1997 ANNUAL REPORT
C-COR ELECTRONICS, INC.
Our Legacy, Our Future

There are opportune times during the life of every business when it is essential
to stop and  reflect on where  you've  been so that you can better  focus on and
prepare for where you're  going.  At C-COR,  a  challenging,  transitional  year
provided the ideal opportunity for such  self-examination.  After all, it's been
nearly 45 years since C-COR  launched into the  communications  industry.  We've
recognized this as the appropriate time to reflect on and assess our role within
a rapidly changing global marketplace.

In tracking our  evolution,  we've  rediscovered a number of strengths for which
C-COR is known.  Strengths  that  reflect  the  heart and soul of our  business.
Strengths  that provide a solid  foundation  from which we operate  today and on
which to build our future.

First and  foremost,  we are  broadly  recognized  for  providing a full line of
robust,  high quality network components for two-way HFC (hybrid fiber coax) [pg
6]. Used in a variety of communications networks worldwide,  these products have
helped earn us the trust and confidence of customers around the globe--customers
like TCA  Cable [pg 7],  who rely on us for  solutions  that  often  define  the
industry standard.

As you'll see in the story of our ten-year relationship with Rogers Cablesystems
in Canada, we have historically placed great value on developing strong customer
relationships  [pages 8 & 9]. We have excelled at  understanding  and addressing
our  customers'  specific  needs.  And  it's why we count  everyone  from  cable
television operators and telephone companies,  to major broadband  communication
network installers, among our list of satisfied customers.

An industry leader in the  distribution  portion of the network [page 12], C-COR
has established itself as an innovator of next-generation equipment and systems.
In fact,  our strategic  alliance with one of today's  leading-edge  cable modem
suppliers  and the  inclusion  of C-COR  components  in active,  two-way  signal
transmission, point to our respected role within the industry.

Finally, factors such as our size, key process improvements and a strong balance
sheet  enable  C-COR to remain  flexible  and agile enough to embrace and remain
poised for change [pg 14].

As you can see,  our legacy is  impressive.  And while  it's been a  challenging
year, reinvesting our energy and focus on each of these strengths gives us every
reason to believe  that C-COR is  well-positioned  to move into the new century.
It's a future we can all look forward to.

C-COR conducts its sales efforts from headquarters in State College, PA, through
regional offices in the U.S., Canada, Hong Kong, and the Netherlands, as well as
through  numerous  distributors  worldwide.  Keep up with C-COR  through our web
site: http://www.c-cor.com.

<TABLE>
Selected Financial Data
(in thousands of dollars except per share data)

Fiscal Year Ended                                  1997         1996          1995         1994         1993
----------------------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>           <C>          <C>          <C>
Statement of operations(1):
Net Sales                                          $131,941     $139,539      $121,269     $ 60,207     $ 47,114

Income from Continuing Operations                     4,257        9,014         8,528        3,177        3,052
Income (Loss) from Discontinued                             
  Operations                                         (6,605)      (3,095)         (213)         855          337
Loss from Disposal of Discontinued
  Operations                                         (3,830)           -             -            -            -
Net Income (Loss)                                    (6,178)       5,919         8,315        4,032        3,389

Net Income (Loss) Per Share
  Continuing Operations                            $   0.45     $   0.91      $   0.86     $   0.34     $   0.33
  Discontinued Operations                             (0.70)       (0.31)        (0.02)        0.09         0.04
  Disposal of Discontinued Operations                 (0.40)           -             -            -            -
Net Income (Loss) Per Share(2)                        (0.65)        0.60          0.84         0.43         0.37

Balance sheet data (at period end)(1):
Working Capital                                    $ 22,745     $ 35,452      $ 24,442     $ 25,061     $ 22,072
Total Assets                                         71,119       77,278        85,868       47,499       36,614
Total Indebtedness                                   10,667        9,177        22,623          501          588
Shareholders' Equity                                 41,678       53,317        44,725       34,139       29,499
<FN>
(1)Certain  amounts have been  reclassified for  comparability  with fiscal year
1997 presentation.
(2)Adjusted to reflect a two-for-one stock split effective December 5, 1994.
</FN>
</TABLE>

<TABLE>
NET SALES
IN THOUSANDS OF DOLLARS

<S>                      <C>
1993                      47,114
1994                      60,207
1995                     121,269
1996                     139,539
1997                     131,941
</TABLE>

<TABLE>
INCOME FROM CONTINUING OPERATIONS
IN THOUSANDS OF DOLLARS

<S>                      <C>
1993                     3,052
1994                     3,177
1995                     8,528
1996                     9,014
1997                     4,257
</TABLE>

<TABLE>
NET INCOME PER SHARE FROM CONTINUING OPERATIONS (1)
IN DOLLARS

<S>                      <C>
1993                     0.33
1994                     0.34
1995                     0.86
1996                     0.91
1997                     0.45
<FN>
(1) Adjusted to reflect a two-for-one stock split effective December 5, 1994.
</FN>
</TABLE>

Some of the  information  presented in this report  constitutes  forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995.  Although  the  Company  believes  that  its  expectations  are  based  on
reasonable  assumptions  within the bounds of its  knowledge of its business and
operations,  there can be no  assurance  that  actual  results  will not  differ
materially  from its  expectations.  Factors which could cause actual results to
differ from  expectations  include the timing of orders received from customers;
the gain or loss of significant customers;  changes in the mix of products sold;
changes in the cost and  availability  of parts and  supplies;  fluctuations  in
warranty costs; new product development activities; regulatory changes affecting
the  telecommunications  industry, in general, and the Company's operations,  in
particular; competition and changes in domestic and international demand for the
Company's   products,   and  other  factors  which  may  impact  operations  and
manufacturing.  For additional  information concerning these and other important
factors which may cause the Company's  actual results to differ  materially from
expectations  and underlying  assumptions,  please refer to the reports filed by
the Company with the Securities and Exchange Commission.

ROBUST, HIGH QUALITY NETWORK COMPONENTS FOR TWO-WAY HFC
<TABLE>
TABLE OF CONTENTS
<S>                                       <C>
Corporate Profile /                        
Selected Financial Data                   Inside Cover
Shareholders' Letter                       3
Our Legacy, Our Future
     Robust Products                       6
     Customer Relationships                8
     Industry Leader                      12
     Flexible and Agile                   14
Management's Discussion and
  Analysis                                17
Consolidated Balance Sheets               21
Consolidated Statements of
  Operations                              22
Consolidated Statements of
  Cash Flows                              23
Consolidated Statements of
  Shareholders' Equity                    24
Notes to Consolidated Financial
  Statements                              25
Reports                                   34
Directors & Officers                      35
Corporate Data                            36
Mission Statement                         37
</TABLE>

STRONG CUSTOMER RELATIONSHIPS
INDUSTRY LEADER
FLEXIBLE AND AGILE

Dear C-COR Shareholders:

As we reflect on the fiscal year just ended,  we are  reminded  that with change
comes  challenge,  and  that  growth  is  often  preceded  by  periods  of great
transition.  This year alone,  the global  communications  marketplace  has been
marked by significant changes, with major consolidation taking place in both the
network operator and vendor segments.  Shifts in government regulation worldwide
have opened many new  markets,  bringing  with them new ways of doing  business.
Technological progress has continued to challenge businesses striving to provide
the  advanced,  highly  reliable  products  and  services  required  for today's
sophisticated  networks. Even end-users of communications services have effected
change as the  interest  for video and voice on the  networks has been joined by
the demand for high-speed  data  (Internet,  private  intranets and other online
services).  In response to these many changes,  C-COR has been faced with making
major decisions about the company's structure,  product development  priorities,
and ways to build value for our shareholders, customers and employees.

For fiscal year 1997,  C-COR reported a net loss of  ($6,178,000) or ($0.65) per
share versus net income of  $5,919,000  or $0.60 per share for fiscal year 1996.
The primary factor  contributing to the loss was our decision to discontinue the
digital  fiber  optic  business  located  in  Fremont,  California.   (Reference
Management's   Discussion  on  page  17  for  details.)  The  business   segment
discontinuation  was  booked  in the  fourth  quarter  of  fiscal  year 1997 and
generated a loss for both the fourth  quarter and the fiscal  year.  Revenues in
fiscal year 1997 from continuing operations were down about 5% from the previous
year, due primarily to a significant decrease in revenues from the international
market.  Revenues  from  domestic  customers  increased 26% in fiscal year 1997.
Profitability in fiscal year 1997 was adversely impacted by product and customer
mix,  pricing  pressures   (especially  in  the  domestic  market),  and  excess
manufacturing  capacity.  As a result,  we put into place an aggressive  plan to
improve  financial  results.  This plan involved  implementing  cost-cutting and
restructuring  initiatives such as work force adjustments,  cutbacks in numerous
operating budgets, an increased focus on vendor-managed  material programs,  the
transfer  of the  manufacture  of RF power  supply  assemblies  to  Mexico,  and
realignment and reorganization of our sales and service  organizations.  Another
factor  influencing  fiscal 1997 results was a tax benefit in the third  quarter
from a reassessment of foreign sales transactions, which added $0.06 in earnings
per share in that quarter.

In December 1996, we announced the launch of a stock repurchase program based on
our  belief  that  our  common  stock  was  attractively  priced,  and  that the
repurchase would represent a favorable  opportunity for C-COR. The repurchase of
500,000 shares was completed in May 1997.

We  have  seen  improvement  in  ordering  during  the  year,   resulting  in  a
book-to-bill  ratio from continuing  operations of 1.08 for the year versus 0.79
at the end of fiscal  year  1996.  Consequently,  the  backlog  from  continuing
operations  at the  end of  fiscal  year  1997  was up 43%  from  the end of the
previous year. We are  encouraged by the revenue  growth in the fourth  quarter,
along with improvements in gross margins and productivity,  resulting  primarily
from implementation of restructuring and cost-reduction initiatives taken during
the year.

Although  orders  from the  domestic  market were slow to start this past fiscal
year, we are  encouraged by trends that  developed as the year  progressed.  The
demand to provide expanded bandwidth for high-speed data can be characterized as
the strongest  driver.  In the third  quarter,  we began to see  improvement  as
system  operators  firmed up budgets and capital  spending plans.  Additionally,
multiple  system  operators  responded  to the  demand  for  improved  financial
performance and enhanced customer service.

In the global  marketplace,  we have seen order  trends  improve in all sectors,
including Europe, Latin America, Asia and Canada. During the last quarter of the
fiscal year,  international  orders rebounded,  increasing that component of the
backlog to 28% of the total at year-end.

In spite of the many challenges we faced during this  transitional  year, we are
pleased to report a number of positive events and trends.  Early in the year, we
were chosen as Pennsylvania's 1996 Governor's Export Excellence Award recipient,
followed shortly  thereafter by placing  sixty-eighth on Fortune  magazine's Top
100 list of America's  Fastest Growing  Companies.  Progress  continues with the
implementation  of two RapidCycle(R)  process  improvement  programs.  Using the
Order  Fulfillment  methods,  we are consistently  reaching our goals of reduced
cycle time and improved first pass yield,  which signals  improved  productivity
and quality.  Additionally,  the RapidCycle(R)  Product  Development program has
been fully implemented,  and we are poised to apply these newly-acquired  skills
to create a whole new platform of AM fiber optic  products  designed to meet the
need for flexibility in today's global networks.

During the past fiscal year, we bolstered  our line of FlexNet(R)  amplifiers by
adding  the  900  Series,  which  has  gained  significant  recognition  in  the
marketplace for its superior  reverse path  performance  and high  power-passing
capability.  These  wideband  products offer  improved  performance  for network
operators planning to deploy two-way services such as digital and high-speed
data. To accompany the  FlexNet(R)  Series of amplifiers in an HFC (hybrid fiber
coax) network, C-COR began offering FlexNode(TM), a reliable,  cost-effective AM
fiber optic node solution for expanded bandwidth,  high power-passing  networks.
We are also pleased to report deliveries of our popular  I-Flex(TM)  products to
Hungary, the Netherlands,  Norway,  Poland, Russia, Spain, Turkey and the United
Kingdom.

Managed  network  solutions  are key to  meeting  current  and  future  needs in
advanced  communications  networks.  To address this need, C-COR has launched an
aggressive  program  to  develop  next-generation  network  management  systems,
including software and hardware designed to meet the operators' requirements for
the highest degree of reliability and predictability in their network. We expect
availability of this new product during calendar year 1998.

We now shift our focus to our  objectives  for the coming year, as well as plans
for the more  distant  future.  In the short  term,  our product  goals  include
diversification  of our HFC offerings and expansion into non-HFC  product lines.
The new optical node and bridger amplifier product platform,  along with network
management  enhancements,  are two  examples of how we are working to do so. Our
announcement  in the second  quarter of 1997 of a  strategic  alliance  with Bay
Networks'  LANcity Cable Modem  Division (now Broadband  Technologies  Division)
provides  further  evidence of the move to an expanded  product  offering.  Both
companies have agreed to work together to ensure  interoperability  of equipment
and quality delivery of high-speed data over HFC networks.

Cost  reduction  is  ongoing,  with  initiatives  being  implemented  to  reduce
materials,  labor and overhead costs in manufacturing.  We are pleased to report
the successful  completion of the opening of our production  facility in Mexico,
with the first products being shipped in August 1997. We are investigating other
methods for reducing labor and overhead costs.

Looking out just a few years, we see the much  publicized new  millennium,  from
which we expect continued  challenges and  opportunities.  We plan to expand our
non-RF  product  offerings and add revenues from non-HFC  products and services.
Improvement of gross margins is a priority.  The international market segment of
the business is being targeted for expansion as we identify new opportunities in
Asia, Europe, Latin America and North America.

In closing,  we  recognize  that in fiscal year 1997,  we have faced a number of
challenging  situations.  Our ability to  successfully  navigate these uncertain
times is reflected in this report's theme, "Our Legacy,  Our Future." As we look
ahead,  we are  encouraged  by the fact that the very issues that  demanded  our
attention  are  helping  us to  build  a  stronger  organization.  We  sincerely
appreciate  those who have  continued to support us, and offer our optimism that
the  future  looks  brighter  as C-COR  enters the new year with a solid plan to
reach or exceed our ambitious goals and objectives.

Sincerely,
Richard E. Perry
Chairman of the Board
Scott C. Chandler
President and
Chief Executive Officer
August 19, 1997

Our Legacy ... Robust Network Components for Two-Way HFC

              
For nearly 45 years,  C-COR has offered the  resources and support our customers
need to plan, design,  build and maintain complex  communications  networks.  In
doing so,  we've  created a niche as a developer  and  supplier of robust,  high
quality network distribution products for two-way hybrid fiber coax (HFC).

More than simply keeping pace with customer demand, we have anticipated industry
changes and responded to them  swiftly.  Most  recently,  C-COR was the first to
offer 15 ampere current passing, reflecting our commitment to products that meet
the latest powering requirements.

We also had the  foresight to create fiber and coax  products  that were two-way
capable--  even  before the need for an expanded  return  path  became  evident.
Traditionally,  signals  flow  through the cable  network to the end-user in the
forward path, with only a small portion dedicated to the return path. Today, the
Internet,  telephony and advanced  digital services have brought the need for an
active two-way architecture to the forefront. C-COR leads with products that are
already capable of being installed and operated this way.

The family of products on which our legacy is built includes:

FlexNet(R) 900, 800 & 700 Series RF Amplifiers that boost the signal, delivering
high  quality  performance  to homes  and  businesses.  With 750 MHz and 862 MHz
bandwidth  options,  FlexNet(R)  is  ideal  for HFC  architectures  requiring  a
combination of analog and digital channels.

FlexNode(TM) AM Fiber Optic Node is a 6-port  node/receiver  that converts fiber
signals to RF signals  that can be sent over the coax  portion of the network to
homes and  businesses.  862 MHz and 750 MHz options handle higher capacity while
maintaining superior quality.

AM Fiber  Optics are used in aerial and  underground  fiber  optic  applications
where  signals in an HFC network are  transmitted  from the headend to the node.
This  application  is ideal for C-COR's  headend and strand  mounted  equipment,
including  forward  and  return  path  transmitters,  forward  and  return  path
receivers, and power supplies, all housed in C-COR's sturdy mainframe racks.

I-Flex(TM)  Amplifiers and AM Nodes were originally designed for fiber-intensive
architectures  in  European  markets.  The  I-Flex(TM)  global  family  features
cabinet-mount equipment required for underground installations around the world.
862 MHz and 750 MHz capabilities  maximize  efficiency and offer flexibility for
advanced services.

Cable Network Manager  (CNM(TM)) is a network  management system that is playing
an   increasingly   critical  role  in   communications.   This   user-friendly,
computer-based   control  and  monitoring  system  aids  in  outage  prediction,
notifying the operator of problems--often before they even occur--so maintenance
crews can go directly to a problem  without  having to search the system unit by
unit.

Network operators  worldwide recognize the merits of HFC: strong vendor support,
large installed base, scaleability and superior price / performance.

Our Future ... New Product and Service Solutions

In  the  coming  years,   C-COR  will  continue  to  provide  products  for  the
distribution  of signals  using the HFC network  architecture.  While our global
product line  currently  includes RF  amplifiers,  AM fiber optics,  and network
management  solutions,  we  anticipate  offering a new family of AM fiber  optic
nodes and a more scaleable bridger amplifier in the next year.

To meet the need for cost-effective,  upgradable  networks,  we are preparing to
release an entirely new product platform in which the RF electronics will occupy
a separate module from the optics.  This enables our customers to easily upgrade
an RF amplifier to an AM fiber optic node by replacing just the fiber optic lid,
rather than the entire piece of equipment.  Our customers will benefit from this
highly  efficient  and  flexible  way  to  migrate  from  one  type  of  network
configuration  to another.  In the domestic  market,  where most  networks  will
continue to require rebuilds and upgrades,  the ease and  cost-effectiveness  of
this new approach is ideal.

Internationally,  where new builds are more prevalent, the modular design of our
products will allow us to satisfy a variety of configuration requirements.

Since  system  operators  view  monitoring  and  controlling  of  components  as
essential  to  network  management,  we plan to  offer a  next-generation  Cable
Network  Manager  (CNM(TM))  product.  It will  provide  additional  support for
telephony applications overseas, a major revenue source for network operators in
international markets.

Finally,  we will  continue to provide  ongoing  support and  development  of RF
amplifiers.  Although we have  typically  been  involved in coax cable and fiber
optic transmission mediums, our future could also include opportunities to offer
copper-based and wireless network distribution solutions.

C-COR and TCA: Setting the Standard Together for 30 Years

C-COR's  distribution  elctronics have certainly come a long way, thanks in part
to customers like TCA Cable of Tyler,  Texas.  In 1967, TCA Cable  purchased its
very first C-COR  amplifiers,  the first of their kind to effectively  dissipate
heat.  These  new  amplifiers  offered  the  higher  performance  and  increased
reliability  TCA Cable  sought as it embarked on an  ambitious  network  upgrade
plan.

Even back then, when our amplifiers  featured just 12 channels  operating at 220
MHZ, C-COR products were setting the standard. And over time as we increased the
bandwidth,  TCA made steady network upgrades, earning high customer satisfaction
levels in the process.

Many years ago, in a key strategic  move, TCA decided to standardize its network
products.   For  them,  this  has  meant  increased  efficiency,   solid  vendor
relationships,  and  exceptional  financial  strength.  For C-COR,  it has meant
having a steady relationship with a satisfied customer for more than 30 years.

Today,  C-COR's robust line of fiber and amplifier products enables TCA to offer
advanced services such as telephony,  pay per view, high-speed data transmission
and  traffic  control.  In the areas of  services,  TCA has taken  advantage  of
C-COR's network design  capabilities and technical  training  programs.  Working
together,  C-COR and TCA Cable have forged a strong,  lasting  relationship that
has proven valuable as both have responded to continuous change over the years.

Our Legacy . . . Strong Customer Relationships

At C-COR,  we've always known that it's  customers who truly drive our business.
That's why we are committed to developing relationships that bring our customers
and staff together for the long-term. This kind of mutual participation helps us
understand a customer's particular needs so that we can respond with the product
solutions  they  want.  In turn,  their  loyalty  reflects a  confidence  in our
capabilities that inspires us to go even farther.

The working  partnership we have with our customers  occurs at many levels.  For
instance,  C-COR sales engineers are involved during the proposal process, while
regional  account  executives meet with customers on a regular basis. Our inside
sales  representatives  process customer orders,  and top management fosters the
partnership at the highest levels.

In support of the products we offer,  we also provide the service our  customers
need to meet both short- and long-term goals. This includes network analysis and
design,  equipment repair, field engineering and technical  documentation,  plus
multiple levels of technical training and seminars.

As their needs change over time, customers can depend on C-COR to be there every
step of the way.  That's  probably why the great  majority of  companies  who do
business with us once continue to do repeat  business with C-COR.  In fact, it's
not unusual for us to establish and maintain strong  partnerships with customers
for ten years or more (see pg 9).

These relationships have earned us a respected position within the industry, and
we show our  appreciation  in many ways.  Most recently,  we launched a "Special
Customer  Day,"  during  which we  recognize a key  customer  for its  continued
loyalty  and  trust in our  ability  to meet its  needs.  On one  occasion,  the
company's president personally addressed our employees,  conveying how important
C-COR is as a business partner.
                 
                   
Confidence,  trust and shared values are key to building and maintaining  strong
relationships.

An Industry Pioneer Partners with C-COR

Customer-driven  solutions  have played a critical role in changing the shape of
the  network  distribution   industry.   Especially  when  it  comes  to  Rogers
Cablesystems in Canada,  who approached C-COR in the mid-1980s with a vision for
a "super  distribution  network." With drawings and plans in hand, they asked if
we  could  design  and  produce  network  amplifiers  to meet  their  particular
specifications.

Working  together,  C-COR  was able to help  Rogers  lead  the way in  expanding
network  bandwidth in North America-- from 450 MHz to 550 MHz to 600 MHz and 750
MHz.  In doing  that,  Rogers  created  an  architecture  that  allowed  for the
industry's first fully modular,  electronic upgrade. Other pioneering efforts by
Rogers  include the early  adoption  of fiber in the  network  and  establishing
itself as having one of the largest  installations  of high-speed data customers
in North America.

Over the  years,  Rogers  has also  promoted  the need for tools  such as status
monitoring  and network  management.  Because we listened and responded with the
technology they needed,  C-COR  amplifier  products are now used in the largest,
most sophisticated remote status monitoring system in the world.

The  relationship  between  Rogers and C-COR has been nurtured at many levels in
both  organizations.  In fact,  many of the same  sales  and  technical  support
personnel have remained at C-COR over the years, people in whom Rogers continues
to place a great deal of confidence and trust. As we look to the future, we will
continue to build the Rogers  relationship,  using it as a model in  cultivating
others.

Our Future ... Expanding Our Horizons

Looking  ahead,  C-COR is focused on two  fronts:  continually  building  on our
domestic strengths, while expanding our customer base internationally to address
the demands of challenging new markets throughout the world.

In addition to increasing  international  sales,  C-COR is working to expand the
variety of products  available to these  markets.  Three  markets in  particular
present exciting  opportunities for growth:  Asia, Europe, and Latin America. To
expand into these  economies,  we look to build on the model we have followed in
the North  American  market--developing  a sense of mutual respect and providing
customers with solutions to their greatest challenges.

In the Asian Pacific market, economic growth is driving the demand for voice and
video networks. The HFC network configuration is dominant, giving us exceptional
potential to bring our  FlexNet(R)  amplifiers  and AM fiber optics to Thailand,
the Philippines, Korea, Japan, Singapore, Hong Kong, China and New Zealand.

We are pursuing our strongest  business in the European market in countries such
as Poland,  the Czech  Republic,  Russia,  Spain,  Italy,  Turkey and the United
Kingdom. This is due in large part to the deregulation of the telecommunications
market  as well  as the  major  consolidation  of  vendors  who  serve  European
customers. C-COR markets our global family of I-Flex(TM) amplifiers and AM fiber
optics  from its  European  office  near  Amsterdam,  and other  offices  on the
continent and in the United Kingdom.

Economic  growth in Latin America,  including  Argentina,  Brazil and Chile,  is
driving the demand for video services,  telephony and data. The HFC architecture
is dominant,  leading to growth  opportunities  for both  amplifier and AM fiber
optics  sales.  C-COR  sales  and  engineering   support   professionals   spend
significant time in these countries working with our Latin American distributors
to provide network equipment for upgrades and new builds.

Our Legacy ... An Established Industry Leader

As an industry  leader in the  distribution  portion of the  network,  C-COR has
carved out a niche role unlike that of any other supplier. We have been first to
market time and again with  products and services that have set the stage for an
entire  industry,  beginning in 1953 when we introduced the first cable powering
system.  Each decade  thereafter  we achieved new heights,  such as in the 1980s
when we offered the 550 MHz feedforward  trunk, or in the 90s when we introduced
the first 1 GHz amplifiers.

Today's  leading-edge  companies  look to us as a  partner  in  innovation.  One
example is @Home  Network,  a supplier  of  high-speed  interactive  services to
residences  and  businesses.  In  a  test  lab  located  at  its  Redwood  City,
California,   headquarters,   @Home  Network  will  be  installing  C-COR's  new
FlexNet(R) 900 Series  amplifiers and  FlexNode(TM)  fiber optic nodes and other
headend AM fiber  optics to be used in the test and  development  of  high-speed
Internet applications and services for @Home's customers. C-COR's involvement in
this trial  represents an exciting  opportunity to participate in one of today's
hottest new technological arenas.

Even in the relatively new world of active  two-way signal  transmission,  cable
operators have turned to C-COR.  In fact,  over 40% of the homes in the U.S. and
Canada using two-way cable modems are doing so over networks equipped with C-COR
distribution electronics. (1)

And because C-COR knew that the two-way  architecture would be critical,  we put
this  technology  in place even before the  industry was ready for it. C-COR has
been supplying two-way capable electronics for over five years in its FlexNet(R)
series of amplifiers, and for nearly thirty years in earlier products.

We've even  partnered  with the respected  name in cable  modems,  Bay Networks'
LANcity  Cable  Modem  Division  (now  Broadband  Technologies  Division).  In a
cooperative   marketing   agreement,   C-COR  and  Bay   Networks   offer  C-COR
DataSelect(TM),  a complete  set of equipment  and services  designed to deliver
high-speed  data over HFC  networks.  This  alliance  enables  us to ensure  the
interoperability of equipment and quality delivery of high-speed data over these
networks.

(1) Source:  Multichannel News, March 17, 1997. Calculations based on percentage
of U.S. and  Canadian  homes  equipped  with  two-way  cable modems  supplied by
companies  who  purchase   compatible  C-COR  network   distribution   products.

Leadership  in  providing  the latest  technology  enables  delivery of advanced
voice, video and data, including Internet and other online services.

@Home  Network,  @Home and the logo @ are trademarks of @Home Network and may be
registered in certain jurisdictions.

Our Future ... Next-Generation Provider

C-COR's  vision  is to become  the  leading  provider  of  network  distribution
solutions for next-generation  communication  networks.  Several strategic moves
will help us accomplish this.

First, we are working to diversify our product line to meet  anticipated  needs.
This  initiative  could result in several new products or services to be used in
HFC applications,  or even in developing a coax/fiber product to be used outside
of the HFC network.  We are also  exploring  new  products  and  services  using
wireless and copper technology.

To enhance  our  competitive  position,  we are  continually  looking at ways to
reduce the costs to  manufacture  C-COR  products.  This  process  will  involve
managing materials costs,  specifying more cost-effective  parts where possible,
utilizing alternative labor resources, automating production
processes,  and reducing excessive test and alignment time.  Internally,  we are
committed to continually  monitoring sales, general and administrative  expenses
to achieve maximum efficiency.

Throughout our operation, C-COR is focused on attracting,  training,  developing
and retaining  highly skilled people to help us achieve our vision.  As our most
valued  resource,  our employees  are being  empowered at all levels to take the
lead in helping us meet our key objectives for the future.

Our  commitment to becoming a  next-generation  provider has been  recognized in
several  ways.  We are  proud to hold a number  of  patents  for  innovation  in
engineering  design,  such as a radio  frequency  choke  and  method  of use,  a
feedforward  circuit and method for  aligning  and  balancing  the same,  a one
gigahertz repeater station, and a safety interlock system for  telecommunication
amplifiers, to name a few. Additionally,  all C-COR facilities have achieved ISO
9001 registration, a testament to our commitment to quality assurance in design,
development,  production,  installation  and  servicing.  

C-COR has an excellent reputation for equipment  reliability,  superior customer
service and an enhanced  warranty  program,  all key criteria for success in the
future.  Diversification,  competitiveness and commitment to quality build value
for our customers, shareholders and employees.

Our Legacy ... Bringing Flexibility and Agility to Market

C-COR has always been large enough to meet the needs of a diverse customer base,
yet small enough to respond to change whenever  necessary.  Such flexibility and
agility has served us well during this transitional  year, giving us the ability
to adapt to industry fluctuations and remain poised for the future.

To identify and respond to our customers' needs more quickly,  we've implemented
a  RapidCycle(R)   process   improvement  program  designed  to  reduce  product
development  cycle time and increase on-time  performance.  This new process has
enabled C-COR to identify  market needs and respond  swiftly.  It also increases
our flexibility by freeing up our product development resources sooner so we can
move on to other projects.

Today,  we are  significantly  better  positioned  to keep pace with the rapidly
changing marketplace.

Another recent process change at C-COR has been in order  fulfillment,  where we
have  reduced  the time from the point at which an order is placed to when it is
delivered to the customer.  Our slogan,  "Four on the Floor" best  describes our
continuous goal of processing an order on the  manufacturing  floor in just four
days. Prior to these process  enhancements,  cycle time may have gone as high as
twenty days or more.

Cost-reduction  measures  have also  helped  us gain  added  flexibility.  We've
improved and strengthened  vendor  relationships to manage the cost of producing
products. Implementation of an in-plant supplier program permits us to literally
place an order for parts, go to the lower level,  pick them up, and deliver them
to the manufacturing floor--all in a matter of minutes.

Managing our  personnel  resources  for maximum  efficiency  is another goal. To
address the ebb and flow that  occurs in some  areas,  we are using a variety of
labor resources,  including temporary help, interns and co-ops. And in sales and
marketing,  we have  restructured the organization to reduce operating  expenses
and allow us to more effectively  address the areas of value-added  services and
corporate development.

Responsiveness  is  a  key  contributor  to  success.  Process  improvements  in
manufacturing  and  product  development  empower our  employees  to achieve and
sustain the lead.

Our Future ... Embracing Change  

C-COR stands poised to take advantage of the inevitable changes in our industry.
We have a solid balance  sheet,  giving us the ability to expand into new areas,
pursue acquisitions and shift additional focus onto R&D. As a dedicated group of
employees, we measure our success not by sales revenue alone, but by our ability
to navigate this volatile marketplace.

Effective facilities utilization will help us embrace and quickly respond to new
growth  opportunities.  In addition to expanded capacity, we have added many new
automated   assembly  and  test  methods  that  take  advantage  of  the  latest
manufacturing technology.

The implementation of a RapidCycle(R)  product development program at C-COR will
also enable us to  introduce  products to market  more  quickly.  Our goal is to
reduce the design development cycle time from a baseline of 17 months to a total
of 10 months from design inception to project completion. We are also working to
achieve a 90% on-time  performance  record---a measure of our ability to respond
promptly to market needs.

Throughout the organization,  we are implementing more team-based  processes for
achieving  results.  We  anticipate  the most  impact in areas  such as  product
development,    order    fulfillment   and   other   complex   tasks   requiring
multi-functional talents.

High-performance, cross-functional teams instill a sense of unity in achieving a
common goal.

With a legacy to be proud of and a future to look  forward to, the  employees of
C-COR  enter the new fiscal  year with a sense of  anticipation  and  excitement
about  the  possibilities  that lie  ahead.  High-speed  data  service,  digital
television and telephony over HFC have emerged as key industry drivers.  We will
strive to meet the challenges,  address the inevitable  changes and maximize the
opportunities offered by the global communications marketplace.

Management's Discussion & Analysis

(in thousands of dollars except share and per share data)

Disclosure Regarding Forward-Looking Statements

Some  of  the   information   presented  in  this  Annual   Report   constitutes
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation Reform Act of 1995,  including,  without limitation,  continuation of
increased   domestic  spending  for  network   upgrades,   the  continuation  of
competitive pricing pressures,  anticipated new product development initiatives,
and the  continued  availability  of capital  resources.  Although  the  Company
believes it expectations are based on reasonable  assumptions  within the bounds
of it knowledge of it business and  operations,  there can be no assurance  that
actual results will not differ materially from its  expectations.  Factors which
could cause  actual  results to differ from  expectations  include the timing of
orders  received  from  customers;  the gain or loss of  significant  customers;
changes in the mix of products sold; new product development activities; changes
in the cost and  availability  of parts and supplies;  fluctuations  in warranty
costs; regulatory changes affecting the telecommunications industry, in general,
and the Company's operations, in particular; competition and changes in domestic
and international demand for the Company's products, and other factors which may
impact operations and manufacturing. For additional information concerning these
and other  important  factors  which may cause the Company's  actual  results to
differ materially from expectations and underlying assumptions,  please refer to
the  Company's  reports  filed on Form 10-K and  other  reports  filed  with the
Securities and Exchange Commission.

General

In fiscal years 1997 and 1996,  the Company  operated in two industry  segments:
the Electronic  Distribution  Products  segment,  which represents the Company's
continuing operations, and provides hybrid fiber coax (HFC) equipment for signal
distribution  applications  primarily to the cable television (CATV) market; and
the Digital Fiber Optics Transmission Products segment,  which has been reported
as a discontinued  business  segment,  and provides  products for long distance,
point-to-point video, voice and data signal transmission applications, primarily
for telephony, distance learning and other non-CATV markets.

For fiscal year 1997, the Company  incurred a net loss of ($6,178) or ($.65) per
share  versus  net  income of $5,919  and  $8,315 or $.60 and $.84 per share for
fiscal years 1996 and 1995, respectively. The primary factors in the fiscal year
1997  loss  were  losses  deriving from  the  Company's   Digital  Fiber  Optics
Transmission  Products  segment in  conjunction  with the Company's  decision to
discontinue this business segment.

The Company announced July 10, 1997, its intent to discontinue its Digital Fiber
Optics  Transmission  Products business segment in a phase-down process expected
to span nine months.  This  business has been  accounted  for as a  discontinued
business segment, and its results have been excluded from continuing  operations
in the consolidated  statements of operations from all periods  presented in the
Company's fiscal year 1997 consolidated financial statements.

The  decision to  discontinue  this  segment was based on an  assessment  of the
potential return on continued  funding of product  development for the Company's
proprietary digital technology versus other opportunities for investments in the
Company's core business,  especially AM fiber optics  technology.  The after-tax
loss from operations of the discontinued business segment was ($6,605) or ($.70)
per share for fiscal year 1997.  This  compares to a loss of ($3,095) and ($213)
or ($.31) and ($.02) per share for fiscal years 1996 and 1995, respectively. The
primary  factors  contributing  to the  increased  loss from  operations  of the
discontinued segment in fiscal year 1997 were increased warranty costs of $3,300
and an  impairment  loss on goodwill of $571  recorded in the fourth  quarter of
fiscal year 1997. In addition, an after-tax loss was recorded on the disposal of
the  discontinued  business  segment of ($3,830) or ($.40) per share,  in fiscal
year 1997.  Included in the loss from disposal are write-offs of inventories and
fixed  assets,  and the other costs from the  measurement  date to the  disposal
date. For additional information concerning discontinued  operations,  reference
Notes B and P of the consolidated financial statements.

The  consolidated  results  discussion  and  analysis  that  follows,  including
comparisons  against prior years  results,  are based on  continuing  operations
only.

Results of Operations

Net sales in fiscal year 1997 were $131,941,  a decrease of 5% from net sales of
$139,539 in fiscal year 1996.  The decrease in sales was primarily  attributable
to reduced  international  sales during the fiscal year. Net sales increased 15%
in fiscal year 1996 from net sales of $121,269 in fiscal year 1995. The increase
derived  primarily  from increased  demand for the Company's  products from both
domestic and international customers.

Domestic  sales  increased  26% in fiscal year 1997 to $106,785  from $84,792 in
fiscal  year 1996,  as capital  spending  by Multiple  System  Operators  (MSOs)
increased  over the prior fiscal year.  The Company  believes the increase was a
result of network upgrade activity,  by new and existing  customers,  to enhance
capacity with expanded bandwidth products. The push to upgrade networks is being
driven by demand  for  improved  services,  affecting  not only  video and voice
requirements,  but also demand for  high-speed  data.  Domestic  sales of hybrid
fiber coax (HFC)  equipment to customers in the telephone  industry  declined in
fiscal  year  1997.  The  Company  believes  that the  decline  resulted  from a
reassessment  of  strategic   alternatives  and  priorities  by  the  telcos  in
connection with pursuing direct  competition  with cable MSOs in providing video
services.  Domestic  sales  increased  16% in fiscal  year 1996 from  $73,368 in
fiscal  year  1995,  due to  increased  RF  product  sales to  customers  in the
telephone  industry.

International sales decreased 54% in fiscal year 1997 to $25,156 from $54,747 in
fiscal year 1996,  resulting  primarily  from  reduced  demand by a  significant
customer in Canada and reduced  demand by customers  in Asia and Latin  America.
Countries in the aforementioned areas continue to represent distinct markets for
CATV equipment,  and, in general,  demand can be highly variable.  International
sales  increased 14% in fiscal year 1996 from $47,901 in fiscal year 1995 due to
increased demand in Asia.

The  Company  is subject  to  certain  risks as a result of market and  customer
concentration.  For additional  information regarding risks, reference Note N of
the consolidated financial statements.

The  Company's  open  backlog  of sales  orders at June 27,  1997,  was  $34,851
compared to $24,333 at June 28,  1996.  The backlog of sales  orders at June 27,
1997, was comprised of 72% domestic and 28%  international  orders,  compared to
86%  domestic  and 14%  international  orders at June 28,  1996.  The  Company's
book-to-bill  ratio was 1.08 for fiscal  year 1997,  compared to 0.79 for fiscal
year 1996.

Gross profit  margin for fiscal year 1997 was 20.6%.  This  compares to 24.9% in
fiscal year 1996 and 27.1% in fiscal year 1995. The decrease in the gross profit
margin  fiscal  year 1997  relative  to the  prior  fiscal  year was  attributed
primarily  to changes in product and customer  sales mix. In  addition,  pricing
pressures continue to negatively impact gross profit margins, particularly on RF
coaxial  cable  amplifiers.  The Company has taken steps to lower  manufacturing
costs by  continued  efforts  to  improve  manufacturing  processes  in order to
enhance efficiency and productivity,  and continued efforts to redesign products
to enhance  manufacturability  and reduce material costs. The Company  announced
during  fiscal year 1997 that it would  transfer  the  manufacture  of the power
supply  assembly  component of its RF amplifiers to the Company's new production
facility in Mexico in the summer of 1997.  The gross profit  margin  decrease in
fiscal year 1996 relative to fiscal year 1995 was attributed  primarily to fixed
costs relating to  underutilized  capacity and product sales mix, as well as the
aforementioned increase in pricing pressures on RF products.

Selling and administrative  expenses for fiscal year 1997 were $15,787 or 12% of
net sales,  compared  to $15,917 or 11% of net sales for fiscal  year 1996,  and
$15,949 or 13% of net sales for fiscal  year 1995.  The  decrease in selling and
administrative  expenses  for fiscal year 1997  compared to fiscal year 1996 was
primarily due to various cost reduction  initiatives  which  included  personnel
reductions  and  decreased  in various  administrative  expenses.  In the fourth
quarter of fiscal  year 1997,  the  Company  reconfigured  its  worldwide  sales
territories   and   consolidated   its  domestic   sales  forces.   Selling  and
administrative  expenses remained  relatively flat between fiscal years 1996 and
1995,  with  some  fluctuation   resulting  from  reductions  in  administrative
personnel costs.

Research and product development expenses for fiscal year 1997 were $5,681 or 4%
of net sales,  compared to $4,857 or 4% of net sales for fiscal  year 1996,  and
$3,786 or 3% of net sales for  fiscal  year  1995.  The  increase  research  and
development  expense  in fiscal  year 1997 over  fiscal  years 1996 and 1995 was
primarily  due to the  Company's  strategy  to increase  investment  in AM fiber
optics product  development and network management  systems.  Increased spending
was also  incurred  in  fiscal  year  1997 for RF  product  development  for the
Company's 800 and 900 series expanded bandwidth product lines. In addition,  the
Company incurred expenditures in fiscal year 1997 to improve product development
processes  designed  to  reduce  product  development  cycle  time  and  promote
cross-functional   participation   in  the  process.   Anticipated  new  product
development  initiatives  are  expected  to result  in  increased  research  and
development expense in future years, as compared to fiscal year 1997.

Interest  expense for fiscal year 1997 was $318 compared to $960 for fiscal year
1996 and $706 for fiscal year 1995. The reduction in interest expense for fiscal
year 1997  compared to fiscal year 1996 was  primarily  due to reduced  level of
outstanding  borrowings during the fiscal year on the Company's  line-of-credit.
The increased interest expense for fiscal year 1996 compared to fiscal year 1995
was  primarily  due  to  higher  borrowings  on  the  Company's  line-of-credit,
resulting from equipment  purchases and facility  expansions begun during fiscal
year 1995 and completed during fiscal year 1996.

Other  income for fiscal  year 1997 was $250,  compared  to $341 for fiscal year
1996 and $264 for fiscal year 1995.  The  reduction  in other  income for fiscal
year 1997  compared  to fiscal  years 1996 and 1995 was  primarily  due to lower
foreign currency transaction gains.

The  Company's  effective  income tax rate for fiscal year 1997 was 25.4%.  This
compares  to 32.2% for  fiscal  year 1996 and 33.0% for fiscal  year  1995.  The
provision for income taxes is related to both U.S. and non-U.S.  operations. The
decrease in the  effective tax rate for fiscal year 1997 compared to fiscal year
1996 was  primarily  due to a  nonrecurring  tax benefit of $593 recorded in the
third quarter of fiscal year 1997,  deriving  from the  Company's  Foreign Sales
Corporation  (FSC). The tax benefit resulted from  reassessment of the Company's
foreign sales transactions for the prior three fiscal years. The decrease in the
effective  tax rate for  fiscal  year  1996  compared  to  fiscal  year 1995 was
primarily due to tax benefits  arising out of increased  foreign sales  activity
and  changes  in the  applicable  statutory  tax rates  used for both  state and
federal taxes.

Income from  continuing  operations  for fiscal year 1997 was $4,257 or $.45 per
share.  This compares to $9,014 or $.91 per share in fiscal year 1996 and $8,528
or $.86 per share in fiscal year 1995. The primary  factors for the reduction in
income from  continuing  operations  in fiscal year 1997 compared to fiscal year
1996 were the  aforementioned  reduction in net sales and gross profit  margins,
coupled with increased expenditures for research and product development.

Financial Condition

The Company's  financial  condition  remains  strong at June 27, 1997.  Accounts
receivable at June 27, 1997,  were $19,299,  a decrease of $1,718 from a balance
of $21,017 at June 28,  1996.  Inventory  levels were up $561 to $19,140 at June
27,  1997,  from $18,579 at June 28,  1996.  The  increase was  primarily in raw
material inventories to support an increased business level as of the end of the
fourth  quarter of fiscal  year 1997.  Accounts  payable at June 27,  1997,  was
$8,636,  an increase of $2,784 from the balance of $5,852 at June 28, 1996.  The
increase is also a result of higher  business  activity in the fourth quarter of
fiscal  year 1997 and  purchases  in support of the  increased  backlog of sales
orders.

Liquidity and Capital Resources

The Company's  current ratio at June 27, 1997,  decreased to 2.1 from 3.4 at the
end of fiscal year 1996.  As of June 27, 1997,  total cash and cash  equivalents
totaled $452,  down from $1,474 at June 28, 1996.  Cash generated from operating
activities  decreased as a result of changes in operating assets and liabilities
to $9,440 in fiscal  year 1997  compared  to  $18,673 in fiscal  year 1996,  but
increased  relative to cash used by  operating  activities  of $10,400 in fiscal
year 1995.

Cash used in  investing  activities  was $6,551 in fiscal year 1997  compared to
$8,000 in fiscal  year 1996 and $12,060 in fiscal year 1995.  The  reduction  of
cash used in  investing  activities  was  primarily  due to lower  purchases  of
property,  plant,  and  equipment in fiscal year 1997  compared to the prior two
fiscal  years.  Cash  totaling  $3,911 was used in financing  activities  during
fiscal year 1997.  The Company  repurchased  500,000  shares of its Common Stock
during  fiscal year 1997 for $5,765 under a stock  repurchase  program using its
available  capital  resources  to fund the  purchases.  Cash  used in  financing
activities  of $10,744 in fiscal year 1996  resulted from payments on borrowings
on the  Company's  line-of-credit.  Cash  provided by  financing  activities  of
$22,644  in  fiscal  year  1995  resulted  from   borrowings  on  the  Company's
line-of-credit,  primarily  to fund  capital  equipment  purchases  and facility
expansion costs until permanent financing was obtained.

The Company maintains a line-of-credit with a bank under which it may borrow the
lesser of $23,000 or a percentage of eligible accounts receivable and inventory.
The  borrowings are  collateralized  by accounts  receivable and inventory.  The
line-of-credit   is  committed   through  October  31,  1997,  and  the  Company
anticipates renewing this line-of-credit annually. The Company had borrowings of
$3,466  on  this  line-of-credit  as of  June  27,  1997.  This  compares  to an
outstanding  balance of $1,147 as of June 28,  1996.  Based  upon the  Company's
analysis of eligible accounts  receivable and inventory,  an additional  $16,523
was available to borrow as of June 27, 1997.

Management  believes that  operating  cash flow,  as well as the  aforementioned
financing  source,  will adequately  provide for all cash  requirements  for the
foreseeable future,  subject to requirements that additional growth or strategic
development might dictate.

<TABLE>
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)

                                                                                       <C>                 <C>
                                                                                         June 27             June 28
                                                                                         1997                1996
Assets
CURRENT ASSETS
  Cash and cash equivalents (Note A)                                                   $      452          $    1,474
  Marketable securities (Notes A and C)                                                       359                 364
  Accounts receivable, less allowance of $510 in 1997;
     $355 in 1996 (Notes G & N)                                                            19,299              21,017
  Inventories (Notes D and G)                                                              19,140              18,579
  Deferred taxes (Note J)                                                                   2,616               2,544
  Other current assets                                                                      1,893               1,949
  Net current assets of discontinued operations (Note B)                                       -0-              4,421
----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                                       43,759              50,348
PROPERTY, PLANT, AND EQUIPMENT, NET (Notes A, E and H)                                     25,060              24,168
INTANGIBLE ASSETS AND OTHER LONG-TERM ASSETS,
  NET OF ACCUMULATED AMORTIZATION OF $224 IN 1997;
  $202 IN 1996 (Notes A and F)                                                                785                 553
Net noncurrent assets of discontinued operations (Note B)                                   1,515               2,209
----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                           $   71,119          $   77,278
----------------------------------------------------------------------------------------------------------------------

Liabilities and Shareholders' Equity
CURRENT LIABILITIES
  Accounts payable                                                                     $     8,636         $     5,852
  Accrued liabilites (Note L)                                                                6,825               7,068
  Line-of-credit (Note G)                                                                    3,466               1,147
  Current portion of long-term debt (Note H)                                                   834                 829
  Net current liabilities of discontinued operations (Note B)                                1,253                  -0-
-----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                                                   21,014              14,896
LONG-TERM DEBT, less current portion (Note H)                                                6,367               7,201
DEFERRED TAXES (Note J)                                                                      1,311               1,367
OTHER LONG-TERM LIABILITIES                                                                    749                 497
Committments and Contingent Liabilities (Notes H and O)
-----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                                                           29,441              23,961
-----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (Notes A and I)
  Preferred Stock, no par; authorized 2,000,000 shares; issued, none                            -0-                 -0-
  Common Stock, $.10 par; authorized shares 24,000,000;
   issued shares of 9,633,435 in 1997 and 9,602,528 in 1996                                    963                 960
  Additional paid-in capital                                                                19,963              19,602
  Treasury Stock                                                                       (     5,765)                 -0-
  Retained earnings                                                                         26,632              32,810
  Translation adjustment                                                               (       101)        (        34)
  Net unrealized loss on marketable securities                                         (        14)        (        21)
------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY                                                                  41,678              53,317
------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY                                               $    71,119         $    77,278
------------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

<TABLE>
Consolidated Statements of Operations

(in thousands except per share data)

                                                                                                     Year Ended
                                                                                      June 27         June 28        June 30
                                                                                       1997            1996           1995
<S>                                                                                  <C>             <C>             <C>
-----------------------------------------------------------------------------------------------------------------------------
NET SALES                                                                            $131,941        $139,539       $121,269
COST AND EXPENSES
  Cost of sales                                                                       104,702         104,852         88,373
  Selling and administrative                                                           15,787          15,917         15,949
  Research and product development                                                      5,681           4,857          3,786
  Interest                                                                                318             960            706
  Other income, net (Note M)                                                             (250)           (341)          (264)
-----------------------------------------------------------------------------------------------------------------------------
                                                                                      126,238         126,245        108,550
-----------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS                                                       
  BEFORE INCOME TAXES                                                                   5,703          13,294         12,719
INCOME TAXES (BENEFIT) (Note J)
  Current                                                                               1,298           3,875          4,977
  Deferred                                                                                148             405           (786)
-----------------------------------------------------------------------------------------------------------------------------
                                                                                        1,446           4,280          4,191
-----------------------------------------------------------------------------------------------------------------------------
NET INCOME FROM CONTINUING OPERATIONS                                                   4,257           9,014          8,528
-----------------------------------------------------------------------------------------------------------------------------

DISCONTINUED OPERATIONS: (Notes B, P and R)
Loss from operations of discontinued business segment,
     less applicable income tax benefit $2,752 in 1997, $1,505  in
     1996, and $110 in 1995                                                            (6,605)         (3,095)          (213)

Loss on disposal of discontinued business segment,
     less applicable income tax benefit $1,974 in 1997                                 (3,830)             -0-            -0-
-----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                                                                      (6,178)          5,919          8,315
-----------------------------------------------------------------------------------------------------------------------------

NET INCOME (LOSS) PER SHARE (Note A)
  Continuing operations                                                              $   0.45        $    0.91      $   0.86
  Discontinued operations
    Loss from operations                                                                (0.70)           (0.31)        (0.02)
    Loss on disposal of discontinued operations                                         (0.40)              -0-           -0-
-----------------------------------------------------------------------------------------------------------------------------
Total                                                                                $  (0.65)       $    0.60      $   0.84
-----------------------------------------------------------------------------------------------------------------------------
  Weighted Average Common Shares and Common Share Equivalents                           9,504           9,868          9,859
-----------------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)
                                                                                                     Year Ended
                                                                                     June 27           June 28          June 30
                                                                                      1997              1996             1995
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>             <C>                <C>
OPERATING ACTIVITIES
NET INCOME (LOSS)                                                                    $ (6,178)       $    5,919         $  8,315
Adjustments to reconcile net income (loss) to net cash
  and cash equivalents provided by (used in) operating activities:
    Depreciation and amortization                                                       4,910             3,972            2,921
    Loss on disposal of discontinued operations, net of tax benefit                     3,830                -0-              -0-
    Provision for deferred retirement salary plan                                         252               129               49
    Loss on sale of marketable securities                                                  -0-               -0-              68
    Loss (Gain) on sale of property, plant, and equipment                                  22                (3)              13
    Changes in operating assets and liabilities:
            Accounts receivable                                                         1,718            12,065          (17,812)
            Inventories                                                                  (561)            3,491           (9,530)
            Discontinued operations - working capital changes
                  and noncash charges                                                   3,236            (1,972)           2,056
            Other assets                                                                 (197)             (895)            (735)
            Accounts payable                                                            2,784            (2,055)           1,504
            Accrued liabilities                                                          (243)           (2,349)           3,572
            Deferred income taxes                                                        (133)              371             (821)
----------------------------------------------------------------------------------------------------------------------------------
NET CASH AND CASH EQUIVALENTS PROVIDED BY
      (USED IN) OPERATING ACTIVITIES                                                    9,440            18,673          (10,400)
----------------------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
Purchase of property, plant, and equipment                                             (5,884)           (7,442)         (14,355)
Purchase of marketable securities                                                        (200)               -0-              -0-
Proceeds from sale of marketable securities                                               216                -0-           3,184
Proceeds from maturity of marketable securities                                            -0-               25              115
Investing activities of discontinued operations                                          (698)             (586)          (1,016)
Proceeds from sale of property, plant, and equipment                                       15                 3               12
----------------------------------------------------------------------------------------------------------------------------------
NET CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES                             (6,551)           (8,000)         (12,060)
----------------------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
Payment of debt and capital lease obligations                                            (829)             (594)             (56)
Proceeds from long-term debt borrowing                                                     -0-            6,452               -0-
Proceeds from line-of-credit                                                           21,936            39,029           58,707
Payment of line-of-credit                                                             (19,617)          (58,333)         (38,256)
Tax benefit deriving from exercise and sale of stock option shares                         71             1,454              898
Issue common stock to employee stock purchase plan                                         88               107               67
Proceeds from exercise of stock options                                                   205             1,141            1,284
Purchase of treasury stock                                                             (5,765)               -0-              -0-
----------------------------------------------------------------------------------------------------------------------------------
NET CASH AND CASH EQUIVALENTS (USED IN) PROVIDED BY FINANCING ACTIVITIES               (3,911)          (10,744)          22,644
----------------------------------------------------------------------------------------------------------------------------------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                       (1,022)              (71)             184
Cash and cash equivalents at beginning of year                                          1,474             1,545            1,361

----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                             $    452        $    1,474         $  1,545
----------------------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

<TABLE>
Consolidated Statement of Shareholders' Equity
(in thousands of dollars)

<S>                                                 <C>       <C>         <C>       <C>       <C>          <C>
                                                                                                           Net Unrealized
                                                              Additional                                   (Loss) Gain on
                                                    Common     Paid-in    Treasury  Retained  Translation    Marketable
                                                     Stock     Capital      Stock   Earnings  Adjustment     Securities
-------------------------------------------------------------------------------------------------------------------------

BALANCE, JUNE 24, 1994                              $ 460     $15,151          -0-  $ 18,576  $      (9)   $      (39)
Net Income                                                                             8,315
Exercise of stock options                              19       1,265
Tax benefit deriving from exercise
     and sale of stock option shares                              898
Issue shares to employee stock purchase plan                       67
Two-for-one stock split                               466        (466)
Foreign currency translation adjustment                                                               2
Net unrealized gain on marketable securities                                                                       20
-------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1995                                945      16,915          -0-    26,891         (7)          (19)
Net Income                                                                             5,919
Exercise of stock options                              15       1,126
Tax benefit deriving from exercise
     and sale of stock option shares                            1,454
Issue shares to employee stock purchase plan                      107
Foreign currency translation adjustment                                                             (27)
Net unrealized loss on marketable securities                                                                       (2)
-------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 28, 1996                                960      19,602          -0-    32,810        (34)          (21)
Net Loss                                                                              (6,178)
Exercise of stock options                               2         203
Tax benefit deriving from exercise
     and sale of stock option shares                               71
Issue shares to employee stock purchase plan            1          87
Purchase of Treasury Stock                                                 (5,765)
Foreign currency translation adjustment                                                             (67)
Net unrealized loss on marketable securities                                                                        7
-------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 27, 1997                              $ 963     $19,963     $(5,765)  $ 26,632  $    (101)   $      (14)
-------------------------------------------------------------------------------------------------------------------------

<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of dollars except share and per share data)

June 27, 1997,  and June 28, 1996

Description of Business:

The Company designs and manufactures high-quality electronic equipment used in a
variety of communication networks worldwide.  In fiscal years 1997 and 1996, the
Company operated in two industry segments: the Electronic  Distribution Products
segment,   which  provides   hybrid   fiber coax   (HFC)  equipment  for  signal
distribution  applications  primarily to the CATV market; and, the Digital Fiber
Optics Transmission Products segment, which provides products for long-distance,
point-to-point   video,  voice,  and  data  signal  transmission   applications,
primarily for telephony, distance learning, and other non-CATV markets.

A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:  The accompanying consolidated financial statements
include the accounts of the Company and its foreign and  domestic  subsidiaries.
Intercompany accounts and transactions have been eliminated in consolidation.

Reporting  Periods:  Management has adopted a fiscal year which ends on the last
Friday in June. For the reporting periods  presented herein,  the years ended on
June 27, 1997,  June 28, 1996, and June 30, 1995.  These years contained 52, 52,
and 53 weeks, respectively.

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

Fair  Value of  Financial  Instruments:  The  carrying  value of cash,  accounts
receivable,  accounts payable,  and accrued  liabilities  approximate their fair
value due to the short-term nature of those instruments.

Inventories:  Inventories  are  stated at the lower of cost or  market.  Cost is
determined on the first-in, first-out method.


Property, Plant, and Equipment:  Property, plant, and equipment,  which includes
leased property under capital leases,  is stated at cost. Cost includes interest
associated with capital additions.  Capitalized interest was $-0-, $23, and $-0-
in fiscal years 1997, 1996 and 1995, respectively.  Depreciation or amortization
is calculated on the straight-line method for financial statement purposes based
upon the following estimated useful lives:

  Building and improvements
    under capital lease                       15 years
  Buildings                             15 to 25 years
  Machinery and equipment
    under capital lease                        5 years
  Machinery and equipment                3 to 10 years
  Leasehold improvements                10 to 15 years

Intangible Assets: Intangible assets include goodwill arising from excess of the
purchase  price  paid over the fair value of the net  assets  acquired  with the
purchases of COMLUX in July 1990,  and  DataCable  B.V. in January  1992. In the
beginning  of fiscal  year 1997,  the Company  adopted  Statement  of  Financial
Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of Long-Lived
Assets and for Long-Lived  Assets to be Disposed Of" (Statement  121). There was
no impact upon initial  adoption of Statement  No. 121,  however,  in the fourth
quarter, the Company recorded an impairment loss of the goodwill relating to the
purchase of COMLUX.  The amount of the impairment  loss for fiscal year 1997 was
$571, and was recorded in the loss from operations of the discontinued  business
segments.  The impairment  loss was recognized in the fourth quarter at the time
the decision was made to cease research and  development  expenditures  on a new
platform of digital fiber optics products,  and was determined by evaluating the
realizability of the goodwill with respect to COMLUX, based upon expected future
cash  flows  and  operating  results  of  the  Company's  Digital  Fiber  Optics
Transmission  Products  segment which was  discontinued in fiscal year 1997 (See
Note B.)

The goodwill related to the purchase of DataCable B.V. in January 1992 was fully
amortized during fiscal year 1997.

Income  Taxes:  Under  Statement  of  Financial  Accounting  Standards  No. 109,
"Accounting  for  Income  Taxes"  (Statement  109),   deferred  tax  assets  and
liabilities  are  recognized  for the future tax  consequences  attributable  to
differences  between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards.  Deferred tax assets and  liabilities  are measured using enacted
tax rates  expected  to apply to  taxable  income  in the  years in which  those
temporary  differences are expected to be recovered or settled.  Under Statement
109, the effect on deferred tax assets and  liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.

Shareholders'  Equity:  In fiscal  year  1995,  a  two-for-one  stock  split was
approved  by the  Company's  Board of  Directors.  The  additional  shares  were
distributed  on  December  5, 1994,  to  shareholders  of record at the close of
business  on  November 4, 1994,  on the basis of one  additional  share for each
share held. Par value of $466 for the additional  shares issued was  transferred
from Additional  Paid-in Capital to Common Stock.  The par value of Common Stock
remained the same at $.10 (ten cents) per share.  Also, during fiscal year 1995,
the  shareholders  of the  Company  approved a proposal to amend the Amended and
Restated  Articles of  Incorporation  to increase the number of shares of Common
Stock authorized from 8,000,000 to 24,000,000.

In fiscal year 1997, the Company  repurchased 500,000 shares of its common stock
for $5,765,  under a stock  repurchase  program  adopted in December  1996.  The
Company  used  its  available  capital  resources  to fund  the  purchases.  The
repurchased  stock is expected to be held by the Company as treasury stock to be
used to meet the Company's obligations under its present and future stock option
plans and for other corporate purposes.

Cash  Equivalents:  The Company  considers all highly liquid  investments with a
maturity of three months or less when purchased,  to be cash  equivalents.  Cash
equivalents are reflected at the lower of cost or market.

Marketable  Securities:  Marketable  securities  at June 27,  1997,  consist  of
municipal  bonds and equity  securities.  The Company  adopted the provisions of
Statement of Financial  Accounting  Standards No. 115,  "Accounting  for Certain
Investments  in Debt and Equity  Securities"  (Statement  115) at June 24, 1994.
Under Statement 115, the Company classifies all of its marketable  securities as
available-for-sale and records them at fair value.  Unrealized holding gains and
losses,  net of the related tax  effect,  are  excluded  from  earnings  and are
reported as a separate component of shareholders' equity until realized.

Net income  (loss)  per share:  Net  income  (loss) per share is  determined  by
dividing net income  (loss) by the  weighted  average  number of common  shares,
including common share  equivalents,  outstanding  during the fiscal quarter and
year-end periods.

Statement  of  Financial  Accounting  Standards  No. 128,  "Earnings  Per Share"
(Statement 128), is effective for financial statements issued for periods ending
after  December 15, 1997. It is  anticipated  that adoption of Statement No. 128
will not significantly impact the Company's net income per share.

Product Warranty: The Company warrants its products against defects in materials
and workmanship, generally for three to five years depending upon product lines.
A provision for estimated  future costs relating to warranty expense is recorded
when product is shipped,  based upon historical claims' history and specifically
identified warranty exposures.

Reclassification:  Certain amounts have been reclassified for comparability with
fiscal year 1997 presentation.

B.  DISCONTINUED OPERATIONS

On July 10, 1997, the Company  announced that it would  discontinue  its Digital
Fiber Optics Transmission  Products segment, in a phase-down process expected to
span nine months.  The loss on disposal  included  write-offs  of inventory  and
fixed assets,  and other costs from the  measurement  to the disposal  date. The
loss, net of tax benefit of $1,974 on the disposal of the discontinued  business
segment is $3,830.

The after-tax  loss from  operations of the  discontinued  business  segment was
$6,605,  $3,095,  and $213 for fiscal years 1997, 1996, and 1995,  respectively.
The primary factors contributing to the loss from operations of the discontinued
business segment in fiscal year 1997 were increased warranty costs of $3,300 and
an impairment loss on goodwill of $571, recorded in the fourth quarter of fiscal
year 1997.

Operating  results for the  discontinued  business  segment are  segregated  and
reported as discontinued operations in the accompanying  consolidated statements
of operations. Prior year financial statements have been reclassified to conform
with the  current  year  presentation.  Summarized  information  relating to the
discontinued operations for fiscal years 1997, 1996, and 1995 is as follows:

<TABLE>

                                June 27,     June 28,     June 30,
                                  1997         1996         1995
                               ----------   ----------   ----------
<S>                            <C>          <C>          <C>
Net sales                      $  7,994     $  9,359     $ 16,172
Costs and expenses             ( 17,351)    ( 13,959)    ( 16,495)
                               ----------   ----------   ----------
Loss before income taxes       (  9,357)    (  4,600)    (    323)
Income tax (benefit)           (  2,752)    (  1,505)    (    110)
                               ----------   ----------   ----------
Net loss                       (  6,605)    (  3,095)    (    213)
                               ----------   ----------   ----------
</TABLE>

The assets and liabilities of the discontinued operations have been reclassified
in the accompanying  consolidated  financial  statements to separately  identify
them as net current assets  (liabilities)  and net noncurrent  assets related to
the  discontinued  operations.  These net  assets  (liabilities)  consist of net
working capital, net property, plant and equipment,  other assets and intangible
assets, less related liabilities as follows for the periods ended June 27, 1997,
and June 28, 1996.

<TABLE>
                                June 27,     June 28,  
                                  1997         1996    
                               ----------   ---------- 
<S>                            <C>          <C>        
Current assets:
Accounts receivable            $    817     $    448   
Inventory                         1,181        4,327   
Deferred tax assets               4,013          760   
Other assets                          4           15   
                               ----------   ---------- 
                                  6,015        5,550   
                               ----------   ---------- 
Current liabilities:
Accounts payable               (    342)    (    875)  
Accrued other                  (  3,551)    (    254)  
Allowance for disposal
  of discontinued operations   (  3,375)          -0-  
                               ----------   ---------- 
                               (  7,268)    (  1,129)  
                               ----------   ---------- 
Net current assets 
 (liabilities) of 
 discontinued operations       ($ 1,253)    $   4,421   
                               ----------   ---------- 
Noncurrent assets:
Plant and equipment, net       $  1,498     $  1,449   
Goodwill                             -0-         740   
Other assets                         17           20   
                               ----------   ---------- 
                                  1,515        2,209   
                               ----------   ---------- 
Noncurrent liabilities:              -0-          -0-  
                               ----------   ---------- 
Net noncurrent assets of
  discontinued operations      $  1,515     $  2,209   
                               ----------   ---------- 
</TABLE>



C. MARKETABLE SECURITIES
Marketable  securities as of June 27, 1997, and June 28, 1996,  consisted of the
following:
<TABLE>

                                        Gross        Gross
                                      Unrealized   Unrealized
                         Amortized      Holding      Holding       Fair
                           Cost          Gains       Losses        Value
                         ----------   ----------   ----------   ----------
<S>                      <C>          <C>          <C>          <C>

June 27, 1997:
Available-for-sale:
  Municipal bonds        $    382     $     -0-    ($    24)    $    358
  Equity securities             1           -0-          -0-           1
                         ----------   ----------   ----------   ----------
                         $    383     $     -0-    ($    24)    $    359
                         ----------   ----------   ----------   ----------

June 28, 1996:
Available-for-sale:
  Municipal bonds        $    397     $     -0-    ($    34)    $    363
  Equity securities             2           -0-        (  1)           1
                         ----------   ----------   ----------   ----------
                         $    399     $     -0-    ($    35)    $    364
                         ----------   ----------   ----------   ----------
</TABLE>

Maturities of investment securities classified as available-for-sale at June 27,
1997, were as follows:
<TABLE>
                                       Amortized        Fair
                                         Cost           Value
                                       ----------     ----------
<S>                                    <C>            <C>
Available-for-sale:
  Due after one year through
   five years                          $    382       $    358
  Equity securities                           1              1
                                       ----------     ----------
                                       $    383       $    359
                                       ----------     ----------
</TABLE>

D.  INVENTORIES
<TABLE>

                                        June 27,       June 28,
                                          1997           1996
                                       ----------     ----------
<S>                                    <C>            <C>
Finished goods                         $  1,436       $  2,821
Work-in-process                           3,346          3,050
Raw materials                            14,358         12,708
                                       ----------     ----------
                                       $ 19,140       $ 18,579
                                       ----------     ----------
</TABLE>
Included  in the amounts  above are  reserves  of $1,233 at June 27,  1997,  and
$1,112 at June 28, 1996.

E.  PROPERTY, PLANT, AND EQUIPMENT
<TABLE>

                                        June 27,       June 28,
                                          1997           1996
                                       ----------     ----------
<S>                                    <C>            <C>
Land                                   $    468       $    468
Building and improvements
  under capital lease                     1,727          1,727
Building                                 10,090          9,270
Machinery and equipment
  under capital lease                       110            124
Machinery and equipment                  33,586         28,654
Leasehold improvements                      751            735
                                       ----------     ----------
                                         46,732         40,978
Less accumulated depreciation
  and amortization                       21,672         16,810
                                       ----------     ----------
                                       $ 25,060       $ 24,168
                                       ----------     ----------
</TABLE>

F.  INTANGIBLE ASSETS
<TABLE>

                                        June 27,       June 28,
                                          1997           1996
                                       ----------     ----------
<S>                                    <C>            <C>
Cost of intangibles:
  Goodwill-DataCable B.V.                   224            224
                                       ----------     ----------
                                            224            224
                                       ----------     ----------
Less accumulated amortization:
  Goodwill-DataCable B.V.                   224            202
                                       ----------     ----------
                                            224            202
                                       ----------     ----------
Net Book Value                         $     -0-      $     22
                                       ----------     ----------
</TABLE>

G.  LINE-OF-CREDIT

At June 27,  1997,  the  Company had  short-term  borrowings  of $3,466  under a
revolving  line-of-credit.  On this  line-of-credit,  the Company may borrow the
lesser of $23,000 or percentage of eligible  accounts  receivable and inventory.
The  borrowings  bear  interest at various rates  generally  equal to the London
Interbank  Offered Rate (LIBOR) plus 1.20%.  The weighted  average interest rate
equaled  7.1% at June  27,  1997,  and  6.90%  at June 28,  1996,  and  requires
compliance  with  certain  covenants.  Interest  is payable in 30 and 90 days as
billed.  The  line-of-credit  agreement is committed  through  October 31, 1997.
Borrowings are collateralized by accounts  receivable and inventory.  Based upon
the  Company's  analysis of  eligible  accounts  receivable  and  inventory,  an
additional   $16,523  was  available  to  borrow  as  of  June  27,  1997.   The
line-of-credit balance at June 28, 1996, was $1,147.


H.  LONG-TERM DEBT
<TABLE>

                                        June 27,       June 28,
                                          1997           1996
                                       ----------     ----------
<S>                                    <C>            <C>
Notes payable                          $  5,646       $  6,369
Capital lease obligations                 1,555          1,661
                                       ----------     ----------
                                          7,201          8,030
Less current portion                        834            829
                                       ----------     ----------
                                       $  6,367       $  7,201
                                       ----------     ----------
</TABLE>

Notes Payable: The Company obtained funding through the Pennsylvania  Industrial
Development   Authority   (PIDA)  of  $539  for   construction  of  the  Tipton,
Pennsylvania, manufacturing facility. The PIDA borrowing has an interest rate of
3%, which is contingent upon meeting certain job creation  commitments.  Monthly
payments of principal and interest of $4 are required through the year 2006. The
borrowing is  collateralized  by certain  property,  plant,  and equipment.  The
principal balance at June 27, 1997, was $335.

The Company has obtained funding through the Pennsylvania Industrial Development
Authority  (PIDA) of $1,952  for 40% of the cost of  building  expansion  at its
manufacturing facility in State College, Pennsylvania. The PIDA borrowing has an
interest  rate of 2%,  which is  contingent  upon  meeting  certain job creation
commitments.  Monthly  payments of  principal  and  interest of $13 are required
through the year 2010.  The  borrowing is  collateralized  by certain  property,
plant, and equipment. The principal balance at June 27, 1997, was $1,763.

Additional  funding  of $4,500 for the  expansion  and  renovation  of the State
College  facility  was  obtained  from the  Pennsylvania  "Sunny Day Fund." This
funding has an interest rate of 2% which is also contingent upon meeting certain
job creation commitments.  The funding is evidenced by two notes. The first note
is for $488 with an  original  maturity of 15 years and the second is for $4,012
with an original maturity of 7 years. Monthly payments of principal and interest
of $3 and $51, respectively,  are required on these notes through the years 2010
and 2002,  respectively.  The borrowing is collateralized by certain  equipment.
The principal balances at June 27, 1997, were $441 and $3,107, respectively.

Capital Lease Obligations:  The Company has a Lease/Option to Purchase Agreement
with  the  Mifflin  County  Industrial  Development  Corporation  (MCIDC)  for a
building and improvements located in Mifflin County,  Pennsylvania.  The Company
is the guarantor of several borrowing commitments by the MCIDC for financing the
$1,727 cost of the project.  The lease calls for a monthly payment of $14, which
is  equal  to the  monthly  principal  and  interest  of the  various  borrowing
commitments by the MCIDC,  through the year 2010. The original term of the lease
is for 15 years  with an option to  purchase  the  leased  premises  at any time
during the lease term for the outstanding  balance of the borrowing  commitments
plus closing costs. The borrowing  commitments carry a weighted average interest
rate of 4.7%. For financial accounting purposes, the lease is accounted for as a
capital lease and, accordingly,  an asset and liability have been recorded. This
was a noncash investing and financing transaction in fiscal year 1995.

Long-term debt at June 27, 1997, had scheduled maturities as follows:
<TABLE>
Fiscal year ending
<S>                              <C>
    1998                         $   834
    1999                             853
    2000                             873
    2001                             892
    2002                             915
  Thereafter                       2,834
                                  -------
                                  $7,201
                                  -------
</TABLE>

Total  interest paid on the  line-of-credit  (described in Note G) and long-term
debt was $304,  $958,  and $608 for fiscal  years  ended 1997,  1996,  and 1995,
respectively.

Operating  Leases:  The Company leases real property and other  equipment  under
operating  leases.  Certain  leases are renewable and provide for the payment of
real  estate  taxes and other  occupancy  expenses.  The  future  minimum  lease
payments for  noncancelable  leases with remaining  lease terms in excess of one
year are as follows:

<TABLE>
Fiscal year ending
<S>                               <C>
    1998                          $  215
    1999                              83
    2000                              76
    2001                              70
    2002                              38
                                  -------
                                  $  482
                                  -------
</TABLE>

Rent expense  relating to continuing  operations  was $748,  $682,  and $550 for
fiscal years ended 1997, 1996, and 1995, respectively.

I.  STOCK OPTIONS

The  Company's  stock option plans provide for the grant of options to employees
with an  exercise  price  per share of at least  the fair  market  value of such
shares on the date prior to grant, and to directors with an exercise price equal
to the fair  market  value on the date of  grant.  Options  granted  to  certain
employees are  exercisable in cumulative  annual  installments of 20 percent per
year beginning one year after the date of grant. Options granted to non-employee
directors are  exerciseable  one year after grant.  Certain  options held by the
Chairman are exerciseable immediately.  All shares and exercise prices have been
adjusted for the two-for-one stock split effective December 5, 1994.

In fiscal  year  1997,  the  Company  adopted  the  disclosure  requirements  of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation"  (Statement 123). As allowed by Statement No. 123, the Company has
chosen to  continue to account for stock  based  compensation  using  Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related  Interpretations.  Accordingly,  compensation  cost for stock options is
measured as the  excess,  if any, of the quoted  market  price of the  Company's
stock at the grant date over the  amount an  employee  must pay to  acquire  the
stock. Accordingly,  no compensation cost has been recognized.  Had compensation
cost for the  Company's  Plans been  determined  under  Statement  No. 123,  the
Company's  net income  (loss) and net  income  (loss) per share  would have been
reduced to the pro forma amounts indicated below:
<TABLE>

                                          June 27,     June 28,
                                            1997         1996
                                         ----------   ----------
<S>                 <C>                  <C>          <C> 
Net income (loss)   As Reported          ($ 6,178)    $  5,919
                    Pro forma            ($ 6,396)    $  5,614

Net income (loss)   As Reported          ($  0.65)    $   0.60  
per share           Pro forma            ($  0.67)    $   0.57
</TABLE>

The per share  weighted  average  fair values of stock  options  granted  during
fiscal  years 1997 and 1996 were $4.28 and $9.29,  respectively,  on the date of
grant using the Black-Scholes  option-pricing model with the following weighted-
average  assumptions:  Fiscal year 1997 - expected  dividend yield 0%, risk-free
interest rate of 6.38%, a volatility  factor of the expected market price of the
Company's  common  stock of  .5941,  and a  weighted  average  expected  life of
approximately 4 years;  Fiscal year 1996 - expected dividend yield 0%, risk-free
interest rate of 5.95%, a volatility  factor of the expected market price of the
Company's  common  stock  of  .7235,  and a  weighted-average  expected  life of
approximately 4 years.

The fair value of stock  options  included  in the pro forma  amounts for fiscal
years  1997 and 1996 is not  necessarily  indicative  of future  effects  on net
income and net income per share.

A summary of the status of the  Company's  two stock option plans as of June 27,
1997,  June 28, 1996,  and June 30, 1995,  and changes during the years ended on
those dates is presented below:

<TABLE>
Fiscal years ended:            
                                  June 27, 1997          June 28, 1996          June 30, 1995
                               --------------------   --------------------   --------------------
<S>                            <C>         <C>        <C>         <C>        <C>         <C>
                                           Weighted               Weighted               Weighted
                                           Average                Average                Average
                                           Exercise               Exercise               Exercise
                               Shares      Price      Shares      Price      Shares      Price
                               ---------   ---------  ---------   ---------  ---------   ---------
Outstanding at
 beginning of year              776,542      $15.09    752,460      $11.41    914,130      $ 6.97
Granted                         118,000      $14.99    233,265      $22.33    198,894      $21.97
Exercised                      ( 27,205)     $ 8.32   (147,243)     $ 7.82   (254,640)     $ 5.04
Cancelled                      (115,888)     $19.02   ( 61,940)     $15.02   (105,924)     $ 8.18
                               ---------              ---------              ---------   
Outstanding at
end of year                     751,449      $14.71    776,542      $15.08    752,460      $11.42
Options exercisable
at year-end                     433,292                344,841                301,566
</TABLE>

The following  table  summarizes  information  about the Company's  stock option
plans as of June 27, 1997:

<TABLE>
                             Options Outstanding                              Options Exercisable
----------------------------------------------------------------------   -----------------------------
<S>                 <C>             <C>                 <C>              <C>            <C>   
Range of            Number          Weighted-Avg.                        Number
Exercise            Outstanding     Remaining           Weighted-Avg.    Exercisable    Weighted-Avg.
Prices              @ 06/27/97      Contractual Life    Exercise Price   @ 06/27/97     Exercise Price
------------------  -----------     ----------------    --------------   -----------    --------------
$ 2.75  to $ 8.625   263,170           5.6 years            $ 6.62        242,420           $ 6.56
$ 9.00  to $15.00    137,124           7.6 years            $12.31         53,078           $11.87
$15.375 to $21.375   186,765           9.0 years            $18.86         46,598           $18.41
$21.50  to $27.00     85,075           8.2 years            $22.64         63,180           $22.12
$27.25  to $33.75     79,315           8.0 years            $27.40         28,016           $27.37
                    -----------                                          -----------
                     751,449           7.3 years            $14.71        433,292           $12.10
</TABLE>

J.  INCOME TAXES
Total income tax expense (benefit) is allocated as follows:
<TABLE>
                   
                                            Year Ended
                                June 27,     June 28,     June 30,
                                  1997         1996         1995
                               ----------   ----------   ----------
<S>                            <C>          <C>          <C>
Income from
  continuing operations        $  1,446     $  4,280     $  4,191
Results of discontinued
  operations                   ($ 2,752)    ($ 1,505)    ($   110)
Loss on disposal of
  discontinued operations      ($ 1,974)          -0-          -0-
                               ----------   ----------   ----------
                               ($ 3,280)    $  2,775     $  4,081
                               ----------   ----------   ----------
</TABLE>
Income  tax  expense  from  continuing  operations  consists  of  the  following
components:
<TABLE>
                                            Year Ended
                                June 27,     June 28,     June 30,
                                  1997         1996         1995
                               ----------   ----------   ----------
<S>                            <C>          <C>          <C>
Current:
    Federal                    $  1,493     $  3,426     $  3,617
    State                      (     97)         167          785
    Foreign                    (     98)         282          575
                               ----------   ----------   ----------
                                  1,298        3,875        4,977
                               ----------   ----------   ----------
Deferred
   Federal                          133          356     (    652)
   State                             15           49     (    134)
                               ----------   ----------   ----------
                                    148          405     (    786)
                               ----------   ----------   ----------
                               $  1,446     $  4,280     $  4,191
                               ----------   ----------   ----------
</TABLE>

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax  liabilities  at June 27, 1997,  and
June 28, 1996, are presented below:
<TABLE>

                                          June 27,     June 28,
                                            1997         1996
                                         ----------   ----------
<S>                                      <C>          <C>
Gross deferred tax assets:
Accounts receivable, due to
    allowance for doubtful
    accounts                             $    101     $    129

Inventories, due to additional
    costs inventoried for tax purposes
    pursuant to the Tax Reform Act
    of 1986                                   143          356
Inventories, due to accrual for
    obsolescence                              315          341
Vacation expense accrual for
    accounting purposes                       358          435
Workers' compensation expense
    accrual for accounting purposes           395          280
Warranty expense accrual for
    accounting purposes                       762          705
Employee benefit plan accrual
    for accounting purposes                   190          186
Alternative minimum tax credit
    carryforward                              378           -0-
State net operating loss carryforward         100           -0-
Other                                          45          276
                                         ----------   ----------
  Total gross deferred tax assets           2,787        2,708
Less valuation allowance                       -0-          -0-
                                         ----------   ----------
  Net total deferred tax assets             2,787        2,708
                                         ----------   ----------

Gross deferred tax liabilities:
  Plant and equipment principally
    due to differences in
    depreciation                         (  1,482)    (  1,531)
                                         ----------   ----------
    Total gross deferred tax
      liabilities                        (  1,482)    (  1,531)
                                         ----------   ----------
  Net deferred tax assets                $  1,305     $  1,177
                                         ----------   ----------

Reflected on attached consolidated balance sheets as:
  Current deferred asset                 $  2,616     $  2,544
  Non-current deferred
    liability, net                       (  1,311)    (  1,367)
                                         ----------   ----------
Net deferred tax asset                   $  1,305     $  1,177
                                         ----------   ----------
</TABLE>

At June 27, 1997, the Company had a state operating loss  carryforward of $1,000
which is available to offset future state taxable income through the fiscal year
2000.  In  addition,  the Company has an  alternative  minimum tax (AMT)  credit
carryforward of  approximately  $378 which is available to reduce future federal
regular income taxes over an indefinite period.

Under Statement 109, a valuation allowance is recognized if, based on the weight
of  available  evidence,  it is more likely than not that some portion or all of
the  deferred  tax  asset  will  not be  realized.  Based on the  weight  of all
available  evidence,  the Company  concludes  that a valuation  allowance is not
needed.

The  Company  has  not  recognized  a  deferred  tax  liability  for  the  basis
differences and the undistributed  earnings related to its foreign  subsidiaries
since  the  investment  is  essentially  permanent  in  duration.  Undistributed
earnings were approximately $790 at June 27, 1997.

A  reconciliation  of the effective  income tax rate from continuing  operations
with the statutory federal income tax rate is as follows:
<TABLE>

                                            Year Ended
                                June 27,     June 28,     June 30,
                                  1997         1996         1995
                               ----------   ----------   ----------
<S>                            <C>          <C>          <C>

Statutory rate                      35.0%        35.0%        35.0%
State income taxes,
  net of federal tax           (     1.7)         1.0          3.3
Tax effect of foreign
  income and losses            (     2.8)         2.4          1.9
Tax effect of foreign
  sales corporation            (    11.6)   (     4.1)   (     2.7)
Permanent differences                3.0    (     0.3)   (     2.0)
Other                                3.5    (     1.8)   (     2.5)
                               ----------   ----------   ----------
                                    25.4%        32.2%        33.0%
</TABLE>

A tax benefit of $593,  deriving from  the Company's  Foreign Sales  Corporation
(FSC),  was  recorded  in the third  quarter  of its fiscal  year 1997.  the tax
benefit resulted from reassessment of the Company's  foreign sales  transactions
for fiscal years 1994, 1995, and 1996.

Cash paid for income taxes was $1,071,  $2,646, and $3,652 in fiscal years 1997,
1996, and 1995, respectively.

K.  RETIREMENT PLANS

The Company has a retirement  savings and profit  sharing  plan which  qualifies
under Section 401(k) of the Internal Revenue Code. Participation is available to
all employees meeting minimum service and age requirements.

During 1996,  the Company  implemented a Deferred  Compensation  Plan  providing
officers  and  key  executives   with  the  opportunity  to  participate  in  an
unqualified deferred compensation plan. This plan does not qualify under Section
401 of the Internal Revenue Code. The total of net participant deferrals,  which
is reflected in other long-term liabilities,  was $190 and $28 at June 27, 1997,
and June 28, 1996, respectively.

The  Company  also has a  deferred  retirement  salary  plan which is limited to
certain  officers.  The Company has accrued the present  value of the  estimated
future  retirement  benefit  payments  over  the  periods  from  the date of the
agreements.  The accrued  balance of these  plans,  included in other  long-term
liabilities,   was  $559  and  $469  at  June  27,  1997,  and  June  28,  1996,
respectively.

Total  expenses for these plans were $1,375,  $1,341,  and $808 for fiscal years
ended 1997, 1996, and 1995, respectively.


L.  ACCRUED LIABILITIES
<TABLE>

                                       Year Ended

                                 June 27,     June 28,
                                   1997         1996
                                ----------   ----------
<S>                             <C>          <C>
Accrued incentive plan
  expense                       $     -0-    $    318
Accrued vacation expense           1,358        1,394
Accrued salary expense               569          686
Accrued salary and sales
 tax expense                         555          940
Accrued warranty expense           2,185        1,724
Accrued workers'
  compensation self-
  insurance expense                1,162          704
Accrued other                        996        1,302
                                ----------   ----------
                                $  6,825     $  7,068
                                ----------   ----------
</TABLE>

  M.  OTHER INCOME, NET
<TABLE>

                                            Year Ended
                                June 27,     June 28,     June 30,
                                  1997         1996         1995
                               ----------   ----------   ----------
<S>                            <C>          <C>          <C>
Investment income              ($   110)    ($   114)    ($   126)
Loss on sale/writedown
  of investments                     -0-          -0-          68
(Gain) loss on foreign
  currency transactions        (     58)     (   166)     (   158)
Amortization of
  intangibles                        22           45           45
Other, net                     (    104)     (   106)     (    93)
                               ----------   ----------   ----------
                               ($   250)     ($  341)     ($  264)
                               ----------   ----------   ----------
</TABLE>

N.  CONCENTRATION OF CREDIT RISK

The Company's  customers are primarily in the cable television  (CATV) industry.
The Company  performs  periodic credit  evaluations of its customers'  financial
conditions  and generally does not require  collateral.  June 27, 1997, and June
28,  1996,  accounts  receivable  from  customers  in  the  CATV  industry  were
approximately $18,307 and $19,366,  respectively.  Receivables are generally due
within 30 days.  Credit  losses are provided for in the  consolidated  financial
statements and have consistently been within management's expectations.

Sales to one  customer  were  $48,039  (36%) in fiscal  year 1997.  Sales to two
customers  were $24,966  (18%) and $25,792  (18%),  respectively  in fiscal year
1996. Sales to two customers were $29,326 (24%) and $23,320 (19%),  respectively
in fiscal year 1995.


O.  COMMITMENTS AND CONTINGENCIES

The Company had an  established  letter of credit of $900 at June 27, 1997,  for
its self-insured workers' compensation program.


P.  QUARTERLY RESULTS OF OPERATIONS      (UNAUDITED)

The following is a summary of quarterly  results of operations  for the 1997 and
1996 fiscal years:
<TABLE>
                             First        Second       Third        Fourth
1997                         Quarter      Quarter      Quarter      Quarter(1)
----------                   ----------   ----------   ----------   ----------
<S>                          <C>          <C>          <C>          <C>
Net sales                    $ 31,844     $ 30,701     $ 32,801     $ 36,595
Gross profit                    7,197        5,982        6,434        7,626
Income from continuing
  operations                    1,533          563        1,346          815
Discontinued operations      (    774)    (    228)    (  1,182)    (  8,251)
Net income (loss)                 759          335          164     (  7,436)
Net income per share from
  continuing operations          0.16         0.06         0.14         0.09
Discontinued operations
  per share                  (   0.08)    (   0.03)    (   0.12)    (   0.89)
                             ----------   ----------   ----------   ----------
Net income (loss) per 
share                        $   0.08     $   0.03     $   0.02     ($  0.80)
                             ----------   ----------   ----------   ----------

                             First        Second       Third        Fourth
1996                         Quarter      Quarter      Quarter      Quarter
----------                   ----------   ----------   ----------   ----------
Net sales                    $ 35,839     $ 32,517     $ 35,609     $ 35,574
Gross profit                    9,131        7,110        8,959        9,487
Income from continuing
  operations                    2,515        1,089        2,771        2,639
Discontinued operations           116     (    393)    (  1,409)    (  1,409)
Net income                      2,631          696        1,362        1,230
Net income per share from
  continuing operations          0.26         0.11         0.28         0.26
Discontinued operations
  income (loss) per share        0.01     (   0.04)    (   0.14)    (   0.14)
                             ----------   ----------   ----------   ----------
Net income per share         $   0.27     $   0.07     $   0.14     $   0.12
                             ----------   ----------   ----------   ----------

<FN>
(1) Results for the fourth quarter of fiscal year 1997 were negatively  impacted
by the Company's  decision to discontinue its Digital Fiber Optics  Transmission
Products business segment.  Discontinued  operations  include pre-tax charges of
$3,300 related to warranty  costs, an impairment loss on goodwill of $571, and a
$3,830  after-tax  charge for the loss on disposal of the Digital  Fiber  Optics
Transmission Products business segment.
</FN>
</TABLE>


Q.  LITIGATION

On or about March 31, 1995, two shareholders of the Company filed a complaint in
the United  States  District  Court for the  Eastern  District  of  Pennsylvania
against the  Company,  alleging  violations  of  securities  and common law. The
complaint  seeks  permission  to proceed as a class  action on behalf of certain
persons who  purchased  shares of the  Company's  Common Stock during the period
January 17, 1995,  through  March 24, 1995.  The  complaint  seeks  compensatory
damages  in an  unspecified  amount  and  costs  and  expenses  relating  to the
complaint, including reasonable attorney's fees. the Company's motion to dismiss
the complaint was granted in part and denied in part.  Discovery has  commenced,
but a trail  date has not yet been  set.  Based  upon the  present  stage of the
proceedings,  the ultimate  outcome of this suit cannot be  ascertained  at this
time.

R.  SEGMENT INFORMATION

In fiscal years 1997 and 1996,  the Company  operated in two industry  segments:
the Electronic  Distribution  Products  segment,  which represents the Company's
continuing  operations and provides hybrid fiber coax (HFC) equipment for signal
distribution  applications  primarily to the CATV market;  and the Digital Fiber
Optics  Transmission  Products  segment,  which is  reported  as a  discontinued
business segment and provides products for long-distance,  point-to-point video,
voice,  and data signal  transmission  applications,  primarily  for  telephony,
distance learning, and other non-CATV markets. The Company announced on July 10,
1997, its intent to discontinue its Digital Fiber Optics  Transmission  Products
segment in a phase-down process expected to span nine months.

Information  about industry segments for fiscal years 1997, 1996, and 1995 is as
follows:
<TABLE>
                                                Continuing               Discontinued
                                                Operations                Operations                  Total
                                          ---------------------     ---------------------     ---------------------
<S>                                       <C>                       <C>                       <C>
Year Ended June 27, 1997
------------------------
Total revenue                                   $  131,941                $    7,994                $  139,935
Operating income (loss)                         $    6,021               ($    9,357)              ($    3,336)
Identifiable assets at June 27, 1997            $   69,604                $    9,852                $   79,456
Capital Expenditures                            $    5,884                $      698                $    6,582
Depreciation and amortization                   $    4,910                $    1,388                $    6,298

Year ended June 28, 1996
------------------------
Total revenue                                   $  139,539                $    9,359                $  148,898
Operating income (loss)                         $   14,254               ($    4,600)               $    9,654
Identifiable assets at June 28, 1996            $   75,069                $    7,387                $   82,456
Capital Expenditures                            $    7,442                $      586                $    8,028
Depreciation and amortization                   $    3,972                $      755                $    4,727

Year Ended June 30, 1995
------------------------
Total revenue                                   $  121,269                $   16,172                $  137,441
Operating income (loss)                         $   13,425               ($      323)               $   13,102
Identifiable assets at June 30, 1995            $   83,490                $    5,817                $   89,307
Capital Expenditures                            $   14,355                $    1,016                $   15,371
Depreciation and amortization                   $    2,921                $    1,001                $    3,922
</TABLE>


The Company and subsidiaries  operate in various geographic areas as indicted by
the following:
<TABLE>
                                          U.S.          Canada         Europe      Eliminations       Total
                                      ------------   ------------   ------------   ------------   ------------ 
<S>                                   <C>            <C>            <C>            <C>            <C>
Year Ended June 27, 1997
------------------------
Sales to unaffiliated customers:
  Domestic                            $ 106,785      $   1,523      $     751      $       -0-    $ 109,059
  Export                                 22,882             -0-            -0-             -0-       22,882
Transfers between geographic areas    (      95)            -0-            -0-             95            -0-
                                      ------------   ------------   ------------   ------------   ------------ 
Total revenue                         $ 129,572      $   1,523      $     751      $       95     $ 131,941
Operating income                      $   5,842      $     162      $      17      $       -0-    $   6,021
Identifiable assets at June 27, 1997  $  67,464      $   1,542      $     598      $       -0-    $  69,604
Capital expenditures                  $   5,852      $       6      $      26      $       -0-    $   5,884
Depreciation and amortization         $   4,847      $      12      $      51      $       -0-    $   4,910

Year ended June 28, 1996
------------------------
Sales to unaffiliated customers:
  Domestic                            $  84,792      $   6,223      $   5,968      $       -0-    $  96,983
  Export                                 42,556             -0-            -0-             -0-       42,556
Transfers between geographic areas        9,570             -0-            -0-     (    9,570)           -0-
                                      ------------   ------------   ------------   ------------   ------------ 
Total revenue                         $ 136,918      $   6,223      $   5,968      ($   9,570)    $ 139,539
Operating income                      $  11,596      $   2,210      $     448      $       -0-    $  14,254
Identifiable assets at June 28, 1996  $  69,960      $   3,464      $   1,645      $       -0-    $  75,069
Capital expenditures                  $   7,414      $      10      $      18      $       -0-    $   7,442
Depreciation and amortization         $   3,848      $      15      $     109      $       -0-    $   3,972

Year Ended June 30, 1995
------------------------
Sales to unaffiliated customers:
  Domestic                            $  73,368      $   4,787      $   7,616      $       -0-    $  85,771
  Export                                 35,498             -0-            -0-             -0-       35,498
Transfers between geographic areas        8,649             -0-            -0-     (    8,649)           -0-
                                      ------------   ------------   ------------   ------------   ------------ 
Total revenue                         $ 117,515      $   4,787      $   7,616      ($   8,649)    $ 121,269
Operating income                      $  11,349      $   1,428      $     648      $       -0-    $  13,425
Identifiable assets at June 30, 1995  $  74,958      $   3,213      $   5,319      $       -0-    $  83,490
Capital expenditures                  $  14,327      $      10      $      18      $       -0-    $  14,355
Depreciation and amortization         $   2,797      $      15      $     109      $       -0-    $   2,921
</TABLE>


Most transfers  between  geographic  areas are made at the cost of producing the
items plus a profit margin. Identifiable assets are those assets identified with
the operations in each geographic area.

Financial Report

To The Shareholders:

The management of C-COR Electronics,  Inc. is responsible for the preparation of
all financial  statements in this Annual Report.  These statements were prepared
in accordance with generally accepted  accounting  principles from the books and
records  maintained by the Company.  Adequate  accounting  systems and financial
controls are maintained to assure that these records reflect the transactions of
the Company and that its assets are protected from loss or unauthorized  use. In
addition,  the Audit Committee of the Board of Directors meets periodically with
management and KPMG Peat Marwick LLP to discuss financial reporting matters, the
internal controls, and the scope and results of the audit.

/s/ Chris A. Miller
Vice President-Finance, Secretary and Treasurer
August 15, 1997

Independent Auditors' Report

To the Board of Directors
C-COR Electronics, Inc.
and Subsidiaries:

We  have  audited  the  accompanying   consolidated   balance  sheets  of  C-COR
Electronics,  Inc. and  Subsidiaries  as of June 27, 1997 and June 28, 1996, and
the related  consolidated  statements of operations,  shareholders'  equity, and
cash flows for each of the years in the  three-year  period  end June 27,  1997.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of C-COR Electronics,
Inc. and  Subsidiaries as of June 27, 1997 and June 28, 1996, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended June 27, 1997, in conformity  with  generally  accepted  accounting
principles.

/s/ KPMG Peat Marwick LLP
State College, Pennsylvania
August 15, 1997



<TABLE>
DIRECTORS & OFFICERS
<CAPTION>
                                                     Year first
                                                      elected
Directors                                            a director
-------------------------------------------------------------------------------
<S>                                                  <C>
Richard E. Perry                                     1985
Chairman of the Board (2,4,5)

Scott C. Chandler                                    1996
President and Chief Executive Officer (2,4)

Donald M. Cook, Jr.                                  1988
Retired President and Chief Operating Officer,        
SEMCOR, Inc. (2,3,4)

I.N. Rendall Harper, Jr.                             1982
President, Chief Executive Officer and Treasurer,
American Micrographics Company, Inc. (1,4,5)

Anne P. Jones, Esq.                                  1989
Telecommunications Consultant (1,4,5)

John J. Omlor                                        1989
President and Chief Executive Officer,
John J. Omlor Associates, Ltd. (2,4)

Dr. Frank Rusinko, Jr.                               1990
Senior Scientist and Director,
Carbon Research Center,
College of Earth and Mineral Sciences
of The Pennsylvania State University (1,3,4,5)

Dr. James J. Tietjen                                 1987
Dean, School of Technology Management,
The Stevens Institute of Technology (2,3,4)

Dr, Philip L. Walker, Jr.                            1960
Evan Pugh Professor Emeritus
of Material Science,
The Pennsylvania State University (1,4)

<FN>
(1) Member of the Audit Committee
(2) Member of the Executive Committee
(3) Member of the Compensation Committee
(4) Member of the Strategic Planning Committee
(5) Member of the Nominating Committee
</FN>
</TABLE>

<TABLE>
Directors Emeriti
-------------------------------------------------------------------------------
<S>                                                  <C>
Joseph C. Bates                                      1982

Dr. John L. McLucas                                  1982

Dr. Marsh W. White                                   1963
</TABLE>

Officers
-------------------------------------------------------------------------------
Scott C. Chandler
President and Chief Executive Officer

Edwin S. Childs
Vice President
Human Resources

David J. Eng
Senior Vice President
Worldwide Sales

Lawrence R. Fisher, Jr.
Vice President
Engineering

Chris A. Miller
Vice President
Finance, Secretary and Treasurer

Donald F. Miller
Vice President
Operations and Manufacturing

Gerhard B. Nederlof
Senior Vice President
Marketing, Business Development and Services

Joseph E. Zavacky
Controller and Assistant Secretary


CORPORATE DATA

Annual Meeting of Shareholders
October 14, 1997 at 9:00 a.m.
Headquarters
C-COR Electronics, Inc.
60 Decibel Road
State College, Pennsylvania

Stock Listing

The Common Stock of C-COR Electronics, Inc., traded in the Nasdaq Stock Market's
National  Market  System,  was first offered to the public in February 1981. The
Nasdaq symbol is CCBL.  The range of high and low price  information as reported
by Nasdaq follows:
<TABLE>
Quarter Ending                     Price
<S>                                <C>
September 30, 1995                 High  36
                                   Low   22 3/4
December 31, 1995                  High  29 7/8
                                   Low   21
March 31, 1996                     High  24
                                   Low   15
June 30, 1996                      High  24
                                   Low   15
September 30, 1996                 High  18
                                   Low   13 3/4
December 31, 1996                  High  17 1/2
                                   Low   11 7/8
March 31, 1997                     High  15 3/4
                                   Low   12
June 30, 1997                      High  12 1/8
                                   Low    9 1/2
</TABLE>
C-COR  Electronics,  Inc. has never paid a dividend.  As of June 27, 1997, there
were 670 shareholders of record of Common Stock.

General Counsel
McQuaide, Blasko, Schwartz, Fleming & Faulkner, Inc.
State College, Pennsylvania

SEC Counsel
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania

Independent Auditors
KPMG Peat Marwick LLP
State College, Pennsylvania

Transfer Agent and Registrar
American Stock Transfer Company
New York, New York

Form 10-K
A copy of the Company's Annual Report on Form 10-K, as filed with the Securities
and Exchange  Commission,  will be furnished  without charge to any  shareholder
upon written request.

We  encourage  shareholders  whose stock is held by brokers or banks to call the
Investor   Relations   office   at  the   Company's   headquarters   (Telephone:
814-231-4402, e-mail: sot@c-cor.com) to have their names placed on the financial
mailing list, enabling them to receive interim reports.

MISSION STATEMENT

C-COR is dedicated to responsive  customer service,  innovative  design, and the
manufacture  of  quality  products.   We  will  be  a  leader  in  communication
technology.  The Company will research and develop market  opportunities  within
our expertise to enhance profitable growth.

WHAT WE STAND FOR

At C-COR,  our business  practices  are guided by a respect for  ourselves and a
profound sense of responsibility to our employees, shareholders and customers.

EMPLOYEES

Nothing is more  important to C-COR than the people who work here. To our people
we  pledge  a  good  work  environment,   fair   compensation,   recognition  of
accomplishments,  honesty in  communications  and  understanding.  In return, we
expect a positive  attitude,  an honest effort in the workplace and a dedication
to principles that we espouse.

CUSTOMERS

We  realize  the  value of our  customers  and we have  committed  ourselves  to
delivering  a quality  product  at a fair  price,  to  respond  promptly  to our
customers'  requests,  to provide superior service and support, and most of all,
to respect them and their needs.

SHAREHOLDERS

We recognize our  responsibility  to protect and nurture the  investments of our
shareholders.  We will manage  C-COR in a manner that will produce a fair return
on investment while manifesting itself in capital  appreciation.  Our management
will  be  cost-effective   and  efficient.   We  will  be  open  and  honest  in
communicating  with  shareholders and we will conduct our business in an ethical
manner.

SUPPLIERS

The criteria for choosing  suppliers will be on the basis of quality,  price and
performance; we expect of them what our customers expect of us.

COMMUNITY

C-COR is dedicated to being a good  corporate  citizen  wherever we do business.
And,  we  believe in  encouraging  our  employees  to become  involved  in civic
affairs.  We expect our employees to conduct  business in an ethical manner,  be
dedicated  in their  efforts on behalf of the Company and to work to improve the
quality of life in the workplace and the communities in which they live.


WORLD HEADQUARTERS
60 Decibel Road
State College, PA  16801
800-233-2267
814-238-2461
Fax 814-238-4065

EUROPEAN OFFICE
P.O. Box 10.265
1301 AG Almere
The Netherlands
+31-36-546 1111
Fax +31-36-536 4255

DENVER OFFICE
5299 DTC Boulevard, Suite 552
Englewood, CO  80111
303-713-0776
Fax 303-713-0639

CANADIAN OFFICE
377 MacKenzie Avenue, Unit 5
Ajax, Ontario  L1S 2G2
905-427-0366
Fax 905-428-0927

REGIONAL SALES OFFICES
California, Colorado, Georgia, Indiana, Minnesota, Pennsylvania, South Carolina,
and Texas

Printed in the U.S.A.
All rights reserved.
(C) 1997, C-COR Electronics, Inc.