Exhibit 13
                                                                     ----------

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


        1999 compared to 1998

     Results of operations for 1999 reflect an increase in net sales of $295,000
to  $20,397,000  and an increase in  operating  income of $188,000 to  $498,000,
although a  restructuring  charge of $510,000  was reported in 1998 that reduced
prior  year  operating  income to  $310,000.  Net  income of  $242,000  for 1999
decreased  29%  compared  to net  income of  $340,000  for 1998,  after the 1998
restructuring  charge net of tax of  $327,000.  Diluted  net income per share of
$.14  decreased 26% compared to diluted net income per share of $.19,  after the
1998 restructuring charge of $.18 per share.

     The increase in net sales was attributable to the inclusion of $3.4 million
of net sales of microwave  micro-circuitry  products from Filtran  Microcircuits
Inc. ("FMI"),  which was acquired on February 25, 1999, partly offset by reduced
electronic  components shipments of $3.1 million,  resulting from a smaller firm
order backlog that existed as of the  beginning of the year,  and a reduction in
orders,  resulting from  decreased  demand for the Company's core products which
occurred during 1999.

     Orders of $19,464,000 were received for 1999, which included  $2,900,000 in
new orders for FMI, an increase of $2,952,000 or 17.9%  compared to  $16,512,000
in orders  received  for 1998.  Compared to  year-end  1998,  backlog  decreased
$50,000 to $6,118,000.  Customer requests for design work have increased and are
currently under development  utilizing the Company's  proprietary  Multi-Mix(TM)
Microtechnology. Softness in core business orders resulted from the deferment of
purchases  by  major  satellite  and  defense  customers  due to  delays  in and
cancellations  of certain  programs.  Although  the  Company  believes  that its
satellite  and defense  customers  will start to increase  their  orders  during
fiscal 2000, an extended  delay or reduction in new orders for Company  products
could have a material financial impact on future sales and earnings.

     Cost of sales decreased  $931,000 or 8.1%. Cost of sales as a percentage of
net sales  decreased  5.5% to 52.0% for 1999.  The decrease in cost of sales was
achieved from  manufacturing  efficiencies,  reduction in labor  expense,  and a
favorable  sales product mix. These  decreases were primarily  attributable to a
reduction in direct labor and  manufacturing  overhead  costs partly  related to
efficiency improvements resulting from last year's fourth quarter restructuring.
Depreciation  expense  increased  $401,000  for the year  resulting  from higher
capital  equipment  purchases  in the  current  and  prior  years and due to the
acquisition of FMI.

     Gross profit for the electronics components segment of $8,319,000 was 48.9%
of segment net sales of $17,003,000  in 1999 compared to  $8,554,000,  which was
42.6% of segment net sales of $ 20,102,000 in 1998.  Although the  percentage of
gross profit  margin  improved 6.3  percentage-points,  the gross profit  amount
decreased  $235,000 or 2.7% as a result of the sales  decline.  Gross profit for
the FMI microwave  micro-circuitry  segment,  which was acquired on February 25,
1999, was $1,462,000 or 43.0 % of segment net sales of $3,394,000 in 1999.

     Selling,   general  and  administrative  expenses  of  $7,056,000  in  1999
increased  $375,000 or 5.6%,  and when  expressed as a percentage  of net sales,
increased 1.4% to 34.6% for the year.  Increases in these  expenses  during 1999
were related to new product samples  activity,  and higher selling and marketing
expenses in  connection  with the Company's  new  Multi-Mix(TM)  Microtechnology
product line,  and the inclusion of expenses from recently  acquired FMI.  Also,
the increases in selling,  general and administrative expenses arose from higher
depreciation  expense of $69,000,  and were  partially  offset by a reduction in
compensation costs as a result of last year's restructuring.



                                       -1-
<PAGE>


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

     Amortization  expense of $132,000 is attributable to goodwill of $3,179,000
arising from the acquisition of FMI, which is being amortized on a straight-line
basis over a life of twenty years.

     Research  and  development   expenses  for  new  products,   primarily  the
Multi-Mix(TM)  Microtechnology,  and the  inclusion of $443,000 in expenses from
FMI, were  $2,096,000 for 1999, an increase of $1,043,000 or 99% compared to the
prior  year.  The  Company  anticipates  spending  similar  amounts  for product
development in fiscal year 2000.

     Operating  income for the  electronics  components  segment was $241,000 in
1999 or 1.4% of segment  net sales  compared to $310,000 or 1.5% of net sales in
1998, which was after the  restructuring  charge of $510,000 in 1998.  Operating
income for the FMI  microwave  micro-circuitry  segment was  $256,000 or 7.6% of
segment net sales.

     Interest expense, net was $220,000 for 1999 and was principally incurred on
borrowings of $2,500,000  for capital  expenditures  under a term loan facility,
and  borrowings of $2,000,000  under a revolving  credit  facility in connection
with the  acquisition  of FMI  during  the  first  quarter  of 1999,  which  was
partially  offset by interest  income.  During 1998, the Company earned interest
income of $110,000 on its invested cash balances.


  1998 compared to 1997

     Results of  operations  reflect an increase in net sales of  $1,443,000  or
7.7% and a decrease in operating income (before the 1998 restructuring charge of
$510,000) of $1,175,000 or 58.9%.  Net income of $340,000  (after the effects of
the  restructuring  charge of $327,000 for 1998)  decreased  $1,063,000 or 75.8%
compared to net income of  $1,402,000  in 1997.  Diluted net income per share of
$.19 (after the effects of the restructuring  charge of $.18 per share for 1998)
decreased  $.60 per share or 76.0%  compared  to diluted net income per share of
$.79 in the prior year.  The  restructuring  charge  consisted of severance  and
early retirement benefits to fourteen employees.

     The overall net sales  increase  was  partially  attributable  to increased
shipments  against a firm order  backlog  where  customers'  order release dates
coincided  with  the  Company's  production  and  shipment  schedules,   process
improvement    initiatives,    customer   service   focus   and   reduction   of
total-cycle-time to market.


     Orders decreased $3,674,000 or 18.2% to $16,512,000 in 1998 and the backlog
of firm unfilled orders decreased  $3,590,000 or 36.8% to $6,168,000 at year-end
1998.  Softness in core business orders resulted from the deferment of purchases
by major satellite and defense customers due to delays in certain programs.  The
Company  believes  that many of the satellite  constellation  programs that have
been delayed may resume and translate into orders during 1999.  While this trend
in order delays is not expected to be long-term, an extended continuation in the
delay of or reduction in new orders for Company  products  could have a material
financial impact on future sales and earnings. Customer requests for design work
are on the increase and are currently under development  utilizing the Company's
proprietary Multi-Mix(TM) Microtechnology.  This technology provides greater per
unit  content  and enables the  Company's  entry into new markets for  increased
order opportunities.

     Cost of sales  increased  $1,600,000 or 16.1%.  The primary  reason for the
increase was the effect of the increase in sales.  Cost of sales as a percentage
of net  sales  increased  4.1% to 57.5%  for 1998.  These  increases  are due to
compensation   increases  for  the  hourly,  certain  salaried  engineering  and
supervisory  workforce effective in mid-1998,  an increase in levels of overtime
worked, additional manufacturing personnel hired for the Costa Rica facility and
additional manufacturing overhead expenses. Some of these costs were incurred in
order to further  efforts on  improving  delivery  performance  by reducing  the
number of late ship days in the backlog.



                                       -2-

<PAGE>


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

     Selling,  general  and  administrative  expenses  of  $6,681,000  increased
$520,000  or 8.5% and as a  percentage  of net  sales  increased  .2% to  33.2%.
Increases in selling  costs were  primarily  attributable  to  additional  sales
commissions  due to the  increase in sales  revenue.  The  opening,  support and
staffing of a European sales office added to higher  selling costs.  General and
administrative expenses partially increased due to compensation costs related to
the hiring of  additional  administrative  and  marketing  personnel  and higher
compensation  expenses  resulting  from the 1997  mid-year  merit  increases  to
certain  employees.  Further  increases in these expenses were related to market
development research and associated new product launch costs.

     Research and development expenses for new products,  primarily the recently
introduced Multi-Mix(TM) Microtechnology,  were $1,053,000 for 1998, an increase
of  $497,000  or 89.5%  compared to the prior  year.  Research  and  development
expenses  in prior  years  have been  reclassified  to  conform  to the  current
presentation.


Liquidity and Capital Resources

     The Company had liquid  resources  comprised  of cash and cash  equivalents
totaling  approximately  $1,100,000 at the end of 1999 compared to approximately
$1,800,000 at the end of 1998. The Company's  working capital was  approximately
$4,200,000  and  its  current  ratio  was 1.8 at the  end of  1999  compared  to
$7,400,000 and 3.5,  respectively,  at the end of 1998.  Current  liabilities at
year-end  1999  include  $2,000,000  of  indebtedness  under a revolving  credit
facility, which the Company believes will be re-extended for one year beyond the
June 30, 2000 renewal date.

     The  Company's  operating  activities  provided cash flows of $2,115,000 in
1999 compared to $2,241,000 in 1998. The primary reasons for the slight decrease
in operating cash flows in 1999 are the decrease in net income and payments made
on accounts payable,  accrued liabilities and deferred  compensation,  which was
partially offset by decreases in accounts receivable and inventories, and higher
depreciation  and  amortization  charges.  The Company made net  investments  in
property,  plant and  equipment of  $2,463,000 in 1999 compared to $3,100,000 in
1998.  These  capital  expenditures  are  related  to new  production  and  test
equipment  capabilities in connection with the  introduction of new products and
enhancements to existing products.

     The cost to the Company for its acquisition of FMI, which included $203,000
in  acquired  cash  and  included  the  assumption  of  $451,000  in  debt,  was
$4,700,000,  which was financed by borrowings  under a previously  unused credit
facility.

     The Company has a $7,000,000  revolving credit and term loan agreement with
Summit Bank with an interest rate at one-half  percent below the bank's floating
prime rate. The Company borrowed  $2,500,000 for capital  expenditures under the
term loan  facility  and  $2,000,000  under its  revolving  credit  facility  in
connection  with the  acquisition  of FMI during the first quarter of 1999.  The
unused portion of $2,500,000 of the revolving  credit  facility is available for
working capital and general corporate purposes.

     Management believes that the $4,500,000 revolving credit facility, which is
up for renewal June 30, 2000, will be re-extended to June 30, 2001, and with its
present liquid resources and the expected  remaining $2.5 million line of credit
available,  along with cash flows  expected to be provided  by  operations,  the
Company will have sufficient resources for currently contemplated  operations in
fiscal year 2000.

     The  Company's  capital   expenditures  for  new  projects  and  production
equipment are anticipated to exceed its depreciation  and amortization  expenses
in fiscal 2000. The Company has issued purchase order  commitments to processing
equipment  manufacturing vendors for approximately $700,000 of capital equipment
and building improvements.  The Company anticipates that during fiscal 2000 such
equipment  will be purchased and become  operational  and building  improvements
will be completed.



                                       -3-

<PAGE>


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

     The Company is contemplating  the purchase of the FMI facility,  consisting
of approximately  20,000 square feet and 1.7 acres it currently occupies under a
long-term  lease  agreement,  for  approximately  $1,200,000  from  the  present
lessors.  The Company is in the process of negotiating terms and conditions with
the  property  owners  and  is  investigating  financing  alternatives.   It  is
anticipated  that the  purchase of the  facility  would close  during the second
quarter of fiscal year 2000. Upon acquiring the facility, the Company intends to
expand the facility by  approximately  12,500 square feet and make certain other
improvements for approximately  $600,000, and that such building addition should
be available for use during the latter part of fiscal year 2000.


     The Company has been  authorized by its Board of Directors to repurchase up
to 110,000  shares  (adjusted for the 10% stock dividend on June 5, 1998) of its
common  stock,  from  time to time,  depending  on  market  conditions,  and has
repurchased  approximately  68,000 shares of common stock to date.  During 1999,
the Company repurchased 56,000 shares of common stock at a cost of $346,000. The
Company  repurchased  8,000 shares of common stock during 1998, no shares during
1997,  and 4,000 shares in 1996.  The Company is  authorized to repurchase up to
42,000 additional shares under the program.

     Periodically,  the Company  explores the  possibility of acquiring  similar
manufacturers of electronic  devices or companies in related fields.  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. In February 1999, the Company acquired  Filtran  Microcircuits
Inc. See Note 2 of Notes to Consolidated Financial Statements.


Recent Accounting Pronouncements


     In June 1998, the Financial  Accounting Standards Board issued Statement of
Accounting Standards No. 133 "Accounting for Derivative  Instruments and Hedging
Activities".  This  statement  establishes  accounting  and reporting  standards
requiring  that  all  derivative   instruments   (including  certain  derivative
instruments  embedded in other contracts) be recorded on the balance sheet as an
asset or liability and measured at its fair value.  In June 1999,  the Financial
Accounting  Standards  Board issued  Statement of  Accounting  Standards No. 137
"Accounting for Derivative  Instruments and Hedging  Activities-Deferral  of the
Effective  Date of FASB Statement No. 133, an amendment of FASB No. 133," defers
implementation  of Statement No. 133 until fiscal years beginning after June 15,
2000. The Company has reviewed  Statement No. 133 and has not yet determined the
impact, timing of or method to be used in adopting this statement.


Year 2000 Readiness Disclosure


     The Company  recognized the need to assure that its operations would not be
adversely  impacted by Year 2000 software failures.  The Company's  manufactured
products do not contain  software of any kind and  therefore  are not subject to
Year 2000 problems. All of the Company's existing mission-critical manufacturing
and financial computer applications are Year 2000 compliant.  Key suppliers have
confirmed in writing that they are Year 2000 compliant.  Software revisions have
been performed by Company  employees and the total  estimated cost for achieving
Year 2000  compliance  was not material to the Company's  financial  position or
results of operations.

     The Year 2000  potential  problem  dates of January 1 and February 29, 2000
have passed without any significant software failures.  The Company is confident
that its computer systems are fully Year 2000 compliant, and that its operations
should  not be  adversely  affected  in the  future  as a result  of a Year 2000
software failure.



                                       -4-

<PAGE>

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

  Costs to Company to Address Year 2000 Issues

     The Company  expended  approximately  $50,000 for  software  and to replace
outdated non-compliant systems in 1999. In 1998, the Company spent approximately
$60,000 (exclusive of internal Company personnel  compensation costs) to perform
programming  remediation  to  non-compliant  programs and for training and other
consultation fees. The Company does not anticipate  spending additional funds on
Year 2000 issues during the remainder of 2000. No other  information  technology
projects were deferred as a result of the Year 2000 project.


Forward-Looking Statements

     This Annual Report  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;  risks relating to governmental  regulatory actions in communications
and defense programs;  and inventory risks due to technological  innovation,  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.



                                       -5-

<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 January 1, 2000 and January 2, 1999 and
the related  consolidated  statements of operations  and  comprehensive  income,
shareholders'  equity and cash  flows for each of the three  years in the period
ended January 1, 2000. 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 January 1, 2000 and January 2, 1999 and
their  results of  operations  and cash flows for each of the three years in the
period ended January 1, 2000 in conformity with accounting  principles generally
accepted in the United States.



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






Roseland, New Jersey
March 13, 2000


                                      -6-

<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


Years Ended January 1, 2000, January 2, 1999 and January 3, 1998
<TABLE>
<CAPTION>


                                                         1999         1998          1997
                                                       ---------------------------------------
OPERATIONS
<S>                                                    <C>           <C>           <C>
Net sales ...........................................  $20,397,031   $20,101,835   $18,659,106
                                                       ---------------------------------------
Costs and expenses:
   Cost of sales ....................................   10,616,404    11,547,529     9,947,774
   Selling, general and administrative ..............    7,055,785     6,680,968     6,160,516
   Research and development .........................    2,095,498     1,052,812       555,671
   Amortization of goodwill .........................      131,718          -             -
   Restructuring charge .............................         -          510,311          -
                                                       ---------------------------------------
                                                        19,899,405    19,791,620    16,663,961
                                                       ---------------------------------------
Operating income ....................................      497,626       310,215     1,995,145
Interest and other expense (income), net ............      220,371      (110,085)     (162,264)
                                                       ---------------------------------------
Income before income taxes ..........................      277,255       420,300     2,157,409
Provision for income taxes ..........................       35,000        80,000       755,000
                                                       ---------------------------------------

Net income ..........................................  $   242,255   $   340,300   $ 1,402,409
                                                       =======================================
Net income per common share-basic ...................         $.14          $.19          $.83
Net income per common share-diluted .................         $.14          $.19          $.79
                                                       ---------------------------------------
Weighted average number of shares outstanding-basic..    1,746,968     1,766,120     1,693,363
Weighted average number of shares outstanding-diluted    1,765,831     1,805,212     1,780,173
                                                       ---------------------------------------
COMPREHENSIVE INCOME

Net income...........................................  $   242,255   $   340,300   $ 1,402,409
Other comprehensive income, net of tax:
  Foreign currency translation adjustment............      142,589           -             -
  Adjustment for unrealized holding gain
    of available-for-sale securities.................         -              -          (6,162)
                                                       ---------------------------------------
Comprehensive income                                   $   384,844   $   340,300   $ 1,396,247
                                                       =======================================

     The basic and diluted weighted average number of shares outstanding and net
income per share  information  for 1997  reflects  the  effects of the 10% stock
dividend which became effective June 5, 1998.

</TABLE>
See accompanying notes.


                                       -7-
<PAGE>

CONSOLIDATED BALANCE SHEETS

January 1, 2000 and January 2, 1999
<TABLE>
<CAPTION>
                                                                                              1999            1998
                                                                                           ---------------------------
Assets

<S>                                                                                        <C>            <C>
Current assets:
   Cash and cash equivalents ..........................................................    $ 1,108,141     $ 1,852,666
   Accounts receivable, net............................................................      3,774,796       3,755,131
   Inventories ........................................................................      2,913,423       3,101,256
   Income tax refund receivable .......................................................        427,330         413,018
   Other current assets ...............................................................        386,507         357,906
   Deferred tax assets ................................................................        744,000         899,600
                                                                                           ---------------------------
                  Total current assets ................................................      9,354,197      10,379,577
                                                                                           ---------------------------
Property, plant and equipment, at cost ................................................     19,213,264      16,539,251
   Less accumulated depreciation and amortization .....................................     11,337,477      10,322,958
                                                                                           ---------------------------
Net property, plant and equipment .....................................................      7,875,787       6,216,293
Other assets ..........................................................................        563,507         319,512
Goodwill, net of accumulated amortization of $131,718 .................................      3,047,623             -
                                                                                           ---------------------------
                  Total Assets ........................................................    $20,841,114     $16,915,382
                                                                                           ===========================
Liabilities and Shareholders' Equity

Current liabilities:
   Current portion of long-term debt ..................................................     $2,627,267      $      -
   Accounts payable ...................................................................      1,164,584       1,479,284
   Accrued liabilities ................................................................      1,311,791       1,499,917
                                                                                            ---------------------------
                  Total current liabilities ...........................................      5,103,642       2,979,201

Long-term debt, net of current portion ................................................      1,769,447           -
Deferred compensation .................................................................        234,734         459,322
Deferred tax liabilities ..............................................................        232,000          54,600
                                                                                           ---------------------------
                  Total liabilities ...................................................      7,339,823       3,493,123
                                                                                           ---------------------------

Commitments and contingencies
Shareholders' equity:
   Common stock, par value $.50 per share;
      5,000,000 shares authorized; 2,698,309 and 2,690,405 shares issued ....... ......      1,349,154       1,345,203
   Additional paid-in capital .........................................................     11,256,532      11,220,873
   Retained earnings ..................................................................      9,192,310       8,950,055
   Accumulated comprehensive income ...................................................        142,589             -
                                                                                           ---------------------------
                                                                                            21,940,585      21,516,131

    Less treasury stock, at cost - 958,904 and 902,549 shares .........................     (8,079,294)     (7,733,872)
    Less loan to officer-shareholder ..................................................       (360,000)       (360,000)
                                                                                           ---------------------------
                  Total shareholders' equity ..........................................     13,501,291      13,422,259
                                                                                           ---------------------------
                  Total Liabilities and Shareholders' Equity ..........................    $20,841,114     $16,915,382
                                                                                           ===========================
</TABLE>

See accompanying notes.


                                       -8-
<PAGE>

<TABLE>
<CAPTION>


CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Years Ended January 1, 2000, January 2, 1999 and  January 3, 1998

                                                   Additional                  Accumulated                                  Loan to
                                   Common Stock       Paid-In     Retained   Comprehensive    Treasury       Stock         Officer-
                               Shares      Amount     Capital     Earnings          Income      Shares      Amount      Shareholder
-----------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>        <C>        <C>         <C>           <C>             <C>         <C>            <C>
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 28, 1996  2,585,749  $1,292,875  $9,005,330  $10,051,720        $  6,162   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-                                                            (6,162)
 sale securities
Cash dividends                                                    (459,043)
Loan to officer-shareholder                                                                                                 105,000
-----------------------------------------------------------------------------------------------------------------------------------
Balance, January 3, 1998    2,651,131   1,325,566   9,709,244   10,995,086             -     1,074,839   9,227,065          105,000
-----------------------------------------------------------------------------------------------------------------------------------
Net income                                                         340,300
Issuance of stock options**                            53,100
Exercise of options            39,274      19,637     326,811
Tax benefit-stock options*                             40,122
Cash dividends                                                      (1,009)
Stock dividends                                     1,008,288   (2,384,322)                   (160,290) (1,376,026)
Purchase of common stock                                                                         8,000      54,525
Sale of common stock                                   83,308                                  (20,000)   (171,692)
Loan to officer-shareholder                                                                                                 255,000
-----------------------------------------------------------------------------------------------------------------------------------
Balance, January 2, 1999    2,690,405   1,345,203  11,220,873    8,950,055             -       902,549   7,733,872          360,000
-----------------------------------------------------------------------------------------------------------------------------------
Net income                                                         242,255
Exercise of options             7,904       3,951      35,659
Purchase of common stock                                                                        56,355     345,422
Foreign currency translation                                                       142,589
-----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2000    2,698,309  $1,349,154 $11,256,532   $9,192,310        $142,589     958,904  $8,079,294         $360,000
===================================================================================================================================
</TABLE>

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

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

See accompanying notes.




                                       -9-
<PAGE>



CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998
<TABLE>
<CAPTION>
                                                                     1999            1998            1997
Cash flows from operating activities:                            -----------------------------------------
<S>                                                               <C>            <C>            <C>
    Net income ..............................................     $  242,255     $  340,300     $1,402,409
    Adjustments to reconcile net income to net cash
      provided by operating activities:
        Depreciation and amortization .......................      1,503,752      1,103,142        953,705
        Gain on sale of available-for-sale securities .......                                      (65,006)
        Amortization of goodwill ............................        131,718
        Deferred compensation ...............................         37,084        287,622        238,600
        Deferred income taxes ...............................        330,000         88,000         22,000
        Stock-based compensation expense ....................                        87,400         20,700
        Changes in operating assets and liabilities:
         Net of Acquisition in 1999
          Income tax refund receivable ......................        (7,686)      (413,018)
          Accounts receivable ...............................        695,392       (663,844)    (1,241,245)
          Inventories .......................................        391,911      1,407,313       (342,751)
          Other current assets ..............................         65,053       (209,703)        98,607
          Deferred tax assets ...............................          3,000         25,313         (8,700)
          Other assets ......................................       (206,977)      (205,736)      (163,336)
          Accounts payable ..................................       (497,055)       337,505        391,016
          Accrued liabilities ...............................       (297,103)       154,748        158,789
          Income taxes payable ..............................        (15,114)       (45,825)       186,325
          Deferred compensation .............................       (261,272)       (52,500)       (30,000)
                                                                 -----------------------------------------
Net cash provided by operating activities ...................      2,114,958      2,240,717      1,621,113
                                                                 -----------------------------------------
Cash flows from investing activities:
  Cash acquired with acquisition.............................        203,323
  Acquisition of business ...................................     (4,700,402)
  Purchase of capital assets ................................     (2,465,277)    (3,149,336)    (1,805,294)
  Proceeds from sales of capital assets .....................          1,683         23,645          5,461
  Proceeds from sales and maturities
    of available-for-sale securities ........................                                    1,340,454
  Purchase of available-for-sale securities .................                                     (146,152)
                                                                 -----------------------------------------
Net cash used in investing activities .......................     (6,960,673)    (3,125,691)      (605,531)
                                                                 -----------------------------------------
Cash flows from financing activities:
    Debt assumed with acquisition ...........................        451,126
    Borrowing under term loan ...............................      2,500,000
    Borrowing under revolving credit facility ...............      3,000,000
    Repayment of borrowings .................................     (1,554,412)
    Repurchase of common stock ..............................       (345,422)       (54,525)
    Proceeds from the issuance of common stock ..............         39,610        378,449        592,605
    Payments of dividends ...................................                        (1,009)      (459,043)
                                                                 -----------------------------------------
Net cash provided by financing activities ...................      4,090,902        322,915        133,562
                                                                 -----------------------------------------
Effect of exchange rate changes on cash and cash equivalents.         10,288            -              -
Net increase (decrease) in cash and cash equivalents ........       (744,525)      (562,059)     1,149,144
Cash and cash equivalents at beginning of year ..............      1,852,666      2,414,725      1,265,581
                                                                 -----------------------------------------
Cash and cash equivalents at end of year ....................     $1,108,141     $1,852,666     $2,414,725
                                                                 =========================================
Supplemental disclosures of cash flow information:
   Cash paid during the year for:
     Income taxes ...........................................     $  139,000     $  390,000     $  675,000
     Loan interest ..........................................     $  278,929
                                                                 =========================================

Supplemental disclosure of non-cash investing activity:

     Loan to officer-shareholder ............................                    $  255,000     $  105,000
                                                                 =========================================
</TABLE>
See accompanying notes.



                                      -10-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998

1. Summary of significant accounting policies

     Principles of consolidation:  The financial statements include the accounts
of the Company and its wholly-owned  susidiaries.  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  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.
Revenue related to  non-recurring  engineering  charges is generally  recognized
upon shipment of initial production units or based on contractually  established
stages of completion.

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

     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  shareholders' equity accounts
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  shareholders'
equity  and  accumulated   comprehensive   income.   Realized  foreign  exchange
transaction gains and losses, which are not material, are included in income.

     Comprehensive  Income:  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 shareholders' equity during a period except those
resulting from investments by or distributions to shareholders.  The Company has
determined the components of comprehensive income impacting the Company consists
primarily of  cumulative  translation  adjustments  (unrealized  holding gain on
marketable equity securities in 1997).

     Reclassifications:  Certain  prior-year  amounts have been  reclassified to
conform with the 1998 presentations.


                                       -11-
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998

     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 January 1, 2000 and January 2, 1999 amounted to $7,218,000 and  $7,277,000,
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 promotions as
incurred.  Advertising  costs  charged  to  operations  were  $195,000  in 1999,
$213,000 in 1998 and $139,000 in 1997.

     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.


                                      -12-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998

     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  $165,000  in 1999,  $167,000 in 1998 and  $147,000  in 1997.  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. No contribution amounts were authorized for 1999 and
1998.

     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 7).
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
$2,096,000  in 1999,  $1,053,000  in 1998 and $556,000 in 1997 were  expensed as
incurred.

     Interest  expense:  Interest  expense,  net was $220,000 in 1999.  Interest
expense was not material in 1998 and 1997.

     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.  1997 net  income  per  common  share
information has been restated.

     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
7 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  calender
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:  In June 1998, the Financial  Accounting
Standards Board issued Statement of Accounting Standards No. 133 "Accounting for
Derivative  Instruments  and Hedging  Activities".  This  statement  establishes
accounting and reporting  standards  requiring  that all derivative  instruments
(including  certain  derivative  instruments  embedded  in other  contracts)  be
recorded on the balance  sheet as an asset or liability and measured at its fair
value. In June 1999, the Financial  Accounting  Standards Board issued Statement
of Accounting  Standards No. 137  "Accounting  for  Derivative  Instruments  and
Hedging  Activities-Deferral  of the Effective Date of FASB Statement No. 133 an
amendment of FASB Statement No. 133," defers implementation of Statement No. 133
until  fiscal  years  beginning  after June 15,  2000.  The Company has reviewed
Statement No. 133 and has not yet determined the impact,  timing of or method to
be used in adopting this statement.


                                      -13-
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998

2. 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,  which  had 1998  sales of  approximately  $3.2
million, is a manufacturer of microwave  micro-circuitry.  The purchase price of
$4,700,000  included  $203,000  cash  acquired 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 recorded as goodwill which is being amortized
over 20 years.

     The  unaudited  pro forma  combined  results  for the  comparative  periods
presented  for 1999 and 1998,  as if FMI had been  acquired at the  beginning of
1998, are estimated to be as follows:
<TABLE>
<S>                                                     <C>            <C>
                                                          1999           1998
                                                      -----------    -----------
  Net sales ......................................    $21,027,000    $23,425,000
  Net income .....................................        201,000         88,000
  Diluted net income per share ...................           $.11           $.05

</TABLE>
     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 last year,
nor are they necessarily  indicative of future consolidated  results.

3. Inventories

Inventories consist of the following:

                                                     1999                1998
                                                  ----------          ----------

Finished goods .......................            $  666,186          $  607,738
Work in process ......................             1,004,037           1,597,215
Raw materials and
  purchased parts ....................             1,243,200             896,303
                                                  ----------         -----------
                                                  $2,913,423          $3,101,256
                                                  ==========         ===========

     Total  inventories  are net of valuation  allowances  for  obsolescence  of
$1,166,000 in 1999 and $1,501,000 in 1998. The Company  disposed of $414,000 and
$236,000 of obsolete inventories in 1999 and 1998, respectively.

4. Property, plant and equipment

Property, plant and equipment consists of the following:

                                                     1999                1998
                                                  -----------        -----------

Land and land improvements ...........            $   658,776        $   547,446
Building .............................              2,816,542          2,606,225
Machinery and equipment ..............              9,643,004          8,103,055
Office equipment,
   furniture and fixtures ............              6,094,942          5,282,525
                                                  -----------        -----------
                                                  $19,213,264        $16,539,251
                                                  ===========        ===========


                                      -14-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998

5. Current and long-term debt:

The Company was obligated under the following debt instruments at
   January 1, 2000:
Summit Bank:
Revolving credit facility, interest 1/2 % below prime,
due June 2000 (A)...................................................  $2,000,000
Term loan, interest 1/2 % below prime, due December 2003............   2,041,667
The Bank of Nova Scotia:
Equipment loans, interest prime plus 1%, due November 2000 (B)......      56,042
Capital leases, interest 7.0%, due October 2003.....................     299,005
                                                                         -------
                                                                       4,396,714
Less current portion................................................   2,627,267
                                                                       ---------
Long-term portion...................................................  $1,769,447
                                                                      ==========

     (A) The provisions of the revolving credit and term loan agreement  require
the  Company to  maintain  certain  financial  ratios.  At January 1, 2000,  the
Company was not in compliance with certain of these  covenants.  The Company has
received waivers in connection with such noncompliance and the bank has modified
the applicable terms of the agreement to ensure  compliance  prospectively.  The
Company is presently in the process of extending its revolving  credit  facility
due date to June 2001.

     The Company has 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 was available at year-end for future  borrowing  needs of
the Company for working capital and general corporate purposes.

     The weighted average  interest rate on borrowings  during 1999 was 7.5% and
the rate at the end of 1999 was 8.0%. There were no borrowings in 1998.

     The term loan is secured by  $2,500,000 of tangible  personal  property and
the equipment loans are covered by a general security  agreement.  The revolving
credit  facility  is  unsecured.

     (B) The weighted  average  interest rate on equipment loans during 1999 was
7.4% and the rate at the end of 1999 was 7.5%.

     At January  1, 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.

     Capital leases included in property, plant and equipment at January 1, 2000
have a depreciated cost of approximately $138,000.

     The payments required under the long-term  obligations  listed above during
the years following January 1, 2000 are set forth below:

                                                     2000 ........... $2,627,267
                                                     2001 ...........    575,501
                                                     2002 ...........    579,680
                                                     2003 ...........    614,266

6. Accrued liabilities

Accrued liabilities consist of the following:
                                                     1999                 1998
                                                 ----------           ----------
Commissions ..........................           $  181,720           $  320,064
Vacation .............................              103,041               78,138
Employee compensation ................              145,290              176,384
Warranty reserve .....................              150,000              150,000
Deferred compensation ................              248,504              263,500
Other  ...............................              483,236              511,831
                                                 ----------           ----------
                                                 $1,311,791           $1,499,917
                                                 ==========           ==========


                                      -15-
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998


7. Stock option and stock purchase plans

     Under the Company's 1993 Stock Option Plan,  324,360 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.

     In 1997,  the Company's  Shareholders  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 January 1, 2000,  options for the  purchase  of 226,821  shares
remain outstanding of which 44,000 are exercisable.

     As of January  1,  2000,  options  for the  purchase  of a total of 235,455
shares  remained  outstanding  and  exercisable  under the 1993 Option Plan, and
options for 30,855  shares were  available for future  grant.  In addition,  (i)
qualified  options  for  the  purchase  of a  total  of  5,458  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 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.



                                      -16-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998

7. Stock option and stock purchase plans (continued)

     A summary  of all stock  option  activity  and  information  related to all
options outstanding follows:
<TABLE>
<CAPTION>
                                          1999                         1998                        1997
---------------------------------------------------------------------------------------------------------------
                                  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 ...............    $10.66   392,893        $11.24        289,212      $ 9.76         181,612
Stock dividend adjustment .......                                           36,558
Granted   .......................      6.79   158,500         12.71         96,625       12.32         156,400
Exercised .......................                              9.83        (23,800)       9.17         (47,400)
Cancelled .......................      9.93   (50,659)        10.46         (5,702)       8.67          (1,400)
---------------------------------------------------------------------------------------------------------------
Outstanding at end of year.......      9,51   500,734         10.66        392,893       11.24         289,212
---------------------------------------------------------------------------------------------------------------
Exercisable at end of year.......    $10.24   318,008        $10.40        303,503      $11.24         282,312
---------------------------------------------------------------------------------------------------------------
Option price range at end of year        $5.00-$13.64                 $5.00-$13.64                $5.50-$15.00
---------------------------------------------------------------------------------------------------------------
Weighted average estimated fair
 value of options granted during
 the year........................               $2.57                        $4.62                       $4.71
---------------------------------------------------------------------------------------------------------------

     The approximate  weighted average of the remaining  contractual life of the
outstanding options at January 1, 2000 was 7.4 years.
</TABLE>

     In 1995, the Company's Shareholders approved a stock purchase plan pursuant
to which 215,492 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>
                                       1999                         1998                         1997
-------------------------------------------------------------------------------------------------------------
                            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 ........  $10.35      11,806             $9.93        16,056         $8.66          18,274
Subscribed ................    5.95      53,969             11.03        16,308         10.09          17,923
Stock dividend adjustment..                                               2,626
Purchased .................    4.82      (7,904)             7.61       (15,474)         8.82         (17,982)
Cancelled .................    7.02      (7,479)             9.84        (7,710)         9.70          (2,159)
--------------------------------------------------------------------------------------------------------------
Subscribed at end of year..   $6.14      50,392            $10.35        11,806         $9.93          16,056
--------------------------------------------------------------------------------------------------------------
Subscription price
 range, end of year          $5.95-$11.03                  $9.18-$11.03                 $9.46-$10.09
--------------------------------------------------------------------------------------------------------------
Weighted average estimated
 fair value of rights granted
 during the year ........                 $2.68                           $4.29                         $3.75
--------------------------------------------------------------------------------------------------------------
</TABLE>


                                      -17-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998

7. Stock option and stock purchase plans (continued)


     The weighted average  remaining  contractual  life of an outstanding  stock
subscription at January 1, 2000 was approximately 1.7 years.

     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 1999, 1998
and 1997 except for the discounted stock options granted in 1998 and 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>
<CAPTION>
                                              1999        1998       1997
--------------------------------------------------------------------------------
<S>                                           <C>         <C>        <C>
Net income - as reported  ...................  $ 242,255   $340,300   $1,402,409
Net income (loss) - pro forma  ..............    (75,745)    78,400    1,230,409
--------------------------------------------------------------------------------
Net income per share - as reported ..........       $.14       $.19         $.79
Net income (loss) per share - pro forma .....      $(.04)      $.04         $.69
--------------------------------------------------------------------------------

     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.


</TABLE>

     The fair value of each of the options and purchase plan subscription rights
granted  in 1999,  1998 and 1997 was  estimated  on the date of grant  using the
Black-Scholes  option valuation model. For 1999, the following  weighted average
assumptions were utilized: no dividend yield; expected volatility of 40%; a risk
free interest rate of 6.25%;  and expected  lives of three years.  For 1998, the
following  weighted  average  assumptions  were  utilized:  no  dividend  yield;
expected  volatility  of 35%; a risk free  interest  rate of 5.5%;  and expected
lives of five years. For 1997, the following  weighted average  assumptions were
utilized:  expected  volatility  of 30%;  a risk free  interest  rate of 6%; and
expected lives of five 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.


                                      -18-

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998

8. Income taxes

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

                                            1999           1998          1997
Current tax provision (benefit):         ---------------------------------------
   Federal .........................     $219,000)        $ 1,000       $569,000
   Foreign .........................      (12,000)
   State ...........................      (64,000)         (9,000)       164,000
                                         ---------------------------------------
                                         (295,000)         (8,000)       733,000
                                         ---------------------------------------
Deferred tax provision (benefit):

   Federal .........................      256,000          63,000         17,000
   State ...........................       74,000          25,000          5,000
                                         ---------------------------------------
                                          330,000          88,000         22,000
                                         ---------------------------------------
Provision for income taxes..........     $ 35,000         $80,000       $755,000
                                         =======================================

     Temporary  differences which gave rise to a significant portion of deferred
tax  assets  and  liabilities  at  January  1, 2000 and  January  2, 1999 are as
follows:

                                                            1999         1998
                                                         -----------------------
Current deferred tax assets:
  Inventory valuation allowance ...................      $458,500      $600,500
  Capitalized inventory costs .....................        48,000        45,200
  Warranty cost ...................................        64,500        64,500
  Deferred compensation ...........................        76,000       113,300
  Other ...........................................        97,000        76,100
                                                         -----------------------
                                                          744,000       899,600
                                                         -----------------------

Non-current deferred tax assets:
  Deferred compensation ...........................       132,500       197,500
Non-current deferred tax liabilities:
  Depreciation and amortization ...................      (316,500)     (177,600)
  State income taxes ..............................       (48,000)      (74,500)
                                                         -----------------------
                                                         (232,000)      (54,600)
                                                         -----------------------
       Net deferred tax assets ....................      $512,000      $845,000
                                                         =======================


                                          -19-
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998

8. Income taxes (continued)

     The  statutory  federal  income tax rate is reconciled to the effective tax
rate computed by dividing the provision for income taxes by income before income
taxes as follows:
<TABLE>
<CAPTION>
                                                         1999        1998        1997
                                                        -------------------------------
<S>                                                      <C>         <C>         <C>
Statutory rate .......................................   34.0%       34.0%        34.0%

Effect of:
   State income tax, net of federal income tax effects    3.2         2.5          5.2
   Tax exempt dividends and interest .................                            ( .5)
   Foreign sales corporation income ..................  (15.7)      (12.9)        (2.7)
   Foreign subsidiary income .........................               (2.3)
   Research and development credits ..................  (48.1)       (4.9)         (.8)
   Goodwill amortization .............................   31.4
   Other .............................................    7.8         2.6          (.2)
                                                        -------------------------------
Effective tax rate ...................................   12.6%       19.0%        35.0%
                                                        ===============================
</TABLE>

9. Cash dividends

     During the first three  quarters of fiscal  1997,  the Company paid a $.091
per  share  dividend  (previously  $.10 per  share,  adjusted  for the 10% stock
dividend in May 1998).  The dividend was eliminated by the Board of Directors on
August 28, 1997.

10. Stock dividend

     The Board announced on May 5, 1998, the declaration of a 10% stock dividend
payable  on June 5, 1998 to  shareholders  of record on May 15 1998.  Fractional
shares  were  cashed-out  and  payments  were  made to  shareholders  in lieu of
fractional shares on June 5, 1998. The basic and diluted weighted average number
of shares  outstanding  and net income per share  information for 1997 have been
restated to reflect the effects of the stock dividend.

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  industries.  Of the
identifiable  assets, 96% are located in the United States and 4% are located in
Costa Rica.

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

                                      -20-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998

     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 all located
in North America geographic area.  Corporate assets consist  principally of cash
and goodwill. Corporate expenses and inter-segment sales are immaterial.

<TABLE>
<CAPTION>

                                               1999             1998              1997
                                               (In thousands of dollars)
<S>                                              <C>              <C>              <C>
Industry segments:
    Sales to unaffiliated customers:
             Electronic components             $17,003          $20,102           $18,659
             Microwave micro-circuitry           3,394              -                 -
                                               -------          -------           -------
             Consolidated                      $20,397          $20,102           $18,659
                                               =======          =======           =======

    Income before provision for income taxes:
      Operating income:
             Electronic components             $   241          $   310           $ 1,995
             Microwave micro-circuitry             256              -                 -
             Interest and other (expense)
               income, net                        (220)             110               162
                                               -------          -------            ------
             Consolidated                      $   277          $   420            $2,157
                                               =======          =======            ======

      Identifiable assets:
             Electronic components             $14,939          $15,062           $13,040
             Microwave micro-circuitry           4,794              -                 -
             Corporate                           1,108            1,853             2,415
                                               -------          -------           -------
             Consolidated                      $20,841          $16,915           $15,455
                                               =======          =======           =======

      Depreciation and amortization:
             Electronic components             $ 1,331          $ 1,103           $   954
             Microwave micro-circuitry             305              -                 -
                                               -------          -------           -------
             Consolidated                      $ 1,636          $ 1,103           $   954
                                               =======          =======           =======
      Capital expenditures:
             Electronic components             $ 2,166          $ 3,126           $ 1,800
             Microwave micro-circuitry             297              -                 -
                                               -------          -------           -------
             Consolidated                      $ 2,463          $ 3,126           $ 1,800
                                               =======          =======           =======
      Geographic areas:
             Sales to unaffiliated customers:
             North America                     $17,060          $17,008           $15,925
             Europe                              1,792            2,134             1,291
             Far East                            1,527              914             1,408
             Other                                  18               46                35
                                               -------          -------           -------
             Consolidated                      $20,397          $20,102           $18,659
                                               =======          =======           =======

 </TABLE>

                                      -21-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998

     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 Raytheon,  Boeing,  Northrop Grumman,
Lockheed  Martin,  Harris  Corp.,  Litton  Industries,   Hughes  Aircraft,  TRW,
Southwest  Research and Motorola.  Sales to any one foreign  geographic area did
not exceed 10% of net sales for 1999, 1998 or 1997.  Sales to Hughes Aircraft in
1999 and 1998 were 10.9% of net sales,  sales to Boeing  Aircraft  were 10.4% in
1999 and sales to  Lockheed  Martin in 1998,  1997 and 1996  amounted  to 10.0%,
13.4% and 10.8% 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  48.6%  of its
receivables at January 1, 2000 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 1999, 1998 and 1997:
<TABLE>
<CAPTION>

                                                                                   1999            1998          1997
                                                                                ----------------------------------------
<S>                                                                             <C>           <C>            <C>
Numerator:
Net income available to common shareholders ................................     $ 242,255    $  340,300      $1,402,409
------------------------------------------------------------------------------------------------------------------------
Denominator:
Weighted average shares outstanding for basic net income per share .........     1,746,968     1,766,120       1,693,363
Effect of dilutive securities - stock options                                       18,863        39,092          86,810
------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding for diluted net income per share .......     1,765,831     1,805,212       1,780,173
------------------------------------------------------------------------------------------------------------------------
Net income per share - basic ...............................................          $.14          $.19            $.83
Net income per share - diluted .............................................          $.14          $.19            $.79
------------------------------------------------------------------------------------------------------------------------
</TABLE>


     At January 1, 2000, there were 344,201 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.



                                      -22-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998


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, maintenance and repairs.

     Total rental  expense  charged to operations  amounted to $198,000 in 1999,
$120,000  in 1998 and  $54,000 in 1997.  Future  minimum  lease  payments  under
noncancellable  operating  leases with an initial term exceeding one year are as
follows:

         2000 .....................................  $220,000
         2001 .....................................   224,000
         2002 .....................................   230,000
         2003 .....................................   108,000
         2004 .....................................   108,000
         Thereafter ...............................   126,000


     Capital leases included in property, plant and equipment at January 1, 2000
are as follows:

Machinery and equipment ...........................  $192,000
Less accumulated depreciation .....................    54,000
                                                     --------
Total .............................................  $138,000
                                                     ========

     Future minimum lease payments under capital leases and the present value of
such payments as of January 1, 2000 is as follows:

         2000 .....................................  $ 89,000
         2001 .....................................    89,000
         2002 .....................................    89,000
         2003 .....................................    71,000
                                                     --------
         Total minimum lease payments .............   338,000
         Less amount representing interest ........    39,000
                                                     --------
         Present value of total minimum
           lease payments .........................  $299,000
                                                     ========

Purchase obligations:

     The  Company  has  issued   purchase   order   commitments   to  processing
equipment-manufacturing vendors for approximately $700,000 for capital equipment
and building  improvements.  The Company  anticipates that the equipment will be
purchased and become operational during fiscal 2000.

     The Company is contemplating  the purchase of the FMI facility,  consisting
of approximately  20,000 square feet and 1.7 acres it currently occupies under a
long-term  lease  agreement,  for  approximately  $1,200,000  from  the  present
lessors.  The Company is in the process of negotiating terms and conditions with
the  property  owners  and  is  investigating  financing  alternatives.   It  is
anticipated  that the  purchase of the  facility  would close  during the second
quarter of fiscal year 2000. Upon acquiring the facility, the Company intends to
expand the facility by  approximately  12,500 square feet and make certain other
improvements for approximately  $600,000, and that such building addition should
be available for use during the latter part of fiscal year 2000.


                                      -23-
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998

13. Commitments and contingencies (continued)

Consulting and employment agreements; deferred compensation:

     The  Company  is  party  to an  employment  agreement  with  its  Chairman,
President and Chief Executive  Officer that provides him a minimum annual salary
of  $240,000.  The initial term of the  agreement  ends on December 31, 2002 and
automatically  renews for  successive  twelve-month  periods  thereafter  unless
terminated pursuant to the terms of the agreement.

     In  connection  with the  acquisition  of FMI, a subsidiary  of the Company
entered  into  employment  agreements  with the  President  and  with the  Chief
Executive  Officer that provides  each of the executive  officers with a minimum
annual salary of $130,000  Canadian.  The initial terms of the agreements end on
February 25, 2002 and automatically  renew for successive  twelve-month  periods
thereafter  unless  terminated  pursuant  to the  terms  of the  agreements.  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  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 who received an
initial  payment of $151,700 in 1998 and a payment of $185,500 in January  1999,
received a final payment of $185,500 in January 2000. In addition, the agreement
provides for the  continuation of certain  ongoing  benefits,  including  health
benefits until December 2009.

     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 minimum  payments of
$24,000 per year and includes health and other certain benefits.

     The Company  entered into a consulting  agreement on January 1, 1998 with a
director of the Company who is also the beneficial owner of more than 10% of the
Company's  Common Stock. 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 party to a  shareholder's  agreement dated as of October 30,
1998 with a former director and Chairman of the Company who is also a beneficial
owner  of  more  than  5%  of  the  Company's  Common  Stock.  Pursuant  to  the
shareholder's  agreement,   this  former  director  provides  the  Company  with
consulting  services for a fee of $5,000 per month.  The term of the  consulting
agreement expires October 2001, unless earlier terminated in accordance with the
terms of the shareholder's agreement.

     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 expense of approximately $37,000 in 1999, $288,000
in 1998 and  $239,000  in 1997.  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 2000 are estimated to be
$249,000 and the present value of the estimated future consulting and retirement
benefits  payable beyond 2000 and accrued as of January 1, 2000 is approximately
$235,000.

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.


                                      -24-



<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended January 1, 2000, January 2, 1999 and January 3, 1998

14. Restructuring and related charges

     Because of the weakness in orders for its products, the Company announced a
reduction of its  workforce  and offered  early  retirement  packages to certain
employees during the fourth quarter of 1998. The  restructuring  charge for 1998
was $510,000,  and charges net of tax benefits of $327,000 or $.18 per share, as
a result of the reduction in workforce and voluntary early retirements affecting
fourteen  persons.   During  1999  all  termination  benefits  pursuant  to  the
restructuring plan were paid.

15. Transactions with management and loan to shareholder

     On May 4, 1998,  the Company sold 20,000 (22,000 after giving effect to the
Company's 10% stock dividend)  shares of Common Stock from its treasury to Mason
N. Carter, Chairman,  President and Chief Executive Officer of the Company, at a
price  of  $12.75  per  share  (the  approximate  average  closing  price of the
Company's  Common Stock during the first quarter of 1998).  The Company extended
Mr.  Carter a loan of $255,000 in  connection  with the purchase of these shares
and amended a prior loan to Mr. Carter of $105,000.  A new promissory note for a
total of $360,000,  due May 4, 2003,  was executed by Mr. Carter in favor of the
Company.  Payment of the loan is  secured  by a pledge of the  33,000  shares of
Common Stock purchased by Mr. Carter with the proceeds of the loans. The Company
recorded  compensation  expense of $52,000 which was charged to operations  over
the one-year  period  commencing on the date of the  transaction,  as Mr. Carter
performed  services  throughout  this time  period.  The sale of these shares of
Common Stock was exempt from  registration  under the Securities Act of 1933, as
amended,  as a transaction not involving a public offering under Section 4(2) of
Act.

16. Shareholder Rights Plan

     On March 5,  1999,  the  Board  of  Directors  of the  Company  approved  a
shareholder  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  shareholders  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.

END OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                      -25-
<PAGE>


QUARTERLY FINANCIAL INFORMATION

     Summarized  quarterly  unaudited  financial data reported for 1999 and 1998
follows:
<TABLE>
<CAPTION>
1999                                        April 3         July 3         October 2        January 1
                                          -------------------------------------------------------------
<S>                                       <C>             <C>             <C>              <C>
Net sales .............................   $4,738,531      $5,125,245      $5,328,250       $5,205,005
Gross profit ..........................    2,311,791       2,399,094       2,633,768        2,435,974
Net income (loss) .....................      212,966          81,919         109,708         (162,338)
-------------------------------------------------------------------------------------------------------
Net income per (loss) share - basic ...         $.12            $.05            $.06            $(.09)
Net income per (loss) share - diluted..         $.12            $.05            $.06            $(.09)
-------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

1998                                        April 4         July 4         October 3        January 2
                                          -------------------------------------------------------------
<S>                                       <C>             <C>             <C>              <C>
Net sales .............................   $5,792,607      $5,573,659      $5,120,946       $3,614,623
Gross profit ..........................    2,574,755       2,541,932       2,268,970        1,168,649
Net income (loss) .....................      427,546         408,842         247,803         (743,891)
-------------------------------------------------------------------------------------------------------
Net income per (loss) share - basic ...         $.25            $.23            $.14            $(.42)(A)
Net income per (loss) share - diluted..         $.24            $.22            $.14            $(.42)(A)
-------------------------------------------------------------------------------------------------------

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

(A) Reflects the effects of a  restructuring  charge of $510,000  (see Note 14)
which  reduced  net  income  by  $327,000  or $.18 per share for the  fourth
quarter and fiscal 1998.
</TABLE>

QUARTERLY COMMON STOCK DATA
<TABLE>
<CAPTION>
                                        1999                               1998
                          ----------------------------------------------------------------------

Quarter                    1st      2nd     3rd       4th      1st      2nd      3rd     4th
Market price per share:   ----------------------------------------------------------------------
<S>                        <C>     <C>      <C>       <C>      <C>      <C>      <C>     <C>
         High .......      $7     $8 3/4   $10 1/4   $8 1/4    $9 3/4  $15 7/8  $13 15/16 $9 7/8

         Low ........       4 5/8    5       5 1/4    5 3/8     9 3/16  13        7 7/8    6 3/8
                          ----------------------------------------------------------------------
</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.


                                      -26-