<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

            FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13
                 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(mark one)
 X   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the fiscal year ended  December 31, 1997
                                       OR
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to         .

                           Commission File No. 0-1412
                               M. H. Rhodes, Inc.
             (Exact name of registrant as specified in its charter)

           Delaware                                 06-0509270
(State or other jurisdiction of                 (I.R.S.  Employer
incorporation)                                   Identification No.)

99 Thompson Road, Avon, Connecticut                    06001
(Address of principal executive office)             (Zip Code)

Registrant's telephone number, including area code (860) 673-3281

Securities registered pursuant to Section 12(b) of the Act:

      Title of Each Class                 Name of Exchange on Which Registered
             NONE                                       NONE
Securities registered pursuant to Section 12(g) of the Act:
                       Common Stock Par Value $1.00 Share
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant was $497,057 on March 16, 1998 based on the closing price of $4.88
per share reported by The National Quotation Bureau, Inc. An asked price of
$8.25 was reported. The number of shares of the registrant's common stock, $1.00
par value, outstanding on March 16, 1998 was 196,736.

This report contains 64 pages in accordance with the sequential numbering
system. The exhibit index is located on sequentially numbered page 32.
<PAGE>   2

                                 PART I
ITEM 1. BUSINESS

GENERAL

     M. H. Rhodes, Inc. (the "Company") manufactures mechanical and electrical
timers. The Company has been in business since 1930. The Company's Canadian
subsidiary, M. H. Rhodes (Canada) Limited, which also manufactures timers had
been in business since 1960. In 1990, the Company expanded its product lines by
acquiring machinery, equipment and inventory of the Ripley Company, Inc.
(Ripley) Photocontrol Division. On September 30, 1996 the Company ceased active
business operation for the Canadian subsidiary and transferred its assets and
liabilities to its parent company, M. H. Rhodes, Inc. The Company's Board of
Directors voted for its dissolution which is currently in process.

PRODUCTS

     PHOTOCONTROLS: Rhodes' Photocontrol line is sold under the name of "Ripley
Photocontrols", a product line we acquired several years ago from the Ripley Co.
This line of products is sold primarily to U. S. utilities and is used to turn
street and roadway lighting on at dusk and off at dawn. There are approximately
twenty million in use in the U. S. A. and millions more in other countries. The
U. S. in 1997 has converted between 20% to 25% of this total to electronic
photocontrols from the once dominant magnetic-type photocontrol. This allows
utilities to have a photocontrol that will last the life of a street lamp, which
is approximately 6 years. Ripley's sales are now 50% electronic, 35% magnetic,
and 15% thermal, the latter of which is sold primarily into the international
market.

  TIMERS: Rhodes' engineering has developed and introduced several new products
into niche markets in 1997. One such device was to meet the government and
commercial specifications for fire fighting equipment. Our specially designed
timer signals the fire fighter while he is attempting to extinguish a fire. The
timer shows how much air supply the fire fighter has left in his tanks in order
that he can safely leave his position and recharge or change his air supply.
This device is mounted on his or her fire fighting jackets along with the tanks.
Another new application was the introduction of timing devices in
explosion-proof boxes. These devices can be used in areas where switching is
required in paint systems, oil rigs and grain refineries at a set time without
having someone manually switching them off.

     Rhodes' OEM sales were up 3% over 1996 and still represent over 62% of
Rhodes' timer sales. Rhodes timers are used in commercial cooking equipment such
as convection ovens, fast food ovens, gas grills and steam ovens. Additional
applications would be biomedical devices such as blood centrifuges, stimulators,
orthopedic devices, etc. A third category would be bath and spa timers which
would be another major OEM segment.

     Rhodes also introduced a new concept of automatic water faucet timers that
meet the new specifications for handicapped applications. These were required to
be in all public restrooms starting in 1997. These units are being sold through
a Fortune 500 company who has the largest share of the U. S. faucet market and
Rhodes supplies a base of over 1000 different customers.

SOURCE AND AVAILABILITY OF RAW MATERIALS

     The Company has never experienced a serious problem in obtaining raw
material and component parts, as there are generally many suppliers available to
meet the Company's requirements.

                                       I-1
<PAGE>   3


PATENTS AND TRADEMARKS

     The Company has held hundreds of patents over the past 68 years along with
registered trademarks. These are maintained and reviewed as they come up for
renewal. The Company retains a patent attorney who monitors all activities. The
Company has seven (7) trademarks which are actively used: MARK TIME, RHODES,
SUNSWITCH, LIGHT WATCHMAN and SPECTRUM INNOVATIONS. COMPETITOR AND SURVIVOR
SERIES are the newest additions for the Photocontrol and new consumer lines.

BUSINESS CYCLE

     The Company business is not seasonal or cyclical.

CUSTOMERS

     The customer base consists of approximately 1,500 accounts. The loss of any
one customer would not have a material adverse financial effect on the company.

GOVERNMENT BUSINESS

     The Company does business with various municipal governments and U.S
Government agencies. No significant portion of this business is subject to
renegotiation of profits or termination at the election of a governmental
agency.

NET SALES BACKLOG

     The backlog at December 31, 1997 and 1996 was $3,174,000 and $3,435,000
respectively. The backlog includes orders which are deliverable over various
periods and which may be changed or cancelled in the future. However, based on
past experience, the effect of changes and cancellations is expected to be
minimal. It is anticipated that the backlog at December 31, 1997 will be filled
within the next 18 months.

COMPETITION

     Rhodes' OEM and electrical distributor competition comes from the Far East
or the European sector. Consumer product competition is from China, Korea and
Mexico.

     Rhodes, to compete in these areas, imports its own line of consumer
products which ranges from kitchen type timers to a complete line of
thermometers. We market through our own distributors under our Mark-Time product
name. This line was introduced in the 4th quarter of 1997 and we are estimating
an increase of 75% in consumer sales.

     As part of our consolidation of timer production in Avon, it was decided to
close Rhodes Canadian assembly operation which had produced losses in 1995 and
the first half of 1996. In doing so, the second half of 1996 became profitable
and contributed to the 1997 profit picture.


                                       I-2
<PAGE>   4


PRODUCT DEVELOPMENT

     During 1997, Rhodes has been restructuring its production equipment,
engineering departments and research to produce products that will take our
Company into the year 2000 and beyond. We have invested in automatic wave
soldering equipment, electronic circuit test equipment, electronic engineers,
and in 1998 will make capital investments in automatic insertion equipment.
Rhodes has in development new concepts for the OEM equipment manufacturing of
electronic time switches that will control time, temperature, humidity, speeds
and dual switching. All are operated through user-friendly input devices. All
units will incorporate digital readouts with appropriate time ranges and signal
devices.

EMPLOYEES

     As of December 31, 1997, the Company employed 123 persons, 100 are
represented by the International Association of Machinists, with the balance
being salaried employees. The Company considers its relationship with its
employees to be satisfactory.


ITEM 2. PROPERTIES

     The Company owns factory, warehouse and office facilities, aggregating
92,000 square feet in Avon, Connecticut.

     In the Company's opinion, this facility is adequate for the Company's
present needs.


ITEM 3. LEGAL PROCEEDINGS

     None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None


                                       I-3
<PAGE>   5



EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth the names and ages of the Company's
Executive Officers.

     All Executive Officers serve for one-year terms or until their successors
are duly elected and qualified. Officers are elected annually at the meeting of
Directors, which immediately follows the Annual Meeting of Shareholders.

<TABLE>
<CAPTION>
     Name                    Company Position, Principal Occupation
--------------               --------------------------------------

<S>                       <C>
J. L. Morelli             was appointed President and Chairman of the
                          Board in April, 1989.  Previously, since
                          November, 1988, he was Acting General Manager,
                          and prior to this, Vice President of Operations
                          since January, 1987.  From 1985 to 1987, he was
                          Vice President of Operations with Rapid Power
                          Technologies, a manufacturer of power supplies.
                          Age 67.

H. B. Matles              has served as a Vice President of Marketing in
                          charge of the Company's consumer sales since
                          1973.  Age 61.

A. D. Springer            joined the Company in September, 1987 as
                          Controller was elected its Corporate
                          Controller/Treasurer in September, 1988 and
                          was elected its Vice President-Finance in May 1994.
                          Prior to joining the Company, he was with the
                          Arrow Hart Division of Cooper Industries for
                          15 years in various financial positions.  His
                          last position was Controller.  Age 58.

S. L. Vanasse             has served the Company as an administrative
                          employee since 1977. In September, 1988, she
                          was elected Secretary of the Company. She
                          had been elected Assistant Secretary in April,
                          1985. Age 42.
</TABLE>


                                       I-4
<PAGE>   6

                                     PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     There is no generally recognized or established public trading market for
the common stock of the company.

     The following chart reflects no payment of dividends over the past two
years. The source of information for the 1997 range of bid prices and ask prices
was presented by the National Quotation Bureau, LLC. For 1996, the range of bid
prices was supplied by a brokerage firm that follows the stock of the company
with no ask prices available. This information does not necessarily represent
actual transactions and may not reflect retail markups, mark-downs, or
commissions.

<TABLE>
<CAPTION>
                                            PRICES
                                            ------
                                    BID                 ASK
                                    ---                 ---

                               High      Low       High       Low      Dividend
                               ----      ---       ----       ---      --------
1997
----
<S>                          <C>       <C>       <C>        <C>        <C>
First Quarter ...........    $ 2 1/2   $ 2 1/4   $ 4 1/2    $ 4 1/2
Second Quarter...........      2 1/4     2         4 1/4      3 3/4       .00
Third Quarter ...........      4         2         7          3
Fourth Quarter...........      4 1/2     4         8 1/4      7

1996
----
First Quarter ...........    $ 6 1/4   $ 5 1/4
Second Quarter...........      6 1/4     5 1/4           Not              .00
Third Quarter ...........      5 1/4     4 3/4        Available
Fourth Quarter...........      3 3/4     3 1/2
</TABLE>

     As reported by the National Quotation Bureau, LLC, the bid price for the
Company stock was $4.88 and the ask price was $8.25 on March 16, 1998.

     On March 16, 1998, there were approximately 660 record holders of the
Company's common stock. The number of record shareholders excludes individual
participants in security position listings.

     Mellon Shareholders Services, L.L.C., 85 Challenger Rd., Overpeck Center,
Ridgefield Park, N.J. 07660 is the Company's Stock Registrar and Transfer Agent.
(1-800-288-9591)

     It had been the Company's policy prior to 1988 to pay an annual dividend of
$.10 per share. Pursuant to a loan agreement between the Company and the
Connecticut National Bank (K/N/A Fleet Bank) dated December 19, 1985, now the
Wilshire Credit Corporation, the Company has covenanted that it will not declare
or pay dividends exceeding in the aggregate 10% of its annual net earnings after
taxes. Due to this agreement no dividend was declared for 1996 (payable in 1997)
and for 1997 (payable in 1998). The Company may or may not declare future
dividends depending on its earnings, financial conditions and other factors.


                                      II-1
<PAGE>   7



ITEM 6. SELECTED FINANCIAL DATA

M. H. RHODES, INC. AND M. H. RHODES (CANADA) LIMITED CONSOLIDATED(1)

<TABLE>
<CAPTION>
                            1997           1996            1995            1994          1993
                            ----           ----            ----            ----          ----

<S>                     <C>            <C>             <C>             <C>            <C>
Net sales               $ 8,493,936    $ 8,011,086     $ 8,081,871     $ 9,815,715    $10,304,525

Net income(loss)            264,968       (177,373)       (895,488)         79,351        129,521

Basic earnings(loss)
  per share                    1.35           (.88)          (4.42)            .38            .62

Total assets              5,106,392      4,886,532       5,346,957       6,998,344      6,709,115

Long term
  obligations               615,629        826,537         275,621       1,160,610      1,039,688

Cash dividends paid
  per share                     .00            .00             .00             .00            .00
</TABLE>

(1) M. H. Rhodes (Canada) Limited Financial Statements have been translated
    from Canadian to U.S. currency at applicable exchange rates.



                                      II-2
<PAGE>   8

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

1997 Compared to 1996

     Net Sales for 1997 increased 6% compared to 1996. The principal reasons for
this were: (1) an increase in U. S. government sales; (2) new product growth in
the original equipment manufacturing area; and (3) sales to customers in Canada
increased in 1997 due to the phaseout of the Canadian subsidiary in 1996 which
resulted in a decrease of shipments to the Canadian customers in the second half
of 1996.

     Gross profit as a percentage of net sales was 22.3% in 1997 compared to
19.4% in 1996. The principal reasons for this were: (1) an improvement in
margins due to the increase in government and new product sales; and (2) there
were no non-cash accounting adjustments for prior years items capitalized into
inventory. As inventory decreased in 1996 and 1995, these items previously
capitalized in prior years were then charged to earnings.

     Selling, General and Administrative expenses as a percentage of Net Sales
were 18.0% in 1997 compared to 20.0% in 1996 or $75,000 lower in 1997. The
principal reason for this decline was the phaseout of the active business
operations of the Canadian subsidiary at the end of 1996. As a result, the
Canadian Selling, General and Admininstrative expenses were eliminated and none
were incurred in 1997. Other contributing items were lower insurance expenses
and banking fees in 1997 than in 1996.

     The decrease in interest expense was contributed by the following: (1)
$199,000 reduction in long term debt which resulted in lower interest charges;
and (2) $77,000 in lower average 1997 borrowings than 1996 for the revolving
line of credit which resulted in lower interest expense.


1996 Compared to 1995

     Consolidated Net Sales for 1996 decreased by 1% compared to 1995. The
principal reason for this slight decrease was the phaseout of active business
operations in the Canadian subsidiary at the end of the fourth quarter. Canadian
sales decreased due to this phaseout in the second half of 1996 by $100,000.
Higher sales are expected in 1997 as manufacturing has been transferred to the
parent and distribution has been revised.

     Gross profit as a percentage of Consolidated Net Sales was 19.4% in 1996
compared with 10.5% in 1995. The principal reasons for this were: (1) Inventory
obsolescence write-off of $50,000 compared to a 1995 write-off of $240,000. (2)
Stability in certain production lines whereas in 1995 relocation of these lines
was taking place at a cost of $46,000; (3) Significant decline in the inventory
decrease of $311,000 in 1996 compared to $1,242,000 in 1995 resulting in lower
non-cash accounting adjustments for prior years' items capitalized into
inventory that were charged to earnings for 1996 at $72,000 compared to 1995 at
$185,000; and, (4) Depreciation decreased as a result of assets being fully
depreciated.

     Selling, General and Administrative expenses as a percentage of Net Sales
were 20.0% in 1996 compared to 19.5% in 1995. The principal reason for this was
higher legal fees.


                                      II-3
<PAGE>   9

     The decrease in interest expense was due to a lower bank prime rate
involving the Company's line of credit (see Note 6) and the ESOP loan (see Note
8) in 1996 compared to 1995 and decreased borrowings. During 1996, the Company
paid down principal on its' ESOP loan by $170,000. The remaining balance on the
loan as of December 31, 1996 was $680,088. The State of Connecticut was paid
$47,000 in principal during 1996 and a balance of $242,825 remains as of
December 31, 1996. The line of credit was paid down $205,224 and the balance on
December 31, 1996 was $393,755.

     The increase in other expense was due to the write off of prior years'
amortization costs of $6,000.

     The Net Loss for 1996 was $177,373 compared to a Net Loss of $895,488 for
1995. In summary, the principal reasons for this 1996 loss were: (1) Non-cash
accounting adjustments during the first six months of 1996 for prior years'
items capitalized into inventory; (2) Canadian losses and the closing costs of
Canada; and (3) Higher legal fees. It should be noted that both the 1996 third
quarter and fourth quarter were profitable with a Net Income of $20,000 and
$42,000 respectively.

LIQUIDITY

     The Company has relied upon cash and working capital on hand to meet the
liquidity needs. The Company also established a line of credit in 1997 with
Webster Bank in the amount up to $750,000. The amount borrowed cannot exceed 80%
of acceptable accounts receivables. As of December 31, 1997, $525,212 had been
borrowed against this line.

     Working capital for 1997 increased $238,000 because working capital was
generated by profitable operations and was retained for future needs.

CAPITAL RESOURCES

     Capital expenditures during 1997 were $68,000, principally composed of
$40,000 in new production machinery and equipment, $13,000 in new tooling, and
$13,000 in improvements in the HVAC systems. This 1997 capital expenditure total
compares to 1996 capital expenditures of $50,000. During 1998, the Company
anticipates capital expenditures of $184,000, which will be principally used for
manufacturing cost reductions.

INFLATION

     The Company believes that inflation has not had a material effect on
operations.

IMPACT OF THE YEAR 2000 ISSUE

     The "Year 2000 Issue" is the result of computer software being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. The Company is in
the process of addressing the Year 2000 Issue, but has not yet completed its
assessment. The Company plans to work with computer specialists to reprogram its
current software. At the present time, no determination has been made as to
whether the Company has material Year 2000 Issues, and no estimate has been made
as to the costs to remediate such issues.


                                      II-4
<PAGE>   10

     The discussions set forth below and elsewhere herein contain certain
statements which are not historical facts and are considered forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended. The
Company's actual results could differ materially from those projected in the
forward-looking statements as a result of, among other factors, general economic
conditions and growth in the timer industry, competitive factors and pricing
pressures, changes in product mix, product demand, risk of dependence on third
party suppliers, and other risk factors detailed in this report, described from
time to time in the Company's other Securities and Exchange Commission filings,
or discussed in the Company's press releases. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The response to this item is submitted on pages II-7 thru II-19 of this
report.


                                      II-5
<PAGE>   11

(RIGGS & ASSOCIATES LETTERHEAD)

                          INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of M. H. Rhodes, Inc.:

We have audited the accompanying consolidated balance sheets of M. H. Rhodes,
Inc. and subsidiary as of December 31, 1997 and 1996 and the related
consolidated statements of operations, non-redeemable common stock, retained
earnings and other stockholders' equity and cash flows for each of the three
the years ended December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of M. H. Rhodes, Inc.
and subsidiary as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years ended December 31,
1997 in conformity with generally accepted accounting principles.



                                   /s/  Riggs & Associates, LLP
                                   --------------------------------------
                                        Riggs & Associates, LLP


Hartford, Connecticut
February 23, 1998


One State Street
Hartford, CT 06103
Telephone (860) 549-8500
FAX (860) 549-8501

                                     II-6
<PAGE>   12

                        M.H. RHODES, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                     ASSETS
                                                       1997             1996
                                                       ----             ----
<S>                                                <C>              <C>
CURRENT ASSETS:
  Cash and Cash Equivalents                        $    21,786      $   137,750
  Accounts Receivable, net of allowance
    for doubtful accounts of $15,079 in
    1997 and $26,670 in 1996                         1,312,189        1,091,401
  Inventories                                        2,999,584        2,839,417
  Prepaid Expenses and Other                            32,776           38,716
                                                   -----------      -----------

        TOTAL CURRENT ASSETS                         4,366,335        4,107,284

NET PROPERTY, PLANT AND EQUIPMENT                      721,328          759,042

OTHER ASSETS                                            18,729           20,206
                                                   -----------      -----------

       TOTAL ASSETS                                $ 5,106,392      $ 4,886,532
                                                   -----------      -----------

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Notes Payable                                    $   525,212      $   393,755
  Current Portion of Long-term Debt                    267,720          256,173
  Accounts Payable                                     469,406          531,843
  Other Accrued Expenses                               261,688          321,295
                                                   -----------      -----------

       TOTAL CURRENT LIABILITIES                     1,524,026        1,503,066

LONG-TERM DEBT, less current portion                   515,629          726,537

OTHER NON-CURRENT LIABILITIES                          100,000          100,000

COMMITMENTS AND CONTINGENCIES                               --               --

Redeemable Common Stock                                625,256          549,907

STOCKHOLDERS EQUITY:
  Common Stock, $1.00 par value, 400,000
    shares authorized, 300,880 issued and
    121,585 and 129,278 shares outstanding
    in 1997 and 1996, respectively                     225,729          227,559
  Paid-in Capital                                        3,697            3,697
  Retained Earnings                                  3,695,734        3,504,285

    Less: Treasury Stock, at cost, 104,144
          and 98,281 shares in 1997 and
          1996, respectively                        (1,092,404)      (1,048,431)
          Unallocated ESOP shares                     (491,275)        (680,088)
                                                   -----------      -----------

                                                   $ 5,106,392      $ 4,886,532
                                                   -----------      -----------
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                      II-7
<PAGE>   13

                        M. H. RHODES, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                         1997            1996           1995
                                         ----            ----           ----

<S>                                  <C>             <C>             <C>
NET SALES                            $ 8,493,936     $ 8,011,086     $ 8,081,871

COST OF SALES                          6,602,617       6,458,508       7,231,797
                                     -----------     -----------     -----------

   Gross profit                        1,891,319       1,552,578         850,074

SELLING, GENERAL AND
  ADMINISTRATIVE EXPENSES              1,526,354       1,600,849       1,577,616
                                     -----------     -----------     -----------

    Operating income (loss)              364,965         (48,271)       (727,542)

OTHER INCOME(EXPENSE):
  INTEREST EXPENSE                       (98,328)       (132,448)       (159,177)
  OTHER INCOME, (EXPENSE) net              7,331          (4,106)          1,873
                                     -----------     -----------     -----------
                                         (90,997)       (136,554)       (157,304)
                                     -----------     -----------     -----------

  Income (loss) before
    income taxes                         273,968        (184,825)       (884,846)

INCOME TAX EXPENSE (BENEFIT)               9,000          (7,452)         10,642
                                     -----------     -----------     -----------

  Net income (loss)                  $   264,968     $  (177,373)    $  (895,488)
                                     -----------     -----------     -----------

  Basic earnings (loss) per share    $      1.35     $      (.88)    $     (4.42)
                                     -----------     -----------     -----------

WEIGHTED AVERAGE NUMBER OF
  SHARES OUTSTANDING                     196,225         202,612         202,599
                                     -----------     -----------     -----------
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                      II-8
<PAGE>   14

                        M. H. RHODES, INC. AND SUBSIDIARY
   CONSOLIDATED STATEMENTS OF NON-REDEEMABLE COMMON STOCK, RETAINED EARNINGS
                         AND OTHER STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                 Common Stock                                 Treasury Stock
                                 ------------     Paid-in    Retained         --------------        Unallocated
                              Shares    Par Value Capital    Earnings      Shares       Cost        ESOP Shares
                              ------    --------- -------    --------      ------       ----        -----------
<S>                           <C>       <C>       <C>       <C>            <C>       <C>            <C>
Balance, December 31, 1994    243,324   $243,324  $3,697    $4,672,341      92,750   $(1,000,035)   $(1,020,072)
  Net loss                         --         --      --      (895,488)         --            --             --
  ESOP Expense                     --         --      --            --          --            --        169,992
  Translation adjustments          --         --      --         7,895          --            --             --
  Redeemable common stock     (11,036)   (11,036)     --       (71,734)         --            --             --
  Purchase of treasury stock       --         --      --            --       5,531       (48,396)            --
                              -------   --------  ------    ----------     -------   -----------    -----------
Balance, December 31, 1995    232,288    232,288   3,697     3,713,014      98,281    (1,048,431)      (850,080)
  Net Loss                         --         --      --      (177,373)         --            --             --
  ESOP Expense                     --         --      --            --          --            --        169,992
  Redeemable common stock      (4,729)    (4,729)     --       (30,738)         --            --             --
  Translation adjustments          --         --      --          (618)         --            --             --
                              -------   --------  ------    ----------     -------   -----------    -----------
Balance, December 31, 1996    227,559    227,559   3,697     3,504,285      98,281    (1,048,431)      (680,088)
  Net income                       --         --      --       264,968          --            --             --
  ESOP Expense                     --         --      --            --          --            --        188,813
  Redeemable common stock      (1,830)    (1,830)     --       (73,519)         --            --             --
  Purchase of treasury stock       --         --      --            --       5,863       (43,973)            --
                              -------   --------  ------    ----------     -------   -----------    -----------
Balance, December 31, 1997    225,729   $225,729  $3,697    $3,695,734     104,144   $(1,092,404)   $  (491,275)
                              =======   ========  ======    ==========     =======   ===========    ===========
</TABLE>



  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                      II-9
<PAGE>   15

                        M. H. RHODES, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                     1997            1996           1995
                                                     ----            ----           ----
<S>                                             <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                             $   264,968     $  (177,373)    $  (895,488)
  Adjustments to reconcile net income (loss)
    to net cash provided by
    operating activities:
        Depreciation and amortization               107,717         137,057         178,190
        ESOP expense                                188,813         169,992         169,992
        Loss on sale of assets                           --             559              --
        Translation adjustments                          --            (618)          7,895
        Change in assets and liabilities:
          Accounts receivable                      (220,788)        160,809         296,793
          Inventories                              (160,167)        310,845       1,241,561
          Accounts payable, accrued expenses
            and other, net                         (119,836)         (3,475)       (628,369)
                                                -----------     -----------     -----------


              Net cash provided by
                operating activities                 60,707         597,796         370,574

 CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                             (68,744)        (50,459)        (16,334)
   Proceeds from sale of property and
     equipment                                        3,950           3,377              --
                                                -----------     -----------     -----------

              Net cash used in investing
                activities                          (64,794)        (47,082)        (16,334)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from additional borrowings             2,344,396       7,698,882       7,973,328
  Repayment of debt                              (2,412,300)     (8,144,348)     (8,252,831)
  Purchase of treasury stock                        (43,973)             --         (48,396)
                                                -----------     -----------     -----------

              Net cash used in financing
                activities                         (111,877)       (445,466)       (327,899)
                                                -----------     -----------     -----------

Net Increase(decrease) in cash                     (115,964)        105,248          26,341

CASH AND CASH EQUIVALENTS, beginning of year        137,750          32,502           6,161
                                                -----------     -----------     -----------

CASH AND CASH EQUIVALENTS, end of year          $    21,786     $   137,750     $    32,502
                                                -----------     -----------     -----------
</TABLE>



The accompanying notes are an integral part of these consolidated financial
statements.



                                      II-10
<PAGE>   16

                        M. H. RHODES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

NOTE 1 - GENERAL:

      The Company manufactures timing devices and photoelectric lighting
      controls primarily for sale to distributors and original equipment
      manufacturers. These products are sold primarily in North America.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Principles of Consolidation - The consolidated financial statements include
      the accounts of M.H. Rhodes, Inc. (the Company) and its substantially
      wholly owned subsidiary, M.H. Rhodes (Canada) Limited. All significant
      intercompany balances and transactions have been eliminated. As of
      September 30, 1996 operations ceased at M. H. Rhodes (Canada) Limited and
      the Board of Directors voted for its dissolution which is currently in
      process. Remaining assets were transferred to the Parent company during
      1996.

     Foreign Currency Translation - The financial statements of M.H. Rhodes
      (Canada) Limited have been translated from Canadian to U.S. currency at
      the applicable exchange rates. There were no material accumulated
      translation adjustments recorded directly in a separate component of
      stockholders' equity for any of the years presented.

     Cash and Cash Equivalents - For purposes of the statement of cash flows,
      the Company considers all highly liquid debt instruments with a maturity
      of three months or less to be cash equivalents.

     Inventories - Inventories are valued at the lower of cost or market using
      the first-in, first-out method of accounting. Appropriate estimates
      are established to reduce inventory for slow moving and obsolete items.

     Property, Plant and Equipment - Depreciation is provided using straight-
      line and accelerated methods over estimated useful lives which range from
      10 to 40 years for buildings and improvements and 3 to 10 years for
      machinery and equipment.

     Revenue Recognition - Revenues from sales of timing devices and
      photoelectric lighting controls are generally recognized upon delivery to
      the customer. Such revenue is recorded net of estimated product return.
      For the years ended December 31, 1997, 1996, and 1995, such estimated
      amounts for the returns were not considered material.

     Per Share Data - Net income (loss) per share is reported in conformity with
      the Financial Accounting Standards Board (FASB) Statement 128. Statement
      128 supersedes APB Opinion No. 15, Earnings Per Share and specifies the
      computation, presentation, and disclosure requirements for earnings per
      share ("EPS") for entities with publicly held common stock. In accordance
      with the statement, the Company has adopted this statement for the year
      ended December 31, 1997 and has restated prior year EPS calculations to
      conform with the new pronouncement (see Note 10).


                                      II-11
<PAGE>   17

                        M.H. RHODES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (continued):

     Income Taxes - Deferred tax assets and liabilities are recognized for the
      future tax consequences attributable to differences between the financial
      statement carrying amounts of existing assets and liabilities and their
      respective tax basis. Deferred tax assets and liabilities are measured
      using enacted tax rates expected to apply to taxable income in the years
      which these temporary differences are settled. The effect on deferred tax
      assets and liabilities of a change in the tax rate is recognized in income
      in the period that includes the enactment date of rate change.

     Concentration of Credit Risk - Financial instruments that potentially
      subject the Company to concentrations of credit risk consist principally
      of trade receivables. The Company performs on going credit evaluations of
      its customers and generally does not require collateral. The Company
      estimates reserves for potential credit losses. As of December 31, 1997,
      accounts receivable to one customer represented 13% of total accounts
      receivable. There were no sales to any one customer greater than 10%
      during fiscal year 1997, 1996 and 1995. There were no concentrations of
      accounts receivable with one customer at December 31, 1996.

     Fair Values of Financial Instruments - The Company values financial
      instruments as required by Statement of Financial Accounting Standards No.
      107, "Disclosure about Fair Values of Financial Instruments." The carrying
      amounts of cash and cash equivalents, accounts receivable, and current
      liabilities approximate fair value.

     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 reported period. Actual results could differ from
      those estimates.

NOTE 3 - INVENTORIES:

      Inventories consist of the following at December 31:

<TABLE>
<CAPTION>
                                                    1997          1996
                                                    ----          ----

<S>                                              <C>           <C>
         Raw materials and component parts       $1,532,009    $1,576,083
         Work-in-process                          1,142,911       843,654
         Finished goods                             324,664       419,680
                                                 ----------    ----------

                                                 $2,999,584    $2,839,417
                                                 ----------    ----------
</TABLE>


                                      II-12
<PAGE>   18

                        M. H. RHODES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


NOTE 4 - NET PROPERTY, PLANT AND EQUIPMENT:

      Property, Plant and Equipment consists of the following at December 31:

<TABLE>
<CAPTION>
                                                   1997           1996
                                                   ----           ----

<S>                                             <C>             <C>
      Buildings and improvements                $1,273,555      $1,270,698
      Machinery and equipment                    2,565,253       2,529,388
      Land                                          65,000          65,000
      Construction in progress                                       8,250
                                                ----------      ----------
                                                 3,903,808       3,873,336
      Less: Accumulated depreciation             3,182,480       3,114,294
                                                ----------      ----------
                                                $  721,328      $  759,042
                                                ----------      ----------
</TABLE>


NOTE 5 - INCOME TAXES:

      The components of the provision (benefit) for income taxes at December 31
      are as follows:

<TABLE>
<CAPTION>
                                         1997          1996         1995
                                         ----          ----         ----
<S>                                      <C>         <C>            <C>
      Current:
       Federal                              --            --            --
       State                             9,000         7,106        10,642
                                         -----       -------        ------

            Total current                9,000         7,106        10,642

      Deferred:
       Federal                              --       (14,558)           --
       State                                --            --            --
                                         -----       -------        ------


            Total deferred                  --       (14,558)           --
                                         -----       -------        ------

                                         9,000        (7,452)       10,642
                                         =====       =======        ======
</TABLE>


      Income tax expense represents the state minimum taxes, and therefore there
      is no difference between actual and the expected tax expense, computed at
      appropriate statutory rates.

      The Company has approximately $1,430,000 of net operating loss
      carryforwards available to reduce taxable income for Federal income tax
      reporting purposes which expire between 2003 and 2011. For State income
      tax purposes, the Company's net operating loss carryforwards are
      approximately $605,000, which expire between 1998 and 2001.



                                      II-13
<PAGE>   19

                        M. H. RHODES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


NOTE 5 - INCOME TAXES (continued):

    Deferred tax assets and liabilities at December 31 resulted from the
    following:

<TABLE>
<CAPTION>
                                                      1997           1996
                                                      ----           ----

<S>                                                <C>            <C>
    Deferred tax assets:
     Receivables                                   $   4,957      $   8,818
     Inventory                                        67,364         43,957
     Federal tax loss carryforwards                  357,287        457,891
     State tax loss carryforwards                     63,571        110,561
                                                   ---------      ---------

                                                     493,179        621,227
     Less: Valuation allowance                      (290,291)      (280,353)
                                                   ---------      ---------

          Total deferred tax assets                  202,888        340,874

     Deferred tax liabilities:
      Deferred compensation                          194,474        261,409
      Property, plant and equipment                    7,412         43,415
      Investment in subsidiary                            --         35,418
      Debt issue costs                                 1,002            632
                                                   ---------      ---------

          Total deferred tax liabilities             202,888        340,874
                                                   ---------      ---------

          Net deferred tax liabilities             $      --      $      --
                                                   =========      =========
</TABLE>

The Company paid approximately, $8,200, $8,200 and $10,900 for income taxes for
1997, 1996 and 1995 respectively.


NOTE 6 - NOTES PAYABLE:

    On April 3, 1997, the Company entered into a commercial revolving line of
    credit with Webster Bank for a principal amount of up to $750,000, the
    proceeds of which were used to pay off the previous outstanding working
    capital liability. Interest is paid monthly at the bank's prime rate (8.50%
    at December 31, 1997) plus 2.0% and principal is due upon the loan's
    termination on June 1, 1998. The note is collateralized by all tangible and
    intangible personal property of the Company except for the lien on the
    Company's machinery and equipment in favor of DECD. The revolving line of
    credit contains several financial covenants primarily related to the
    leverage ratio, current ratio, debt service coverage ratio, minimum tangible
    net worth, trade payables days and payment of dividends. The Company was in
    compliance with the respective covenants as of and for the year ended
    December 31, 1997. At December 31, 1997, the Company had a note payable of
    $525,212 under this credit line.


                                      II-14
<PAGE>   20
                       M. H. RHODES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


NOTE 6-NOTES PAYABLE (continued)

    At December 31, 1996, the Company had a note payable of $393,755 under an
    accounts receivable asset backed revolving loan not to exceed the lesser of
    $650,000 or 75% of acceptable accounts receivables. Interest is paid monthly
    at the bank's prime rate (8.25% at December 31. 1996) plus 1.5% and
    principal is due upon the collection of accounts receivable backing the
    outstanding advances. The revolving loan expired April 3, 1997. The note was
    guaranteed by M.H. Rhodes (Canada) Limited, and collateralized by a life
    insurance policy on a key officer of the Company, and by all other assets of
    the Company. The Company was charged interest at a minimum base borrowing of
    $400,000 even if outstanding borrowings fell below that threshold.


NOTE 7 - LONG-TERM DEBT:


    Long-term debt consists of the following at December 31:

<TABLE>
<CAPTION>
                                                        1997          1996
                                                        ----          ----
<S>                                                   <C>           <C>
    Mortgage note payable (ESOP) due in
    monthly principal installments of
    $14,166, plus interest at 82.5%
    of the bank's prime rate through
    December, 2000 (see Note 8)                       $510,096      $680,088

    Term note payable to State of
    Connecticut with interest at 6.5%
    due in monthly principal and
    interest installments of
    $5,323 commencing in February,
    1995 through January, 2001                         192,707       242,825

    Obligations under ESOP stock repurchase
    agreements with certain former
    employees due in annual installments
    plus interest at approximately 8%
    (see Note 8)                                        80,546        59,797
                                                      --------      --------

                                                       783,349       982,710
                                                      --------      --------
    Less - Current portion                             267,720       256,173
                                                      --------      --------


                                                      $515,629      $726,537
                                                      --------      --------
</TABLE>


                                      II-15
<PAGE>   21

                        M. H. RHODES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


NOTE 7 - LONG-TERM DEBT (continued):

    Aggregate principal payments of long-term debt for the next five years are
    as follows:

<TABLE>
<S>                                      <C>
         Year ending December 31:

         1998                            $  267,720
         1999                               249,670
         2000                               240,007
         2001                                25,952
         2002                                    --
                                         ----------

                                         $  783,349
                                         ----------
</TABLE>


    The mortgage note payable contains various financial covenants primarily
    related to the current ratio, net worth, leverage rate, current maturity of
    long-term debt ratio and restrictions on payment of dividends. The Company
    was in compliance with the respective covenants as of and for the year ended
    December 31, 1997.

    The Company has received $400,000 in financial assistance from the State of
    Connecticut, Department of Economic Development (The State) on March 24,
    1994. The State provided a $300,000 loan and a $100,000 grant to be used for
    new product tooling and equipment. The $100,000 grant, which is classified
    as other non-current liabilities in the accompanying balance sheet, requires
    the fulfillment of certain conditions as set forth in the grant agreement.
    Failure to fulfill the conditions could result in the return of funds to the
    State along with a penalty charge of 7.5% per annum, per year the grant is
    outstanding.

    The Company paid approximately $97,381, $135,661 and $173,388 for interest
    in 1997, 1996 and 1995, respectively.

NOTE 8 - EMPLOYEE STOCK OWNERSHIP PLAN:

    Description - The Company established a non-contributory Employee Stock
    Ownership Plan (the ESOP) for qualified non-union employees effective
    January 1, 1983, initially contributing $50,000 and 5,000 shares of Company
    stock. In 1985 the Company borrowed, in the form of a mortgage note payable,
    $2,550,000 which was loaned to the ESOP upon which the ESOP purchased 96,461
    shares of the Company's stock at a value of $28 per share. At the time of
    the purchase, the Company recognized the value of these shares as a
    reduction of stockholder's equity. Contributions to to the ESOP are based
    upon the payment terms of the mortgage note payable, resulting in ESOP
    expense of $169,992 per year. For 1997, the Company contributed an
    additional $18,821, resulting in a total contribution of $188,813.


                                      II-16
<PAGE>   22

                        M. H. RHODES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


NOTE 8: EMPLOYEE STOCK OWNERSHIP PLAN (continued):

    Interest expense for the related note payable was $43,172, $65,495 and
    $69,781 in 1997, 1996, and 1995 respectively.

    The ESOP allows salaried employees to earn shares of the Company's stock
    while they are employed by the Company. Upon the cessation of their
    employment, former employees can require the Company to purchase their
    vested shares at an appraised value ($8.32 per share at December 31, 1996),
    payable over a five-year period. The amount owed to such former employees is
    based upon stock presented to the Company and is included in noted payable
    for those shares that have been presented (see Note 7).

    Shares of the plan are released for allocation to participants as
    compensation expense based on annual principal payments of $169,992 made on
    the ESOP debt, except for the year ended 1997 in which the contribution was
    $188,813. At December 31, 1997, 78,956 shares have been released
    (allocated), 5,423 shares are committed to be released (allocated) and
    12,682 shares are unallocated. The value of unearned ESOP shares at December
    31, 1997 is estimated to be $105,514.

    Redeemable Common Stock - In connection with the ESOP, 75,151 and 73,321
    shares of $1.00 par value common stock have been classified as redeemable at
    December 31, 1997 and 1996 respectively. The amount recorded for these
    shares is $625,256 and $549,907 at December 31, 1997 and 1996 respectively
    and is based upon the latest available appraised value of the Company's
    stock. These shares represent common stock held by employees with the right
    to put those shares to the Company (as described above) upon cessation of
    their employment; virtually all shares have been vested as of December 31,
    1997. Each year the change in per share value is recorded as an adjustment
    to retained earnings.


NOTE 9 - PENSION PLAN:

    Under the terms of an agreement with the International Association of
    Machinists, the Company contributes specified amounts to union-administered
    pension funds. Contributions were $47,264, $45,189 and $28,397 in 1997, 1996
    and 1995 respectively. Since this plan is a multiemployer plan, actuarial
    present values of accumulated plan benefits and other information for a
    particular employer are not available.


                                      II-17
<PAGE>   23

                        M. H. RHODES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


NOTE 10 - EARNINGS PER SHARE:

    Basic earnings per share is computed by dividing income available to common
stockholders (the numerator) by the weighted average number of common shares
actually outstanding (the denominator) during the period. Shares issued during
the period and shares reacquired during the period shall be weighted for the
portion of the period that they were outstanding.

    Earnings per share for the Company at December 31, are as follows:

<TABLE>
<CAPTION>
                                          1997          1996          1995
                                          ----          ----          ----
    Basic EPS Calculation:
    ----------------------

<S>                                    <C>           <C>           <C>
    Net income (loss)                  $ 264,968     $(177,373)    $(895,488)
    Weighted average shares
    outstanding:
      Common stock                        99,675        99,675        99,675
      Redeemable common stock             73,326        68,605        57,586
      Employee stock ownership plan      125,360       132,613       141,831
        Less: Treasury stock            (102,136)      (98,281)      (96,493)
                                       ---------     ---------     ---------

                                         196,225       202,612       202,599
                                       =========     =========     =========

    Basic EPS                          $    1.35     $   (0.88)    $   (4.42)
                                       =========     =========     =========
</TABLE>


NOTE 11 - NEW ACCOUNTING PRONOUNCEMENTS:

    During 1997, The Financial Accounting Standards Board (FASB) issued several
    Statements of Financial Accounting Standards (Statements) which are pending
    implementation by the Company. They are as follows:

    Statement 130 - Reporting Comprehensive Income - Statement 130 establishes
    standards for reporting comprehensive income. The Statement defines
    comprehensive income as the change in equity of an enterprise except those
    resulting from shareholder transactions. All components of comprehensive
    income are required to be reported in a new financial statement that is
    displayed with equal prominence as existing financial statements. The
    Company will be required to adopt this statement during 1998. As the
    Statement addresses reporting presentation issues only, there will be no
    impact on earnings from its adoption.

    Statement 131 - Disclosures about Segments of an Enterprise and Related
    Information - Statement 131 establishes standards for related disclosures
    about the products and services, geographic areas and major customers of an
    enterprise. The Company will be required to adopt this Statement for
    financial statements during 1998. As this Statement addresses reporting
    disclosure issues only, there will be no impact on earnings from its
    adoption.


                                      II-18
<PAGE>   24

NOTE 12 - COMMITMENTS & CONTINGENCIES:

    Commitments - The Company has consulting agreements with certain retirees of
    the Company. Payments (including health insurance premiums) under this
    contract (aggregating approximately $50,000 on an annual basis) represent
    compensation for current as well as potential past services; however the
    Company has determined that any liability for past services is immaterial.

    The Company has also entered into a new employment agreement with Joseph
    Morelli, President and has rescinded all prior agreements. The new
    employment agreement contains retirement benefits that will be earned over
    the term of the agreement resulting in charges to the Company's financial
    statements beginning January 1, 1998.

    Contingencies - The Company is in the process of addressing the Year 2000
    issue. The Company plans to work with computer specialists to reprogram its
    current software. At the present time, no estimate has been made as to the
    costs to remediate its Year 2000 issue.

    The Company has determined that an environmental issue exists on the Company
    property. Management believes that any known levels of contamination would
    be below that which would require current remediation. However, if the
    property were to be sold or transferred, remediation would probably be
    required and the costs of remediation may be material. No estimate can be
    made at this time.


ITEM 9. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT

    None.


                                      II-19
<PAGE>   25

                                    PART III

ITEM 10. DIRECTORS OF THE REGISTRANT

    Information concerning Executive Officers is included at the end of Part I
of this Form 10-K.

    The following table sets forth the names and ages of the Company's
Directors:

<TABLE>
<CAPTION>
                    Year First
Name                 Elected     Business Experience
----                ----------   -------------------

<S>                 <C>          <C>
A. J. Campanelli       1978      Mr. Campanelli is the Director of Business
                                 Development for Webster Bank.  Previously he
                                 retired from Shawmut National Bank in 1992,
                                 where he had been a Senior Vice President
                                 since 1977.  Age 62.

E. J. Doyle            1985      Mr. Doyle retired from the Company in 1989.
                                 He stepped down as President of the Company
                                 in 1987 and assumed a position as one of the
                                 Company's Vice Presidents as an Account Exec-
                                 utive until his retirement.  He had served as
                                 President of the Company since 1985.
                                 Previously, he had been Vice President of the
                                 Company since 1953.  Age 77.

J. T. Mayerhofer       1997      Mr. Mayerhofer has been a principal of J.T.M.
                                 Associates, a Consulting Firm focused on
                                 small company productivity and profit im-
                                 provement, since 1994.  Prior to this, Mr.
                                 Mayerhofer was President and Chief Executive
                                 Officer of Knowaste North America, a start-up
                                 venture for the recycling of personal care
                                 products between 1993-1994.  Before this, he
                                 was with The Dexter Corporation for 10 years.
                                 His last four being President and Corporate
                                 Vice President for the Specialty Materials
                                 and Services Group.  This Group manufactured
                                 and distributed nonwovens, magnetic material
                                 and water treatment services.  Age 53.

J. L. Morelli          1989      Mr. Morelli was appointed President and
                                 Chairman of the Board in 1989. Previously,
                                 since 1988, he had been Acting General Manager,
                                 and prior to this, he had been Vice President
                                 of Operations since 1987. From 1985 to 1987, he
                                 was Vice President of Operations with Rapid
                                 Power Technologies, manufacturers of power
                                 supplies. Between 1978 and 1985, he served as
                                 Executive Vice President and Vice President of
                                 Operations for Napco, Division of
                                 Thermo-Electron, manufacturers of autoplating
                                 equipment. Age 67.
</TABLE>



                                    III-1
<PAGE>   26

ITEM 10. DIRECTORS OF THE REGISTRANT (continued):


<TABLE>
<S>                 <C>          <C>
J. W. Pogmore          1997      Mr. Pogmore has been President of the Cramer
                                 Company since 1989.  Cramer is a major manu-
                                 facturer of sub-fractional horsepower gear
                                 motors.  Prior to that, from 1985 to 1989,
                                 Mr. Pogmore was President of Measurement Sys-
                                 tems, Inc., a leading manufacturer of elec-
                                 tronic components and controls serving pri-
                                 marily information processing, medical and
                                 defense industries.  Before becoming Presi-
                                 dent, he was Vice President of Marketing, di-
                                 recting world-wide sales functions.  Age 62.
</TABLE>



    All directors serve for one-year terms or until their successors are duly
elected and qualified. Directors are elected annually at the Annual Meeting of
Shareholders.


ITEM 11. EXECUTIVE COMPENSATION

Compensation - Executive Officers

    No officer of the Company was paid cash compensation in excess of $100,000
in 1997. All executive officers as a group (4 persons) received $291,778 for the
year ended December 31, 1997. The information concerning Mr. Morelli's
compensation is required to be disclosed because of his position as Chief
Executive Officer, notwithstanding that his salary and bonus did not exceed
$100,000.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
        Name and                         Annual Compensation       All Other
    Principal Position        Year       Salary($)   Bonus($)   Compensation(1)
    ------------------        ----       ---------   --------   ---------------
<S>                           <C>        <C>         <C>        <C>
Joseph L. Morelli             1997        $99,585      -0-          $24,896
Chairman of the Board         1996        $97,405      -0-          $16,944
and Chief Executive Officer   1995        $94,474      -0-          $15,446
</TABLE>

(1) Includes amounts allocated under the Company's Employee Stock Ownership
    Plan during 1997 as a result of Company contributions and interest earned on
    plan assets including previously allocated shares of the Company. As of
    January 1, 1998 the vested interest for Mr. Morelli was 100%.


                                      III-2
<PAGE>   27

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    Information with respect to the beneficial ownership of the common stock of
the Company as of March 16, 1998 by each person who is known by the Company to
own beneficially more than 5% of the common stock, by each director of the
Company and by all officers and directors as a group, is set forth in the
following table:

<TABLE>
<CAPTION>
                                                  Amount and
                         Name of                   Nature of
  Title of              Beneficial                Beneficial       Percent of
   Class                  Owner                  Ownership (1)        Class
  --------              ----------               -------------     ----------
<S>            <C>                               <C>               <C>

Common Stock   M. H. Rhodes, Inc. Employee          91,355            46.44
               Stock Ownership Trust for
               Non-Bargaining Unit Employee
               Group (2)

Common Stock   A. J. Campanelli                        -                -

Common Stock   E. J. Doyle                           2,025             1.03

Common Stock   J. T. Mayerhofer                        -                -

Common Stock   J. L. Morelli                         7,860             4.00

Common Stock   J. W. Pogmore                           -                -

Common Stock   All Officers and Directors
               (8) as a group                       31,663            16.09
</TABLE>

(1) Record ownership unless otherwise indicated.

(2) Mailing address:  99 Thompson Road, Avon, Connecticut  06001

(3) Includes shares allocated to ESOP accounts respectively for Mr. Morelli
    (7,860) and all other Officers and Directors as a group (20,278).



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    None.


                                      III-3
<PAGE>   28

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

  A. The following documents are filed as a part of this report:

<TABLE>
<CAPTION>
  1. Financial Statements                                         Page No.
     --------------------                                         --------
<S>                                                               <C>
     The following Consolidated Financial Statements of M.H.
          Rhodes, Inc. and Subsidiaries are included in Item 8:    II-5

     Opinion of Independent Public Accountants.                    II-6

     Consolidated Balance Sheets - December 31, 1997 and 1996.     II-7

     Consolidated Statements of Operations -
          Years ended December 31, 1997, 1996 and 1995.            II-8

     Consolidated Statements of Stockholders' Equity -
          Years ended December 31, 1997, 1996 and 1995.            II-9

     Consolidated Statements of Cash Flows -
          Years ended December 31, 1997, 1996 and 1995.            II-10

     Notes to Consolidated Financial Statements.                   II-11-19
</TABLE>

  2. Supplementary Data and Financial Statements Schedules
     -----------------------------------------------------

     All Schedules are omitted because of the absence of conditions under which
     they are required or because the required information is given in the
     Financial Statements or Notes thereto.

     Separate Financial Statements and Supplemental Schedules of the Company are
     omitted since the Company is primarily an operating Company and its
     subsidiary, included in the Consolidated Financial Statements being filed,
     does not have a minority equity interest or indebtedness to any person
     other than the Company in an amount which exceeds five percent of the total
     assets as shown by the Consolidated Financial Statements as filed herein.


                                      IV-1
<PAGE>   29


  3. Exhibits                                      Cross Reference Information
     --------                                      ---------------------------

     (3) Articles of Incorporation and By-Laws     Filed as Exhibit to Form
                                                   10 filed on April 27, 1965

     (4A) Specimen Common Stock Certificate        Filed as Exhibit 4A to
                                                   Form 10-K, File No. 0-1412
                                                   dated March 25, 1987.
     (4B) Loan Agreement, Term Loan Note and
          Open End Mortgage Between the Company
          and The Connecticut National Bank                   **
          dated December 19, 1985


     (4C) Loan Agreement 5-Year Term Loan Note     Filed as Exhibit 4C to
          and Open End Mortgage Between the        Form 10-K, File No. 0-1412
          Company and The Connecticut National     dated March 27, 1990.
          Bank dated December 7, 1989

     (4D) Loan Agreement, Eighteen month           Filed as Exhibit 4D to
          Accounts Receivable Asset Backed         Form 10-K, File No. 0-1412
          Revolver between the Company and         dated March 30, 1994.
          Affiliated Business Credit Corporation
          dated October 21, 1993.

     (4E) Loan Agreement/Grant, 7-year loan        Filed as Exhibit 4E to
          between the Company and the State of     Form 10-K, File No. 0-1412
          Connecticut, dated March 24, 1994.       dated March 30, 1994.

     (4F) Loan Modification Agreement, Term Loan   Filed as Exhibit 4F to
          Note and Open End Mortgage Between the   Form 10-K, File No. 0-1412
          Company and The Connecticut National     dated March 30, 1994.
          Bank (K/N/A Shawmut Bank) dated
          December 19, 1985, modified on
          October 21, 1993.

     (4G) Commercial Revolving Loan and Security   Page 33 to 62
          Agreement, between the Company and
          Webster Bank, dated April 3, 1997.

     (11) Statement re: computation per share earnings filed with this report

     (16) Letter re: Change in certifying Accountants Pg. filed as Exhibit 16
          to form 10-K, File No. 0-1412 dated March 30, 1994

     (21) Subsidiaries of Company filed with this report

      ** Incorporated by reference in Exhibit 4 to Schedule 13D, dated December
27, 1985, filed by M. H. Rhodes, Inc. Employee Stock Ownership Trust for the
Non-Bargaining Unit Employee Group of the M. H. Rhodes, Inc. Employee Stock
Ownership Plan for the Non-Bargaining Unit Employee Group. This Schedule 13D was
filed with the SEC on December 30, 1985. Exhibit 4 is found at pages 98, et seq.
of such filing in accordance with the sequential numbering system.


                                      IV-2
<PAGE>   30


  B. Reports on Form 8-K

     No reports on Form 8-K were filed by the registrant during the last quarter
     of the period covered by this report.



                                      IV-3
<PAGE>   31

                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                            M. H. RHODES, INC.

                                       By:______________________________________
                                           Joseph L. Morelli, President
                                           and Chief Executive Officer
                                           March   , 1998

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant, and in the capacities and on the dates indicated.

                                       By:______________________________________
                                           Joseph L. Morelli, President
                                           and Chief Executive Officer
                                           March   , 1998


                                       By:______________________________________
                                           Allan D. Springer, Vice President
                                           Finance and Chief Financial
                                           Officer/Principal Accounting
                                           Officer
                                           March   , 1998


                                       By:______________________________________
                                           Edward J. Doyle, Director
                                           March   , 1998


                                       By:______________________________________
                                           Anthony J. Campanelli, Director
                                           March   , 1998


                                       By:______________________________________
                                           James T. Mayerhofer, Director
                                           March   , 1998


                                       By:______________________________________
                                           James W. Pogmore, Director
                                           March   , 1998
<PAGE>   32

                                  EXHIBIT INDEX

                                                    Sequential Numbering
                                                    System, Page number or
Exhibit Number                                      Cross Reference Information
--------------                                      ---------------------------

     (3)  Articles of Incorporation and By-Laws     Filed as Exhibit to Form
                                                    10 filed on April 27, 1965

     (4A) Specimen Common Stock Certificate         Filed as Exhibit 4A to
                                                    Form 10-K, File No. 0-1412
                                                    dated March 25, 1987.

     (4B) Loan Agreement, Term Loan Note and
          Open End Mortgage Between the Company
          and The Connecticut National Bank                    **
          dated December 19, 1985


     (4C) Loan Agreement 5-Year Term Loan Note      Filed as Exhibit 4C to
          and Open End Mortgage Between the         Form 10-k, File No. 0-1412
          Company and The Connecticut National      dated March 27, 1990.
          Bank dated December 7, 1989

     (4D) Loan Agreement, Eighteen Month            Filed as Exhibit 4D to
          Accounts Receivable Asset Backed          Form 10-K, File No. 0-1412
          Revolver between the Company and          dated March 30, 1994.
          Affiliated Business Credit
          Corporation dated October 21, 1993.

     (4E) Loan Agreement/Grant, 7-year loan         Filed as Exhibit 4C to
          between the Company and the State         Form 10-K, File No. 0-1412
          of Connecticut, dated March 24, 1994.     dated March 30, 1994.

     (4F) Loan Modification Agreement, Term Loan    Filed as Exhibit 4D to
          Note and Open End Mortgage Between the    Form 10-K, File No. 0-1412
          Company and The Connecticut National      dated March 30, 1994.
          Bank (K/N/A Shawmut Bank) dated
          December 19, 1985, modified on
          October 21, 1993.

     (4G) Commercial Revolving Loan and Security    Page 33 to 62
          Agreement, between the Company and
          Webster Bank, dated April 3, 1997.

     (11) Statement re: computation per share earnings filed with this report

     (16) Letter re: Change in certifying Accountants Pg. filed as Exhibit
          16 to form 10-K, File No. 0-1412 dated March 30, 1994

     (21) Subsidiaries of Company filed with this report

      **  Incorporated by reference in Exhibit 4 to Schedule 13D, dated
December 27, 1985, filed by M. H. Rhodes, Inc. Employee Stock Ownership Trust
for the Non-Bargaining Unit Employee Group of the M. H. Rhodes, Inc. Employee
Stock Ownership Plan for the Non-Bargaining Unit Employee Group. This Schedule
13D was filed with the SEC on December 30, 1985. Exhibit 4 is found at pages 98,
et seq. of such filing in accordance with the sequential numbering system.