ITEM 7.   FINANCIAL STATEMENTS.
          ---------------------

         Reference is made to the financial statements and supplementary data
appearing on the pages of this report set forth below.

                                                                     PAGE(S)
                                                                     -------

Independent Auditors' Report                                           15
Consolidated Balance Sheet as of September 30,
  1996 and 1995                                                        16
Consolidated Statements of Operations for the
  Years Ended September 30, 1996, 1995 and
  1994                                                                 17
Consolidated Statements of Changes in Stockholders' Equity
  for the Years Ended September 30, 1996, 1995 and  1994               18
Consolidated Statements for Cash Flows for the Years Ended
  September 30, 1996, 1995 and 1994                                    19
Notes to Consolidated Financial Statements                             21


<PAGE>

                                   SIGNATURES

          Pursuant to the requirements of Section 13 or 15(d) of the Exchange
Act, the Company has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                      BOONTON ELECTRONICS CORPORATION
                                                (Company)

                                      By/s/Ronald T. DeBlis
                                      ---------------------
                                           Ronald T. DeBlis, President and Chief
                                           Executive Officer
                                           Date: January 24, 1997


          Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>

SIGNATURE                                   TITLE                     DATE
---------                                   -----                     ----
<S>                                 <C>                         <C>
By /s/ Daniel Auzan                  Director, Chairman of       January 24, 1997
       ----------------              the Board
       Daniel Auzan


By /s/ Ronald T. DeBlis              Director, President         January 24, 1997
       ----------------              and Chief Executive
       Ronald T. DeBlis              Officer (principal
                                     executive officer)

By /s/ Jack Frucht                   Director                    January 24, 1997
       ----------------
       Jack Frucht

By /s/ Otto H. York                  Director, Vice Chairman     January 24, 1997
       ----------------              of the Board
       Otto H. York


By /s/ John E. Titterton             Secretary and               January 24, 1997
       -----------------             Treasurer (principal
       John E. Titterton             financial and accounting
                                     officer)
</TABLE>

                                       14
<PAGE>

                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                SEPTEMBER 30,
                                                                -------------
                                                             1996           1995
                                                             ----           ----
<S>                                                      <C>            <C>  
Assets:
Current assets:
   Cash and cash equivalents                              $   113,041    $   146,568
   Trade receivable (Note 1)                                  971,342      1,011,980
   Inventories (Notes 1 & 3)                                1,210,940      1,203,358
   Deferred tax benefit (Note 10)                              81,058        107,412
   Prepaid expenses                                           230,340        263,570
                                                          -----------    -----------
       Total  current assets                                2,606,721      2,732,888
                                                          -----------    -----------
Property and equipment - net (Notes 1 & 4)                    163,858        102,169
                                                          -----------    -----------
Other assets:
    Deferred tax benefit (Note 10)                            988,651      1,186,170
    Deposits                                                   67,768         67,768
                                                          -----------    -----------
       Total other assets                                   1,056,419      1,253,938
                                                          -----------    -----------
       Total assets                                       $ 3,826,998    $ 4,088,995
                                                          ===========    ===========

Liabilities and Stockholders' Equity:
Current liabilities:
       Note payable (Note 6)                              $    10,503    $    97,765
       Related party loans (Note 6)                            43,530           --
       Accounts payable                                       469,882        288,128
       Accrued expenses                                       538,328        417,762
       Unsecured claims payable (Chapter 11 settlement)
       - Current (Notes 2)                                     48,491        101,515
                                                          -----------    -----------
       Total current liabilities                            1,110,734        905,170
Note payable - noncurrent (Note 6)                             77,837           --
Related party loans - noncurrent (Note 6)                     218,970        262,500
Unsecured claims payable (Chapter 11
  settlement) noncurrent (Note 2)                             201,505        253,788
       Total liabilities                                    1,609,046      1,421,458

   
Commitments and Contingencies (Note 8)
Stockholders' equity:
       Common stock (Note 9)                                  155,659        152,209
       Capital in excess of par                             4,421,637      4,388,431
       Deficit                                             (2,359,344)      (940,812)
                                                          -----------    -----------
                                                            2,217,952      3,599,828
       Less: Treasury stock (Note 9)                             --         (932,291)
                                                          -----------    -----------
    

       Total stockholders' equity                           2,217,952      2,667,537
                                                          -----------    -----------
       Total liabilities and stockholders' equity          $3,826,998     $4,088,995
                                                          ===========    ===========
</TABLE>

The accompanying notes are an integral part of these statements.

                                       16
<PAGE>


                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                    YEARS ENDED SEPTEMBER 30,
                                                                    -------------------------
                                                       1996                     1995                   1994
                                                       ----                     ----                   ----
                                                                                                        DIP

<S>                                                  <C>                        <C>                     <C>       
Net sales                                            $6,038,336                 $6,837,248              $6,000,555
Cost of sales                                         3,408,580                  3,888,763               4,009,328
                                                   ------------               ------------               ---------
Gross income                                          2,629,756                  2,948,485               1,991,227
                                                   ------------               ------------               ---------
Operating expenses:
    Commissions                                         640,517                    586,969                 696,937
    Research and development                            921,827                    783,132                 550,521
    Other operating expenses                          1,515,727                  1,415,352               1,070,614
                                                   ------------               ------------               ---------
    Total operating expenses                          3,078,071                  2,785,453               2,318,072
                                                   ------------               ------------               ---------
Income (loss) from operations                          (448,315)                   163,032                (326,845)
                                                   ------------               ------------               ---------
Other income (expense):
    Interest expense                                    (27,709)                   (44,181)               (252,630)
    Chapter 11 expense                                        -                    (34,037)               (290,236)
    Gain on sale of assets                                    -                     21,771                 979,763
    Loss on disposal of equipment                             -                          -                (173,322)
    Moving expense                                            -                    (98,516)                      -
    Other income (expense)                                1,823                    (90,564)               (153,306)
                                                   ------------               ------------               ---------
    Total other income (expense)                        (25,886)                  (245,527)                110,269
                                                   ------------               ------------               ---------
Income (loss) before taxes and special charges         (474,201)                   (82,495)               (216,576)
Income taxes (benefit)                                  225,073                   (316,339)                (36,371)
                                                   ------------               ------------               ---------
Income/ (loss) before special charges
                                                       (699,274)                   233,844                (180,205)
Special charges (Notes 2 & 13)                         (350,405)                         -               1,487,552
                                                   ------------                   --------               ---------

Net income (loss)                                  $ (1,049,679)             $     233,844              $1,307,347
                                                   ============              =============              ==========
Weighted average number of common
  shares outstanding                                  1,460,730                  1,341,785               1,296,785
                                                   ============              =============              ==========
Earnings (Loss) per common share:
Earnings (loss) from continuing operations                $(.48)                      $.17                   $(.14)
Special charges                                            (.24)                        -                     1.15
                                                            ---                        ---                    ----
Net income (loss)                                         $(.72)                      $.17                   $1.01
                                                            ===                       ====                   =====
</TABLE>

The accompanying notes are an integral part of these statements.

                                       17
<PAGE>


                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                 YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994

<TABLE>
<CAPTION>

                                  COMMON STOCK       ADDITIONAL     RETAINED      TREASURY
                          NUMBER OF                  PAID-IN        EARNINGS/     SHARES AT 
                          SHARES        PAR VALUE    CAPITAL       (DEFICIT)         COST          TOTAL
                          ------        ---------    -------        ---------        ----          -----
<S>                      <C>            <C>          <C>           <C>            <C>            <C>       
Balance 9/30/93*           1,492,085   $  149,209   $ 4,359,556    $(2,424,689)   $(1,002,729)   $ 1,081,347
Net income - year ended
  9/30/94                       --           --            --        1,307,347           --        1,307,347
                          ----------   ----------   -----------    -----------    -----------    -----------

Balance 9/30/94*           1,492,085      149,209     4,359,556     (1,117,342)    (1,002,729)     2,388,694
Exercise of Stock
Options                       30,000        3,000        28,875           --             --           31,875
Treasury Stock
Reissued                        --           --            --          (57,314)        70,438         13,124
Net income - year ended
  9/30/95                       --           --            --          233,844           --          233,844
                          ----------   ----------   -----------    -----------    -----------    -----------

Balance 9/30/95            1,522,085      152,209     4,388,431       (940,812)      (932,291)     2,667,537
Exercise of Stock
Options                       34,500        3,450        33,206           --             --           36,656
Treasury Stock Reissued         --           --            --         (368,853)       932,291        563,438
Net (loss) - year ended
  9/30/96                       --           --            --       (1,049,679)          --       (1,049,679)
                          ----------   ----------   -----------    -----------    -----------    -----------
                           1,556,585   $  155,659   $ 4,421,637    $(2,359,344)   $      --      $ 2,217,952
                          ==========   ==========   ===========    ===========    ===========    ===========
</TABLE>


*DEBTOR-IN-POSSESSION

The accompanying notes are an integral part of these statements.

                                       18

<PAGE>


                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                    YEARS ENDED SEPTEMBER 30,
                                                    -------------------------
                                                 1996          1995           1994
                                                 ----          ----           ----
Cash flows from operating activities:                                          DIP
                                                                               ---
<S>                                           <C>            <C>          <C>        
Net income (loss)                             $(1,049,679)   $ 233,844    $ 1,307,347
Adjustments to reconcile net income:
     Depreciation and amortization                 27,335       26,294        201,944
     Deferred taxes                               223,873     (316,339)       (61,771)
     Gain on sale of land and building               --           --         (979,763)
     (Gain)/loss on sale of equipment              (1,000)     (21,771)       173,322
     Gain on secured debt restructure                --           --         (889,685)
     Accrued interest on debt structure              --           --          300,867
Decrease (increase) in current assets:
     Accounts receivable                           40,638       (7,616)        81,276
     Inventories                                   (7,582)    (251,438)     1,195,184
     Prepaid expenses                              33,230      281,904       (381,176)
Increase (decrease) in current liabilities:
     Accounts payable                             181,754      159,953         87,151
     Accrued expenses                             120,566      (58,320)        42,053
     Chapter 11 settlement-current                (53,024)     (10,854)       112,369
     Liabilities subject to compromise               --           --       (1,028,243)
                                              -----------    ---------    -----------

     Net cash provided (used) by operating
       activities                                (483,889)      35,657        160,875
                                              -----------    ---------    -----------

Cash flows from investing activities:
     Proceeds from sale of assets                   1,000       21,771      2,442,000
     Purchase of equipment                        (89,024)     (71,647)       (21,221)
     Proceeds from cash surrender of life
     insurance policies                              --        245,190           --
     Other                                           --           (421)         5,675
                                              -----------    ---------    -----------

     Net cash provided (used) by investing
       activities                             $   (88,024)   $ 194,893    $ 2,426,454
                                              -----------    ---------    -----------
</TABLE>


The accompanying notes are an integral part of these statements.

                                       19
<PAGE>


                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>


                                                           YEARS ENDED SEPTEMBER 30,
                                                           -------------------------
                                                      1996          1995           1994
                                                      ----          ----           ----
Cash flows from financing activities:                                               DIP
                                                                                    ---
<S>                                                  <C>          <C>          <C>      
Treasury stock reissued                              $ 932,291    $  70,438    $      --
Excess cost of treasury stock reissued                (368,853)     (57,314)          --
Increase in notes payable                               90,019         --          400,000
Payments on bank loans                                 (99,444)    (279,902)    (3,372,333)
Borrowings from Board of Directors loans                  --        300,000           --
Payments on Board of Directors loans                      --        (37,500)          --
Chapter 11 settlement-noncurrent                       (52,283)     (13,771)       267,559
Payment of borrowings on life insurance policies          --       (229,921)          --
Proceeds from stock options exercised                   36,656       31,875           --
                                                     ---------    ---------    -----------

     Net cash provided (used) by financing
       activities                                      538,386     (216,095)    (2,704,774)
                                                     ---------    ---------    -----------

Increase (decrease) in cash and cash
  equivalents                                          (33,527)      14,455       (117,445)
Cash and cash equivalents at beginning of
  period                                               146,568      132,113        249,558
                                                     ---------    ---------    -----------

Cash and cash equivalents at end of
  period                                             $ 113,041    $ 146,568    $   132,113
                                                     =========    =========    ===========

Supplemental schedule of non-cash transaction:
     Gain on unsecured claims
  payable-(Chapter 11 settlement)                         --           --      $   597,867
                                                     =========    =========    ===========

Supplemental disclosures of cash flow information:
     Income taxes paid                               $   1,025    $   7,125    $    13,347
                                                     =========    =========    ===========
     Interest paid                                   $  33,082    $  38,808    $   233,088
                                                     =========    =========    ===========
</TABLE>

The accompanying notes are an integral part of these statements.

                                       20
<PAGE>

                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNT POLICIES AND DESCRIPTION
         OF BUSINESS:

        A. The Company is a New Jersey corporation organized in 1947. The
           Company designs and produces electronic testing and measuring
           instruments including power meters, voltmeters and modulation meters.
           Recent models are microprocessor controlled and are often used in
           computerized automatic testing systems. The Company's equipment is
           marketed throughout the world to commercial and government customers
           in the electronics industry.

           The Company markets and distributes its products throughout the
           United States and abroad through some 15 domestic sales
           representatives and 35 foreign distributors. Representatives sell on
           a commission basis, while distributors buy products for resale at
           discounted ex-factory prices. Its representatives and distributors
           also handle the products of other manufactures, although these are
           not generally competitive with the Company's products except that
           some items handled by foreign distributors may be somewhat
           competitive.


        B. The consolidated financial statements include the accounts of Boonton
           Electronics Corporation and its wholly-owned subsidiaries, Boonton
           International Sales Corporation and Integra, Inc. All material
           intercompany accounts and transactions have been eliminated in
           consolidation. The wholly-owned subsidiaries ceased operations
           effective October 1, 1994.

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

        D. The company accounts for uncollectible accounts under the direct
           write-off method whereas generally accepted accounting principals
           require provision for such expenses under the allowance method. The
           effect of using this method approximates the allowance method as all
           amounts are deemed to be fully collectible.

        E. Inventories - stated at the lower of cost or market determined by the
           first-in, first-out (FIFO) method.

        F. Property, plant and equipment - Depreciation and amortization is
           calculated by the straight-line method for financial reporting
           purposes at rates based on the following estimated useful lives:

                       Building and improvement                         39
                       Machinery and equipment                        5-10
                       Office furniture and fixtures                  5-10
                       Transportation equipment                          3

           The accelerated cost recovery system and modified accelerated cost
           recovery system is used for income tax purposes. Cost of major
           renewals and betterments that extend the life of the property and
           equipment are capitalized. Expenditures for maintenance and repairs
           are charged to expenses as incurred.

        G. Financial risk - The Company regularly maintains bank account
           balances in excess of FDIC insurable limit.

                                       21
<PAGE>
                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996

        H. Income Taxes - The Company adopted the provisions of Statement of
           Financial Accounting Standards No. 109, "Accounting for Income Taxes"
           which requires a company to recognize deferred tax liabilities and
           assets for the expected future tax consequences of events that have
           been recognized in a Company's financial statements or tax returns.
           Under this method, deferred tax liabilities and assets are determined
           based on the differences between the financial statement carrying
           amounts and tax basis of assets and liabilities using expected tax
           rates in effect in the years in which the differences are expected to
           reverse. The Company recognized the benefit of net operating loss
           carryforwards applying the valuation allowance which requires that
           the tax benefit be limited bases on the weight of available evidence
           and the probability that some portion of the deferred tax asset will
           be realized.

       I.  Financial Instruments - The Company's financial instruments include
           cash, cash equivalents, trade receivables and payable, long-term debt
           and loans from related parties for which carrying amounts approximate
           fair value. It is not practicable to estimate the fair value of
           related party loans and long-term debt.


NOTE 2 - PROCEEDINGS UNDER CHAPTER 11 AND GOING CONCERN
         PRESENTATION:

           The Company operated under Chapter 11 proceedings for the period
September 7, 1993 through November 15, 1994 when, on the later date, the order
confirming the Plan of Reorganization was entered by the United States
Bankruptcy Court, District of New Jersey subject to the court closing the case
180 days after said entry (Local Rule 25(a)) cause for extension of time in
closing case (Local Rule 25(b)) and filing of application for allowance of fees
and allowance within 90 days after entry of final order confirming plan (Local
Rule 25(c)).


                                       22
<PAGE>
                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996

           In accordance with S.A.S. Sections 560.03, the Company has adjusted
downward all liability accounts that were affected by the confirmed Plan of
Reorganization entered on November 15, 1994. Therefore, the financial statements
reflect the maximum liabilities to creditors under the Chapter 11 proceedings
and the Plan of Reorganization. As a result of the Plan of Reorganization,
$1,487,552 of indebtedness was forgiven and has been included as an special
charges in the accompanying financial statements for the fiscal year ended
September 30, 1994.

           The settlement of unsecured claims under the confirmed Plan of
Reorganization totaling 35% of allowed claims for accounts payable and accrued
expenses which is reflected in the financial statements, provided for the
following payments to be made subsequent to November 15, 1994:

   %
   --
   10     From after tax proceeds from termination of the company's pension plan
    5     One year after initial payout
    5     Two years after initial payout
   15     Three years after initial payout

           Pre-petition liabilities in accordance with the November 15, 1994
confirmed plan of reorganization were compromised of the following:

Accounts payable                                 $   702,233
Accrued expenses:
     Commissions payable                             126,370
     Vacation pay                                     96,250
     Severance pay                                    25,108
     Other                                            78,282
                                                 -----------
          Total September 30, 1994                 1,028,243

Court authorized payments/adjustments                (75,073)
                                                 -----------
Balance subject to settlement                        953,170
Amount discharged                                    703,174
                                                 -----------
Balance of Chapter 11 settlement -
  September 30, 1996                             $   249,996
                                                 ===========

                                       23
<PAGE>

                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996

NOTE 3 - INVENTORIES

                                       SEPTEMBER 30,
                                       -------------
                                      1996       1995
                                      ----       ----

Raw material                     $  468,619  $  496,238
Work in process                     688,273     649,284
Finished Goods                       54,048      57,836
                                 ----------  ----------

Total                            $1,210,940  $1,203,358
                                 ==========  ==========



NOTE 4 - PROPERTY, PLANT AND EQUIPMENT:

                                       SEPTEMBER 30,
                                       -------------
                                     1996        1995
                                     ----        ----

Leasehold improvements          $   61,054   $   61,054
Machinery and equipment          1,512,488    1,436,087
Office furniture and fixtures      444,959      432,336
Transportation equipment            13,188       13,188
                                ----------   ----------
      Total                      2,031,689    1,942,665
Less: Accumulated depreciation 
      and amortization           1,867,831    1,840,496
                                ----------   ----------
      Net depreciated cost      $  163,858   $  102,169
                                ==========   ==========


Management has removed $1,868,423 of fully depreciated machinery, equipment and
office furniture and fixtures disposed of and/or abandoned during the relocation
of the Company's operations to the Township of Hanover.

                                       24
<PAGE>

                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996


NOTE 5 - RESULTS OF OPERATIONS:
         
         The Company has incurred losses from operations during the last three
fiscal years. Management does not expect this to continue based on its operating
plan for fiscal 1997 which anticipates a 19% increase in revenue and a net
income of approximately $200,000. The 1997 first quarter revenues were
approximately $1.8 million which supports, on an annualized basis, the expected
increase in revenues. The military contracts awarded in fiscal 1996, which will
total $1.7 million in revenues upon completion, contributed approximately
$265,000 to the first quarter 1997 revenues. The Company's backlog as of
December 31, 1996 was $1,296,718 which included an additional $546,000 for the
military contracts. An additional $299,000 was released by the Air Force in
November 1996 against these contracts.

         The loss in 1996 was partially attributable to the reduced volume but
was also impacted by certain costs that were non-recurring in nature. These
costs, which represent 46.2% of the loss from operations, were "CE" mark audit
fees of $108,525, funds provided for new technology research at the New Jersey
Institute of Technology totaling $65,000, and severance expense for the former
president of $33,920. Management of the Company has already instituted steps to
reduce operating costs in fiscal 1997 which steps include reductions in wages
and payroll taxes due to personnel reductions. Further cost reductions will be
implemented as identified by management as fiscal 1997 progresses.

         The special charges of $350,405 was primarily a result of costs, and
accrued costs for work to be performed in 1997, associated with further
environmental delineation work performed at a site formerly leased by the
Company. This work is being performed in order to obtain a "Conditional No
Further Action Letter" from the New Jersey Department of Environmental
Protection (NJDEP) which would allow the Company to finalize its groundwater
remediation program.

                                       25
<PAGE>

                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996


NOTE 6 - NOTES PAYABLE

                                                    SEPTEMBER 30,
                                                    -------------
                                                  1996           1995
                                                  ----           ----
A.  BANK:
    United Jersey Bank:
     Unsecured note payable (as part of
     secured debt restructure with bank)
     in monthly installments of $25,000
     including interest at 8% per annum
     through January 1996:                       $     --     $   97,765
     Less current portion                        $     --         97,765
                                                 ----------   ----------
    Noncurrent portion                           $     --     $     --
                                                 ==========   ==========
Interest  expense for the years ended  September  30, 1996 and 1995  amounted to
$2,649 and $20,098, respectively.

                                                      SEPTEMBER 30,
                                                      -------------
                                                    1996        1995
                                                    ----        ----
B.  BOARD OF DIRECTORS:
    Notes,  subordinated to NJEDA loan,
     dated February 6, 1995,  payable in
     monthly  installments  of $5,449
     including  interest  at 9% per  annum
     through September 30, 2001:                $   262,500   $   262,500
     Less:  current  portion                    $    43,530          --
                                                -----------   -----------
    Noncurrent  portion                         $   218,970   $   262,500
                                                ===========   ===========
Interest expense for the fiscal year ended September 30, 1996 and 1995 amounted
to $24,019 and $23,844, respectively.

                                                      SEPTEMBER 30,
                                                      -------------
                                                    1996        1995
                                                    ----        ----
C.  NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY:
    Note, dated July 31, 1996, payable
     in monthly installments of $1,352
     including interest at 6.75% per annum
     through June 30, 2003:                     $    88,342   $     --
     Less:  current portion                     $    10,503         --
                                                -----------   ------------
    Noncurrent portion                          $    77,837   $     --
                                                ===========   ============
Interest  expense  for the fiscal  year ended  September  30,  1996  amounted to
$1,042.  Under the provisions of this loan agreement,  the Company will borrow a
total of $500,000.

                                       26
<PAGE>

                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996

NOTE 7 - CONCENTRATION OF CREDIT RISK:

          The Company maintains cash and cash equivalents at three financial
institutions that are insured by the Federal Deposit Insurance Corporation
(FDIC) and/or Securities Investor Protection Corporation (SIPC). The Company at
times during the year had amounts in these institutions that exceeded insurable
limits of $100,000 FDIC and $500,000 SIPC. In the normal course of business, the
Company extends unsecured credit to customers in the United States and Asia.

NOTE 8 - COMMITMENTS AND CONTINGENCIES:

          COMMITMENTS:
          A. RETIREMENT PLANS:
             The Company adopted a non-contributory employee pension plan which
             became effective January 1, 1972 and was consequently revised to
             meet the requirements of the ERISA pension law. Substantially, all
             employees were eligible to participate. Under the plan, the Company
             was obligated to contribute such amounts as were actuarially
             required to fund the plan. Effective October 1, 1987, the Company
             adopted Statement of Financial Accounting Standards No. 87,
             Employers' Accounting for Pensions (FAS No. 87, for its
             non-contributory defined benefit employee pension plan).

             Effective September 9, 1994, The Company terminated the plan
             pending approval of the Internal Revenue Service and the Pension
             Benefit Guaranty Corporation. Benefits provided by the plan ceased
             accruing on the same date. As stated in Note 2, 10% of unsecured
             claims in accordance with the confirmed plan of reorganization will
             be provided from the after tax proceeds of the terminated plan. The
             termination of the plan was finalized and the plan assets were
             distributed on October 13, 1995. The 10% payments to the unsecured
             creditors were made October 27, 1995.

             Effective July 1, 1989, the Company adopted a defined contribution
             plan for all eligible employees. In accordance with Internal
             Revenue Code Section 401(k), the plan provides for elective
             deferral of up to 15% of total compensation. The plan further
             provided for a Company matching contribution of 25% of the elective
             deferral amount of each participant that did not exceed 6% of total
             compensation. Effective January 1, 1994, the matching Company
             contribution was suspended due to the company's financial condition
             and pending reorganization. Effective October 1, 1995, the Company
             reinstated a matching contribution at 50% of the elective

                                       27
<PAGE>


                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996


             deferral amount for each participant that does not exceed 6% of
             total compensation. The amounts charged to operations were $46,151
             and $0 for the years ended September 30, 1996 and 1995,
             respectively.


         B.  EMPLOYEE STOCK OPTIONS PLANS:
             On February 26, 1987, the Stockholders approved the 1987 Incentive
             Stock Option Plan, the 1987 Employee Stock Purchase Plan and the
             1987 Stock Option Program for Non-Employee Directors. Subject to
             the provisions of these plans, an aggregate of 150,000 shares of
             the Company's stock was made available for option purchases;
             namely, 75,000 shares, 37, 500 shares and 37,500 shares,
             respectively. The number of shares available for future grants at
             September 30, 1995 were 11,700, 11,900 and 7,500, respectively. The
             number of shares available for future grants at September 30, 1996
             were 11,700, 12,150 and 7,500, respectively.

                                                            OPTION
                                                            ------
                                             PRICE PER SHARE    NUMBER OF SHARES
                                             ---------------    ----------------

Shares under option at
 September 30, 1993                              $3.00                53,500
  Expired                                         3.00                (3,500)
                                                                     -------

Shares under option at
 September 30, 1994                               3.00                50,000
   Granted                                       $1.0625             130,000
   Exercised                                     $1.06.25            (30,000)
   Expired                                       $1.0625             (18,750)
   Expired/surrender                             $3.00               (50,000)
                                                                     -------

Shares under option at
 September 30, 1995                              $1.0625              81,250
   Exercised                                     $1.0625             (34,500)
   Expired                                       $1.0625                (250)
                                                                     -------
Shares under option at
 September 30, 1996                              $1.0625              46,500
                                                                     =======


         C.  SUPPLEMENTAL EXECUTIVE PENSION PLAN:
             On June 8, 1989, the Board of Directors adopted a Supplemental
             Executive Retirement Plan for certain executive employees to
             restore pension benefits which had been reduced by legislative
             action. The Company purchased life insurance contracts through a
             trust to fund its obligations for the participants and recognized a
             liability for vested benefits as accrued. The supplemental plan was
             terminated and insurance contracts canceled with proceeds of
             $33,804 credited to expense for the year ended September 30, 1994.


                                       28
<PAGE>
                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996


         D.  LEASE COMMITMENTS
             Subsequent to the sale of the Company's facility in Randolph, New
             Jersey on September 28, 1994, the company entered into a seven year
             lease for its present office and manufacturing facility in Hanover
             Township, New Jersey with a five year renewal option. Rent charged
             to operations for the fiscal year ended September 30, 1996 was
             $227,400. Annual rent for the initial seven year term is $227,400
             for the first four years and $300,00 for years five through seven.

             Future minimum lease payments required under the operating lease
are as follows:

                                              FISCAL YEAR                AMOUNT
                                              -----------                ------

                                                  1997                   227,400
                                                  1998                   227,400
                                                  1999                   300,000
                                                  2000                   300,000
                                                  2001                   300,000

             The Company leases office equipment under a five-year operating
             lease with an option to upgrade after three years which it intends
             to exercise. The annual lease payment for the term of the lease is
             $17,617. Future lease payments required under the operating lease
             are as follows:


                                               FISCAL YEAR                AMOUNT
                                               -----------                ------
                                                   1997                   17,617
                                                   1998                   17,617
                                                   1999                   17,617
                                                   2000                   17,617
                                                   2001                    1,468

CONTINGENCIES:

         A.  ENVIRONMENTAL CONTINGENCIES:
             Following an investigation by the New Jersey Department of
             Environmental Protection (NJDEP) of the Company's waste disposal
             practices at a certain site that it formerly leased, the Company
             put a ground water management plan into effect as approved by the
             Department. Costs associated with this site are charged directly to
             income as incurred. The lessor of this site has 

                                       29
<PAGE>
                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996


             notified the Company that if the NJDEP investigation proves to have
             interfered with a sale of the property, the lessor may seek to hold
             the Company liable for any loss it suffers as a result. However,
             corporate counsel has informed management that, in their opinion,
             the lessor would not prevail in any lawsuit filed due to the
             imposition by law of the statute of limitations.

             Costs charged to operations in connection with the water management
             plan amounted to $51,879 and $60,409 for the years ended September
             30, 1996 and 1995, respectively. The Company estimates the
             expenditures in this regard for the fiscal year ending September
             30, 1997 will amount to approximately $52,000. The Company will
             continue to be liable under the plan in all future years until such
             time as the NJDEP releases it from all obligations applicable
             thereto.


         B.  INCOME TAX CONTINGENCIES:
             The Company's income tax returns through the fiscal year ended
             September 30, 1992 have been accepted as filed or are barred from
             further assessment.

NOTE 9 - COMMON AND TREASURY STOCK:

                                                             SEPTEMBER 30,
                                                             -------------

                                                           1996           1995
                                                           ----           ----

COMMON STOCK:

    $.10 par value, authorized  5,000,000
    shares, issued and outstanding 1,556,585
    shares and issued 1,522,085 shares.                  $155,659       $152,209
                                                         ========       ========
TREASURY STOCK (AT COST):

    No shares and 180,300 shares,
    respectively                                             --         $932,291
                                                         ========       ========


             Represents the repurchase of stock on November, 1987 as resolved by
the Board of Directors. 180,300 shares were reissued to G.E.M. USA, Inc. in
accordance with the terms of the definitive Stock Purchase Agreement executed on
February 23, 1996 by and between the

                                       30

<PAGE>
                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996


Company and General de Mesure et de maintenance Electronique, S.A. (GMME).
G.E.M. USA, Inc., is a wholly-owned subsidiary of GMME.


NOTE 10 - INCOME TAXES:
The components of the deferred tax asset are:
                                                     SEPTEMBER 30,
                                             1996                   1995
                                             ----                   ----
                                                                     DIP
                                                                     ---
Net operating loss carry forwards         $3,799,877             $3,371,985
 Less: Valuation allowance                (2,730,168)            (2,078,403)
                                          ----------              ---------

     Net deferred tax asset               $1,069,709             $1,293,582
                                          ==========              =========


          Financial Accounting Standards Board Statement No. 109, "Accounting
for Income Taxes", requires that the Company record a valuation allowance when
it is "more likely than not that some portion or all of the deferred tax assets
will not be realized". It further states that "forming a conclusion that a
valuation allowance is not needed is difficult when there is negative evidence
such as cumulative losses in recent years".

          The ultimate realization of this deferred income tax asset depends on
the ability to generate sufficient taxable income in the future. The Company is
undergoing substantial restructuring changes and has made strategic realignments
of its operations in association with its Plan or Reorganization that management
believes will result in future profitability. While it is management's belief
that these measures will allow the total deferred income tax asset to be
realized by future operating results, the losses in recent years and a desire to
be conservative make it appropriate to record a valuation allowance.

          Accordingly, the Company has provided a valuation allowance (based on
estimated future taxable income) for the portion of the total deferred income
tax asset that will not be realized as related to the operating loss
carryforward.

          Income tax laws allow for the utilization of loss carryforwards over
periods not to exceed 15 and 7 years for Federal and State purposes,
respectively. If the Company is not able to generate sufficient taxable income
in the future through operating results, increases in the valuation allowance
will be required through a charge to expense (reducing stockholder's equity). In
the event the Company reports sufficient profitability to use all of the
deferred income tax assets, the valuation allowance will be eliminated through a
credit to expense (increasing stockholder's equity).

                                       31
<PAGE>
                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996

The provision for income taxes consists of the following:

                                                         SEPTEMBER 30,
                                                         -------------
                                                   1996                  1995
                                                   ----                  ----
Current:
    Federal                                          --                    --
    State                                       $   1,200                  --
                                                ---------             ---------
                                                    1,200                  --
                                                ---------             ---------
Deferred:
     Federal                                      198,510             $(272,143)
     State                                         25,363               (44,196)
                                                ---------             ---------
                                                  223,873              (316,339)
Total                                           $ 225,073             $(316,339)
                                                =========             =========


The following is a reconciliation of income taxes at the federal statutory rate:

                                                         SEPTEMBER 30,
                                                         -------------
                                                   1996                  1995
                                                   ----                  ----

Computed income taxes at statutory rate        $(280,366)             $ (28,049)
Recognition of net operating loss               (139,441)                   --
Increase(decrease) in tax asset valuation 
  allowance                                      651,765               (288,290)
Other items - net                                 (6,885)                   --
                                               ---------              ----------
        Expense (Benefit)                      $ 225,073              $(316,339)
                                               =========              ==========

          For federal tax purposes, the Company's subsidiary, Boonton
International Sales Corporation, elected to be treated as a Domestic
International Sales Corporation (DISC) under Section 992(b) of the Internal
Revenue Code. The Company is entitled to defer federal taxes on the income of
the DISC which amounted to $223,449 for 1994. This subsidiary ceased operations
effective October 1, 1994.

          Cumulative undistributed earnings of the DISC subsequent to December
31, 1984 was $1,023,055. The Company does not recognize the deferred income
taxes since there is no intention to distribute the DISC income.

          The Company has net operating loss carryforwards for federal and state
purposes approximating $9,478,000 and $9,647,000 that will begin to expire
until the year 2006 and 1998, respectively. These loss carryforwards can be
utilized to reduce future taxable income dollar for dollar.

                                       32

<PAGE>
                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996

NOTE 11 - SEGMENT INFORMATION:

          The Company is engaged in the manufacture and sale of electronic test
and measurement equipment and management considers its business as a single
segment for reporting purposes.

 A.   The Company's export sales were as follows:

YEARS ENDED                                          % OF
SEPTEMBER 30,             AMOUNT                    TOTAL SALES
-------------             ------                    -----------
 
1996                   $2,599,074                       42%
1995                    2,702,439                       40%
1994                    2,177,321                       36%


 B.   Customers sales to domestic government agencies were as follows:

YEARS ENDED                                          % OF
SEPTEMBER 30,             AMOUNT                    TOTAL SALES
-------------             ------                    -----------
 
1996                     $907,189                       15%
1995                      636,020                        9%
1994                      383,932                        6%

NOTE 12 - SUBSEQUENT EVENT:

          On December 9, 1996, G.E.M. USA, Inc. purchase 80,000 shares of the
Company's common stock for $200,000 at two dollars and fifty cents ($2.50) a
share U.S. These shares were purchased in accordance with the terms of a
definitive Stock Purchase Agreement executed by and between the Company and GMME
on October 21, 1996. The Agreement provides an option to GMME to purchase an
additional 443,700 shares for $1,437,588 at three dollars and twenty-four cents
($3.24) a share U.S. This option will expire on June 9, 1997 and is conditioned
upon the satisfactory completion of further delineation of the environmental
issue at a site formerly leased by the Company as disclosed in Note 8 -
Contingencies (A) and Note 13 - Special Charges.

NOTE 13 - SPECIAL CHARGES:

          In accordance with the GMME agreement, the Company was required to
attempt to obtain an agreement, acceptable to GMME, with the New Jersey
Department of Environmental Protection for finalizing the clean-up of a site it
formerly leased. In order to fulfill this requirement, it was necessary for the
Company to incur and accrue charges of $271,772

                                       33
<PAGE>
                 BOONTON ELECTRONICS CORPORATION & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996


for services of environmental consultants and counsel that were deemed not to be
in the ordinary course of business.

          Additionally, the Company has accrued $45,000 for its expected
settlement in the Sharkey Landfill clean up. Although the Company contends that
it did not send hazardous waste to the Landfill, it was determined by counsel
that the NJDEP will prevail against all companies named in the suit to some
extent. The Company has accrued $33,633 for penalties imposed, by the NJDEP, for
missing a reporting event in 1994, payable in four quarterly installments during
fiscal 1997.

NOTE 14 - QUARTERLY FINANCIAL DATA:



SEPTEMBER 30, 1996    1ST QTR.       2ND QTR.     3RD QTR.       4TH QTR.
------------------    --------       --------     --------       --------

Sales                $1,632,222   $ 1,559,269    $ ,410,126    $ 1,436,719
Gross Profit            803,166       766,387       644,537        415,666
Net income/(loss)        52,710       (47,683)     (294,884)      (759,822)
Earnings/(loss)
  per share                 .04          (.04)         (.19)          (.53)





SEPTEMBER 30, 1995    1ST QTR.       2ND QTR.     3RD QTR.       4TH QTR.
------------------    --------       --------     --------       --------

Sales               $ 1,494,193    $1,655,059    $1,818,211     $1,869,785
Gross Profit            633,993       707,582       808,337        798,573
Net income/(loss)      (132,458)       40,179        99,128        226,995
Earnings/(loss)
  per share                (.10)          .03           .07            .17


                                       34