1998 C-COR ANNUAL REPORT
F|U|T|U|R|E F|O|C|U|S|E|D
NAVIGATING THE GLOBAL COMMUNITY
<TABLE>
C|O|N|T|E|N|T|S
<S>                                       <C>
CORPORATE PROFILE                          1
SELECTED FINANCIAL DATA                    2
SHAREHOLDERS' LETTER                       3
FUTURE FOCUSED
     CUSTOMER FOCUSED                      7
     TECHNOLOGY FOCUSED                    9
     INTERNATIONAL FOCUSED                11
     FOUNDATIONS                          12
MANAGEMENT'S DISCUSSION AND
  ANALYSIS                                13
CONSOLIDATED BALANCE SHEETS               17
CONSOLIDATED STATEMENTS OF
  OPERATIONS                              18
CONSOLIDATED STATEMENTS OF
  CASH FLOWS                              19
CONSOLIDATED STATEMENTS OF
  SHAREHOLDERS' EQUITY                    20
NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS                              21
REPORTS                                   30
DIRECTORS & OFFICERS                      31
CORPORATE DATA                            32
MISSION STATEMENT                         33
</TABLE>

                                 P|R|O|F|I|L|E
For over four decades, C-COR has provided the products and support our customers
need to plan, design,  build and maintain complex  communications  networks.  In
doing so, we have  created a niche as an  innovator,  developer  and supplier of
robust,  high-quality  distribution  electronics  for two-way hybrid  fiber/coax
(HFC) networks around the world.

More than simply keeping pace with customer  requirements,  we have  anticipated
industry changes and responded accordingly. We had the foresight to create fiber
optic and coax  products that are two-way  capable,  even before the need for an
expanded return path became evident. Today, the Internet, telephony and advanced
digital services have created demand for active,  two-way  architectures.  C-COR
has answered with a full line of flexible,  reliable and cost-effective  network
solutions.

Our principal customers include cable television operators,  telephone companies
and installers of broadband communications networks. Sales efforts are conducted
from  headquarters  in  State  College,  Pennsylvania;   from  regional  offices
throughout  the United  States,  in Canada and in the  Netherlands;  and through
numerous distributors worldwide.

<TABLE>
S|E|L|E|C|T|E|D  F|I|N|A|N|C|I|A|L  D|A|T|A(in thousands of dollars except
per share data)
Fiscal Year Ended:                                          1998        1997         1996         1995         1994
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>         <C>          <C>          <C>          <C>
Statements of operations(1):
Net Sales                                              $ 152,144   $ 131,941    $ 139,539    $ 121,269    $  60,207
Income from continuing operations                          7,317       4,257        9,014        8,528        3,177
Gain (loss) from discontinued operations                       -      (6,605)      (3,095)        (213)         855
Gain (loss) from disposal of discontinued operations         928      (3,830)           -            -            -
Net income (loss)                                          8,245      (6,178)       5,919        8,315        4,032
Net income (loss) per share - (basic)(2,3):
   Continuing operations                               $    0.80   $    0.45    $    0.94    $    0.91    $    0.35
   Discontinued operations                                     -       (0.70)       (0.32)       (0.02)        0.09
   Disposal of discontinued operations                      0.10       (0.40)           -            -            -
Net income (loss) per share - basic                         0.90       (0.65)        0.62         0.89         0.44
Net income (loss) per share - (diluted)(2,3):
   Continuing operations                               $    0.78   $    0.44    $    0.91    $    0.86    $    0.34
   Discontinued operations                                     -       (0.68)        (.31)       (0.02)        0.09
   Disposal of discontinued operations                      0.10       (0.40)           -            -            -
Net income (loss) per share - diluted                       0.88       (0.64)        0.60         0.84         0.43
Balance sheet data (at period end)(1):
Working capital                                        $  27,313   $  22,745    $  35,452    $  24,442    $  25,061
Total assets                                              75,518      71,119       77,278       85,868       47,499
Total long-term obligations                                6,367       7,201        8,030        2,172          501
Shareholders' equity                                      50,190      41,678       53,317       44,725       34,139
<FN>
(1) Certain amounts have been  reclassified for  comparability  with fiscal year
1998  presentation.  (2) The Company adopted  Statement of Financial  Accounting
Standards No. 128 "Earnings Per Share" effective December 15, 1997. Accordingly,
all prior per share  amounts  have been  restated.  (3)  Adjusted  to  reflect a
two-for-one stock split effective December 5, 1994. </FN> </TABLE>

<TABLE>
NET SALES
IN THOUSANDS OF DOLLARS

<S>                      <C>
1994                      60,207
1995                     121,269
1996                     139,539
1997                     131,941
1998                     152,144
</TABLE>

<TABLE>
INCOME FROM CONTINUING OPERATIONS
IN THOUSANDS OF DOLLARS

<S>                      <C>
1994                     3,177
1995                     8,528
1996                     9,014
1997                     4,257
1998                     7,317
</TABLE>

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

<S>                      <C>
1994                     0.34
1995                     0.86
1996                     0.91
1997                     0.45
1998                     0.80
</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,   economic  conditions
affecting domestic and international  markets,  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 on
Form 10-K and other reports filed with the Securities and Exchange Commission.

                       T|O O|U|R S|H|A|R|E|H|O|L|D|E|R|S
C-COR has much to  celebrate as we reflect on the  accomplishments  of this past
year  and on the  prospects  for the  future.  Amid a  rapidly  changing  global
communications market, we take a moment to remember how it all started, 45 years
ago for C-COR and 50 years ago for the cable  industry.  Back  then,  the simple
desire to view a few snow-free channels of news and entertainment drove industry
pioneers  to devise the first cable  networks.  Now,  five  decades  later,  the
cost-effective  delivery  of  hundreds of video  channels,  high-speed  Internet
services  and  cable  telephony  prompt  network  operators  worldwide  to  seek
technologically  advanced products and specialized  support services.  With this
dynamic global  backdrop,  C-COR looks forward to  participating in the exciting
conclusion of one century and the rapid approach of another.

In fiscal year 1998, C-COR's financial results were encouraging, as both revenue
and  earnings  grew.  Net sales rose 15% to $152  million,  from $132 million in
fiscal  year 1997.  Net income per share from  continuing  operations  increased
dramatically  to $.78 in fiscal  year 1998 from $.44 in fiscal  year  1997.  The
gross  margin  percentage  in fiscal year 1998  improved to 22.7% from 20.6% the
previous  year.  Operating  expenses  as a  percentage  of net sales,  declined,
excluding  restructuring charges. At the same time, we maintained our commitment
to product  development,  enabling the  introduction  of a host of new products,
particularly  optoelectronics,  and funding for the study and  implementation of
new technologies and resources to enhance C-COR's growth opportunities.

GLOBAL CLOSE-UP
During  the past 12  months,  the means for  global  information  exchange  have
evolved  dramatically.  Most  importantly  for C-COR,  we have seen the  further
validation of the hybrid  fiber/coax  (HFC)  architecture  as the most powerful,
cost-effective  pipeline to homes and  businesses.  In North  America,  the year
could be summed up with the simple  statement,  "the industry is standing  tall,
buoyed by its superior  technology,  wealth of programming and bold new business
opportunities.(1)"  Consolidation and clustering of cable properties  continued,
resulting  in economies  of scale for cable  operators as they offered  advanced
services to their customers.  This environment provided significant  opportunity
for  equipment  suppliers  like  C-COR  to offer  pace-setting,  technologically
advanced products and services. Another industry trend has been standardization,
viewed as a necessity for technology  experts working  together to achieve a set
of common goals.

Key moves by industry leaders signaled further  validation of HFC  architectures
and  support  for the  concept  of a  single  pipe to carry  information  to the
end-user.  First, came an announcement in the spring of 1997 that was summarized
best with the statement,  "a modern era of the cable  industry  dawned when Bill
Gates made a billion-dollar  investment in Comcast...this was viewed as a signal
that the promised  convergence of cable with the Internet and digital technology
was  near.(2)"  Midway  through  1998,  a  former  computer  industry  executive
announced   his  intent  to  purchase   two  major  cable   operations,   Marcus
Communications  and  Charter  Communications.   At  about  the  same  time,  the
bellwether event occurred when AT&T announced that it would purchase major cable
operator TeleCommunications, Inc. Combined, these events helped create a healthy
environment  for companies  like C-COR looking to identify and implement  growth
opportunities for the future.

Elsewhere  around  the  world,  communication   infrastructure  development  and
enhancement continued to progress.  Both the European and Latin American markets
steadily grew and developed.  In Europe, we saw solid activity,  particularly in
the  eastern  regions,  and we  are  poised  for  participation  in the  pending
extensive network deployment in Spain. In Latin America,  demand for HFC network
products  continued to be solid,  particularly  in Argentina and Chile,  and new
opportunities  are  expected in the  emerging  markets of Brazil,  Columbia  and
Bolivia.  The Asia Pacific region was slow, but we are maintaining our strategic
commitment to this key market.

OVER THE HORIZON
We began fiscal year 1998 with a clear set of strategic goals and initiatives: -
expansion  within our  traditional  area of  expertise...HFC  -  exploration  of
diversification  opportunities  outside our  historical  markets - expansion  of
international  growth  as a  percent  of total  sales -  improved  profitability
through continued process improvements leading to
  higher productivity and improved gross margins
- renewed commitment to our highly capable employees

We have made significant progress on these objectives this past year. We focused
on a number of initiatives  directed at productivity  enhancements,  new process
improvements,   capacity  realignment  and  global  procurement.   Additionally,
continuous  improvements  in the  areas of  quality  and  reliability  have been
designed to achieve our increasingly aggressive standards for the benefit of our
customers.

There  is still a  challenging  and  exciting  journey  ahead.  Many of the same
strategic initiatives will continue into the new year. We will aggressively seek
out ways to expand geographically; the opportunities are there. New products and
services will continue to be a priority.  Global  manufacturing  and procurement
initiatives  are being  explored as we strive to remain  highly  competitive  in
today's global economy.  Of great importance are the people who are at the heart
of all we  do...customers,  shareholders and employees.  Each plays a unique and
significant role in establishing and fulfilling our plan for the future.

Thank you for your  continued  interest.  We look forward to  communicating  our
progress throughout the coming year.



Richard E. Perry
Chairman



David A. Woodle
President and CEO
August 12, 1998

(1) Cablevision, July 13, 1998, Page 4 (2) Buyside, June 1998, Page 76

NAVIGATING THE GLOBAL COMMUNITY

Members of C-COR's global sales team meet to discuss strategic plans.

                            F|U|T|U|R|E F|O|C|U|S|E|D
                          C|U|S|T|O|M|E|R F|O|C|U|S|E|D
As the global communications industry evolves,  C-COR's long-standing commitment
to  customers  remains  a  constant.  This  is  most  evident  in our  continued
development and delivery of high quality,  end-to-end  solutions that respond to
specific  customer  needs.  When  coupled  with  our full  array of  specialized
services,  our  comprehensive  product line enables cable operators to build for
today's requirements and still remain flexible for the future.

In fiscal year 1998,  C-COR  introduced  over 20 new products - more than at any
other time in our 45-year history - and we expect these products to be available
for shipment  beginning in fiscal year 1999.  Fiber optic  solutions  dominated,
based on our new  NAVICOR(TM)  platform  of nodes  and  headend  products.  With
NAVICOR,  amplifiers can be transformed  into nodes by simply changing the fiber
optic  lid.  The  result is a  cost-effective  way for  customers  to rebuild or
upgrade their hybrid fiber/coax (HFC) networks to offer high-speed data, digital
services, video-on-demand and cable telephony as the market demands.

In addition to fiber optics,  C-COR has remained  steadfast in meeting the needs
of our RF  customers.  During  fiscal year 1998,  we advanced the  standards for
performance by providing  superior return path  capability and optimal  powering
options for customers delivering advanced services. Overlying the entire network
is C-COR's CNM(TM) System 2, a  standards-compliant,  network  management system
that provides for the ultimate in operational confidence.

Customer  service  continues  to stand  for  personal  service  at  C-COR,  with
customized design, training and network activation services leading the way. Add
to that full  product  certification  before the sale,  and our  customer  focus
becomes total customer satisfaction.


Guided by market requirements and a strategic goal to diversify our product line
within the HFC offering,  C-COR has  introduced  the Navicor  product  platform.
Navicor is a new family of modular AM fiber  optic  nodes and lid  upgrades  for
C-COR's RF amplifier  product line.  Its unique common  module  concept  enables
cable operators to quickly and easily improve system capacity and add high-value
services to meet the demands of their customers.

With  Navicor,  only the lid - rather  than the entire  piece of  equipment - is
removed and  replaced  with a fiber optic lid during an upgrade.  For new builds
and  rebuilds,  complete  fiber nodes are  available.  Navicor's  common  module
approach  minimizes  inventory,  decreases  system  downtime and increases  cost
efficiency.  Most  importantly,  Navicor  affords  cable  operators  the  power,
scalability and network management capabilities to meet HFC network demands both
today and in the future.

                        T|E|C|H|N|O|L|O|G|Y F|O|C|U|S|E|D
Today,  consolidation and geographic  clustering are driving the demand for more
advanced HFC architectures. New services such as the Internet, digital video and
telephony are also increasing the need for greater bandwidth, higher performance
and total reliability. These factors, combined with cost-conscious budgets, have
led to a new way of  building  and  managing  networks.  No  longer  are  simple
bandwidth  upgrades the case;  network operators must build for today while also
planning for the future.

C-COR has responded to this dynamic marketplace with advanced  technologies that
offer upgradability,  scalability, flexibility and cost-effectiveness. A variety
of unique  features  and  products - such as the common  module  concept,  a new
quadrant  node  and  an  advanced   network   management   system   designed  to
standards-based   environments  -  add  enhanced  value  by  improving  quality,
performance and dependability.

NAVICOR  rack-mounted  products  deliver high  performance and allow for headend
consolidation  as needed.  The 1550nm  transmitter  transports  large amounts of
information over long distances,  while  erbium-doped  fiber  amplifiers  (EDFA)
extend  transmitter  capability to reach broad  segments of the network.  The AM
headend rack system is a compact,  easy-to-install package that plays a key role
in getting  information to nodes serving  250-2000 homes.  NAVICOR optical nodes
offer high performance for greater network flexibility and capability.  Building
on C-COR's 45-year legacy,  this product family can operate as complete nodes or
be used to upgrade existing FlexNet(R) amplifiers.

The I-Flex(TM) family of products, which includes an amplifier, node and network
management  solution  uniquely  designed  for the  global  market,  offers  many
benefits   found  in  our   strand-mounted   products.   I-Flex  is  used  where
cabinet-mounted equipment is needed in an HFC architecture.

Network  management  systems were a  cornerstone  at C-COR long before it became
popular  to  offer  network   monitoring   capabilities.   CNM  System  2  is  a
standards-based  system  used to monitor  and control  network  elements  from a
central  location,   reducing  operational  costs,   enhancing  reliability  and
improving the productivity of technical staff.


We have seen many of our  customers  grow into  multi-million,  and even billion
dollar companies.  C-COR has provided the products and services to help them get
there.

                            F|U|T|U|R|E F|O|C|U|S|E|D
                   I|N|T|E|R|N|A|T|I|O|N|A|L|L|Y F|O|C|U|S|E|D
With a strong domestic foothold,  C-COR continues to pursue growth opportunities
around the globe.  In all areas of operations - including  sales and  marketing,
service,  manufacturing and procurement - we are diversifying  geographically to
improve  profitability  and  more  directly  serve  international   markets.  We
recognize that our continued success depends on international  expansion, and we
have made it a strategic initiative to focus our efforts on achieving that goal.

Europe:  Political  changes,  deregulation and private enterprise are paving the
way for expansion of the  communications  infrastructure  throughout Europe. New
builds,  particularly  for  telephony and digital  video  services,  are driving
growth in Spain and Eastern Europe,  while network upgrades are underway in much
of Western Europe.  Overall, HFC is still the dominant technology,  with 862 MHz
in  cabinet-mounted  equipment  providing  the most  cost-effective  way to meet
capacity demands.  We have also expanded the I-Flex family of nodes,  amplifiers
and network  management  to include an I-Flex line  extender for  cost-effective
delivery of services to homes and businesses.

Latin America: Like North America, HFC technology dominates in Latin America. We
anticipate  high demand for AM fiber  optics over the next three  years,  driven
primarily by telephony. In addition to an already-established  base in Argentina
and Chile, the most promising markets include Brazil, Columbia and Bolivia where
privatization is opening new doors.

Asia  Pacific:  While  economic  issues  continue to impact the  volatile  Asian
Pacific  market,  we still see enormous,  long-term  potential for broadband HFC
networks there. C-COR will maintain its presence  throughout this market so that
we can immediately  respond with advanced HFC and network  management  solutions
for providing services such as telephony, Internet access and cable television.

C-COR is proud of its part in  Singapore  ONE,  which will  provide  the world's
first  nationwide  Internet  access  capability via cable modems.  Offering high
speed and large capacity,  the Singapore  CableVision  (SCV)  broadband  network
carries  data,  audio and video  information  nationwide.  Our  FlexNet  862 MHz
amplifiers are installed in this innovative,  two-way HFC network,  which serves
about 1000 homes per node.

                                    C-COR...
                                  F|O|C|U|S|E|D
                                    on solid
                              F|O|U|N|D|A|T|I|O|N|S
                                  for continued
                                  S|U|C|C|E|S|S

Customer  focus.  Technological  leadership.  Global  growth.  At  C-COR,  these
strengths and more have  established  the foundation  for our continued  success
into the next millennium.

Looking  forward,  we will  leverage our RF  expertise  with the goal of further
expanding our fiber optic  product line,  network  management  capabilities  and
technical  services.  We will also continue to explore new opportunities  inside
and outside the HFC network market, both domestically and internationally.

Ongoing cost containment and continuous  improvement throughout the organization
position us to operate at peak efficiency.  Just one example is NAVICOR's common
module  concept,  which  is  designed  to  help us  reduce  costs  by  improving
efficiency  in  development  and  manufacturing  operations.   Finally,  we  are
addressing   staffing   challenges  through  training,   empowerment  and  other
initiatives aimed at retaining skilled employees.

With so much working in our favor, we anticipate a future full of  opportunities
to further satisfy our customers, provide for employee development, increase our
profitability and build shareholder value.

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  increased  spending  on  product
development,  the continued  availability of capital resources and the Company's
ability  to  assess  the  risks of the year  2000  issue,  with  respect  to its
operations,  and resolve them in a timely manner.  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,  economic conditions  affecting domestic and international  markets,
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.

Results of Operations
Net sales in fiscal year 1998 were  $152,144,  an increase of 15% from net sales
of $131,941 in fiscal year 1997. The increase in sales was a result of increased
demand for hybrid fiber/coax (HFC) equipment,  as well as technical  services to
both domestic and  international  customers,  primarily in the cable  television
(CATV)  industry.  Net sales  decreased 5% in fiscal year 1997 from net sales of
$139,539 in fiscal year 1996.  The  decrease in sales was  primarily a result of
reduced sales to international customers compared to the previous year.

Domestic sales remained  strong in fiscal year 1998,  increasing 13% to $120,237
from $106,785 in fiscal year 1997. The Company  believes that many domestic CATV
operators have continued to increase their capital  spending,  and, as a result,
the Company has experienced increased demand for HFC distribution equipment. The
Company  believes  the  increased  capital  spending has been driven by customer
demands for improved services,  affecting not only voice and video requirements,
but also demand for high-speed data transmission.  This increased demand by CATV
operators for improved services has translated into an increased need for higher
bandwidth products in order to support these services.  Domestic sales increased
26% in fiscal year 1997 from  $84,792 in fiscal  year 1996,  also due to network
upgrade  activities  by  CATV  operators.  Total  domestic  sales  were  79%  of
consolidated  net sales for fiscal  year 1998,  as  compared  to 81% and 61% for
fiscal years 1997 and 1996, respectively.

International sales increased 27% to $31,907 in fiscal year 1998 from $25,156 in
fiscal year 1997. The increased demand resulted  primarily from sales to Canada,
Europe and Latin America.  International sales decreased 54% in fiscal year 1997
from $54,747 in fiscal year 1996, resulting from reduced demand by a significant
customer  in  Canada  and  customers  in Asia and  Latin  America.  The  Company
continues to monitor its business activities in the Asian market and the effects
that current  economic  conditions  may have on present and future order trends.
The Company  believes the Asian market  represents  long-term  potential for HFC
distribution  equipment  and will  continue to maintain its presence  throughout
this market.  The international  markets continue to represent  distinct markets
for HFC distribution equipment,  and, in general, demand can be highly variable.
The Company's total  international  sales were 21% of consolidated  net sales in
fiscal year 1998,  as  compared  to 19% and 39% for fiscal  years 1997 and 1996,
respectively.

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 backlog of sales orders at June 26, 1998, was $24,025, compared to
$34,851 at June 27,  1997,  and $24,333 at June 28,  1996.  The backlog of sales
orders at June 26,  1998,  was  comprised of  approximately  91% domestic and 9%
international   orders,   compared  to   approximately   72%  domestic  and  28%
international  orders at June 27, 1997,  and 86% domestic and 14%  international
orders at June 28, 1996.  In the domestic CATV market,  certain cable  operators
are  beginning  upgrade  activities,  while  others  are in  various  stages  of
completion.  As a result,  demand  patterns can vary,  depending on the distinct
requirements for each customer. In addition,  the Company believes recent trends
indicate that order patterns have also changed from customers  providing  longer
blanket  orders  to  shorter  lead-time  orders,  contributing  to  the  backlog
reduction  at fiscal year end.  The  Company's  book-to-bill  ratio was 0.93 for
fiscal  year 1998,  compared  to 1.08 and 0.79 for  fiscal  years 1997 and 1996,
respectively.

Gross profit  margin for fiscal year 1998 was 22.7%.  This  compares to 20.6% in
fiscal year 1997 and 24.9% in fiscal year 1996. The increase in the gross profit
margin in  fiscal  year  1998,  relative  to fiscal  year  1997,  was  primarily
attributable  to purchased  material  cost  reductions,  changes in customer and
product mix, and  efficiencies  resulting from higher  production  volumes.  The
Company  continued to  experience  pricing  pressures  in fiscal year 1998.  The
Company has  undertaken  initiatives to lower  manufacturing  costs by improving
manufacturing processes in order to enhance efficiency and productivity,  and by
redesigning products to enhance  manufacturability and reduce material costs. In
fiscal year 1998, the Company began  manufacturing the power supply component of
its  RF  amplifier  products  in  Tijuana,  Mexico.  The  Company  substantially
completed the transfer of the power supply component production to this facility
as of June 26, 1998,  and continues to ramp up production at this  manufacturing
facility.  The gross  profit  margin  decrease in fiscal year 1997,  relative to
fiscal year 1996,  was  attributed  primarily to changes in product and customer
sales  mix,  as well as pricing  pressures,  particularly  on RF  coaxial  cable
amplifiers.

Selling and administrative  expenses for fiscal year 1998 were $15,020 or 10% of
net sales,  compared  to  $15,787  or 12% of net sales for fiscal  year 1997 and
$15,917 or 11% of net sales for fiscal  year 1996.  The  decrease in selling and
administrative expense for fiscal year 1998 compared to fiscal year 1997 was due
primarily  to  reduced  expenditures   resulting  from  reconfiguration  of  the
Company's  worldwide sales  territories and the  consolidation  of the Company's
sales force  implemented in the fourth quarter of fiscal year 1997. The decrease
in selling and administrative  expenses for fiscal year 1997, compared to fiscal
year 1996, was due to various cost reduction  initiatives,  including  personnel
reductions and decreases in various administrative expenses.

Research and product development expenses for fiscal year 1998 were $7,459 or 5%
of net sales,  compared  to $5,681 or 4% of net sales for  fiscal  year 1997 and
$4,857 or 3% of net sales for fiscal year 1996.  The  increase  in research  and
product  development expense in fiscal year 1998 over fiscal years 1997 and 1996
was primarily due to the Company's  strategic  commitment to  investments in new
products and  technologies.  The  increased  expenditures  resulted  from higher
personnel  costs and  additional  expenses for  development of  NAVICOR(TM),  an
entire family of modular AM fiber optic nodes and optical lid upgrades,  as well
as CNM(TM)  System 2, a new  generation  of its Cable Network  Management  (CNM)
platform.  These products were introduced  mid-year fiscal 1998, and the Company
anticipates  production  release of these  products  in several  phases over the
first half of fiscal  year  1999.  The  Company  anticipates  increased  product
development  expenditures  in  fiscal  year  1999  related  to  ongoing  product
development initiatives.

Included in the results  from  continuing  operations  for fiscal year 1998 is a
restructuring charge of $625 related to the Company's decision on June 25, 1998,
to close its  manufacturing  plant  located  in  Reedsville,  Pennsylvania.  The
decision  was made in order to reduce costs and improve  productivity  and asset
utilization.  The  restructuring  charge  represents  salaries  and benefits for
approximately 143 employees to be terminated.  At June 26, 1998, no expenses had
been charged against this restructuring accrual.

For fiscal year 1998 other  expense was $384.  This  compares to other income of
$250 and $341 for  fiscal  years  1997 and  1996,  respectively.  The  increased
expense in fiscal  year 1998  resulted  from costs  accrued in  relation  to the
settlement of certain litigation and foreign exchange losses resulting primarily
from the weakened Canadian dollar.  The reduction in other income in fiscal year
1997,  compared to fiscal year 1996, was primarily due to lower foreign currency
transaction gains.

The  Company's  effective  income  tax rate for fiscal  year 1998 was 32%.  This
compared to effective  income tax rates of 25% and 32% for fiscal years 1997 and
1996,  respectively.  The  higher  effective  tax rates for  fiscal  year  1998,
compared to fiscal year 1997,  resulted from a tax benefit of approximately $593
that was recorded  during the third quarter of fiscal year 1997. The tax benefit
resulted from reassessment of the Company's  foreign sales  transactions for the
prior three fiscal years and  optimization of the tax benefits  derived from the
Company's  Foreign Sales  Corporation  (FSC).  In addition,  fluctuations in the
effective   income  tax  rate  from   period  to  period   reflect   changes  in
non-deductible  amounts,  the  relative  profitability  related to both U.S. and
non-U.S. operations and differences in statutory rates.

Results of Discontinued Operations
On July 10, 1997, the Company announced the discontinuation of its Digital Fiber
Optics  Transmission  Products  segment  located in  Fremont,  California,  in a
nine-month  wind-down  process.  Anticipated  wind-down costs were recorded as a
loss on disposal  of the  discontinued  segment in the  results of  discontinued
operations  for the fiscal year ended June 27, 1997.  The Company  substantially
completed the  wind-down of this  operation as of March 1998. A gain on disposal
of the  discontinued  business segment of $928, which includes a net tax benefit
of $94, was recorded in fiscal year 1998.  The gain  represents an adjustment of
the  estimated  loss on the disposal of the business  segment of $3,830,  net of
applicable income tax benefit of $1,974,  reported in fiscal year 1997. The gain
derived  primarily from higher than  anticipated  proceeds  associated  with the
disposal of assets,  primarily inventory,  and lower than anticipated  operating
costs from the measurement date to the disposal date.

The after-tax losses from operations of the  discontinued  business segment were
$6,605  and $3,095 for fiscal  years 1997 and 1996,  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  during the fourth  quarter of
fiscal year 1997.

Financial Condition
The Company's  financial condition remains strong. The Company's working capital
increased $4,568 since June 27, 1997. Inventory decreased to $17,375 at June 26,
1998,  from $19,140 at June 27, 1997,  primarily  related to  reductions  in raw
materials and work-in-process  inventory levels. Accounts payable also decreased
to $5,784 at June 26, 1998,  from $8,636 at June 27, 1997,  due primarily to the
reductions in inventory purchases at year end. Accrued liabilities  increased to
$10,245 at June 26, 1998, from $6,825 at June 27, 1997, due primarily to expense
accrued under the Company's profit incentive plan for the year and restructuring
costs  accrued  in  relation  to  the  closing  of  the  Company's   Reedsville,
Pennsylvania, manufacturing facility.

Recent Accounting Changes
In 1997, the Financial  Accounting  Standards  Board (FASB) issued  Statement of
Financial  Accounting  Standards  No.  130,  "Reporting   Comprehensive  Income"
(Statement  130),  which is effective for fiscal years  beginning after December
15, 1997.  This Statement  establishes  standards for reporting and  classifying
components of comprehensive income in the financial statements and requires that
the accumulated  balance of other comprehensive  income be displayed  separately
from retained earnings and additional  paid-in-capital  in the equity section of
the financial statements. The FASB also issued Statement of Financial Accounting
Standards No. 131,  "Disclosures  about  Segments of an  Enterprise  and Related
Information"  (Statement  131),  which is effective  for fiscal years  beginning
after  December 15, 1997.  This  Statement  establishes  standards for providing
disclosures  related  to  products  and  services,  geographic  area,  and major
customers.  The Company anticipates adopting these Statements in its fiscal year
1999 financial statements as required. Implementation of these Statements is not
expected  to have a  material  effect on the  Company's  consolidated  financial
statements.

In 1998, the FASB issued  Statement of Financial  Accounting  Standards No. 132,
"Employers'  Disclosures  about  Pensions  and  Other  Postretirement  Benefits"
(Statement  132),  which is effective for fiscal years  beginning after December
15, 1997. This Statement  standardizes the disclosure  requirements for pensions
and other postretirement benefits to the extent practicable, requires additional
information  on benefit  obligations  and plan  assets,  and  suggests  combined
formats  for   presentation   of  pension  and  other   postretirement   benefit
disclosures.  The FASB also issued Statement of Financial  Accounting  Standards
No.  133,  "Accounting  for  Derivative   Instruments  and  Hedging  Activities"
(Statement  133),  which is effective for fiscal years  beginning after June 15,
1999.  This  Statement  establishes   accounting  and  reporting  standards  for
derivative  instruments,  including certain derivative  instruments  embedded in
other contracts,  and for hedging activities.  The Company anticipates  adopting
these  Statements  in its  fiscal  year  1999  and 2000  consolidated  financial
statements as required.  Implementation  of these  Statements is not expected to
have a material effect on the Company's consolidated financial statements.

Liquidity and Capital Resources
The  Company's  current  ratio at June 26, 1998,  was 2.6, as compared to 2.1 at
June 27, 1997. As of June 26, 1998, cash and cash equivalents totaled $2,313, up
from $452 at June 27, 1997. Net cash and cash equivalents  provided by operating
activities  generated $14,007 during fiscal year 1998, including working capital
changes of $1,051 related to discontinued operations.  This compares to net cash
and cash equivalents provided by operating activities, including working capital
changes  related to  discontinued  operations,  of $9,440 and  $18,673 in fiscal
years 1997 and 1996, respectively.

Net cash used in investing  activities was $8,097 in fiscal year 1998,  compared
to $6,551 fiscal year 1997 and $8,000 in fiscal year 1996.  The increase of cash
used in  investing  activities  in fiscal year 1998 was due  primarily to higher
purchases  and  replacements  of  property,   plant  and  equipment  to  support
manufacturing  automation and operation  efforts,  including the start-up of the
Company's manufacturing operation in Tijuana,  Mexico, as well as a higher level
of product development activities.

Net cash used in  financing  activities  totaled  $4,049 in  fiscal  year  1998,
compared  to $3,911  and  $10,744 in fiscal  years 1997 and 1996,  respectively.
Financing  activities  consist  primarily  of  borrowings  and  payments  on the
Company's  line-of-credit  and long-term  debt. In fiscal year 1998, the Company
repurchased  10,342 shares of its common stock for $131 under a stock repurchase
program adopted in September 1997. 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 under both  repurchase  programs.  The  repurchased  stock is
being  held by the  Company as  treasury  stock and is  available  to be used in
meeting the  Company's  obligations  under its present and future  stock  option
plans and for other corporate purposes.

The Company  maintains  a  line-of-credit  with a bank  pursuant to which it may
borrow the lesser of $23,000 or a percentage of eligible accounts receivable and
inventory.  Accounts  receivable  and  inventory  secure  borrowings  under  the
line-of-credit  agreement.  The  line-of-credit is committed through October 30,
1998, and the Company  anticipates  renewing this line-of-credit  annually.  The
Company had no borrowings on the line-of-credit as of June 26, 1998, compared to
a balance of $3,466 at June 27,  1997.  Based  upon the  Company's  analysis  of
eligible accounts receivable and inventory,  approximately $17,740 was available
to borrow as of June 26, 1998.

Management  believes that  operating  cash flow, as well as the  line-of-credit,
will be  adequate  to  provide  for all cash  requirements  for the  foreseeable
future,  subject to requirements that additional growth or strategic development
might dictate.

Year 2000
The  Company  is aware of the  issues  associated  with the  limitations  of the
programming code in many existing computer systems, whereby the computer systems
may not properly  recognize  date-sensitive  information as the millennium (year
2000) approaches.  The Company's  computer systems include,  but are not limited
to,  computer  systems  embedded in production  equipment,  products  containing
computer systems,  business data processing systems,  production  management and
planning systems, and personal computers. Systems that do not properly recognize
such  information  could generate  erroneous data or cause a system to fail. The
Company  is  currently   engaged  in  the  ongoing  process  of  evaluating  its
information  technology  infrastructure for year 2000. In addition,  the Company
expects  to  correspond  in  the  near  future  with  its  principal  customers,
suppliers,  vendors and subcontractors to ascertain their readiness for the year
2000.  While the total  estimated  cost of these efforts is difficult to predict
with  accuracy,  based on a preliminary  evaluation,  the Company  believes that
there  should  not be a  material  adverse  impact on its  operating  results or
financial condition.  However,  year 2000 issues could have a significant impact
on the Company's operations and its financial results if modifications cannot be
completed on a timely basis, unforeseen needs or problems arise, or if there are
unforeseen  compliance  problems  with the systems  operated  by its  customers,
suppliers, vendors or subcontractors.  Moreover, the change to the year 2000 may
negatively  impact the  Company's  customers  or the CATV  industry  as a whole,
causing reduced demand and market  disruption in anticipation  of, or following,
the year 2000.  Upon  final  completion  of the  evaluation  of its  information
technology   infrastructure   for  year  2000,  the  Company  will  establish  a
contingency  plan  detailing  how the Company  will  handle the most  reasonably
likely worst case scenarios.

<TABLE>
Consolidated Balance Sheets
(in thousands of dollars except share data)
<S>                                                                <C>              <C>
                                                                   June 26, 1998    June 27, 1997
--------------------------------------------------------------------------------------------------
Assets
CURRENT ASSETS
Cash and cash equivalents                                               $  2,313         $    452
Marketable securities                                                        356              359
Accounts receivable, less allowance of $430 in 1998; $510 in 1997         19,404           19,299
Inventories                                                               17,375           19,140
Deferred taxes                                                             2,797            2,616
Other current assets                                                       2,468            1,893
--------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                      44,713           43,759
PROPERTY, PLANT AND EQUIPMENT, NET                                        27,751           25,060
INTANGIBLE ASSETS, NET OF ACCUMULATED
  AMORTIZATION OF $0 IN 1998; $224 IN 1997                                 1,295                -
OTHER LONG-TERM ASSETS                                                     1,759              785
Net noncurrent assets of discontinued operations                               -            1,515
--------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                            $ 75,518         $ 71,119
--------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable                                                        $  5,784         $  8,636
Accrued liabilities                                                       10,245            6,825
Line-of-credit                                                                 -            3,466
Current portion of long-term debt                                            854              834
Net current liabilities of discontinued operations                           517            1,253
--------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                                 17,400           21,014
LONG-TERM DEBT, less current portion                                       5,513            6,367
DEFERRED TAXES                                                             1,374            1,311
OTHER LONG-TERM LIABILITIES                                                1,041              749
Commitments and Contingent Liabilities (See Notes H and O.)
--------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                                         25,328           29,441
--------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred Stock, no par; authorized 2,000,000 shares; issued, none             -                -
Common Stock, $.10 par; authorized shares 24,000,000;
   issued shares of 9,672,128 in 1998 and 9,633,435 in 1997                  967              963
Additional paid-in capital                                                20,341           19,963
Treasury stock at cost, shares of 510,342 in 1998 and 500,000 in 1997     (5,896)          (5,765)
Retained earnings                                                         34,877           26,632
Translation adjustment                                                       (92)            (101)
Net unrealized loss on marketable securities                                  (7)             (14)
--------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY                                                50,190           41,678
--------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                              $ 75,518         $ 71,119
--------------------------------------------------------------------------------------------------
<FN>
-See notes to consolidated financial statements.
</FN>
</TABLE>

<TABLE>
Consolidated Statements of Operations
(in thousands except per share data)
                                                                                     Year Ended
                                                                     June 26, 1998  June 27, 1997  June 28, 1996
-----------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>           <C>            <C>
NET SALES                                                                 $ 152,144     $ 131,941      $ 139,539
COST AND EXPENSES
   Cost of sales                                                            117,557       104,702        104,852
   Selling and administrative                                                15,020        15,787         15,917
   Research and product development                                           7,459         5,681          4,857
   Provision for restructuring costs                                            625             -              -
   Interest                                                                     335           318            960
   Other expense (income), net                                                  384          (250)          (341)
-----------------------------------------------------------------------------------------------------------------
                                                                            141,380       126,238        126,245
-----------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
   BEFORE INCOME TAXES                                                       10,764         5,703         13,294
INCOME TAX EXPENSE (BENEFIT)
   Current                                                                    3,564         1,298          3,875
   Deferred                                                                    (117)          148            405
-----------------------------------------------------------------------------------------------------------------
                                                                              3,447         1,446          4,280
-----------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS                                             7,317         4,257          9,014
-----------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS:
   Loss from operations of discontinued business segment, net of tax              -        (6,605)        (3,095)
   Gain (loss) on disposal of discontinued business segment, net of tax         928        (3,830)             -
-----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                                                         $   8,245     $  (6,178)     $   5,919
-----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE - (basic):
   Continuing operations                                                  $    0.80     $    0.45      $    0.94
   Discontinued operations
        Loss from operations                                                      -         (0.70)         (0.32)
        Gain (loss) on disposal                                                0.10         (0.40)             -
-----------------------------------------------------------------------------------------------------------------
TOTAL                                                                     $    0.90     $   (0.65)     $    0.62
-----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE - (diluted):
   Continuing operations                                                  $    0.78     $    0.44      $    0.91
   Discontinued operations
        Loss from operations                                                      -         (0.68)         (0.31)
        Gain (loss) on disposal                                                0.10         (0.40)          -
-----------------------------------------------------------------------------------------------------------------
TOTAL                                                                     $    0.88     $   (0.64)     $    0.60
-----------------------------------------------------------------------------------------------------------------
Weighted Average Common Shares and Common Share Equivalents
   Basic                                                                      9,148         9,504          9,554
   Diluted                                                                    9,401         9,638          9,868
<FN>
-See notes to consolidated financial statements.
</FN>
</TABLE>

<TABLE>
Consolidated Statements of Cash Flows
(in thousands of dollars)
                                                                                          Year Ended
                                                                       June 26, 1998     June 27, 1997   June 28, 1996
OPERATING ACTIVITIES
<S>                                                                         <C>              <C>              <C>
NET INCOME (LOSS)                                                           $  8,245         $ (6,178)        $  5,919
Adjustments  to  reconcile  net income  (loss) to net cash and cash  equivalents
  provided by (used in) operating activities:
      Depreciation and amortization                                            6,100            4,910            3,972
(Gain) loss on disposal of discontinued operations, net of tax                  (928)           3,830             --
Provision for deferred retirement salary plan                                    292              252              129
Loss (gain) on sale of property, plant and equipment                             (14)              22               (3)
Changes in operating assets and liabilities:
    Accounts receivable                                                         (105)           1,718           12,065
    Inventories                                                                1,765             (561)           3,491
    Other assets                                                              (2,844)            (197)            (895)
    Accounts payable                                                          (2,852)           2,784           (2,055)
    Accrued liabilities                                                        3,420             (243)          (2,349)
    Deferred income taxes                                                       (123)            (133)             371
    Discontinued operations - working capital changes and noncash charges      1,051            3,236           (1,972)
------------------------------------------------------------------------------------------------------------------------
NET CASH AND CASH EQUIVALENTS PROVIDED BY
  OPERATING ACTIVITIES                                                        14,007            9,440           18,673
------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment                                     (8,782)          (5,884)          (7,442)
Proceeds from sale of property, plant and equipment                               14               15                3
Purchase of marketable securities                                               --               (200)            --
Proceeds from sale of marketable securities                                       15              216               25
Proceeds from (investing activities of) discontinued operations                  656             (698)            (586)
------------------------------------------------------------------------------------------------------------------------
NET CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES                    (8,097)          (6,551)          (8,000)
FINANCING ACTIVITIES
Payment of debt and capital lease obligations                                   (834)            (829)            (594)
Proceeds from long-term debt borrowing                                          --               --              6,452
Proceeds from line-of-credit                                                  52,818           21,936           39,029
Payment of line-of-credit                                                    (56,284)         (19,617)         (58,333)
Tax benefit deriving from exercise and sale of stock option shares                57               71            1,454
Issue common stock to employee stock purchase plan                                51               88              107
Proceeds from exercise of stock options                                          274              205            1,141
Purchase of treasury stock                                                      (131)          (5,765)            --
------------------------------------------------------------------------------------------------------------------------
NET CASH AND CASH EQUIVALENTS USED IN FINANCING ACTIVITIES                    (4,049)          (3,911)         (10,744)
------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               1,861           (1,022)             (71)
Cash and cash equivalents at beginning of year                                   452            1,474            1,545
------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                    $  2,313         $    452         $  1,474
------------------------------------------------------------------------------------------------------------------------
<FN>
-See notes to consolidated financial statements.
</FN>
</TABLE>

<TABLE>
Consolidated Statements of Shareholders' Equity
(in thousands of dollars)
                                                                                                                    Net Unrealized
                                                Common    Additional   Treasury     Retained     Translation        Gain (Loss) on
                                                 Stock Paid-In Capital    Stock     Earnings      Adjustment  Marketable Securities
------------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>       <C>           <C>            <C>             <C>
BALANCE, JUNE 30, 1995                         $   945        $16,915   $    -        $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        -         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 gain on marketable securities                                                                                    7
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 27, 1997                             963         19,963    (5,765)       26,632           (101)                 (14)
Net income                                                                              8,245
Exercise of stock options                            4            270
Tax benefit deriving from exercise
   and sale of stock option shares                                 57
Issue shares to employee stock purchase plan                       51
Purchase of treasury stock                                                 (131)
Foreign currency translation adjustment                                                                    9
Net unrealized gain on marketable securities                                                                                    7
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 26, 1998                         $   967        $20,341   $(5,896)      $34,877        $   (92)        $         (7)
------------------------------------------------------------------------------------------------------------------------------------
<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 26, 1998, and June 27, 1997
--------------------------------------------------------------------------------
Description  of  Business:  The Company  designs and  manufactures  high-quality
electronic equipment used in a variety of communication  networks worldwide.  In
fiscal year 1998, the Company operated in one industry  segment,  the Electronic
Distribution Products segment,  which provides hybrid fiber/coax (HFC) equipment
for signal  distribution  applications  primarily to the cable television (CATV)
market. In fiscal year 1997, the Company operated in two industry segments:  the
Electronic   Distribution   Products   segment  and  the  Digital  Fiber  Optics
Transmission  Products  segment,  which  provided  products  for  long-distance,
point-to-point,   video,  voice  and  data  signal  transmission   applications,
primarily for telephony,  distance-learning  and other non-CATV markets. On July
10, 1997,  the Company  announced  that it would  discontinue  its Digital Fiber
Optics Transmission  Products segment. For additional  information regarding the
discontinued business segment, refer to Note B.

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 52-week reporting  periods  presented herein,  the years
ended on June 26, 1998, June 27, 1997, and June 28, 1996.

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.  The carrying value of
the Company's borrowings under its line-of-credit  agreement and other long-term
borrowings approximates fair value.

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, $0 and $23 in
fiscal years 1998, 1997 and 1996, 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

Computer  Software:  Under Statement of Financial  Accounting  Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold,  Leased, or Otherwise
Marketed" (Statement 86), the Company is required to capitalize certain internal
and purchased  software  development  and  production  costs once  technological
feasibility  has been  achieved.  For the fiscal  year ended  1998,  the Company
capitalized $670 of purchased  software  development costs, which is included in
other long-term assets in the consolidated financial statements.  For the fiscal
years  ended  1997  and  1996,  the  Company  did not  capitalize  any  software
development  costs.  Amortization  will commence upon initial  product  release,
which has not occurred,  and as such no amortization has been recorded in fiscal
year 1998.

Intangible  Assets:  Patents,  trademarks  and licenses are carried at cost less
accumulated amortization,  which is calculated on a straight-line basis over the
estimated useful life of the assets.  The patents,  trademarks and license costs
relate to purchased  product  lines.  Amortization  will  commence  upon initial
product  release,  which has not occurred,  and as such no amortization has been
recorded in fiscal year 1998.

In fiscal year 1997,  intangible assets included 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  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
segment.  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  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 1998, the Company repurchased 10,342 shares
of its  common  stock  for $131  under a stock  repurchase  program  adopted  in
September 1997. 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 under both repurchase programs. The repurchased stock is being held by
the  Company  as  treasury  stock and is  available  to be used in  meeting  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 26, 1998,  consisted of
municipal  bonds and equity  securities.  The Company  follows the provisions of
Statement of Financial  Accounting  Standards No. 115,  "Accounting  for Certain
Investments in Debt and Equity  Securities"  (Statement  115), in accounting for
marketable  securities.  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:  Statement of Financial  Accounting  Standards No.
128,  "Earnings  Per Share"  (Statement  128),  became  effective  for financial
statements  issued for periods  ending  after  December  15,  1997.  The Company
adopted  this  Statement  in the  second  quarter  of  fiscal  year 1998 and has
restated prior periods  presented as required.  Implementation  of Statement 128
did  not  have  a  material  effect  on  the  Company's  consolidated  financial
statements.

Basic  earnings  (loss) per share are  computed  based on the  weighted  average
number of common shares outstanding,  excluding any dilutive options and awards.
Dilutive  earnings  (loss) per share are computed based on the weighted  average
number of common shares  outstanding  plus the dilutive  effect of options.  The
dilutive  effect of options is calculated  under the treasury stock method using
the  average  market  price  for the  period.  Net  income  (loss)  per share is
calculated as follows:

<TABLE>
--------------------------------------------------------------------------------------------------------------------------------
                                   Year ended
                                      June 26, 1998 June 27, 1997 June 28, 1996
-------------------------------------------------------------------------------
<S>                                        <C>         <C>           <C>
Income from continuing operations          $   7,317   $    4,257    $   9,014
Gain (loss) from discontinued operations         928      (10,435)      (3,095)
-------------------------------------------------------------------------------
Net income (loss)                          $   8,245   $   (6,178)   $   5,919
-------------------------------------------------------------------------------
Basic shares outstanding                       9,148        9,504        9,554
Common stock equivalents                         253          134          314
-------------------------------------------------------------------------------
Dilutive potential common shares               9,401        9,638        9,868
-------------------------------------------------------------------------------
Net income (loss) per share - (basic)
   Continuing operations                   $    0.80   $     0.45   $     0.94
   Discontinued operations                      0.10        (1.10)       (0.32)
-------------------------------------------------------------------------------
Total                                      $    0.90   $    (0.65)  $     0.62
-------------------------------------------------------------------------------
Net income (loss) per share - (diluted)
   Continuing operations                   $    0.78   $     0.44   $     0.91
   Discontinued operations                      0.10        (1.08)       (0.31)
-------------------------------------------------------------------------------
Total                                      $    0.88   $    (0.64)  $     0.60
-------------------------------------------------------------------------------
</TABLE>

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.

Restructuring Costs: In order to reduce costs and improve productivity and asset
utilization,  on June  25,  1998,  the  Company  announced  the  closing  of its
manufacturing  plant located in  Reedsville,  Pennsylvania.  As a result of this
action, the Company incurred  restructuring charges in the fourth quarter of its
fiscal year 1998 of $625.  The  restructuring  charge  represents  salaries  and
benefits for approximately 143 employees to be terminated.  At June 26, 1998, no
expenses had been charged against this restructuring accrual.

At June 26, 1998, the Company had a Lease/Option to Purchase  Agreement with the
Mifflin County Industrial  Development  Corporation (MCIDC) for the building and
improvements located in Reedsville, Pennsylvania. On August 10, 1998, subsequent
to fiscal year ended June 26, 1998, the Company purchased the facility using its
available  capital  resources  and  expects to sell the  facility  at a price in
excess of its net carrying value.

Recent Accounting  Changes:  In 1997, the Financial  Accounting  Standards Board
(FASB) issued Statement of Financial  Accounting  Standards No. 130,  "Reporting
Comprehensive  Income"  (Statement  130),  which is  effective  for fiscal years
beginning  after  December 15, 1997.  This Statement  establishes  standards for
reporting and classifying  components of  comprehensive  income in the financial
statements  and requires  that the  accumulated  balance of other  comprehensive
income  be  displayed   separately   from  retained   earnings  and   additional
paid-in-capital in the equity section of the financial statements. The FASB also
issued Statement of Financial Accounting  Standards No. 131,  "Disclosures about
Segments of an Enterprise and Related  Information"  (Statement  131),  which is
effective for fiscal years  beginning  after  December 15, 1997.  This Statement
establishes   standards  for  providing  disclosures  related  to  products  and
services, geographic area, and major customers. The Company anticipates adopting
these  Statements  in its fiscal year 1999  financial  statements  as  required.
Implementation  of these Statements is not expected to have a material effect on
the Company's consolidated financial statements.

In 1998, the FASB issued  Statement of Financial  Accounting  Standards No. 132,
"Employers'  Disclosures  about  Pensions  and  Other  Postretirement  Benefits"
(Statement  132),  which is effective for fiscal years  beginning after December
15, 1997. This Statement  standardizes the disclosure  requirements for pensions
and other postretirement benefits to the extent practicable, requires additional
information  on benefit  obligations  and plan  assets,  and  suggests  combined
formats  for   presentation   of  pension  and  other   postretirement   benefit
disclosures.  The FASB also issued Statement of Financial  Accounting  Standards
No.  133,  "Accounting  for  Derivative   Instruments  and  Hedging  Activities"
(Statement  133),  which is effective for fiscal years  beginning after June 15,
1999.  This  Statement  establishes   accounting  and  reporting  standards  for
derivative  instruments,  including certain derivative  instruments  embedded in
other contracts,  and for hedging activities.  The Company anticipates  adopting
these  Statements  in its  fiscal  year  1999  and 2000  consolidated  financial
statements as required.  Implementation  of these  Statements is not expected to
have a material effect on the Company's consolidated financial statements.

Reclassification:  Certain amounts have been reclassified for comparability with
fiscal year 1998 presentation.

B. Discontinued Operations
On July 10, 1997, the Company announced the discontinuation of its Digital Fiber
Optics  Transmission  Products segment,  in a nine-month  wind-down process.  An
estimated loss on disposal,  including write-offs of inventory and fixed assets,
and other costs from the  measurement  to the  disposal  date,  was  recorded in
fiscal  year  1997.  The  estimated  loss,  net of tax  benefit of $1,974 on the
disposal of the discontinued business segment, was $3,830 in fiscal year 1997.

The Company substantially completed the phase-down of this operation as of March
1998. The Company  recorded a gain of $928,  which includes a net tax benefit of
$94 on the disposal of the  discontinued  segment in fiscal year 1998.  The gain
represents an  adjustment of the estimated  loss on the disposal of the business
segment of $3,830,  net of  applicable  income tax benefit of $1,974  previously
reported  in fiscal  year  1997.  The gain  derived  primarily  from  lower than
anticipated  operating costs from the measurement  date to the disposal date and
higher  than  anticipated  proceeds  associated  with the  disposal  of  assets,
primarily inventory.

The after-tax losses from operations of the  discontinued  business segment were
$6,605 and $3,095,  for fiscal  years 1997 and 1996,  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.  Summarized  information relating to the discontinued  operations
for fiscal years 1997 and 1996 is as follows:

<TABLE>
                                   Year ended
                           June 27, 1997 June 28, 1996
----------------------------------------------------------------------------------
<S>                                                  <C>            <C>
Net sales                                            $  7,994       $  9,359
Costs and expenses                                    (17,351)       (13,959)
----------------------------------------------------------------------------------
Loss before income taxes                               (9,357)        (4,600)
Income tax benefit                                      2,752          1,505
----------------------------------------------------------------------------------
Net loss                                             $ (6,605)      $ (3,095)
----------------------------------------------------------------------------------
</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 non-current  assets related to
the  discontinued  operations.  These net assets consist of net working capital,
net property,  plant and  equipment,  other assets and intangible  assets,  less
related liabilities as follows as of June 26, 1998, and June 27, 1997:
<TABLE>

                           June 26, 1998 June 27, 1997
--------------------------------------------------------------------------------
Current assets:
<S>                                                     <C>            <C>
    Accounts receivable                                 $   150        $   817
    Notes receivable                                        981           --
    Inventory                                              --            1,181
    Deferred tax assets                                   1,602          4,013
    Other assets                                            156              4
--------------------------------------------------------------------------------
                                                          2,889          6,015
--------------------------------------------------------------------------------
Current liabilities:
    Accounts payable                                       --             (342)
    Accrued warranty and other                           (2,806)        (3,551)
    Allowance for disposal of discontinued operations      (600)        (3,375)
--------------------------------------------------------------------------------
                                                         (3,406)        (7,268)
--------------------------------------------------------------------------------
 Net current liabilities of discontinued operations     $  (517)       $(1,253)
--------------------------------------------------------------------------------
 Noncurrent assets:
    Property, plant and equipment                       $  --          $ 1,498
    Other assets                                           --               17
--------------------------------------------------------------------------------
                                                           --            1,515
--------------------------------------------------------------------------------
Noncurrent liabilities:                                    --             --
--------------------------------------------------------------------------------
Net noncurrent assets of discontinued operations        $  --          $ 1,515
--------------------------------------------------------------------------------
</TABLE>


C. Marketable Securities
Marketable  securities as of June 26, 1998, and June 27, 1997,  consisted of the
following:
<TABLE>
                                                         Gross
                                  Amortized         Unrealized           Fair
                                       Cost     Holding Losses          Value
-------------------------------------------------------------------------------
 June 26, 1998:
 Available-for-sale:
<S>                                  <C>                <C>            <C>
   Municipal bonds                   $ 366              $ (12)         $ 354
   Equity securities                     2               --                2
-------------------------------------------------------------------------------
                                     $ 368              $ (12)         $ 356
-------------------------------------------------------------------------------
June 27, 1997:
 Available-for-sale:
   Municipal bonds                   $ 382              $ (24)         $ 358
   Equity securities                     1               --                1
-------------------------------------------------------------------------------
                                     $ 383              $ (24)         $ 359
-------------------------------------------------------------------------------
</TABLE>

Maturities of investment securities classified as available-for-sale at June 26,
1998, were as follows:
<TABLE>

                                                          Cost          Value
-------------------------------------------------------------------------------
Available-for-sale:
<S>                                                  <C>            <C>
   Due after one year through five years             $     366      $     354
   Equity securities                                         2              2
-------------------------------------------------------------------------------
                                                     $     368      $     356
-------------------------------------------------------------------------------
</TABLE>


D. Inventories
<TABLE>

                                           June 26, 1998    June 27, 1997
--------------------------------------------------------------------------
<S>                                              <C>              <C>
Finished goods                                   $ 2,850          $ 1,436
Work-in-process                                    1,755            3,346
Raw materials                                     12,770           14,358
--------------------------------------------------------------------------
                                                 $17,375          $19,140
--------------------------------------------------------------------------
<FN>
Included  in the amounts  above are  reserves  of $1,987 at June 26,  1998,  and
$1,233 at June 27, 1997.
</FN>
</TABLE>

<TABLE>
E. Property, Plant and Equipment
                                           June 26, 1998        June 27, 1997
------------------------------------------------------------------------------
<S>                                              <C>                  <C>
Land                                             $   468              $   468
Building and improvements under capital lease      1,727                1,727
Buildings                                         10,683               10,090
Machinery and equipment under capital lease           39                  110
Machinery and equipment                           41,515               33,586
Leasehold improvements                               875                  751
------------------------------------------------------------------------------
                                                  55,307               46,732
Less accumulated depreciation and amortization    27,556               21,672
------------------------------------------------------------------------------
                                                 $27,751              $25,060
------------------------------------------------------------------------------
</TABLE>

<TABLE>
F. Intangible Assets
                                          June 26, 1998        June 27, 1997
------------------------------------------------------------------------------
Cost of intangibles:
<S>                                              <C>                  <C>
   Goodwill - DataCable B.V                      $ --                 $  224
   Patents and trademarks                         1,045                 --
   Licensing costs                                  250                 --
------------------------------------------------------------------------------
                                                  1,295                  224
------------------------------------------------------------------------------
 Less accumulated amortization:
   Goodwill - DataCable B.V                      $ --                 $  224
   Patents and trademarks                          --                   --
   Licensing costs                                 --                   --
------------------------------------------------------------------------------
                                                   --                    224
------------------------------------------------------------------------------
Net book value                                   $1,295               $ --
------------------------------------------------------------------------------
</TABLE>

G. Line-of-Credit
At June 26, 1998,  the Company had no short-term  borrowings  outstanding on its
revolving  line-of-credit.  On this  line-of-credit,  the Company may borrow the
lesser of $23,000 or a percentage of eligible accounts receivable and inventory.
The  borrowings  bear  interest at various rates  generally  equal to the London
Interbank  Offered Rate (LIBOR) plus 1.10% and require  compliance  with certain
covenants.  The  weighted-average  interest  rates  paid  on the  line-of-credit
borrowings  were  approximately  7.2% and 7.1% for  fiscal  years 1998 and 1997,
respectively.  Interest  is  payable in 30 days as  billed.  The  line-of-credit
agreement  is  committed  through  October 30,  1998.  Accounts  receivable  and
inventory  collateralize  the borrowings.  Based upon the Company's  analysis of
eligible accounts receivable and inventory,  approximately $17,740 was available
to borrow as of June 26, 1998. The line-of-credit  balance at June 27, 1997, was
$3,466.

<TABLE>
H. Long-term Debt
                                              June 26, 1998    June 27, 1997
------------------------------------------------------------------------------
<S>                                                  <C>              <C>
Notes payable                                        $4,909           $5,646
Capital lease obligations                             1,458            1,555
------------------------------------------------------------------------------
                                                      6,367            7,201
Less current portion                                    854              834
------------------------------------------------------------------------------
                                                     $5,513           $6,367
------------------------------------------------------------------------------
</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.
Certain property, plant and equipment collateralize the borrowing. The principal
balance at June 26, 1998, was $300.

The Company  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. Certain property,  plant and equipment  collateralize the
borrowing. The principal balance at June 26, 1998, was $1,647.

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 commitments.  Two notes evidence the funding.  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.   Certain  equipment  collateralizes  the  borrowing.  The
principal balances at June 26, 1998, were $412 and $2,550, 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 Reedsville,  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.

Long-term debt at June 26, 1998, had scheduled maturities as follows:

<TABLE>
Fiscal year ending:
     <S>                                                              <C>
      1999                                                            $  854
      2000                                                               875
      2001                                                               895
      2002                                                               916
      2003                                                               529
      Thereafter                                                       2,298
------------------------------------------------------------------------------
                                                                      $6,367
------------------------------------------------------------------------------
</TABLE>

Total  interest paid on the  line-of-credit  (described in Note G) and long-term
debt was  $335,  $304 and $958 for  fiscal  years  ended  1998,  1997 and  1996,
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>
      1999                                                            $  440
      2000                                                               435
      2001                                                               427
      2002                                                               386
      2003                                                               313
      Thereafter                                                         773
------------------------------------------------------------------------------
                                                                      $2,774
------------------------------------------------------------------------------
</TABLE>

Rent  expense  relating to  continuing  operations  was $859,  $748 and $682 for
fiscal years ended 1998, 1997 and 1996, 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 either 20 or 25
percent per year beginning one year after the date of grant.  Options granted to
non-employee  directors are  exercisable  one year after grant.  Certain options
held by the Chairman are exercisable immediately.

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  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 123, the Company's
net income  (loss) and net income  (loss) per share would have been  adjusted to
the pro forma amounts indicated below:

<TABLE>
                                                    Year ended
----------------------------------------------------------------------------------
                                     June 26, 1998  June 27, 1997  June 28, 1996
----------------------------------------------------------------------------------
Net income (loss):
<S>                                       <C>            <C>           <C>
     As reported                          $  8,245       $(6,178)      $  5,919
     Pro forma                            $  6,977       $(6,396)      $  5,614
Net income (loss) per share:
  Basic
     As reported                          $   0.90       $ (0.65)      $   0.62
     Pro forma                            $   0.76       $ (0.67)      $   0.59
  Diluted
     As reported                          $   0.88       $ (0.64)      $   0.60
     Pro forma                            $   0.74       $ (0.66)      $   0.57
</TABLE>

The per share  weighted-average  fair  values of stock  options  granted  during
fiscal years 1998, 1997 and 1996 were $9.81, $4.28 and $9.29,  respectively,  on
the  date of  grant  using  the  Black-Scholes  option-pricing  model  with  the
following weighed-average assumptions:  Fiscal year 1998-expected dividend yield
0%, risk-free interest rate of 5.72%, a volatility factor of the expected market
price of the Company's  common stock of .4913, and a  weighted-average  expected
life of  approximately  4 years:  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 1998, 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 26,
1998,  June 27, 1997,  and June 28, 1996,  and changes during the years ended on
those dates is presented below: <TABLE> Fiscal years ended:
                                        June 26, 1998             June 27, 1997                  June 28, 1996
                                    ----------------------    ------------------------     ---------------------
                                          Weighted-Average            Weighted-Average          Weighted-Average
                                    Shares  Exercise Price    Shares    Exercise Price     Shares Exercise Price
                                    ----------------------    ------------------------     ---------------------
<S>                                 <C>          <C>         <C>             <C>          <C>          <C>
Outstanding at beginning of year    751,449      $  14.71    776,542         $  15.08     752,460      $  11.41
Granted                             836,404      $  12.86    118,000         $  14.99     233,265      $  22.33
Exercised                           (33,531)     $   7.80    (27,205)        $   8.32    (147,243)     $   7.82
Canceled                           (136,062)     $  15.35   (115,888)        $  19.02     (61,940)     $  15.02
                                  ----------                ---------                    ---------
Outstanding at end of year        1,418,260      $  13.72    751,449         $  14.71     776,542      $  15.08
                                  ----------                ---------                    ---------
Options exercisable at end of year  470,950                  433,292                      344,841
</TABLE>


The following  table  summarizes  information  about the Company's  stock option
plans as of June 26, 1998:

<TABLE>
                                                    Options Outstanding                             Options Exercisable
                     ---------------------------------------------------------------------   -----------------------------------
Range of             Number Outstanding                Weighted-Avg.         Weighted-Avg.   Number Exercisable    Weighted-Avg.
Exercise Prices             at 06/26/98   Remaining Contractual Life        Exercise Price          at 06/26/98   Exercise Price
                     ---------------------------------------------------------------------   -----------------------------------
<S>                           <C>                          <C>                      <C>                 <C>              <C>
$2.75 to $8.38                  229,910                    4.6 years                $ 6.61              227,620          $  6.60
$8.50 to $14.13                 401,066                    7.0 years                $10.30               60,986          $ 11.47
$14.375 to $19.75               545,269                    7.9 years                $14.87               39,655          $ 15.59
$20.12 to $25.50                166,600                    7.6 years                $21.85              100,956          $ 21.85
$25.75 to $31.25                75,415                     7.0 years                $27.35               41,733          $ 27.33
                              ---------                                                                 -------
                              1,418,260                    7.0 years                $13.72              470,950          $ 13.10
                              ---------                                                                 -------
</TABLE>

J. Income Taxes
The total income tax expense (benefit) is allocated as follows:

<TABLE>
                                                      Year ended
                                      June 26, 1998   June 27, 1997    June 28, 1996
-------------------------------------------------------------------------------------
<S>                                         <C>             <C>              <C>
Income from continuing operations           $ 3,447         $ 1,446          $ 4,280
Results of discontinued operations             --            (2,752)          (1,505)
Gain (loss) on disposal of
   discontinued operations                      (94)         (1,974)            --
                                            -------         --------         -------
                                            $ 3,353         $(3,280)         $ 2,775
                                            -------         --------         -------
</TABLE>

Income  tax  expense  (benefit)  from  continuing  operations  consists  of  the
following components:

<TABLE>
                                            Year ended

                       June 26, 1998         June 27, 1997    June 28, 1996
-----------------------------------------------------------------------------
<S>                         <C>                   <C>              <C>
Current: Federal            $  3,262              $  1,493         $  3,426
         State                   263                   (97)             167
         Foreign                  39                   (98)             282
-----------------------------------------------------------------------------
                               3,564                 1,298            3,875
-----------------------------------------------------------------------------
Deferred: Federal               (105)                  133              356
          State                  (12)                   15               49
-----------------------------------------------------------------------------
                                (117)                  148              405
                            $  3,447              $  1,446         $  4,280
-----------------------------------------------------------------------------
</TABLE>

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax  liabilities  at June 26, 1998,  and
June 27, 1997, relating to continuing operations are presented below:

<TABLE>
                                                 June 26, 1998   June 27, 1997
-------------------------------------------------------------------------------
Gross deferred tax assets:
<S>                                                  <C>              <C>
   Accounts receivable, due to allowance for
     doubtful accounts                               $     144        $    101
   Inventories, due to additional costs for
     tax purposes                                          168             143
   Inventories, due to accrual for obsolescence            628             315
   Vacation expense accrual for accounting purposes        385             358
   Workers' compensation expense accrual for
     accounting purposes                                   449             395
   Warranty expense accrual for accounting purposes        583             762
   Employee benefit plan accrual for accounting purposes   224             190
   Alternative minimum tax credit carryforward             228             378
   State net operating loss carryforward                   206             100
   Other                                                   140              45
-------------------------------------------------------------------------------
   Total gross deferred tax assets                       3,155           2,787
Less valuation allowance                                    -               -
-------------------------------------------------------------------------------
   Net total deferred tax assets                         3,155           2,787
-------------------------------------------------------------------------------
Gross deferred tax liabilities:
   Plant and equipment principally due to differences
     in depreciation                                    (1,732)         (1,482)
-------------------------------------------------------------------------------
Total gross deferred tax liabilities                    (1,732)         (1,482)
-------------------------------------------------------------------------------
Net deferred tax assets                              $   1,423        $  1,305
-------------------------------------------------------------------------------
Reflected on attached consolidated balance sheets as:
   Current deferred asset                            $   2,797        $  2,616
   Non-current deferred liability, net                  (1,374)         (1,311)
-------------------------------------------------------------------------------
 Net deferred tax assets                             $   1,423        $  1,305
-------------------------------------------------------------------------------
</TABLE>

At June 26, 1998,  the Company had a state net operating  loss  carryforward  of
approximately  $4,500,  which is available to offset future state taxable income
through  the fiscal year 2008.  In  addition,  the  Company  has an  alternative
minimum tax (AMT) credit  carryforward of approximately $228, 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 Company's  historical
and current pretax income,  future reversals of existing  temporary  differences
and estimates of future taxable  income,  management  believes it is more likely
than not that the recorded deferred tax assets will be realized.

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 $900 at June 26, 1998.

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 26, 1998   June 27, 1997   June 28, 1996
----------------------------------------------------------------------------------
<S>                                       <C>              <C>          <C>
Statutory rate                            35.0  %          35.0%        35.0%
State income taxes, net of federal tax     1.5             (1.7)         1.0
Tax effect of foreign income and losses    -               (2.8)         2.4
Tax effect of foreign sales corporation   (2.7)           (11.6)        (4.1)
Permanent differences                      0.2              3.0         (0.3)
Other                                     (2.0)             3.5         (1.8)
----------------------------------------------------------------------------------
                                          32.0%            25.4%        32.2 %
----------------------------------------------------------------------------------
</TABLE>

A tax benefit of $593,  deriving  from the Company's  Foreign Sales  Corporation
(FSC),  was recorded in the third  quarter of 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 $1,914,  $1,071 and $2,646 in fiscal years 1998,
1997 and 1996, 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 fiscal year 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 $382 and $190 at June 26, 1998,
and June 27, 1997, 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  $659  and  $559  at  June  26,  1998,  and  June  27,  1997,
respectively.

Total  expenses for these plans were $1,349,  $1,375 and $1,341 for fiscal years
ended 1998, 1997 and 1996, respectively.



<TABLE>
L. Accrued Liabilities
                                                 June 26, 1998  June 27, 1997
------------------------------------------------------------------------------
<S>                                                  <C>            <C>
Accrued incentive plan expense                       $   1,716      $       -
Accrued vacation expense                                 1,435          1,358
Accrued salary expense                                     719            569
Accrued salary and sales tax expense                       903            555
Accrued warranty expense                                 1,716          2,185
Accrued workers' compensation self-insurance expense     1,319          1,162
Accrued restructuring costs                                625              -
Accrued other                                            1,812            996
------------------------------------------------------------------------------
                                                     $  10,245      $   6,825
------------------------------------------------------------------------------
</TABLE>

<TABLE>
M. Other Expense (Income)
                                                      Year ended
                                            June 26, 1998   June 27, 1997   June 28, 1996
-------------------------------------------------------------------------------------------
<S>                                                <C>            <C>             <C>
Investment income                                  $  (27)        $  (110)        $  (114)
Loss (gain) on foreign currency transactions          164             (58)           (166)
Amortization of intangibles                             -              22              45
Other, net                                            247            (104)           (106)
-------------------------------------------------------------------------------------------
                                                   $  384         $  (250)        $  (341)
-------------------------------------------------------------------------------------------
</TABLE>

N. Concentration of Credit Risk
The Company's customers are primarily in the CATV industry. The Company performs
periodic credit evaluations of its customers' financial conditions and generally
does not require  collateral.  At June 26,  1998,  and June 27,  1997,  accounts
receivable  from customers in the CATV industry were  approximately  $19,286 and
$18,307,  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  $47,098  (31%) in fiscal  year 1998.  Sales to one
customer  were $48,026 (36%) in fiscal year 1997.  Sales to two  customers  were
$24,966 (18%) and $25,792 (18%), respectively, in fiscal year 1996.

O. Commitments and Contingencies
The Company had an established  letter of credit of $1,400 at June 26, 1998, for
its self-insured workers' compensation program.

<TABLE>
P. Quarterly Results of Operations (Unaudited)
                                 First      Second      Third    Fourth
1998                           Quarter     Quarter    Quarter   Quarter(1)     1998
------------------------------------------------------------------------------------
<S>                            <C>         <C>        <C>       <C>        <C>
Net sales                      $37,065     $37,185    $40,248   $37,646    $152,144
Gross profit                     8,592       8,061      8,674     9,260      34,587
Income from
   continuing operations         1,881       1,586      1,877     1,973       7,317
Discontinued operations             -           -         363       565         928
Net income                       1,881       1,586      2,240     2,538       8,245
------------------------------------------------------------------------------------
Net income per share - (basic):
   Continuing operations       $  0.21     $  0.17    $  0.20   $  0.22    $   0.80
   Discontinued operations          -          -         0.04      0.06        0.10
Net income per share           $  0.21     $  0.17    $  0.24   $  0.28    $   0.90
------------------------------------------------------------------------------------
Net income per share - (diluted):
   Continuing operations       $  0.20     $  0.17    $  0.20   $  0.21    $   0.78
   Discontinued operations          -          -         0.04      0.06        0.10
Net income per share           $  0.20     $  0.17    $  0.24   $  0.27    $   0.88
------------------------------------------------------------------------------------


                                 First      Second      Third    Fourth
1997                           Quarter     Quarter    Quarter   Quarter(2)     1997
------------------------------------------------------------------------------------
Net sales                      $31,844     $30,701    $32,801   $36,595    $131,941
Gross profit                     7,197       5,982      6,434     7,626     $27,239
Income from
   continuing operations         1,533         563      1,346       815       4,257
Discontinued operations           (774)       (228)    (1,182)   (8,251)    (10,435)
Net income (loss)                  759         335        164    (7,436)     (6,178)
------------------------------------------------------------------------------------
Net income (loss) per share - (basic):
   Continuing operations       $  0.16     $  0.06    $  0.14   $  0.09    $   0.45
   Discontinued operations     (  0.08)      (0.03)     (0.12)    (0.89)      (1.10)
Net income (loss) per share    $  0.08     $  0.03    $  0.02   $ (0.80)   $  (0.65)
------------------------------------------------------------------------------------
Net income (loss) per share - (diluted):
   Continuing operations       $  0.16     $  0.06    $  0.14   $  0.09    $   0.44
   Discontinued operations       (0.08)      (0.03)     (0.12)    (0.89)      (1.08)
Net income (loss) per share    $  0.08     $  0.03    $  0.02   $ (0.80)   $  (0.64)
------------------------------------------------------------------------------------

<FN>
(1) Results from  continuing  operations  for the fourth  quarter of fiscal year
1998 include a provision for  restructuring  costs of $625.  (2) 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
As previously  reported in the Company's Annual Report for the fiscal year ended
June 27, 1997, on or about March 31, 1995,  certain  shareholders of the Company
filed a complaint in the United States  District Court for the Eastern  District
of  Pennsylvania  against the Company and its Chief Executive  Officer  alleging
violations of Sections 10 (b) and 20 (a) of the Securities  Exchange Act of 1934
and common law. On September 27, 1997, a tentative  settlement  was reached with
respect  to this  litigation,  and the  settlement  amount was  recorded  in the
financial  statements  during the first quarter of fiscal year 1998. On July 14,
1998, the United States District Court for the Eastern  District of Pennsylvania
approved  the  settlement  reached by the  parties and  dismissed  the case with
prejudice.

R. Segment Information
In  fiscal  year  1998,  the  Company  operated  in one  industry  segment,  the
Electronic  Distribution  Products  segment,  which  provides HFC  equipment for
signal distribution  applications  primarily to the CATV market. In fiscal years
1997 and 1996,  the Company  operated in two industry  segments:  the Electronic
Distribution Products segment 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. On July 10, 1997, the Company announced the discontinuation of
its Digital Fiber Optics Transmission Products segment.

Information  about industry  segments for fiscal years 1998, 1997 and 1996 is as
follows:
<TABLE>
                                            Continuing      Discontinued
                                            Operations        Operations           Total
------------------------------------------------------------------------------------------
Year Ended June 26, 1998
------------------------------------------------------------------------------------------
<S>                                          <C>               <C>              <C>
   Total revenue                             $ 152,144         $       -        $ 152,144
------------------------------------------------------------------------------------------
   Operating income                          $  11,099         $       -        $  11,099
   Identifiable assets at June 26, 1998      $  75,518         $   2,889        $  78,407
   Capital Expenditures                      $   8,575         $       -        $   8,575
   Depreciation and amortization             $   5,946         $       -        $   5,946
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         $   7,530        $  77,134
   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      $  70,648         $   7,759        $  78,407
   Capital Expenditures                      $   7,442         $     586        $   8,028
   Depreciation and amortization             $   3,972         $     755        $   4,727
------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
The Company and subsidiaries operate in various geographic areas as indicated by
the following:
                               U.S.      Canada          Europe     Eliminations      Total
----------------------------------------------------------------------------------------------
Year Ended June 26, 1998
----------------------------------------------------------------------------------------------
Sales to unaffiliated
   customers:
<S>                         <C>         <C>            <C>            <C>            <C>
      Domestic              $120,237    $  1,635       $    146       $      -       $122,018
      Export                  30,126           -              -              -         30,126
Transfers between
   geographic areas              798           -              -           (798)             -
----------------------------------------------------------------------------------------------
Total Revenue               $151,161    $  1,635       $    146       $   (798)      $152,144
----------------------------------------------------------------------------------------------
Operating income            $ 10,620    $    290       $    189       $      -       $ 11,099
----------------------------------------------------------------------------------------------
Identifiable assets at
   June 26, 1998            $ 74,283    $    954       $    281       $      -       $ 75,518
----------------------------------------------------------------------------------------------
Capital Expenditures        $  8,574    $      1       $      -       $      -       $  8,575
----------------------------------------------------------------------------------------------
Depreciation and
   amortization             $  5,910    $     12       $     24       $      -       $  5,946
----------------------------------------------------------------------------------------------
Year Ended June 27, 1997
----------------------------------------------------------------------------------------------
Sales to unaffiliated
   customers:
      Domestic              $106,785    $  1,523       $    751       $      -       $109,059
      Export                  22,882           -              -              -         22,882
Transfers between
   geographic areas              (95)          -              -             95             -
----------------------------------------------------------------------------------------------
Total Revenue               $129,572    $  1,523       $    751       $     95       $131,941
----------------------------------------------------------------------------------------------
Operating income            $  5,842    $    162       $     17       $      -       $  6,021
----------------------------------------------------------------------------------------------
Identifiable assets at
   June 27, 1997            $ 67,464    $  1,542       $    598       $      -       $ 69,604
----------------------------------------------------------------------------------------------
Capital Expenditures        $  5,852    $      6       $     26       $      -       $  5,884
----------------------------------------------------------------------------------------------
Depreciation and
   amortization             $  4,847    $     12       $     51       $      -       $  4,910
----------------------------------------------------------------------------------------------
Year ended June 28, 1996
----------------------------------------------------------------------------------------------
Sales to unaffiliated
   customers:
      Domestic              $ 84,792    $  6,223       $  5,968       $      -       $ 96,983
      Export                  42,556           -              -              -         42,556
Transfers between
   geographic areas            9,570           -              -         (9,570)             -
----------------------------------------------------------------------------------------------
Total Revenue               $136,918    $  6,223       $  5,968       $ (9,570)      $139,539
----------------------------------------------------------------------------------------------
Operating income            $ 11,596    $  2,210       $    448       $      -       $ 14,254
Identifiable assets at
   June 28, 1996            $ 65,539    $  3,464       $  1,645       $      -       $ 70,648
----------------------------------------------------------------------------------------------
Capital Expenditures        $  7,414    $     10       $     18       $      -       $  7,442
----------------------------------------------------------------------------------------------
Depreciation and
   amortization             $  3,848    $     15       $    109       $      -       $  3,972
----------------------------------------------------------------------------------------------
</TABLE>

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 12, 1998


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 26, 1998, and June 27, 1997, and
the related consolidated statements of operations,  cash flows and shareholders'
equity for each of the years in the three-year period ended June 26, 1998. 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  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of C-COR Electronics,
Inc. and Subsidiaries as of June 26, 1998, and June 27, 1997, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended June 26, 1998, in conformity  with  generally  accepted  accounting
principles.

/s/  KPMG Peat Marwick LLP
State College, Pennsylvania
August 12, 1998

<TABLE>
DIRECTORS & OFFICERS

                                                     Year first elected
Directors                                                    a director

<S>                                                                <C>
Richard E. Perry                                                   1985
Chairman of the Board (2,4,5)

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. (1,2,4,5)

Javad K. Hassan                                                    1997
President, J. K. Hassan Assoc. LLC (1,4,6)

Anne P. Jones, Esq.                                                1989
Telecommunications Consultant (1,3,4,5)

John J. Omlor                                                      1989
President and Chief Executive Officer,
John J. Omlor Associates, Ltd. (2,4,6)

Dr. Frank Rusinko, Jr.                                             1990
Senior Scientist and Director,
Consortium for Premium Carbon Products
from Coal and Carbon Research Center,
College of Earth and Mineral Sciences
of The Pennsylvania State University (1,4,5,6)

Dr. James J. Tietjen                                               1987
Dean, School of Technology Management,
The Stevens Institute of Technology (3,4,6)


<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
(6) Member of the Technology Innovation Committee
</FN>

</TABLE>


<TABLE>
Directors Emeriti

<S>                                                               <C>
Joseph C. Bates                                                   1982

Dr. John L. McLucas                                               1982

Dr. Marsh W. White                                                1963
</TABLE>



Officers

David A. Woodle
President and Chief Executive Officer

Edwin S. Childs
Vice President
Human Resources

David J. Eng
Senior Vice President
Sales

Lawrence R. Fisher, Jr.
Vice President
Engineering

Lynn D. Hutcheson
Senior Vice President
Engineering and Technology

Chris A. Miller
Vice President
Finance, Secretary and Treasurer

Donald F. Miller
Vice President
Operations and Manufacturing

Gerhard B. Nederlof
Senior Vice President
Marketing and Services

Joseph E. Zavacky
Controller and Assistant Secretary

CORPORATE DATA

Annual Meeting of Shareholders
October 13, 1998 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:

Quarter Ending           Price
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

Quarter Ending           Price
September 30, 1997       High   16 3/4
                         Low      8 13/16
December 31, 1997        High   18 1/4
                         Low    14
March 31, 1998           High   16
                         Low    12 7/8
June 30, 1998            High   19
                         Low    12 7/8

C-COR  Electronics,  Inc. has never paid a dividend.  As of June 26, 1998, there
were 599 shareholders of record of Common Stock.


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

SEC Counsel
Ballard Spahr Andrews & Ingersoll, LLP
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 contact 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.

C-COR On The Web
C-COR's web site  (http://www.c-cor.com)  provides a vast array of  information,
including company profile,  news,  product  information,  investor relations and
more.


                                  M|I|S|S|I|O|N
                                S|T|A|T|E|M|E|N|T

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, to 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
31-36-536 4199
Fax 31-36-536 4255

DENVER OFFICE
12742 East Caley Avenue, Suite A
Englewood, CO  80111
303-799-1100
Fax 303-643-1743

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

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All rights reserved.
(C) 1996, C-COR Electronics, Inc.