<PAGE>

                                                      Exhibit 13

CORPORATE INFORMATION

CORPORATE OFFICERS

Michael  Foster
Chairman and Chief Executive Officer

Dennis Deegan
President and Chief Operating Officer

John Powers
Vice President and Chief Financial Officer

Dr. John Allen
Vice President, Power Solutions Group

Karen Hebert
Vice President, Human Resources

Timothy Jones
Vice President, Information Solutions Group

Michael Tule
Vice President, General Counsel and Secretary



INFORMATION SOLUTIONS GROUP

WPI DecisionKey, Inc.                  WPI Husky Computers, Inc
Manchester, NH                         Clearwater, FL

WPI Husky Computers, Ltd.              WPI Husky Computers GmbH 
Rungis Cedex, France                   Lohmar, Germany 
              
WPI Husky Computers, Ltd.              WPI Husky Computers, Ltd.
Lidkoping, Sweden                      Coventry, U.K.

WPI Micro Processor Systems, Inc.      WPI Oyster Termiflex, Inc.
Sterling Heights, MI                   Manchester, NH
                    
WPI Oyster Termiflex, Ltd.
Cwmbran, U.K.


POWER SOLUTIONS GROUP

WPI Electronics, Inc.                  WPI Magnetec, Inc.
 Warner, NH                            Warner, NH

WPI Power Systems, Inc.
 Warner, NH


                                         -16-
<PAGE>


BOARD OF DIRECTORS

Michael  Foster
Chairman and Chief Executive Officer
WPI Group, Inc.

Dennis Deegan
President and Chief Operating Officer
WPI Group, Inc.

Stephen Carlotti
Partner
Hinckley, Allen & Snyder

Peter Danforth
General Partner 
Kearsarge Ventures, Ltd.

Paul Giovacchini
Senior Investment Manager
Seacoast Capital Corporation

Irving Gutin
Senior Vice President
Tyco International (U.S.), Inc.

Robert McCray
President 
Valvcon Corporation

Steven Shulman
Principal
The Hampton Group

Bernard Tenenbaum
President
Children's Leisure Products Group
The Jordan Company

AUDITORS

Arthur Andersen LLP
225 Franklin Street
Boston,  MA 02110

                                         -17-
<PAGE>



SHAREHOLDER INFORMATION


TRANSFER AGENT AND REGISTRAR

Boston Equiserve
150 Royall Street
Canton, MA 02021
Telephone: (617) 575-2000

INVESTOR RELATIONS CONTACT

Michele M. Normandin
Investor Relations
WPI Group, Inc.
1155 Elm Street
Manchester, NH 03101
Telephone: (603) 627-3500


FORM 10-K

A copy of the Company's annual report to the Securities and Exchange 
Commission on Form 10-K, exclusive of Exhibits, is available without charge 
upon written request to Michele Normandin, Investor Relations, WPI Group, 
Inc., 1155 Elm Street, Manchester, NH 03101, Telephone (603) 627-3500 FAX  
(603) 627-3150

ANNUAL MEETING

The 1998 Annual Meeting of Shareholders is scheduled for February 10, 1998 at 
10:00 a.m. at the WPI Group, Inc. Corporate Headquarters, 1155 Elm Street, 
Manchester, NH 03101.

                                         -18-
<PAGE>



STOCK PROFILE AND ACTIVITY

The Company's common stock is traded on the NASDAQ National Market System 
under the symbol WPIC. Set forth below for each quarter of its last 2 fiscal 
years indicated are the high and low sale prices for WPI Group, Inc. common 
stock.

                            1997                 1996
FISCAL QUARTER              HIGH       LOW       HIGH       LOW
--------------              ----       ---       ----       ---
First................     $ 8 1/4    $6 1/8    $ 4 1/8    $ 2 1/2
Second...............     $10 1/2    $6 5/8    $ 7 1/8    $ 3 5/8
Third................     $ 9        $6 1/8    $13 3/8    $ 7 1/4
Fourth...............     $12 5/8    $8 1/8    $10 5/8    $ 6

The number of shareholders of record on December 8, 1997 was approximately 
3,400.  No dividends have been paid on the common stock to date, and the 
Company does not expect to pay cash dividends in the foreseeable future.

                                         -19-
<PAGE>


                           WPI GROUP, INC. AND SUBSIDIARIES
                                           
                       MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                           
      This review should be read in conjunction with the consolidated  
financial statements and related notes beginning on page 16  of this annual 
report.  In addition to historical information, this Annual Report contains 
forward-looking statements that involve risks and uncertainties that could 
cause actual results to differ materially.  Factors that might cause or 
contribute to such differences include, but are not limited to, those 
discussed in the section entitled "Management's Discussion and Analysis of 
Financial Condition and Results of Operations."  Readers should carefully 
review the risks described in other documents the Company files from time to 
time with the Securities and Exchange Commission, including the Quarterly 
Reports on Form 10-Q to be filed by the Company in 1998.  Readers are 
cautioned not to place undue reliance on the forward-looking statements, 
which speak only as of the date of this Annual Report.  The Company 
undertakes no obligation to publicly release any revisions to the 
forward-looking statements or reflect events or circumstances after the date 
of this document. 

RESULTS OF OPERATIONS

FISCAL 1997 COMPARED TO FISCAL 1996

Net sales increased 32% to $62.5 million in 1997 from $47.5 million in 1996. 
The increase was due primarily to the inclusion of a full year of sales from 
WPI Oyster Terminals, Ltd., the addition of Husky Computers, Ltd.'s sales 
following the June 20, 1997 acquisition and internal growth.

Gross profit in 1997 increased 39% to $24.9 million from $17.9 million in 
1996. As a percentage of sales, gross profit grew to 40% from 38% in 1996.  
The increase was due primarily to the change in product mix. 
 
Research and new product development expenses increased 36% to $4.0 million 
in 1997 from $2.9 million in 1996. As a percentage of sales, research and new 
product development expenses were 6% in both years.  The increase was due 
primarily to the acquisitions discussed above and additions to engineering 
staff for new products that support internal growth.

Selling, general and administration expenses increased 57% to $16.9 million 
in 1997 compared to $10.8 million in 1996. As a percentage of sales, selling, 
general and administration expenses increased to 27% from 23% in 1996. The 
increase was primarily due to expenses incurred in connection with the 
acquisition of Husky Computers, Ltd.,  expenses incurred in the  realignment 
of WPI's Information Solutions Group and certain other expenses including the 
increase in reserves related to litigation concerning the collection of two 
outstanding receivables. 

Operating income decreased 21% to $3.3 million from $4.2 million in 1996. The 
decrease in operating income  was primarily due to an increase in expenses 
incurred in connection with the acquisition of Husky Computers, Ltd., 
expenses incurred in the realignment of WPI's Information Solutions Group and 
certain other expenses including the increase in reserves related to 
litigation concerning the collection of two outstanding receivables. 

Other income (expense) increased to ($1.4 million) in 1997 from ($.4 million) 
in 1996.  The increase was due primarily to an increase in interest expense on 
debt related to the acquisitions discussed above. Other income consists 
primarily of income from the surrender of a lease by the lessee related to a 
building acquired in 1997.

Income before provision for income taxes decreased to $2.0 million in 1997 
compared to $3.7 million in 1996.  The decrease was primarily due to the 
acquisition, restructuring and other expenses discussed above. 

The Company's consolidated income tax rates, as a percentage of pre-tax 
income, were 43% and 33% for 1997 and 1996, respectively. The increase in 
1997 was a result of higher foreign income and nondeductible goodwill.

                                         -20-
<PAGE>



FISCAL 1996 COMPARED TO FISCAL 1995

Net sales increased 84% to $47.5 million in 1996 from $25.9 million in 1995. 
The increase was due primarily to internal growth and the sales from Micro 
Processor Systems, Inc. and Oyster Terminals, Ltd. acquired November 1995 and 
July 1996, respectively.

Gross profit in 1996 increased 81% to $17.9 million from $9.9 million in 
1995. As a percentage of sales, gross profit remained constant compared to 
1995, at 38%.  Total gross profit increased due to the increase in revenues 
discussed above.

Research and new product development expenses increased 95% to $2.9 million 
in 1996 from $1.5 million in 1995.  The increase was due primarily to the 
acquisitions discussed above and additions to engineering staff for new 
products that support internal growth.

Selling, general and administration expenses increased 63% to $10.8 million 
in 1996 compared to $6.6 million in 1995.  During 1996, selling, general and 
administration expenses decreased to 23% of sales from 26% of sales in 1995. 
The decrease was due to improved cost control and efficiency in operations, 
and a favorable impact from the acquisitions discussed above.

Operating income increased 134% to $4.2 million compared to $1.8 million in 
1995.  The increase was due to increased sales, stable gross profits and the 
changes in operating expenses discussed above.

Income before provision for income taxes more than doubled in 1996 to $3.7 
million compared to $1.8 million in 1995.  As a percentage of net sales, 
income before provision for income taxes increased from 7% of sales in 1995 
to 8% of sales in 1996.

The Company's income tax rates, as a percentage of pre-tax income, were 33% 
and 34% for 1996 and 1995, respectively.  The decrease in the 1996 tax rate 
reflects increased DISC benefits resulting from increased international sales.

On December 29, 1995, the Company had a fire at its Warner facility.  The 
Company continued operations from temporary quarters and, on March 1, 1996, 
employees returned to a new facility.  As of September 29, 1996, the Company 
has recorded a gain related to insurance recoveries, which is included in 
other income (expense).  In addition to the insurance recoveries related to 
the property damage and related expenses, including those associated with 
expedited construction under winter conditions, the Company has been 
reimbursed by its insurance carrier for business interruption costs that have 
been offset in cost of sales.

LIQUIDITY AND CAPITAL RESOURCES

As of September 28, 1997, the Company had working capital of $16.5 million 
versus $12.2 million at September 29, 1996.  Net cash provided by operating 
activities totaled $7.4 million in 1997 and $2.2 million in 1996.

As of September 28, 1997, the Company had no material commitments for capital 
expenditures.

The Company has a $45 million credit facility with a bank consisting of a $30 
million revolving line of credit which expires on March 31, 1999 and a $15 
million term note payable in equal quarterly installments of $750,000 
commencing on October 1, 1998 and maturing on March 31, 2002.  At September 
28, 1997 the Company's  borrowing under the credit facility totaled $42 
million.  The agreement contains certain restrictive covenants, including 
financial covenants, all of which the Company was in compliance with at 
September 28, 1997.

The Company believes that its existing sources of liquidity and anticipated 
cash flow from operations will satisfy the Company's working capital and 
capital expenditure requirements for the foreseeable future.

                                         -21-
<PAGE>


INFLATION

The Company does not believe that inflation has had a significant impact on 
its results of operations in the last two  years.

YEAR 2000

Management has performed a preliminary review of the modifications necessary 
to update the information systems capabilities to process data and 
transactions in the year 2000.  Based on this preliminary review, management 
believes the costs associated with the year 2000 modifications will not have 
a material impact on the Company's results of operations or financial 
position.
         
         
                                         -22-
<PAGE>
         
         
         
                           WPI GROUP, INC. AND SUBSIDIARIES


                       REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




TO WPI GROUP, INC.:

We have audited the accompanying consolidated balance sheets of WPI Group, 
Inc. (a New Hampshire corporation) and  subsidiaries as of September 28, 1997 
and September 29, 1996, and the related consolidated statements of income, 
stockholders' equity and cash flows for each of the three years in the period 
ended September 28, 1997.  These consolidated financial statements are the 
responsibility of the Company's management.  Our responsibility is to express 
an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated financial position 
of WPI Group, Inc. and subsidiaries as of September 28, 1997 and September 
29, 1996, and the results of their operations and their cash flows for each 
of the three years in the period ended September 28, 1997, in conformity with 
generally accepted accounting principles.

Arthur Andersen LLP


Boston, Massachusetts
November 24, 1997



                                         -23-
<PAGE>


                           WPI GROUP, INC. AND SUBSIDIARIES
                                           
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  September 28, 1997
                                           
1.   Business and Summary of Significant Accounting Policies

Business - WPI Group, Inc. (the "Company") designs, manufactures and markets 
high valued added information and power solutions products used for a wide 
range of applications.  The Company operates through two business units: The 
Information Solutions Group and  the Power Solutions Group.  The Information 
Solutions Group consists of WPI Termiflex/Micro Palm, WPI Oyster Terminals, 
WPI Micro Processor Systems (MPSI), WPI DecisionKey and WPI Husky Computers 
-providers of computers, terminals, software and information-related 
services. The Power Solutions Group consists of WPI Electronics, WPI Magnetec 
and WPI Power Systems - all providers of solutions that deal with the 
application of power.

Basis of Consolidation - The consolidated financial statements include the 
accounts of the Company and its wholly owned subsidiaries.  All significant 
intercompany balances and transactions have been eliminated.

Fiscal Year-end - The Company operates on a 52- to 53- week fiscal year 
ending on the last Sunday in September.

Revenue Recognition - Sales are recorded when products are shipped or when 
services are performed.  The Company provides for estimated warranty costs at 
the time of shipment. Arrangements to deliver software or software systems 
which require significant production, modification or customization are 
accounted for on a percentage of completion.  Revenue is recognized in the 
proportion that the cost of milestones achieved bear to the total estimated 
costs of the project at completion.  Losses, if any, are provided for in the 
period in which the loss is determined.

Management Estimates - The preparation of financial statements in conformity 
with generally accepted accounting principles requires management to make 
estimates and assumptions that affect the reported amounts of assets and 
liabilities and disclosure of contingent assets and liabilities at the date 
of the financial statements and the reported amounts of revenues and expenses 
during the reporting period.  Actual results could differ from those 
estimates. Management is not aware of any specific concentrations that could 
cause a severe impact to its operations.

Cash and Cash Equivalents - For the purposes of the consolidated statements 
of cash flows, the Company considers all highly liquid investments purchased 
with a maturity of three months or less to be cash equivalents. 

Fair Value of Financial Instruments - The carrying amounts reported on the 
balance sheet for cash, receivables, payables, accrued expenses and debt 
approximate fair value.

Concentration of Credit Risk - The Company's exposure to concentrations of 
credit risk relates primarily to trade accounts receivable.  Such exposure is 
limited due to the large number of customers and their industry and 
geographic dispersion.  The Company controls credit risk by performing 
ongoing credit evaluations of its customers' financial condition.  As of 
September 28, 1997, the Company has recognized additional reserves relating to 
litigation concerning the collection of certain outstanding receivables. 

Inventories - Inventories are stated at the lower of cost (principally 
first-in, first-out method) or market and include materials, labor and 
manufacturing overhead.

                                         -24-
<PAGE>


    Inventories consist of:

                                           1997           1996
                                           ----           ----
Raw materials....................      $7,337,866     $4,360,602
Work in process..................       1,083,327      1,986,821
Finished goods...................       1,474,659        721,073
                                       ----------     ----------
                                       $9,895,852     $7,068,496
                                       ----------     ----------
                                       ----------     ----------

Property, Plant and Equipment - Property, plant and equipment are recorded at 
cost.  Expenditures for maintenance, repairs and renewals are charged to 
expense as incurred whereas major betterments are capitalized as additions to 
property, plant and equipment.  The provision for depreciation and 
amortization has been calculated using the straight-line method over the 
assets estimated useful lives.

The components of property, plant and equipment and their estimated useful 
lives are as follows:

                                  USEFUL LIFE       1997           1996
                                  -----------       ----           ---- 

Construction in progress.........      --        $  106,578     $   96,432
Land and land improvements.......      15           575,702        439,336
Buildings and improvements.......      39         6,245,060      4,421,935
Machinery and equipment..........       7         5,760,280      3,450,652
Tooling and dies.................     3 - 7       2,002,894      1,031,328
Office equipment.................     5 - 7       3,023,844      1,602,309
Equipment under capital leases...       5           643,176          9,740
                                                 ----------     -----------
                                                 18,357,534     11,051,732
Less: accumulated depreciation..                 (2,606,683)    (1,603,974)
                                                 ----------     ----------
                                                $15,750,851     $9,447,758
                                                 ----------     ----------
                                                 ----------     ----------

Goodwill - The excess of the purchase price over the fair value of net assets 
acquired in an acquisition (goodwill) is included in other assets in the 
accompanying consolidated balance sheets and is being amortized over 5 to 25 
years on a straight-line basis.  The Company periodically evaluates the 
existence of goodwill impairment on the basis of whether the goodwill is 
fully recoverable from projected undiscounted net cash flows of the related 
business unit.  The purchase accounting is subject to future refinement: the 
impact of which would be adjusted to goodwill. Goodwill (net of accumulated 
amortization) was approximately $30,914,000 and $17,629,000 at the end of 
1997 and 1996, respectively.  Amortization of goodwill amounted to 
approximately $971,000, $526,000 and $193,000 for 1997, 1996 and 1995,  
respectively.

Deferred Product Enhancement Costs - Deferred product enhancement costs 
represent incremental direct costs specifically identified with the 
adaptation and enhancement of existing commercial products to meet the needs 
of specifically identified customers.  Such costs are amortized on a 
straight-line basis over the estimated economic useful lives of the related 
products which presently do not exceed five years. Periodically the Company 
evaluates each product on a number of factors, including customer  
projections of ongoing business, including projected units for the following 
year when available and includes our customers' evaluation of the state of 
the technology and estimated stage of the life cycle of the product.  The 
Company also reviews  sales during the previous year and the future gross 
margin analysis projections of the product.  The amortization of these costs 
are included in cost of sales and amounted to approximately $640,000, 
$394,000 and $258,000 for 1997, 1996 and 1995, respectively. The table set 
forth below details the costs and accumulated amortization for deferred 
product enhancement costs:

                   
                                                    1997           1996
                                                    ----           ----

Deferred product enhancement costs.........      $4,066,491     $2,452,682
Less: accumulated amortization.............      (1,174,601)      (860,240)
                                                 -----------    -----------
                                                 $2,891,890     $1,592,442
                                                 -----------    -----------
                                                 -----------    -----------


                                         -25-
<PAGE>

Software Development Costs - In accordance with Statement of Financial 
Accounting Standards (SFAS) No. 86, "Accounting for the Costs of Computer 
Software to Be Sold, Leased or Otherwise Marketed," the Company capitalizes 
certain software development costs. Capitalization of software development 
costs begins upon the establishment of technological feasibility and ceases 
when the product is ready for release.  Research and development costs 
incurred prior to the establishment of technological feasibility are charged 
to research and new product development expense. Development costs associated 
with product enhancements that extend the life of the original product or 
significantly improve the marketability of the original product are also 
capitalized upon technological feasibility. Amortization of capitalized 
software development costs begins when the product is available for release 
to customers. Amortization is provided on a product-by-product basis, using 
the greater of the anticipated future revenue stream or straight-line method 
over the economic life of the product, initially estimated at two years.  The 
Company capitalized approximately $792,000 and $132,000 of software 
development costs in 1997 and 1996, respectively. Amortization of software 
development, calculated using the straight-line method, amounted to 
approximately $94,000 in 1997.

Long-Lived Assets - The Company has adopted SFAS No. 121, "Accounting for the 
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." 
SFAS No. 121 requires that long-lived assets and certain identifiable 
intagibles to be held and used by an entity be reviewed for impairment 
whenever events or changes in circumstances indicate that the carrying amount 
of an asset may not be recoverable.  SFAS No. 121 also requires that 
long-lived assets and certain identifiable intangibles to be disposed of be 
reported at the lower of carrying amount or fair value less cost to sell.  
The adoption of SFAS No. 121 did not have a material impact on the Company's 
financial statements.

Income Taxes - In accordance with SFAS No. 109, "Accounting for Income 
Taxes," the Company recognizes deferred income taxes based on the expected 
future tax consequences of differences between the financial statement basis 
and tax basis of assets and liabilities calculated using enacted tax rates in 
effect for the year in which the differences are expected to reverse.

Net Income Per Share - Net income per share data are computed using the 
weighted average number of shares of common and common equivalent shares  
outstanding, during the year.  Common equivalent shares  reflect stock 
options which have been included in the computation using the treasury stock 
method only when their effects are dilutive.  

In 1997,  the Financial Accounting Standards Board issued SFAS No. 128, 
"Earnings Per Share."  This statement modifies disclosure requirements for 
companies required to report earnings per share (EPS) to include 
presentations of Basic EPS (which includes no dilution of common stock 
equivalents) and, if applicable, Diluted EPS (which reflects the potential 
dilution of common stock equivalents).  The statement is effective for 
financial statements issued for periods ending after December 15, 1997, 
including interim periods.  The adoption of this statement will not have a 
material impact on the Company's financial statements.

Foreign Currency Translation - Assets and liabilities of the Company's 
foreign operations are translated at year-end exchange rates.  Net sales and 
expenses are translated at the average rates prevailing during the year. 
Balance sheet translation gains and losses are reflected as a separate 
component of stockholders' equity. Foreign currency gains and losses arising 
from transactions are reflected in net income.

Reclassifications - Certain prior year amounts have been reclassified to 
conform with current year presentation.   

                                         -26-
<PAGE>



2.  Other Assets

    Other assets consist of:
    
                                                        1997          1996
                                                        ----          ----
       Goodwill...............................     $32,643,323    $18,387,820
       Deferred product enhancement costs.....       4,066,491      2,452,682
       Non-compete agreement..................         275,000        275,000
       Software development costs.............         923,772        131,592
       Other..................................         165,840        128,322
                                                   -----------    -----------
                                                    38,074,426     21,375,416
       Less: accumulated amortization.........      (3,270,540)    (1,805,842)
                                                   -----------    -----------
                                                   $34,803,886    $19,569,574
                                                   -----------    -----------
                                                   -----------    -----------

3.  Notes Payable
    
    On June 20, 1997, the Company amended its existing bank credit agreement. 
    The amended credit agreement consists of two components.  The first is a  
    $30,000,000 revolving line of credit which expires on March 31, 1999, at  
    which time all line of credit borrowings are due and payable.  Borrowing 
    on the line of credit aggregated $27,000,000 at September 28, 1997.  The 
    second component is a $15,000,000 term loan payable in equal quarterly  
    installments of $750,000 commencing on October 1, 1998 and maturing on  
    March 31, 2002.  As of September 28, 1997, aggregate borrowings under the 
    bank credit agreement totaled $42,000,000.  Interest on the line of credit
    and term loan borrowing is payable monthly at the prime rate or at the 
    Company's option, the Eurodollar-based rate, 8.5% and 7.3%,  respectively,
    as of September 28, 1997.  The Company is required to pay an annual 
    commitment fee equal to 0.2% of the unused line of credit. The agreement 
    contains certain restrictive covenants, including financial covenants 
    related to minimum levels of net worth, interest coverage, 
    recapitalization ratios and earnings all of which the Company is in 
    compliance with at September 28, 1997. The agreement limits the Company's 
    ability to incur additional indebtedness and pay dividends. The minimum 
    scheduled principal payments on the bank debt outstanding as of 
    September 28, 1997 for the fiscal years 1998 through 2002 are as follows: 
    $0; $30,000,000; $3,000,000; $3,000,000; and $6,000,000.

4.  Accrued Expenses

     Accrued expenses consist of:

                                                    1997           1996 
                                                    ----           ----
         Payroll and related amounts......       $ 906,075      $ 851,899
         Warranty.........................       1,032,066        447,650
         Acquisition related..............         286,226        622,763
         Deferred revenue.................         326,896      1,084,896
         Leases...........................         576,499          --
         Interest.........................         359,801        166,755
         Other............................         551,414        290,201
                                                 ---------      ---------
                                                $4,038,977     $3,464,164
                                                 ---------      ---------
                                                 ---------      ---------


                                         -27-
<PAGE>


5. Income Taxes

The components of federal and state income taxes are as follows:

                                     1997           1996           1995
                                     ----           ----           ----

Current:
    Federal...................    $   --          $ 900,000      $  (45,000)
    State.....................        --            156,000          25,000
    Foreign...................     22,000          124,000             --
                                  -------        ---------      -----------
                                   22,000        1,180,000         (20,000)
                                  -------        ---------      -----------

Deferred:
    Federal...................    263,000           41,000         511,000
    State.....................     36,000            6,000         109,000
    Foreign...................    534,000             --              --  
                                  -------        ---------      -----------
                                  833,000           47,000         620,000
                                  -------        ---------      -----------
                                $ 855,000        1,227,000      $  600,000
                                  -------        ---------      -----------
                                  -------        ---------      -----------

A reconciliation of income taxes at the federal statutory rate of 34% to income
taxes at the Company's effective tax rate is as follows:
 
                                       1997           1996         1995
                                       ----           ----         ----
Income tax at 34% of income 
before provision for income taxes   $  670,000    $  1,274,000  $ 597,000
State income tax
    (net of effect of federal tax)      61,000        173,000      88,000
DISC Benefit.......................   (228,000)      (289,000)   (122,000)
Goodwill Amortization..............    247,000         88,000      49,000
Net foreign dividend...............    170,000           --          --
Other..............................    (65,000)       (19,000)    (12,000)
                                    ----------   -------------  ----------
Total provision for income taxes...  $ 855,000   $  1,227,000   $ 600,000
                                    ----------   -------------  ----------
                                    ----------   -------------  ----------


The approximate income tax effect of temporary differences comprising the 
deferred tax assets and liabilities are as  follows:

                                                1997           1996
                                                ----           ----
Prepaid                      
    Inventory related.................      $ 248,000      $  600,000
    Bad debt reserve..................        436,000          82,000
    Warranty reserve..................        203,000         175,000
    Alternative minimum tax...........         41,000         101,000
    Payroll related...................        172,000          74,000
    Acquisition costs.................        451,000            --
    Other.............................         93,000          72,000
                                            ---------      ----------
                                            1,644,000       1,104,000
    Valuation allowance................      (451,000)           --
                                            ---------      ----------
                                           $1,193,000      $1,104,000
                                            ---------      ----------
                                            ---------      ----------


                                         -28-
<PAGE>

Deferred
    Tax in excess of book depreciation      $ 1,618,000    $  606,000
    DISC deferral.....................          280,000       280,000
    Goodwill..........................          480,000       550,000
    Deferred enhancement costs........          548,000       472,000
    Deferred software development.....          255,000          --
    Other.............................           77,000        46,000
                                            -----------    ----------
                                            $ 3,258,000   $ 1,954,000
                                            -----------    ----------
                                            -----------    ----------

The valuation allowance relates to the uncertainty surrounding the 
realization of the tax benefits attributable to purchase accounting reserves. 
The $451,000 will be used to reduce goodwill when any portion of the related 
deferred tax asset is recognized, on a consolidated basis.

The Company's subsidiary, WPI Micro Palm, Inc., which was acquired on 
September 23, 1994, had  net operating loss carryforwards of approximately 
$2,874,000, the utilization of which is limited to approximately $126,000 
annually as a result of the acquisition.  The Company has not recorded any 
deferred tax assets for these net operating loss carryforwards because their 
future utilization is uncertain. The realization of these net operating loss 
carryforwards are accounted for as a reduction of goodwill.

6.  Common Stock

A) Stock Option Plans

The Company has stock option plans for selected officers, key employees and 
directors. Under these plans, options may be granted at a price equal to at 
least the fair market value at the date of the grant. Options granted under 
the plans are exercisable at various dates as specified in the underlying 
option agreement. The options automatically expire upon termination of 
employment with the Company.

A summary of stock option activity for each of the three years in the period 
ended September 28, 1997, is as follows:

                                  SHARES UNDER   WEIGHTED-AVERAGE
                                     OPTION       EXERCISE PRICE
                                  ------------   ---------------- 

Outstanding, September 25, 1994   300,780        $ 2.11
    Exercised..................   (44,130)         2.37
    Terminated.................   (58,800)         2.88
    Granted....................   167,550          3.67
                                  --------       -------

Outstanding, September 24, 1995   365,400          2.68
    Exercised..................  (218,017)         1.99
    Terminated.................   (22,167)         2.84
    Granted....................   189,730          4.18
                                  --------       -------
                   
Outstanding, September 29, 1996   314,946          4.02
    Exercised..................   (41,750)         2.87
    Terminated.................   (19,500)         7.07
    Granted....................   276,000          6.66
                                  --------       -------
Outstanding, September 28, 1997   529,696        $ 5.38
                                  --------       -------
                                  --------       -------

                                         -29-
<PAGE>



The following is a summary of options outstanding and exercisable at 
September 28, 1997:

<TABLE>
<CAPTION>

                        OPTIONS OUTSTANDING                                    OPTIONS EXERCISABLE
-----------------------------------------------------------------------   -------------------------------
                   NUMBER         WEIGHTED AVERAGE                        NUMBER    
RANGE OF           OUTSTANDING    REMAINING           WEIGHTED AVERAGE    EXERCISABLE    WEIGHTED-AVERAGE
EXERCISE PRICES    AT 9/28/97     CONTRACTUAL LIFE    EXERCISE PRICE      AT 9/28/97     EXERCISE PRICE
---------------    ------------   ----------------    ----------------    ------------   -----------------                       
<S>                <C>            <C>                 <C>                 <C>            <C>
$2.00 to $4.50          161,416        7.5 years           $2.87               131,999        $2.84
$4.50 to $6.50          318,780        8.8                  6.25                78,610         6.13
$6.50 to $9.00           49,500        9.4                  7.96                 9,500         7.07
                   ------------                                             -----------
                        529,696        8.5                  5.38               220,109         4.20
                   ------------                                             -----------
                   ------------                                             -----------

</TABLE>

In 1995, the Financial Accounting Standards Board issued SFAS No. 123, 
"Accounting for Stock-Based Compensation,"which sets forth a fair value based 
method of recognizing stock- based compensation expense.  As permitted by 
SFAS No. 123, the Company has elected to continue to apply APB No. 25 to 
account for its stock- based compensation plans. Had compensation for the 
stock option plans been determined using the fair value at the grant dates 
for awards under those plans, consistent with the guidelines of SFAS No. 123, 
the Company's net income and earnings per share would have been reduced to 
the pro forma amounts listed below:

                                       1997                1996
                                       ----                ----

Pro forma net income..........     $789,260            $2,462,748

Pro forma earnings per share..        $0.13                 $0.41

Consistent with SFAS 123, pro forma net income and earnings per share have 
not been calculated for options granted prior to September 24, 1995.  Pro 
forma compensation cost may not be representative of that to be expected in 
future years.

The weighted average fair value of options granted was $3.65 for options 
granted during 1997 and $1.60 for options granted during 1996.  The values 
were estimated on the date of grant using the Black-Sholes option pricing 
model with the following weighted average assumptions used for grants in 1997 
and 1996, respectively; risk-free interest rates ranging from 5.75% to 7.05%, 
expected dividend yield of 0% for both periods, expected options lives of 5 
years for both years and expected volatilities ranging from 43.0% to 49.5%.

B) WPI Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan (the "Purchase Plan") adopted by 
the Board of Directors on May 7, 1992 expired on May 31, 1997 and on June 1, 
1997, the 1997 Employee Stock Purchase Plan began.  The Purchase Plan is a 
qualified stock purchase plan under the Internal Revenue Code covering all 
employees of the Company, who are neither executive officers of the Company, 
participants in the Company's Executive Stock Plan, nor owners of (or who 
would become owners of ) 5% of the Company's stock. Eligible employees can 
purchase shares on a quarterly basis on December 15, March 15, June 15 and 
September 15. The minimum purchase amount is 10 shares per quarter to a 
maximum of 400 shares per year. The purchase price of the shares is 93% of 
the average of the closing prices of the common stock during the period of 5 
trading days ending on the purchase date. An aggregate of 30,000 shares were 
reserved for issuance under the 1997 Purchase Plan. At September 28, 1997, 
1,870 and 13,839 shares had been purchased under the 1997 and original 
Purchase Plan, respectively.

                                         -30-
<PAGE>


C) WPI Stock Bonus Award Plan

The Company's Stock Bonus Award Plan (the "Bonus Plan") adopted by the Board 
of Directors on May 7, 1992 expired on May 31, 1997 and on June 1, 1997 the 
1997 Stock Bonus Award Plan began.  Employees of the Company who are neither 
executive officers of the Company, nor participants in the Company's 
Executive Stock Plan are eligible to participate in the Bonus Plan.  The 
Bonus Plan allows for the award of shares of the Company's common stock.  
Awards under the Bonus Plan are made at the discretion of the Chief Executive 
Officer to employees who have demonstrated outstanding performance and 
commitment in their employment with the Company. An aggregate of 20,000 
shares were reserved for issuance under the 1997 Bonus Plan. As of September 
28, 1997, a total of 0 and 18,595 shares had been awarded under the Company's 
1997 and original Bonus Plans, respectively. The compensation expense related 
to these awards is not significant.

7. Employee Benefits

A) Post Retirement Benefits
 
The Company has no obligation for post-retirement benefits.

B) WPI 401k Plan

In 1990, the Company established a Profit-Sharing 401(k) Plan for the benefit 
of eligible United States employees whereby the Company matches a portion of 
the employees' contributions to the plan. The Company currently matches 50% 
of the first 4% of employees contributions.   The Company's expense relating 
to this plan amounted to approximately $213,000, $150,000 and $109,000 for 
the years ended September 28, 1997, September 29, 1996 and September 24, 
1995, respectively.

8. Significant Customers

The Company markets its products to customers in diversified industries in 
the United States and Europe.  For the year ended September 28, 1997, one 
customer accounted for 11% of total Company sales. For the year ended 
September 29, 1996, two customers accounted for 11% and 10% respectively, of 
total Company sales. For the year ended September 24, 1995, one customer 
accounted for 12% of the total company sales.

9.  Acquisitions
    
On June 20, 1997, a subsidiary of the Company acquired all the outstanding 
capital stock of Husky Computers, Ltd., a manufacturer of handheld computers. 
The purchase price consisted of  approximately $21.8 million in cash plus 
assumed liabilities and expenses totaling $5.9 million.  The acquisition was 
accounted for using the purchase method.  Accordingly, the purchase price was 
allocated to assets acquired based on their estimated fair values of $13.4 
million and goodwill of $14.3 million which is being amortized on a 
straight-line basis over 25 years.

The Company's balance sheet at September 28, 1997 includes estimates of the 
fair value of assets and liabilities acquired, based upon preliminary 
studies. Resolution of any contingencies that exist at acquisition date may 
result in adjustments to goodwill, if appropriate, and are not expected to be 
material.

The following summarized, unaudited pro forma results of operations for the 
years ended September 28, 1997, September 29, 1996 and September 24, 1995, 
assume the acquisitions of Husky Computers, Ltd.,  Micro Processor Systems, 
Inc. and Oyster Terminals, Ltd. occurred as of the beginning of the 
respective periods (dollars in thousands except per share amounts):

PRO FORMA:                         1997           1996           1995
----------                         ----           ----           ----

Net Sales..................     $ 85,503       $  87,721      $  72,399
Net Income (Loss)..........         (378)          1,414           (172)
Net Income (Loss) per share        (0.06)           0.24           (.03)


                                         -31-
<PAGE>

The unaudited pro forma results are not necessarily indicative of either 
actual results of operations that would have occurred had the acquisitions 
been made at the beginning of the periods shown or future results.

10. Commitments

The Company leases certain buildings, office space, machinery and equipment, 
and vehicles under various lease agreements which expire at various dates 
over the next five years.

As of September 28, 1997, the aggregate future minimum lease commitments 
under operating and capital leases obligations are as follows:
 
                                                 OPERATING      CAPITAL
FISCAL YEAR                                      LEASES         LEASES
-----------                                      ---------      --------
1998 ....................................       $1,133,000     $  268,000
1999 ....................................          944,000        227,000
2000 ....................................          714,000        119,000
2001 ....................................          514,000          2,000
2002 ....................................          125,000           --
                                                 ----------     ----------
Total minimum lease payments.............       $3,430,000        616,000
                                                 ----------
                                                 ----------
Less amount representing interest.......                            40,000
                                                                ----------
Present value of total minimum lease payments                   $  576,000
                                                                ----------
                                                                ----------


Total rent expense charged to operations for 1997, 1996 and 1995 totaled 
approximately $634,000, $110,000 and $92,000,  respectively.

11.  Restructuring Costs

In the fourth quarter of 1997, the Company incurred certain restructuring 
costs totaling approximately $726,000 as a result of the realignment of 
certain handheld terminal product lines of the Information Solutions Group.  
The costs were incurred in connection with the consolidation of manufacturing 
facilities, reduction in the number of employees and merger of sales offices. 
This restructuring of the operations was completed within the quarter.

On November 21, 1997 the Company entered into a purchase and sales agreement 
for the sale of the production and sales facility located in Merrimack, NH.  
The sale is expected to be executed prior to December 31, 1997, but in no 
event later than January 31, 1998.  The Company does not expect the sale of 
the building to have a material effect on the results of operations.

12.  Other, Net

During 1997, the Company recognized income of approximately $512,000 in 
connection with the surrender of a lease by the lessee related to a building 
acquired in 1997.

On December 29, 1995, the Company had a fire at its Warner, N.H. facility. 
The Company has recorded a gain of approximately $111,000 and $364,000 in 
1997 and 1996, respectively, related to insurance recoveries, which is 
included in other income, net.  In addition to the insurance recoveries 
related to the property damage and related expenses, including those 
associated with expedited construction under winter conditions, the Company 
was reimbursed in 1996 by the insurance carrier for business interruption 
costs of approximately $1,200,000 that have been offset in cost of sales.

                                         -32-
<PAGE>

13. Business Segment and Geographical Information

The Company's business segments are:

    -    Information Solutions: rugged handheld passive and programmable 
         terminals and computers, vehicle diagnostic information systems, 
         and decision support software.

    -    Power Solutions: power systems, electronics and solenoids


Business Segment Information
(in thousands)

                                       SEPTEMBER 28,       SEPTEMBER 29,  
                                           1997                1996 
                                       -------------       -------------  
Net Sales:
    Information Solutions..........         $35,546             $20,427   
    Power Solutions................          26,937              27,071   
                                       -------------       -------------  
                                             62,483              47,498   
                                       -------------       -------------  

Operating Income:
    Information Solutions..........          2,840                3,413   
    Power Solutions................          3,839                4,160   
    Corporate (a)..................         (3,355)              (3,378)  
                                       -------------       -------------  
                                             3,324                4,195   
                                       -------------       -------------  

Identifiable Assets:
    Information Solutions..........         30,593               15,966   
    Power Solutions................         12,209               13,348   
    Corporate (b)..................         34,894               21,361   
                                       -------------       -------------  
                                            77,696               50,675   
                                       -------------       -------------  

Capital Expenditures:
    Information Solutions..........          3,054                  399   
    Power Solutions................            635                1,818   
    Corporate......................            224                  115   
                                       -------------       -------------  
                                             3,913                2,332   
                                       -------------       -------------  

Depreciation and Amortization:
    Information Solutions.........          1,447                   579   
    Power Solutions...............            871                   859   
    Corporate.....................          1,091                   549   
                                       -------------       -------------  
                                           $3,409                $1,987   
                                       -------------       -------------  

Geographical Segment Information (from point of manufacture)              
(in thousands)                              

                                       SEPTEMBER 28,       SEPTEMBER 29,  
                                           1997                1996 
                                       -------------       -------------  

Net Sales:
    United States (c).............          $50,917             $46,042   
    Europe........................           11,566               1,456   
                                       -------------       -------------  
                                             62,483              47,498   
                                       -------------       -------------  
Operating Income:                           
    United States.................            4,521               6,990   
    Europe........................            2,158                 583   
    Corporate (a).................           (3,355)             (3,378)  
                                       -------------       -------------  
                                              3,324               4,195   
                                       -------------       -------------  
                             
Identifiable Assets:                             
    United States.................           25,943              26,167   
    Europe........................           16,859               3,147   
    Corporate (b).................           34,894              21,361   
                                       -------------       -------------  
                                            $77,696             $50,675
                                       -------------       -------------  

(a) Includes corporate expenses and amortization of goodwill.

(b) Primarily cash, prepaid and refundable income taxes, corporate prepaid
    expenses, other assets, property and equipment at the Company's corporate
    offices.

(c) Includes export sales of  $6,510,  and $7,449 in 1997 and 1996, 
    respectively.

                                         -33-
<PAGE>

14.   Selected Quarterly Financial Information (Unaudited)

Selected quarterly financial information for the years ended September 28, 1997
and September 29, 1996 is as follows:

(in thousands, except earnings per share)


                              FIRST     SECOND    THIRD     FOURTH
                             QUARTER   QUARTER   QUARTER   QUARTER
                             -------   -------   -------   -------

1997
----
Net sales...............     $14,109   $14,222   $15,562   $ 18,590
Gross profit............       5,580     5,703     6,168      7,481
Net income (loss).......         776       862     1,007     (1,529)
Earnings (loss)per share        0.13      0.14      0.16      (0.25)

1996
----
Net sales...............     $ 9,606   $10,742   $12,655   $ 14,495
Gross profit............       3,800     4,355     4,763      5,000
Net income..............         516       608       651        746
Earnings per share......        0.09      0.10      0.11       0.12



                                         -34-
<PAGE>


                        WPI GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

SEPTEMBER 28,1997 AND SEPTEMBER 29, 1996                                                 1997           1996
-----------------------------------------------------------------------------------  -------------  -------------
<S>                                                                                  <C>            <C>
ASSETS
Current Assets

    Cash and cash equivalents......................................................  $     678,799  $     206,829

    Accounts receivable-net of allowance for doubtful accounts of $1,237,000 and
      $244,300 in 1997 and 1996, respectively......................................     12,173,012     10,881,315

    Accounts receivable-other......................................................        249,393      1,618,873

    Inventories....................................................................      9,895,852      7,068,496

    Prepaid expenses and other current assets......................................      1,134,125        230,509

    Prepaid income taxes...........................................................      1,193,160      1,103,840

    Refundable income taxes........................................................      1,816,897        547,750
                                                                                     -------------  -------------
      Total current assets.........................................................     27,141,238     21,657,612
                                                                                     -------------  -------------
Property, Plant and Equipment, at cost, less accumulated depreciation..............     15,750,851      9,447,758

Other Assets.......................................................................     34,803,886     19,569,574
                                                                                     -------------  -------------
                                                                                     $  77,695,975  $  50,674,944
                                                                                     -------------  -------------
                                                                                     -------------  -------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

    Accounts payable...............................................................  $   6,336,756  $   4,265,217

    Accrued expenses...............................................................      4,038,977      3,464,164

    Accrued income taxes...........................................................        249,473      1,772,630
                                                                                     -------------  -------------
      Total current liabilities....................................................     10,625,206      9,502,011
                                                                                     -------------  -------------
                                                                                     -------------  -------------
Note Payable to Bank...............................................................     42,000,000     18,650,000

Non-compete Agreement Payable......................................................       --               20,000

Deferred Income Taxes..............................................................      3,257,914      1,954,287
                                                                                     -------------  -------------
Commitments

Stockholders' Equity

    Common stock, $.01 par value; authorized 20,000,000 shares in 1997; issued and
      outstanding 5,996,737 and 5,947,922 shares in 1997 and 1996, respectively....         59,967         59,479

Additional paid-in capital.........................................................     13,992,540     13,658,604

Retained earnings..................................................................      7,931,562      6,815,801

Cumulative foreign currency translation adjustments................................       (171,214)        14,762
                                                                                     -------------  -------------
      Total stockholders' equity...................................................     21,812,855     20,548,646
                                                                                     -------------  -------------
                                                                                     $  77,695,975  $  50,674,944
                                                                                     -------------  -------------
                                                                                     -------------  -------------

</TABLE>

                See notes to consolidated financial statements.

<PAGE>

                        WPI GROUP, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME

For the years ended September 28, 1997, September 29, 1996 and 
September 24, 1995
 
<TABLE>
<CAPTION>
                                                                          1997           1996           1995
                                                                      -------------  -------------  -------------
<S>                                                                   <C>            <C>            <C>
Net Sales...........................................................  $  62,483,388  $  47,498,058  $  25,855,790

Cost of Sales.......................................................     37,551,545     29,580,058     15,959,216
                                                                      -------------  -------------  -------------
Gross Profit........................................................     24,931,843     17,918,000      9,896,574
                                                                      -------------  -------------  -------------
Operating Expenses:

  Research and new product development..............................      4,005,281      2,939,984      1,508,942

  Selling, general and administration...............................     16,877,096     10,783,030      6,597,060

  Restructuring costs...............................................        725,540         --             --
                                                                      -------------  -------------  -------------
    Total operating expenses........................................     21,607,917     13,723,014      8,106,002
                                                                      -------------  -------------  -------------
Operating Income....................................................      3,323,926      4,194,986      1,790,572

Other Income (Expense):

  Interest income...................................................         20,005         18,377         22,386

  Interest expense..................................................     (2,016,210)      (694,370)      (129,981)

  Other, net........................................................        643,040        229,197         72,141
                                                                      -------------  -------------  -------------
Income Before Provision for Income Taxes............................      1,970,761      3,748,190      1,755,118

Provision for Income Taxes..........................................        855,000      1,227,000        600,000
                                                                      -------------  -------------  -------------
Net Income..........................................................  $   1,115,761  $   2,521,190  $   1,155,118
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------
Net Income Per Share................................................  $        0.18  $        0.42  $        0.20
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------
Weighted Average Common Shares and Common Equivalent Shares
  Outstanding.......................................................      6,197,708      6,001,438      5,822,906
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------
</TABLE>
 
See notes to consolidated financial statements.


<PAGE>

                        WPI GROUP, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the years ended September 28, 1997, September 29, 1996 and September 24, 
1995

<TABLE>
<CAPTION>
                                          COMMON STOCK
                                         $.01 PAR VALUE       ADDITIONAL                  FOREIGN CURRENCY
                                      ---------------------     PAID-IN       RETAINED      TRANSLATION
                                        SHARES     AMOUNT       CAPITAL       EARNINGS       ADJUSTMENT         TOTAL
                                      ----------  ---------  -------------  ------------  ----------------  -------------
<S>                                   <C>         <C>        <C>            <C>           <C>               <C>
Balance

    September 25, 1994..............   5,775,641  $  57,757  $  13,258,053  $  3,139,493    $    --         $  16,455,303

Employee stock purchase plan........       2,130         21          5,194       --              --                 5,215

Stock bonus plan....................       3,170         32          9,204       --              --                 9,236

Exercise of stock options...........      27,538        275         61,358       --              --                61,633

Repurchase and retirement of common
  stock.............................    (120,629)    (1,207)      (374,163)      --              --              (375,370)

Net income..........................      --         --           --           1,155,118         --             1,155,118
                                      ----------  ---------  -------------  ------------  ----------------  -------------
Balance

    September 24, 1995..............   5,687,850  $  56,878  $  12,959,646  $  4,294,611    $    --         $  17,311,135

Employee stock purchase plan........       4,085         41         25,416                       --                25,457

Stock bonus plan....................       5,170         52         19,074       --              --                19,126

Exercise of stock options and
  warrants..........................     250,817      2,508        496,468       --              --               498,976

Income tax benefit from stock
  options exercised.................      --         --            158,000       --              --               158,000

Foreign currency translation........      --         --           --             --               14,762           14,762

Net income..........................      --         --           --           2,521,190         --             2,521,190
                                      ----------  ---------  -------------  ------------  ----------------  -------------
Balance

    September 29, 1996..............   5,947,922  $  59,479  $  13,658,604  $  6,815,801    $     14,762    $  20,548,646

Employee stock purchase plan........       2,865         29         23,488       --              --                23,517

Stock bonus plan....................       4,525         45         34,186       --              --                34,231

Exercise of stock options ..........      41,425        414        117,262       --              --               117,676

Income tax benefit from stock
  options exercised.................      --         --             89,000       --              --                89,000

Non-employee compensation stock
  options...........................      --         --             70,000       --              --                70,000

Foreign currency translation........      --         --           --             --             (185,976)        (185,976)

Net income..........................      --         --           --           1,115,761         --             1,115,761
                                      ----------  ---------  -------------  ------------  ----------------  -------------
Balance

    September 28, 1997..............   5,996,737  $  59,967  $  13,992,540  $  7,931,562    $   (171,214)   $  21,812,855
                                      ----------  ---------  -------------  ------------  ----------------  -------------
                                      ----------  ---------  -------------  ------------  ----------------  -------------
</TABLE>
 
                See notes to consolidated financial statements.


<PAGE>

                        WPI GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the years ended September 28, 1997, September 29,1996 and 
September 24, 1995

<TABLE>
<CAPTION>
                                                                             1997           1996          1995
                                                                         -------------  -------------  ----------
<S>                                                                      <C>            <C>            <C>
  Cash Flows From Operating Activities:

  Net Income...........................................................  $   1,115,761  $   2,521,190  $1,155,118
                                                                         -------------  -------------  ----------
Adjustments to reconcile net income to net cash provided by operating
  activities:

  Depreciation and amortization........................................      3,409,364      1,986,612   1,285,463

  Deferred income taxes................................................      1,303,627        569,613     620,000

  Non-cash compensation................................................        104,231         19,126       9,236

Changes in current assets and liabilities, net of effects of
  acquisitions:

  Accounts receivable..................................................      2,896,916     (3,888,310)   (674,217)

  Accounts receivable-other............................................      1,369,480     (1,464,498)    (85,468)

  Inventories..........................................................      1,733,357        178,270    (644,615)

  Prepaid expenses and other current assets............................         52,521         32,267     (40,196)

  Prepaid income taxes.................................................        (89,320)       (55,115)    202,680

  Refundable income taxes..............................................     (1,269,147)      (446,657)     42,907

  Accounts payable.....................................................       (500,407)     1,280,236     193,084

  Accrued expenses.....................................................     (1,357,394)       850,561    (411,619)

  Accrued income taxes.................................................     (1,372,724)       569,033     (52,502)
                                                                         -------------  -------------  ----------
    Total adjustments..................................................      6,280,504       (368,862)    444,753
                                                                         -------------  -------------  ----------
    Net cash provided by operating activities..........................      7,396,265      2,152,328   1,599,871
                                                                         -------------  -------------  ----------
Cash Flows From Financing Activities:

  Increase in notes payable to bank....................................     23,350,000     15,607,225   1,123,308

  Decrease in long-term liabilities....................................        (20,000)    (3,190,000)     --

  Repurchase of common stock...........................................       --             --          (375,370)

  Proceeds from exercise of stock options..............................        117,676        498,976      61,633

  Issuance of common stock.............................................         23,517         25,457       5,215

  Payments on notes payable............................................       --             --          (833,054)

  Tax benefit on exercise of non-statutory options.....................         89,000        158,000      --
                                                                         -------------  -------------  ----------
    Net cash provided by (used in) financing activities................     23,560,193     13,099,658     (18,268)
                                                                         -------------  -------------  ----------
Cash Flows From Investing Activities:

  Additions to property, plant and equipment...........................     (3,912,522)    (2,332,051)   (855,912)

  Additions to other assets............................................     (2,911,010)      (671,025)   (623,453)

  Acquisitions, net of cash acquired...................................    (22,039,007)   (10,994,215)     --

  Payments of accrued acquisition costs................................     (1,435,973)    (1,092,292)   (717,500)
                                                                         -------------  -------------  ----------
    Net cash used in investing activities..............................    (30,298,512)   (15,089,583) (2,196,865)
                                                                         -------------  -------------  ----------
Effect of Foreign Currency Translation on Cash.........................       (185,976)        14,762      --

Net Increase (Decrease) in Cash and Cash Equivalents...................        471,970        177,165    (615,262)

Cash and Cash Equivalents, Beginning of Year...........................        206,829         29,664     644,926
                                                                         -------------  -------------  ----------
Cash and Cash Equivalents, End of Year.................................  $     678,799  $     206,829  $   29,664
                                                                         -------------  -------------  ----------
                                                                         -------------  -------------  ----------
Supplemental Disclosure of Cash Flow

Information:

  Income taxes paid (refunded).........................................  $   2,644,700  $     439,081  $  (38,941)

  Interest paid........................................................      1,906,915        688,585     117,533
                                                                         -------------  -------------  ----------
Supplemental Disclosure of Non-Cash

  Investing Activities:

    Summary of entities acquired:

    Fair value of assets acquired......................................  $  27,754,666  $  21,858,037  $   --

    Cash paid..........................................................    (21,811,753)   (11,475,317)     --
                                                                         -------------  -------------  ----------
    Liabilities assumed................................................  $   5,942,913  $  10,382,720  $   --
                                                                         -------------  -------------  ----------
                                                                         -------------  -------------  ----------
</TABLE>
 
See notes to consolidated financial statements.