<PAGE>   1
                   0..U.S. Securities and Exchange Commission

                             Washington, D.C. 20549

                                   FORM 10-KSB



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

     For the Fiscal Year Ended December 31, 1998.

                           Commission File No. 2-69336

                                  CRAMER, INC.

KANSAS                              I.R.S. EMPLOYER IDENTIFICATION
                                    NUMBER 48-0638707
625 ADAMS STREET, KANSAS CITY, KS 66105
TELEPHONE: (913) 621-6700


Securities registered under Section 12(g) of the Exchange Act:     Common Stock

Check whether the issuer: (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act during the past 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 
                                                                       ---   ---
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

The issuer's revenues for the 1998 fiscal year were $12,774,000.

As of December 31, 1998 the aggregate market value of the common shares of
Cramer, Inc. held by non-affiliates was approximately $985,000. (Calculated
assuming a $.50 value per share on December 31, 1998.)

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 4,051,400 shares of common stock.

Transitional Small Business Disclosure Format (check one): Yes     No X 
                                                              ---    ---


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                                      INDEX

<TABLE>
<CAPTION>


                                                                                          PAGE NO.
                                                                                          --------
<S>              <C>                                                                      <C>
PART I


     Item 1.      Description of Business                                                    1
     Item 2.      Description of Property                                                    6
     Item 3.      Legal Proceedings                                                          7
     Item 4.      Submission of Matters to a Vote of Security Holders                        7

PART II

     Item 5.      Market for Common Equity and Related Stockholder Matters                   8
     Item 6.      Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                                        8
     Item 7.      Financial Statements                                                       14     
     Item 8.      Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure                                        29

PART III

     Item 9.      Directors, Executive Officers, Promoters and Control
                  Persons; Compliance with Section 16(a) of the Exchange Act                 30
     Item 10.     Executive Compensation                                                     30
     Item 11.     Security Ownership of Certain Beneficial Owners and
                  Management                                                                 30
     Item 12.     Certain Relationships and Related Transactions                             30
     Item 13.     Exhibits and Reports on Form 8-K                                           30
</TABLE>


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                                     PART I



ITEM 1. DESCRIPTION OF BUSINESS

Cramer, Inc. is a Kansas corporation engaged in the manufacture and sale of
seating and utility products designed for office or industrial settings, and
ergonomic articulating keyboards for intensive data entry environments. The
Company was established in 1886 as a manufacturer of safes and office products.
Descendants of the Cramer family owned the Company until 1961 when it was sold
to OLIX Industries, a public company located in Austin, Texas. In January 1981,
OLIX made a public distribution of its Cramer common stock.



Business of Issuer

The Company's office seating products compete in the $12 billion domestic market
for office furniture, which includes seating, desks, files, and panel systems.
Major companies serving this market are Steelcase, Herman Miller, Knoll,
Haworth, Kimball, and HON Industries. These six companies supply products in all
major categories of this market. Together they account for an estimated 60% of
sales in this market. The remaining 40% of the market is served by smaller
companies (typically sales of less than $75 million) that primarily compete only
in selected segments. These segments are delineated either by product type, such
as seating or casegoods, or by customer category, for example high style,
wood-finish, or budget-price.

Cramer's seating products are non-wood, characterized by painted metal finish
and upholstered seats and backs. The product line includes standard height
chairs and a wide range of raised height models and stools. All offer ergonomic
design with varying degrees of adjustability to accommodate individual users.
Cramer manufactures and sells chairs for a variety of demanding commercial
applications, including intensive (24-hour) use, production facilities,
laboratories, hospitals, schools as well as conference, secretarial and
management seating for the general office. The Company also manufactures
Cleanroom and Electro-Static Discharge seating which meets the needs of certain
specialized manufacturing and research environments. The Company's seating
products are recognized for quality construction and lasting durability.

The Company's utility products include step stools and aluminum ladders
featuring the use of retractable casters. The design of these products and the
retractable caster concept are well recognized and accepted in the marketplace.
These products have been continuously manufactured by the Company for sale in
the United States since the 1950s.

The Company's keyboard products include a patented split keyboard that is
designed to be mounted on the arms of the user's chair. A version of the split
keyboard can be mounted on a desk or keyboard tray. An accompanying product is
an articulating mouse pad that also can be mounted on the arms of a chair.

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Marketing and Competition

The domestic office furniture market is highly competitive. Cramer competes by
focusing on the non-wood task seating market niche with products that have
high-quality and a reputation for long-term reliability. The Company also
differentiates itself by a commitment to customer service and on-time delivery.
The Company's 110+ year history and the proven reliability of its products
support a strong reputation and product awareness in the marketplace. Cramer
frequently competes in its narrow market area against similar-sized niche
manufacturers. In addition, the Company has been able to effectively compete
against the major companies in the industry when Cramer's special product
features, reputation for quality, and quality of customer service offer the
customer a better price-value relationship than the large competitors.

The majority of the Company's seating products are sold to independent office
furniture dealers who resell the products to end-users. Cramer has approximately
1,500 of these accounts, although only a portion of these accounts are active in
any given year. For the past several years, sales to independent office
furniture dealers have accounted for 70% to 75% of the Company's revenue. These
sales efforts are focused through approximately 23 independent sales
representative organizations located in major markets throughout the United
States. These sale organizations typically employ from 1 to 6 people, and
represent 3 to 6 complimentary product lines such as desks, panel systems, and
lighting. Average tenure for the Company's sales representatives is more than
four years. These representatives initiate and develop business directly with
end users, designers and architects for specification projects and coordinate
and manage the Company's business relationships with the independent office
furniture dealers in their territories.

The Company's utility products are sold primarily to approximately 100 wholesale
and catalog distributors. These distributors include major office supply and
industrial suppliers, and specialty distributors serving end-users' health-care,
scientific, and safety needs. While other manufacturers produce competing
products, as a result of the Company's favorable price/value relationship, the
variety of applicable products Cramer has to offer the specific wholesale or
catalog distributor, and its attention to customer service, these competitors
have, thus far, not been successful in reducing the Company's market share of
these products. However, there is no guarantee that competitors will not be
successful in the future. While eight wholesale and catalog distributors
accounted for 72% of the Company's 1998 utility product sales, no single
customer accounted for more than 10% of the Company's total sales in 1997 or
1998.

An emerging area for the Company's seating and utility products is the home
market. Utility products, principally the Kik-Step(R) stool, are distributed to
this market primarily through specialty catalog distributors serving domestic
kitchen and workroom needs. In addition, seating products are sold by office
furniture dealers for home office use.

The Company's keyboard products are sold directly to end-users through an
in-house sales force located in Minneapolis. The Company uses a combination of
advertisements, direct solicitation, recommendations from medical or other
professionals, and maintenance of a page on the World Wide Web to publicize
these products and to obtain customer orders.

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Cramer regularly participates in national office, industrial, and ergonomic
products trade shows and conferences. Sales representatives display product
samples and provide demonstration chairs for dealers and end-users. The Company
maintains permanent product displays in showrooms in Los Angeles and New York.

Sales in the contract furnishing industry, where Cramer's office seating
products compete, follow a seasonal pattern of slightly lower volume in the
winter and summer and higher volume in the spring and fall. Utility product
sales are generally equal through each quarter of the year.

Cramer's products are sold throughout the United States. International sales are
not significant.

Products

Office Seating - The Company's flagship seating product is the Triton(R) chair.
The Company believes this chair is unique in the industry because it combines a
15 year, 3 shift-a-day warranty and steel structural components with full
ergonomic adjustability.

The Triton's(R) design significantly upgrades the user's ability to meet
emerging ergonomic adjustability requirements yet have a chair that exceeds
industry durability specifications. The Triton(R) is designed to meet or exceed
all current standards of adjustability for prevention of repetitive stress
trauma including the San Francisco VDT work-station standards; meet or exceed
all flame-retarding specifications, including Boston Fire Marshal, California TB
117, and California TB 133; and meet or exceed industry testing for strength and
component failure (ANSI/BIFMA specifications). Additionally, a version of the
Triton(R) has been independently certified to pass the more rigorous U.S.
Federal General Services Administration Intensive Use Seating specifications.

Typical purchasers of the Triton(R) are health-care facilities, professional
offices, production lines, airline reservation centers, police and emergency
dispatch stations and similar 24-hour use applications. The Triton product line
includes both a regular size version and a larger version called the Triton Max.
This version was specifically designed to accommodate larger-sized users.

Other significant office seating products include the Fusion(R), Aeros(R), Affix
and Avail. The Fusion(R) chair provides full ergonomic task seating at a
moderate price. This chair's design and function follow the strict standards
found in all of the Company's active ergonomic seating lines. The product is
designed to function within office, light assembly and laboratory settings. The
chair line is designed to complement the Triton(R) line with its unique steel
seat pan. The Aeros(R) and Affix products are lower priced task seating products
with less ergonomic adjustments. The Avail is a stacking guest chair intended to
complement the Triton(R), Fusion(R), and other task chairs.

Utility - The Company's utility products include the Kik-Step(R), a round,
all-steel, 2-step stool that rolls on retractable casters and is frequently used
in libraries, file rooms, and warehouses. This product was designed by Cramer in
1957 and continues to be an important part of the Company's product line. In
addition to the Kik-Step(R), Cramer manufactures StopStep and PAL ladders, a
series of steel and lightweight aluminum ladders featuring the same retractable
caster concept as the Kik-Step(R).


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Industrial Seating - The Company's industrial seating line includes the Rhino
seating product line and a series of aluminum framed seating designed for a more
rugged setting than a typical office chair. The Rhino seating line is
distinguished by its seat and back, which are made from "tough-skinned" urethane
foam. This technology offers industrial-strength reliability for factory
seating, including the ability to wash the chair without damaging the
upholstery. The product-line includes a large "task" chair and a smaller
"operational" chair. The third product in the Rhino seating line is a small
sit-stand designed to relieve weight from an individual's feet in industrial
situations that do not allow a fully seated position. The aluminum frame seating
products have been in production for over 25 years and are well recognized in
the market for value and lasting performance. These product lines offer a wide
range of seating material from wood or plastic to upholstered products. The
products are available in both desk height and a range of stools suitable for
counter height tasks.

Keyboard - The Company's articulating split keyboard features the ability to be
mounted on the arms of most task chairs sold in the United States. The keyboard
is split into two separate parts to improve the ergonomic aspects of the
product. Each of the two sections of the keyboard can be articulated in an
infinite range to fit the size and shape of individual users. The Company
believes that proper use of the product reduces the likelihood of repetitive
motion injuries arising from extensive use of electronic keyboards or data entry
devices. The Company also believes that users may experience productivity
increases due to lessened fatigue during the course of a regular workday.

New products - The Company believes that systematic development and introduction
of new products is important for the Company's growth and continued
profitability. In 1998 the Company introduced the Portable Aluminum Ladder
(PAL), a value priced industrial series of rolling aluminum ladders. The PAL
serves as a complement to the Company's successful StopStep ladders that are
designed for a more formal office environment. In 1998 the Company also
introduced the desktop version of the keyboard product. Product introductions
currently planned for 1999 include additional enhancements to the utility
product line and a more stylish version of the Triton chair product.

Production, Trademarks and Government Regulation

The Company's products are fabricated from raw materials such as steel sheet and
tubing, aluminum tubing, plastic forms, foam, and fabric purchased from sources
locally and throughout the United States. Specialized components, including
printed circuit boards, and subassemblies are likewise purchased from vendors
throughout the United States and, in a few instances, internationally.

Cramer understands the importance of developing partnerships with its vendors,
and has undertaken a program to work closely with suppliers to improve quality,
delivery, and price, while offering technical assistance and production planning
forecasts. Although this approach includes focusing greater purchases with fewer
vendors, the Company believes it retains the ability to change to alternative
suppliers in most cases.

Certain components of the Company's products are sourced from a single vendor.
Any disruption in such supply arrangements could result in temporary shipment
delays or 

                                       4
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increased costs. However, the Company believes it has the ability to
substitute suppliers for any component within a three month period of time.

Production machinery and equipment used to manufacture of the Company's products
are owned and maintained by the Company and primarily located in the Company's
factory in Kansas City, Kansas. Certain tooling for the fabrication of
specialized components is owned by the Company, but located at vendors who
manufacture the components. The production equipment ranges from older-model
metalworking machinery to a modern powder coat painting system. The Company
systematically maintains its equipment at high levels of operation. Cramer has
sufficient production capacity for substantially increased sales requirements.

The Company manufactures approximately 60% of all of its orders to specific
customer requirements. Cramer is able to customize product specifications for
particular needs. The Company's delivery schedule typically is four weeks for
seating products and two weeks for utility products. This schedule is typical
for the business areas where the Company competes. The Company has sufficient
manufacturing flexibility to provide shorter lead times, when necessary, for
special customer needs. This ability, plus a small inventory of finished chairs
in stock for immediate delivery, can be a competitive advantage in certain
situations. At December 31, 1998, the Company's backlog of unfilled orders was
$978,000, the majority of which are scheduled to be shipped in the first quarter
of 1999.

During the past several years the Company has been able to ship approximately
40% of its sales from stock. However, the Company maintains a finished goods
inventory of approximately $155,000. This inventory consists of a small
inventory of Kik-Step(R) stools and ladders and the Quick Ship seating inventory
described above. The Company believes its ability to maintain its high inventory
turnover ratio in this area (over 33 times in 1998) is a competitive advantage.

The name Cramer and the Company's Kik-Step(R), Aeros(R), Triton(R), and
Fusion(R) product names are registered trademarks. The Company's other office
and utility seating products are marketed under the Cirrus, Avail, Affix,
Nimbus, and Rhino trademarks. The keyboard and mouse tray products are marketed
under the name "Interfaces by Cramer." The Company also considers the overall
design and appearance of the Kik-Step(R) to be a trademark of the product.

The design of the Company's articulating keyboard is protected by a U.S. patent
covering key switching devices mounted on the arms of a chair.

No government approval is required for Cramer's products. The Company designs
its products to meet voluntary industry standards for strength and reliability
(ANSI/BIFMA). The Company maintains ANSI/BIFMA test equipment at its factory and
has implemented a program of systematically testing its products for
reliability. Certain products are designed to meet the more rigorous
requirements of the General Services Administration. This provides the Company
with competitive advantages in certain situations.

The Company's production processes use no known hazardous or polluting
substances. The Company is subject to various federal, state, and local laws and
regulations governing the protection of its employees and the environment. The

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Company believes that it is in substantial compliance with such laws, and that
continued compliance will not have a material adverse effect on its business.

Employees

As of December 31, 1998, the Company employed 94 full time people; 37 office,
supervisory, managerial, and executive personnel, and 57 factory workers. Cramer
management considers the ability to attract, train, and retain skilled
professional employees and production workers to be an important aspect of the
Company's competitive advantage. Management believes that it enjoys a good,
interdependent relationship with its employees, and has instituted personnel
policies intended to maintain this relationship. The Company is an equal
opportunity employer and an active non-discrimination policy is integral to this
concept.

The factory workers are covered by a collective bargaining agreement with the
United Steelworkers of America that expires on September 30, 2002. The Company
believes that strong labor relations are important to its ability to achieve
product quality, on-time delivery, and continuous improvement in the workplace.
No work stoppages have occurred over the past ten years. The State of Kansas is
a right-to work state, so not all factory workers belong to the Union. At
year-end, 21 of the 57 factory workers were not dues paying members. The Company
considers its labor relations to be good.

Research and Development

New products are developed internally by a technical staff who has an average of
more than 5 years experience with seating and industrial products. New designs
are developed on state-of-the-art CAD equipment to shorten development time,
improve documentation, and facilitate sourcing of high quality components from
outside vendors. The Company's internal costs for engineering, research and
development were $277,000 and $130,000 in 1998 and 1997, respectively.

Cramer employees are committed to continuous improvement of products and
processes. The Company believes that this philosophy is working to develop
products with higher reliability, lower cost, and improved product features.





ITEM 2. DESCRIPTION OF PROPERTY

The Company's corporate headquarters and manufacturing facility are located on a
5-acre tract at 625 Adams Street, Kansas City, KS in a building owned and
occupied by the Company since 1957. This facility comprises 165,000 square feet,
including 20,000 office, 2,000 showroom, and 143,000 manufacturing space.

The Company considers the facility appropriate for its type of manufacturing,
with sufficient expansion potential for foreseeable growth. The facility is in
good condition. No expansions, renovations, or significant changes are necessary
or planned. The location is in proximity to a large labor pool and has good
access to transportation, including rail service.


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The Company believes that its facilities are adequately insured.

Sales showrooms located in furniture design centers in Los Angeles and New York
are subleased by Cramer for permanent display of the Company's products. Neither
of these subleases have terms longer than one year.

The Company's sales office in Minneapolis consists of a small office leased by
the Company in a suburban office park.



ITEM 3. LEGAL PROCEEDINGS

The Company is a defendant in several lawsuits relating to product liability
claims arising from accidents allegedly occurring in connection with the use of
its products. The claims are covered by insurance and are being defended by the
Company's independent counsel or by counsel assigned by the Company's insurance
carriers, but are subject to deductibles ranging from $0 to $100,000. A number
of the claimants allege substantial damages. While management believes the
Company has substantial defenses with respect to the claims, the ultimate
outcome of such litigation cannot be predicted with certainty. The Company has
reasonably estimated and accrued in its financial statements its portion of the
deductible as a product liability contingency. Such claims are an ordinary
aspect of the Company's business.



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

None



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                                     PART II



ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Cramer stock is not listed on NASDAQ or any exchange and there is no public
trading market for the Company's stock.

As of February 26, 1999, there were 762 shareholders of record.

Since being publicly held, the Company has never paid cash dividends and does
not anticipate paying any cash dividends in the foreseeable future. The
Company's ability to pay cash dividends on its common stock will depend upon its
capital surplus and cash requirements.


ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
           RESULTS OF OPERATIONS

A.       FORWARD LOOKING STATEMENTS

         Except for the historical information contained herein, this report on
         Form 10-KSB contains forward-looking statements that involve risks and
         uncertainties. The Company's actual results could differ materially. In
         connection with the "safe harbor" provisions of the Private Securities
         Litigation Reform Act of 1995, Cramer, Inc. reminds readers that there
         are many important factors that could cause the Company's actual
         results to differ materially from those projected in forward-looking
         statements made by, or on behalf of, the Company. When used in this
         Form 10-KSB and in other filings by the Company with the Securities and
         Exchange Commission, in the Company's press releases and in oral
         statements made with the approval of an authorized executive officer,
         words or phrases such as "will likely result", "expects", "are expected
         to", "will continue", "is anticipated", "estimate", "project" or
         similar expressions are intended to identify forward-looking
         statements. The Company wishes to caution readers not to place undue
         reliance on such forward-looking statements.

         There are a number of reasons why investors should not place undue
         reliance on forward-looking statements. Among the risks and
         uncertainties that could cause the Company's actual results for future
         periods to differ materially from any forward-looking statements made
         are the following:

           - Fluctuations or reductions in product demand and market acceptance
           - The level of product development by the Company
           - Capacity and supply constraints or difficulties
           - The results of financing efforts
           - The effect of new laws and regulations
           - Unexpected additional expenses or operating losses
           - Competition

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           - The Company's reliance on certain vendors for key components.
           - The possible effect of the year 2000 on computer systems

         The foregoing list of risks and uncertainties is not meant to be
         complete.

B.       POSSIBLE EFFECT OF THE YEAR 2000

         As with many other concerns, the Company may be impacted by the "year
         2000 problem". The "year 2000 problem" arose because many existing
         computer programs use only the last two digits to refer to a year.
         Therefore, these computer programs do not properly recognize a year
         that begins with "20" instead of the familiar "19". If not corrected,
         many computer applications could fail or create erroneous results.

         In developing a response to the year 2000 issue, the Company has
         considered all of its computer systems, both those that are directly
         related to Information Technology systems and other systems where
         computer controls exist. The Company has also considered the readiness
         of its key vendors and customers.

         The Company's only critical system is its Enterprise Resource Planning
         (ERP) system which encompases the Company's manufacturing, scheduling,
         purchasing, and accounting systems. The ERP system resides on an IBM
         advanced 36/AS 400. The advanced 36/AS400's operating system and the
         core ERP system will be converted to allow recognition of years
         beginning with a "20" using the 100 year fixed window methodology. This
         methodology converts all dates entered into the system in a prescribed
         manner that will allow the ERP system to consistently handle dates both
         before and after the turn of the century.

         The Company's in-house EDP department is developing and installing the
         fixed window subroutines that will be used in converting the ERP system
         to year 2000 compliance. Implementation of this process is proceeding
         through a pre-established schedule for each of the various modules of
         the ERP system. Initial remediation efforts focused on the
         manufacturing portions of the ERP system. Corrections have been
         completed and are presently in the testing phase. The final portions of
         the remediation effort will focus on the accounting portions of the ERP
         system. Remediation of these portions of the ERP system are scheduled
         to be completed by the end of the 2nd quarter of 1999. Once remediation
         of the entire ERP system has been completed, all daily transactions
         will be run on the converted system in a test environment that
         simulates processing in the year 2000. This final test process is
         scheduled to occur in the 3rd quarter of 1999.

         Due to the time required for the year 2000 project, non-essential
         enhancements to the company's computer systems have been delayed at
         times, however, the direct costs associated with the year 2000 project
         are expected to be less than $15,000.

         The Company has appointed an internal task force to review year 2000

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         compliance issues for all other areas where computer controls exist.
         This review includes all other information technology systems other
         than the ERP system and possible computer controlled processes in the
         Company's facilities, communications, manufacturing equipment, etc. At
         February 28, 1999, the task force had completed its inventory of all of
         the Company's systems. Furthermore, with the exception of the Company's
         phone and voice mail system, the task force has determined that all
         computer controlled systems have already been appropriately remediated
         for the year 2000. In conjunction with appropriate vendors, the
         company's phone and voice mail system will be assessed in the 2nd
         quarter of 1999. Once an assessment is completed, an appropriate
         remediation plan will be implemented.

         The Company has developed a questionnaire to assess its vendor's
         readiness to handle the year 2000 issue. These questionnaires were
         distributed to vendors in later portions of 1998 and in early 1999. The
         responses to these questionnaires are currently being reviewed. Special
         attention will be given to significant vendors and in these cases, we
         will supplement their answers with verbal discussions with appropriate
         management and information system professionals.

         Through discussions with appropriate parties, the Company is aware that
         its 8 largest wholesale and catalog customers are aware of the year
         2000 issue and are currently determining how to convert their systems
         to handle the problem. Since the remainder of the Company's sales are
         to a wide variety of other furniture re-sellers, which change from year
         to year, there are no efforts currently underway to assess the status
         of these customers year 2000 readiness.

         The Company is developing contingency plans in case its ERP system, its
         other computer controlled systems, its vendors, or major customers
         prove not to be ready for the year 2000. With respect to the ERP
         system, the Company believes that it can operate with manual controls
         and systems for some period if all or portions of the ERP system were
         not fully operational. Depending on the extent of the deficiency,
         additional clerical personnel may have to be hired for a short period
         of time. The Company's senior management will evaluate the preparedness
         of its key vendors in the summer of 1999. Contingency plans for vendor
         supplied parts will include the purchase of additional inventory in the
         final month of 1999.

         There can be no assurance that year 2000 remediation by the Company or
         third parties will be properly and timely completed and failure to do
         so could have a material adverse effect on the Company's financial
         condition. The Company can not predict the actual effects to it of the
         year 2000 issue, which depends on numerous uncertainties such as (1)
         whether major third parties address this issue properly and timely and
         (2) whether broad-based or systemic economic failures may occur. The
         Company is currently unaware of any events, trends, or condition
         regarding this issue that may have a material effect on the Company's
         results of operations, liquidity, and financial position.

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C.       SUMMARY OF OPERATIONS


         At $12,774,000, net sales for 1998 were 2% higher than in 1997. The
         increase in net sales reflects a general strengthening in the Company's
         office seating and utility businesses. The Company attributes its
         improved performance in the office seating business to the successful
         launch of several new seating products in late 1997 and early 1998. The
         Company's success in increasing utility product volume is the result of
         having sales management place more emphasis on the major catalog
         wholesalers who distribute these products. 1998's sales also increased
         as a result of having a full year of keyboard product sales. These
         increases were somewhat offset by weakening sales of the Company's
         industrial seating products due to the aging nature of these products
         design.

         Intake of new orders in 1998 was $13,127,000, an increase of 6% as
         compared to the Company's total order intake in 1997. At December 31,
         1998, the Company's backlog was $978,000, an increase of $172,000 from
         the level at December 31, 1997. Substantially all of the Company's
         backlog is scheduled to ship within the first three months of 1999.

         The Company's gross margin in 1998 was $3,647,000, an increase of
         $313,000 as compared to 1997. As a percentage of net sales, gross
         margins in 1998 were 28.6% as compared to 26.7% during 1997. The
         increase in margins reflects (a) material cost reductions achieved as a
         result of a comprehensive engineering review of the Company's utility
         product line, and (b) reductions in product liability costs achieved by
         more active management of these matters, a strategy which has reduced
         settlements during the past few years.

         Selling expenses in 1998 increased $399,000 as compared to 1997.
         Approximately $295,000 of this increase relates to the ongoing
         introduction costs for the Company's new articulating keyboard product.
         A significant portion of the remaining change is an increase in volume
         rebates paid to catalog wholesalers as a result of increases in sales
         volume through this distribution channel.

         General and administrative expenses in 1998 increased by $127,000 as
         compared to 1997. This increase was due to additional engineering
         expenses incurred to initiate a separately staffed new product
         development function. The Company has enhanced its research and
         development efforts in order to expand its product offering and to
         shorten the new product development cycle. The Company has also doubled
         the headcount in the production engineering function. The increase in
         the production engineering staff allowed the Company to undertake cost
         reduction projects such as the utility product design review noted
         above.

         There was no significant change in interest expense in 1998 as compared
         to 1997. Non-operating expense was $27,000 lower in 1998 as compared to
         1997. This was principally a result of the Company receiving a dividend
         in 
                                       11

<PAGE>   14


         1998 from its workers compensation insurance carrier as a result of
         lower than anticipated medical expenses arising from workplace
         accidents in 1995 and 1996.

         As a result of significant tax net operating loss carryforwards
         originating in the 1980s, the Company paid no income taxes for 1997 and
         expects to pay none for 1998. Deferred tax assets arising from these
         tax loss carryforwards and other temporary differences have not been
         recorded due to the uncertainty of future operating success.

         Overall, the Company's net income was $25,000 in 1998 as compared to
         $202,000 in 1997. The reduction is a result of the Company's investment
         in its new articulating keyboard product line. The introduction costs
         for this product have substantially exceeded its sales and gross
         margins. Net income from the Company's core seating and utility product
         lines increased by more than $125,000 (more than 50%) in 1998 as
         compared to1997.

FINANCIAL CONDITION AND LIQUIDITY

         At $1,114,000, the Company's December 31, 1998 accounts receivable
         balance increased by $124,000 as compared to the balance at December
         31, 1997. The increase is due to several of the Company's significant
         catalog / utility product customers electing to lengthen their payment
         cycle to all of their smaller manufacturers. The Company is actively
         attempting to negotiate a return to the previous payment cycle but
         there can be no guarantee of success in these negotiations.

         The Company's December 31, 1998 inventory increased by $241,000 from
         the 1997 year-end balance. The increase was necessary to acquire
         inventory for the new seating and utility products that were introduced
         in 1998 and are planned to be introduced in the first quarter of 1999.

         Capital expenditures in 1998 included $204,000 for investments in
         factory tooling and office equipment for the Company's main Kansas City
         location. This amount was $17,000 more than depreciation, which
         aggregated $187,000 during the period.

         Principally as a result of the increases in inventory and accounts
         receivable in 1998, the Company's short-term notes payable increased by
         $360,000 during 1998.

         The Company's accounts payable decreased by $70,000 during 1998. The
         reduction was the result of the Company's continued efforts to
         concentrate its raw material purchases with a small number of key
         vendor partners and to strengthen its relationships with these primary
         material suppliers by taking cash discounts offered for early payments.

         The Company made payments of approximately $185,000 into the trust for
         the Company's Pension Plan during 1998. However, the pension plan
         liability only decreased by $87,000 because the liability increased due
         to 

                                       12
<PAGE>   15


         other non-cash charges reflecting the ongoing pension cost consisting
         of interest accruals and the amortization of the unrecognized prior
         service cost and transition obligation. This amortization also results
         in the decrease in the pension plan asset from $212,000 at December 31,
         1997 to $160,000 at December 31, 1998 and the $54,000 increase in the
         Minimum Pension Liability Adjustment to Accumulated Other Comprehensive
         Income.

         The Company continues to participate in a consolidated Rotherwood
         credit facility with Mercantile Bank (the Bank). At December 31, 1998,
         the credit facility provides Rotherwood, and its participating
         subsidiaries (including Cramer), with access to a $2,000,000 credit
         line with interest charged on outstanding borrowings at one-fourth of a
         percent less than the Bank's prime interest rate. Management believes
         that this is a lower interest rate than the rate that Cramer would pay
         if it tried to finance its working capital needs by itself. The Company
         may borrow up to the maximum amount of the credit line less any amounts
         already borrowed by the other participating Rotherwood companies. The
         consolidated credit facility matures in August 1999 and all borrowings
         are classified as current liabilities at December 31, 1998. The Company
         believes that it will be able to renew the credit facility when it
         expires.

         The combined credit facility is secured by the inventory, accounts
         receivable, and equipment of the participating Rotherwood subsidiaries.
         In addition, Rotherwood's founder has pledged publicly traded equity
         securities with a market value in excess of $2 million as additional
         collateral for the loan.

         Each participating Rotherwood subsidiary has guaranteed repayment of
         the total amount borrowed under the credit facility. Management
         believes that the reduction in interest rates and the access to a
         larger credit facility more than offset the risk of potential losses
         under the guarantee provisions of the credit facility in the event that
         another participating Rotherwood subsidiary would default under their
         portion of the credit line.

         There is a risk that Cramer will not have access to sufficient funds
         for its operations if another participating Rotherwood subsidiary
         borrowed more of the funds under the credit line than anticipated.
         However, the $2,000,000 credit line is in excess of the total aggregate
         prospective borrowing needs all of the participating Rotherwood
         subsidiaries over the next 12 months. Furthermore, Cramer management
         participates in regular assessments of the borrowing needs of all
         Rotherwood subsidiaries and believes it would be aware of anticipated
         credit shortages in time to arrange new or additional sources of
         capital. Therefore, the Company believes that the current consolidated
         credit line, coupled with anticipated cash flow from operations, will
         be sufficient to meet current operating requirements over the next 12
         months.

         The Company's core seating and utility product business remains strong
         and management anticipates that the trend of increases in net sales,
         gross margins, and net income realized on this portion of the business
         in 1998 will accelerate in 1999 as the Company realizes the benefits of
         new product 

                                       13
<PAGE>   16

         introductions, price increases instituted in mid 1998, and the
         marketing and distribution enhancements achieved in 1998 and planned
         for 1999. Profitability on individual orders should be further
         enhanced, as the increased production volume will allow lower
         allocation of fixed costs to individual orders.

         However, management believes that sales of the Company's new
         articulating keyboard product will remain slow until distribution of
         the product is established and technical enhancements are completed. As
         a result, 1999's introduction and sales costs for the product line are
         expected to exceed the gross margin generated from its sales, which
         will negatively effect the overall profitability of the Company.
         However, the loss in 1999 associated with the introduction of this new
         product line is anticipated to be lower than that realized during 1998.
         Management continues to believe that over an extended period the
         product line will be a successful addition to the Company's offering
         and will provide a net positive return on amounts invested.


ITEM 7.    FINANCIAL STATEMENTS

The following financial statements of Cramer, Inc., are included herewith:

<TABLE>
<CAPTION>

                                                                           Page No.
                                                                           --------

<S>                                                                         <C>
Report of Independent Auditors                                               F-1

Balance Sheet - December 31, 1998                                            F-2

Statements of Income for the Years Ended
December 31, 1997 and 1998                                                   F-3

Statements of Stockholders' Equity for
the Years Ended December 31, 1997 and 1998                                   F-4

Statements of Cash Flows for the Years Ended
December 31, 1997 and 1998                                                   F-5

Notes to Financial Statements                                                F-6

</TABLE>


                                       14
<PAGE>   17



                                                                             F-1

                         REPORT OF INDEPENDENT AUDITORS



To the Board of Directors and Stockholders of
Cramer, Inc.
Kansas City, Kansas

We have audited the accompanying balance sheet of Cramer, Inc. as of December
31, 1998 and the related statements of income, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with 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
misstatements. 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, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1998, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles.



/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
Kansas City, Missouri
March 16, 1999


                                      15

<PAGE>   18




                                CRAMER, INC.                               F-2
                                  BALANCE SHEET
                    (Amounts in Thousands, Except Share Data)


<TABLE>
<CAPTION>

ASSETS                                                             December 31, 1998
                                                                   -----------------
<S>                                                                     <C>    
     Current Assets:
         Cash                                                           $    63
         Accounts receivable, net of allowance of $21                     1,114
         Inventories                                                      1,483
         Prepaid expenses                                                   230
                                                                        -------
                  Total Current Assets                                    2,890

     Property, Plant and Equipment, net                                     750

     Other Assets:
         Intangible pension asset                                           160
         Goodwill                                                           190
         Other noncurrent assets                                            189
                                                                        -------

                  Total Assets                                          $ 4,179
                                                                        =======

COMMITMENTS AND CONTINGENCIES (Note 9)

LIABILITIES AND STOCKHOLDERS' EQUITY 
     Current Liabilities:
         Note payable                                                   $ 1,548
         Accounts payable                                                   429
         Accrued liabilities                                                600
                                                                        -------

                  Total Current Liabilities                               2,577

     Noncurrent Liabilities:
         Pension benefits payable                                           494
         Other                                                              238
                                                                        -------

                  Total Noncurrent Liabilities                              732

     Stockholders' Equity:
         Common stock, no par value; authorized, 6,000,000
              shares; issued and outstanding 4,051,400 shares             3,824
         Accumulated deficit                                             (2,687)
                                                                        -------
                                                                          1,137
         Accumulated Other Comprehensive Income                            (267)
                                                                        -------

                  Total Stockholders' Equity                                870
                                                                        -------

         Total Liabilities and Stockholders' Equity                     $ 4,179
                                                                        =======
</TABLE>


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

                                       16
<PAGE>   19


                                CRAMER, INC.                               F-3
                              STATEMENTS OF INCOME
                  (Amounts in Thousands, Except Per Share Data)

<TABLE>
<CAPTION>

                                                         Year Ended December 31,
                                                            1998         1997 
                                                         --------      --------

<S>                                                      <C>           <C>     
Net Sales                                                $ 12,774      $ 12,491
Cost of Sales                                               9,127         9,157
                                                         --------      --------

                  Gross Profit                              3,647         3,334

Operating Expenses:
     Selling                                                2,307         1,908
     General and administration                             1,222         1,095
                                                         --------      --------

                  Total Operating Expenses                  3,529         3,003
                                                         --------      --------

                  Income from Operations                      118           331

Other Expense:
     Interest expense                                         (79)          (88)
     Other                                                    (14)          (41)
                                                         --------      --------

                  Income Before Income Taxes                   25           202

Income Taxes                                                    0             0
                                                         --------      --------

Net Income                                               $     25      $    202
                                                         ========      ========

Net Income Per Common Share - Basic and Diluted          $   0.01      $   0.05
                                                         ========      ========

Weighted Average Number of Common and
     Common Equivalent Shares Outstanding

         Basic                                              4,051         3,876
                                                         ========      ========
         Diluted                                            4,086         3,895
                                                         ========      ========
</TABLE>


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

                                       17
<PAGE>   20




                                CRAMER, INC.                               F-4
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                             (Amounts in Thousands)

<TABLE>
<CAPTION>                                                                                                        
                                                                                                 Accumulated
                                                                                                    Other           Total
                                                    Number of        Common       Accumulated   Comprehensive   Stockholders'
                                                     Shares           Stock         Deficit          Income         Equity    
                                                    ---------        -------     -----------    -------------   -------------
<S>                                                 <C>            <C>            <C>             <C>            <C>             
Balance at January 1, 1997                              3,841      $    3,508     $  (2,914)      $     (42)     $    552

Comprehensive Income
      Net Income                                                                        202                           202
      Adjustment to Additional Minimum
          Pension Liability                                                                            (171)         (171)
                                                                                                                  -------
      Total Comprehensive Income                                                                                       31
                                                                                                                  -------

Issuance of Common Stock in
     Connection with Asset Acquisition                    210             316                                         316
                                                    ---------------------------------------------------------------------

Balance at December 31, 1997                            4,051           3,824         (2,712)          (213)          899

Comprehensive Income
     Net Income                                                                           25                           25
     Adjustment to Additional Minimum
         Pension Liability                                                                              (54)          (54)
                                                                                                                  -------
     Total Comprehensive Income (Loss)                                                                                (29)
                                                    ---------------------------------------------------------------------

Balance at December 31, 1998                            4,051      $   3,824      $   (2,687)     $    (267)     $    870
                                                    =====================================================================
</TABLE>


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

                                       18

<PAGE>   21




                                CRAMER, INC.                               F-5
                            STATEMENTS OF CASH FLOWS
                             (Amounts in Thousands)

<TABLE>
<CAPTION>

                                                                                 Year Ended December 31,
                                                                                     1998       1997     
                                                                                    -------    -------
<S>                                                                                 <C>        <C>         
Cash flows from operating activities:
     Net income                                                                     $    25    $   202     
     Adjustments to reconcile net income to net cash                               
         provided by (used in) operating activities:                               
         Depreciation and amortization                                                  225        221
         Changes in operating assets and liabilities,                              
         net of effects from acquisition:                                          
              Accounts receivable                                                      (124)        44
              Inventories                                                              (241)        62
              Prepaid expenses                                                           72        (18)
              Intangible pension asset                                                   52         32
              Accounts payable and accrued liabilities                                  (18)      (198)
              Noncurrent pension benefits payable                                      (140)      (142)
              Other noncurrent liabilities                                                4         75
                                                                                    -------    -------
                                                                                   
              Net cash provided by (used in) operating activities                      (145)       278
                                                                                   
Cash flows from investing activities:                                              
     Capital expenditures, net of proceeds from sales of                           
     property, plant and equipment                                                     (204)      (161)
                                                                                    -------    -------
                                                                                   
              Net cash used in investing activities                                    (204)      (161)
                                                                                   
Cash flows from financing activities:                                              
     Principal payments on notes payable                                             (4,701)    (4,289)
     Proceeds from issuance of notes payable                                          5,061      4,107
                                                                                    -------    -------
                                                                                   
                  Net cash provided by (used in) financing activities                   360       (182)
                                                                                   
Net increase (decrease) in cash                                                          11        (65)
Cash at beginning of year                                                                52        117
                                                                                    -------    -------
                                                                                   
Cash at end of year                                                                 $    63    $    52
                                                                                    =======    =======
                                                                                   
Supplemental disclosures of cash flow information:                                 
     Cash paid during the year for:                                                
         Interest                                                                   $    79    $    84
                                                                                    =======    =======
         Income tax                                                                 $     0    $     0
                                                                                    =======    =======
                                                                                   
Non-cash transactions:                                                             
     Stock issued in acquisition of assets                                                     $   316
                                                                                               =======
</TABLE>
                                                                       

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

                                       19

<PAGE>   22



                                CRAMER, INC.                               F-6
                          NOTES TO FINANCIAL STATEMENTS
                     Years ended December 31, 1998 and 1997



1.   SUMMARY OF ACCOUNTING POLICIES

     ORGANIZATION

     Cramer, Inc. ("Cramer" or "the Company") is a manufacturer of seating and
     utility products for office and industrial use. All operations are within
     this one segment. The Company sells its products throughout the United
     States. International sales are limited. The Company's principal customers
     are office furniture dealers (seating products) and wholesale catalog
     distributors (utility and seating products). Cramer is a 51% owned
     subsidiary of Rotherwood Corporation ("Rotherwood"), a Minneapolis,
     Minnesota based holding company.



     INVENTORIES

     Inventories are valued at the lower of cost (determined by the first-in,
     first-out method) or market. The closing inventory is comprised of raw
     material of $896,000, work in progress of $488,000, finished goods of
     $155,000 and reserves for obsolesence and shrinkage of $56,000.



     PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are carried at cost. Depreciation is provided
     for in amounts sufficient to charge the cost of depreciable assets to
     operations over their estimated service lives, principally on a
     straight-line basis.

<TABLE>
<CAPTION>

                                                                                                Estimated
                                                                                                  Useful
                                                                                Cost               Life
                                                                           (In Thousands)       (In Years)            
                                                                           -------------       ------------
             <S>                                                           <C>                 <C>                         
              Land                                                         $          29           -----
              Buildings                                                              730          20 - 40
              Machinery and Equipment                                              3,748           3 - 10
              Furniture, Office Equipment and Automobiles                          1,311           5 - 10
                                                                           -------------
                                                                                   5,818
              Less Accumulated Depreciation                                        5,068
                                                                           -------------
              Net Property, Plant and Equipment                            $         750
                                                                           =============
</TABLE>


                                       20

<PAGE>   23




     INCOME TAXES

     Income taxes have been provided using the liability method in accordance
     with Statement of Financial Accounting Standards ("SFAS") No. 109,
     Accounting for Income Taxes.


     USE OF ESTIMATES

     The preparation of the financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the amounts reported in the financial statements
     and accompanying notes. Actual results could differ from those estimates.


     WARRANTIES

     Depending on the model, the Company warranties its products for periods up
     to 15 years. The Company's reserve for anticipated warranty costs of
     $118,000 is included in accrued liabilities. The warranty reserve is
     estimated based on durability testing, engineering studies, and actual
     costs incurred in prior years.


     EARNINGS PER SHARE

     Basic and Diluted Earnings Per Share is calculated in accordance with the
     provisions of SFAS No. 128, Earnings Per Share. Basic earnings per share is
     computed by dividing income available to common shareholders by the
     weighted average number of common shares outstanding for the reporting
     period. Diluted earnings per share reflects the potential dilution that
     could occur if securities or other contracts to issue common stock were
     exercised or converted into common stock. Outstanding stock options issued
     by the Company represent the only dilutive effect on weighted average
     shares (see Note 4).


     NEW ACCOUNTING PRONOUNCEMENTS

     In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income.
     This Statement established standards for reporting and display of
     comprehensive income and its components in a full set of general-purpose
     financial statements. This Statement did not impact the Company's financial
     position, results of operations or cash flows, and the effect was limited
     to the form and content of its financial statements.

     In 1998, the Company adopted SFAS No. 132, Employers' Disclosures about
     Pensions and Other Postretirement Benefits. This Statement requires changes
     to disclosures relating to pension and other postretirement benefit plans.
     The Statement supersedes the disclosure requirements in SFAS No. 87,
     Employers' Accounting for Pensions, SFAS No. 88, Employers' Accounting for
     Settlements and 

                                       21
<PAGE>   24


     Curtailments of Defined Benefit Pension Plans and for Terminating Plans,
     and SFAS No. 106, Employers' Accounting for Postretirement Benefits Other
     than Pensions. This Statement did not impact the Company's financial
     position, results of operations or cash flows, and the effect was limited
     to the form and content of its disclosures for its defined benefit pension
     plan.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
     Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
     establishes accounting and reporting standards for derivative instruments
     and hedging activities. It requires that an entity recognize all
     derivatives as either assets or liabilities in the statement of financial
     position and measure those instruments at fair value. This statement is
     effective for the Company for periods beginning in fiscal year 2000. The
     Company believes that the adoption of the provisions of SFAS No. 133 will
     not have a material effect on its financial statements, based on current
     activities.


2.   BENEFIT PLANS

     DEFINED BENEFIT PLAN

     The Company has a defined benefit pension plan covering all of its
     bargaining unit employees working as of September 30, 1988. Effective
     September 30, 1988, the plan was amended to freeze future benefit accruals.
     As a result of freezing the benefits, no further benefits accrue to plan
     participants. The amount of pension a participant will receive was frozen
     at $9.00 multiplied by the number of years of service from the later of the
     date of hire or January 1, 1942, through September 30, 1988. Effective
     September 30, 1988, new employees have not accrued benefits under the
     defined benefit plan. The Company's funding of the plan is equal to, or
     exceeds, the minimum contribution required by ERISA and totaled $184,500
     and $216,900 in 1998 and 1997, respectively.

     Net pension costs included the following components (in thousands):


<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                                 1998                  1997 
                                                                            --------------        --------------

<S>                                                                        <C>                    <C>           
     Service cost - benefits earned during the period                       $            0        $            0
     Interest cost on projected benefit obligation                                      64                    86
     Expected return on plan assets                                                    (33)                  (28)
     Net amortization and deferral                                                      63                    56
                                                                            --------------        --------------

              Total pension costs                                           $           94        $          114
                                                                            ==============        ==============
</TABLE>



                                       22
<PAGE>   25



Net regular periodic pension cost was calculated using the following
assumptions:

<TABLE>
<CAPTION>

                                                                                    Year Ended December 31,
                                                                                      1998           1997 
                                                                                    --------       --------  
     
<S>                                                                                   <C>            <C>  
              Weighted Average Discount Rate                                          6.50%          7.00%
              Expected Long-Term Rate of Return                                       8.00%          8.00%

</TABLE>

     The plan's funded status as of December 31, 1998 is summarized below (in
thousands):

<TABLE>
              <S>                                                                 <C>       
              Actuarial present value of projected benefit obligation             $    927  
              Plan assets at fair value                                                434
                                                                                  --------
              Projected benefit obligation in excess of plan assets                   (493)
              Remaining unrecognized net transition obligation                         148
              Unrecognized prior service cost                                           12
              Unrecognized net loss                                                    266
              Adjustment required to recognize minimum liability                      (427)
                                                                                  --------
                                                                                  
              Net pension liability recognized                                    $   (494)
                                                                                  ========
</TABLE>
                                                                     
     An intangible asset of $160,000 equal to the unrecognized prior service
     cost and transition obligation has been included in the balance sheet. The
     remaining additional minimum liability of $266,000 related to the
     unrecognized net loss has been recorded as a decrease in stockholders'
     equity at December 31, 1998. The fair value of plan assets changed from 
     December, 31, 1997 to December 31, 1998 as follows (in thousands):

<TABLE>
     <S>                                                                        <C>       

     Fair value of plan assets at December 31, 1997                             $    371
     Contributions                                                                   185
     Benefit payments                                                               (182)
     Investment return net of investment expenses                                     60
                                                                                --------

     Fair value of plan assets at December 31, 1998                             $    434
                                                                                ========
</TABLE>

     The projected benefit obligation changed from December 31, 1997 to December
     31, 1998 as follows: (in thousands):

<TABLE>
     <S>                                                                        <C>       

     Projected benefit obligation at December 31, 1997                          $  (952)
     Pension costs                                                                  (94)
     Contributions                                                                  185
     Change in additional minimum liability                                         (54)
     Actuarial gains and losses                                                     (12)
                                                                                -------

     Projected benefit obligation at December 31, 1998                          $  (927)
                                                                                =======
</TABLE>

     The change in the additional minimum pension liability has been included as
     a component of other comprehensive income.


                                       23
<PAGE>   26



     Plan assets are held by trust funds devoted to servicing pension benefits
     and are invested in a diversified portfolio of fixed income and equity
     securities.


     DEFINED CONTRIBUTION PLAN

     The Company sponsors a 401(k) plan covering substantially all employees.
     Participants may contribute from one percent (1%) to fifteen percent (15%)
     of compensation, subject to annual limitations. Company contributions are
     at the discretion of the Board of Directors. There were no Company
     contributions in 1998 or 1997.


3.   SHORT-TERM BORROWINGS

Rotherwood and certain of its subsidiaries, which includes the Company,
participate in a combined credit facility with Mercantile Bank. The credit
facility provides Rotherwood and its participating subsidiaries with access to a
credit line of $2,000,000 with interest charged at a rate of one-fourth of a
percent less than the Bank's prime rate (8.375% at December 31, 1998). The
Company's share of these borrowings at December 31, 1998 was $1,548,000 which
includes bank overdrafts that will be drawn on the line.

The combined credit facility, which matures in August 1999, is secured by the
general intangibles, inventory, accounts receivable and equipment of all of the
participating Rotherwood subsidiaries.

The Company, and each of the other Rotherwood subsidiaries, has guaranteed
repayment of the total debt to Mercantile Bank. Rotherwood's founder has pledged
publicly traded equity securities with a market value in excess of $2 million as
additional collateral for the loan. Because of the minimal amounts historically
borrowed by the other participating Rotherwood Subsidiaries, the Company's
management believes that there is minimal risk associated with the guarantee
provisions of the credit facility.


4.   STOCKHOLDERS' EQUITY

The Company has a stock option plan (the "Plan") which provides for the grant of
incentive awards to directors, officers and other key employees. Under the Plan,
stock options are granted at the fair market value of the Company's common stock
at the date of the grant. In accordance with APB Opinion No. 25, Accounting for
Stock Issued to Employees, no compensation expense is recognized for grants
under the Plan. There were no stock option grants under this plan in 1997 or
1998.

During 1997, the Company repurchased and canceled a previously issued option for
20,000 shares. At December 31, 1998, the Plan had a total of 840,000 shares
authorized for issuance. There were zero shares granted, outstanding, or vested
under the Plan at December 31, 1998.


                                       24
<PAGE>   27


On December 8, 1997, the Board of Directors issued non-qualified stock options
for a total of 50,000 shares of the Company's common stock to two of the
Company's Directors (The "New Plan"). The options have an exercise price of
$1.50 per share and have ten-year terms. The option price represented
management's best estimate of the fair market value of the Company's stock at
the date the options were issued.

Vested shares under the New Plan are exercisable in whole or in part from the
vesting date. A total of 26,000 shares under these options were immediately
vested and exercisable. The remaining 24,000 shares vest evenly over a 24 month
period beginning December 1997.

During the first quarter of 1998, the option for 40,000 of the 50,000 shares was
cancelled by the Company and reissued. The reissued option was for a total of
60,000 shares, 16,000 of which were immediately exercisable. The remaining
shares vest at a rate of 1,500 shares a month. The option exercise price is
$1.50 per share.

There were no shares exercised during 1997 or 1998 under these plans.

The following table summarizes information about stock options outstanding at
December 31, 1998:

<TABLE>
<CAPTION>

       Options Outstanding                                                     Options Exercisable
       -------------------                                                     -------------------     
   Number         Remaining             Exercise                    Number          Remaining          Exercise
Outstanding    Contractual Life           Price                  Outstanding     Contractual Life       Price
-----------    ----------------           -----                  -----------     ----------------       -----      
<C>               <C>                    <C>                       <C>                <C>               <C>  
70,000            8.9 years              $1.50                     45,500             8.9 years         $1.50
</TABLE>

The Company applies APB Opinion No. 25 in accounting for the New Plan.
Accordingly, no compensation cost was recognized. Had compensation cost for the
Company's new stock option plan been determined based on the fair value at the
grant date consistent with SFAS No.123, Accounting for Stock Based Compensation,
the Company's net income and income per common share would have been reduced to
the pro forma amounts indicated below:

<TABLE>
<CAPTION>

                                                 For the Years ended                                                              
                                                      December 31,
                                                    1998       1997
                                                    ----       ----  
<S>                                               <C>        <C> 
Net Income (in thousands)
As reported                                         $25        $202
Pro forma                                            12         184

Net Income Per Common Share (basic and diluted)
As reported                                        $.01        $.05
Pro forma                                          $.00        $.05
</TABLE>

The fair value of options at date of grant was estimated using the Black-Scholes
valuation model with the following assumptions:

Expected Life (years)                               10
Risk Free Interest Rate                             6%
Expected Dividend Yield                             0%



                                       25
<PAGE>   28

No volatility assumption was made due to the lack of historical stock
transactions which would support the existence of volatility. The estimated fair
value of options vested during 1997 and 1998 was $0.67 per share.


5. INTANGIBLE ASSETS

Intangible assets consist of the following at December 31, 1998:

<TABLE>
<CAPTION>

                                                              Accumulated                      Amortization period
                                                    Cost      Amortization          Net             in Years
                                                    ----      ------------          ---             -------- 

<S>                                                 <C>           <C>               <C>                <C>
Goodwill                                            $205          $15               $190               10
                                                    ====          ===               ====

Other noncurrent assets

     Customer lists                                 $150          $16               $134               10
     Patents                                          50            5                 45               10
     Non compete agreement                            28           18                 10                3
                                                    ----          ---               ----

                                                    $228          $39               $189
                                                    ====          ===               ====
</TABLE>

6.   INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1998 are as
follows (in thousands):

<TABLE>
<S>                                                                      <C>              
              Deferred tax assets:
                  Net operating loss carryforwards                       $           3,419
                  Tax credit carryforwards                                             317
                  Pension costs                                                        187
                  Product liability accrual                                             92
                  Accrued compensation and vacations                                    47
                  Warranty accrual                                                      46
                  Inventories                                                           30
                  Other - net                                                           33
                                                                         -----------------

              Total deferred tax assets                                              4,171
              Deferred tax liabilities                                                   0
                                                                         -----------------
                  Net deferred tax asset                                             4,171
              Valuation allowance                                                   (4,171)
                                                                         -----------------
                                                                         $               0
                                                                         =================
</TABLE>

                                       26
<PAGE>   29




     A reconciliation of the income tax provision to the amounts computed at the
     federal statutory rate is as follows (in thousands):
<TABLE>
<CAPTION>


                                                                                  Year Ended December 31,
                                                                                1998                  1997      
                                                                         -----------------     -----------------

<S>                                                                      <C>                   <C>              
     Tax provision at statutory rate                                     $               8     $              69
     State income taxes, net of federal taxes                                            1                    10
     Changes in valuation reserve related to
         utilization of net operating loss carryforward                                 (4)                  (75)
     Other                                                                              (5)                   (4)
                                                                         -----------------     ------------------
                                                                         $               0     $               0
                                                                         =================     =================

</TABLE>

At December 31, 1998, the Company has available the following net operating loss
and credit carryforwards to reduce future income taxes. These amounts are
subject to applicable limitations. (Amounts in thousands.)

<TABLE>
<CAPTION>
                                                                             Amount               Expiration
                                                                            Available                Dates     
                                                                          -----------             ----------   
<S>                                                                      <C>                     <C>     
              Net operating losses                                       $      8,775            2001 - 2009
              Targeted jobs tax credit                                   $        261            1999 - 2001
              Investment tax credit                                      $         56            1999 - 2000
              Contributions                                              $          4            1997 - 1999
</TABLE>


7.   FINANCIAL INSTRUMENTS

The Company grants credit to customers who meet the Company's pre-established
credit requirements. Credit losses are provided for in the Company's financial
statements based on factors surrounding the credit risk of specific customers,
historical trends and other information and have consistently been within
management's expectations.

The Company's concentrations of credit risk with respect to trade receivables
arising from the sale to office furniture dealers are minor due to the large
number of entities comprising the Company's customer base. However, as of
December 31, 1998, the Company had approximately $194,000 of receivables from
eight companies, all of whom are wholesale catalogers of office or industrial
products and who are the principal purchasers of the Company's utility products.

At December 31, 1998, the carrying value of the Company's cash, accounts
receivable, and accounts payable approximate fair value. Based on borrowing
rates currently available to the Company for bank loans with similar terms and
collateral, the fair value of the Company's short-term notes payable
approximates its carrying value.


                                       27
<PAGE>   30




9.   COMMITMENTS AND CONTINGENCIES

The Company is a defendant in several lawsuits relating to product liability
claims arising from accidents allegedly occurring in connection with the use of
its products. The claims are covered by insurance and are being defended by the
Company's counsel or by counsel assigned by the Company's insurance carriers,
but are subject to deductibles ranging from $0 to $100,000. A number of the
claimants allege substantial damages. The ultimate outcome of such litigation
cannot be predicted at this time. However, management believes the Company has
substantial defenses with respect to the claims and that the ultimate outcome of
these claims will not have a material adverse effect on the Company's financial
position. The Company has accrued and included with other noncurrent liabilities
the estimated amount of losses not covered by insurance which may be incurred
from presently known and anticipated product liability claims.


10.  RELATED PARTY TRANSACTIONS

Rotherwood, the Company's majority owner, provides management services to the
Company. Certain employees of the Company provide management service to other
subsidiaries of Rotherwood. In 1998 and 1997, the net cost to the Company for
these services was approximately $90,000 and $32,000, respectively.

11.  ACQUISITION OF ASSETS

On October 31, 1997, the Company entered into an Asset Purchase Agreement with
Floating Arms, Inc., the developer of a split articulating keyboard capable of
being mounted on the arms of a chair.

Under the agreement, the Company acquired substantially all of the assets of
Floating Arms, Inc. in exchange for total payments of $551,000. Approximately
$235,000 of the purchase represented the assumption of Floating Arms, Inc.'s
liabilities and the remaining $316,000 is the negotiated value of 210,750 shares
of the Company's common stock issued as part of the transaction ($1.50 per
share).

This acquisition was accounted for as a purchase and, accordingly, the purchase
price was allocated to the fair value of net assets acquired as follows:

<TABLE>

<S>                                                                  <C>      
         Prepaid expenses                                            $  18,000
         Property and equipment                                        135,000
         Other noncurrent intangible assets:
                  Customer lists                                       150,000
                  Patents                                               50,000
                  Goodwill                                             198,000
</TABLE>

The cost of the intangible assets purchased in this transaction will be
amortized to expense on a straight-line basis over a 10-year period. The
Company's 1997 financial statements reflect the results of operations of the
acquired assets subsequent to the date of transaction.

                                       28

<PAGE>   31

The Asset Purchase Agreement also obligates the Company to pay a 7% royalty to
Floating Arms, Inc. on Cramer sales of split mounted keyboard products that
exceed $2,500,000 in the three year period subsequent to the acquisition. These
royalty payments are capped at a maximum of $3,000,000. No provision has been
made at December 31, 1998 for any royalties that may become payable under this
portion of the purchase agreement, as the achievement of this level of sales
during the three year period in question is uncertain.

Listed below is supplemental pro forma information concerning what the Company's
results of operations would have been assuming the acquisition had occurred at
the beginning of the period shown (unaudited):

Amounts are in thousands except per share information.

For the year ended December 31, 1997:
<TABLE>

<S>                                                               <C>    
Revenue                                                           $12,547
Income before Extraordinary Items                                 $     4
Net Income                                                        $     4
Basic and Diluted Net Income per Common Share                     Less than $0.01 per share
</TABLE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE

  None


                                      29

<PAGE>   32



                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT - This information
         will be included in the Company's 1999 Proxy Statement pursuant to
         Section 14A of the Securities Exchange Act and is incorporated by
         reference herein.

ITEM 10. EXECUTIVE COMPESATION - This information will be included in
         the Company's 1999 Proxy Statement pursuant to Section 14A of the
         Securities Exchange Act and is incorporated by reference herein.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - This 
         information will be included in the Company's 1999 Proxy Statement
         pursuant to Section 14A of the Securities Exchange Act and is
         incorporated by reference herein.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - This information will
         be included in the Company's 1999 Proxy Statement pursuant to Section
         14A of the Securities Exchange Act and is incorporated by reference
         herein.


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

Number
------

2.1  Floating Arms Asset Purchase Agreement dated October 31, 1997 (previously
     filed) 
10.1 1989 Incentive Stock Option Plan (previously filed) 
10.2 1996 Loan Documents - Mark Twain Bank (previously filed) 
23   Consent of Deloitte & Touche LLP


There were no current reports filed on Form 8-K by the Company during 1998.

                                       30
<PAGE>   33




                                   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, as duly authorized.

                                  CRAMER, INC.



3/25/99                            /s/ James R. Zicarelli
                                   -------------------------------------
                                   James R. Zicarelli
                                   CEO
                                   (Principal Executive Officer)

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 date indicated.



3/25/99                         /s/ James R. Zicarelli
-------                         -------------------------------------
                                James R. Zicarelli
                                Director



3/25/99                         /s/ David E. Crandall
-------                         -------------------------------------
                                David E. Crandall
                                Director



3/25/99                         /s/ James E. Workman
-------                         -------------------------------------
                                James E. Workman
                                Director



3/25/99                         /s/ Mark L. de Naray  
-------                         -------------------------------------
                                Mark L. de Naray
                                Director


                                       31
<PAGE>   34





3/25/99                         /s/ Robert J. Kovach 
-------                         -------------------------------------
                                Robert J. Kovach
                                President & Chief Operating Officer



3/25/99                         /s/ Gary A. Rubin
-------                         -------------------------------------
                                Gary A. Rubin
                                Vice President, Finance
                                (Principal Financial and Accounting Officer)


                                       32
<PAGE>   35


                                  EXHIBIT INDEX


Number
------

2.1  Floating Arms Asset Purchase Agreement dated October 31, 1997 (previously
     filed) 
10.1 1989 Incentive Stock Option Plan (previously filed) 
10.2 1996 Loan Documents - Mark Twain Bank (previously filed) 
23   Consent of Deloitte & Touche LLP