<PAGE>

Exhibit 13

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


     Note 1 of the notes to the Company's consolidated financial statements sets
forth the principal  accounting  policies,  assumptions  and basis for estimates
used in preparing  the financial  statements.  The  Company's  management  makes
certain  assumptions  and estimates that impact the reported  amounts of assets,
liabilities and stockholders'  equity and revenues and expenses.  The management
judgments that are currently subject to the greatest  uncertainty are related to
the   accounting   for   the   Company's   investments   in   the   Multi-Mix(R)
Microtechnology.

     Following  is a  summary  of  the  carrying  amounts  of  the  Multi-Mix(R)
Microtechnology  net assets  included in the  Company's  consolidated  financial
statements  at December 29, 2001 and the related  future  planned  purchases and
lease obligation commitments through January 2006.

         Net assets:
         Property, plant and equipment, at cost..................  $12,408,000
         Less accumulated depreciation and amortization..........    1,056,000
                                                                   -----------
         Property, plant and equipment, net......................   11,352,000
         Inventories.............................................      982,000
         Deposit receivable, due March 2002......................      300,000
         Other assets, net.......................................      374,000
                                                                    ----------
         Total net assets at December 29, 2001...................  $13,008,000
                                                                   -----------

         Commitments:
         Planned equipment purchases for 2002....................  $ 2,800,000
         Lease obligations through January 2006..................    1,180,000
                                                                   -----------
         Total commitments.......................................  $ 3,980,000
                                                                   -----------
         Total net assets and commitments........................  $16,988,000
                                                                   ===========

     Inventories are valued at the lower of average cost or market. Inventories
are periodically reviewed for their projected manufacturing usage utilization
and, when slow moving or obsolete inventories are identified, a provision for a
potential loss is made and charged to operations.

     The Company anticipates receiving increasing levels of orders during 2002
for the Multi-Mix(R) Microtechnology products, for which substantial research
and development costs have also been incurred. Due to economic and market
conditions in the wireless industry, the telecommunications system service
providers have curtailed their capital equipment purchases from our customers.
These circumstances have caused the Company's customers to delay Multi-Mix(R)
Microtechnology product purchases that had been anticipated for 2001. An
extended delay or reduction from planned levels in new orders expected from
customers for these products could have a material adverse impact on the
Company.

     The Company's planned equipment purchases and other commitments are
expected to be funded through a revolving credit facility of $6,500,000, which
becomes due in June 2002 and is anticipated to be extended, supplemented by
liquid cash resources and cash flows that are expected to be provided by
operations.

                                       -1-

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

2001 compared to 2000

     Consolidated results of operations for 2001 reflect an increase in net
sales from the prior year of $2,757,000 or 12.0% to $25,793,000. This increase
was primarily attributable to an increase in net sales of electronic components
of $4,265,000, which was partially offset by a decrease in sales of microwave
micro-circuitry products of $1,508,000 from the Company's wholly-owned
subsidiary Filtran Microcircuits Inc. ("FMI").

     Orders of $27,009,000 were received during 2001, a decrease of $549,000 or
2.0% compared to $27,558,000 in orders received during 2000. Orders received
during 2001 exceeded the 2001 sales level by approximately 4.7%. Backlog
increased by $1,216,000 or 11.4% to $11,856,000 at the end of 2001 compared to
$10,640,000 at year-end 2000.

     The Company believes that the current economic downturn, resulting in
reduced spending by wireless service providers, has caused many wireless
companies to delay or forego purchases of the Company's products. However, the
Company expects that its satellite and defense customers should continue to
maintain their approximate current levels of orders during 2002. The Company
also anticipates increased levels of orders during 2002 for its new Multi-Mix(R)
Microtechnology products, for which the Company has made a significant capital
investment and incurred substantial research and development costs. Any extended
delay or reduction from projected levels in new orders expected from satellite
and defense customers and for new Multi-Mix(R) Microtechnology products could
have a material adverse impact on the Company and impair the Company's
liquidity. The Company expects that softness in the telecommunications sector
that FMI serves, principally millimeter wave applications for wireless broadband
solutions, which caused a substantial reduction in the microwave micro-circuitry
segment sales and profitability for fiscal 2001 compared to prior year results,
will continue during fiscal year 2002. The Company implemented a temporary
reduction of 25% or 19 persons in the FMI workforce during the second quarter of
2001 in response to the decline in orders for this segment.

     Cost of sales increased $664,000 or 5.6%, and as a percentage of net sales
decreased 2.9% to 48.5% for 2001. Percentage cost reductions for cost of sales
were achieved in the electronic components segment from manufacturing
efficiencies attributable to a reduction in direct labor and manufacturing
overhead costs, related in part to the transfer of certain additional production
to the Company's Costa Rica manufacturing facility, and other manufacturing cost
reductions resulting from the personnel restructuring in the first quarter of
2000. Partially offsetting these cost reductions were manufacturing overhead
costs underabsorbed in the microwave micro-circuitry segment, resulting from a
decline in this year's segment sales of approximately 25.5% compared to the
prior year.

     Depreciation expense included in cost of sales was $1,913,000, an increase
of $409,000. For 2001, approximately $491,000 of depreciation expense was
associated with Multi-Mix(R) Microtechnology capital assets. The increase in
depreciation expense was a result of higher capital equipment purchases in the
current and prior years.

     Gross profit in 2001 for the electronic components segment increased by
$2,936,000 to $11,238,000 or 52.6% of segment net sales of $21,383,000, compared
to gross profit of $8,302,000 or 48.5% of segment net sales of $17,118,000 in
2000. Gross profit in 2001 for the microwave micro-circuitry segment decreased
by $843,000 to $2,041,000 or 46.3% of segment net sales of $4,410,000, compared
to $2,884,000 or 48.7% of segment net sales of $5,917,000 in 2000.

     Selling, general and administrative expenses of $9,532,000 for 2001
increased by $1,130,000 or 13.5%, and when expressed as a percentage of net
sales, increased by 0.5% to 37.0%. Increases resulted from employment
termination costs for senior level personnel of approximately $208,000, higher
sales commission expenses, increased selling and marketing expenses in
connection with the Company's Multi-Mix(R) Microtechnology product line, and
higher engineering and technology personnel compensation, recruitment and
training costs, and patent-associated and other professional fees.


                                       -2-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

     Amortization expense of $149,000 for 2001 is attributable to goodwill of
approximately $3,100,000 arising from the acquisition of FMI, which is being
amortized on a straight-line basis over a life of twenty years, compared to
amortization expense of $154,000 for 2000. The difference in amortization
expense is related to lower average Canadian exchange conversion rates in 2001.

     Research and development expenses for new products were $3,382,000 in 2001,
an increase of $1,511,000 or 80.8% compared to 2000. Except for $432,000 of
expenses at FMI, an increase of $140,000 over 2000, substantially all of the
research and development expenses in 2001 were related to Multi-Mix(R)
Microtechnology products. In the third quarter of 2001 the Company launched its
Multi-Mix PICO(TM) technology products, which reduce the physical dimensions of
certain microwave components by more than 84%.

     Consolidated operating income for 2001 was $217,000, before the effect of
charges associated with the reincorporation in Delaware of $330,000 in the first
quarter of 2001, compared to $759,000 of consolidated operating income for 2000,
before the first quarter 2000 personnel restructuring charge of $315,000. The
consolidated operating loss for 2001, after the inclusion of the reincorporation
charge of $330,000, was $113,000, compared to consolidated operating income of
$444,000 for 2000 after the personnel restructuring charge of $315,000.

     Operating loss for the electronic components segment was $319,000 in 2001,
after the $330,000 reincorporation charge in first quarter 2001, compared to a
$893,000 operating loss in 2000 after the restructuring charge of $296,000 in
the first quarter of 2000. Operating income for the microwave micro-circuitry
segment was $206,000 or 4.7% of segment net sales in 2001 compared to operating
income of $1,337,000 or 22.6% in 2000 after this segment's restructuring charge
of $19,000 in first quarter 2000.

     Interest income, net was $17,000 for 2001 compared to net interest expense
of $59,000 for 2000. Interest expense of $222,000 was capitalized to in-process
construction property, plant and equipment in 2001. Interest income was
primarily due to the proceeds received from the issuance of common stock in
private placements in 2000 that offset interest expense. Interest expense in
2000 was principally incurred on borrowings under a term loan and revolving
credit facility in connection with the acquisition of FMI in 1999.

     An income tax benefit of $120,000 was recorded for 2001 with an effective
tax benefit rate of 125% compared to a tax provision of $70,000 for 2000 with an
effective tax rate of 18.2%. The principal adjustments to the statutory Federal
income tax rate of 34% for 2001 relates to $139,000 in tax credits associated
with research and development expenditures and foreign sales corporation tax
benefits of $40,000, partially reduced by a $50,000 cost due to non-deductible
amortization of goodwill.

     Net income for 2001 was $24,000, after the net effects of the first quarter
2001 reincorporation charge of $198,000. For 2000, net income of $315,000 was
reported, after the net effects of the first quarter 2000 restructuring charge
of $189,000. Net income per share for 2001 was $.01, after the net effects of
the $.07 per share reincorporation charge reported in the first quarter of 2001.
For 2000, net income of $.14 per diluted share was reported, after the net
effects of the $.08 per share restructuring charge recorded for 2000 that
occurred in the first quarter of 2000.

     The weighted average number of diluted shares outstanding increased by
approximately 426,000 shares or 18.4% for 2001 compared to the prior year. The
increase resulted from the issuance in private placements of 375,000 shares in
the second quarter 2000 and 360,000 shares in the fourth quarter 2000, as well
as stock option exercises and higher average stock prices during the prior year.

                                       -3-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

2000 compared to 1999

     Consolidated results of operations for 2000 reflect an increase in net
sales of $2,639,000 or 12.9% to $23,036,000 and a decrease in operating income
of $54,000 or 10.8% to $444,000 after a first quarter personnel restructuring
charge of $315,000, compared to operating income of $498,000 for the prior year.
Net income of $315,000 was recorded for 2000, after the net effects of the
personnel restructuring charge of $189,000, compared to net income of $242,000
reported for the prior year. Diluted net income per share for 2000 was $.14,
reflecting the restructuring charge of $.08 per diluted share. For the prior
year, diluted net income per share of $.14 was also reported.

     The increase in consolidated net sales of $2,639,000 for 2000 was primarily
attributable to an increase of $2,524,000 in net sales of microwave
micro-circuitry products from $3,394,000 in 1999 to $5,918,000 from the
Company's subsidiary Filtran Microcircuits Inc. ("FMI"), from the date of its
acquisition on February 25, 1999. An increase in shipments of electronic
components of $115,000 also contributed to the increase.

     Orders of $27,558,000 were received for 2000, which included $7,045,000 for
FMI, an increase of $8,094,000 or 41.6% compared to $19,464,000 in orders
received for 1999. Backlog increased by $4,522,000 or 73.9% to $10,640,000 at
year-end 2000 compared to $6,118,000 at year-end 1999.

     Cost of sales increased $1,234,000 or 11.6%, and as a percentage of net
sales decreased 0.6% to 51.4%. Cost reductions were achieved from manufacturing
efficiencies attributable to a reduction in direct labor and manufacturing
overhead costs, related in part to the transfer of further production to the
Costa Rica manufacturing facility, and other manufacturing cost improvements
resulting from the first quarter 2000 personnel restructuring. Depreciation
expense included in cost of sales was $1,504,000, an increase of $261,000, of
which $223,000 was associated with Multi-Mix(R) Microtechnology capital assets.
The increase in depreciation expense was a result of higher capital equipment
purchases in the current and prior years.

     Gross profit for the electronic components segment of $8,302,000 was 48.5%
of segment net sales of $17,118,000 in 2000 compared to $8,319,000, which was
48.9% of segment net sales of $17,003,000 in the prior year. Gross profit for
the microwave micro-circuitry segment was $2,884,000 or 48.7 % of segment net
sales of $5,918,000 compared to $1,462,000 or 43.0% of the 1999 period's segment
net sales of $3,394,000.

     Selling, general and administrative expenses of $8,402,000 increased
$1,346,000 or 19.1%, and when expressed as a percentage of net sales, increased
1.9% to 36.5%. This increase included $451,000 from FMI to $1,082,000 compared
to $631,000 in 1999 from the date of FMI's acquisition. Other increases resulted
from higher sales commission expenses, selling and marketing expenses in
connection with the Company's new Multi-Mix(R) Microtechnology product line,
and incentive compensation and profit sharing payments of $280,000.

                                       -4-
<PAGE>

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

     Amortization expense of $154,000 is attributable to goodwill of
approximately $3,100,000 arising from the acquisition of FMI, which is being
amortized on a straight-line basis over a life of twenty years, compared to last
year's short post-acquisition period amortization expense of $132,000.

     Research and development expenses for new products were $1,871,000 in 2000,
and decreased $225,000 or 10.7% compared to the prior year. Except for $292,000
of expenses at FMI, which declined by $151,000 from the previous year,
substantially all of the research and development expenses in 2000 were for
Multi-Mix(R) Microtechnology products. The Company anticipates spending similar
amounts for product development in fiscal year 2001.

     The restructuring charge of $315,000 relates to severance and certain other
costs incurred for the termination of fifteen persons during the first quarter
of fiscal 2000, of which $296,000 was related to the electronic components
segment and $19,000 was related to the microwave micro-circuitry segment. The
operating loss after the restructuring charge for the electronic components
segment was $893,000 compared to operating income of $242,000 or 1.4% of segment
net sales in the prior year. Operating income after the restructuring charge for
the microwave micro-circuitry segment was $1,337,000 or 22.6% of segment net
sales compared to operating income of $256,000 or 7.6% in the prior year.

     Interest expense, net was $59,000 for 2000 compared to $220,000 for the
prior year and was principally incurred on borrowings under a term loan and
revolving credit facility in connection with the acquisition of FMI during the
first quarter of 1999. The decrease in 2000 was primarily due to offsetting
interest income that arose from proceeds related to the issuance of common
stock.

     The provision for income taxes was $70,000 for 2000 with an effective tax
rate of 18.2% compared to $35,000 for 1999 with an effective tax rate of 12.6%.
The principal adjustments to the statutory Federal income tax rate of 34% for
2000 relate to $117,000 in tax credits associated with research and development
expenditures and foreign sales corporation tax benefits of $21,000, partially
offset by a $52,000 cost due to non-deductible amortization of goodwill.

                                       -5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

     The Company had liquid resources comprised of cash and cash equivalents
totaling approximately $1,800,000 at the end of 2001 compared to approximately
$3,400,000 at the end of 2000. The Company's working capital was approximately
$4,000,000 and its current ratio was 1.4 at the end of 2001 compared to
$9,400,000 and 3.0, respectively, at the end of 2000.

     The Company's operating activities provided positive cash flows of
$1,241,000 in 2001 compared to $1,690,000 of positive cash flows in 2000. The
primary positive operating cash flows resulted from $2,515,000 of depreciation
and amortization charges that increased $518,000 compared to such charges in
2000 and an increase in accounts payable, accrued and deferred liabilities.
These positive cash flows were offset primarily by an increase in inventories of
$1,170,000 to $4,797,000, which includes $982,000 of inventories associated with
Multi-Mix(R) Microtechnology products, increases in income tax refunds
receivable, other current assets and deferred tax assets, and payments of
deferred compensation.

     The Company made net investments in property, plant and equipment of
$10,853,000 during 2001, which excludes unpaid invoices of $529,000 at December
29, 2001, compared to net investments made in property, plant and equipment of
$3,986,000 during 2000. These capital expenditures, which include capitalized
construction period rent and interest of $488,000, are related to new production
and test equipment capabilities in connection with the introduction of new
products and enhancements to existing products. The depreciated cost of capital
equipment associated with Multi-Mix(R) Microtechnology was $11,352,000 at the
end 2001, an increase of $7,348,000 compared to $4,004,000 at the end of 2000.

     The Company commenced borrowing in April 2001 under its existing revolving
credit facility with Fleet Bank (formerly Summit Bank), at an interest rate of
one-half percent below the bank's floating prime rate, which was 7.0% at that
time. During 2001, the Company borrowed an aggregate amount of $7,500,000 under
this facility, which was also the amount owed at year-end 2001. The weighted
average interest rate on the borrowings under this facility during 2001 was 5.7%
and the year-end interest rate and current interest rate were both 4.25%. During
the first quarter of 2002, the Company obtained an additional increase of
$2,500,000 in the Company's lines of credit with Fleet Bank which were increased
to a total of $10,000,000, $3,500,000 of which consists of a first mortgage
callable in March 2007 on the Company's West Caldwell, New Jersey manufacturing
facility. The revolving line of credit expires June 2002 and management expects
that Fleet Bank will agree to an extension thereof. The Company successfully
completed a private placement of 528,400 shares of common stock on February 28,
2002 that raised $5,284,000 before offering expenses. The Company repaid
$5,000,000 to Fleet Bank from the proceeds of that offering. The Company
currently has $6,500,000 available under its existing lines of credit.

     Management believes that its current revolving credit facility, together
with the present liquid resources and cash flows that are expected to be
provided by operations, should provide sufficient resources for currently
contemplated operations during fiscal year 2002.

     The Company's capital expenditures for new projects and production
equipment have exceeded its depreciation and amortization expenses in 2001 by
approximately $8,500,000. The Company intends to issue commitments to purchase
$2,800,000 of capital equipment from various vendors. The Company has an
outstanding balance of work to be completed on a purchase order issued to a
general contractor for approximately $100,000 for the final completion of the
19,200 square-foot building addition to its West Caldwell, New Jersey
manufacturing facility. The Company anticipates that such equipment will be
purchased and become operational and the building expansion will be completed
during the second quarter of 2002. The Company has temporarily deferred certain
improvements and purchases of additional equipment for the existing 52,000
square-foot facility that are projected to cost approximately $3,000,000.

     Effective January 2001, the Company modified its existing lease for its
Costa Rica manufacturing facility, and entered into a facility sharing
arrangement with a previous customer, reducing the size of its facility to
approximately 8,200 square-feet and extended the lease to December 2004. The
Company received an initial payment of $200,000 in January 2001 under the
facility sharing agreement and recovered approximately $102,000 of costs that
were deferred at December 30, 2000 in connection with such agreement. In January
2002, the Company received the second payment of $150,000 and the final payment
of $100,000 is due January 2003.

                                       -6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


     In February 2001, the Company entered into a new five-year lease in Costa
Rica for an approximately 36,200 square-feet facility for manufacturing new
Multi-Mix(R) Microtechnology products. It is anticipated that the leasehold
improvements and capital equipment for this manufacturing facility, which is
expected to cost approximately $4,500,000, should become operational during the
second quarter of 2002.

Related Party Transactions

     In May 1998, the Company sold 22,000 shares of Common Stock to Mason N.
Carter, Chairman, President and Chief Executive Officer of the Company, at a
price of $11.60 per share, which approximated the average closing price of the
Company's Common Stock during the first quarter of 1998. The Company extended to
Mr. Carter a loan of $255,000 in connection with the purchase of these shares.
In addition, the Company amended a prior loan to Mr. Carter of $105,000. The
total of $360,000 is due May 4, 2003 and interest payments (except as described
below) are due quarterly, calculated at a variable interest rate based on the
prime rate of the Company's lending bank. However, payment of interest that
accrued from November 1998 until November 1999 was deferred and payment of
interest that will accrue from November 2001 until November 2002 will be
deferred until May 4, 2003. Payment of the loan is secured by the pledge of
33,000 shares of Common Stock purchased by Mr. Carter with the proceeds of the
loans and Mr. Carter has agreed to restrictions on the resale of these shares of
Common Stock.

     On August 31, 2000, in connection with an amendment of Mr. Carter's
employment agreement, the Company loaned Mr. Carter an additional $280,000.
Interest on the loan will be calculated at a variable interest rate based on the
prime rate of the Company's lending bank, payable in accordance with Mr.
Carter's employment agreement. Each year the Company will forgive 20% of the
amount due under this loan and the accrued interest thereon. During 2001, the
amount of $56,000 principal and $23,000 of accrued interest was forgiven.

     The Company is a party to a stockholder's agreement, dated as of October
30, 1998, with a former director and Chairman of the Company. Pursuant to the
stockholder's agreement, this former director is required to vote his shares of
Common Stock as directed by the Board of Directors or the Chief Executive
Officer of the Company, and was paid $50,000 for ten months of consulting
services in 2001. There are no future consulting service commitments and no
other obligations of the Company pursuant to such agreement.

     During 2001, the Company's General Counsel Rosenman & Colin LLP was paid
$288,000 for providing legal services to the Company. A director of the Company
is of counsel to Rosenman & Colin LLP.

     During 2001, the Company retained Career Consultants, Inc. and SK
Associates to perform executive searches and to provide outplacement services to
the Company. The Company paid an aggregate of $117,000 to these companies during
the year 2001. A director of the Company is the Chairman and Chief Executive
Officer of these companies.

     During 2001, a director of the Company was paid $40,300 for providing
financial consulting services to the Company.

     During 2001, a director of the Company was compensated at a rate of $36,000
annually for providing technology-related consulting services to the Company.

     Each director who is not an employee of the Company receives a monthly
director's fee of $1,500, plus an additional $500 for each meeting of the Board
and of any Committees of the Board attended. The directors are also reimbursed
reasonable travel expenses incurred in attending Board and Committee meetings.
In addition, pursuant to the 2001 Stock Option Plan, each non-employee director
is granted an immediately exercisable option to purchase 2,500 shares of the
Common Stock of the Company on the date of each Annual Meeting of Stockholders.
Each such grant is priced at the fair market value of the Common Stock on the
date of such grant.



                                       -7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

     On April 7, 2000, the Company entered into a stock purchase and exclusivity
agreement with Ericsson Microelectronics, A.B. ("Ericsson") and Ericsson Holding
International, B.V. ("EHI") pursuant to which the Company sold to EHI 375,000
shares of Common Stock, representing approximately 17.5% of the Company's
outstanding Common Stock after giving effect to the sale, for an aggregate
purchase price of $3,375,000. The stock purchase and exclusivity agreement also
provides that the Company will design, develop and produce exclusively for
Ericsson Multi-Mix products that incorporate active RF power transistors for use
in wireless base station applications, television transmitters and certain other
applications that are intended for Bluetooth transceivers. The Company also
agreed that it will generally be the priority supplier for such products.

     On October 26, 2000, the Company entered into subscription agreements for
Common Stock and three-year warrants to purchase shares of Common Stock
("Warrants") with a group of investors led by Adam Smith Investment Partners,
L.P. and certain of its affiliates (the "Adam Smith Investors"), EHI and Messrs.
E. Cohen, Goldberg and Fuller, members of the Board (the "Director Investors").
The Company sold to the investors units at a price of $12.80 per unit, each unit
consisting of one share of Common Stock and one Warrant with an exercise price
of $21.25 which expire on October 26, 2003 ("Units"). The Adam Smith Investors
purchased 240,000 Units, EHI purchased 100,000 Units and Messrs. E. Cohen,
Goldberg and Fuller purchased 5,000, 11,000 and 4,000 Units, respectively, for
an aggregate purchase price of $4,608,000. The Common Stock portion of the Units
represented an aggregate of approximately 14% of the outstanding Common Stock of
the Company after giving effect to the sales.

     On February 28, 2002, the Company entered into a stock purchase agreement
with DuPont Electronic Technologies pursuant to which the Company sold 528,413
shares of Common Stock, representing approximately 16.6% of the Company's
outstanding Common Stock after giving effect to the sale, for an aggregate
purchase price of $5,284,000. The Company and DuPont Electronic Technologies
have also agreed to work together to better understand the dynamics of the
markets for high-frequency electronic components and modules. David B. Miller,
Vice President and General Manager of DuPont Electronic Technologies, was
appointed to the Company's Board of Directors. As a result of this sale, certain
contractual anti-dilution provisions affected both the Warrant exercise price
and the number of shares subject to the Warrants. The exercise price of the
Warrants issued in October 2000 was reduced to $17.80, the number of shares
subject to the Warrants was increased to 429,775 and the expiration date
remained unchanged.

                                       -8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Recent Accounting Pronouncements

     The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which established new accounting and reporting
standards and requires that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded as assets or
liabilities in the balance sheet measured at fair value. SFAS No. 133 requires
that changes in the fair value of derivatives be recognized currently in
earnings unless specific hedge accounting criteria are met. The Company has
adopted the provisions of the Statement in 2001. The Company does not currently
hold derivative instruments or engage in hedging activities and therefore the
adoption of SFAS No. 133 has not had any impact on the Company's financial
position, results of operations or cash flows.

     On June 30, 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires all business combinations initiated after June
30, 2001 to be accounted for using the purchase method of accounting and
eliminates the pooling method of accounting. SFAS No. 141 will not have an
impact on the Company's business since the Company has accounted for all of its
business combinations using the purchase method of accounting.

     With the adoption of SFAS No.142, which was adopted by the Company on
December 30, 2001, goodwill will no longer be subject to amortization over its
estimated useful life. However, goodwill will be subject to at least an annual
assessment for impairment and more frequently if circumstances indicate a
possible impairment. The Company is required to perform a fair value based
goodwill impairment test. In addition, under SFAS No. 142, an acquired
intangible asset should be separately recognized if the benefit of the
intangible is obtained through contractual or other legal rights, or if the
intangible asset can be sold, transferred, licensed, rented, or exchanged.
Intangible assets will be amortized over their estimated useful lives. Any
write-down of goodwill would be charged to results of operations in the periods
in which the recorded value of goodwill and certain intangibles is more than its
fair value. On an annualized basis, the Company expects that the adoption of
this accounting standard will reduce the amortization of goodwill and
intangibles by approximately $150,000 commencing in 2002, unless future
impairment reviews result in periodic write-downs of goodwill.

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations", which requires the fair value for
an asset retirement obligation to be recorded in the period in which it is
incurred. SFAS 143 is effective for fiscal years beginning after June 15, 2002,
with earlier option encouraged. The Company does not expect that the adoption of
SFAS No. 143 will have a material impact on the Company's financial position or
results of operations.

     In August 2001, the Financial Accounting Standards Board issued SFAS
No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
is effective for fiscal periods beginning after December 15, 2001. SFAS No.144
establishes an accounting model for impairment or disposal of long-lived assets
to be disposed of by sale. The Company does not expect that the adoption of SFAS
No. 144 will have a material impact on the Company's financial position or
results of operations.

Forward-Looking Statements

     This Annual Report on Form 10-KSB contains statements relating to future
results of the Company (including certain projections and business trends) that
are "forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected as
a result of certain risks and uncertainties. These risks and uncertainties
include, but are not limited to: general economic and industry conditions;
slower than anticipated penetration into the satellite communications, defense
and wireless markets; the risk that the benefits expected from the acquisition
of Filtran Microcircuits Inc. are not realized; the ability to protect
proprietary information and technology; competitive products and pricing
pressures; the risk that the Company will not be able to continue to raise
sufficient capital to expand its operations as currently contemplated by its
business strategy; risks relating to governmental regulatory actions in
communications and defense programs; risks associated with demand for and market
acceptance of existing and newly developed products; and inventory risks due to
technological innovation and product obsolescence, as well as other risks and
uncertainties, including but not limited to those detailed from time to time in
the Company's Securities and Exchange Commission filings. These forward-looking
statements are made only as of the date hereof, and the Company undertakes no
obligation to update or revise the forward-looking statements, whether as a
result of new information, future events or otherwise.

                                       -9-
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Merrimac Industries, Inc.:

     We have audited the accompanying consolidated balance sheets of Merrimac
Industries, Inc. and Subsidiaries as of December 29, 2001 and December 30, 2000,
and the related consolidated statements of operations and comprehensive income
(loss), stockholders' equity and cash flows for each of the three years in the
period ended December 29, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Merrimac
Industries, Inc. and Subsidiaries as of December 29, 2001 and December 30, 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended December 29, 2001 in conformity with accounting
principles generally accepted in the United States.



                                                       /s/ ARTHUR ANDERSEN LLP
                                                       -----------------------
                                                           ARTHUR ANDERSEN LLP






Roseland, New Jersey
March 1, 2002


                                      -10-

<page>


To Merrimac Industries, Inc.:


     We have audited the consolidated financial statements of Merrimac
Industries, Inc. and subsidiaries as of December 29, 2001 and for the year then
ended and have issued our report thereon dated March 1, 2002. We represent that
this audit was subject to our quality control system for the U.S. accounting and
auditing practice to provide reasonable assurance that the engagement was
conducted in compliance with professional standards, that there was appropriate
continuity of Arthur Andersen personnel working on the audit, availability of
national office consultation, and availability of personnel at foreign
affiliates of Arthur Andersen to conduct the relevant portions of the audit.

     This letter and its contents are intended solely for the internal use of
Merrimac Industries, Inc. However, Merrimac Industries, Inc. may reveal to third
parties that it has received this letter and describe its contents. This letter
is not intended to be and should not be used by anyone other than Merrimac
Industries, Inc.

/s/ ARTHUR ANDERSEN LLP
-----------------------

ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 28, 2002



                                      -11-
<PAGE>


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000
<TABLE>
<CAPTION>
                                                                  2001                2000             1999
                                                               -----------      -----------      -----------
OPERATIONS
<S>                                                           <C>               <C>             <C>
Net sales .................................................    $25,792,631      $23,035,682      $20,397,031
                                                               -----------      -----------      -----------
Costs and expenses:
   Cost of sales ..........................................     12,513,621       11,849,929       10,616,404
   Selling, general and administrative ....................      9,531,583        8,401,571        7,055,785
   Research and development ...............................      3,381,746        1,870,745        2,095,498
   Amortization of goodwill ...............................        148,669          154,216          131,718
   Reincorporation charge..................................        330,000              -                -
   Restructuring charge....................................            -            315,000              -
                                                               -----------      -----------      -----------
                                                                25,905,619       22,591,461       19,899,405
                                                               -----------      -----------      -----------
Operating income (loss)....................................       (112,988)         444,221          497,626
Interest and other (income) expense, net ..................        (17,067)          59,165          220,371
                                                               -----------      -----------      -----------
Income (loss) before income taxes .........................        (95,921)         385,056          277,255
Provision (benefit) for income taxes ......................       (120,000)          70,000           35,000
                                                               -----------      -----------      -----------

Net income ................................................    $    24,079      $   315,056      $   242,255
                                                               ===========      ===========      ===========


Net income per common share-basic .........................           $.01             $.15             $.14
Net income per common share-diluted .......................           $.01             $.14             $.14
                                                               -----------      -----------      -----------
Weighted average number of shares outstanding-basic........      2,623,924        2,134,542        1,746,968
Weighted average number of shares outstanding-diluted......      2,735,789        2,309,807        1,765,831
                                                               -----------      -----------      -----------
COMPREHENSIVE INCOME (LOSS)

Net income.................................................    $    24,079      $   315,056      $   242,255
Comprehensive income (loss):
  Foreign currency translation adjustment..................       (276,091)        (193,564)         142,589
                                                               -----------      -----------      -----------
Comprehensive income (loss)...............................     $  (252,012)     $   121,492      $   384,844
                                                               ===========      ===========      ===========
</TABLE>
See accompanying notes.


                                       -12-
<PAGE>

CONSOLIDATED BALANCE SHEETS

December 29, 2001 and December 30, 2000
<TABLE>
<CAPTION>
                                                                                   2001            2000
                                                                                -----------     -----------
Assets
<S>                                                                               <C>            <C>
Current assets:
   Cash and cash equivalents ...............................................    $ 1,844,434     $ 3,425,390
   Accounts receivable, net.................................................      5,632,008       5,617,085
   Income tax refunds receivable............................................        195,323          42,924
   Inventories..............................................................      4,797,205       3,627,535
   Other current assets ....................................................        691,712         384,224
   Deferred tax assets .....................................................        548,000         871,000
                                                                                -----------     -----------
                  Total current assets .....................................     13,708,682      13,968,158
                                                                                -----------     -----------
Property, plant and equipment, at cost .....................................     33,568,651      22,789,788
   Less accumulated depreciation and amortization .. .......................     14,605,751      12,770,791
                                                                                -----------     -----------
Property, plant and equipment, net..........................................     18,962,900      10,018,997
Other assets ...............................................................        676,073         752,381
Deferred tax assets, non-current............................................      1,194,000          86,000
Goodwill, net of accumulated amortization of $434,603 and $285,934..........      2,451,037       2,774,248
                                                                                -----------     -----------
                  Total Assets .............................................    $36,992,692     $27,599,784
                                                                                ===========     ===========

Liabilities and Stockholders' Equity

Current liabilities:
   Current portion of long-term debt .......................................    $ 4,368,565     $   119,932
   Accounts payable ........................................................      3,577,922       2,838,198
   Accrued liabilities .....................................................      1,620,305       1,432,128
   Income taxes payable.....................................................        268,274         173,000
                                                                                -----------     -----------
                  Total current liabilities ................................      9,835,066       4,563,258

Long-term debt, net of current portion .....................................      3,871,635         402,828
Deferred compensation ......................................................        155,768         185,406
Deferred liabilities........................................................        118,597             -
Deferred tax liabilities ...................................................        958,000         544,000
                                                                                -----------     -----------
                  Total liabilities.........................................     14,939,066       5,695,492
                                                                                -----------     -----------

Commitments and contingencies

Stockholders' equity:
   Preferred stock, par value $.01 per share
     Authorized: 1,000,000 shares
      No shares issued
   Common stock, par value $.01 per share:
     Authorized: 20,000,000 shares
      Issued: 2,859,249 and 2,805,373 shares................................         28,592          28,054
   Common stock warrants....................................................        837,200         837,200
   Additional paid-in capital ..............................................     14,327,586      13,982,778
   Retained earnings .......................................................      9,531,445       9,507,366
   Accumulated comprehensive income (loss)..................................       (327,066)        (50,975)
                                                                                -----------     -----------
                                                                                 24,397,757      24,304,423
   Less treasury stock, at cost - 208,904 shares............................     (1,760,131)     (1,760,131)
   Less loan to officer-stockholder ........................................       (584,000)       (640,000)
                                                                                -----------     -----------
                  Total stockholders' equity ...............................     22,053,626      21,904,292
                                                                                -----------     -----------
                  Total Liabilities and Stockholders' Equity ...............    $36,992,692     $27,599,784
                                                                                ===========     ===========
</TABLE>

See accompanying notes.


                                       -13-
<PAGE>

<TABLE>
<CAPTION>


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

                                                    Common     Additional              Accumulated                        Loan to
                                 Common Stock        Stock       Paid-in    Retained  Comprehensive   Treasury  Stock     Officer-
                              Shares     Amount    Warrants(A)  Capital(B)  Earnings   Income(Loss)   Shares   Amount    Stockholder
                             -------------------------------------------------------------------------------------------------------
<S>                          <C>        <C>         <C>       <C>           <C>          <C>         <C>       <C>         <C>
                             -------------------------------------------------------------------------------------------------------
Balance, January 2, 1999     2,690,405  $26,904     $    -    $12,539,172   $8,950,055   $   -        902,549  $7,733,872  $360,000
                             -------------------------------------------------------------------------------------------------------
Net income..................                                                   242,255
Exercise of options.........     7,904       79                    39,531
Purchase of common stock....                                                                           56,355     345,422
Foreign currency translation                                                             142,589
                             -------------------------------------------------------------------------------------------------------
Balance, January 1, 2000.... 2,698,309   26,983          -     12,578,703    9,192,310   142,589      958,904   8,079,294   360,000
                             -------------------------------------------------------------------------------------------------------
Net income..................                                                   315,056
Exercise of options.........   107,064    1,070                   945,831
Sale of common stock........                                      458,245                            (750,000) (6,319,163)
Sale of common stock warrants                        837,200
Loan to officer-stockholder.                                                                                                280,000
Foreign currency translation                                                            (193,564)
                             -------------------------------------------------------------------------------------------------------
Balance, December 30, 2000.. 2,805,373   28,053      837,200   13,982,779    9,507,366   (50,975)     208,904   1,760,131   640,000
                             -------------------------------------------------------------------------------------------------------
Net income..................                                                    24,079
Exercise of options.........    53,876      539                   344,807
Forgivness of loan
   to officer-stockholder...                                                                                                (56,000)
Foreign currency translation                                                            (276,091)
                             -------------------------------------------------------------------------------------------------------
Balance, December 29, 2001   2,859,249  $28,592     $837,200  $14,327,586   $9,531,445 $(327,066)     208,904  $1,760,131  $584,000
                             =======================================================================================================
</TABLE>

     The amounts for the par value of common stock and additional paid-in
capital for years ended prior to December 29, 2001 have been restated to give
effect to the Delaware reincorporation in 2001. See Note 2 Delaware
reincorporation.

     (A) Common stock warrants for 360,000 shares of common stock are
exercisable at $21.25 per share and expire October 26, 2003. See Note 17
Subsequent event.

     (B) Tax benefits associated with the exercise of employee stock options are
recorded to additional paid-in capital when such benefits are realized.


See accompanying notes.



                                      -14-
<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 29, 2001, December 30, 2000 and  January 1, 2000
<TABLE>
<CAPTION>
                                                                  2001              2000            1999
Cash flows from operating activities:                         ------------      -----------      -----------
<S>                                                               <C>            <C>            <C>
    Net income ............................................   $     24,079      $   315,056      $   242,255
    Adjustments to reconcile net income to net cash
      provided by operating activities:
        Depreciation and amortization .....................      2,366,194        1,842,679        1,503,752
        Amortization of goodwill ..........................        148,669          154,216          131,718
        Amortization of deferred income....................        (87,288)             -                -
        Deferred and other compensation ...................         66,564           13,219           37,084
        Deferred income taxes .............................        (80,000)         330,000          330,000
        Changes in operating assets and liabilities,
         net of acquisition in 1999:
          Accounts receivable .............................        (14,923)      (1,842,289)         695,392
          Income tax refunds receivable....................       (152,399)         351,622           (7,686)
          Inventories .....................................     (1,169,669)        (714,112)         391,911
          Other current assets ............................       (307,488)          35,068           65,053
          Deferred tax assets .............................       (291,000)        (231,000)           3,000
          Other assets ....................................         76,308         (188,874)        (206,977)
          Accounts payable ................................        212,286        1,673,614         (497,055)
          Accrued liabilities .............................        198,153          319,860         (297,103)
          Income taxes payable ............................         95,736          173,000          (15,114)
          Deferred compensation ...........................        (50,178)        (262,071)        (261,272)
          Other liabilities................................        205,885              -                -
          Loan to officer-stockholder......................            -           (280,000)             -
                                                              ------------      -----------      -----------
Net cash provided by operating activities .................      1,240,929        1,689,988        2,114,958
                                                              ------------      -----------      -----------
Cash flows from investing activities:
  Cash acquired with acquisition...........................            -                -            203,323
  Acquisition of business .................................            -                -         (4,700,402)
  Purchases of capital assets .............................    (10,876,662)      (4,018,931)      (2,465,277)
  Proceeds from sales of capital assets ...................         24,115           33,041            1,683
                                                              -------------     -----------      -----------
Net cash used in investing activities .....................    (10,852,547)      (3,985,890)      (6,960,673)
                                                              -------------     -----------      -----------
Cash flows from financing activities:
    Debt assumed with acquisition .........................            -                -            451,126
    Borrowings under term loan ............................            -                -          2,500,000
    Borrowings under revolving credit facility ............      7,500,000              -          3,000,000
    Borrowings under lease facility........................        414,907          343,500              -
    Repayment of borrowings ...............................       (155,409)      (4,217,453)      (1,554,412)
    Repurchase of common stock ............................            -                -           (345,422)
    Proceeds from the issuance of common stock and
      common stock warrants, net...........................            -          7,614,608              -
    Proceeds from the exercise of stock options............        345,346          946,901           39,610
                                                              ------------      -----------      -----------
Net cash provided by financing activities .................      8,104,844        4,687,556        4,090,902
                                                              ------------      -----------      -----------
Effect of exchange rate changes............................        (74,182)         (74,405)          10,288
                                                              ------------      -----------      -----------
Net increase (decrease) in cash and cash equivalents ......     (1,580,956)       2,317,249         (744,525)
Cash and cash equivalents at beginning of year ............      3,425,390        1,108,141        1,852,666
                                                              ------------      -----------      -----------
Cash and cash equivalents at end of year ..................   $  1,844,434      $ 3,425,390      $ 1,108,141
                                                              ============      ===========      ===========
Supplemental disclosures of cash flow information:
   Cash paid during the year for:
     Income taxes .........................................   $    280,000      $    38,000      $   139,000
     Loan interest ........................................   $    219,000      $   223,000      $   279,000
                                                              ============      ===========      ===========

   Unpaid purchases of capital assets.....................    $    529,245              -                -
                                                              ============      ===========      ===========
</TABLE>
See accompanying notes.


                                      -15-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

1. Summary of significant accounting policies

     Principles of consolidation: The financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant intercompany
accounts have been eliminated in consolidation.

     Cash and cash equivalents: The Company considers all highly liquid
securities with an original maturity of less than three months to be cash
equivalents. The Company maintains cash deposits with banks that at times exceed
applicable insurance limits. The Company reduces its exposure to credit risk by
maintaining such deposits with high quality financial institutions. Because of
their liquidity and short-term maturities, the carrying value of these financial
instruments approximates their fair value.

     Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.

     Contract revenues: Sales and related cost of sales on fixed-price contracts
that require customization of standard products to customer specifications are
recorded as title to these products transfers to the customer, which is
generally on the date of shipment. Prior to shipment, manufacturing costs
incurred on such contracts are recorded as work in process inventory.
Anticipated losses on contracts are charged to operations when identified.
Revenue related to non-recurring engineering charges is generally recognized
upon shipment of the initial units produced or based upon contractually
established stages of completion.

     Inventories: Inventories are valued at the lower of average cost or market.
Provision is made for potential losses on slow moving and obsolete inventories
when identified.

     Foreign currency translation: The financial statements of the Company's
foreign subsidiaries have been translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation". This statement provides that all balance sheet accounts be
translated at year-end rates of exchange, except stockholders' equity accounts
which are translated at historical rates. Income and expense accounts are
translated at the average of exchange rates in effect during the year. The
resulting translation adjustment is reported as a separate component of
stockholders' equity and accumulated comprehensive income (loss). Realized
foreign exchange transaction gains and losses, which are not material, are
included in income.

     Comprehensive income (loss): In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income ("SFAS 130")". SFAS 130 defines comprehensive
income, which includes items in addition to those reported in the statement of
operations, and requires disclosures about the components of comprehensive
income. Comprehensive income includes all changes in stockholders' equity during
a period except those resulting from investments by or distributions to
stockholders. The Company has determined the components of comprehensive income
(loss) impacting the Company consists primarily of cumulative translation
adjustments.

     Reclassifications and restatements: Certain prior-year amounts have been
reclassified and restated to conform to the current year presentation.



                                       -16-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

1. Summary of significant accounting policies (continued)

     Depreciation: Depreciation is computed for financial purposes on the
straight-line method, while accelerated methods are used, where applicable, for
tax purposes. The following estimated useful lives are used for financial income
statement purposes:

Land improvements .........................................            10 years
Building ..................................................            25 years
Machinery and equipment ...................................        3 - 10 years
Office equipment, furniture and fixtures...................        5 - 10 years

     Assets under construction are not depreciated until the assets are placed
into service. Fully depreciated assets included in property, plant and equipment
at December 29, 2001 and December 30, 2000 amounted to $7,967,000 and
$7,428,000, respectively.

     Long-lived assets: The Company applies Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of". Under Statement No. 121, impairment losses
on long-lived assets are recognized when events or changes in circumstances
indicate that the undiscounted cash flows estimated to be generated by such
assets are less than their carrying value. Impairment losses are then measured
by comparing the fair value of assets to their carrying amounts.

     Goodwill: Goodwill represents the excess of cost over the fair value of net
assets of an acquired business. The cost is being amortized over a 20 year life
using the straight-line method. Goodwill is reviewed for impairment whenever
events and changes in circumstances indicate that the carrying amount may not be
recoverable.

     Advertising: The Company expenses the cost of advertising and promotion as
incurred. Advertising costs charged to operations were $232,000 in 2001,
$215,000 in 2000 and $195,000 in 1999.

     Income taxes: The Company uses the liability method to account for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on temporary differences between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Tax benefits associated with the exercise of
stock options are recorded to additional paid-in capital in the year the tax
benefits are realized.

     Savings and Investment Plan: The Company's Savings and Investment Plan is a
401(k) plan (the "Plan") that provides eligible employees with the option to
defer and invest up to 16% of their compensation, with 50% of the first 6% of
such savings matched by the Company. The Company's contributions to the Plan
were $185,000 in 2001, $163,000 in 2000 and $165,000 in 1999. The Board of
Directors may also authorize a discretionary amount to be contributed to the
Plan and allocated to eligible employees annually. The amount contributed to the
Plan was $45,000 in 2000. No discretionary contribution amounts were authorized
for 2001 and 1999.

     Stock-based compensation: Effective December 31, 1995, the Financial
Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based
Compensation," which permitted the Company to elect to account for stock-based
compensation arising under its stock option and stock subscription plans and key
employee incentive plan by using a fair value based method or continuing to
measure compensation expense using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". The Company has elected to continue using the intrinsic value method
and make the pro forma disclosures required by Statement No. 123 of net income
and net income per share as if the fair value based method of accounting had
been applied (see Note 9). Since the Company generally grants options and rights
to subscribe to purchase shares at or near the market price of the underlying
share on the date of grant, it will not be required to recognize compensation
expense as a result of such grants.


                                      -17-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

1. Summary of significant accounting policies (continued)

     Research and development: Research and development expenditures of
$3,382,000 in 2001, $1,871,000 in 2000 and $2,096,000 in 1999 were expensed as
incurred.

     Net income per share: Effective January 3, 1998, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share," which establishes the new standard for computation and presentation of
net income per common share. Under the standard, both basic and diluted net
income per common share are presented.

     Basic net income per common share is calculated by dividing net income,
less dividends on preferred stock, if any, by the weighted average common shares
outstanding during the period.

     The calculation of diluted net income per common share is similar to that
of basic net income per common share, except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if all potentially dilutive common shares, principally those
issuable under stock options, were issued during the reporting period (see Notes
9 and 12).

     Accounting period: The Company's fiscal year is the 52-53 week period
ending on the Saturday closest to December 31. The Company has quarterly dates
that correspond with the Saturday closest to the last day of each calendar
quarter and each quarter consists of 13 weeks in a 52-week year. Every fifth
year, the additional week to make a 53-week year (fiscal year 1997 was the
latest and fiscal year 2002 will be the next) is added to the fourth quarter,
making such quarter consist of 14 weeks.

     Recent Accounting Pronouncements: The Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which established new
accounting and reporting standards and requires that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded as assets or liabilities in the balance sheet measured at fair value.
SFAS No. 133 requires that changes in the fair value of derivatives be
recognized currently in earnings unless specific hedge accounting criteria are
met. The Company has adopted the provisions of the Statement in 2001. The
Company does not currently hold derivative instruments or engage in hedging
activities and therefore the adoption of SFAS No. 133 has not had any impact on
the Company's financial position, results of operations or cash flows.

     On June 30, 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires all business combinations initiated after June
30, 2001 to be accounted for using the purchase method of accounting and
eliminates the pooling method of accounting. SFAS No. 141 will not have an
impact on the Company's business since the Company has accounted for all of its
business combinations using the purchase method of accounting.

     With the adoption of SFAS No.142, which was adopted by the Company on
December 30, 2001, goodwill will no longer be subject to amortization over its
estimated useful life. However, goodwill will be subject to at least an annual
assessment for impairment and more frequently if circumstances indicate a
possible impairment. The Company is required to perform a fair value based
goodwill impairment test. In addition, under SFAS No. 142, an acquired
intangible asset should be separately recognized if the benefit of the
intangible is obtained through contractual or other legal rights, or if the
intangible asset can be sold, transferred, licensed, rented, or exchanged.
Intangible assets will be amortized over their estimated useful lives. Any
write-down of goodwill would be charged to results of operations in the periods
in which the recorded value of goodwill and certain intangibles is more than its
fair value. On an annualized basis, the Company expects that the adoption of
this accounting standard will reduce the amortization of goodwill and
intangibles by approximately $150,000 commencing in 2002, unless future
impairment reviews result in periodic write-downs of goodwill.

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations", which requires the fair value for
an asset retirement obligation to be recorded in the period in which it is
incurred. SFAS 143 is effective for fiscal years beginning after June 15, 2002,
with earlier option encouraged. The Company does not expect that the adoption of
SFAS No. 143 will have a material impact on the Company's financial position or
results of operations.

                                      -18-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

1. Summary of significant accounting policies (continued)

     In August 2001, the Financial Accounting Standards Board issued SFAS
No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
is effective for fiscal periods beginning after December 15, 2001. SFAS No.144
establishes an accounting model for impairment or disposal of long-lived assets
to be disposed of by sale. The Company does not expect that the adoption of SFAS
No. 144 will have a material impact on the Company's financial position or
results of operations.

2. Delaware reincorporation

     On February 22, 2001, the Company (previously incorporated in the State of
New Jersey) was reincorporated in the State of Delaware. In connection with the
reincorporation, each share of Common Stock, par value $.50 per share, of the
Company prior to the reincorporation was converted into one share of Common
Stock, par value $.01 per share, of the Company, as reincorporated in Delaware.
As a result of the reincorporation, the authorized capital stock of the Company
was increased to 20 million shares of Common Stock, par value $.01 per share
(from 5 million shares of Common Stock prior to the reincorporation), and one
million shares of Preferred Stock, par value $.01 per share.

     Common stock and additional paid-in capital for all prior years in the
accompanying financial statements have been restated to give effect to the
reincorporation. The Company incurred $330,000 of costs in connection with the
reincorporation in Delaware. Such expense is reflected as a reincorporation
charge in the accompanying statement of operations. The reincorporation charge
net of tax benefits was $198,000 or $.07 per share in 2001.

     The Board of Directors has the authority to issue up to one million shares
of Preferred Stock and to fix the number of shares constituting any series and
the designation of such series, and to determine the preferences, rights and
qualifications or limitations of such series of Preferred Stock, without any
further vote or action by the Company's stockholders.

3. Private Placements of Common Stock and Warrants to Purchase Common Stock

     On April 7, 2000, the Company entered into a stock purchase and exclusivity
agreement with Ericsson Microelectronics, A.B. ("Ericsson") and Ericsson Holding
International, B.V. ("EHI") pursuant to which the Company sold to EHI 375,000
shares of Common Stock, representing approximately 17.5% of the Company's
outstanding Common Stock after giving effect to the sale, for an aggregate
purchase price of $3,375,000. The stock purchase and exclusivity agreement also
provides that the Company will design, develop and produce exclusively for
Ericsson Multi-Mix(R) products that incorporate active RF power transistors for
use in wireless base station applications, television transmitters and certain
other applications that are intended for Bluetooth transceivers. The Company
also agreed that it will generally be the priority supplier for such products.

     In connection with EHI's purchase of the Company's Common Stock, the
Company and EHI also entered into a registration rights agreement which provides
EHI with two demand registrations at any time following April 7, 2002.

     On October 26, 2000, the Company entered into subscription agreements for
common stock and three-year warrants to purchase shares of Common Stock
("Warrants") with a group of investors led by Adam Smith Investment Partners,
L.P. and certain of its affiliates (the "Adam Smith Investors"), EHI, and three
members of the board of directors of the Company (the "Director Investors"). The
Company sold to the investors units at a price of $12.80 per unit, each unit
consisting of one share of Common Stock and one Warrant with an exercise price
of $21.25, which expire on October 26, 2003 ("Units"). The Adam Smith Investors
purchased 240,000 Units, EHI purchased 100,000 Units and the Director Investors
purchased 20,000 Units for an aggregate purchase price of $4,608,000. The Common
Stock portion of the Units represented an aggregate of approximately 14% of the
outstanding Common Stock of the Company after giving effect to the sales.

     The Warrants were valued using the Black-Scholes option valuation model
with a resulting allocation of the aggregate proceeds from the Units
attributable to the Warrants of $837,200, net of issue costs. The following
assumptions were utilized to value the Warrants: price per share of common stock
of $15.25; expected life of three years; expected volatility of 40%; a risk free
interest rate of 6%; an expected yield of 0.0%; and a liquidity discount of 33%.

     In connection with the purchase by EHI and the Adam Smith Investors of
Merrimac Common Stock and Warrants, the Company, EHI and the Adam Smith
Investors also entered into registration rights agreements which provide EHI and
the Adam Smith Investors each with two demand registrations at any time
following October 26, 2002. See Note 17 Subsequent event regarding the
adjustments to the exercise price of the Warrants and the increase in the number
of shares subject to the Warrants.



                                      -19-

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

4. Acquisition of Filtran Microcircuits Inc.

     In February 1999, the Company completed the acquisition of all of the
outstanding stock of privately held Filtran Microcircuits Inc. ("FMI") of
Ottawa, Ontario, Canada. FMI is a manufacturer of microwave micro-circuitry. The
purchase price of $4,700,000 which included $203,000 cash and included the
assumption of $451,000 existing indebtedness, was financed by utilizing an
existing unused credit facility. The acquisition has been accounted for as a
purchase, and, accordingly, the purchase price has been allocated to the
underlying assets and liabilities based on their estimated fair values at the
date of acquisition, with the excess cost of $3,179,000 initially recorded as
goodwill which is being amortized over 20 years.

     The unaudited pro forma combined results for the comparative period
presented for 1999, as if FMI had been acquired at the beginning of 1999, are
estimated to be as follows:


                                                               1999
                                                            -----------
        Net sales ......................................    $21,027,000
        Net income .....................................        201,000
        Diluted net income per share ...................           $.11


     The pro forma results are based on various assumptions and are not
necessarily indicative of what would have actually occurred had the acquisition
and related financing transactions been completed at the beginning of 1999, nor
are they necessarily indicative of future consolidated results.

5. Inventories

Inventories consist of the following:

                                                          2001          2000
                                                      -----------    ----------

Finished goods ...................................     $  490,135    $  363,387
Work in process ..................................      2,057,036     1,493,784
Raw materials and
  purchased parts ................................      2,250,034     1,770,364
                                                       ----------    ----------
                                                       $4,797,205    $3,627,535
                                                       ==========    ==========

     Total inventories are net of valuation allowances for obsolescence of
$991,000 in 2001 and $1,018,000 in 2000. The Company disposed of $212,000 and
$300,000 of obsolete inventories in 2001 and 2000, respectively.

6. Property, plant and equipment

Property, plant and equipment consists of the following:

                                                         2001           2000
                                                     -----------   -----------

Land and land improvements .......................   $   666,045   $   673,220
Building .........................................     6,071,027     2,891,844
Machinery and equipment ..........................    19,444,756    12,395,396
Office equipment,
   furniture and fixtures ........................     7,386,823     6,829,328
                                                     -----------   -----------
                                                     $33,568,651   $22,789,788
                                                     ===========   ===========

     Included in building and machinery and equipment are $7,045,000 of capital
assets that have not been placed in service at December 29, 2001.


                                      -20-
<Page>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

7. Current and long-term debt:

The Company was obligated under the following debt instruments at
December 29, 2001 and December 30, 2000:
<TABLE>
<CAPTION>
                                                                       2001          2000
                                                                    ----------     ----------
<S>                                                                 <C>        <C>
  Fleet Bank (A):
     Revolving credit facility, interest 1/2% below prime ........  $4,000,000      $    -
     Mortgage loan, callable March 2007, interest 1/2% below prime   3,500,000           -

  The Bank of Nova Scotia (B):
     Capital leases, interest 7.0%, due October 2002..............     131,662       211,600
     Capital leases, interest 8.7%, due May 2005..................     248,191       311,160
     Capital leases, interest 7.3%, due April 2006................     197,033            -
     Capital leases, interest 7.9%, due June 2006.................     163,314            -
                                                                     ---------      --------
                                                                     8,240,200       522,760
     Less current portion.........................................   4,368,565       119,932
                                                                    ----------      --------
     Long-term portion............................................  $3,871,635      $402,828
                                                                    ==========      ========

</TABLE>

     (A) The Company commenced borrowing in April 2001 under its existing
revolving credit facility with Fleet Bank (formerly Summit Bank), at an interest
rate of one-half percent below the bank's floating prime rate, which was 7.0% at
that time. During 2001, the Company borrowed an aggregate amount of $7,500,000
under this facility. The weighted average interest rate on the borrowings under
this facility during 2001 was 5.7% and the year-end interest rate was 4.25%.

     During the first quarter of 2002, the Company obtained an additional
increase of $2,500,000 in the Company's lines of credit with Fleet Bank which
were increased to a total of $10,000,000, $3,500,000 of which consists of a
first mortgage callable in March 2007 on the Company's West Caldwell, New Jersey
manufacturing facility. The revolving line of credit of $6,500,000 expires June
2002 and management expects that Fleet Bank will agree to an extension thereof.

     The Company successfully completed a private placement of 528,400 shares of
Company Common Stock on February 28, 2002 that raised $5,284,000 before offering
expenses. The Company repaid the Fleet Bank revolving credit facility from the
proceeds of that offering. The Company currently has $6,500,000 available under
its existing revolving credit facility.

     As a result of the closing of mortgage financing with Fleet Bank in March
2002, the Company classified $3,500,000 as long-term debt in the December 29,
2001 balance sheet, as the Company has refinanced a portion of its current debt
with long-term financing after the close of its fiscal year-end.

     The revolving credit facility and mortgage loan are secured by
substantially all assets located within the United States.

     (B) Capital leases included in property, plant and equipment, net, have a
depreciated cost of approximately $632,000 at December 29, 2001 and $192,000 at
December 30, 2000.

     At December 29, 2001 and December 30, 2000, the fair value of the Company's
debt approximates carrying value. The fair value of the Company's long-term debt
is estimated based on current interest rates.


     The payments required under the long-term obligations listed above during
the years following December 29, 2001 are set forth below:

                               2002 ................................ $4,368,565
                               2003 ................................    289,510
                               2004 ................................    299,113
                               2005 ................................    335,522
                               2006 ................................    278,740
                               Thereafter...........................  2,668,750


                                      -21-
<page>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

8. Accrued liabilities

Accrued liabilities consist of the following:
                                                      2001              2000
                                                   ----------        ----------
Commissions ...................................... $  464,121        $  362,623
Vacation .........................................    122,932           107,439
Employee compensation ............................    567,679           317,177
Warranty reserve .................................    150,000           150,000
Deferred compensation ...........................      39,000            48,980
Other  ...........................................    276,573           445,909
                                                   ----------        ----------
                                                   $1,620,305        $1,432,128
                                                   ==========        ==========

9. Stock option and stock purchase plans

     Under the Company's 1993 Stock Option Plan, 324,210 shares of common stock
were initially reserved for issuance. The 1993 Option Plan provides for issuance
of incentive and non-qualified stock options. The incentive options may not be
issued at less than 100% of the fair market value of the shares on the date of
grant and they may be exercised at any time between one and ten years from the
date of grant. The non-qualified options may be granted to employees at an
exercise price determined by the Stock Option Committee of the Board of
Directors which may not be less than par value. Such options may become
exercisable immediately after the grant and/or at any time before the tenth
anniversary of the grant. As of December 29, 2001, options for the purchase of a
total of 187,770 shares remained outstanding of which 182,270 are exercisable
under the 1993 Option Plan, and options for 23,375 shares were available for
future grant.

     The non-qualified options may also be granted to non-employee directors,
provided the option price is at least equal to the closing price on the date the
option is granted. Such options are exercisable after the grant or at any time
before the fifth anniversary of the grant.

     In 1997, the Company's stockholders approved a long-term incentive plan
("LTIP") pursuant to which 275,000 shares of the Company's common stock were
initially reserved for grant to eligible employees. The LTIP provides for
issuance of Incentive Stock Options, Non-qualified Stock Options, Bonus Stock
and Discounted Stock Options. Under this plan, the Company may grant to
employees who hold positions no more senior than mid-level management,
discounted stock options for up to 110,000 shares of common stock, with the
option price per share of common stock to be at least greater than or equal to
50% of the fair market value of the common stock on the date of grant. In 1997,
discounted stock options for the purchase of 6,900 shares were granted at
$14.00, a discount of $3.00 below the fair market value at the date of grant.
During 1998, discounted options were granted for the purchase of 10,825 shares
at $9.75, a discount of $1.50 below the fair market value at the date of grant
and 7,200 shares at $11.75, a discount of $2.88 below fair market value at the
date of grant. As of December 29, 2001, options for the purchase of 201,164
shares remain outstanding, of which 169,014 are exercisable under the LTIP.

     In 2001, the Company's stockholders approved a stock option plan pursuant
to which 175,000 shares of the Company's common stock were reserved for issuance
of incentive and non-qualified stock options. The options may not be issued at
less than 100% of the fair market value of the shares on the date of grant and
they may be exercised at any time between one and ten years from the date of
grant. Such options may become exercisable immediately after the grant and/or at
any time before the tenth anniversary of the grant. As of December 29, 2001,
options for the purchase of a total of 32,900 shares remained outstanding of
which 15,000 are exercisable under the 2001 Option Plan, and options for 142,100
shares were available for future grant.

     The non-qualified options may also be granted to non-employee directors,
provided the option price is at least equal to the fair market value on the date
the option is granted. Annual options granted to non-employee directors are
exercisable after the grant or at any time before the fifth anniversary of the
grant.

     In addition, non-qualified options for the purchase of a total of 33,000
shares remained outstanding and exercisable as a result of grants by the Board
of Directors in 1996 to non-employee directors at fair market value on the date
of grant.


                                      -22-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

9. Stock option and stock purchase plans (continued)

     A summary  of all stock  option  activity  and  information  related to all
options outstanding follows:
<TABLE>
<CAPTION>
                                            2001                      2000                        1999
                                    ------------------         -------------------         -------------------
                                    Weighted                   Weighted                    Weighted
                                    average     Shares         average     Shares          average     Shares
                                    exercise   or price        exercise   or price         exercise   or price
                                      price   per share          price   per share           price   per share
                                    -------------------        -------------------         -------------------
<S>                                  <C>      <C>               <C>       <C>               <C>      <C>
Outstanding,
beginning of year ...............    $ 9.64    447,194            $9.51   500,734           $10.66   392,893
Granted   .......................     13.60     38,100             7.36    52,950             6.79   158,500
Exercised .......................      6.93    (24,760)            9.33   (89,164)
Cancelled .......................     10.60     (5,700)            8.11   (17,326)            9.93   (50,659)
                                    -------------------        -------------------         -------------------
Outstanding at end of year.......     10.11    454,834             9.64   447,194             9.51   500,734
                                    -------------------        -------------------         -------------------
Exercisable at end of year.......    $ 9.81    399,284            $9.63   340,644           $10.24   318,008
                                    -------------------        -------------------         -------------------
Option price range at end of year         $5.00-$15.50               $5.00-$15.50               $5.00-$13.64
                                    -------------------        -------------------         -------------------
Weighted average estimated fair
 value of options granted during
 the year........................                $2.22                      $3.44                      $2.57
                                    -------------------        -------------------         -------------------
</TABLE>

     The approximate weighted average of the remaining contractual life of the
outstanding options at December 29, 2001 was 5.8 years.

     In 2001, the Company's stockholders approved a stock purchase plan pursuant
to which 250,000 shares of the Company's common stock were initially reserved
for sale to eligible employees. Under this plan, the Company may grant employees
the right to subscribe to purchase shares of common stock from the Company at
85% of the market value on specified dates and pay for the shares through
payroll deductions over a period of up to 27 months.

A summary of stock purchase plan subscription activity is as follows:
<TABLE>
<CAPTION>
                                            2001                       2000                        1999
                                    -------------------        -------------------         -------------------
                                    Weighted                   Weighted                    Weighted
                                    average     Shares         average    Shares           average     Shares
                                    exercise   or price        exercise   or price         exercise   or price
                                      price   per share          price   per share           price   per share
                                    -------------------        -------------------         -------------------
<S>                                   <C>       <C>              <C>       <C>               <C>       <C>
Subscribed,
 beginning of year ..............   $ 5.95      28,866            $6.14    50,392           $10.35    11,806
Subscribed ......................    12.50      20,969                                        5.95    53,969
Purchased .......................     5.97     (29,116)            6.47   (17,900)            4.82    (7,904)
Cancelled .......................    12.50      (1,380)            5.95    (3,626)            7.02    (7,479)
                                    -------------------        -------------------         -------------------
Subscribed at end of year........   $12.50      19,339            $5.95    28,866           $ 6.14    50,392
                                    -------------------        -------------------         -------------------
Subscription price
 range, end of year..............               $12.50                      $5.95               $5.95-$11.03
                                    -------------------        -------------------         -------------------
Weighted average estimated
 fair value of rights granted
 during the year ................                $3.07                        -                        $2.68
                                    -------------------        -------------------         -------------------
</TABLE>
     The weighted average remaining contractual life of an outstanding stock
subscription at December 29, 2001 was approximately 1.7 years.


                                      -23-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

9. Stock option and stock purchase plans (continued)

2001 Key Employee Incentive Plan:

     In June 2001, the stockholders of the Company approved the 2001 Key
Employee Incentive Plan, which provides for an award consisting of restricted
stock of approximately five percent of the average number of outstanding shares
of Company Common Stock during a six-month period upon the attainment of an
average market capitalization during the same six-month period of $50,000,000,
and an additional award of approximately five percent of the average number of
outstanding shares upon the attainment of an average market capitalization
during a subsequent six-month period of $80,000,000. Any shares of restricted
stock awarded vest annually over a three-year period. The previous plan, the
2000 Key Employee Incentive Plan was cancelled in April 2001.

     The Company applied Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for its Key Employee Incentive
Plan. Under such accounting, compensation expense will begin to be recorded once
the target market capitalizations are achieved. Accordingly, for the year ended
December 29, 2001, the Company did not record any compensation expense with
respect to the Plan.

     SFAS No. 123 "Accounting for Stock-Based Compensation" requires the
disclosure of pro forma net income and net income per share as if the Company
adopted the fair value method of accounting for stock-based awards. The Company
has determined the fair value of shares which may be awarded to key employees
under the 2001 Key Employee Incentive Plan as if the shares were awarded on the
date of the approval of the Plan by the stockholders. The Company has estimated
the fair value of the restricted stock awards, vesting on a straight-line basis
over a three-year period using the Black-Scholes option valuation model
utilizing the assumptions as set forth below in 2001.

     As explained in Note 1, the Company has adopted the disclosure-only
provisions of Statement No. 123. Accordingly, no earned or unearned compensation
cost was recognized in the accompanying consolidated financial statements for
stock options and stock purchase plan subscription rights granted in 2001, 2000
and 1999.

     The table below sets forth the pro forma net income (loss) and the pro
forma diluted net income (loss) per share information as calculated in
accordance with Statement No. 123.
<TABLE>
<CAPTION>
                                                  2001       2000        1999
                                                --------    --------   --------
<S>                                             <C>         <C>        <C>
Net income - as reported  ..................... $ 24,079    $315,056   $242,255
Net income (loss) - pro forma  ................ (257,921)     21,056    (75,745)
                                                ========    ========   ========

Net income per share - as reported ............    $ .01        $.14      $ .14
Net income (loss) per share - pro forma .......    $(.09)       $.01      $(.04)
                                                ========    ========   ========
</TABLE>
     The Statement No. 123 method of accounting has been applied to options
granted in periods after December 31, 1994 and the resulting pro forma
compensation expense may not be indicative of pro forma expense in future years.

     The fair value of each of the options and purchase plan subscription rights
granted in 2001, 2000, and 1999 was estimated on the date of grant using the
Black-Scholes option valuation model.

     The following weighted average assumptions were utilized:
<table>
                                                   2001       2000        1999
                                                  -----      ------      ------
 
                                              <c>        <c>         <c>
Expected option life (years).....................   2.9         4.5        3.0
Expected volatility.............................. 35.00%     50.00%     40.00%
Risk-free interest rate..........................  4.00%      6.00%      6.25%
Expected dividend yield..........................  0.00%      0.00%      0.00%
</table>
     However, the Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options and subscription rights
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options and subscription rights.


                                      -24-

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

10. Income taxes

     The provision (benefit) for income taxes consists of the following
components:

                                            2001           2000           1999
Current tax provision (benefit):         ----------     ----------     ---------
   Federal .........................     $  (4,000)    $(439,000)     $(219,000)
   Foreign .........................       (14,000)      299,000        (12,000)
   State ...........................       (22,000)     (120,000)       (64,000)
                                         ----------     ----------     ---------
                                           (40,000)     (260,000)      (295,000)
                                         ----------     ----------     ---------
Deferred tax provision (benefit):

   Federal .........................      (113,000)      240,000        256,000
   Foreign..........................       (52,000)       20,000            -
   State ...........................        85,000        70,000         74,000
                                         ----------     ---------      ---------
                                           (80,000)      330,000        330,000
                                         ----------     ---------      ---------
Provision (benefit) for income taxes     $(120,000)    $  70,000      $  35,000
                                         ==========     =========      =========

     Temporary differences which gave rise to a significant portion of deferred
tax assets and liabilities at December 29, 2001 and December 30, 2000 are as
follows:

                                                           2001           2000
                                                         --------      ---------
Current deferred tax assets:
  Inventory valuation allowance ...................    $  384,000    $  395,000
  Capitalized inventory costs .....................        47,500        50,000
  Warranty cost ...................................        64,500        64,500
  Deferred compensation ...........................        17,000        21,000
  Net operating loss carryforwards.................           -         556,000
  Other ...........................................        35,000        84,500
                                                       ----------    ----------
                                                          548,000     1,171,000
  Less valuation allowance.........................           -        (300,000)
                                                       ----------    ----------
  Net current deferred tax assets .................       548,000       871,000
                                                       ----------    ----------
Non-current deferred tax assets:
  Deferred compensation ...........................        67,000        80,000
  Net operating loss carryforwards.................     1,175,000           -
  Capitalized leases...............................       246,000           -
  Other............................................         6,000         6,000
                                                       ----------    ----------
                                                        1,494,000        86,000
  Less valuation allowance.........................      (300,000)          -
                                                       ----------    ----------
                                                        1,194,000        86,000
                                                       ----------    ----------

Non-current deferred tax liabilities:
  Depreciation and amortization ...................      (936,000)     (469,000)

  State income taxes ..............................           -         (44,000)
  Research and development credits.................       (22,000)      (31,000)
                                                       ----------    ----------
                                                         (958,000)     (544,000)
                                                       ----------    ----------
  Net non-current deferred tax assets (liabilities)       236,000      (458,000)
                                                       ----------    ----------
       Net deferred tax assets ....................    $  784,000    $  413,000
                                                       ==========    ==========

     The Company reclassified its net operating loss carryforwards and the
valuation allowance temporary differences thereon from current to non-current in
2001 based upon a reassessment of the expected utilization dates of such items.


                                      -25-
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

10. Income taxes (continued)

     The statutory federal income tax rate is reconciled to the effective tax
rate computed by dividing the provision (benefit) for income taxes by income
(loss) before income taxes as follows:
<TABLE>
<CAPTION>
                                                         2001        2000        1999
                                                        ------      ------      ------
<S>                                                      <C>         <C>         <C>
Statutory rate .......................................  (34.0%)      34.0%       34.0%

Effect of:
   State income tax, net of federal income tax effects   43.3        (8.6)        3.2
   Foreign sales corporation income ..................  (41.6)       (5.3)      (15.7)
   Research and development credits .................. (145.3)      (30.3)      (32.9)
   Goodwill amortization .............................   52.7        13.6        16.2
   Other .............................................   (0.2)       14.8         7.8
                                                        ------      ------      ------
Effective tax rate ................................... (125.1%)      18.2%       12.6%
                                                        ======      ======      ======
</TABLE>

     As of December 29, 2001, the Company had net operating loss carryforwards
for both Federal and state income tax purposes of approximately $2,800,000,
which are available to offset future taxable income through 2021 and 2008,
respectively. Also, the Company has approximately $685,000 of future tax
deductions related to the exercise of employee stock options. In addition, the
Company has Federal income tax credit carryforwards of approximately $80,000
expiring through 2021.

     Due to the uncertainties related to, among other things, the extent and
timing of its future taxable income, the Company recorded a deferred tax asset
valuation allowance of $300,000 in fiscal year 2000 as current and reclassified
such valuation allowance to non-current in 2001.

     The provision (benefit) for foreign income taxes is based upon foreign
income or loss before income taxes as follows: a loss of $20,000 for 2001 and
$1,000,000 of income for 2000.

     Deferred Federal and state income taxes are not provided on the
undistributed cumulative earnings of foreign subsidiaries because such earnings
are considered to be invested permanently in those operations. At December 29,
2001, the cumulative earnings of foreign subsidiaries were approximately
$700,000. The amount of unrecognized deferred tax liability on the undistributed
cumulative earnings was approximately $100,000.

11. Business segment and geographic data

     The Company's operations are conducted primarily through two business
segments: (1) electronic components and (2) microwave micro-circuitry. These
segments, and the principal operations of each, are as follows:

     Electronic components: Design, manufacture and sale of electronic component
devices offering extremely broad frequency coverage and high performance
characteristics for communications, defense and aerospace applications. Of the
identifiable assets, 85% are located in the United States and 15% are located in
Costa Rica.

     Microwave micro-circuitry: Design, manufacture and sale of microstrip,
bonded stripline and thick metal-backed Teflon(R) (PTFE) and mixed dielectric
multilayer circuits for communications, defense and aerospace applications.
Identifiable assets are located in Canada.

                                      -26-
<page>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

11. Business segment and geographic data (continued)

     Information about the Company's operations in different industries and
geographic areas follows. Operating income is net sales less operating expenses.
Operating expenses exclude interest expense, other income and income taxes.
Assets are identified with the appropriate operating segment and are
substantially all located in the North America geographic area. Corporate assets
consist principally of cash. Corporate expenses and inter-segment sales are
immaterial.

<Table>
<caption>
                                                2001             2000              1999
                                               -----------------------------------------
                                                     (In thousands of dollars)
<S>                                              <C>              <C>              <C>
Industry segments:
    Sales to unaffiliated customers:
             Electronic components             $21,383          $17,118          $17,003
             Microwave micro-circuitry           4,410            5,918            3,394
                                               -------          -------          -------
             Consolidated                      $25,793          $23,036          $20,397
                                               =======          =======          =======

    Income (loss)  before provision
        for income taxes:
      Operating income (loss):
             Electronic components             $  (319)         $  (893)         $   242
             Microwave micro-circuitry             206            1,337              256
      Interest and other (expense)
        income, net                                 17              (59)            (221)
                                               -------          --------         -------
             Consolidated                      $   (96)         $   385          $   277
                                               =======          =======          =======

      Identifiable assets:
             Electronic components             $29,983          $18,805          $14,939
             Microwave micro-circuitry           5,166            5,284            4,794
             Corporate                           1,844            3,425            1,108
                                               -------          -------           ------
             Consolidated                      $36,993          $27,514          $20,841
                                               =======          =======           ======

      Depreciation and amortization:
             Electronic components             $ 2,049          $ 1,598          $ 1,331
             Microwave micro-circuitry             317              399              305
                                               -------          -------           ------
             Consolidated                      $ 2,366          $ 1,997          $ 1,636
                                               =======          =======           ======
      Capital expenditures, net:
             Electronic components             $10,404          $ 3,365          $ 2,166
             Microwave micro-circuitry             449              621              297
                                               -------          -------           ------
             Consolidated                      $10,853          $ 3,986          $ 2,463
                                               =======          =======           ======
      Geographic areas:
        Sales to unaffiliated customers:
             North America                     $20,471          $20,514          $17,060
             Europe                              3,795            1,260            1,792
             Far East                            1,278            1,208            1,527
             Other                                 249               54               18
                                               -------          -------           ------
             Consolidated                      $25,793          $23,036          $20,397
                                               =======          =======           ======

 </Table>


                                      -27-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

11. Business segment and geographic data (continued)

     The Company's customers are primarily major industrial corporations that
integrate the Company's products into a wide variety of defense and commercial
systems. The Company's customers include The Boeing Company, Raytheon Company,
Northrop Grumman Corporation, Lockheed Martin Corporation, Loral Space &
Communications Ltd., TRW, Inc. and General Dynamics Corporation. Sales to the
foreign geographic area of Europe were 14.7% of net sales in 2001. Sales to any
one foreign geographic area did not exceed 10% of net sales for 2000 and 1999.
Sales to Lockheed Martin Corporation were 13.8%, 12.2% and 10% of net sales in
2001, 2000 and 1999, respectively. Sales to The Boeing Company (which acquired
the space and communications business from Hughes Electronics Corporation, a
former customer of the Company, in 2000) were 15.0% and 9.1% of net sales in
2001 and 2000, respectively. Pro forma combined sales to The Boeing Company and
Hughes Electronics Corporation were 21.3% of net sales in 1999. In 1999, sales
to The Boeing Company were 10.4% and sales to Hughes Electronics Corporation
were 10.9% of net sales, respectively.

     Accounts receivable are financial instruments that expose the Company to a
concentration of credit risk. A substantial portion of the Company's accounts
receivable are from customers in the defense industry, and approximately 49% of
its receivables at December 29, 2001 were from five customers. Exposure to
credit risk is limited by the large number of customers comprising the remainder
of the Company's customer base, their geographical dispersion and by ongoing
customer credit evaluations performed by the Company.


12. Net income per common share

     The following table summarizes the calculation of basic and diluted net
income per common share for 2001, 2000 and 1999:
<TABLE>
<CAPTION>
                                                                         2001          2000            1999
                                                                      ----------------------------------------
<S>                                                                   <C>            <C>            <C>

Numerator:
Net income available to common stockholders .......................... $   24,079    $ 315,056    $  242,255
                                                                      ----------------------------------------
Denominator:
Weighted average shares outstanding for basic net income per share ..   2,623,924    2,134,542     1,746,968
Effect of dilutive securities - stock options                             111,865      175,265        18,863
                                                                      ----------------------------------------
Weighted average shares outstanding for diluted net income per share..  2,735,789    2,309,807     1,765,831
                                                                      ----------------------------------------
Net income per share - basic .......................................         $.01         $.15          $.14
Net income per share - diluted .....................................         $.01         $.14          $.14
                                                                      ----------------------------------------
 </table>

     At December 29, 2001, there were 360,000 common stock warrants outstanding
excluded from the calculation of dilutive securities because the warrant
exercise price of $21.25 was greater than the average market value of the common
shares. See Note 17 Subsequent event.

     If the sales of 375,000 shares of Company Common Stock on April 7 and
360,000 Units on October 26, 2000 referred to in Note 3 had occurred at the
beginning of the year, the pro forma basic and diluted weighted average number
of common shares outstanding for fiscal year 2000 would have been:

Basic:
Actual.............................................     2,134,542
Adjustments for sales of:
Common stock, April 7, 2000........................        98,902
Units, October 26, 2000 ...........................       294,725
                                                        ---------
Basic - pro forma..................................     2,528,169
Effect of dilutive securities-
  stock options....................................       175,265
                                                        ---------
Diluted - pro forma................................     2,703,434
                                                        =========

                                      -28-
<page>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

13. Commitments and contingencies

Lease commitments:

     The Company leases real estate and equipment under operating leases
expiring at various dates through February 2006. The leases include provisions
for rent escalation, renewals and purchase options, and the Company is generally
responsible for taxes, insurance, repairs and maintenance.

     Total rental expense charged to operations amounted to $141,000 in 2001,
which is net of $265,000 of construction period rent capitalized to fixed assets
and $87,000 of amortization of facility sharing prepayments. Total rental
expense charged to operations amounted to $244,000 in 2000 and $217,000 in 1999.
Future minimum lease payments, net of contractual facility sharing cost
reductions of $87,000 per year through 2004 (see following: Lease modification
and facility sharing agreement), under noncancellable operating leases with an
initial term exceeding one year are as follows:

2002.............................. $358,000
2003..............................  369,000
2004..............................  387,000
2005..............................  423,000
2006..............................   44,000

Lease modification and facility sharing agreement:

     The Company entered into an agreement effective January 2001, with a
customer to relinquish to this customer approximately half of the Company's
17,000 square-foot leased manufacturing facility in Costa Rica. Associated with
the transaction, the Company entered into a new four-year lease agreement with a
five-year renewal option with its Costa Rica landlord for the reduced space. In
addition, the Company transferred certain employees to its customer, agreed to
share certain personnel resources and common costs, and committed to provide
certain management, administrative and other services to its customer.

     In connection with the transaction, the Company received $200,000 from its
customer and will receive further payments of $250,000 over a two-year period.
The Company will reduce its facility occupancy expenses by approximately $87,000
during each of the next four years that commenced January 2000 to an aggregate
amount of approximately $348,000.

     The Company deferred approximately $102,000 of costs at December 30, 2000
incurred in connection with entering into this agreement and other incremental
costs, for the purpose of providing this customer with trained personnel and
certain other services required for their dedicated manufacturing capability.
Such costs classified in the balance sheet as other assets at December 30, 2000
were recovered through the $200,000 payment received in January 2001 as
described above, and at December 29, 2001, the unamortized amount of $12,000 of
the initial payment is included in deferred liabilities.

     Capital leases included in property, plant and equipment at December 29,
2001 are as follows:

Machinery and equipment............ $892,000
Less accumulated depreciation......  260,000
                                    --------
Total.............................. $632,000
                                    ========

     Future minimum lease payments under capital leases and the present value of
such payments as of December 29, 2001 is as follows:

2002............................... $288,000
2003...............................  151,000
2004...............................  151,000
2005...............................  175,000
2006...............................  106,000
                                    --------
Total minimum lease payments.......  871,000
Less amount representing interest..  131,000
                                    --------
Present value of total minimum
           lease payments.......... $740,000
                                    ========


                                      -29-

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

13. Commitments and contingencies (continued)

Purchase obligations:

     The Company intends to issue commitments to purchase $2,800,000 of capital
equipment from various vendors. The Company has an outstanding balance of work
to be completed on a purchase order issued to a general contractor for
approximately $100,000 for the final completion of the 19,200 square-foot
building addition to its West Caldwell, New Jersey manufacturing facility. The
Company anticipates that such equipment will be purchased and become operational
and the building expansion will be completed during the second quarter of 2002.

Consulting and employment agreements; deferred compensation:

     The Company has been a party to an employment agreement with its Chairman,
President and Chief Executive officer that provides him with a minimum annual
salary of $240,000 for an initial term and automatically renews for successive
twelve-month periods thereafter unless terminated pursuant to the terms of the
agreement. On August 31, 2000, in connection with an amendment of Mr. Carter's
employment agreement, the Company loaned Mr. Carter an additional $280,000.
Interest on the loan will be calculated at a variable interest rate based on the
prime rate of the Company's lending bank, payable in accordance with Mr.
Carter's employment agreement. Each year the Company will forgive 20% of the
amount due under this loan and the accrued interest thereon. During 2001, the
amount of $56,000 principal and $23,000 of accrued interest was forgiven.

     In connection with the acquisition of FMI, a subsidiary of the Company
entered into an employment agreement with the President of FMI that provides for
a minimum annual salary of $130,000 (Canadian). The initial term of the
agreement ends on February 25, 2002 and automatically renews for successive
twelve-month periods thereafter, unless terminated pursuant to the terms of the
agreement. In addition, the President of FMI can elect to receive either a bonus
of 10% of compensation or a grant of immediately exercisable stock options of
the Company, determined pursuant to the terms of the agreement.

     The Company is party to a retirement agreement with its former Vice
Chairman and Chief Technology Officer which became effective on December 31,
1998. Pursuant to the retirement agreement, such former officer received an
initial payment of $151,700 in 1998, and received a payment of $185,500 in
January 1999 and a final payment of $185,500 in January 2000. In addition, the
agreement provides for the continuation of health insurance benefits until
December 2009.

     The Company is party to a consulting agreement with a former Vice
President, which initial term ended February 2001 and automatically renewed
pursuant to the terms of the agreement for an additional twelve-month period.
The agreement will renew for successive twelve-month periods thereafter unless
otherwise terminated pursuant to the terms of the agreement. The agreement
provides for a minimum payment of $24,000 per year and includes health insurance
and other certain benefits.

     The Company entered into a consulting agreement on January 1, 1998 with a
director of the Company. The term of the consulting agreement, which initially
ended on January 1, 1999, automatically renews for successive twelve-month
periods until terminated pursuant to the terms of the agreement. The consulting
agreement provides this director with an annual fee of $36,000 for his services.

     The Company is a party to a stockholder's agreement, dated as of October
30, 1998, with a former director and Chairman of the Company. Pursuant to the
stockholder's agreement, this former director is required to vote his shares of
Common Stock as directed by the Board of Directors or the Chief Executive
Officer of the Company, and was paid $50,000 for ten months of consulting
services in 2001. There are no future consulting service commitments and no
other obligations of the Company pursuant to such agreement.


                                      -30-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

13. Commitments and contingencies (continued)

     The Company is party to a retirement agreement effective January 1997, with
its former Vice President, Secretary and Controller, that provides him with
annual payments of $30,000 for ten years.

     In connection with the consulting and retirement agreements described
above, the Company recognized deferred compensation expense of approximately
$11,000 in 2001, $13,000 in 2000, $37,000 in 1999. The Company accrues the
present value of the estimated future payments over the periods of the projected
term of each of the respective agreements. The minimum benefits payable in 2002
are estimated to be $39,000 and the present value of the estimated future
consulting and retirement benefits payable beyond 2002 and accrued as of
December 29, 2001 is approximately $156,000.

Litigation:

     The Company is a party to lawsuits, both as a plaintiff and as a defendant,
arising from the normal course of business. It is the opinion of management,
that the disposition of these various lawsuits will not have a material adverse
effect to the consolidated financial position or results of operations of the
Company.

14. Restructuring and related charges

     As a result of accelerating the transfer of increased levels and complexity
of production to the Company's Costa Rica manufacturing facility, the Company
implemented a reduction of its workforce and provided severance benefits to
certain employees during the first quarter of 2000. The restructuring charge for
the first quarter of 2000 was $315,000, and charges net of tax benefits of
$189,000 or $.10 per diluted share and $ .08 per diluted share for the year, as
a result of increases in common shares from private placements after the first
quarter 2000. The reduction in workforce affected fifteen persons, primarily
electronic components manufacturing labor, and the full amount of the
restructuring charge has been paid.

15. Transactions with management and loans to officer-stockholder

     In May 1998, the Company sold 22,000 shares of Common Stock to Mason N.
Carter, Chairman, President and Chief Executive Officer of the Company, at a
price of $11.60 per share, which approximated the average closing price of the
Company's Common Stock during the first quarter of 1998. The Company extended to
Mr. Carter a loan of $255,000 in connection with the purchase of these shares.
In addition, the Company amended a prior loan to Mr. Carter of $105,000. The
total of $360,000 is due May 4, 2003 and interest payments (except as described
below) are due quarterly, calculated at a variable interest rate based on the
prime rate of the Company's lending bank. However, payment of interest that
accrued from November 1998 until November 1999 was deferred and payment of
interest that will accrue from November 2001 until November 2002 will be
deferred until May 4, 2003. Payment of the loan is secured by the pledge of
33,000 shares of Common Stock purchased by Mr. Carter with the proceeds of the
loans and Mr. Carter has agreed to restrictions on the resale of these shares of
Common Stock. The sale of these shares of Common Stock was exempt from
registration under the Securities Act of 1933, as amended ("the Act"), as a
transaction not involving a public offering under Section 4(2) of the Act.

     On August 31, 2000, in connection with an amendment of Mr. Carter's
employment agreement, the Company loaned Mr. Carter an additional $280,000.
Interest on the loan will be calculated at a variable interest rate based on the
prime rate of the Company's lending bank, payable in accordance with Mr.
Carter's employment agreement. Each year the Company will forgive 20% of the
amount due under this loan and the accrued interest thereon. During 2001, the
amount of $56,000 principal and $23,000 of accrued interest was forgiven.


                                      -31-
     <PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 29, 2001, December 30, 2000 and January 1, 2000

16. Stockholder Rights Plan

     On March 5, 1999, the Board of Directors of the Company approved a
stockholder rights plan and declared a dividend of one common share purchase
right (a "Right") for each outstanding share of Common Stock of the Company. The
dividend was payable on March 19, 1999 (the "Record Date") to stockholders of
record as of the close of business on that date. Each Right will entitle the
holder to purchase from the Company, upon the occurrence of certain events, one
share of Common Stock for $25.00.

     Generally, if any person or group acquires beneficial ownership of 10% or
more of the Company's outstanding Common Stock, each Right (other than Rights
held by such acquiring person or group) will be exercisable, at the $25.00
purchase price, for a number of shares of Common Stock having a market value of
$50.00. Upon an acquisition of the Company, each Right (other than Rights held
by the acquiror) will generally be exercisable, at the $25.00 purchase price,
for a number of shares of common stock of the acquiror having a market value of
$50.00. In certain circumstances, each Right may be exchanged by the Company for
one share of Common Stock. The Rights will expire on March 19, 2009, unless
earlier exchanged or redeemed at $0.01 per Right.

17. Subsequent event: Private placement of common stock

     On February 28, 2002, the Company entered into a stock purchase agreement
with DuPont Electronic Technologies pursuant to which the Company sold 528,400
shares of Common Stock, representing approximately 16.6% of the Company's
outstanding Common Stock after giving effect to the sale, for an aggregate
purchase price of $5,284,000. The Company and DuPont Electronic Technologies
have also agreed to work together to better understand the dynamics of the
markets for high-frequency electronic components and modules. David B. Miller,
Vice President and General Manager of DuPont Electronic Technologies, was
appointed to the Company's Board of Directors. As a result of this sale, certain
contractual anti-dilution provisions affected both the Warrant exercise price
and the number of shares subject to the Warrants (See Note 3 Private placements
of Common Stock and Warrants to purchase Common Stock). The exercise price of
the Warrants issued in October 2000 was reduced to $17.80, the number of shares
subject to the Warrants was increased to 429,775 and the expiration date
remained unchanged.

END OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                      -32-
<PAGE>

QUARTERLY FINANCIAL INFORMATION

     Summarized quarterly unaudited financial data reported for 2001 and 2000
follows:
<TABLE>
<CAPTION>
2001                                       March 31        June 30       September 29      December 29
                                          ----------      ----------     ------------      -----------
<S>                                       <C>             <C>             <C>              <C>
Net sales .............................   $6,090,367      $6,766,165      $5,812,301       $7,123,798
Gross profit ..........................    3,145,911       3,605,367       2,923,115        3,604,617
Net income (loss)(A)...................      (30,696)        136,451        (209,339)         127,663
                                          -----------     ----------     -----------       -----------
Net income per (loss) share - basic ...        $(.01)           $.05           $(.08)            $.05
Net income per (loss) share - diluted..        $(.01)           $.05           $(.08)            $.05
                                          -----------     ----------     -----------       -----------
2000                                        April 3         July 1       September 30      December 30
                                          -----------     ----------     ------------      -----------

Net sales .............................   $4,911,373      $4,949,424      $6,437,186       $6,737,699
Gross profit ..........................    2,475,026       2,344,948       3,134,690        3,231,089
Net income (loss)(B)...................     (164,387)         39,705         219,144          220,594
                                          ----------      ----------     -----------       -----------
Net income per (loss) share - basic ...        $(.09)           $.02            $.10            $(.09)
Net income per (loss) share - diluted..        $(.09)           $.02            $.09            $(.08)
                                          ----------      ----------     -----------       -----------
</TABLE>



(A) Reflects the effects of the first quarter 2001 reincorporation charge
of $330,000 (see Note 2) which  reduced  net  income  by  $198,000
or $.07 per share for fiscal year 2001.

(B) Reflects the effects of the first quarter 2001 restructuring charge
of $315,000 (see Note 14) which  reduced  net  income  by  $189,000
or $.08 per share for fiscal year 2000.




QUARTERLY COMMON STOCK DATA
<TABLE>
<CAPTION>
                                        2001                                 2000
                           ----------------------------------------------------------------------

Quarter                    1st      2nd     3rd       4th      1st      2nd      3rd     4th
Market price per share:    ----------------------------------------------------------------------
<S>                        <C>     <C>     <C>       <C>       <C>    <C>      <C>      <C>
         High .........    $22.20  $15 25  $14.00    $11.70    $12.00 $18.37   $17.37    $24.00

         Low ..........     12.00   11.90    8.30      7.90      5.87   8.12    13.25     14.25
                           ----------------------------------------------------------------------
</TABLE>
     The common stock of the Company is listed on The American Stock Exchange
and trades under the symbol MRM.

     The market price per share information is provided with regard to the high
and low bid prices of the common stock of the Company on The American Stock
Exchange during the periods indicated.


                                      -33-