<PAGE>

                                                       Exhibit 13.1

Financial contents

18   Selected Five Year Consolidated Financial Data
18   Summary Quarterly Income Statement
19   Management's Discussion and Analysis of
     Financial Condition and Results of Operations
23   Market for Registrant's Common Equity and Related Stockholder Matters
24   Consolidated Balance Sheets
25   Consolidated Statements of Operations
26   Consolidated Statements of Stockholders' Equity
27   Consolidated Statements of Cash Flows
28   Notes to Consolidated Financial Statements
36   Independent Auditors' Report



<PAGE>

Selected Five Year consolidated financial data

<TABLE>
<CAPTION>
(In thousands except per share data)
Summary Income Statement        1996           1995             1994           1993            1992
<S>                             <C>            <C>              <C>            <C>             <C>
Net Sales                       $173,123       $127,455         $92,589        $69,474         $68,290
Cost of Sales                    106,103         77,172          56,159         48,509          50,832
Gross Profit                      67,020         50,283          36,430         20,965          17,458

Operating Expenses and
  Other Income/Expense            39,640         29,810          24,452         23,042          18,261
Income (loss) Before
  Income Tax                      27,380         20,473          11,978         (2,077)           (803)
Income Tax Expense(Benefit)       10,130          7,165           3,165            847             (56)
Net Income (loss)               $ 17,250        $13,308          $8,813        $(2,924)          $(747)

Income (loss) Per Share:
  Primary                          $0.80          $0.68           $0.51         $(0.20)         $(0.05)
  Fully Diluted                    $0.80          $0.67           $0.49         $(0.20)         $(0.05)
Average Common Shares Outstanding:
  Primary                         21,576         19,653          17,261          15,396         14,583
  Fully Diluted                   21,576         19,925          18,390          15,396         14,583
Consolidated Balance Sheet Data
Total Assets                    $116,586        $94,620         $42,371         $26,952        $32,796
Working Capital                   97,931         72,967          25,551          11,240         12,993
Long-term Obligations                 66            203             493             910          1,293
Stockholders' Equity             104,172         75,897          25,943          11,610         13,471

</TABLE>

Summary quarterly income statement

<TABLE>
<CAPTION>
     (In thousands, except per share data)
                       Dec. 31        Sep. 30       Jun. 30         Mar. 31        Dec. 31     Sep. 30       Jun. 30     Mar. 31
Quarter Ended          1996           1996          1996            1996           1995        1995          1995        1995
<S>                    <C>            <C>           <C>             <C>            <C>         <C>          <C>         <C>
Net Sales              $37,009        $42,206       $ 45,411        $48,497        $40,418     $34,505      $28,601     $23,931
Gross Profit            14,839         16,689         16,962         18,530         16,076      13,415       11,481       9,311
Income From
   Operations            4,120          6,574          7,371          8,178          7,136       5,289        4,369       3,256
Net Income             $ 3,006        $ 4,518       $  4,601        $ 5,125        $ 5,201     $ 3,152      $ 2,851     $ 2,104
Net Income Per Share:
Primary                $  0.14        $  0.21       $   0.21        $  0.24        $  0.24     $  0.16      $  0.15     $  0.11
Fully Diluted          $  0.14        $  0.21       $   0.21        $  0.24        $  0.24     $  0.16      $  0.15     $  0.11
Weighted Average Shares:
Primary                 21,391         21,439         21,725         21,297         21,440      19,487       18,808      18,703
Fully Diluted           21,391         21,459         21,725         21,409         21,484      19,543       18,980      18,703

</TABLE>


<PAGE>

Management's Discussion And Analysis of financial condition and results of
operations

RESULTS OF OPERATIONS: 1996 vs 1995
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995.
In 1996 the Company's financial condition continued to strengthen as a result of
increased year-over-year revenue and profitability levels.  In addition to its
profitable operations, the Company's financial condition was favorably impacted
by employees purchasing  the Company's Common Stock through the exercise of
options granted under the Company's stock option plans.

In February 1996, the Company issued 2,710,738 shares of its Common Stock for
all of the capital stock of BusLogic Inc. (BusLogic), a supplier of storage
input/output solutions, primarily host bus adapters, for use in network file
servers, personal computers, and workstations.  This business combination was
accounted for as a pooling of interests, and there were no significant
transactions between the Company and BusLogic prior to the combination, which
required elimination, and no adjustments were required to conform accounting
policies.

Sales and Profits.  Consolidated sales increased by 36% to $173.1 million in
1996 from $127.5 million in 1995.  Sales of the Company's disk array controller
products increased by 60% in 1996 over 1995 levels, which was a result of the
continuing trend of the computer industry to expand its use of  RAID technology
as a storage solution, especially in overseas markets.  Consequently, the
Company's customer base has become more diverse, both domestically and
internationally, and the Company's customers continued to ship products with
RAID functionality in higher volumes in 1996.  Sales from disk array products
represented 87% of total sales in 1996 compared to 75% in 1995.

Sales of the BusLogic host bus adapter (HBA) products were a disappointment.
The Company had anticipated an increase in revenue from its host bus adapters
over 1995, but instead 1996 revenues decreased by 32%.  Sales of HBA products
were 11% of total sales in 1996 compared to 21% in 1995.  Sales of the older HBA
products designed for the EISA and microchannel bus architectures declined at a
faster rate than the increase in the new PCI bus based HBA products.

While annual revenues and profitability increased in 1996 over 1995 levels,
quarterly revenue and profitability declined sequentially during 1996.  The
decline in revenue and profitability was primarily a result of changing forces
in the market place.  These changes affected both the Company's RAID and HBA
products.  Additionally, in the fourth quarter of 1996, the Company's sales were
impacted by the transition from its older RAID products to its new scaleable
RAID products as customers minimized their purchases of the older products.  The
Company believes that this product transition may potentially affect sales
performance through the first quarter of 1997.

The Company continues its commitment to, and is dependent upon, development of
new products as well as enhancement of existing products.  The Company believes
its future profitability is dependent to a large extent upon the industry's
continued use of its PCI and SCSI to SCSI disk array product families and SCSI
host bus adapters and their respective follow on products as well as the
acceptance of its new products.  However, there can be no assurance that new
products will be successfully developed or, if developed, that such new products
or the Company's current products will achieve or sustain market acceptance.

The Company depends heavily upon its suppliers to provide high-quality materials
on a timely basis and at a reasonable price.  Although many of the components
for the Company's products are available from numerous sources at competitive
prices, some of the most critically-needed components are sole-sourced.  As a
result, there can be no assurance that sufficient quantities of these or other
critical components will be available for the Company's production needs.
Furthermore, manufacturers of components on which the Company relies may be
unable to continue to make those components, or the next generation of those
components, available to the Company on a timely basis and in adequate
quantities.


<PAGE>

The Company has no long-term supply contracts.  There can be no assurance that
the Company will be able to obtain, on a timely basis, all the components it
requires.  If the Company cannot obtain essential components as required, the
Company could be unable to meet demand for its products, thereby adversely
affecting its operating results and allowing competitors to gain market share.
In addition, scarcity of such components could result in cost increases and
adversely affect the Company's gross margin.

The Company's largest customer during 1996 was Digital Equipment Corporation
(DEC), which accounted for 17% of the Company's sales.  The Company's next two
largest customers, Hewlett-Packard Company (HP) and IBM, each accounted for an
additional 14% of total sales.  Many of the Company's customers manufacture and
sell products in the networked PC market, which is subject to rapid
technological change and intense price competition.  These factors affecting the
networked PC market in general, or any of the Company's customers in particular,
could have a material adverse effect on the Company's future results of
operations.  The Company has no long-term purchase commitments from its
customers, and customers generally may cancel their orders on 30-days notice.
Accordingly, there can be no assurance that orders from existing customers,
including the Company's principal customers, will continue at their historical
levels, or that the Company will be able to obtain orders from new customers.
Although the Company continues to ship product to HP, the level of sales is
expected to decline materially in 1997 due to HP's award of a design win to one
of the Company's competitors.  Despite the competitor's design win, the Company
expects to have the opportunity to compete for future design wins at HP during
1997.  Loss of one or more of the Company's current customers, particularly a
principal customer, or cancellation or rescheduling of orders already placed,
could materially and adversely affect the Company's business and operating
results.

Gross profit was $67.0 million or 38.7% of sales in 1996, compared to $50.3
million or 39.5% of sales in 1995.  The decrease in gross margin percentage was
due primarily to the decline in the percent of sales of higher margin host bus
adapter products.  Maintenance of current gross margins or improvements of gross
margins are dependent upon continued manufacturing cost reductions and the
successful development and market acceptance of the Company's new scalable disk
array controller products and host bus adapters and the Company's new product
lines in network attached storage and merchant chips.  There can be no assurance
that the Company will be able to develop and introduce such products in a timely
manner, or that such products will gain or sustain market acceptance.  The
Company faced competition in the market for its disk array products and
substantial competition in the market for its HBA's during 1996 and anticipates
that these competitive pressures will intensify in 1997.  The increased
competition may come from new entrants into the Company's markets or from the
Company's customers who may decide to develop their own RAID solutions for the
networked PC market.  The full impact of such competition on the Company's sales
and gross profits is uncertain.  The Company anticipates that additional
competition could result in decreased revenue and a decline in the selling
prices for its products, which would impact both gross margins and operating
results.

Research and Development.  Expenditures for research and development increased
by 82% to $16.7 million in 1996 as compared to $9.2 million in 1995.  Research
and development expenses increased as a percent of sales from 7.2% in 1995 to
9.6% in 1996 due to the Company's commitment to introduce follow-on products to
its successful existing products and to invest in new products that may
potentially increase the Company's future revenues.  During 1996 the Company
funded the development of a more robust SCSI controller chip with the intent of
entering the merchant chip market, completed the majority of the development on
its new generation scaleable RAID products and began the development of a
networked attached storage product.  Additionally, the Company released several
upgrades to its higher volume products such as Ultra-SCSI RAID controllers for
the bus-based and bus-independent markets.  The growth in research and
development expenses was primarily due to the recruitment and addition of new
technical staff and related benefits and the cost of developing beta units of
its new products.  The Company expects to continue to increase its investment in
research and development activities during 1997 in order to be in a position to
meet its commitment to introduce new and innovative products and to continue its
strategy of maintaining technology leadership in the markets in which it has
positioned its products.

Selling and Marketing.  Sales and marketing expenses were $14.4 million or 8.3%
of net sales in 1996, compared to $11.9 million or 9.3% of net sales in 1995.
The 21% increase in sales and marketing expenses



<PAGE>

was primarily due to the addition of employees to manage the increased volume
and to higher commission, advertising, trade shows and travel related
expenses.  The Company expects that sales and marketing expenses will
continue to increase during 1997 as the Company continues to expand its
infrastructure to support a diverse customer base which is increasingly
located overseas and to support new product lines. Additionally, the current
market opportunities through both domestic and international distribution
channels and the Company's OEM customers require an increasingly higher level
of sales support which is often times at the customer's site.

General and Administrative.  General and administrative expenses increased to
$9.7 million or 5.6% of net sales in 1996 from $9.1 million or 7.2% of net sales
in 1995.  The increase in general and administrative expenses of 7% during 1996
was due primarily to merger expenses incurred during the BusLogic acquisition.
The Company anticipates that general and administrative expenses will continue
to increase during 1997 due to increased staffing and as a result of increased
activity in existing litigation matters.

Impact of Inflation.  The impact of inflation on the Company's business was not
material during the three years ended December 31, 1996.

Interest Income/Expenses and Other.  Net interest income increased by
approximately 137% due to the Company investing the proceeds of its third
quarter 1995 follow-on offering in short-term marketable securities during all
of 1996.  In 1995, the Company had such investments only in the fourth quarter.
Other expense reflects the net of expenses such as business licenses fees and
sales tax which were in line with the prior year's expenses.

Income Taxes.  The Company's combined federal and state effective income tax
provision rate was 37% in 1996 as opposed to 35% in 1995.  The increase
relates largely to non-deductible expenses incurred in connection with the
BusLogic merger in the first quarter of 1996.

YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994
In 1995 the Company increased its revenues over 1994, improved its margins and
significantly increased its working capital.  Additionally, the Company's cash
flow was positive due to profitable operations and the $32.7 million of proceeds
received from its follow-on offering of Common Stock.

Sales and Profits.  Net sales increased by 38% to $127.5 million in 1995 from
$92.6 million in 1994.  Sales of the Company's disk array controller products
increased by 89% in 1995 over 1994 levels, reflecting the increasing volumes of
products with RAID functionality being shipped by the Company's customers.  The
net sales growth in 1995 was attributable to overall market growth and strong
demand for the Company's disk array controller products. Sales from disk array
products represented 75% of total sales in 1995 compared to 55% in 1994.
Conversely, net sales of the Company's HBA products decreased by 10% to $27.0
million in 1995, which was due to the late introduction of its newer PCI bus
based products.

The Company's largest customer during 1995 was IBM Corporation (IBM), which
accounted for 20% of the Company's sales.  The Company's next two largest
customers, Hewlett-Packard Company and Digital Equipment Corporation, accounted
for an additional 14% and 12%, respectively, of total sales.

Gross profit was $50.3 million or 39.5% of sales in 1995, compared to $36.4
million or 39.3% of sales in 1994.  The increase in gross profits in fiscal 1995
was due to increased revenues.  Gross margins remain relatively the same from
the prior year in part due to the increased cost of simm memory modules, but was
offset by the introduction of new products which had cost reduced parts and
correspondingly better margins than their predecessor.

Research and Development.  Expenditures for research and development increased
by 19% to $9.2 million in 1995 as compared to $7.7 million in 1994.  Research
and development expenses decreased as a percent of sales from 8.3% to 7.2% in
1995 due to the significant growth of net sales.  The growth in research and
development expenses was primarily due to increased technology development
efforts related to intelligent input/output management projects and continual
developments in SCSI technology.

<PAGE>

Selling and Marketing.  Sales and marketing expenses were $11.9 million or 9.3%
of net sales in 1995, compared to $10.4 million or 11.2% of net sales in 1994.
The 14% increase in sales and marketing expenses was primarily due to the
addition of employees to manage the increased volume and to higher commission,
advertising and travel related expenses.

General and Administrative.  General and administrative expenses increased to
$9.1 million or 7.1% of net sales in 1995 from $6.0 million or 6.5% of net sales
in 1994.  The increase in general and administrative expenses of 52% during 1995
was due to increased legal expenses and to the addition of personnel to support
the growth in the Company's business.

Interest Income, Expenses and Other.  In 1995, the Company had a net interest
income of $536 thousand as compared to the prior year's interest expense of $313
thousand.  1995's interest income was generated from investing the net proceeds
received from its follow-on offering of Common Stock for part of the year.
These investments that yielded interest income in 1995 stand in contrast to the
borrowing required in 1994 against the Company's line of credit.  Other
income/expense reflects the net of expenses such as business licenses fees and
sales tax and were in line with the prior year's expenses.

Income Taxes.  The Company's combined federal and state effective income tax
provision rate was 35% in 1995 up from 26% in 1994.  The tax rate in 1994
included a benefit related to utilization of prior year's net operating losses.

LIQUIDITY AND CAPITAL RESOURCES
During 1996 the Company financed its operations primarily from existing cash
balances, liquidation of marketable investments, cash generated from the
exercise of stock options by the Company's employees and cash generated from
operations. Working capital of the Company as of December 31, 1996 was $97.9
million, an increase of $24.9 million from the $73.0 million as of December 31,
1995.  Cash balances improved by $4.1 million from $11.7 million to $15.8
million as of December 31, 1996.  Short term marketable investments decreased
$7.2 million from $25.7 million at December 31, 1995 to $18.5 million at
December 31, 1996.

Net Cash provided from investment activities was $2.5 million due to the net
purchases and maturities of marketable investments of $7.4 million, which was
offset by $4.9 million in capital expenditures.  The Company utilized these
resources primarily to finance an increase in inventories of $15.2 million and
accounts receivable of $4.7 million, net of $6.1 million decrease in accounts
payable.  Increases in inventories coincided with the increase in revenues and
increases in the level of finished goods to better service distribution and OEM
customers.  Days sales outstanding increased from 49 days at the end of 1995 to
57 days at the end of 1996.  The decrease in accounts payable is due primarily
to lower inventory purchases in the second half of 1996.

At December 31, 1996, the Company's principal sources of liquidity consisted of
cash and cash equivalents, short-term marketable securities and a $20 million
line of credit.  The Company's line of credit which expires in June, 1998,
bearing interest at the bank's base rate, or Eurodollar or Libor option rate
plus 1 3/4%. The basis of the rate is determined by the Company at the time of
any advance to the Company.  The agreement  contains covenants that include the
maintenance of specific financial ratios and prohibitions on additional
indebtedness without the prior consent of the bank.

The Company presently expects to finance near-term and long-term operations and
capital requirements through its short-term marketable securities, cash provided
by continuing operations, existing cash balances, and borrowings under bank
lines of credit.  The Company believes that such capital resources will meet the
Company's working capital needs through at least the end of 1997.

"Safe-Harbor" Statement Under Private Securities Litigation Reform Act of 1995:
The statements contained in the above Management's Discussion and Analysis of
Financial Condition and Results of Operation, and elsewhere in this Annual
Report, that are not historical facts contain forward looking information with
respect


<PAGE>

to plans, projections or future performance of the Company, the occurrence of
which involve certain risks and uncertainties that could cause actual results
to differ materially.  These risks and uncertainties include, without
limitation, demand and competition for the Company's RAID controller and HBA
products, the ability of the Company to timely ship ordered products, the
impact on the Company of its acquisition of BusLogic in early 1996, and other
risks or uncertainties detailed in the Company's filings with the Securities
and Exchange Commission, as well as in this Annual Report.  These forward
looking statements speak only as of the data hereof, and the Company
disclaims any intent or obligation to update these forward looking statements.

Market for Registrant's Common Equity and related stockholder matters


The Company's common stock ($0.01 par value) is traded on the National
Association of Securities Dealers National Marketing System ("NMS") and is
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") under the symbol MYLX.

The following table sets forth quarterly high and low bid quotations for the
Company's Common Stock for the two-year period ended December 31, 1996 as quoted
by the NASDAQ National Market System.  Such bid quotations represent inter-
dealer prices without retail mark-up or mark-down or commission and may not,
therefore, represent actual transaction prices.

COMMON STOCK (MYLEX)     HIGH BID       LOW BID
1995
First Quarter            12 1/16         8 3/8
Second Quarter           13 3/8         10
Third Quarter            19 1/8         13
Fourth Quarter           20 5/8         14

1996
First Quarter            25 1/4         15 3/4
Second Quarter           27 3/8         15 5/8
Third Quarter            19 1/8         10
Fourth Quarter           17 1/2         10 3/8

As of January 31, 1997, there were approximately 600 shareholders of record of
the Company's Common Stock.

DIVIDENDS
The Company has not paid cash dividends on its Common Stock during either of the
two most recent fiscal years nor during the period subsequent thereto.  While
the Board of Directors has general authority over dividend policy, it does not
anticipate paying cash dividends in the foreseeable future.

<PAGE>

Consolidated balance sheets
December 31, 1996 and 1995

     (In thousands, except share data)
                                                  1996           1995
Assets
Current assets:
Cash and equivalents                            $ 15,849         11,733
Short-term marketable investments                 18,538         25,708
Accounts receivable, net of allowance of
$436 and $707 in 1996 and 1995, respectively      27,732         23,081
Inventories                                       41,680         26,521
Prepaid expenses and other current assets          3,448          1,732
Deferred income taxes                              3,032          2,712
Total current assets                             110,279         91,487

Property and equipment, net                        6,124          3,021
Other assets                                         183            112
                                                $116,586         94,620
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable                                $  6,157         12,243
Accrued liabilities                                6,073          5,969
Current portion of long-term capital lease
obligations                                          118            308
Total current liabilities                         12,348         18,520

Long-term capital lease obligations                    -            131
Deferred income taxes                                 66             72

Commitments and contingencies

Stockholders' equity:
Common stock, $0.01 par value;
40,000,000 shares authorized; 20,693,000
and 19,590,000 shares issued and outstanding
in 1996 and 1995, respectively                       207            196

Additional paid-in capital                        63,789         52,310
Notes receivable from stockholders                  (465)             -
Retained earnings                                 40,641         23,391
Total stockholders' equity                       104,172         75,897

                                                $116,586         94,620

See accompanying notes to consolidated financial statements.



<PAGE>

Consolidated statements of operations
Years ended December 31, 1996, 1995, and 1994

     (In thousands, except per share amounts)
                                          1996         1995         1994

Net sales                                 $173,123     127,455      92,589
Cost of sales                              106,103      77,172      56,159
Gross profit                                67,020      50,283      36,430

Operating expenses:
Selling and marketing                       14,391      11,935      10,359
Research and development                    16,690       9,188       7,666
General and administrative                   9,696       9,110       6,011

Operating income                            26,243      20,050      12,394

Other income (expense)
Interest income                              1,293         715         199
Interest expense                               (24)       (179)       (512)
Other expense                                 (132)       (113)       (103)

Income before income tax expense            27,380      20,473      11,978

Income tax expense                          10,130       7,165       3,165

Net income                                 $17,250      13,308       8,813

Earnings per share:
Primary                                       $.80         .68         .51
Fully diluted                                 $.80         .67         .48

Weighted average number of shares:
Primary                                     21,576      19,653      17,261
Fully diluted                               21,576      19,925      18,390


See accompanying notes to consolidated financial statements.


<PAGE>

Consolidated statements of stockholders' equity

<TABLE>
<CAPTION>
                                                                                           Notes
                                                                                           receivable               Total
                                                                               Additional  from                     Stock
                                              Common Stock                     paid-in     Stock        Retained    holders'
(In thousands, except share data)             Shares              Amount       capital     holders      earnings    equity
<S>                                           <C>                 <C>          <C>         <C>          <C>         <C>
Balances as of December 31, 1993              15,687,000          $157         12,475      (194)        1,220       13,658
Common stock issued for cash upon
exercise of options, net of 294,000
shares surrendered at exercise                   867,000             9            507         -             -          516

Subordinated debentures converted                681,000             7          2,631         -             -        2,638

Tax benefit from disqualifying
dispositions of stock options                          -             -          2,252         -             -        2,252
Notes receivable from stockholders                     -             -              -       194             -          194
Net income                                             -             -              -         -         8,813        8,813

Balances as of December 31, 1994              17,235,000           173         17,865         -        10,033       28,071

Common stock issued for cash upon
exercise of options and warrants                 355,000             3          1,105         -             -        1,108

Issuance of common stock, net
of expenses of $422                            2,000,000            20         32,718         -             -       32,738

Tax benefit from disqualifying
dispositions of stock options                           -            -            622         -             -          622

Adjustment to conform BusLogic,
Inc. fiscal year-end                                    -            -              -         -            50           50
Net income                                              -            -              -         -        13,308       13,308

Balances as of December 31, 1995               19,590,000          196         52,310         -        23,391       75,897

Common stock issued for cash and notes
receivable upon exercise of options             1,068,000           11          4,145      (465)            -        3,691

Common stock issued under employee
stock purchase plan                                35,000            -            465                       -          465
Tax benefit from disqualifying
dispositions of stock options                           -            -          6,869         -             -        6,869
Net income                                              -            -              -         -        17,250       17,250

Balances as of December 31, 1996               20,693,000         $207         63,789      (465)       40,641      104,172


See accompanying notes to consolidated financial statements.

</TABLE>

<PAGE>

Consolidated statements of cash flows
Years ended December 31, 1996, 1995, and 1994

<TABLE>
<CAPTION>

     (In thousands)
                                                             1996          1995           1994
<S>                                                          <C>           <C>            <C>
Cash flows from operating activities:
Net income                                                   $17,250       13,308         8,813

Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Amortization of net discount on short-term
marketable investments                                          (249)           -             -

Tax benefit related to disqualifying
     dispositions of stock options                             6,869          622         2,252

Depreciation and amortization                                  1,814        1,563         1,576
Deferred income taxes                                           (326)      (1,319)       (1,135)

Interest expense on convertible debentures converted to
common stock                                                       -            -           313

Changes in operating assets and liabilities:
Accounts receivable, net                                      (4,651)      (8,366)       (7,030)
Inventories                                                  (15,159)     (12,750)       (6,439)
Prepaid expenses and other current assets                     (1,787)        (969)          372
Accounts payable                                              (6,086)       7,157           794
Accrued liabilities                                              104           15         3,072

Net cash (used in) provided by operating activities           (2,221)        (739)        2,588

Cash flows from investing activities:
Capital expenditures                                          (4,917)      (1,683)       (1,277)
Purchase of short-term marketable investments                 (7,246)     (25,708)            -
Sales and maturities of short-term investments                14,665            -             -

Net cash provided by (used in) investing activities            2,502      (27,391)       (1,277)

Cash flows from financing activities:
Proceeds from exercise of stock options and warrants           3,691        1,108           516
Proceeds from employee stock purchase plan                       465            -             -
Repayment of capital lease obligations                          (321)        (471)         (385)
Net proceeds from issuance of common stock                         -       32,738             -
Repayments against line of credit, net of borrowings               -       (2,350)         (150)
Proceeds from issuance of convertible subordinated debentures      -            -           300
Repayment of convertible subordinated debentures                   -            -          (300)
Repayment of notes receivable from stockholders                    -            -           194

Net cash provided by financing activities                      3,835       31,025           175

Net increase in cash and equivalents                           4,116        2,895         1,486
Adjustment to conform Buslogic, Inc. fiscal year end               -           50             -
Cash and equivalents at beginning of year                     11,733        8,788         7,302
Cash and equivalents at end of year                          $15,849       11,733         8,788

</TABLE>

<PAGE>


Supplemental disclosures of cash flow information:
Cash paid during the year:

<TABLE>
<S>                                                          <C>           <C>            <C>
Interest                                                         $24          178           267
Income taxes                                                  $5,656        7,294         1,109

Noncash financing and investing activities:
   Common Stock issued for notes receivable
   from stockholders                                           $(465)           -             -
Conversion of subordinated debentures                          $   -            -         2,638

</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>

Notes to consolidated financial statements
December 31, 1996, 1995, and 1994

1.Summary of Significant Accounting Policies

Basis of Presentation and Preparation.  The accompanying consolidated
financial statements include the accounts of Mylex Corporation (the Company
or Mylex) and its wholly owned subsidiaries.  All material intercompany
accounts have been eliminated in the consolidated financial statements.

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

Revenue Recognition.  Net sales are recognized upon shipment to customers,
including sales made to distributors under agreements allowing limited right
of return and price protection on merchandise unsold by the distributors.
For sales made to distributors, reserves are provided for expected returns
and price protection at the time of shipment.

Financial Instruments.  Cash equivalents consist of highly liquid
investments, principally money market accounts, with a maturity of three
months or less at the time of purchase.

The Company has classified its short-term marketable investments as
"available-for-sale."  Available-for-sale securities are carried at fair
market value, with the unrealized gains and losses, net of tax, reported in a
separate component of stockholder's equity.  Gains and losses on securities
sold are based on the specific identification method.  Through December 31,
1996, the difference between fair value and the amortized cost of
available-for-sale securities was not significant.

Financial instruments which potentially subject the Company to concentrations
of credit risk are primarily cash and equivalents, short-term marketable
investments, and accounts receivable.  The Company's cash equivalents and
short-term marketable investments are primarily in money market accounts,
U.S. government obligations, and municipal notes and bonds that have
maturities ranging through 1997.  The Company believes no significant
concentration of credit risk exists with respect to these financial
instruments.

The Company sells its products primarily to original equipment manufacturers
and distributors in the personal computer (PC) industry.  Generally, the
Company requires no collateral on trade receivables, although certain export
sales are guaranteed by letters of credit.  The Company believes that any
credit risks are substantially mitigated by its credit evaluation process.
The Company maintains reserves for potential credit losses, but historically
has not experienced significant losses related to individual customers or
groups of customers in any particular geographic area.

Inventories.  Inventories are valued at the lower of cost (first in, first
out) or market. Property and Equipment.  Property and equipment are carried
at cost.  Assets recorded under capital leases are stated at the present
value of future minimum lease payments at the inception of the lease.
Depreciation on property and equipment is calculated on the straight-line
method over the estimated useful life of the asset (generally five years).
Assets recorded under capital leases are amortized using the straight-line
method over the shorter of the lease term or estimated useful life of the
asset.

Impairment of Long-Lived Assets.  Effective January 1, 1996, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of. SFAS No. 121 requires the Company to review the
recoverability of the carrying amount of its long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of an
asset might not be recoverable.


<PAGE>

In the event that facts and circumstances indicate that the carrying amount
of long-lived assets may be impaired, an evaluation of recoverability would
be performed.  If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write-down to fair value is
required.  Fair value may be determined by reference to discounted future
cash flows over the remaining useful life of the related asset.  Such
adoption did not have a material effect on the Company's consolidated
financial position or results of operations.

Income Taxes.  The Company accounts for income taxes using the asset and
liability method, whereby deferred assets and liabilities are recorded for
differences between the book and tax carrying amounts of balance sheet items.
Deferred liabilities or assets at the end of each period are determined using
the tax rate expected to be in effect when the taxes are actually paid or
recovered.  The measurement of deferred tax assets is reduced, if necessary,
by a valuation allowance for any tax benefits that are not expected to be
realized. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.

Translation of Foreign Currencies and Foreign Currency Transactions.  The
functional currency of the Company's foreign subsidiaries is the U.S. dollar.
Resulting foreign exchange gains and losses, which have been insignificant,
are included in the results of operations.  The Company's export sales are
generally transacted in U.S. dollars and have not resulted in significant
foreign exchange gains and losses.

Earnings Per Share.  Earnings per share data have been computed using the
weighted average common and common equivalent shares outstanding.  Common
equivalent shares consist of shares issuable upon the exercise of stock
options and warrants, except where antidilutive, using the treasury stock
method.  In determining fully diluted earnings per share, convertible
subordinated debentures, if dilutive, are included in outstanding shares
using the "as if converted" method.

Stock Option Plan.  The Company accounts for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related
interpretations.  As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded
the exercise price.  On January 1, 1996, the Company adopted the disclosure
requirements of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. Under SFAS No. 123 the Company must
disclose pro forma net income and pro forma earnings per share disclosures
for employee stock option grants made in 1995 and future years as if the fair
value-based method defined in SFAS No. 123 had been applied.

2.Business Combination

On February 9, 1996, the Company issued 2,710,738 shares of its common stock
for all of the outstanding stock of BusLogic Inc. (BusLogic), a supplier of
storage input/output solutions for use in network file servers, personal
computers, and workstations.  The transaction was accounted for as a pooling
of interests and, accordingly, the Company's historical consolidated
financial statements have been restated to include the accounts and results
of operations of BusLogic.

Separate results of the combining entities for the periods prior to the
merger were as follows (in thousands):

         Years ended December 31,
                     1995            1994
Net revenues:
     Mylex         $100,420         62,513
     BusLogic        27,035         30,076
                   $127,455         92,589

<PAGE>

Net income:
     Mylex          $13,122          7,509
     BusLogic           186          1,304
                    $13,308          8,813

In connection with the merger, approximately $884,000 of merger expenses were
incurred and charged to general and administrative expense during the first
quarter of 1996.  These expenses include investment banking fees of $504,000,
legal and accounting fees of $320,000 and other merger-related expenses of
$58,000.

Prior to the combination, BusLogic's fiscal year ended January 31.
Accordingly, BusLogic's financial statements for the twelve months ended
December 31, 1995, were combined with Mylex's financial statements for the
same period and BusLogic's financial statements for the years ended January
31, 1995 and 1994, were combined with Mylex's financial statements for the
years ended December 31, 1994 and 1993, respectively.  BusLogic's unaudited
results of operations for the one month ended January 31, 1995, included
sales of $2,476,000 and net loss of $50,000.  An adjustment has been made to
stockholders' equity as of December 31, 1995 to eliminate the effect of
including BusLogic's results of operations for the one month ended January
31, 1995 in both the years ended December 31, 1995 and 1994.

3.Short-Term Marketable Investments

Fair values of short-term marketable investments are based on quoted market
values as of December 31, 1996 and 1995.  As of December 31, 1996 and 1995,
the difference between the fair value and amortized cost of short-term
marketable investments was not significant.

As of December 31, 1996, short-term marketable investments consisted of
$18,538,000 of U.S. government securities due within one year or less.

As of December 31, 1995, short-term marketable investments consisted of
$23,615,000 of U.S. government securities and $2,093,000 of municipal notes
and bonds, with $14,667,000 due in one year or less and $11,041,000 due in
one to two years.

Inventories

4.Inventories consisted of the following (in thousands):

     December 31,
                           1996         1995

Raw materials            $26,623       17,619
Work in process            6,885        6,618
Finished goods             8,172        2,284
                         $41,680       26,521


5.Property and Equipment

Property and equipment consisted of the following (in thousands):

                                                 December 31,
                                               1996          1995

Machinery and equipment                      $4,260         3,230
Furniture and fixtures                        2,595           875


<PAGE>

Computer equipment and software                        5,426         3,259
                                                      12,281         7,364
Less accumulated depreciation and amortization         6,157         4,343
                                                      $6,124         3,021

As of December 31, 1996 and 1995, equipment recorded under capital leases was
$1,318,000 and $1,605,000, respectively, and accumulated amortization thereon
was $1,318,000 and $1,426,000, respectively.

6.Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

     December 31,
                                      1996           1995

Accrued compensation and benefits    $3,234          1,956
Other                                 2,839          4,013
                                     $6,073          5,969

7.Line of Credit

The Company has an available line of credit up to a maximum of $20,000,000,
which expires in June 1998, bearing interest at the bank's prime rate (8.25%
as of December 31, 1996).  The agreement with the Company contains covenants
that include the maintenance of specific financial ratios and prohibitions on
additional indebtedness without the prior consent of the bank.  As of
December 31, 1996, the Company was in compliance with these covenants.

8.Income Taxes

Income taxes for the years ended December 31, 1996, 1995, and 1994, were
comprised of the following (in thousands):

     December 31,
                                       1996      1995      1994
Current tax expense:
     Federal                         $3,292     6,596     1,779
     State                              296     1,266       269
     Total current                    3,588     7,862     2,048

Deferred tax expense (benefit):
     Federal                           (351)   (1,433)   (1,015)
     State                               24       114      (120)
     Total deferred                    (327)   (1,319)   (1,135)

Charge in lieu of taxes attributable to employer stock option plans:
     Current year                     6,869       622     1,222
     Prior years                         --        --     1,030
     Total charge                     6,869       622     2,252
     Total tax expense              $10,130     7,165     3,165

The reconciliation between the amount computed by applying the federal statutory
rate to income before income taxes and the actual income tax expense were as
follows (in thousands):

<PAGE>

<TABLE>
<CAPTION>
     December 31,                                       1996      1995      1994
<S>                                                  <C>        <C>       <C>
Statutory federal income tax at 35%                  $ 9,582     7,165     4,192
State income tax, net of federal tax benefit           1,093     1,174       217
Foreign sales corporation benefit                       (777)     (228)     (106)
Change in the beginning of the year
     valuation allowance                                  --    (1,299)   (1,986)
Tax benefit from stock options credited directly
     to additional paid-in capital                        --        --     1,030
Other, net                                               232       353      (182)
          Total tax expense                          $10,130     7,165     3,165
</TABLE>

The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities is presented below (in thousands).

     December 31,
                                                             1996      1995
Deferred tax assets:
     Accounts receivable valuation reserves                  $170       304
     Lower of cost or market adjustments to inventory
          and other tax-related adjustments                 1,813       534
     Reserves and accruals for reporting purposes
           not taken for tax purposes                         945     1,343
     State tax benefit, including net operating loss
         carryovers, net of federal tax reduction             104       531
               Total gross deferred tax assets              3,032     2,712
Deferred tax liabilities:
     Depreciation and amortization                             66        72
               Total gross deferred tax liabilities            66        72
               Net deferred tax assets                     $2,966     2,640

There is no net change in the valuation allowance for the year ended December
31, 1996.  Management believes that no valuation allowance is required on
deferred tax assets based on current and projected profitability.

9.Stockholders' Equity

In December 1995, the Company adopted the 1995 Employee Stock Purchase Plan,
which authorizes the issuance of up to 300,000 shares of its common stock.
The plan permits eligible employees to purchase common stock through payroll
deductions at a purchase price of the lower of 85% of the fair market value
of the common stock at the beginning or end of each offering period.

Under SFAS No. 123, compensation cost is recognized for the fair value of the
employees' purchase rights, which was estimated using the Black-Scholes model
with the following assumptions for 1996 and 1995: dividend yield of 0 percent
for both years, expected life of six months for both years, expected
volatility of 73% for both years, and risk free interest rate of 5.12% and
7.54%.  The weighted-average fair value of those purchase rights granted in
1996 and 1995 was $6.81 and $6.21.

Mylex's 1983 and 1993 incentive and nonqualified stock option plans provide
for the grant, by the Board of Directors, of stock options to employees,
officers, consultants, and outside directors at an exercise price per share
not less than the fair market value on the date of grant.  Incentive stock
options granted under the 1983 plan generally vest ratably over 3 years from
date of grant and expire 10 years from date of grant.  Nonqualified stock
options vest ratably over 3 years and expire 5 years from date of grant.
Options granted


<PAGE>

under the 1993 plan generally vest ratably over 4 years from the date of
grant and expire 10 years from the date of grant.

The per share weighted-average fair value of stock options granted during
1996 and 1995 was $8.34 and $6.41, respectively, on the date of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions: 1996 expected dividend yield 0%, risk-free interest rate of
5.3%, expected volatility of 73% and expected life of 4 years; 1995 expected
dividend yield 0%, risk-free interest rate of 7.86%, expected volatility of
73%, and expected life of 4 years.

The Company applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for its stock options
in the financial statements because at the date of grant the exercise price
per share equaled or exceeded fair value of the underlying Common Stock.  Had
the Company determined compensation cost based on fair value at the grant
date for its stock options under SFAS No. 123, the Company's net income would
have been reduced to the pro forma amounts indicated below:


                                       1996      1995
Net income:
     As reported                    $17,250    13,308
     Pro forma                       15,003    12,725
Earnings per share:
     As reported - primary             $.80       .68
     Pro forma - primary                .70       .65
     As reported - fully diluted        .80       .67
     Pro forma - fully diluted          .70       .64

Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options'
vesting period of three to four years and compensation cost for options
granted prior to January 1, 1995, is not considered.

During October 1996, the Company offered option holders under its stock
option plans the opportunity to have outstanding options repriced to the then
current fair market value of the Company's common stock of $12.87 per share.
Vesting schedules for repriced options were extended six months.  The other
terms of the options remained unchanged.  On October 24, 1996, the Company
canceled and reissued 516,591 options pursuant to this repricing. Repriced
options were treated as though cancelled and reissued for purposes of
determining compensation costs pursuant to SFAS No. 123.

The 1983 and 1993 plans also provide for automatic grants, to outside
directors, of options to purchase 50,000 common shares upon election to the
Board of Directors.  A summary of stock option transactions under the plans
are as follows:

<TABLE>
<CAPTION>

                                                                                   weighted
                                       Shares         Outstanding options          Average
                                       available      Number       Exercise        exercise
                                       for grant      of shares    price           price
<S>                                    <C>            <C>          <C>           <C>
Balances as of December 31,1993          195,000      3,519,000   $0.48-7.00$    $ 2.68
     Increases in number of shares
          available for grant            625,000             --           --
     Granted                            (614,000)       614,000    4.63-10.25      5.04
     Exercised                                --     (1,161,000)   0.48-4.13       1.58
     Canceled                             77,000       (568,000)   1.50-10.25      2.31

<PAGE>

Balances as of December 31, 1994         283,000      2,404,000    0.48-10.25      4.13
     Increases in number of shares
          available for grant            700,000             --           --
     Granted                            (784,000)       784,000    5.60-18.88     10.11
     Exercised                                --       (298,000)   0.48-5.75       3.69
     Canceled                            193,000       (195,000)   0.48-10.63      4.80

Balances as of December 31, 1995         392,000      2,695,000    0.48-18.88      6.16
     Increases in number of shares
          available for grant            850,000             --
     Decrease in number of shares
          available for grant under
          BusLogic Plan                  (63,000)            --
     Granted                          (1,416,000)     1,416,000   12.84-25.00    16.71
     Exercised                                --     (1,068,000)   0.48-11.06     3.87
     Canceled                            772,000       (813,000)   3.88-25.00    15.19

Balances as of December 31, 1996         535,000      2,230,000    0.48-13.19     9.12
Exercisable as of December 31, 1996      596,000                   0.48-13.19     5.72
Exercisable as of December 31, 1995    1,115,962                   0.48-10.50     3.65
</TABLE>

The following table summarizes information about stock options outstanding as of
December 31, 1996:


<TABLE>
<CAPTION>
                                        options outstanding                   options exercisable
                         number         weighted-avg.                     number
range of                 outstanding    remaining          weighted-avg.  exercisable     weighted-avg
exercise prices          at 12/31/96    contractual life  exercise price  at 12/31/96     exercise prices
<S>                      <C>            <C>               <C>             <C>             <C>
From $0.48  to $5.00        634,459       6.34                 $ 4.445        398,375      $ 4.27
From $5.01  to $10.00       291,863       8.11                   5.796         77,801        5.72
From $10.01 to $12.85       633,950       8.33                  11.333        114,509       10.46
From $12.86 to $13.19       670,591       8.85                  12.898          4,930       13.19
From $ 0.48 to $13.19     2,230,591       7.89                 $ 9.120        595,615      $ 5.72
</TABLE>

During July and September 1996, Mylex issued three notes to three directors
of the Company related to their exercise of options.  A total of 119,984
shares were issued to these directors for cash and $465,000 in notes.  The
notes are full recourse, bear interest at 6.5%, and are due on the earlier of
one year from issuance or 30 days after the date that the director could sell
shares of Mylex stock if they cease to be a director of Mylex.

10.Employee Saving Plan

In September 1994, the Company adopted the Mylex Corporation 401(k) Plan (the
401(k) Plan) which is intended to qualify under Section 401(k) of the
Internal Revenue Code of 1986, as amended.  The 401(k) Plan covers
substantially all of the Company's employees.  Participants may elect to
contribute a percentage of their compensation to this plan, up to a statutory
maximum amount.  The Company makes contributions to the 401(k) Plan at a rate
determined by the Board of Directors, currently a 50% matching contribution
on 6% of participant compensation up to a maximum of $2,250 per year.
Matching contributions in 1996, 1995, and 1994 were $318,000, $21,000, and
$6,000, respectively.

11.Industry Information and Certain Concentrations

The Company operates in one industry and is engaged in the design,
manufacture, marketing, and support of high-performance storage management
electronics products for personal computer (PC) and non-PC

<PAGE>

servers and workstations as well as system boards for PCs.  The Company sells
its products primarily to original equipment manufacturers and distributors
in the PC industry.

Sales to major customers, as a percentage of net sales, and the amount
receivable (in thousands) as of December 31, 1996, from such customers were
as follows:

                                                              Gross
                                                              amount
Customer                        1996      1995      1994      receivable

Digital Equipment Corporation    17%       12%       11%      $ 4,173
Hewlett-Packard                  14%       14%        9%      $ 1,828
IBM                              14%       20%       15%      $ 4,778

Export sales, principally to Europe and Japan, comprised 65%, 36%, and 23% of
net sales in 1996, 1995, and 1994, respectively.  Foreign sales are
denominated in U.S. dollars.  Sales of the Company's RAID controller products
comprised 87%, 75%, and 55% of net sales in 1996, 1995, and 1994,
respectively.

Although many of the components of the Company's products are available from
numerous sources, several of the most critical components, including
microprocessors, SCSI I/O processors, and custom-designed integrated
circuits, are presently available to the Company from only one source.
Furthermore, because of high industry demand, there have been instances of
worldwide shortages of DRAM SIMM memory modules.  If the Company cannot
obtain essential components as required, the Company could be unable to meet
demand for its products, thereby adversely affecting its operating results.
In addition, scarcity of such components could result in cost increases and
adversely affect the Company's gross margin.

12.Commitments and Contingencies

Future minimum payments under leases as of December 31, 1996, are as follows
(in thousands):

                                              Capital        Operating
Year ending December 31,                       leases        leases

1997                                             $118         1,470
1998                                               --         1,184
1999                                               --         1,219
2000                                               --         1,253
2001                                               --           798
Thereafter                                         --           987
Total future minimum lease payments              $118         6,911

The Company leases its facilities in Fremont and Santa Clara, California, and
Boulder, Colorado, under noncancelable operating lease agreements that expire
through 2003 and provide for renewal options.  Under these leases, Mylex is
required to pay property taxes, insurance, and normal maintenance costs.

Rent expense was $1,578,000, $1,125,000, and $1,149,000 in 1996, 1995, and
1994, respectively.

The former chief executive officer of the Company filed a complaint against
the Company and its outside directors in October 1994, claiming breach of his
employment agreement.  The claim is for compensatory and consequential
damages of at least $5 million.

<PAGE>

In April 1996, another former officer of the Company filed a complaint
against the Company and its president alleging breach of contract and
violation of the Fair Housing and Employment Act.  No specific amount of
damages has been claimed.

Although it is reasonably possible the Company may incur a loss upon
conclusion of these claims, an estimate of any loss or range of loss cannot
be made.  The Company believes it has meritorious defenses and will
vigorously defend against these matters.  The results of legal proceedings
cannot be predicted with certainty; however, in the opinion of management,
the Company does not have a potential liability in connection with these or
any other proceedings that would have a material adverse effect on the
Company.

13.  SUBSEQUENT EVENT

On February 10, 1997 the Company reached an agreement to settle the
outstanding complaint brought against the Company by one of its former
officers in April 1996, as described in footnote 12. The amount of the
settlement, net of probable insurance proceeds, is not material to the
operating results of Mylex for 1996 nor to its financial position as of
December 31, 1996. The settlement is expected to result in a charge to
after-tax earnings during the first quarter of 1997 of approximately $300,000.



Independent auditors' report




The Board of Directors and Stockholders
Mylex Corporation:

We have audited the accompanying consolidated balance sheets of Mylex
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
 These consolidated financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.  We did not audit the
financial statements for the year ended January 31, 1995 of BusLogic, Inc., a
wholly owned subsidiary, which statements reflect total revenues constituting
32% of the related consolidated totals for the year ended December 31, 1994.
Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts
included for BusLogic, Inc., is based solely on the report of the other
auditors.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the 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, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Mylex Corporation and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted
accounting principles.

\s\ KPMG Peat Marwick LLP



San Jose, California
January 29, 1997, except
  as to Note 13, which is as of
  February 10, 1997.