redemption
amount is shown in the accompanying balance sheets as of March 31, 1999 and 2000
as minority interest.

10.  COMMITMENTS AND CONTINGENCIES

     a)   LEASES

     GSI leased its  corporate  headquarters  from a related party under a three
     year  operating  lease,  which  expired in December  1999.  Currently,  the
     headquarters  facility is being rented on a monthly basis. Ultra Tek leases
     certain factory premises from the Indian Government under operating leases,
     which expire at various dates through 2015.  Future minimum  payments under
     these and other various operating leases are as follows (in thousands):

      Year ending March 31:
      ---------------------

               2001                                            42
               2002                                            42
               2003                                            42
               2004                                            42
               2005                                            42
            Thereafter                                         29
                                                             ----
                                                             $239
                                                             ====

    Gross rental  expense for the years ended March 31, 1998,  1999 and 2000 was
    approximately $222,000, $98,000 and $97,000, respectively.

    b)  LITIGATION

    The Company is subject to lawsuits in the normal course of business.  In the
    opinion of management and legal counsel to the Company,  pending  litigation
    will not result in a material loss to the Company.

    c)  CONTINGENCIES

    During fiscal year 1995,  the Company's  imports of computer  components for
    final  assembly  and  sale  into the  domestic  tariff  area  (DTA) of India
    (outside  the  SEEPZ)  came  under   investigation  by  the  Indian  customs
    authorities.  As a result,  Company inventories of $1,032,000 (47,447,000 in
    Indian  rupees)  were  seized  by the  authorities.  On May  30,  1995,  the
    authorities  issued a  notice  to the  Company  alleging  misdeclaration  of
    purported imports of complete computer systems as imports of computer system
    components. The notice calls upon the Company to explain why the authorities
    should not (a)  confiscate  all the goods so imported,  (b) levy  additional
    duty of $1,063,000  (48,885,000  in Indian rupees) on the goods already sold
    into the DTA, and (c) take penal action  against the Company  under the law.
    The  Company  paid an  advance of  $700,000  (20,000,000  in Indian  rupees)
    against  customs duty that may ultimately be levied by the  authorities  and
    recorded  this amount in "cost of goods sold" in the statement of operations
    for the year ended March 31,  1995.  During  fiscal  1996,  the  authorities
    released the seized goods. However,  because of difficulties  encountered in
    re-exporting the goods and technological obsolescence,  the entire amount of
    the seized goods was included in the  inventory  reserve  amounts.  No other
    penalties or expenses  related to this government  action have been incurred
    by the Company.

    In September  1997,  the Indian  customs  authorities  issued a "show cause"
    notice  alleging  that Ultra Tek has not  provided  valid  explanations  for
    shortages of raw  material in its  inventories.  The notice  called upon the
    Company  to  explain  why the  authorities  should  not (a)  impose  duty of
    $559,000 (25,725,000 in Indian rupees) leviable on imported components which
    were alleged not accounted for in the terms of bond executed,  (b) why penal
    action

                                      F-17
<PAGE>

    should not be initiated against the Company,  and (c) why a penalty equal to
    the duty held to be leviable,  $559,000  (25,725,000 in Indian  rupees),  in
    respect of unaccounted goods should not be imposed.

    In  fiscal  1997,  the  Company  came  under  investigation  by  the  Indian
    Department of Revenue  Intelligence  (DRI) in connection with the import and
    export of  certain  components  and goods used in the  manufacture  of power
    supplies  and customer  returns.  The  investigation  focused on the alleged
    discrepancy  noted between the physical stock records and books,  in respect
    of the  work-in-process  inventory  at March 31, 1996 and 1997 and  customer
    returned  product at March 31, 1992 through March 31, 1997. In May 1998, the
    DRI issued a "show cause" notice requesting that the Company explain why the
    DRI should not impose duties of approximately $559,000 (25,720,000 in Indian
    rupees). Penalties relating to the investigation,  if any, have not yet been
    determined.

    The Company is disputing each of the allegations  above and has been advised
    by counsel that it has meritorious defenses in each instance.

    The  aggregate  of  threatened  duties  and  penalties  to  the  Company  is
    approximately  $2,316,000  (106,474,000 in Indian rupees),  using the Indian
    rupee  translation  rate at  September  30,  2000.  Although  the Company is
    contesting the allegations of the authorities, the outcomes of these matters
    are uncertain at this time.  Accordingly,  no additional  provisions for any
    losses  that  may  ultimately  result  have  been  made in  these  financial
    statements.  In addition,  penal action under Indian law,  which the Company
    believes is very unlikely,  could result in possible monetary fines of up to
    $16,023,000 at September 30, 2000.

                                      F-18
<PAGE>

12.  RELATED PARTY TRANSACTIONS

The Company has substantial dealings with the following entities which are owned
by or  affiliated  with  Company  shareholders.  The  amount  of  loans,  sales,
purchases,  transfers  and sharing of expenses  during the years ended March 31,
1998, 1999 and 2000 with each party are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                1998        1999     2000
ADVANCE TECHNOLOGY DEVICES
<S>                                                            <C>          <C>       <C>
  BEGINNING BALANCE                                            $ (113)      (36)      (33)
     Product sales                                                 21        --        --
     Sale (purchase) of raw materials                              17         2         1
     Charges for sharing common expenses                           --        --       (43)
     Credits for sharing common expenses                            7         4         1
     Sale of assets                                                47        --        --
     Translation adjustments to/(from) the Company                  6         2         1
     Cash transfers (to)/from the Company                         (21)       (5)       21
                                                               --------------------------
  ENDING BALANCE                                                  (36)      (33)      (52)
                                                               --------------------------

EASTERN PERIPHERALS LTD.
  BEGINNING BALANCE                                               171        96        --
     Purchase of raw materials                                     --        --        --
     Charges for sharing common expenses                           (6)       (6)       (2)
     Sale/(purchase) of assets                                     --        --        --
     Translation adjustments to/(from) the Company                (11)       (6)       --
     Reserve for doubtful collection                               --       (84)       --
     Cash transfers (to)/from the Company                         (58)       --         2
                                                               --------------------------
  ENDING BALANCE                                                   96        --        --
                                                               --------------------------

GOLDEN COMPUTER LTD.
  BEGINNING BALANCE                                                --       (13)       --
     Product sales                                                  1        --        --
     Translation adjustments to/(from) the Company                 --         1        --
     Cash transfers (to)/from the Company                         (14)       12        --
                                                               --------------------------
  ENDING BALANCE                                                  (13)       --        --
                                                               --------------------------

MAAZDA TRAVEL
  BEGINNING BALANCE                                                (1)       (1)        2
     Charges for travel agent services                            (23)      (43)       --
     Cash transfers (to)/from the Company                          23        46        --
                                                               --------------------------
  ENDING BALANCE                                                   (1)        2         2
                                                               --------------------------

MODULAR ELECTRONICS PVT. LTD.
  BEGINNING BALANCE                                               (73)      (66)      (62)
     Purchase of raw materials                                      7        --
     Charges for sharing common expenses                           --        --
     Credits for sharing common expenses                           --        --
     Creditor transfer due to sale of company                      --        --        60
     Translation adjustments to/(from) the Company                 --         4         2
                                                               --------------------------
  ENDING BALANCE                                                  (66)      (62)       --
                                                               --------------------------

M. L. TANDON
  BEGINNING BALANCE                                                --                (104)
     Unsecured loan                                              (120)     (111)       --
     Translation adjustments to/(from) the Company                  9         7         3
                                                               --------------------------
  ENDING BALANCE                                                 (111)     (104)     (101)
                                                               --------------------------
</TABLE>

                                      F-19
<PAGE>

<TABLE>
<CAPTION>
                                                                1998        1999     2000
RELIABLE CONSULTANCY SERVICES PVT. LTD.
<S>                                                                <C>       <C>       <C>
  BEGINNING BALANCE                                                (2)       (3)       --
     Charges for sharing common expenses                           --        (1)       (1)
     Credits for sharing common expenses                           --        --        --
     Translation adjustments (to)/from the Company                 (1)       --        --
     Cash transfers (to) from the Company                          --         4        --
                                                               --------------------------
  ENDING BALANCE                                                   (3)       --        (1)
                                                               --------------------------

SACHAM ELECTRONICS SERVICES PVT. LTD.
  BEGINNING BALANCE                                                10         9         6
     Translation adjustments to/(from) the Company                 (1)       (1)
     Reserve for doubtful collection                               --        --        (6)
     Cash Transfers (to) from the Company                          --        (2)
                                                               --------------------------
  ENDING BALANCE                                                    9         6        --
                                                               --------------------------

SDJ PARTNERS
  BEGINNING BALANCE                                                --        --       (57)
     Rent & utilities                                             (53)      (57)      (57)
     Cash transfers (to)/from the Company                          53        --        --
                                                               --------------------------
  ENDING BALANCE                                                   --       (57)     (114)
                                                               --------------------------

ST HOLDING PVT. LTD.
  BEGINNING BALANCE                                                (4)       (4)       (4)
     Charges for sharing common expenses                           --        --         1
                                                               --------------------------
  ENDING BALANCE                                                   (4)       (4)       (3)
                                                               --------------------------

TANCOM ELECTRONICS
  BEGINNING BALANCE                                               (96)      (94)     (102)
     Sale of raw materials                                         67         6         9
     Sale/(purchase) of assets                                    (35)       (2)       --
     Purchase of materials                                         --       (23)       --
     Credits for sharing common expenses                           40         1         1
     Charges for sharing common expenses                           --        (3)       (9)
     Translation adjustments to/(from) the Company                  9         7         3
     Cash transfers (to)/from the Company                         (79)        6       (29)
                                                               --------------------------
  ENDING BALANCE                                                  (94)     (102)     (127)
                                                               --------------------------

TANDON ASSOCIATES, INC. - NOTE RECEIVABLE
  BEGINNING BALANCE                                                --    (1,607)   (1,334)
     Secured loans                                             (1,989)       --      (105)
     Accrued interest on loan                                     (82)     (159)     (167)
     Cash transfers (to)/from the Company                         464       432       163
                                                               --------------------------
  ENDING BALANCE                                               (1,607)   (1,334)   (1,443)
                                                               --------------------------

TANDON ASSOCIATES, INC.
  BEGINNING BALANCE                                                22        --       (22)
     Credits for outside services and expenditures                 --        --        --
     Credits for sharing common expenses                           19        17        --
     Charges for sharing common expenses                           --       (39)      (57)
     Credits for research and development                          --        --        --
     Sale of assets                                                40        --        --
     Cash transfers (to)/from the Company                         (81)       --        --
                                                               --------------------------
  ENDING BALANCE                                                   --       (22)      (79)
                                                               --------------------------
</TABLE>

                                      F-20
<PAGE>

<TABLE>
<CAPTION>
                                                                1998        1999     2000
TANDON MAGNETICS (I) PVT. LTD.
<S>                                                                <C>       <C>       <C>
  BEGINNING BALANCE                                                (5)       (4)       (4)
     Charges (credits) for sharing common expenses                  1        --        --
                                                               --------------------------
  ENDING BALANCE                                                   (4)       (4)       (4)
                                                               --------------------------

TANTEC MAGNETICS
  BEGINNING BALANCE                                                (1)       --         5
     Product sales                                                 47        --        --
     Purchase of computers                                         (5)       --        --
     Sale of raw of materials                                       5         9        --
     Charges for sharing common expenses                           --        (4)       --
     Credits for sharing common expenses                           --        --        --
     Credits for outside services                                  --        --        --
     Sale of assets                                                18        --        --
     Cash transfers (to)/from the Company                         (64)       --        --
                                                               --------------------------
  ENDING BALANCE                                                   --         5         5
                                                               --------------------------

J.T. HOLDINGS PVT. LTD.
  BEGINNING BALANCE                                                --        --      (796)
     Unsecured loan                                                --      (806)      (45)
     Translation adjustments (to)/from the Company                 --        10        22
                                                               --------------------------
  ENDING BALANCE                                                   --      (796)     (819)
                                                               --------------------------

TOTAL NET DUE TO RELATED PARTIES                              $(1,834)  $(2,505)  $(2,736)
                                                               ==========================

TANDON FAMILY NOTE UNDER RECAPITALIZATION PLAN
  BEGINNING BALANCE                                           $(1,873)  $(2,023)  $(2,173)
     Interest on note                                           (150)     (150)     (149)
                                                               --------------------------
  Total note payable under Recapitalization Plan              $(2,023)  $(2,173)  $(2,322)
                                                               ==========================
</TABLE>

During  fiscal  1999,  it was  determined  that the  balance of $84,000 due from
Eastern  Peripherals  Ltd.  was  not  collectible.  Eastern  Peripherals  ceased
operations  in  1995  and has  liquidated  all of its  assets  to pay  down  its
outstanding obligations.

During fiscal 1999, J. T. Holdings Pvt. Ltd.  loaned $806,000 to the Company for
needed working capital. The loan is unsecured,  payable on demand at an interest
rate of 15% per annum commencing April 1, 2000.

During fiscal 1998,  Tandon  Associates  loaned the Company  $1,525,000,  net of
repayments,  to support continuing  operations.  The loan, which is secured by a
factoring  agreement,  is at a monthly  interest rate of 1% on the average daily
outstanding balance.

The Company  believes that related party  transactions  are at amounts and terms
which  approximate  market.  The  headquarters  facility lease is at the cost of
comparable  office and warehouse  space at the time the lease was negotiated and
utilities  are at  estimated  usage and cost.  Charges  and  credits  for common
expenses and administrative services are at approximate cost and the transfer of
assets is at net book value which  approximates  market  value.  The purchase of
travel services is at competitive  prices and the purchase of computer  supplies
is at cost plus a five percent mark-up to cover  administrative  costs. The sale
of Company product is at estimated market price.

In addition,  during fiscal 1998, the Company sold its manufacturing  subsidiary
located  in Sri Lanka to  Cortex,  Limited,  a Tandon  family  affiliate,  which
transaction  resulted in a gain to the  Company of  approximately  $590,000.  In
connection with the sale, Cortex, Limited, agreed to assume all of the bank debt
in Sri Lanka,  the facility  lease,  and all the  obligations to employees.  The
Company  also  entered  into an  agreement  with an  affiliated  party of Tandon
Associates  to sell its  Singapore  operation.  The  Company  recorded a gain of
approximately $38,000 on this transaction.

12.  FOREIGN OPERATIONS

The Company operates  principally in three geographic  areas: the United States,
Europe,  and Asia.  The following is a summary of information by areas as of and
for the years ended March 31, 1998, 1999 and 2000 (in thousands):

                                      F-21
<PAGE>

1998
----
                                                   United
                                                   States      Asia       Total
                                                   ------     ------     ------
Sales originating from                             $4,305        276     $4,581
Loss from operations                               $1,587      1,386     $2,973
Identifiable assets                                $1,068      1,458     $2,527

1999
----
                                                   United
                                                   States      Asia       Total
                                                   ------     ------     ------
Sales originating from                             $3,889         46      3,935
Loss (income) from operations                      $  560     (2,169)    (1,609)
Identifiable assets                                $  804      1,244      2,048

2000
----
                                                   United
                                                   States      Asia       Total
                                                   ------     ------     ------
Sales originating from                             $3,272      1,408      4,680
Loss (income) from operations                      $  331       (216)       115
Identifiable assets                                $  652      1,008      1,660

The Company exported  approximately 12 percent,  35 percent,  and 30 percent, of
its total  sales in the years  ended 1998,  1999 and 2000,  respectively.  These
exports are primarily to foreign subsidiaries of U. S. companies.

DOMESTIC VERSUS EXPORT SALES
----------------------------
<TABLE>
<CAPTION>
                                                                             Export
                                                                -------------------------------
                                                                 European             All Other
                                            India     Domestic  Community     Asia       Areas      Total
                                           --------   --------   --------   --------   --------   --------
<S>                                        <C>           <C>        <C>          <C>         <C>  <C>
1998 Sales to unaffiliated customers ...   $    276      3,751        468         86         --   $  4,581
1999 Sales to unaffiliated customers ...   $     46      2,506      1,117        266         --   $  3,935
2000 Sales to unaffiliated customers ...   $     45      3,272        632        729          2   $  4,680
</TABLE>

13.  401K PLAN

The Company  maintains a 401(k) plan for the benefit of its domestic  employees.
The  Plan  covers  substantially  all of these  employees,  subject  to  certain
participation requirements.  Participants may contribute from 1% to 15% of their
eligible earnings,  subject to certain restrictions.  The Plan provides that the
Company may make additional contributions to the Plan, but it is not required to
contribute on behalf of the participants.  Commencing  January 1, 2000, the Plan
was amended,  whereby the Company will match employee contributions equal to 20%
on  the  first  6%  of  the  participants   elective  deferral.   The  Company's
contributions  to the Plan vest ratably over a five year  employment  period for
each  participant.  Expenses related to this Plan during fiscal years 1998, 1999
and 2000 were not significant.

                                      F-22
<PAGE>

                                                    INDEPENDENT AUDITOR'S REPORT
                                                    ----------------------------

TO THE BOARD OF DIRECTORS,

CORTECH SYSTEMS (INDIA) LIMITED

We have audited the  accompanying  statements of financial  condition of CORTECH
SYSTEMS (INDIA) LIMITED, formerly known as ULTRA TEK DEVICES LIMITED as at March
31, 2000 and 1999 and related statements of operations, shareholder's equity and
cash flows for each of the years then ended. These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of ULTRA TEK DEVICES LIMITED as at
March 31, 2000 and 1999 and the result of its  operations and its cash flows for
each of the years then ended, in conformity with accounting principles generally
accepted in the United States of America.

As stated in Notes 12(a),  12(b) and 12(c),  various notices have been issued by
India's customs  department  alleging,  among other matters,  misdeclaration  of
imports,   shortages  of  materials  and  excess  returned  goods  and  claiming
additional   duties,   penalties  and  confiscation  of  inventory   aggregating
Rs.155,063,381.  The company has contested these  allegations and the outcome of
these matters is uncertain.

The financial  statements referred to above have been prepared assuming that the
company  will  continue  as a  going  concern.  As  discussed  in Note 15 to the
financial  statements,  the Company has been  declared as a sick  company by the
Board for  Industrial  and Financial  Reconstruction  (`BIFR').  In addition two
creditors of the Company have filed separate  petitions in the Bombay High Court
for  winding up the  company on the basis that the  company is unable to pay its
dues.  The BIFR held a hearing on May 19, 2000 and observed  that no  acceptable
revival  proposal  was in sight and directed  the  Operating  Agency to initiate
necessary steps to change  management.  The bench also directed that the company
could  submit its  proposal for a one time  settlement  acceptable  to banks and
institutions.  Accordingly,  the Company has submitted  its  proposal,  which is
being  considered  by  those  banks  and   institutions.   These  factors  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's plans in this regard are also described in Note 16. These financial
statements do not include any adjustments  that might result from the outcome of
these uncertainties.

/s/ DELOITTE HASKINS & SELLS

DELOITTE HASKINS & SELLS,
CHARTERED ACCOUNTANTS
MUMBAI
DATED: 28 NOVEMBER 2000

                                      F-23
<PAGE>

CORTECH SYSTEMS (INDIA) LIMITED
(FORMERLY ULTRA TEK DEVICES LIMITED)
STATEMENTS OF FINANCIAL CONDITION AT MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
                                                                                            March 31,
                                                                                ----------------------------------
                                                                       Notes          2000              1999
                                                                       -----    ----------------  ----------------
ASSETS
CURRENT ASSETS
<S>                                                                   <C>       <C>               <C>
  Cash and cash equivalents                                               2(f)  Rs.    1,054,565  Rs.      206,931
  Restricted cash balances                                                3              539,439           506,152
  Receivable from GSI                                                     8          590,973,023       483,509,600
  Other accounts receivable, net of allowances of
    Rs.793,994 (1999 - Rs.4,378,702)                                                     617,221           557,367
  Supplier and other advances, net of allowances of
  Rs.3,524,221 (1999 - Rs.3,278,569)                                                     293,583           491,977
  Inventories, net of allowances of Rs.151,936,352
    (1999 - Rs.151,936,352)                                               2(d)        16,022,945        21,799,561
  Prepaid expenses and othe current assets,  net of
    allowances of Rs.271,010 (1999 - NIL)                                12(a)        21,036,481        22,774,218
                                                                                ----------------  ----------------
      TOTAL CURRENT ASSETS                                                           630,537,257       529,845,806

PROPERTY, PLANT AND EQUIPMENT, net of
  impairment allowance and accumulated depreciation                       2(e)        23,793,422        25,741,402
                                                                                ----------------  ----------------
      TOTAL ASSETS                                                              Rs.  654,330,679  Rs.  555,587,208
                                                                                ----------------  ----------------

LIABILITY AND SHAREHOLDERS' EQUITY
----------------------------------

CURRENT LIABILITIES
  Secured short-term borrowings                                           4     Rs.  269,072,349  Rs.  236,390,193
  Secured loan                                                            5           51,006,346        41,001,914
  Unsecured short-term borrowings                                         6          145,572,333       130,850,193
  Payable to GSI                                                          8          299,484,762       207,871,293
  Advances from GSI                                                       9          243,211,599       236,605,304
  Other accounts payable                                                 10           21,162,816        34,558,708
   Due to other related parties, net                                     15           72,929,163        67,907,412
   Accrued liabilities                                                                 9,192,825        11,417,984
                                                                                ----------------  ----------------
      TOTAL CURRENT LIABILITIES                                                    1,111,632,193       966,603,001
                                                                                ----------------  ----------------

LONG TERM LIABILITY
  Authorised Preference Capital:
    825,000 non-cumulative redeemable preference
    shares of Rs.100 each.
  Issued and outstanding:
    820,000 non-cumulative redeemable preference shares                  13           82,000,000        82,000,000
    of Rs.100 each

COMMITMENTS AND CONTINGENCIES                                         11 & 12                 --                --
                                                                                ----------------  ----------------

CAPITAL AND RESERVES
  Authorised:
    250,000 common shares of Rs. 10 each
  Issued and outstanding:
    100,000 common shares of Rs.10 each                                                1,000,000         1,000,000
  Accumulated Deficit                                                               (540,301,514)     (494,015,793)

                                                                                ----------------  ----------------
      TOTAL CAPITAL AND RESERVES                                                    (539,301,514)     (493,015,793)
                                                                                ----------------  ----------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                      Rs.  654,330,679  Rs.  555,587,208
                                                                                ----------------  ----------------
</TABLE>

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

                                      F-24
<PAGE>

CORTECH SYSTEMS (INDIA) LIMITED
(FORMERLY ULTRA TEK DEVICES LIMITED)
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                       YEARS ENDED MARCH 31
                                                                                ----------------------------------
                                                                       NOTES          2000              1999
                                                                       -----    ----------------  ----------------

REVENUES
<S>                                                                   <C>       <C>               <C>
  Sales to GSI                                                            2(b)  Rs.  160,260,246  Rs.  135,088,330
  Sales to others                                                                      2,081,122         2,053,753
                                                                                ----------------  ----------------
      TOTAL REVENUES                                                                 162,341,368       137,142,083
                                                                                ----------------  ----------------

COST OF GOODS SOLD
  Material, labour, overhead and direct cost                                        (135,845,029)     (135,825,579)
  Allowance for inventory                                                                     --      (130,607,657)
                                                                                ----------------  ----------------
      TOTAL COST OF GOODS SOLD                                                      (135,845,029)     (266,433,236)
                                                                                ----------------  ----------------

GROSS PROFIT (LOSS)                                                                   26,496,339      (129,291,153)

OPERATING EXPENSES, net
  Selling, general and administrative                                                (17,128,613)      (21,251,467)
  Engineering                                                                         (3,155,798)       (2,166,459)
  Property, plant and equipment impairment loss                                               --       (36,370,190)
  Accounts payable written back                                          10           11,815,426        80,251,336
                                                                                ----------------  ----------------
      Total operating expenses                                                        (8,468,985)       20,463,220
                                                                                ----------------  ----------------

OPERATING INCOME (LOSS)                                                               18,027,354      (108,827,933)

OTHER INCOME AND (EXPENSE)
  Interest expense                                                        7          (64,737,921)      (63,522,131)
  Interest and other income                                                              424,846           878,597
                                                                                ----------------  ----------------
      Total other income (expense), net                                              (64,313,075)      (62,643,534)
                                                                                ----------------  ----------------

NET LOSS FOR THE YEAR                                                           Rs.  (46,285,721) Rs. (171,471,467)
                                                                                ----------------  ----------------

ACCUMULATED DEFICIT, beginning of the year                                          (494,015,793)     (322,544,326)
                                                                                ----------------  ----------------

ACCUMULATED DEFICIT, end of the year                                                (540,301,514)     (494,015,793)
                                                                                ================  ================
</TABLE>

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

                                      F-25
<PAGE>

CORTECH SYSTEMS (INDIA) LIMITED
(FORMERLY ULTRA TEK DEVICES LIMITED)
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                       YEARS ENDED MARCH 31
                                                                                ----------------------------------
                                                                                      2000              1999
                                                                                ----------------  ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                             <C>               <C>
Net loss                                                                        Rs.  (46,285,721) Rs. (171,471,467)
Adjustments to reconcile net loss to net cash
  used in operating activities:
Loss on sale or write off of property, plant and equipment                               146,996            16,574
Property, plant and equipment impairment loss                                                 --        36,370,190
Allowance for inventories                                                                     --       130,607,657
Accounts payable written back, net                                                   (11,815,426)      (80,251,336)
Interest accrued on loans                                                             64,737,922        62,908,550
Capital advance written off                                                                   --           237,500
Revaluation of foreign currency loan                                                          --            59,441
Depreciation                                                                           3,107,514         8,433,495

Decrease/(increase) in current assets:
     Receivable from GSI                                                            (107,463,423)     (135,626,540)
     Other accounts receivable                                                           (59,854)         (493,707)
     Suppliers and other advances                                                        198,394           581,790
     Inventories                                                                       5,776,617        20,397,378
     Prepaid expenses and other current assets                                         1,737,737          (946,397)
     Restricted Cash balances                                                            (33,287)          (48,470)

Increase/(decrease) in current liabilities :
     Payable to GSI                                                                   91,613,468        78,310,479
     Other accounts payable                                                           (2,160,022)        1,325,873
     Net dues to related parties                                                       3,076,752         3,818,569
     Advances from GSI                                                                 6,606,295        16,043,862
     Accrued liabilities                                                              (2,225,160)           31,418

                                                                                ----------------  ----------------
     NET CASH PROVIDED BY/ (USED IN)OPERATING ACTIVITIES                               6,958,802       (29,695,141)
                                                                                ----------------  ----------------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment                                            (1,307,318)       (3,263,127)
Proceeds from sale of property, plant and equipment                                           --            16,000

                                                                                ----------------  ----------------
     NET CASH USED IN INVESTING ACTIVITIES                                            (1,307,318)       (3,247,127)
                                                                                ----------------  ----------------

CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of secured short term debt                                                 (6,748,850)       (1,876,907)
Loan from related party                                                                1,945,000        33,914,760
                                                                                ----------------  ----------------
     NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES                              (4,803,850)       32,037,853
                                                                                ----------------  ----------------

NET INCREASE / (DECREASE) IN CASH AND CASH
EQUIVALENTS                                                                              847,634          (904,415)

CASH AND CASH EQUIVALENTS, beginning of year                                             206,931         1,111,346

                                                                                ----------------  ----------------
CASH AND CASH EQUIVALENTS, end of year                                                 1,054,565           206,931
                                                                                ----------------  ----------------
</TABLE>

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

                                      F-26
<PAGE>

                         CORTECH SYSTEMS (INDIA) LIMITED
                      (FORMERLY ULTRA TEK DEVICES LIMITED)
                        NOTES TO THE FINANCIAL STATEMENTS

1.   BACKGROUND

Cortech Systems (India) Ltd. ('the Company') was  incorporated in India as Ultra
Tek Devices  Ltd.  with  limited  liability  on August 9, 1985.  The name of the
Company was changed from Ultra Tek Devices Ltd. to Cortech  Systems (India) Ltd.
and a fresh certificate of incorporation incorporating such change was issued by
the  Registrar  of  Companies  on June 6, 2000.  The Company is wholly  owned by
Fairplay  Group,  Inc.,  a company  incorporated  in  Panama.  On July 1,  1993,
Fairplay Group, Inc. was acquired by Golden Systems,  Inc.,  (`GSI')  previously
known as Golden  Power  Systems,  Inc., a company  incorporated  in the State of
California in the United States of America.

The Company is principally  in the business of manufacture  and export of switch
mode power supplies and adapters,  to cater to the need of various international
customers in the field of information technology, telecommunications, networking
and  distribution  channels.  The  manufacturing  facilities  of the Company are
located  at Mumbai  in India,  in Export  Processing  Zones  ('EPZ').  Under the
regulations governing EPZs, the Company is required to export a substantial part
of its production.  The Company imports  substantially  all of its raw materials
from East Asia,  Europe and the United  States of America.  The Company  exports
substantially  all of its  production  to GSI and GSI's  customers in the United
States of America,  Asia and Europe.  During the year, the Company commenced the
development and export of software at its Mumbai and Chennai software units.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)  BASIS OF PRESENTATION

The accompanying financial statements are prepared in conformity with accounting
principles  generally accepted in the United States of America ("US GAAP"), from
the accounting books and records maintained by the Company at Mumbai and Chennai
in India. The Company's general purpose financial  statements are prepared under
accounting  principles  generally  accepted  in India,  which  differ in certain
material respects from US GAAP.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern.  However, as discussed in Note 16, the
Company  currently faces  significant  issues that raise substantial doubt about
the ability of the Company to continue as a going concern.

(b)  REVENUE RECOGNITION

Revenues  from sales of products  are  recognised  at the time of  shipment  and
include incentives provided by the Government of India on export sales.  Revenue
is  recognised  when  no  significant   uncertainty  as  to   measurability   or
collectability  exists.  Substantially  all of the Company's  sales and purchase
transactions are with GSI.

(c)  FOREIGN CURRENCY TRANSLATION

The  functional  currency of the Company is the Indian rupee.  Foreign  currency
denominated transactions are converted to rupees at the exchange rate prevailing
on the transaction date. Foreign currency denominated assets and liabilities are
translated at the exchange rate prevailing on the balance sheet date.  Gains and
losses  arising  on  conversion  of  foreign  currency  denominated  assets  and
liabilities  and  on  foreign   currency   transactions   are  included  in  the
determination of the net loss.

(d)  INVENTORIES

Inventories  are valued at the lower of cost and net realizable  value.  Cost is
determined  on a  weighted  average  basis and  includes  the cost of  material,
freight and manufacturing overheads.

Allowances  have  been  made  for  the  probable  diminution  in  the  value  of
inventories that are obsolete or slow moving.

Inventories consist of the following:

                                      F-27
<PAGE>

     At March 31,                                      2000             1999
                                                       ----             ----
     Raw material                                   148,295,395      151,952,141
     Work-in-progress                                14,056,005       20,044,701
     Finished goods                                   4,390,956           73,751
     Goods in Transit                                 1,216,941        1,665,321
                                                   -----------------------------
                                                    167,959,297      173,735,914
     Less: Allowance for obsolescence               151,936,352      151,936,352
                                                   -----------------------------
     Total inventories, net                          16,022,945       21,799,562
                                                   =============================

(e)  PROPERTY, PLANT AND EQUIPMENT

Property,  plant  and  equipment  are  recorded  at  acquisition  cost,  net  of
depreciation  and allowance for  impairment.  Depreciation is computed using the
straight-line  method over the estimated  useful lives of the assets.  Leasehold
improvements have been amortized over the terms of the lease agreements.

The Company has subjected long lived assets to a test of  recoverability,  based
on the  undiscounted  cash flows expected from use or disposition of such assets
and recognised an impairment loss. The loss is recognised based on the amount by
which the  carrying  values  exceed  the fair  market  values of the  long-lived
assets.  Fair market value is determined using anticipated cash flows discounted
at a rate commensurate with the risk involved.

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
                                                   ESTIMATED
                                                    USEFUL
                                                 LIFE (YEARS)      2000           1999
                                                 ------------      ----           ----

<S>                                                <C>          <C>            <C>
Machinery and equipment                            10 to 15     61,351,560     61,475,320
Dies and patterns                                         3      1,959,896      1,959,896
Tooling                                             5 to 10     24,506,152     24,100,512
Motor vehicles                                           10      1,453,402      1,453,402
Furniture, fixtures and miscellaneous assets        5 to 15     18,402,744     18,205,935
Leasehold improvements                                    5      1,244,140      1,244,140
                                                              ---------------------------
Property, plant and equipment, at cost                         108,917,894    108,439,205
Less: Accumulated depreciation                                 (48,937,323)   (46,327,613)
Allowance for impairment                                       (36,187,149)   (36,370,190)
                                                              ---------------------------
Property, plant and equipment, net                              23,793,422     25,741,402
                                                              ---------------------------
</TABLE>

Costs of normal  maintenance  and repairs  are  charged to expense as  incurred.
Major  replacements  or  betterments  of  property,   plant  and  equipment  are
capitalised.

(f)  CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with an original maturity of
90 days or less to be cash  equivalents.  Restricted  cash balances (see note 3)
are not included as cash or cash equivalents.

                                      F-28
<PAGE>

(g)  RETIREMENT BENEFITS

Contributions  to defined  contribution  schemes such as Provident Fund,  Family
Pension  Fund etc.  are  expensed  when  incurred.  The  liability in respect of
gratuity is charged to revenue based on actuarial valuation at the year-end.

GRATUITY:

The company  provides  for  gratuity,  a defined  benefit  retirement  plan (the
"Gratuity  Plan") covering all employees.  The Gratuity Plan provides a lump sum
payment to vested  employees at  retirement or  termination  of employment in an
amount based on the  respective  employee's  salary and the years of  employment
with the  company.  Employees  generally  vest after  five  years of  continuous
service.

PROVIDENT FUND:

All  employees  of the  company  are  entitled  to  receive  benefits  under the
provident fund, a defined  contribution plan, in which both the employee and the
company  contribute  monthly at a statutory  rate,  currently  12% of employee's
salary.  These  contributions  are  made to a fund set up by the  Government  of
India.  The company has no further  obligations  under the provident fund beyond
its monthly contributions.

The company does not have any  significant  post  retirement  obligations to its
employees or retirees other than those discussed above.  Amounts contributed for
gratuity and provident fund were  Rs.1,405,154  and  Rs.1,265,043  for the years
ended March 31, 2000 and 1999, respectively.

(h)  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

No cash was paid for income  taxes and  interest  for the years  ended March 31,
2000 and 1999 respectively.

(i)  USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amount of  assets  and  liabilities  and  disclosures  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported  amounts of revenues and expenses for the years  presented.  Actual
results could differ from those estimates.

3.   RESTRICTED CASH BALANCES

Restricted cash balances  comprise  restricted  deposits with banks amounting to
Rs.539,439  and Rs.506,155 at March 31, 2000 and 1999,  respectively  which have
been given as security against delivery orders issued by banks. During the years
ended March 31, 2000 and 1999,  the rates of interest on these  deposits  ranged
from 8 to 11 per cent per annum.

4.   SECURED SHORT-TERM BORROWINGS

Short-term borrowings include:

             AT MARCH 31,                          2000                 1999
             ------------                          ----                 ----
         Bills discounted                       152,040,006          153,394,550
         Packing credit                          16,024,967           18,138,878
         Interest accrued and due               101,007,371           64,856,765
                                               ------------         ------------
         Total                                  269,072,344          263,390,193
                                               ------------         ------------

The Company has the above  credit  facilities  with three  banks.  The loans are
secured  by   hypothecation   of  stock  of  raw  materials,   work-in-progress,
semi-finished  and  finished  goods,  consumables,   stores  and  spares,  bills
receivables  and book debts.  Further,  the bill  discounting  arrangements  and
packing credit  arrangements are also covered by corporate  guarantees from Fair
Play  Group  Inc.,  and GSI.,  the  Company's  immediate  and  ultimate  holding
companies, Tandon Associates Inc., a related party and by the personal guarantee
of a director of the Company.

On March 31,  2000 and 1999 the above  amounts of bills  discounted  and packing
credit  were in default  along with  interest.  The rates of  interest  on these
borrowings  ranged  from 20 to 25 percent.  The  Company's  bankers  have frozen
credit  facilities  available to the Company  effective  June 1996.  These banks
issued legal notices to the

                                      F-29
<PAGE>

Company on July 4,1997  calling upon the Company to pay the  outstanding  amount
due. On January 12, 1998 the Company was  declared a sick company and was placed
under the  supervision of the Board for Industrial and Financial  Reconstruction
("BIFR") of the  Government of India (See Note 16). Under Indian law relating to
rehabilitation  of sick  companies,  the  Company's  banks are not  permitted to
initiate any legal action  against the Company for non payment of amounts due as
the  enforcement  of  collateral  by the banks  requires the prior  approval and
sanction of the BIFR.

5.   SECURED LOAN

The  Company had taken a US dollar  denominated  loan of  US$914,308  from ICICI
repayable  in 5 equal  quarterly  installments  commencing  from  April 1, 1997,
secured by a first charge by way of  hypothecation  of movables (other than book
debts),  including movable machinery,  machinery spares,  tools and accessories,
both present and future,  subject to prior charges  created and/or to be created
in respect of stocks and such other  movables  as may be agreed in favour of the
banks for working capital  requirement in the ordinary  course of business.  The
loan is also secured by a first charge on any immovable  properties  that may be
acquired  in the future.  ICICI has agreed to cede second  charge in favour of a
consortium of banks subject to the banks' holding first charge on current assets
agreeing to cede second charge on current assets in favour of ICICI. The Company
has defaulted in the payment of  installments  due subsequent to April 21, 1997.
Accordingly,  the outstanding foreign currency  denominated loan has been frozen
as a rupee loan. No legal action has been taken by ICICI against the Company nor
has ICICI recalled any amount.  The amount of principal and interest  overdue as
on March 31, 2000 was Rs.51,006,346.

Interest on  installments  overdue is charged at the maximum rate  chargeable on
rupee denominated loans. This rate is 20.41 per cent.

The enforcement of the security  requires the prior approval and sanction of the
BIFR

6.   UNSECURED SHORT TERM BORROWINGS

Unsecured borrowings include the principal balances in respect of unpaid overdue
bills  discounted  with  banks  and  interest.  The  rate of  interest  on these
borrowings ranged from 20 per cent to 26 per cent.

7.   INTEREST ON BORROWINGS

Interest including penal interest on secured and unsecured short-term borrowings
has been  estimated  by the  Company  based on  information  available  with the
Company. These balances are subject to confirmation by the banks (See note 16).

8.   RECEIVABLE FROM AND PAYABLE TO GSI

The  Company  has  applied  to the  Reserve  Bank of India to set off the export
receivables (bills sent on collection) from GSI of Rs.  296,722,398  against the
import  payables  to GSI in line with the  international  practice.  Pending the
necessary  clearance  from RBI, no  adjustment is made in respect of the same in
accounts.

9.   ADVANCES FROM GSI

Advances  from GSI  represent  advance  payments  from the  Company's  parent of
Rs.243,211,599  received in earlier years.  These advance  payments were made on
the  understanding  that they would be treated as  advances  and that the parent
company  would make  payment for  individual  bills as and when exports are made
against bills of exchange.  Subsequently,  the parent company did not honour its
commitment under the bills of exchange as and when they fell due for payment. In
the normal  course of  business,  the  Company  had  discounted  these  bills of
exchange with its bankers in India. When the Company's parent did not honour its
commitment  under these bills of exchange,  the Company  approached  the Reserve
Bank of India to set off the  advance  of  Rs.243,187,952  due to the  Company's
parent against the export  receivables of Rs.240,320,979  due from the Company's
parent at the rate of  exchange  prevailing  as on March 31,  2000.  Pending the
RBI's clearance, no set off has been recorded.

10.  ACCOUNTS PAYABLE WRITTEN BACK.

Included  in  accounts  payable at March 31, 1999 were  amounts  aggregating  to
Rs.11,815,426 payable to third parties since 1996. These amounts payable had not
been demanded by the parties by March 1999 and have become time barred under the
Indian Limitation Act, 1963. Accordingly,  the Company has written back accounts
payable of Rs.11,815,426 as the Company is not legally  obligated to repay these
amounts and does not intend to do so.

                                      F-30
<PAGE>

11.  COMMITMENTS

(a)  Leases

(i) The Company leases factory and office premises under  operating  leases from
Santacruz  Electronics  Export  Processing  Zone.  (SEEPZ)  under a lease  which
expired on March 31, 2000. The Company continues to occupy the space and expects
the lease to be renewed for a period of 5 years. Pending completion of the lease
renewal  agreement  the Company  has  estimated  the rentals to be  Rs.1,701,465
annually.

Future minimum  payments  under this  operating  lease are estimated as follows:

          Years ending March 31:
          ----------------------

          2001                                          1,701,465

          2002                                          1,701,465

          2003                                          1,701,465

          2004                                          1,701,465

          2005                                          1,701,465

(ii) The Company also leases factory and office premises under operating  leases
from Madras  Export  Processing  Zone (MEPZ) at  Chennai.  During the year,  the
Company cancelled the existing lease agreement with MEPZ prematurely and entered
into a new lease  agreement for a smaller  space as a part of its  restructuring
activities.  This agreement is for a term of 15 years with minimum lease rentals
of Rs.123,412 annually,  upto March 31, 2002. Thereafter the lease rentals would
be revised  every 3 years subject to a maximum of 25% increase over the previous
lease rentals.

Future minimum payments under this operating lease are as follows:

          Year ending March 31:
          ---------------------

          2001                                            123,412

          2002                                            123,412

Gross rental expense for the years ended March 31, 2000 and 1999 amounted to Rs.
1,875,5786 and Rs.1,745,104 respectively.

(b)  CAPITAL EXPENDITURE

At March 31, 2000 and 1999,  the Company has  committed  to spend  approximately
Rs.377,817 and Rs.881,346,  respectively, under agreements to purchase property,
plant and equipment.

12.  CONTINGENCIES

The Company faces the following  material  assertions by revenue  authorities in
India:

(a)  During the year 1994-95,  the Company's  import of computer  components and
     parts of computer  systems for the final assembly into computer systems and
     sale into the Domestic Tariff Area (`DTA') came under  investigation by the
     Indian   Customs  and  Excise   department   ("Customs").   Following   the
     investigation, inventories of Rs.47,000,000 were seized by the authorities.
     On  May  30,  1995,  Customs  issued  a  notice  to  the  Company  alleging
     misdeclaration of imports of computer systems as imports of computer system
     components. The notice calls upon the Company to explain why Customs should
     not

     (I)  confiscate all the goods so imported,
     (II) levy additional duty of  Rs.49,000,000  on the goods already sold into
          the DTA, and
     (III)levy a penalty  not  exceeding  five  times the duty on such  goods or
          Rs.1,000 whichever is greater.

                                      F-31
<PAGE>

     The Company has paid an advance of Rs.20,000,000  against customs duty that
     may be levied by Customs against which the balance as on March 31, 2000 and
     1999 amounting to  Rs.19,202,878  has been included in the prepaid expenses
     and other current assets in the balance sheet.

     Subsequently,  the authorities  released the inventories seized earlier and
     the Company is exercising the  opportunity  provided by the authorities for
     it to re-export the goods or sell the goods to other units  located  within
     Santacruz Electronics Export Processing Zone (`SEEPZ') or into the DTA.

(b)  The  Customs  department  carried  out an  investigation  in March  1995 in
     respect of stocks of imported material including work-in-progress. Alleging
     shortages,  it has issued a show cause and demand notice dated September 8,
     1997, asking the Company to explain why -

     I.   Duty  of   Rs.25,724,946   leviable  on  the  non-duty  paid  imported
          components  valued at  Rs.28,217,319  which are not  accounted  for in
          terms of the bond executed by them should not be recovered;
     II.  Penal action should not be initiated against them for contravention of
          the  conditions  of the Customs  Notification  and  thereby  rendering
          unutilized goods liable for confiscation and also for violation of the
          provisions of Foreign Trade (Development & Regulation)Act, 1992 ;
     III. A  penalty  equal  to the  duty  held to be  leviable  in  respect  of
          unaccounted goods should not be imposed on the Company.

(c)  The Directorate of Revenue  Intelligence  (`DRI') carried out investigation
     in February 1997 in respect of returned  rejected  goods (`RMA') and stocks
     of imported material including work in progress.

     Alleging  shortages and excess,  Customs has issued a show cause and demand
     notice on May 15,1998 asking the Company to explain why:

     (I)  duty of  Rs.8,834,865 on the missing / non accounted and non duty paid
          RMA totally valued at Rs.8,863,956 should not be paid by the Company;

     (II) duty of  Rs.16,885,317  on the  non-accounted  and non-duty paid short
          material  components valued at Rs.33,927,608 which are not accountable
          in terms of bond executed by them, should not be paid by the Company;

     (III)RMA and raw material  components  valued at  Rs.28,893,307  which were
          found in excess during investigation should not be confiscated; and,

     (IV) levy a penalty  not  exceeding  five  times the duty on such  goods or
          Rs.1,000 whichever is greater.

The Company is disputing each of the  allegations  above and has been advised by
eminent counsel that it has meritorious defenses in each instance.

In the  opinion  of the  Company  and on the  basis of advice  given by  eminent
counsel, no material liability is expected in respect of the above matters,  and
accordingly, the Company has not made a provision for the above matters.

13.  NON-CUMULATIVE REDEEMABLE PREFERENCE SHARES

Non-cumulative   redeemable  preference  shares  were  issued  and  allotted  on
September 7, 1993 to Advance Power Devices  Private Limited  ('APD'),  a related
party,  in  full  and  final  settlement  of its  loan  to the  Company  and are
redeemable  at par,  after a period not earlier  than 10 years.  The Company has
obtained an undertaking from APD that APD will exchange these shares at maturity
for like shares  having  broadly  similar  terms.  These  preference  shares are
entitled to a preferential  nominal  aggregate  annual  dividend of Rs.1,000 per
annum and, in the event of repayment of capital, to a preferential  repayment at
par in priority to the common shares with no further right to participate in any
surplus.

14.  INCOME-TAX

Under the Indian  Income-tax Act, 1961, the Company is exempt from income tax to
the  extent of  profits  attributable  to the export  sales of the  Company.  In
respect of the years ended March 31, 2000 and 1999, the Company did not

                                      F-32
<PAGE>

have any taxable profits and, therefore,  no provision for income-tax in respect
of profits  attributable to domestic sales,  interest and other income which are
not exempt from income-tax is made in the financial statements.

No  provision  for  deferred  taxes has been made as the  Company has loss carry
forwards of Rs.  358,517,261  and Rs.  321,775,856 as on March 31, 2000 and 1999
respectively.  No deferred tax asset has been  established for such  significant
loss carry  forwards as their  recoverability  is unlikely and hence a valuation
allowance has been recognised for the entire amount of loss carry forwards.

15.  RELATED PARTY TRANSACTIONS

The Company has dealings with the following  entities,  which are majority owned
or otherwise  controlled by Mr. Manohar Lal Tandon,  Chairman,  either solely or
together with his close  relatives and other  directors of the Company.  The net
balances due to related  parties  other than GSI, at March 31, 2000 and 1999 for
sales,   purchases,   transfers   or  sharing  of  expenses   and  advances  are
Rs.72,929,163 and Rs.67,907,412, respectively.

The aggregate of sales, purchases,  transfers and sharing of expenses during the
years ended March 31, 2000 and March 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                         March 31, 2000                March 31, 1999
Nature of transaction                Expenses       Revenues       Expenses       Revenues
--------------------------------------------------------------------------------------------
<S>                                   <C>              <C>          <C>              <C>
Charges for sharing expenses          2,454,306                       377,110
Credits for sharing expenses                            56,436                       296,724
Purchase of materials                                                 991,046
Sale of materials                                      435,614                       333,795
                                   ---------------------------------------------------------
                              TOTAL   2,454,306        492,050      1,368,156        630,519
                                   ---------------------------------------------------------
</TABLE>

16.  GOING CONCERN ASSUMPTION

The Company  has been  declared  as a Sick  Industrial  Company by the Board for
Industrial and Financial Reconstruction (BIFR) on January 12, 1998. The BIFR, in
exercise  of  its  powers  has  appointed   Industrial   Credit  and  Investment
Corporation  of India  (ICICI) as the  Operating  Agency  (OA)  responsible  for
examining the Company's viability and preparing a Viability Study Report for the
BIFR's consideration.  The rehabilitation  proposal submitted by the Company was
studied by the OA and forwarded to the BIFR in March 1999 along with the minutes
of the joint meeting with banks and institution convened by the OA. Based on the
minutes of the joint meeting  forwarded by the OA to the BIFR, the BIFR prepared
a  Draft  Rehabilitation  Scheme  and  invited  all  concerned  parties  to make
suggestions or raise objections to the draft scheme within one month.

The BIFR held a hearing on August 16, 1999 and,  after  hearing  all  interested
parties, the BIFR directed the Company and the banks to hold further discussions
and  modify the  scheme to take into  account  the  various  points  made at the
hearing and instructed the OA to forward a modified rehabilitation scheme within
six weeks.

Accordingly,  the Company changed the scheme so that no further funding would be
required  from the banks and that there  would be no  dilution  of the  existing
security available to the consortium banks. This revised scheme was submitted to
the OA.

The OA held a joint  meeting  of  consortium  member  banks and the  Company  on
October  5,  1999 to  discuss  the  modified  draft  rehabilitation  scheme  and
forwarded minutes of this joint meeting to the BIFR indicating that no consensus
on the proposal submitted by the Company had been arrived at.

On May 19, 2000, the BIFR held another hearing, at which the bench observed that
no  acceptable  revival  proposal  was in sight and  directed the OA to initiate
necessary steps towards a change of management. The bench also directed that the
Company could also submit their proposal for a One Time Settlement acceptable to
the banks and institution.  The Company submitted its settlement proposal on Aug
16, 2000 and initiated  discussions/negotiations  on the said proposal. Based on
the discussions with the banks and ICICI, the settlement  proposal as revised on
November  16,  2000  calls  for a  repayment  of  85% of  the  principal  amount
outstanding  as on March 31, 1996,  in respect of banks and 78% of the principal
amount  outstanding  as on March  31,  1997,  in  respect  of ICICI  both  after
adjusting subsequent credits availed and repayments made till date and waiver of
interest,  penal interest etc. after the respective  aforementioned  dates.  The
settlement  is proposed to be made over a period of 18 months after the sanction
of the proposal by BIFR.

                                      F-33
<PAGE>

Two  creditors of the Company have filed  separate  petitions in the Bombay High
Court for  winding up the Company on the basis that the Company is unable to pay
their dues. The amounts claimed by these two creditors  aggregate  Rs.4,494,867.
These  petitions  came up for  admission  after the Company was  declared a sick
industrial  company and their hearing has been adjourned  until further  notice,
pending completion of the rehabilitation process being undertaken by the BIFR.

The above  matters give rise to serious  doubts about the  Company's  ability to
continue as a going concern in the foreseeable future. Management's plans are to
satisfy  the  settlement  arrived at with the banks and  institutions  under the
directives  of the BIFR and to  recapitalise  the  Company  and to seek from the
Company's parent  sufficient cash with which to do so. The Company's parent also
is executing restructuring plans and capital raising efforts.

Under these  circumstances,  the accounts of the Company  have been  prepared on
going  concern  basis  and the  same  is  dependent  upon  the  approval  of the
Settlement scheme by the BIFR, availability of funds to meet the commitments and
further working capital needs, and future profitability of the Company.

                                        FOR CORTECH SYSTEMS (INDIA) LTD.
                                        (FORMERLY ULTRA TEK DEVICES LTD.)

                                        MANAGING DIRECTOR       DIRECTOR

MUMBAI, DATED:
28 NOVEMBER 2000

                                      F-34