Exhibit 13

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

1997 Compared to 1996:

     Results of operations reflect increases in net sales of $4,506,000 or 31.8%
and operating  income  (before the 1996  restructuring  charge) of $1,202,000 or
151%.  Net income of  $1,402,000  compares to a net loss of  $297,000  after the
restructuring  charge  reported in 1996 and diluted net income of $.87 per share
compares to diluted net loss of $.19 per share in the prior year.

     Net foreign sales amounted to $5,731,000 or 30.7% of net sales, an increase
of $1,341,000 or 30.6% compared to prior year's net foreign sales of $4,390,000.
Net domestic sales amounted to $12,928,000 or 69.3% of net sales, an increase of
$3,165,000 or 32.4%  compared to prior year's net domestic  sales of $9,763,000.
The increases in net sales were  attributable  to increased  shipments of orders
from a higher order backlog, process improvement  initiatives,  customer service
focus and reduction of total-cycle-time to market.

     Orders increased $3,457,000 or 20.7% to $20,186,000 in 1997 and the backlog
of firm unfilled orders increased $1,527,000 or 18.6% to $9,758,000 at year-end.

     As a  result  of the  increases  in net  sales,  cost  of  sales  increased
$1,707,000 or 20.7%.  Cost of sales as a percentage of net sales  decreased 4.9%
to 53.3% for 1997.  The decrease in cost of sales as a  percentage  of net sales
when  compared  to the  prior  year is the  result  of  volume-related  improved
efficiencies in the  manufacturing  cycle, a higher  concentration of productive
labor utilized in completing  customer orders and a reduction of  non-productive
labor associated with training and instruction  programs  instituted  during the
prior year.

     Selling, general and administrative expenses increased $1,675,000 or 33.2%,
and as a percentage of net sales  increased  .4% to 36.0%.  Increases in selling
costs were related to higher sales  commissions due to increased sales revenues.
General  and  administrative  expenses  partially  increased  due to  additional
compensation  expenses  related  to  the  hiring  of  additional  administrative
personnel and higher  compensation  expenses resulting from last year's mid-year
merit increases to certain employees. Certain transitional costs associated with
further  restructuring and re-engineering  also increased  selling,  general and
administrative expenses.

     Research and development  expenses for new products were $556,000 for 1997,
an increase of $309,000 or 126% from prior year. The Company settled  litigation
relating  to a 1992  acquisition  claim and  obtained a  worldwide  release  for
current and any future  claims of any nature  arising  from the  utilization  of
acquired  technology.  The  cost  of the  settlement,  including  expenses,  was
$122,000 and was charged to operations this year.

1996 Compared to 1995:

     In 1996  net  sales  were  $14,153,000  compared  to  $14,397,000  in 1995.
Operations  generated a loss of $589,000 in 1996. After excluding the $1,382,000
restructuring charge recognized in 1996, operations generated income of $793,000
compared to operating  income of  $2,309,000  in 1995. A net loss of $297,000 in
1996  compares  to net income of  $1,652,000  in 1995.  The  operating  loss was
primarily  due to the  increases  in cost of  sales  and  selling,  general  and
administrative expenses coupled with the restructuring charge.


                                      -1-
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)

     Net foreign sales amounted to $4,390,000 or 31.0% of net sales, an increase
of $161,000 or 3.8% compared to prior year's  foreign sales of  $4,229,000.  Net
domestic  sales  amounted  to  $9,763,000  or 69.0% of net sales,  a decrease of
$405,000  or 4.0%  compared  to prior  year's  domestic  sales  of  $10,168,000.
Management  attributed  approximately  $200,000 of the decrease to the continued
decline of net domestic defense activity.

     Orders increased $1,776,000 or 11.9% to $16,729,000 in 1996 and the backlog
of firm unfilled orders increased $2,575,000 or 45.5% to $8,231,000 at year-end.

     Cost of sales as a percentage of net sales  increased 8.1% to 58.2%,  which
amounted to an increase of  $1,032,000.  The primary  reasons for the  increases
were the loss of  production  time from Total Quality  Management  (TQM) and ISO
9001 quality standards program training and implementation, as well as the setup
costs for the new  manufacturing  facility  in Costa  Rica,  which  items in the
aggregate were $811,000. In addition, higher compensation rates due to the merit
pay increases that became effective at mid-year 1995;  additional  manufacturing
personnel  hired to reduce the number of backlog ship days;  the doubling of the
matching  contribution  rate by the Company to the  Company's  401(k) Plan;  and
fixed  overhead  increases  not fully  absorbed  because the shipment  shortfall
impacted cost of sales.

     Selling,  general and  administrative  expenses increased $331,000 and as a
percentage  of net  sales  increased  from  32.7% in 1995 to 35.6% in 1996.  The
increases are due primarily to aggregate  costs of $464,000 for TQM and ISO 9001
training,  instruction and  implementation  costs and a comprehensive  marketing
analysis  utilizing an outside  consulting firm, as well as higher  compensation
expenses resulting from 1995 mid-year merit increases to all employees.

Liquidity and Capital Resources:

     The Company's  financial  condition  remained strong  throughout  1997. The
Company had liquid resources  comprised of cash and cash equivalents  (including
investments in  available-for-sale  securities in 1996)  totaling  approximately
$2,400,000 for 1997 and 1996. The Company's  working  capital was  approximately
$8,700,000  and  its  current  ratio  was 4.7 at the  end of  1997  compared  to
approximately $8,000,000 and 5.7, respectively, in 1996.

     The Company's  operating  activities  generated cash flows of $1,621,000 in
1997  compared  to $792,000 in 1996.  Primary  reasons for the  increase in cash
flows in 1997  were  increases  in net  income  plus  depreciation  and  current
liabilities   which  partly  offset   increases  in  accounts   receivable   and
inventories.  Investments in property,  plant and equipment  were  $1,800,000 in
1997 compared to $1,003,000 in 1996. Proceeds from the exercise of stock options
were $593,000 for 65,400 shares of common stock in 1997 compared to $286,000 for
36,300 shares in 1996.

     The Company paid cash dividends of $459,000 in 1997 compared to $617,000 in
1996 at the quarterly rate of $.10 per share.  The Company issued a news release
on August 28, 1997  regarding the Board of Directors  review of its strategy for
growth and  relationship  to its cash  dividend  policy.  The Board of Directors
decision was to reinvest all future  earnings in the Company and  eliminate  the
cash  dividend.  During 1996 the Company  made open market  purchases of 154,100
shares  of its  common  stock  at a cost of  $1,630,000.  No  shares  have  been
repurchased in 1997.


                                      -2-
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)

     The Company  recently  entered into a $7,000,000  revolving credit and term
loan agreement with Summit Bank, at one-half  percent below the bank's  floating
prime rate. Up to $2,500,000 of borrowings may be used for capital  expenditures
under the term loan.  The full line is available for future  borrowing  needs of
the Company for working capital and general corporate purposes.

     Management  believes that with the liquid  resources and the unused line of
credit  available,   along  with  cash  flows  expected  to  be  generated  from
operations,   the  Company  will  have   sufficient   resources   for  currently
contemplated  operations  in  1998.  Expansion  of the  Company's  manufacturing
facility in Costa Rica, that became  operational during the second half of 1996,
is currently  underway with completion  anticipated early in 1998. The Company's
capital  expenditures for new projects and production  equipment are anticipated
to exceed its depreciation and amortization expenses in 1998.
 
     The Company  recognizes the need to assure that its operations  will not be
adversely impacted by Year 2000 software failures.  The impact on operations has
been  evaluated and plans have been  formulated  to ensure Year 2000  compliance
before the end of 1998.  Beginning in 1998, existing  mission-critical  software
will be revised to process dates for 1999 and beyond  without any  disruption to
the business.  Software revisions will be performed by Company employees and the
total  estimated cost for achieving Year 2000 compliance has not been and is not
anticipated  to be material to the  Company's  financial  position or results of
operations.

     The  Company was  authorized  on November 1, 1996 to purchase up to 100,000
shares of its common stock,  depending on market  conditions,  and has purchased
4,100 shares to date under such authorization.

     Periodically,  the Company  explores the  possibility of acquiring  similar
manufacturers of electronic devices or companies in related fields,  although it
currently has no definitive  plans or agreements.  Management  believes that any
such acquisitions and business operation expansion could be financed through its
liquid and capital resources currently available as previously  discussed and/or
through  additional  borrowing  or  issuance of equity or debt  securities.  The
additional  debt from any  acquisitions,  if  consummated,  would  increase  the
Company's  debt-to-equity  ratio and such debt or equity  securities  might,  at
least in the near term, have a dilutive effect on net income per share.

     Certain  statements  in this annual report are  forward-looking  statements
based  on  current  management   expectations  and  are  subject  to  risks  and
uncertainties.  Factors  that could  cause  future  results to differ from these
expectations  include  general  economic  and industry  conditions,  competitive
products  and  pricing  pressures,  risks  relating to  governmental  regulatory
actions in  communications  and defense  programs,  and  inventory  risks due to
technological innovation.  Additional factors to which the Company's performance
is subject are described in the  Company's  reports filed from time to time with
the Securities and Exchange Commission.



                                      -3-

<PAGE>

CONSOLIDATED STATEMENTS OF INCOME


Years Ended January 3, 1998, December 28, 1996 and December 30, 1995
<TABLE>
<CAPTION>

                                                           1997          1996           1995
                                                       ----------------------------------------
<S>                                                    <C>           <C>            <C>
Net sales ...........................................  $18,659,106   $14,152,970    $14,396,633
                                                       ----------------------------------------
Costs and expenses:
   Cost of sales ....................................    9,947,774     8,240,639      7,208,152
   Selling, general and administrative ..............    6,716,187     5,041,606      4,710,752
   Amortization of intangible assets ................                     77,568        169,180
   Restructuring charge .............................                  1,381,709
                                                       ----------------------------------------
                                                        16,663,961    14,741,522     12,088,084
                                                       ----------------------------------------
Operating income (loss) .............................    1,995,145      (588,552)     2,308,549
Interest and other income, net ......................      162,264        97,300        282,517
                                                       ----------------------------------------
Income (loss) before income taxes ...................    2,157,409      (491,252)     2,591,066
Provision (credit)for income taxes ..................      755,000      (194,000)       939,000
                                                       ----------------------------------------

Net income (loss) ...................................   $1,402,409   $  (297,252)   $ 1,652,066
                                                       ========================================
Net income (loss) per common share-basic ............         $.91         $(.19)          $.97
Net income (loss) per common share-diluted ..........         $.87         $(.19)          $.95
                                                       ----------------------------------------
Weighted average number of shares outstanding-basic..    1,539,421     1,549,218      1,700,422
Weighted average number of shares outstanding-diluted    1,618,339     1,575,515      1,730,889
                                                       ----------------------------------------
</TABLE>
See accompanying notes.








                                      -4-
<PAGE>


CONSOLIDATED BALANCE SHEETS

January 3, 1998 and December 28, 1996
<TABLE>
<CAPTION>
                                                                                              1997            1996
                                                                                           ---------------------------
Assets

<S>                                                                                        <C>               <C>
Current assets:
   Cash and cash equivalents ..........................................................    $ 2,414,725     $ 1,265,581
   Investments in available-for-sale securities .......................................                      1,140,832
   Accounts receivable ................................................................      3,091,287       1,850,042
   Inventories ........................................................................      4,508,569       4,165,818
   Other current assets ...............................................................        173,203         271,810
   Deferred tax assets ................................................................        919,500         968,000
                                                                                           ---------------------------
                  Total current assets ................................................     11,107,284       9,662,083
                                                                                           ---------------------------
Property, plant and equipment, at cost ................................................     13,856,825      12,668,930
   Less accumulated depreciation and amortization .....................................      9,663,081       9,326,688
                                                                                           ---------------------------
Net property, plant and equipment .....................................................      4,193,744       3,342,242
Deferred tax assets ...................................................................         65,000          47,000
Other assets ..........................................................................        193,776          30,440
                                                                                           ---------------------------
                  Total Assets ........................................................    $15,559,804     $13,081,765
                                                                                           ===========================
Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable ...................................................................     $1,141,779     $   750,763
   Accrued liabilities ................................................................      1,193,669         952,880
   Income taxes payable ...............................................................         45,825       
                                                                                           ---------------------------
                  Total current liabilities ...........................................      2,381,273       1,703,643
Deferred compensation .................................................................        375,700         249,100
                                                                                           ---------------------------
                  Total liabilities ...................................................      2,756,973       1,952,743
                                                                                           ---------------------------

Commitments and contingencies
Stockholders' equity:
   Common stock, par value $.50 per share;
      5,000,000 shares authorized; 2,651,131 and 2,585,749 shares issued ....... ......      1,325,566       1,292,875
   Additional paid-in capital .........................................................      9,709,244       9,005,330
   Retained earnings ..................................................................     10,995,086      10,051,720
   Unrealized holding gain on available-for-sale securities, net ......................                          6,162
                                                                                           ---------------------------
                                                                                            22,029,896      20,356,087

    Less treasury stock, at cost - 1,074,839 ..........................................      9,227,065       9,227,065
                                                                                           ---------------------------
                  Total stockholders' equity ..........................................     12,802,831      11,129,022
                                                                                           ---------------------------
                  Total Liabilities and Stockholders' Equity ..........................    $15,559,804     $13,081,765
                                                                                           ===========================
</TABLE>

See accompanying notes.


                                      -5-
<PAGE>



<TABLE>
<CAPTION>


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years Ended January 3, 1998, December 28, 1996 and December 30, 1995
                                                                                    
                                                                   Additional     Unrealized
                                           Common Stock              paid-in         holding     Retained       Treasury Stock
                                       Shares        Amount          capital      gain (loss)    earnings     Shares      Amount
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>          <C>            <C>            <C>           <C>            <C>       <C>
Balance, December 31, 1994             2,521,196   $1,260,598     $8,537,460     $(213,720)    $9,989,697     830,735   $6,561,572
-----------------------------------------------------------------------------------------------------------------------------------
Net income                                                                                      1,652,066
Exercise of options                       28,256       14,128        164,364                                       
Tax benefit - stock options*                                          21,300
Effect of change in fair value of
  available-for-sale securities                                                    215,620
Cash dividends                                                                                   (676,013)
Purchase of common stock                                                                                        90,004    1,035,045
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 30, 1995             2,549,452    1,274,726      8,723,124         1,900     10,965,750      920,739    7,596,617
-----------------------------------------------------------------------------------------------------------------------------------
Net loss                                                                                         (297,252)
Exercise of options                       36,297       18,149        268,206
Tax benefit - stock options*                                          14,000
Effect of change in fair value of                                     
  available-for-sale securities                                                      4,262
Cash dividends                                                                                   (616,778)
Purchase of common stock                                                                                       154,100    1,630,448
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 28, 1996             2,585,749    1,292,875      9,005,330         6,162     10,051,720    1,074,839    9,227,065
-----------------------------------------------------------------------------------------------------------------------------------
Net income                                                                                      1,402,409
Issuance of stock options**                                           12,000
Exercise of options                       65,382       32,691        559,914
Tax benefit - stock options*                                         132,000
Effect of change in fair value of
  available-for-sale securities                                                     (6,162)
Cash dividends                                                                                   (459,043)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, January 3, 1998               2,651,131   $1,325,566     $9,709,244           -      $10,995,086    1,074,839   $9,227,065
===================================================================================================================================
</TABLE>

*  Tax benefit resulting from exercise and disposition of stock options and 
   subsquent disposition of stock.

** Compensation expense, net of tax effects, from issuance of stock options at 
   a discount from fair market value.

See accompanying notes.




                                      -6-
<PAGE>



CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended January 3, 1998, December 28, 1996 and December 30, 1995
<TABLE>
<CAPTION>
                                                                     1997           1996           1995
Cash flows from operating activities:                            -------------------------------------------
<S>                                                              <C>             <C>           <C>
    Net income (loss) .......................................    $1,402,409      $ (297,252)     $1,652,066
    Adjustments to reconcile net income (loss) to net cash
      provided by operating activities:
        Depreciation and amortization .......................       953,705         890,859         850,637
        Loss (gain) on available-for-sale securities ........       (65,006)         17,650
        Write-off of intangible assets ......................                       244,500
        Deferred compensation ...............................       238,600         279,100
        Deferred income taxes ...............................        22,000        (473,000)        (47,000)
        Stock-based compensation expense ....................        20,700
        Changes in operating assets and liabilities:
          Accounts receivable ...............................    (1,241,245)        523,139        (321,528)
          Inventories .......................................      (342,751)       (245,808)       (272,180)
          Other current assets ..............................        98,607        (145,595)         74,685
          Deferred tax assets ...............................        (8,700)
          Other assets ......................................      (163,336)         (2,178)         15,253
          Accounts payable ..................................       391,016         364,460          68,053
          Accrued liabilities ...............................       158,789         (32,397)        120,067
          Income taxes payable ..............................       186,325        (331,797)         52,871
          Deferred compensation .............................       (30,000)
                                                                 -------------------------------------------
Net cash provided by operating activities ...................     1,621,113         791,681       2,192,924
                                                                 -------------------------------------------
Cash flows from investing activities:
    Purchase of capital assets ..............................    (1,805,294)     (1,012,259)      ( 450,997)
    Proceeds from sales of capital assets ...................         5,461           9,071           3,690
    Proceeds from sales and maturities 
      of available-for-sale securities ......................     1,340,454       2,272,070       1,292,983
    Purchase of available-for-sale securities ...............      (146,152)     (1,129,297)
                                                                 -------------------------------------------
Net cash provided by (used in) investing activities .........      (605,531)        139,585         845,676
                                                                 -------------------------------------------
Cash flows from financing activities:
    Repurchase of common stock ..............................                    (1,630,448)     (1,035,045)
    Proceeds from the issuance of common stock ..............       592,605         286,355         178,492
    Payments of dividends ...................................      (459,053)       (616,778)       (676,013)
                                                                 -------------------------------------------
Net cash provided by (used in) financing activities .........       133,562      (1,960,871)     (1,532,566)
                                                                 -------------------------------------------
Net increase (decrease) in cash and cash equivalents ........     1,149,144      (1,029,605)      1,506,034
Cash and cash equivalents at beginning of year ..............     1,265,581       2,295,186         789,152
                                                                 -------------------------------------------
Cash and cash equivalents at end of year ....................    $2,414,725      $1,265,581      $2,295,186
                                                                 ===========================================
Supplemental disclosures of cash flows information:
   Cash paid during the year for:
     Income taxes ...........................................    $  675,000      $  712,500      $  833,776
                                                                 ===========================================

Supplemental disclosure of non-cash investing activity:
     Unrealized holding gain on available-for-sale
       securities, less deferred tax provision of $4,200 and 
       $143,000 in 1996 and 1995 ............................          -         $    4,262      $  215,620
                                                                 ===========================================
</TABLE>
See accompanying notes.



                                      -7-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 3, 1998, December 28, 1996 and December 30, 1995

1.Summary of significant accounting policies


     Principles of consolidation:  The financial statements include the accounts
of the Company, Industrias Merrimac Incorporada,  S.A. a wholly-owned subsidiary
located  in San Jose,  Costa  Rica,  and  Merrimac  International,  Inc.  FSC, a
wholly-owned  foreign sales  corporation.  All  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  under  fixed-price
contracts are recorded as deliveries are made. Prior to shipment,  manufacturing
costs  incurred on such  contracts  are  recorded as work in process  inventory.
Anticipated future losses on contracts are charged to income when identified.

     Investments:  The  Company  has  adopted the  provisions  of  Statement  of
Financial  Accounting  Standards No. 115, "Accounting for Certain Investments in
Debt  and  Equity   Securities"  and  classified  its  portfolio  of  investment
securities, as available-for-sale securities.  Available-for-sale securities are
carried at quoted market values.  Unrealized  gains and losses are included as a
separate  component  of  stockholders'   equity.   Realized  gains  and  losses,
determined using the specific  identification  method, are included in income in
the period incurred.

                                      -8-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 3, 1998, December 28, 1996 and December 30, 1995

     Inventories:  Inventories are valued at the lower of average cost or market
and consist of the following:
                                                       1997                 1996
                                                 -------------------------------

Finished goods .......................           $  778,675           $  885,863
Work in process ......................            2,571,426            2,134,013
Raw materials and
purchased parts ......................            1,158,468            1,145,942
                                                 -------------------------------
                                                 $4,508,569           $4,165,818
                                                 ===============================

Total inventories are net of valuation allowances for obsolescence of $1,533,000
in 1997 and $1,761,000 in 1996.

     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
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 January 3, 1998 and December 28, 1996 amounted to $6,818,000 and  $6,040,000,
respectively.

Long-lived  assets:  Effective  December  31,  1995,  the  Company  adopted
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.

     During 1996, the Company determined that its intangible  assets,  comprised
primarily  of the excess of cost over the fair  value of net assets of  acquired
businesses,  had become  impaired and estimated that they would not generate any
significant cash flows in future periods. Accordingly, the carrying value of the
impaired  assets of $244,500 was written off in  conjunction  with certain other
restructuring charges (see Note 12). Prior to such determination, the intangible
assets  were  being  amortized  on a  straight-line  basis over a period of five
years.  The  implementation  of Statement No. 121 did not have any effect on the
determination of the amount written off.

     Advertising: The Company expenses the cost of advertising and promotions as
incurred.  Advertising  costs  charged  to  operations  were  $139,000  in 1997,
$150,000 in 1996 and $140,000 in 1995.

     Income taxes:  The Company uses the asset and  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.    

                                      -9-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 3, 1998, December 28, 1996 and December 30, 1995

     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  $147,000  in 1997,  $142,000 in 1996 and  $105,000  in 1995.  The Board of
Directors may also  authorize a  discretionary  amount to be  contributed to the
Plan and allocated to eligible employees  annually.  Amounts  contributed to the
Plan were $200,000 in 1997, $145,000 in 1996 and $288,000 in 1995.

     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 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 6).
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.

     Research and development: Research and development expenditures of $556,000
in 1997, $246,000 in 1996 and $275,000 in 1995 were expensed as incurred.

     Interest expense: Interest expense was not material in 1997, 1996 and 1995.
     
     Net income (loss) 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 (loss) per common share. Under the new requirements both basic and
diluted net income (loss) per common share are  presented.  All prior period net
income (loss) per common share information have been restated.

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

     The calculation of diluted net income (loss) per common share is similar to
that of basic net income (loss) 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 Note 6).

     Accounting  period:  The  Company's  fiscal year is the 52 - 53 week period
ending on the  Saturday  closest to December  31.  There were 53 weeks in fiscal
year 1997 and 52 weeks in fiscal 1996 and 1995.
     

                                       -10-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 3, 1998, December 28, 1996 and December 30, 1995

2. Investments in  available-for-sale securities

     The  amortized  cost  of  the  Company's  portfolio  of  available-for-sale
investments in marketable  equity securities at December 28, 1996 was reconciled
to the fair market value, which was also the carrying value, of the portfolio at
December 28, 1996 as follows:

                                                             1996
                                                         -----------
Amortized cost ...............................           $1,130,470
Gross  unrealized gains.......................               10,876
Gross unrealized losses ......................                 (514)
                                                         -----------
Fair market value ............................           $1,140,832
                                                         ===========

     The net  unrealized  gains of $10,362 in 1996 were  included  as a separate
component  of  stockholders'  equity,  net of  deferred  tax  effects.  Sales of
securities  totaled  $1,275,000  in 1997 and  $2,275,000 in 1996 and $993,000 in
1995.  Realized gains in 1997 were $65,000 and realized gains and losses in 1996
and 1995 were not material.
                                     
3. Property plant and equipment

Property plant and equipment consists of the following:

                                                      1997               1996
                                                  ------------------------------

Land and land improvements ...............        $   547,446        $   547,446
Building .................................          2,375,680          2,238,868
Machinery and equipment ..................          6,169,081          5,850,630
Office equipment,
   furniture and fixtures ................          4,764,618          4,031,986
                                                  ------------------------------
                                                  $13,856,825        $12,668,930
                                                  ==============================
4.Accrued liabilities

Accrued liabilities consist of the following:
                                                      1997               1996
                                                  ------------------------------
Commissions ..........................            $   152,871        $   140,656
Vacation .............................                 82,969            185,853
Savings Plan contribution ............                162,204            144,525
Employee compensation ................                278,382            164,820
Warranty reserve .....................                150,000            150,000
Deferred compensation ................                112,000             30,000
Other  ...............................                255,243            137,026
                                                  ------------------------------
                                                  $ 1,193,669        $   952,880
                                                  ==============================
5.Line of credit

     The Company has a $7,000,000  unsecured bank line of credit  agreement with
interest  payable at one-half  percent below the lending  bank's the prime rate.
There were no borrowings  outstanding under this line of credit agreement or any
previous line of credit agreements as of the end or during any of the last three
fiscal years.

                                      -11-

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 3, 1998 December 28, 1996 and December 30, 1995

6.Stock option and stock purchase plans

     Under the Company's 1993 Stock Option Plan,  300,000 shares of common stock
were initially reserved for issuance. The 1993 Option Plan provides for issuance
of qualified and non-qualified  options. The qualified 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.

     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.

     As of January  3,  1998,  options  for the  purchase  of a total of 227,350
shares  remained  outstanding  and  exercisable  under the 1993 Option Plan, and
options for 16,550  shares were  available for future  grant.  In addition,  (i)
qualified  options  for  the  purchase  of a  total  of  4,962  shares  remained
outstanding and  exercisable  under the Company's 1983 Key Employee Stock Option
Plan  (however,  options  can no longer be granted  under this  plan);  and (ii)
non-qualified  options  for the  purchase of a total of 50,000  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.

     A summary  of all stock  option  activity  and  information  related to all
options outstanding follows:
<TABLE>
<CAPTION>

                                          1997                         1996                         1995
------------------------------------------------------------------------------------------------------------------
                                 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 ...............  $ 9.76      181,612          $8.90        140,684       $8.59           54,527
Granted   .......................   12.32      156,400          10.97         64,500        9.00           97,000
Exercised .......................    9.17      (47,400)          7.82        (20,572)       5.50           (3,493)
Cancelled .......................    8.67       (1,400)          9.10         (3,000)       7.51           (7,350)
------------------------------------------------------------------------------------------------------------------
Outstanding at end of year.......   11.24      289,212           9.76        181,612        8.90          140,684
---------------------------------------------------------------------------------------------------------------
Exercisable at end of year.......  $11.24      282,312          $9.76        181,612       $8.72           49,684
------------------------------------------------------------------------------------------------------------------
Option price range at end of year         $5.50-$15.00                  $5.50-$11.00                 $5.50-$10.88
------------------------------------------------------------------------------------------------------------------
Weighted average fair value 
 of options granted during                                 
 the year........................                $4.71                         $1.98                        $2.88
------------------------------------------------------------------------------------------------------------------

     The approximate  weighted average of the remaining  contractual life of the
outstanding options at January 3, 1998 was 8.8 years.
</TABLE>
                                      -12-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 3, 1998, December 28, 1996 and December 30, 1995


6.Stock Option and Stock Purchase Plans (continued)

     In 1995, the Company's stockholders approved a stock purchase plan pursuant
to which 200,000 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.

     In 1997,  the Company's  stockholders  approved a long-term  incentive plan
("LTIP")  pursuant to which 250,000  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 100,000  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.  During
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.

A summary of stock purchase plan subscription activity is as follows:
<TABLE>
<CAPTION>

                                       1997                         1996                           1995
----------------------------------------------------------------------------------------------------------------
                            Weighted                      Weighted                    Weighted
                             average          Shares       average          Shares     average            Shares
                            exercise        or price      exercise        or price    exercise          or price
                               price       per share         price      per shares       price         per share
----------------------------------------------------------------------------------------------------------------
<S>                           <C>    <C>                  <C>          <C>             <C>          <C>
Subscribed, 
 beginning of year ........  $8.66          18,274        $7.30             16,932       $7.01           43,442
Subscribed ................  10.09          17,923         9.46             18,649                              
Purchased .................   8.82         (17,982)        7.98            (15,725)       6.43          (24,763)
Cancelled .................   9.70          (2,159)        8.70             (1,582)       9.24           (1,747)
----------------------------------------------------------------------------------------------------------------
Subscribed at end of year..  $9.93          16,056        $8.66             18,274       $7.30           16,932 
----------------------------------------------------------------------------------------------------------------
Subscription price 
 range, end of year                   $9.46-$10.09                     $6.69-$9.46                  $6.69-$9.24 
----------------------------------------------------------------------------------------------------------------
Weighted average fair 
 value of rights granted
 during the year ........                    $3.75                           $3.10
----------------------------------------------------------------------------------------------------------------


                                  -13-

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 3, 1998, December 28, 1996 and December 30, 1995


6.Stock Option and Stock Purchase Plans (continued)

</TABLE>

     The weighted average  remaining  contractual  life of an outstanding  stock
subscription at January 3, 1998 was approximately one year.

     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 1997 and
1996, except for the discounted stock options granted in 1997.

     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> 
                                                      1997          1996            1995
-------------------------------------------------------------------------------------------
<S>                                               <C>            <C>             <C>
Net income (loss) - as  reported  .............. $1,402,409     $(297,252)      $1,652,066  
Net income (loss) - pro forma  .................  1,212,409      (495,252)       1,395,066
-------------------------------------------------------------------------------------------
Net income (loss) per share-as  reported .......       $.87         $(.19)            $.95 
Net income (loss) per share-pro forma ..........       $.75         $(.31)            $.80
-------------------------------------------------------------------------------------------

     The Statement No. 123 method of accounting  has not been applied to options
granted  in  periods  prior to  January  1,  1995 and the  resulting  pro  forma
compensation expense may not be indicative of pro forma expense in future years.


</TABLE>

     The fair value of each of the options and purchase plan subscription rights
granted  in 1997,  1996 and 1995 was  estimated  on the date of grant  using the
Black-Scholes  option valuation model. For 1997, the following  weighted average
assumptions were utilized: no dividend yield; expected volatility of 30%; a risk
free interest rate of 6%; and expected  lives of five years.  For 1996 and 1995,
the following  weighted  average  assumptions  were utilized:  dividend yield of
3.4%;  expected volatility of 25%; a risk free interest rate of 6%; and expected
lives of two  years.  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.


                                      -14-

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 3, 1998, December 28, 1996 and December 30, 1995


7.Income taxes

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

                                             1997           1996         1995
Current tax provision:                   ---------------------------------------
   Federal .........................     $ 569,000      $ 214,000     $ 767,000
   State ...........................       164,000         65,000       219,000
                                         ---------------------------------------
                                           733,000        279,000       986,000
                                         ---------------------------------------
Deferred tax provision (credit):

   Federal .........................        17,000       (369,000)      (46,000)
   State ...........................         5,000       (104,000)       (1,000)
                                         ---------------------------------------
                                            22,000       (473,000)      (47,000)
                                         ---------------------------------------
Provision (credit) for income taxes.     $ 755,000      $(194,000)    $ 939,000
                                         =======================================

     Temporary  differences which gave rise to a significant portion of deferred
tax assets and  liabilities  at January 3, 1998 and  December 28, 1996 are as
follows:

                                                              1997       1996
                                                           ---------------------
Current deferred tax assets:
  Inventory valuation allowance ...................        $685,000   $ 755,000
  Depreciation and amortization ...................                      17,800
  Capitalized inventory costs .....................          87,100      69,600
  Warranty cost ...................................          64,500      64,500
  Deferred compensation ...........................          12,900     131,300
  Other ...........................................          70,000      66,000
                                                           ---------------------
                                                            919,500   1,104,200
                                                           ---------------------

Non-current deferred tax assets:
  Deferred compensation ...........................         196,800
Non-current deferred tax liabilities:
  Depreciation and amortization ...................         (45,000)
  State income taxes ..............................         (86,800)    (89,100)
                                                           ---------------------
                                                             65,000     (89,100)
                                                           ---------------------
       Net deferred tax assets ....................        $984,500  $1,015,100
                                                           =====================



                                          -15-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 3, 1998, December 28, 1996 and December 30, 1995

7.Income taxes (continued)

     The  statutory  federal  income tax rate is reconciled to the effective tax
rate  computed by dividing  the  provision  (credit)  for income taxes by income
(loss) before income taxes as follows:
<TABLE>
<CAPTION>
                                                          1997        1996       1995
                                                        -------------------------------
<S>                                                      <C>         <C>         <C>
Statutory rate .......................................   34.0%       (34.0)%     34.0%

Effect of:
   State income tax, net of federal income tax effects    5.2         (5.2)       5.5
   Tax exempt dividends and interest .................    (.5)        (6.2)      (2.2)
   Foreign Sales Corporation income ..................   (2.7)        (3.3)      (1.6)
   Foreign subsidiary loses ..........................                 7.6
   Research and Development credits ..................    (.8)
   Other .............................................    (.2)         1.5         .5
                                                        -------------------------------
Effective tax rate ...................................   35.0%       (39.6%)     36.2%
</TABLE>

8.Cash dividends

     During 1997,  the Company has paid a $.10 per share dividend in each of the
first three quarters.  The dividend was eliminated by a decision of the Board of
Directors on August 28, 1997. The Company had previously  paid dividends of $.10
per share in each of the four quarters of fiscal 1996 and 1995.

9.Nature of business

     Management considers the Company to be in one business segment: the design,
manufacture and sale of electronic  devices  offering  extremely broad frequency
coverage and high performance  characteristics.  The Company  primarily sells to
customers in the communications, defense and aerospace industries.

     Foreign sales amounted to approximately  $5,731,000 in 1997,  $4,390,000 in
1996 and $4,229,000 in 1995.  Sales to any one foreign  geographic  area did not
exceed 10% of net sales for 1997, 1996 or 1995. Sales to Lockheed Martin in 1997
and 1996 amounted to 13.4% and 10.8% of net sales, respectively. No one customer
accounted for more than 10% of net sales in 1995.

                                      -16-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 3, 1998, December 28, 1996 and December 30, 1995

     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  30%  of  its
receivables at January 3, 1998 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.
<TABLE>
10. Net income (loss) per common share.

     The following  table  summarizes  the  calculation of basic and diluted net
income (loss) per common share for 1997, 1996 and 1995:
<S>
                                                                                   1997            1996          1995
                                                                                ----------------------------------------
Numerator:                                                                      <C>             <C>          <C>
Net income (loss) available to common stockholders .........................    $1,402,409       $(297,252)   $1,652,066
------------------------------------------------------------------------------------------------------------------------
Denominator:
Weighted average shares outstanding for basic net income (loss) per share ..     1,539,421       1,549,218     1,700,422
Effect of dilutive securities - stock options                                       78,918          26,297        30,467
------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding for diluted net income (loss) per share.     1,618,339       1,575,515     1,730,889    
------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share - basic ........................................          $.91           $(.19)         $.97
Net income (loss) per share - diluted ......................................          $.87           $(.19)         $.95
------------------------------------------------------------------------------------------------------------------------
     
     At December 30, 1995, there were 21,150 stock options outstanding  excluded
from the calculation of dilutive  securities  because the exercise prices of the
options were greater than the average market value of the common shares.

</TABLE>

11. Commitments and contingencies

Lease commitments:

     The  Company  leases  real  estate and  equipment  under  operating  leases
expiring at various dates through  December 2002. The leases include  provisions
for rent escalation, renewals and purchase options, and the Company is generally
responsible  for taxes,  insurance,  maintenance and repairs.  Aggregate  rental
expense  charged to operations  amounted to $54,000 in 1997.  Rental  expense in
1996  and  1995  was  not  material.   Future   minimum  lease   payments  under
noncancellable  operating  leases with an initial term exceeding one year are as
follows:

         1998                 $95,000
         1999                 122,000
         2000                 100,000
         2001                 106,000
         2002                 113,000

Purchase obligations:

     The Company has issued purchase order  commitments to processing  equipment
manufacturing  vendors  for  approximately  $900,000  of capital  equipment  and
building  improvements.  The Company anticipates the equipment will be purchased
and become operational during the second half of 1998.
                                     
                                      -17-

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

Years Ended January 3, 1998, December 28, 1996 and December 30, 1995

Consulting and employment agreements; deferred compensation:

     The  Company  is  party  to an  employment  agreement  with  its  Chairman,
President and Chief  Executive  Officer.  The  agreement  provides for a minimum
annual  salary of $200,000  and the initial  term ends on December  31, 1999 and
automatically  renews for  successive  twelve month  periods  thereafter  unless
terminated pursuant to the terms of the agreement.

     The Company is party to an employment  agreement with its Vice Chairman and
Chief  Technology  Officer,  which  initial  term ends on December  31, 1999 and
renews from year-to-year  thereafter unless otherwise terminated pursuant to the
terms of the  agreement.  The agreement  provides for a minimum annual salary of
$180,000 and continuation of salary and health benefits for eighteen months upon
termination of the agreement.  In addition,  upon  termination of the agreement,
the agreement provides for the commencement of a ten-year  consulting  agreement
for  payments  of  $90,000  per year  including  health,  disability  and  death
benefits. The Company maintains a key-man life insurance policy on the executive
pursuant to the terms of the agreement.

     The  Company  is  party  to a  consulting  agreement  with  a  former  Vice
President,  which initial term ends February 2001 and  automatically  renews for
successive twelve month periods thereafter unless otherwise  terminated pursuant
to  the  terms  of  the  agreement.   The  agreement  provides  for  an  initial
distribution valued at approximately $44,000 and minimum payments of $24,000 per
year thereafter and includes health and other certain benefits.

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

     In connection  with the  consulting  and  retirement  agreements  described
above,  the Company  recognized  expense of  approximately  $239,000 in 1997 and
$279,000 in 1996. 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 1998 are estimated to be $112,000
and the present value of the estimated future consulting and retirement benefits
payable beyond 1998 and accrued as of January 3, 1998 is approximately $376,000.

Litigation:

     The Company is a party to  lawsuits,  both as a plaintiff  and a defendant,
arising  from the normal  course of business.  It is the opinion of  management,
that the  disposition of these various  lawsuits will not materially  affect the
consolidated financial position or results of operations of the Company. 
12. Restructuring and related charge

     The restructuring of engineering responsibilities and its attendant refocus
of  product  lines  during  1996  impacted  the  valuation  of  inventories.  An
additional review by management of inventories, certain intangibles arising from
acquired product designs, a non-compete  agreement and deferred compensation for
a retiring  senior  officer  resulted in aggregate  charges of $1,382,000, and
charges,  net of tax  benefits,  of $829,000 or $ .52 per share to operations in
1996.

     The  Company  initially  recognized  aggregate   restructuring  charges  of
$1,822,000  in the third quarter of 1996 and charges,  net of tax  benefits,  of
$1,093,000.  The Company  reduced its estimate of the total  charges by $145,000
and reclassified  charges of $295,000 to cost of sales and selling,  general and
administrative expenses in the fourth quarter of 1996.

END OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                      -18-
<PAGE>                           

     Summarized quarterly financial data reported for 1997 and 1996 follows: 
<TABLE>
<CAPTION>
1997                                        March 29         June 28    September 27        January 3
                                          -------------------------------------------------------------
<S>                                       <C>             <C>             <C>              <C>
Net sales .............................   $4,275,155      $4,986,288      $4,983,793       $4,413,870
Gross profit ..........................    1,900,048       2,385,205       2,249,174        2,176,905
Net income ............................      277,746         378,100         350,015          396,548
-------------------------------------------------------------------------------------------------------
Net income per share - basic ..........         $.18            $.25            $.23             $.25
Net income per share - diluted ........         $.18            $.24            $.21             $.24
-------------------------------------------------------------------------------------------------------
1996                                        March 30         June 29    September 28      December 28
-------------------------------------------------------------------------------------------------------
Net sales .............................   $3,187,345      $3,925,528      $2,997,905       $4,042,192
Gross profit ..........................    1,548,312       1,767,288       1,068,489        1,528,242
Net income (loss)......................      252,303         312,949      (1,139,257)(A)      276,753(B)
-------------------------------------------------------------------------------------------------------
Net income (loss) per share - basic....         $.16            $.20           $(.74)(A)         $.18(B)
Net income (loss) per share - diluted..         $.15            $.20           $(.73)(A)         $.18(B)
-------------------------------------------------------------------------------------------------------
(A) Reflects the effects of  restructuring  charges (see Note 12) which, as
adjusted in the fourth  quarter from those  amounts  originally  reported in the
third quarter, reduced net income for the quarter by $916,000 or $.57 per share.

(B) Reflects the effects of adjustments to restructuring  charges (see Note 12)
which  increased  net income  for the fourth  quarter by $87,000 or $.05 per
share.
</TABLE>
QUARTERLY COMMON STOCK DATA
<TABLE>
<CAPTION>
                                        1997                             1996
                          -----------------------------------------------------------------

Quarter                    1st      2nd      3rd     4th     1st     2nd     3rd     4th
Market price per share:   -----------------------------------------------------------------
<S>                        <C>     <C>      <C>     <C>      <C>     <C>     <C>     <C>
         High .......      $12     13 1/16   19 3/4  19 7/8   11 3/8  11 3/8  11 3/8  12 3/8

         Low ........       10 3/4  10 1/4   12 1/8  11       10 1/8   9 3/4   9 5/8   9 3/4
                          -----------------------------------------------------------------
</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  during  the  periods
indicated. 

                                      -19-