FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 For the fiscal year ended December 31, 1996
          
                                       OR

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

     For the transition period from ___________ to ___________

                           Commission File No. 0-8574

                          MICROWAVE POWER DEVICES, INC.
             (Exact name of registrant as specified in its charter)

               Delaware                                   13-3622306
    (State or other jurisdiction of             (I.R.S. Employer Identification)
     incorporation or organization)

             49 Wireless Boulevard
             Hauppauge, New York                             11788-3935
   (Address of principal executive offices)                   (Zip Code)

                                 (516) 231-1400
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

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

                     Common Stock, par value $.01 per share
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                    Yes X No

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

Aggregate market value of voting stock held by  non-affiliates  of registrant as
of March 6, 1997: $14,206,503.

Number of shares of Common Stock outstanding as of March 6, 1997: 10,375,000

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's  definitive proxy statement  pursuant to Regulation
14A, which  statement will be filed not later than 120 days after the end of the
fiscal year covered by this Report,  are  incorporated  by reference in Part III
hereof.



<PAGE>


                          MICROWAVE POWER DEVICES, INC.
                         1996 ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENTS
                                -----------------

Item No.                                                                   Page
--------                                                                   ----

Part I
         1. Business ......................................................    3
         2. Properties ....................................................   16
         3. Legal Proceedings .............................................   16
         4. Submission of Matters to a Vote of Security Holders ...........   16

Part II
         5. Market for Registrant's Common Equity
            and Related Stockholder Matters ...............................   17
         6. Selected Consolidated Financial Data ..........................   18
         7. Management's Discussion and Analysis
             of Financial Condition and Results of Operations .............   19
         8. Financial Statements and Supplementary Data ...................   24
         9. Changes in and Disagreements with
             Accountants on Accounting and Financial Disclosure ...........   24

Part III
         10.Directors and Executive Officers of the Registrant ............   25
         11.Executive Compensation ........................................   25
         12.Security Ownership of Certain Beneficial Owners and Management    25
         13.Certain Relationships and Related Transactions ................   25

Part IV
         14.Exhibits, Financial Statements and Reports on Form 8-K ........   25

Signatures ................................................................   26

Exhibit Index .............................................................   27


<PAGE>


                                     PART I

ITEM 1.  BUSINESS

General

     Microwave Power Devices,  Inc. (the "Company")  designs,  manufactures  and
sells highly  linear power  amplifiers  and related  subsystems to the worldwide
wireless telecommunications market. These amplifiers,  which are a key component
in  cellular  base  stations  and  other  wireless  telecommunications  networks
(including  personal  communications  services  ("PCS")),  increase the power of
radio frequency ("RF") and microwave signals with low distortion.  The Company's
wireless  telecommunications  products consist of solid-state, RF and microwave,
single and  multi-channel  power amplifiers that support a broad range of analog
and digital  transmission  protocols  including AMPS,  CDMA, TDMA, TACS and GSM.
These products are marketed to the cellular, PCS, paging and wireless local loop
segments of the wireless  telecommunications  industry.  The  Company's  largest
wireless telecommunications customers are integrated wireless telecommunications
original  equipment   manufacturers  ("OEMs").  The  Company  is  also  pursuing
opportunities with emerging wireless telecommunications infrastructure equipment
manufacturers and service providers.

     In addition to its  presence in the wireless  telecommunications  industry,
the Company  designs and  manufactures  high-power,  solid-state  amplifiers for
satellite communications and medical applications.  The Company also designs and
manufactures amplifiers and other products for the military market.

     The Company is capitalizing on its 29 years of experience  developing power
amplifiers  for  the  military  market  by  transitioning   that  technology  to
commercial applications. The Company began devoting substantial resources to the
wireless  telecommunications market at the end of 1994, and has already achieved
significant  market  penetration.  The Company has received purchase orders from
Lucent  Technologies  ("Lucent") and LG  Information  and  Communications,  Ltd.
("LGIC" or  "Goldstar")  and,  as part of its  business  strategy,  is  actively
seeking  to  expand  its  business  with  these and  other  integrated  wireless
telecommunications OEMs, as well as with emerging industry participants.

     The Company was  incorporated in Delaware in July 1991 to acquire the stock
of MPD Technologies, Inc., the Company's operating subsidiary. MPD Technologies,
Inc. was incorporated in New York in 1967.

Forward-Looking Statements

     Certain  information   contained  in  this  Annual  Report  on  Form  10-K,
including,  without  limitation,  information  appearing  under  Part I, Item 1,
"Business,"  and Part II,  Item 7,  "Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations," are  forward-looking  statements
(within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934). Factors set forth under Part I, Item 1,
"Business - Risk  Factors,"  together  with other  factors  that appear with the
forward-looking  statements,  or in the Company's other  Securities and Exchange
Commission  filings,  including  its  Registration  Statement  on Form S-1 dated
September 29, 1995,  could affect the Company's  actual  results and could cause
the Company's  actual results to differ  materially  from those expressed in any
forward-looking  statements made by, or on behalf of, the Company in this Annual
Report on Form 10-K.

Wireless Telecommunications Industry Background

     Wireless  service  providers  compete in dynamic markets  characterized  by
evolving industry  standards,  technologies and  applications.  In recent years,
there  has  been  a   significant   increase   in  the   demand   for   wireless
telecommunications  services from business and consumer  users  worldwide.  This
trend has been driven by lower


                                       3
<PAGE>


overall subscriber costs made possible by changes in the regulatory  environment
that  encourage  competition  and the  emergence of new  enabling  technologies.
Wireless  service  providers are seeking to increase system capacity in order to
accommodate  the growing  number of  subscribers.  To increase  capacity,  these
service  providers  are  investing in  infrastructure  equipment  that  provides
greater efficiency in the management of the limited spectrum licensed to them.

     Cellular  service  has  been one of the  fastest  growing  segments  of the
wireless  telecommunications  market. The U.S.  Department of Commerce estimates
that there were  approximately  87 million  cellular  subscribers  worldwide  at
year-end  1995,  as  compared  to  approximately  52  million  and 33 million at
year-end 1994 and 1993, respectively.  The growth in cellular communications has
required,  and will  continue to  require,  substantial  investment  by cellular
service providers in wireless infrastructure  equipment.  Moreover,  intensified
competition  among cellular service providers is resulting in declining costs to
end-users as well as new types of service offerings. In response to the increase
in  subscribers,  cellular  service  providers  are  taking  steps to expand the
capacity  of  their  existing  systems,  such  as  incorporating   microcellular
networks,  converting from analog to digital protocols and implementing adaptive
channel allocation.

     Partially  in response to concerns  about the limited  capacity of existing
cellular  networks,  the  Federal  Communications  Commission  ("FCC")  began to
allocate  spectrum  for new  wireless  services  in  1989.  This  has led to the
auctioning  of  spectrum  for PCS, a new  licensed  wireless  telecommunications
service. PCS proponents believe that increased competition, brought about by the
availability of additional spectrum,  will significantly lower rates, leading to
an increase in demand for wireless services. PCS applications may include mobile
telephone  services,  personal digital services and long distance carrier bypass
of local exchange carriers.

     In many developing  countries,  where access to the public switch telephone
network  ("PSTN")  by the  general  population  is  significantly  less  than in
developed  countries,  the Company  believes  that  wireless  telecommunications
systems are the most economic  means to provide  basic  telephone  service.  The
expense, difficulty and time requirements of building and maintaining a cellular
network is generally less than the cost of building and maintaining a comparable
wireline network.  Thus, in many less developed countries,  wireless service may
provide   the   primary   service   platform   for   both   mobile   and   fixed
telecommunications  applications.  In a wireless local loop system, channels use
radio systems instead of wireline networks to connect  telephone  subscribers to
the PSTN.  The Company  believes that the potential  opportunities  for wireless
telecommunications  in countries without reliable or extensive  wireline systems
may be even greater than in countries with developed telecommunications systems.
The Company also  believes  that in developed  countries,  market trends such as
deregulation  and  increased  competition  for  subscribers  are  leading to the
increased use of wireless  local loop systems as an  alternative to the existing
wireline network.

     The   same   factors   which   are   driving   the   growth   of   wireless
telecommunications  services and  equipment  sales are also  creating new market
dynamics for industry participants.  The Company believes that competition among
service  providers for subscribers  will intensify and that future market growth
will be realized  primarily through the penetration of the consumer market.  The
shift  of  the  customer  base  from  relatively  high-usage,  price-insensitive
business subscribers to price-sensitive consumer subscribers is expected to lead
to reduced  revenue per  subscriber.  The Company also  expects that  increasing
competition  for  subscribers  and decreasing  revenue per subscriber will cause
wireless  service  providers  to seek  the  most  cost-effective  infrastructure
available without sacrificing quality. In addition, the uncertainty  surrounding
analog  and  emerging  digital  protocols  provides  an  incentive  for  service
providers to minimize  platform  and protocol  selection  risk.  These  changing
market conditions,  the emergence of open hardware standards and protocols,  and
new market  entrants in the form of PCS providers  create an opportunity for new
equipment suppliers to emerge.


                                       4
<PAGE>


Power Amplification

     Given the large  expenditures  associated with wireless  telecommunications
infrastructure  equipment,  those  wireless  service  providers that are able to
increase the  efficiency and lower the cost of new and existing  systems,  while
improving  reliability,  will be  positioned  to compete most  effectively.  The
Company  believes that the following five factors must be addressed by amplifier
manufacturers in order to compete effectively in this evolving market:

     o    Linearity.  Wireless  service  providers'  ability  to  manage  scarce
          spectrum resources more effectively and accommodate a larger number of
          subscribers is largely dependent on their ability to broadcast signals
          with high  linearity,  which pertains to the ability of a component to
          amplify  a  wave  form  without   altering  its   characteristics   in
          undesirable  ways.  Linear  amplifiers  allow  signals to be amplified
          without  introducing  spurious  emissions  that might  interfere  with
          adjacent channels. Higher linearity increases the capacity of cellular
          systems by  enabling  a more  efficient  use of  digital  transmission
          technologies,   microcellular   architectures   and  adaptive  channel
          allocation.  In  current  cellular  systems,  the power  amplifier  is
          generally  the  source of the  greatest  amount of signal  distortion.
          Consequently,  obtaining  power  amplifiers  with  high  linearity  is
          critical to wireless  service  providers'  ability to improve spectrum
          efficiency.

     o    Analog to Digital Transition.  Traditional cellular systems, which are
          based on analog technology,  are capable of carrying only one call per
          channel.  Such systems are being supplanted by digital systems,  which
          allow a given channel to carry multiple calls  simultaneously  thereby
          increasing  system  capacity.   In  addition,  in  order  to  maintain
          compatibility   with  existing  analog   subscriber   equipment  while
          converting their systems to a digital platform,  many wireless service
          providers in the United States are  installing  dual mode systems that
          support both digital and analog technologies simultaneously.

     o    Multiple Protocols.  Current and emerging wireless networks throughout
          the world utilize different  protocols.  In order to address the needs
          of OEMs and service  providers,  design and  development  efforts must
          result  in  amplifiers  that can be used for each  specific  protocol.
          Current  analog  protocols  include  AMPS,  TACS and NMT,  and current
          digital  protocols  include CDMA, TDMA and GSM. Digital protocols that
          are being utilized in emerging PCS systems include CDMA, TDMA and GSM.

     o    Multi-Channel  Functionality.  Single  channel  amplifiers  require  a
          separate   power   amplifier  and  cavity  filter  for  each  channel.
          Multi-channel    power   amplifiers   allow   for   the   simultaneous
          amplification  of all channels  within a base  station.  Multi-channel
          power amplifiers  require  significantly  higher linearity compared to
          single channel designs, but do not require separate, high-maintenance,
          tunable  cavity  filters.  This  architecture  allows less space to be
          allocated to the  amplifier in the base  station,  while also reducing
          deployment  and   maintenance   costs.   In  addition,   multi-channel
          amplification  functionality enables adaptive channel allocation which
          instantaneously  allocates unused channels between cell sites in order
          to increase system capacity.

     o    Reliability and Low  Maintenance.  The Company believes that the power
          amplifier in cell sites  historically  has been the single most common
          point of equipment  failure in wireless  telecommunications  networks.
          Increasingly  reliable power amplifiers,  therefore,  will improve the
          level of service offered by wireless service providers, while reducing
          their operating costs. In addition, multi-channel amplifiers eliminate
          the need for  high-maintenance,  tunable cavity filters,  which should
          further reduce costs.

     By drawing on its experience in producing  high-quality,  custom amplifiers
for the military market, the Company has developed the technical capabilities to
achieve high linearity in its amplification  products. The Company has developed
products that support a number of existing analog and digital protocols,  and is
continuing to develop new products for other protocols. Certain of the Company's
products  support both analog and digital  protocols in a dual mode format.  The
Company has also developed and is supplying multi-channel amplification 


                                       5
<PAGE>


products that  integrate the functions of multiple  power  amplifiers and cavity
filters into a single  smaller unit. The Company has  consistently  manufactured
highly reliable amplifiers that conform to stringent military specifications and
effective March 25, 1996, the Company obtained ISO 9001 certification, which the
Company believes will ensure even greater process and quality control.

     The Company uses CAE/CAD and  computer-aided  modeling,  solid-state device
physics,  advanced signal  processing  techniques and digital control systems in
the  development  of  its  products.   The  Company  designs  amplifiers  to  be
manufactured  in high  volumes at low cost.  The  integration  of the  Company's
design and  production  processes is a key element in the  Company's  ability to
address   wireless   telecommunications   OEMs'  quantity  and  time  to  market
requirements for power amplification products.

Strategy

     The Company's objective is to be one of the leading  independent  suppliers
of highly  linear power  amplification  products to wireless  telecommunications
OEMs. The Company's strategy incorporates the following key elements:

     Leverage  Existing  Technological  Expertise  to  Commercial  Markets.  The
Company has 29 years of  engineering  experience in the design and production of
power  amplifiers  for the military  market.  The Company  believes  that it has
compiled one of the most extensive  design  libraries in the  solid-state,  high
power amplifier industry. The Company intends to continue to adapt its expertise
to various commercial market applications and new product requirements.

     Increase   Penetration  of  Leading  Integrated   Wireless   Infrastructure
Equipment  Manufacturers.  The Company has developed  relationships with certain
large integrated wireless  telecommunications  OEMs, principally with Lucent and
LGIC. The Company seeks to capitalize on its existing customer relationships and
become a more  significant  source of its  customers'  amplifiers.  The  Company
believes it can achieve this objective by working  closely with OEM customers to
develop  insight into their  amplification  product  requirements  and to design
products that meet their specific needs.

     Develop  Relationships  with  Emerging  Wireless  Infrastructure  Equipment
Manufacturers.  The Company  anticipates that emerging  wireless  infrastructure
equipment  manufacturers  will make  contributions to the growth of the wireless
telecommunications  industry,  especially in the wireless local loop sector. The
Company  believes  that its  multi-channel  power  amplifiers  will assist these
equipment  manufacturers  in  providing  high  capacity,  low cost  per  channel
products  and  continues  to  sell  amplifiers  to  several  emerging   wireless
infrastructure equipment manufacturers.

     Develop Products for Multiple Protocols. The Company intends to continue to
invest  resources in the research  and  development  of new products for various
protocols.  For cellular systems,  the Company currently supports the AMPS, TACS
and CDPD analog protocols, and the CDMA, TDMA and GSM-900 digital protocols. For
PCS systems,  the Company currently  supports CDMA, TDMA,  DCS-1800 and PCS-1900
digital  protocols.  In addition,  the Company is continuing to develop products
that incorporate  protocols which the Company believes will address the needs of
established and emerging wireless systems.  The Company believes the development
of products for multiple  protocols  will enable the Company to benefit from the
continuing  growth of  existing  wireless  systems and other  emerging  wireless
telecommunications  markets while reducing the risks  associated with relying on
the  success  of one or a  limited  number  of  existing  or  emerging  industry
protocols.

     Target Development to Meet Customer  Requirements.  The Company focuses its
development efforts on markets where it anticipates there to be emerging demand.
The Company  coordinates  its marketing and  development  functions by producing
prototypes for these targeted  markets toward the goal of being one of the early
suppliers to meet emerging customer  requirements. 



                                       6
<PAGE>


     Provide Support from Product Design through Installation and Operation. The
Company works with its customers throughout the design process to assist them in
refining and developing their amplifier specifications.  Once the specifications
have been met and the  product  delivered,  the  Company  continues  to  provide
technical  support to  facilitate  system  integration,  start-up and  continued
operation.  By providing customer support services from the product design phase
through  installation and operation,  the Company believes it fosters  increased
levels of customer loyalty and satisfaction.

     Maintain Control of the Manufacturing Process. As part of the transition to
becoming an amplifier  supplier to the wireless  telecommunications  market, the
Company  has  implemented,  and  continues  to  implement,   in-house  automated
manufacturing processes in order to control its production schedule. The Company
believes that this strategy will help prevent delays in product  shipments as it
would maintain control over all major stages of the manufacturing  process.  The
Company has made the strategic decision in certain instances to select single or
limited source  suppliers in order to obtain lower pricing,  receive more timely
delivery and maintain quality control.


Wireless Technology

     A typical  cellular  communications  system  comprises a geographic  region
containing a number of cells,  each with a base station,  which are networked to
form a wireless service provider's coverage area. Each base station or cell site
houses the equipment that transmits and receives telephone calls to and from the
wireless  subscriber  within  the cell and the  switching  office  of the  local
wireline  telephone  system.  Currently,  such  equipment  includes  a series of
transceivers,  power  amplifiers,  tunable cavity  filters and an antenna.  In a
single  channel  system,  each channel  requires a separate  transceiver,  power
amplifier and tunable cavity filter. The power amplifier within the base station
receives a relatively weak signal from the transceiver and significantly  boosts
the power of the outgoing wireless signal so that it can be broadcast throughout
the cell.  The radio power  levels  necessary  to  transmit  the signal over the
required   range   must  be   achieved   without   distorting   the   modulation
characteristics  of the signal. The signal must also be amplified with linearity
in order to remain in the assigned  channel with low distortion or  interference
with adjacent channels.

     Conventional  cell  sites  today  are  macrocells   containing  high  power
amplifiers of 45 watts per channel which are designed to cover a geographic area
typically  up to three  miles in  radius.  With 48  channels  in a typical  base
station and one power amplifier per channel,  a conventional  analog macrocell's
capacity  is  typically  1,000   subscribers  per  cell,  or   approximately  20
subscribers  per  analog  channel  and  power  amplifier.  When  the  number  of
subscribers  within the cell exceeds the capacity of the macrocell's  equipment,
the cell may be split into several  smaller  radius  microcells  in order to add
capacity to a service  provider's  network.  These microcells require less power
and less expensive  equipment,  but necessitate adding more base stations in the
same geographic area.

     Because  the radio  frequencies  assigned  to  wireless  transmissions  are
finite,  wireless  service  providers  continuously  seek  new  methods  of more
efficiently  using  frequencies  in  order to  increase  the  capacity  of their
networks.  One  such  method,   adaptive  channel  allocation,   instantaneously
allocates unused channels between cell sites across a wireless network to follow
user loading  patterns.  Commuter  density changes during rush hours and traffic
jams are  examples  of the dynamic  nature of user  loading  patterns.  Adaptive
channel  allocation  allows the wireless service provider to re-allocate  unused
channels automatically from less active cell sites to busier adjacent cell sites
as the load moves. A key enabling  technology for adaptive channel allocation is
multi-channel  amplification,  in which all channels are amplified together by a
multi-channel  power  amplifier  rather than each channel using a separate power
amplifier.  The multi-channel  power amplifier allows  instantaneous  electronic
channel  allocation.  Functionally,  it provides the same capability as numerous
single channel  amplifiers  and cavity  filters but its  technology  permits the
amplification of 2 to 96 channels without adding hardware.  Multi-channel  power
amplifiers  require  significantly  higher linearity  compared to single channel
designs.

     In addition to adaptive channel allocation and multi-channel amplification,
wireless  service   providers  are   transitioning   from   traditional   analog
technologies  to  various  digital  technologies  in  order to  increase  system


                                       7
<PAGE>


capacity  and  reduce  the  cost of  wireless  service.  Conversion  to  digital
transmission is expected to allow up to 10 times as many voice  conversations to
occupy the same frequency  bands.  Significant  improvements  in power amplifier
linearity permit multiple conversations on a single channel without unacceptable
channel interference.

     A further trend in the development of base stations involves the transition
from  narrowband to broadband  capabilities.  This  transition is leading to the
reduction  in the  size of  base  station  equipment.  Size  constraints  are an
important  consideration  in urban areas,  which  typically  represent  the most
capacity  constrained  regions of existing  cellular  networks.  A multi-channel
power  amplifier   requires  less  space  than  multiple  single  channel  power
amplifiers,  facilitating  the size  reduction of base stations and  potentially
lowering the real estate costs associated with establishing base stations.

Products

     Wireless  Telecommunications.  The Company designs  customized  products to
address the  specific  requirements  and  protocols  of its OEM  customers.  The
Company  produces single channel and  multi-channel  amplifiers for the wireless
telecommunications  market in the 463-2000 MHz frequency bands,  with peak power
ranging from 10 watts to 2000 watts.  The Company's  amplifiers  meet  linearity
requirements  of  applicable  governmental  agencies,   industry  standards  and
customer specifications, as appropriate. The Company increases the efficiency of
its  product  development   efforts  by  employing  modular   architectures  and
configurable core technologies.

     The product development cycle begins with the prototype phase, with product
typically  designed  for a  particular  customer  using core  technologies.  The
Company usually  manufactures such prototypes in the engineering lab in order to
help  market its  products in a timely  manner.  Low volume  production  (or the
pre-production  phase) of such  prototypes  has not  contributed  a  significant
amount to the  Company's  backlog.  If customer  demand for such  pre-production
units is sufficient,  the Company  designs  additional  customized  features and
implements high volume production  methodologies.  The Company believes that the
evolution to the high volume  production  phase from the prototype  phase can be
implemented  in most cases within three to six months  following the decision to
proceed  with high volume  production  methods.  The  following  tables list the
Company's  single  channel  and  multi-channel  amplifiers,  within the  product
development cycle,  ranging from the prototype phase to pre-production  units to
high-volume production products:


                                       8
<PAGE>


<TABLE>
<CAPTION>
                                             Single Channel Amplifiers
         ------------------------------------------------------------------------------------------------------------
                                                         Frequency                           Average Power
                     Protocol                              (MHz)                                (Watts)
         ------------------------------------------------------------------------------------------------------------
                 Analog Cellular:
<S>                                                      <C>                                   <C>
                   AMPS                                   869-894                                 45
                   CDPD                                   869-894                                 45
         ------------------------------------------------------------------------------------------------------------
                 Digital Cellular:
                   CDMA                                   869-894                                40/60
                   TDMA                                   869-894                                 20
                   GSM-900                                935-960                                 45
         ------------------------------------------------------------------------------------------------------------
                 PCS:
                   CDMA                                  1930-1990                             16/25/36
                   TDMA                                  1930-1990                                45
                   DCS-1800                              1805-1880                                100
                   PCS-1900                              1930-1990                                100
         ------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                            Multi-Channel Amplifiers
         ------------------------------------------------------------------------------------------------------------
                                            Frequency                Average Power            IMD** Performance
                  Protocol                    (MHz)                     (Watts)                   (Typical)
         ------------------------------------------------------------------------------------------------------------
                 Analog Cellular:
<S>                                      <C>                       <C>                              <C>   
                   AMPS                      869-894                 35/50/75/100                   -60dBc
                   AMPS                      869-894                60/100/150/200                  -70dBc
                   N-AMPS                    869-894                60/100/150/200                  -70dBc
                   TACS                  925-960/940-950           35/60/100/150/200                -60dBc
                   SETACS                    851-866                60/100/150/200                  -70dBc
                   ETACS                     917-950                60/100/150/200                  -70dBc
                   TACS                      925-960                60/100/150/200                  -70dBc
         ------------------------------------------------------------------------------------------------------------
                 Digital Cellular:
                   CDMA                      869-894                 35/50/75/100                   -60dBc
                   CDMA                      869-894                60/100/150/200                  -70dBc
                   TDMA                      869-894                 35/50/75/100                   -60dBc
                   TDMA                      869-894                60/100/150/200                  -70dBc
                   GSM                       925-960                      25                        -65dBc
         ------------------------------------------------------------------------------------------------------------
                 PCS*:
                   DCS-1800                 1805-1880                25/50/75/100                   -60dBc
                   PCS-1900                 1930-1990                25/50/75/100                   -60dBc
                   CDMA                     1805-1880                25/50/75/100                   -60dBc
                   CDMA                     1930-1990               15/25/50/75/100                 -60dBc
                   TDMA                     1805-1880                25/50/75/100                   -60dBc
                   TDMA                     1930-1990                25/50/75/100                   -60dBc
         ------------------------------------------------------------------------------------------------------------
</TABLE>

          *    Products in the prototype phase.
          **   Intermodulation distortion ("IMD").


                                       9
<PAGE>


     The Company has used its  technological  expertise to improve the linearity
of its amplifiers by introducing various compensation techniques. Several of the
Company's   single  channel   amplifiers   include   linearity   correction  and
compensation  networks.  These  techniques  are combined with digital  automatic
error  correction  circuits  to enhance the  linearity  and  performance  of the
Company's feed-forward  amplifiers.  The Company's digital processing techniques
implemented in its feed-forward products allow for simultaneous amplification of
AMPS, TDMA and CDMA channels.

     The Company's wireless  telecommunications  amplifiers can be configured as
modules, separate plug-in amplifier units or integrated subsystems, and range in
price from approximately  $500 to $30,000. A power amplifier  subsystem consists
of multiple cast housings and adds signal processing to enhance  linearity.  The
Company's  products are integrated into systems by OEM customers,  and therefore
must be  engineered to be  compatible  with industry  standards and with certain
customer specifications,  such as frequency,  power, linearity and built-in test
(BIT) for automatic fault diagnostics.

      Satellite   Communications.   The  Company's  solid-state  amplifiers  are
critical  components  in  the  International   Maritime  Satellite  Organization
("INMARSAT") communications system used by commercial and military aircraft. The
INMARSAT  communication  link is a vast improvement over high frequency  oceanic
communications  and is becoming the primary  communication  link between  ground
control and in-flight aircraft.  INMARSAT allows commercial aircraft flying over
any  region  in  the  world  to   communicate   instantaneously.   In  addition,
weather-related   variations  in   communication   transmissions   are  all  but
eliminated.  For  passengers,  INMARSAT  means  better  and  more  comprehensive
in-flight voice and data service.

     Medical. The Company's primary focus in the medical equipment market is the
production of microwave  driver  amplifiers for cancer  treatment  systems.  The
Company's  amplifiers provide the input signals at 3 GHz to a 10 megawatt,  tube
driven klystron amplifier,  which controls the intensity of an electron beam and
directs  it to an x-ray  target.  The  resultant  radiation  is then  focused to
provide precisely calibrated dosages to exact cancerous locations in the body.

     Military.   The  Company's  extensive  experience  in  military  amplifiers
includes  high-power  jammers,  communication,  radar and other defense oriented
equipment.  An  example  of a  military  system  that  incorporated  one  of the
Company's products was the "Worldwide Color Television" used in the Persian Gulf
War. The  Company's  amplifier  was a primary  component  of that system,  which
injected television and radio signals into the Iraqi communications  system. The
Company  continues to capitalize on this  experience,  both by  maintaining  its
military  activities and by developing  and producing  amplifiers for commercial
applications.  The Company also makes air-defense radar environment  simulators,
navigational simulators and test equipment, and electronic warfare simulators.

Backlog

     The  Company's  backlog of orders as of December  31, 1996 and December 31,
1995 was $65.0 million and $60.9 million, respectively, of which, as of December
31, 1996,  approximately  $25.7  million is  scheduled to be shipped  during the
remainder  of fiscal  1997.  The $65.0  million  backlog as of December 31, 1996
included $8.4 million to wireless telecommunications customers, $19.6 million to
satellite communications customers, $4.1 million to medical and other commercial
customers  and $32.9  million to military  customers.  In  general,  the Company
includes in its backlog  only those  orders for which it has  accepted  purchase
orders. Backlog is not necessarily indicative of future sales. Moreover,  nearly
all of the  Company's  backlog can be  cancelled  at any time  without  penalty,
except,  in some cases, for the recovery of the Company's actual costs up to the
date of  cancellation.  Certain of the purchase  orders  comprising  backlog set
forth  product  specifications  that  would  require  the  Company  to  complete
additional  product  development.  A failure to develop  products  meeting  such
specifications  could lead to a  cancellation  of the  related  purchase  order.
Certain of the purchase orders  comprising  backlog at December 31, 1996 include
product  specifications  not yet achieved by the Company. 


                                       10


<PAGE>


Customers, Sales and Marketing

     The market for wireless infrastructure  equipment is primarily concentrated
among a few companies  that supply  equipment to wireless  service  providers in
North  America  and  overseas.  The  Company  believes  that  Lucent,  Ericsson,
Motorola,  Nokia and Nortel  supply the majority of the wireless  infrastructure
equipment  worldwide.  These  equipment  manufacturers  compete in  high-growth,
highly  competitive  market  segments in which  technology  changes  rapidly and
numerous  industry  standards  currently exist and are continuing to evolve.  In
response to these market dynamics and as the performance requirements of certain
components  of  cellular  base  stations  increase,   many  of  these  equipment
manufacturers  are focusing on their core  technologies and competencies and are
relying on  independent  sources for certain  system  components,  such as power
amplifiers.

     The Company sells  wireless  power  amplification  products  throughout the
world  to a  limited  number  of  OEM  customers,  including  Lucent  and  LGIC,
principally  through  its direct  sales  organizations,  as well as through  its
exclusive representative network. The Company expects that sales of its products
will continue to be concentrated  among a limited number of major OEM customers.
If the  Company  were to lose a major  OEM  customer  or if  orders  by such OEM
customer were to otherwise decrease, the Company's business, financial condition
and results of operations would be materially adversely affected.

     The Company uses a customer  focused,  team-based sales approach to satisfy
the high-power  amplification  needs of its OEM  customers.  Sales to integrated
wireless  telecommunications  OEMs require close  account  management by Company
personnel  and   relationships   at  multiple   levels  of  its  OEM  customers'
organizations,  including management,  engineering and purchasing personnel.  In
addition,  the Company's  amplifiers  require  experienced sales and engineering
personnel  to  match  the  customer's  requirements  to  the  Company's  product
capabilities.  The Company believes that close technical  collaboration with the
OEM customer  during the design and  qualification  phase of new  communications
equipment is critical to the integration of its amplification  products into the
new  equipment.   The  Company's  integrated  sales  approach  involves  a  team
consisting of a senior executive, a business development specialist,  members of
the Company's engineering department and, occasionally,  a local technical sales
representative.  This sales approach allows the Company's  engineering personnel
to work closely with their counterparts at the OEM customer to assure compliance
of the product to the OEM  customer's  specification.  The  Company's  executive
officers are also  involved in certain  aspects of the  Company's  relationships
with its major OEM customers and work closely with their senior managements.  At
times, the Company includes a transistor supplier as part of its sales team when
working with a major OEM customer and will  consider  including key suppliers in
its future  sales  presentations.  As of December  31,  1996,  the Company had a
direct sales staff of eight people.

     To date, the Company has sold its products  overseas with the assistance of
independent sales  representatives  to OEM customers.  The Company's sales staff
provides   direction  and  support  to  the   international   independent  sales
representatives. Sales outside of the United States represented 43%, 32% and 26%
of net sales in fiscal 1996,  1995 and 1994  respectively.  Sales outside of the
United  States  are  denominated  in U.S.  dollars  in order to reduce the risks
associated with the fluctuations of foreign currency exchange rates.


                                       11
<PAGE>


Manufacturing

     The Company assembles,  tests, packages and ships amplifier products at its
manufacturing facility located in Hauppauge, New York. Historically,  the volume
of the  Company's  production  requirements  in the  military  markets  was  not
sufficient to justify the implementation of automated  manufacturing  processes.
The  Company   anticipated   that  sales  of  its   products  to  the   wireless
telecommunications   industry  would  require  a  significant  increase  in  the
Company's  manufacturing capacity.  Accordingly,  the Company began to introduce
automated manufacturing  techniques in the second quarter of 1995. In connection
with its transition to automated manufacturing  processes, the Company purchased
computerized  surface-mount  machinery and related process  equipment to support
automated assembly,  which were delivered,  installed and made fully operational
during the third quarter of 1995. The Company  intends to continue to maintain a
low level of  automated  assembly  outsourcing  in order to ensure a steady  and
reliable  external source of high-volume  production while also providing excess
capacity,  if required.  In addition,  the Company began to introduce  automated
tuning and testing into its automated  manufacturing processes in the later half
of 1996.

Research and Development

     The Company's research and development efforts are focused on the design of
amplifiers for new protocols,  the improvement of existing product  performance,
cost reductions and improvements in the  manufacturability of existing products.
The Company is continuing  to focus  heavily on designs that support  continuous
flow, high volume production for its wireless  telecommunications  products. The
Company uses an automated design environment  employing advanced workstations to
model overall amplifiers and their associated circuits.

     The Company has historically devoted a significant portion of its resources
to  research  and  development  programs  and  expects to  continue  to allocate
significant  resources to these efforts.  The Company's research and development
expenses in fiscal 1996, 1995 and 1994 were $7.4 million, $4.3 million, and $1.2
million,  respectively,  and represented 15.5%, 15.8% and 4.6% respectively,  of
net sales.

     The  markets  in  which  the  Company  and its OEM  customers  compete  are
characterized by rapidly changing  technology,  evolving industry  standards and
continuous  improvements in products and services.  The Company's future success
depends on its ability to develop in a timely  manner new products  that compete
effectively on the basis of price and performance  and that  adequately  address
customer  requirements.  In  addition,  as is  characteristic  of  the  wireless
telecommunications equipment industry, the average sales prices of the Company's
products have  historically  decreased over the products' lives and are expected
to continue to do so.

Competition

     The ability of the Company to compete successfully depends in part upon the
rate at which OEM  customers  incorporate  the  Company's  products  into  their
systems.  The  Company  believes  that a  substantial  majority  of the  present
worldwide  production of power  amplifiers is captive  within the  manufacturing
operations of a small number of wireless telecommunications OEMs and offered for
sale as part of their wireless  telecommunications systems. The Company's future
success is dependent  upon the extent to which these OEMs elect to purchase from
outside sources rather than manufacture their own amplification products.  There
can be no assurance that OEM customers will  incorporate the Company's  products
into their systems or that, in general,  OEM customers will continue to rely, or
expand  their  reliance,   on  external   sources  of  supply  for  their  power
amplification  products.  Since each OEM product involves a separate proposal by
the amplifier supplier, there can be no assurance that the Company's current OEM
customers will not rely upon internal  production  capabilities or a non-captive
competitor for future amplifier product needs. The Company's major OEM customers
continuously evaluate whether to manufacture their own amplification products or
purchase  them from  outside  sources.  These  OEM  customers  and  other  large
manufacturers of wireless telecommunications equipment could also elect to enter
into  the  non-captive  


                                       12
<PAGE>


market and compete directly with the Company.  Such increased  competition could
materially  adversely  affect the Company's  business,  financial  condition and
results of operations.

     Most of the Company's  competitors  have, and potential future  competitors
could have, substantially greater technical, financial, marketing,  distribution
and other  resources  than the Company and have,  or could  have,  greater  name
recognition  and  market  acceptance  of their  products  and  technologies.  In
addition,  certain of these competitors are already  established in the wireless
amplification  market. No assurance can be given that the Company's  competitors
will not develop  new  technologies  or  enhancements  to  existing  products or
introduce new products that will offer superior  price or performance  features.
To the extent that OEMs increase  their  reliance on external  sources for their
power amplification needs, more competitors could be attracted to the market.

     The Company expects its  competitors to offer new and existing  products at
prices  necessary  to gain or  retain  market  share.  The  Company  expects  to
experience significant price competition,  which could have a materially adverse
effect on gross margins.  Certain of the Company's  competitors have substantial
financial   resources  which  may  enable  them  to  withstand  sustained  price
competition or downturns in the power amplification market.

     In the military  market,  the Company competes with certain large OEMs that
design and  assemble  their own high power  amplifiers.  However,  almost all of
these OEMs are also the Company's customers. The Company believes this is due to
its broad range of solid-state power and frequency capabilities.

Proprietary Technology

     The Company  believes  that the success of its amplifier  business  depends
more  on its  specifications,  CAE/CAD  design  and  modeling  tools,  technical
processes  and  employee  expertise  than  on  patent  protection.  The  Company
generally enters into  confidentiality  and  non-disclosure  agreements with its
employees and limits access to and  distribution of its proprietary  technology.
The Company may in the future be notified that it is infringing  certain  patent
and/or other intellectual property rights of others.  Although there are no such
pending lawsuits  against the Company or unresolved  notices that the Company is
infringing  intellectual  property  rights of others,  there can be no assurance
that  litigation or  infringement  claims will not occur in the future.  Through
Republic  Electronics,  the Company has been awarded two U.S. patents,  owns one
U.S. trademark and has one U.S. trademark application pending.

Republic Electronics

     The Company acquired  substantially all the assets of Republic  Electronics
in April  1994.  Founded  in 1951,  Republic  Electronics  is a  high-technology
systems  engineering  and  manufacturing  firm and is among the world's  leading
developers  and  manufacturers  of air  defense  radar  environment  simulators,
navigational simulators and test equipment, and electronic warfare simulators. A
radar  environmental  simulator ("RES") provides a radar system with the signals
that it would normally receive if aircraft,  jammers,  environmental and clutter
effects were present. An RES injects, into the radar receiver,  the coherent and
non-coherent  RF and microwave  signals based on a  computer-generated  scenario
that includes parameters such as aircraft,  jammers,  chaff,  weather, sea state
and terrain  effects.  The Company  believes  that Republic  Electronics  is the
world's largest supplier of Tactical Air Navigation ("TACAN") beacon simulators,
and is a major  supplier of TACAN  flight line test sets and support  equipment.
The Company believes it is also the primary supplier of  "identification  friend
or foe" interrogator flight line test sets for the U.S. Navy and U.S. Air Force.
Republic Electronics' MTS-300A threat signal generator provides for "end-to-end"
system checkout from antennas through cockpit display,  of installed  electronic
warfare systems on aircraft for verification of installation,  cabling,  antenna
and overall system  performance.  The Company's  backlog as of December 31, 1996
included  $7.4 million of orders by Republic  Electronics'  customers.  In 1996,
sales  attributable  to  Republic   Electronics'  business  were  $7.3  million,
comprising  15.4% of the  Company's  net sales.


                                       13
<PAGE>


     The Company has a U.S. patent, relating to a windshear radar warning system
tester,  which expires in January 2012.  The Company's  Weather/Windshear  Radar
Tester (WRT-100) simulates microbursts,  storms and gust fronts in order to test
a commercial  aircraft's  radar systems  signal  processing  ability to properly
display hazard warning conditions.  The Company holds another U.S. patent, on an
invention that eliminates the need to return a repaired nose-mount type aircraft
radar  radome  to a radar  test  range for  recertification,  which  expires  in
December 2011.  "REPUBLIC" is a U.S. registered trademark of the Company and the
Company has applied to register the trademark "MRES 2000".

Employees

     As of February 28, 1997, the Company had a total of 322 regular,  temporary
and  contract  employees,  including  191  in  operations  and  quality,  88  in
engineering,  12 in sales and  marketing and 31 in  administration.  The Company
believes  its future  performance  will  depend in large part on its  ability to
attract and retain highly skilled employees. None of the Company's employees are
represented  by a labor  union  and the  Company  has not  experienced  any work
stoppages. The Company considers its employee relations to be good.

Risk Factors

     Historically,  the Company's  revenues have been derived  principally  from
sales to military  markets.  The Company  only began to focus on the  commercial
wireless  telecommunications  market during the past few years. As a result, the
Company  is  subject  to all of the risks  inherent  in the  operation  of a new
business enterprise.

     The  Company  anticipates  that sales of its  products  to  relatively  few
customers  will continue to account for a significant  portion of its net sales.
In addition,  certain of the purchase orders comprising  backlog at December 31,
1996 set forth product specifications not yet achieved by the Company that would
require the Company to complete  additional  product  development.  A failure to
develop products meeting such specifications could lead to a cancellation of the
related purchase order. The reduction,  delay or cancellation of orders from one
or more significant  customers would  materially  adversely affect the Company's
business, financial condition and results of operations.

     The Company has limited  experience  in  producing  and  manufacturing  its
products  on a  high-volume  basis  and in  contracting  for  such  manufacture.
Manufacture of the Company's  products is an extremely complex process,  and the
Company  may  from  time to  time  experience  quality  problems  with  products
manufactured on an automated basis internally or by its contract  manufacturers.
Furthermore, there can be no assurance that the Company's internal manufacturing
processes will prove sufficient to fulfill the Company's production commitments,
or that contract  manufacturers  will be able to fulfill any shortfall.  If such
problems  occur,   the  Company  could  experience   increased  costs,   delays,
cancellations  or  reschedulings of orders or deliveries and product returns and
discounts,  any of which could damage  relationships with current or prospective
customers  and  have  a  material  adverse  effect  on the  Company's  business,
financial condition and results of operations.

     A large  portion  of the  Company's  expenses  are fixed and  difficult  to
reduce. If net sales do not meet the Company's expectations, the fixed nature of
the Company's  expenses would  exacerbate the effect of any net sales shortfall.
Other factors that may cause the Company's net sales,  gross margins and results
of operations to vary significantly from period to period include mix of systems
sold; price discounts;  market acceptance and the timing and availability of new
products by the Company or its customers;  usage of different  distribution  and
sales channels;  product  development,  warranty and customer support  expenses;
customization of systems; and general economic and political conditions.  All of
the above factors are difficult for the Company to forecast,  and these or other
factors could  materially  adversely  affect the Company's  business,  financial
condition and results of operations.


                                       14
<PAGE>


     Wireless  telecommunications OEMs have come under increasing price pressure
from cellular and PCS service  providers,  and the Company expects to experience
downward  pricing  pressure on its  products.  In  addition,  competition  among
non-captive  suppliers  has  increased  the  downward  pricing  pressure  on the
Company's products. As these wireless manufacturers  frequently negotiate supply
arrangements  far in advance of delivery dates, the Company often must commit to
price  reductions  for its  products  before  it is  aware of how,  or if,  cost
reductions  can be obtained.  To offset  declining  average  sales  prices,  the
Company will attempt in the near term to achieve  manufacturing  cost reductions
and,  in the longer  term,  to develop new  products  that can be sold at higher
average sales prices.  If,  however,  the Company is unable to achieve such cost
reductions, the Company's gross margins will decline, and such decline will have
a material  adverse effect on the Company's  business,  financial  condition and
results of operations.

     Despite the risks  associated  with  purchasing  components  from a limited
number of sources,  the Company  has made the  strategic  decision to enter into
arrangements  with a select group of limited source suppliers in order to obtain
lower  pricing,  receive  more timely  delivery and  maintain  quality  control.
Certain  of the  Company's  limited  source  suppliers  have  limited  operating
histories and limited  financial and other  resources and,  therefore,  they may
prove to be unreliable sources of supply. Further, the Company has only recently
begun to purchase key components in large volume.  If the Company were unable to
obtain  sufficient  quantities of components,  particularly  power  transistors,
delays or  reductions  in  product  shipments  could  occur  which  would have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations. Furthermore, delays in filling orders may have a material
adverse effect on the Company's relationships with its OEM customers,  which may
result in the termination of material orders from its OEM customers and/or cause
a permanent loss of future sales.

     Sales of power amplifiers to wireless  telecommunications OEMs are expected
to account for a substantial majority of the Company's future product sales. The
success of the  Company  depends to a  considerable  extent  upon the  continued
growth   and   increased   availability   of   cellular   and   other   wireless
telecommunications   services,   including   PCS,  in  the  United   States  and
internationally.  If the  wireless  telecommunications  market  fails to grow or
grows  more  slowly  than  the  Company  currently  anticipates,  the  Company's
business,  financial condition and results of operations would be materially and
adversely affected.

     The  Company's  major  OEM  customers   continuously  evaluate  whether  to
manufacture  their own  amplification  products.  These OEM  customers and other
large  manufacturers  of wireless  telecommunications  equipment  could elect to
enter into the non-captive  market and compete directly with the Company.  Also,
the Company's  competitors could develop new technologies,  make enhancements to
existing products,  or introduce new products that could offer superior price or
performance  features.  Such increased  competition  could materially  adversely
affect the Company's business, financial condition and results of operations.

     Sales  of  the  Company's   products  outside  of  the  United  States  are
denominated  in United  States  dollars.  An  increase  in the value of the U.S.
dollar  relative to foreign  currencies  would make the Company's  products more
expensive  and,  therefore,  potentially  less  competitive  outside  the United
States.  The Company may in the future be notified that it is infringing certain
patent and/or other intellectual  property rights of others.  Although there are
no such  pending  lawsuits  against the Company or  unresolved  notices that the
Company is infringing  intellectual  property rights of others,  there can be no
assurance that litigation or infringement claims will not occur in the future.


                                       15
<PAGE>


     Regulatory   approvals  generally  must  be  obtained  by  the  Company  in
connection with the  manufacture and sale of its products,  and by the Company's
customers  to  operate  the  Company's  products.   The  United  States  Federal
Communications  Commission  ("FCC") recently proposed new regulations that would
impose  more   stringent   RF  and   microwave   emissions   standards   on  the
telecommunications  industry.  There can be no assurance  that if such  proposed
regulations are adopted,  the Company and its OEM customers will not be required
to alter the manner in which radio signals are  transmitted  or otherwise  alter
the equipment transmitting such signals, which could materially adversely affect
the Company's products and markets. Also, the enactment by federal, state, local
or  international  governments  of new laws or  regulations  or a change  in the
interpretation of existing regulations could affect the market for the Company's
products.

ITEM 2. PROPERTIES.

     The Company's  operations  are located in an 86,000 square foot facility on
7.4 acres of land in Hauppauge,  New York. The building was  constructed in 1986
and  purchased  by the Company in June 1992 with the  proceeds  from  Industrial
Development  Revenue Bonds ("IRBs") issued through the Suffolk County Industrial
Development  Agency  ("SCIDA").  In connection with this financing,  the Company
transferred  ownership of this facility to the SCIDA at closing, and immediately
leased back the  facility  for a term equal to the term of the bonds.  The lease
provides the Company with a $1.00 buyback  option  exercisable  at lease end and
also permits for transfer of ownership of the facility back to the Company if it
prepays the bonds.

     This facility houses all of the Company's manufacturing, quality assurance,
engineering,  sales and marketing and  administrative  personnel.  The plant has
been  customized to suit the Company's  operations,  which  includes  electrical
power  upgrades and the  construction  of a Class  100,000 clean room to support
hybrid  electronics  assembly and test. While the current facility is sufficient
to support the  Company's  anticipated  growth  through  fiscal  year 1997,  the
Company has approved zoning and architectural  drawings for a 55,000 square foot
expansion of its current  facility which the Company believes should be adequate
to meet the Company's presently foreseeable needs.

ITEM 3.  LEGAL PROCEEDINGS.

     From time to time, the Company is involved in litigation relating to claims
arising out of its  operations in the normal course of business.  The Company is
currently  not party to any legal  proceedings,  the  adverse  outcome of which,
individually  or in the  aggregate,  management  believes  would have a material
adverse  effect on the  financial  position  or  results  of  operations  of the
Company.

     The Company's  operations are subject to environmental laws and regulations
which impose  limitations on the discharge of pollutants  into the air and water
and  establish  standards for the  treatment,  storage and disposal of solid and
hazardous  wastes.  The  Company  reviews  the  effects  of  any  new  laws  and
regulations on its operations  and modifies its operations as  appropriate.  The
Company  believes  that it is in  substantial  compliance  with  all  applicable
environmental laws and regulations.

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

     There were no matters  submitted to a vote of security  holders  during the
fourth quarter of 1996.


                                       16
<PAGE>

                                     PART II

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

     The Common  Stock of the Company is traded on the National  Association  of
Securities Dealers Automated  Quotation System ("NASDAQ") National Market System
under the  symbol  MPDI.  On March  10,  1997  there  were  approximately  1,423
beneficial owners of the Company's Common Stock.

     The following  table sets forth the high and low closing bid prices for the
Company's  Common  Stock  as  reported  by  NASDAQ.   Such  quotations   reflect
interdealer  prices  without  adjustments  for  retail  markups,  markdowns,  or
commissions and may not necessarily represent actual transactions.

            Calendar Period                        High                  Low
            ---------------                        ----                  ---
1995:
Fourth Quarter ......................               15                   7-1/4
1996:
First Quarter .......................               13-5/8               7-1/8
Second Quarter ......................               9-9/16               4-3/4
Third Quarter .......................               6-1/2                2-3/8
Fourth Quarter ......................               3-1/8                1-15/16

     The Company has never  declared  or paid any cash  dividends  on its Common
Stock. The Company currently anticipates that it will retain all future earnings
for the expansion and operation of its business and does not  anticipate  paying
cash dividends in the  foreseeable  future.  In addition,  the Company's  credit
facility contains provisions restricting the payment of dividends.


                                       17
<PAGE>


ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA.

     The following selected consolidated  financial data as of and for the years
ended  December 31, 1996 and 1995, and for the year ended December 31, 1994 have
been derived from, and are qualified by reference to, the Consolidated Financial
Statements of the Company  audited by Arthur  Andersen LLP,  independent  public
accountants, included elsewhere in this Annual Report on Form 10-K and should be
read in  conjunction  with those  Consolidated  Financial  Statements  and Notes
thereto and  Management's  Discussion  and Analysis of Financial  Condition  and
Results of Operations.  The following selected consolidated financial data as of
December 31, 1994 have been derived from the Consolidated  Financial  Statements
of the Company audited by Arthur Andersen LLP,  independent public  accountants,
not included herein.  The following selected  consolidated  financial data as of
and for the years  ended  December  25,  1993 and  December  26,  1992 have been
derived from the  Consolidated  Financial  Statements of the Company  audited by
Ernst & Young LLP, independent auditors, not included herein.


<TABLE>
<CAPTION>
                                                                          Year Ended
                                        ------------------------------------------------------------------------------
                                        December 31,     December 31,    December 31,     December 25,   December 26,
                                            1996             1995            1994             1993           1992
                                        -----------        --------        --------       --------        ------------
Consolidated Statements of Operations                       (in thousands, except per share data)
Data:
<S>                                        <C>             <C>             <C>            <C>             <C>     
Net sales ..........................       $ 47,362        $ 27,302        $ 25,134       $ 23,763        $ 23,446
Cost of sales ......................         41,501          20,122          17,371         16,266          15,360
                                           --------        --------        --------       --------        --------

Gross profit .......................          5,861           7,180           7,763          7,497           8,086
Operating expenses:
   General and administrative ......          3,221           3,091           2,585          2,316           2,792
   Selling .........................          3,720           3,346           2,749          1,627           1,944
   Research and development ........          7,364           4,306           1,150            781             822
     Total operating expenses ......         14,305          10,743           6,484          4,724           5,558
                                           --------        --------        --------       --------        --------
Income (loss) from operations ......         (8,444)         (3,563)          1,279          2,773           2,528
Interest expense, net ..............            948           1,310             832            632             546
Other (income) expense, net ........              6              55              67            (11)           (229)
                                           --------        --------        --------       --------        --------
Income (loss) before income taxes ..         (9,398)         (4,928)            380          2,152           2,211
Provision (benefit) for income taxes         (3,759)         (1,976)             33            475             882
                                           --------        --------        --------       --------        --------
Net income (loss) ..................       $ (5,639)       $ (2,952)       $    347       $  1,677        $  1,329
                                           ========        ========        ========       ========        ========

Net income (loss) per common share .       $  (0.54)       $  (0.36)       $   0.05       $   0.22        $   0.18
                                           ========        ========        ========       ========        ========
Weighted average common shares .....         10,375           8,172           7,500          7,500           7,500
                                           ========        ========        ========       ========        ========


<CAPTION>
                                        December 31,     December 31,    December 31,     December 25,   December 26,
                                            1996             1995            1994             1993           1992
                                        -----------        --------        --------       --------        ------------
Consolidated Balance Sheet Data: ...                                    (in thousands)
<S>                                        <C>             <C>             <C>            <C>             <C>     
Cash and cash equivalents ..........       $  1,149        $    388        $    410       $  1,533        $  1,861
Working capital ....................         16,151          24,529           8,614          5,706           5,861
Total assets .......................         38,890          41,227          21,834         19,224          17,026
Total debt .........................         12,789           9,718          11,903          9,495           9,525
Total stockholders' equity .........         18,302          23,941           6,416          6,128           4,451
</TABLE>


                                       18
<PAGE>


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

Overview

     The Company  commenced  operations in 1967.  During the past 29 years,  the
Company has designed,  manufactured and marketed high power, solid-state, RF and
microwave  power  amplifiers  and  related  subsystems  for  military,  medical,
satellite and, most recently, wireless telecommunications applications.

     The Company historically has been dependent upon the military market as its
principal source of revenue. In 1992, as the military market was declining,  the
Company  increased  the scope of its  business and entered  commercial  markets,
thereby  broadening its product  offerings.  The Company now develops  precision
high-power amplifiers for a variety of commercial uses.

     The Company is devoting  significant  resources to increase its  commercial
product offerings, particularly for the wireless telecommunications market. As a
result, the Company's  research and development  expenses have increased because
customer-funding of product developments costs, which is typical in the military
market, is less prevalent in commercial markets.

     The following table summarizes certain key financial information:


<TABLE>
<CAPTION>
 --------------------------------------------------------------------------------------------------------------------
                                                                Change                           Change
                                            1996                from         1995                 from          1994 *
                                           ($000s)           prior year     ($000s)            prior year     ($000s)
 --------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                   <C>         <C>                  <C>          <C>     
 Net Sales                               $ 47,362               73%        $ 27,302                9%        $ 25,134
 --------------------------------------------------------------------------------------------------------------------
 Gross Profit                            $  5,861              (18)%       $  7,180               (8)%       $  7,763
 Gross Profit Margin                                                           12.4%            26.3%            30.9%
 --------------------------------------------------------------------------------------------------------------------
 General and Administrative              $  3,221                4%        $  3,091               20%        $  2,585
 Expenses
 Percentage of Net Sales                                                        6.8%            11.3%            10.3%
 --------------------------------------------------------------------------------------------------------------------
 Selling Expenses                        $  3,720               11%        $  3,346               22%        $  2,749
 Percentage of Net Sales                                                        7.9%            12.2%            10.9%
 --------------------------------------------------------------------------------------------------------------------
 Research and Development Expenses       $  7,364               71%        $  4,306              274%        $  1,150
 Percentage of Net Sales                                                       15.5%            15.8%             4.6%
 --------------------------------------------------------------------------------------------------------------------
 Interest Expense                        $    948              (28)%       $  1,310               57%        $    832
 Percentage of Net Sales                                                        2.0%             4.8%             3.3%
 --------------------------------------------------------------------------------------------------------------------
 Provision (Benefit) for Income          $ (3,759)             (90)%       $ (1,976)             N/A         $     33
 Taxes
 Effective Tax Rate                                                            40.0%            40.1%             8.7%
 --------------------------------------------------------------------------------------------------------------------
</TABLE>

     *    Contains fifty-three weeks of activity.


                                       19
<PAGE>


Results of Operations

Fiscal Years Ended December 31, 1996 and December 31, 1995

     Net Sales.  The Company derives its revenues  principally  from the sale of
solid-state,  RF and  microwave,  power  amplifiers  and  from the sale of radar
environmental and electronic warfare  simulators.  Net sales increased by 73% to
$47.4  million in 1996 from  $27.3  million in 1995.  This  sales  increase  was
primarily due to higher shipments of the Company's commercial products and, to a
lesser extent,  higher shipments of the Company's military products.  This is in
line with the  Company's  transition  from  military  dependence to being a dual
supplier of  commercial  and military  products.  Sales of  commercial  products
increased  by 80%  to  $33.6  million  in  1996  from  $18.7  million  in  1995,
representing  71%  and  68%,  respectively,  of net  sales  in such  years.  The
commercial  sales  increase  was  predominantly  due to higher  shipments to two
wireless  telecommunications OEMs and one satellite communications OEM. Sales of
military products increased by 60% to $13.8 million in 1996 from $8.6 million in
1995,  representing 29% and 32%,  respectively,  of net sales in such years. The
military sales increase was  predominantly  due to greater market demand for one
Republic product, initial hardware shipments for another Republic product and an
overall  modest  resurgence of shipments to U.S. prime  contractors  for various
military products.

     International  sales  increased by 138% to $20.6  million in 1996 from $8.6
million in 1995,  totaling 43% of net sales in 1996 compared to 32% in 1995. The
increase in  international  sales was primarily due to higher  foreign  wireless
telecommunications OEM business and, to a lesser extent, higher foreign military
business. In 1996, sales to a foreign commercial OEM (Customer A) and a domestic
commercial  OEM  (Customer B) accounted  for 34% and 19%,  respectively,  of the
Company's net sales. In 1995,  sales to one foreign  commercial OEM (Customer A)
and two domestic  commercial OEMs (Customer B and Customer C) accounted for 26%,
21% and 10%, respectively, of the Company's net sales.

     Gross Profit.  The Company's cost of sales  consists  principally of direct
labor, labor overhead,  direct material,  material overhead,  other direct costs
and work-in-process inventory changes from the beginning to the end of a period.
Gross profit decreased by 18% to $5.9 million in 1996 from $7.2 million in 1995.
The  Company's  gross profit  margin (gross profit as a percentage of net sales)
decreased to 12.4% in 1996 from 26.3% in 1995,  primarily  due to a $4.9 million
write-off  of  wireless  multi-channel   work-in-process   inventory  caused  by
diminished  demand for these particular  products,  a $1.0 million  write-off of
wireless multi-channel  work-in-process inventory related to the cancellation of
the remainder of the AirNet  contract  (caused by the Company's  failure to meet
product  specifications  within a given time frame) and a $0.7 million write-off
of  wireless  single  channel  work-in-process  inventory  caused by a  domestic
commercial  OEM's  decision  to  internally   manufacture   amplifiers  for  the
production  portion of the PCS-TDMA  program.  In addition,  the Company's  1996
gross  profit  margin was  adversely  affected by the  overall low gross  profit
margin obtainable on Cellular-CDMA  multi-channel  amplifiers due to competitive
pricing pressure,  low gross profit margins  experienced on a number of military
OEM  contracts  due to  various  production  delays,  low gross  profit  margins
experienced on various other commercial OEM contracts due in part to a number of
engineering  and  manufacturing  difficulties,  and higher  commercial  warranty
expenses (as a percentage of net sales).

     Certain of the Company's  inventory costing techniques involve developing a
standard cost which estimates the average,  or standard,  cost per unit over the
extended life cycle of a product.  Such costs  include  labor,  material,  other
direct costs and related overheads. If the extended life cycle of a product does
not materialize or if there is no reasonable  certainty that product  maturation
will take place within the near future,  further  write-offs of  work-in-process
inventory would be required.  Such write-offs could materially  adversely affect
the Company's gross profit and results of operations.


                                       20
<PAGE>


     Certain of the purchase orders or contracts  comprising backlog at December
31, 1996 set forth product  specifications  not yet achieved by the Company that
would require the Company to complete additional product development. Failure to
develop products meeting such  specifications  could lead to the cancellation of
the related purchase orders or contracts.  The reduction,  delay or cancellation
of orders or contracts from one or more  significant  customers could materially
adversely  affect the  Company's  business,  financial  condition and results of
operations.

     There can be no assurances  that gross profit will improve.  If the Company
is not able to reduce  its  production  costs to the extent  anticipated,  or to
introduce  new products  with greater  margins,  and if average  selling  prices
decline beyond current  expectations,  the Company's gross profit and results of
operations could be materially  adversely  affected.  The Company's gross profit
may also be affected by a variety of other factors, including the mix of systems
and equipment  sold;  production,  reliability  or quality  problems;  and price
competition.

     General and Administrative  Expenses.  General and administrative  expenses
consist  principally  of salaries and other  expenses for  management,  finance,
accounting,   contracts  and  human   resources  as  well  as  legal  and  other
professional  services.  General and administrative  expenses increased by 4% to
$3.2  million in 1996 from $3.1  million in 1995,  representing  6.8% and 11.3%,
respectively,  of net sales. The increase in general and administrative expenses
was  primarily  the  result of  greater  costs  associated  with  being a public
company, for a full year. The decrease in general and administrative expenses as
a percentage of net sales was attributable to the overall sales volume growth in
1996 as compared to 1995.

     Selling  Expenses.  Selling  expenses  consist  principally of salaries and
other  expenses for sales and marketing  personnel,  sales  commissions,  travel
expenses, advertising and trade shows. Selling expenses increased by 11% to $3.7
million  in 1996  from  $3.3  million  in 1995,  representing  7.9%  and  12.2%,
respectively,  of net sales. The increase in selling expenses resulted primarily
from  higher  sales  representative  commissions  and  higher  accrued  warranty
expenses  partially  offset by lower bid and  proposal  expenses and lower sales
incentive  expenses.  The decrease in selling  expenses as a  percentage  of net
sales was attributable to the overall sales volume growth in 1996 as compared to
1995.

     Research  and  Development  Expenses.  Research  and  development  expenses
consist principally of direct labor, labor overhead,  direct material,  material
overhead and other direct costs  associated with product  development.  Research
and  development  expenses  increased  by 71% to $7.4  million in 1996 from $4.3
million in 1995, representing 15.5% and 15.8%, respectively,  of net sales. This
increase  resulted  primarily from higher  wireless  telecommunications  product
development and, to a lesser extent,  higher military product  development.  The
Company believes that the continued introduction of new products is essential to
its  competitiveness  and is committed to continued  investment  in research and
development.

     Interest  Expense.   Interest  expense  consists  principally  of  interest
expended on the Company's credit facility,  IRBs and promissory notes, partially
offset by interest  earned on the  Company's  cash  balances.  Interest  expense
decreased by 28% to $0.9  million in 1996 from $1.3  million in 1995,  primarily
reflecting  a loan  repayment,  in the  latter  part of 1995,  to the  Company's
largest  stockholder  (through the utilization of a portion of the proceeds from
the Company's  initial  public  offering  ("IPO")).  In addition,  1995 interest
expense included a one time charge of $0.1 million for deferred  financing costs
as a result of the repayment of the debt  outstanding at the time of the IPO and
also  included a $0.1 million  amendment  fee expense,  charged by Fleet Capital
Corporation,  related to a  restructuring  of the Company's  credit  facility to
provide additional financing pending the completion of the IPO.

     Provision  for Income  Taxes.  The Company  accounts for income taxes under
Statement of Financial  Accounting  Standards ("SFAS") No. 109,  "Accounting for
Income Taxes". SFAS No. 109 requires the Company 


                                       21
<PAGE>


to  record  an  asset  with  respect  to the  expected  future  value of its net
operating  loss  carryforwards  ("NOLs").  The Company has recorded  100% of its
deferred tax asset in relation to its 1996 and 1995 NOLs.  At December 31, 1996,
the Company had other remaining federal NOLs of approximately $1.3 million which
may be utilized to reduce future taxable  income through the year 2004,  subject
to certain  limitations.  The Company has not recorded a deferred tax asset with
respect to this loss  carryforward  as the utilization may be required to offset
potential  adjustments to previously  filed income tax returns  currently  under
examination  by the  Internal  Revenue  Service.  The  change in  control  which
occurred when the Company's  operating  subsidiary was acquired by its principal
stockholder has limited the available NOL  carryforward in any given year. Under
the Tax Reform Act of 1986, the amounts of and benefit from NOLs may be impaired
or limited in certain circumstances, including, but not limited to, a cumulative
stock ownership change of more than 50% over a three-year  period. The Company's
effective tax rate remained relatively  unchanged at 40.0% in 1996 from 40.1% in
1995. These rates are due to the net losses incurred by the Company in both 1996
and 1995,  the benefit of which the Company  expects to utilize to offset future
taxable  income,  as prescribed by SFAS No. 109. There can be no assurances that
the Company will achieve taxable income in the future.

Fiscal Years Ended December 31, 1995 and December 31, 1994

     Net Sales.  Net sales  increased by 9% to $27.3  million in 1995 from $25.1
million in 1994. This sales increase was  predominantly  due to shipments to two
wireless  telecommunications  OEMs,  which  more than  offset  reduced  military
shipments.  This  was in  line  with  the  Company's  transition  from a  highly
dependent  military supplier to a commercial  manufacturer.  Sales of commercial
products  increased by 295% to $18.7  million in 1995 from $4.7 million in 1994,
representing  68% and 19%,  respectively,  of net sales in such years.  Sales of
military products decreased by 58% to $8.6 million in 1995 from $20.4 million in
1994, representing 32% and 81%, respectively, of net sales in such years.

     International  sales  increased  by 33% to $8.6  million  in 1995 from $6.5
million in 1994, totaling 32% of net sales in 1995 compared to 26% in 1994. This
increase in international sales was predominantly due to higher foreign wireless
telecommunications  OEM business.  In 1995, sales to one foreign  commercial OEM
(Customer  A) and two  domestic  commercial  OEMs  (Customer  B and  Customer C)
accounted for 26%, 21% and 10%,  respectively,  of the  Company's net sales.  In
1994, sales to a military branch of the U.S. Government (Customer D), a domestic
military OEM (Customer E) and a foreign military OEM (Customer F), accounted for
24%, 8% and 6%, respectively, of the Company's net sales.

     Gross  Profit.  Gross  profit  decreased by 8% to $7.2 million in 1995 from
$7.8 million in 1994.  The  Company's  gross profit  margin  (gross  profit as a
percentage  of net  sales)  decreased  to  26.3%  in 1995  from  30.9%  in 1994,
primarily  due to low gross profits  experienced  on four military OEM contracts
and two wireless telecommunications OEM contracts. These results were caused by:
the inability of one of the Company's suppliers,  which was replaced, to produce
a key component on a military OEM contract; the highly  price-competitive market
in which the Company won another military OEM contract; production delays on two
military OEM contracts; and production delays on two wireless telecommunications
OEM contracts.

     General and Administrative  Expenses.  General and administrative  expenses
increased by 20% to $3.1 million in 1995 from $2.6 million in 1994, representing
11.3% and 10.3%,  respectively,  of net sales.  This  increase was primarily the
result of higher employee benefit costs,  administrative staffing to support the
Republic   Electronics   acquisition  (full  versus  partial  year)  and  higher
accounting, legal and miscellaneous office supplies expenses.

     Selling Expenses. Selling expenses increased by 22% to $3.3 million in 1995
from $2.7 million in 1994,  representing 12.2% and 10.9%,  respectively,  of net
sales.  This increase resulted  primarily from sales and marketing  personnel to
support the Republic Electronics acquisition (full versus partial year), as well
as  higher  sales  and   marketing   activity   directed   toward  the  wireless
telecommunications market.


                                       22
<PAGE>


     Research  and  Development  Expenses.  Research  and  development  expenses
increased  by  274%  to  $4.3  million  in  1995  from  $1.2  million  in  1994,
representing 15.8% and 4.6%, respectively,  of net sales. This increase resulted
primarily from increased wireless telecommunications product development and, to
a lesser extent, increased military product development.

     Interest Expense. Interest expense increased by 57% to $1.3 million in 1995
from $0.8 million in 1994,  predominantly  reflecting increased borrowings under
the  Company's  credit  facility.  These  borrowings  financed the Company's net
inventory  increase which resulted from the Company's  initial  penetration into
the  wireless  telecommunications  market.  With a portion  of the net  proceeds
received  from its IPO, the Company  repaid  approximately  $15.9 million of its
approximately $20.7 million of debt then outstanding. The repayment of this debt
resulted  in an  aggregate  of $0.1  million of deferred  financing  costs being
charged as interest expense during the fourth quarter of 1995. In addition,  the
fourth quarter of 1995 included a $0.1 million amendment fee expense, charged by
Fleet Capital  Corporation,  related to a restructuring  of the Company's credit
facility to provide additional financing pending the completion of the IPO.

     Provision for Income Taxes.  The Company's  effective tax rate increased to
40.1% in 1995 from 8.7% in 1994.  The lower rate in 1994 is due to the Company's
recognition  of  previously  generated  NOLs to offset  full  year 1994  taxable
income.  The higher rate in 1995 is due to the net loss incurred by the Company,
the benefit of which the  Company  expects to utilize to offset  future  taxable
income, as prescribed by SFAS No. 109.

Liquidity and Capital Resources

     In the fourth quarter of 1995, the Company successfully  completed its IPO,
raising net  proceeds to the Company of  approximately  $20.4  million  from the
Company's  sale of 2,875,000  shares of Common Stock,  including the exercise of
the underwriters' over-allotment option. Since the IPO, the Company had financed
its  operations  and met its  capital  requirements  through the  following  two
sources: (i) a credit facility with Fleet Capital Corporation which was replaced
in February 1997 with a new credit  facility and (ii) cash provided by operating
activities.

     On February 13, 1997,  the Company and IBJ Schroder  Bank and Trust Company
entered into a $13.0 million credit  facility  consisting of a revolving line of
credit in the  amount  of $10.3  million  and a term loan in the  amount of $2.7
million.  The  revolving  line of credit and term loan bear  interest  at annual
rates  equal  to the  prime  rate  plus  1.0% and the  prime  rate  plus  1.25%,
respectively.  The credit  facility  matures in February 2000 and  automatically
renews itself for one-year periods  thereafter,  unless terminated by either the
Company or IBJ Schroder. Aggregate borrowings under the revolving line of credit
are  limited  by a  borrowing  base,  which is  calculated  as the sum of 85% of
eligible  accounts  receivable  and  40% of raw  materials  and  work-in-process
inventories  (with borrowings based on aggregate  eligible  inventory limited to
$6.0 million). The credit facility is subject to customary covenants, including,
among other things, limitations with respect to incurring indebtedness,  payment
of dividends and affiliate  advances,  and a provision for maintaining a certain
fixed charge coverage ratio.

     Operating  activities  used net cash of $1.4  million and $17.3  million in
1996 and 1995,  respectively.  From  December  31,  1995 to December  31,  1996,
accounts  receivable  and inventory  decreased by $1.9 million and $4.6 million,
respectively,  while accounts payable and accrued liabilities  increased by $0.7
million.  The decrease in accounts receivable was primarily due to a more linear
level of monthly  shipments  in the fourth  quarter of 1996 as  compared  to the
significant  increase in shipments  that occurred late in the fourth  quarter of
1995, as well as the normal collection of receivables. The decrease in inventory
was  predominantly  due to a  reduction  in wireless  work-in-process  inventory
related to the above  referenced  wireless  multi-channel  write-offs  partially
offset by an increase in military  work-in-process  inventory.  The  increase in
accounts  payable  and  accrued  liabilities  was  primarily  due to a temporary
slowing of vendor payments as the Company  balanced cash  disbursements  against
its  credit  facility  availability.   Investing  


                                       23
<PAGE>


activities,  which consisted primarily of equipment acquisitions,  used net cash
of $0.9  million  and $2.3  million  in 1996 and 1995,  respectively.  Financing
activities,  which  consisted  predominantly  of net proceeds from the revolving
line of credit in 1996 and the Company's IPO in 1995,  provided net cash of $3.0
million and $19.6 million in 1996 and 1995, respectively.

     Capital  expenditures  were $0.9 million and $2.3 million in 1996 and 1995,
respectively.  These expenditures were funded primarily through cash provided by
the  Company's  credit  facility.   Principal  expenditures  for  1996  included
engineering and  manufacturing  test  equipment,  the expansion of the Company's
parking area,  personal computer  upgrades,  upgrades of the Company's  Computer
Aided  Engineering  systems,  construction  work-in-progress  for  the  proposed
facility expansion (currently on hold), sales demonstration  equipment and a new
wireless  telecommunications trade show booth. The Company anticipates that 1997
capital expenditures will be financed by cash provided by operating  activities,
the Company's credit facility and/or third party financing sources.

     As of December 31, 1996, the Company had working  capital of  approximately
$16.2 million,  compared to approximately $24.5 million as of December 31, 1995.
Working capital as of December 31, 1996 included  approximately $7.5 million and
$14.4 million in accounts  receivable and inventory,  respectively,  compared to
December 31, 1995 working capital which included  approximately $9.4 million and
$18.9 million in accounts receivable and inventory,  respectively. The Company's
current ratio (ratio of current  assets to current  liabilities)  as of December
31, 1996 was 3.1:1,  compared  with a current  ratio of 4.4:1 as of December 31,
1995.  As of December 31, 1996,  the  Company's  debt to equity ratio was 0.7:1,
compared with a debt to equity ratio of 0.4:1 as of December 31, 1995.

     The Company believes that cash generated from operations, amounts available
under its credit facility, and/or other third party financing will be sufficient
to fund necessary  capital  expenditures and to provide adequate working capital
for at least the next 12 months.  There can be no assurance,  however,  that the
Company  will not require  additional  financing  prior to such date to fund its
operations,  and,  if  required,  that  such  financing  will  be  available  on
commercially  reasonable terms. In addition,  the Company may require additional
financing after such date to fund its operations.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     See Item 14 of Part IV of this Report.


ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE.

     None.


                                       24
<PAGE>


                                    PART III

     The information  required by Part III (Items 10 through 13) is incorporated
by reference to the captions "Principal  Stockholders," "Election of Directors,"
"Management"  and  "Certain  Transactions"  in the  Company's  definitive  Proxy
Statement to be filed  pursuant to Regulation  14A within 120 days after the end
of the Company's fiscal year covered by this Report.

                                     PART IV


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

     (a)  See Index to Financial Statements immediately following Exhibit Index.

     (b)  No reports on Form 8-K have been filed  during the  quarter  for which
          this report is filed.

     (c)  Exhibits

          See Exhibit Index immediately following signature pages.


                                       25
<PAGE>

                                   SIGNATURES

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

                          MICROWAVE POWER DEVICES, INC.

                          By  /s/ Edward J. Shubel
                             ------------------------
                              Edward J. Shubel
                              Chief Executive Officer

Date:  March 24, 1997

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


/s/ Edward J. Shubel            Chief Executive Officer        March 24, 1997
----------------------
    Edward J. Shubel            (Principal Executive Officer)

/s/ Paul E. Donofrio            Chief Financial Officer        March 24, 1997
----------------------
    Paul E. Donofrio            (Principal Financial Officer and
                                Principal Accounting Officer)

/s/ George J. Sbordone          Director                       March 24, 1997
----------------------
    George J. Sbordone

                                Director                       March 24, 1997
---------------------
    Merril M. Halpern

/s/ A. Lawrence Fagan           Director                       March 24, 1997
---------------------
    A. Lawrence Fagan

/s/ Alfred Weber                Director                       March 24, 1997
-----------------------
    Alfred Weber

/s/ David J. Aldrich            Director                       March 24, 1997
-----------------------
    David J. Aldrich

/s/ Warren A. Law               Director                       March 24, 1997
----------------------
    Warren A. Law

/s/ James S. Silver             Director                       March 24, 1997
------------------------
    James S. Silver


                                       26
<PAGE>


                                  EXHIBIT INDEX

3.1-   Certificate of Incorporation of the Company (incorporated by reference to
       Exhibit 3.1 to the  Company's  Registration  Statement  on Form S-1 dated
       September 29, 1995 (Registration No. 33-94142)).

3.2-   By-laws of the Company  (incorporated  by reference to Exhibit 3.2 to the
       Company's  Registration  Statement on Form S-1 dated  September  29, 1995
       (Registration No. 33-94142)).

10.1-  Loan and  Security  Agreement  dated as of  February  13,  1997 among IBJ
       Schroder Bank & Trust Company, as Lender and Agent, and MPD Technologies,
       Inc. (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K
       dated February 13, 1997 (Commission File No. 0-8574)).

10.2-  Indenture of Trust,  $4,810,000,  Suffolk County  Industrial  Development
       Agency,  1992 Industrial  Development  Revenue Bonds (MPD Wireless,  Inc.
       Facility  - Series A and Series B) dated  June 1, 1992  (incorporated  by
       reference to Exhibit 10.2 to the Company's Registration Statement on Form
       S-1 dated September 29, 1995 (Registration No. 33-94142)).

10.3-  Lease Agreement  dated as of June 1, 1992 between MPD Wireless,  Inc. and
       the  Suffolk  County  Industrial   Development  Agency  (incorporated  by
       reference to Exhibit 10.3 to the Company's Registration Statement on Form
       S-1 dated September 29, 1995 (Registration No. 33-94142)).

10.4-  Registration  Rights  Agreement  dated  as of June  29,  1995  among  the
       Registrant,  Charter  Technologies  Limited Liability Company,  George J.
       Sbordone,  Edward J. Shubel,  James S. Silver and Lee Leong (incorporated
       by reference to Exhibit 10.4 to the Company's  Registration  Statement on
       Form S-1 dated September 29, 1995 (Registration No. 33-94142)).

10.5-  Microwave  Power Devices,  Inc. 1995 Stock Option Plan  (incorporated  by
       reference to Exhibit 10.5 to the Company's Registration Statement on Form
       S-1 dated September 29, 1995 (Registration No. 33-94142)).

10.6-  Employment  Agreement dated September 3, 1991 between MPD Wireless,  Inc.
       And Edward J. Shubel  (incorporated  by  reference to Exhibit 10.6 to the
       Company's  Registration  Statement on Form S-1 dated  September  29, 1995
       (Registration No. 33-94142)).

10.7-  Deferred  Compensation  Agreement  dated as of April 21, 1992 between MPD
       Wireless, Inc. and Edward J. Shubel (incorporated by reference to Exhibit
       10.7 to the Company's  Registration Statement on Form S-1 dated September
       29, 1995 (Registration No. 33-94142)).

10.8-  Agreement  dated as of April 21, 1992  between  MPD  Wireless,  Inc.  and
       Edward J.  Shubel  (incorporated  by  reference  to  Exhibit  10.8 to the
       Company's  Registration  Statement on Form S-1 dated  September  29, 1995
       (Registration No. 33-94142)).

10.9-  Consulting  Agreement with George J. Sbordone  (incorporated by reference
       to  Exhibit  10.10 to the  Company's  Annual  Report on Form  10-K  dated
       December 31, 1995 (Commission File No. 0-8574)).

10.10- Consulting  Agreement with James S. Silver  (incorporated by reference to
       Exhibit 10.11 to the Company's  Annual Report on Form 10-K dated December
       31, 1995 (Commission File No. 0-8574)).

10.11- Microwave  Power Devices,  Inc. 1996 Stock Option Plan  (incorporated  by
       reference  to  Exhibit  10.12  to the  Company's  Annual  Report  on Form
       10-K/A-1 dated December 31, 1995 (Commission File No. 0-8574)).

21.1-  Subsidiaries of the Company  (incorporated  by reference to the Company's
       Annual Report on Form 10-K dated December 31, 1995  (Commission  File No.
       0-8574)).

27.1-  Financial Data Schedule.

99.1-  Form  of  Special  Security  Agreement  published  by the  United  States
       Department of Defense  (incorporated  by reference to Exhibit 99.1 to the
       Company's  Registration  Statement on Form S-1 dated  September  29, 1995
       (Registration No. 33-94142)).


                                       27
<PAGE>


                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Report of Independent Public Accountants .............................       F-2

Consolidated Balance Sheets as of
  December 31, 1996 and 1995 .........................................       F-3

Consolidated Statements of Operations for
  the three years ended December 31, 1996 ............................       F-4

Consolidated Statements of Shareholders'
  Equity for the three years ended December 31, 1996 .................       F-5

Consolidated Statements of Cash Flows for
  the three years ended December 31, 1996 ............................       F-6

Notes to Consolidated Financial Statements ...........................       F-7


                                      F-1
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Microwave Power Devices, Inc.:

     We have audited the accompanying  consolidated  balance sheets of Microwave
Power Devices,  Inc. (formerly MPD Holdings,  Inc.) (a Delaware corporation) and
subsidiary  as of  December  31,  1996 and 1995,  and the  related  consolidated
statements of  operations,  shareholders'  equity and cash flows for each of the
three years in the period ended December 31, 1996.  These  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
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 financial statements referred to above present fairly,
in all material  respects,  the financial  position of Microwave  Power Devices,
Inc. and  subsidiary as of December 31, 1996 and 1995,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.


                                                          ARTHUR ANDERSEN LLP

Melville, New York
February 24, 1997


                                      F-2


<PAGE>


                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

                           CONSOLIDATED BALANCE SHEETS

                        AS OF DECEMBER 31, 1996 AND 1995


<TABLE>
<CAPTION>
                                                                                  1996            1995
                                                                                --------        --------
                                                                                      (in thousands,
                                                                                    except share data)
                      ASSETS
CURRENT ASSETS:
<S>                                                                             <C>             <C>     
   Cash and cash equivalents ............................................       $  1,149        $    388
   Accounts receivable, net of allowance for doubtful accounts of $76 and
         $67, respectively ..............................................          7,482           9,426
   Inventories, net .....................................................         14,362          18,912
   Prepaid expenses and other current assets ............................            657             480
   Deferred income taxes ................................................            345           2,515
                                                                                --------        --------
         Total current assets ...........................................         23,995          31,721

PROPERTY, PLANT AND EQUIPMENT, net ......................................          8,057           8,364
INTANGIBLE ASSETS, net ..................................................            369             382
INVESTMENT IN MARKETABLE SECURITIES AND OTHER LONG-TERM ASSETS
                                                                                   1,015             760
DEFERRED INCOME TAXES ...................................................          5,454            --
                                                                                --------        --------
                                                                                $ 38,890        $ 41,227
                                                                                ========        ========
                   LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
   Current portion of long-term debt ....................................       $     45        $     40
   Accounts payable .....................................................          5,103           4,883
   Accrued liabilities ..................................................          2,696           2,269
                                                                                --------        --------
         Total current liabilities ......................................          7,844           7,192
                                                                                --------        --------

DEFERRED INCOME TAXES ...................................................           --               416
                                                                                --------        --------

LONG-TERM DEBT ..........................................................         12,744           9,678
                                                                                --------        --------

COMMITMENTS AND CONTINGENCIES (Note 16)
SHAREHOLDERS' EQUITY:
   Preferred stock, $.01 par value; 5,000,000 shares authorized; no
         shares issued or outstanding ...................................           --              --
   Common stock, $.01 par value; 25,000,000 shares authorized; 10,375,000
         shares issued and outstanding ..................................            104             104
   Additional paid-in capital ...........................................         23,276          23,276
   Notes receivable from shareholders ...................................           (225)           (225)
   Unrealized loss on investment in marketable securities ...............           --              --
   Retained earnings (accumulated deficit) ..............................         (4,853)            786
                                                                                --------        --------
         Total shareholders' equity .....................................         18,302          23,941
                                                                                --------        --------
                                                                                $ 38,890        $ 41,227
                                                                                ========        ========
</TABLE>

     The accompanying notes are an integral part of these  consolidated  balance
sheets.


                                      F-3
<PAGE>



                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                      Year Ended
                                                    -------------------------------------------
                                                    December 31,   December 31,    December 31,
                                                       1996            1995            1994
                                                    --------        --------        --------
                                                       (in thousands, except per share data)

<S>                                                 <C>             <C>             <C>     
NET SALES ...................................       $ 47,362        $ 27,302        $ 25,134
COST OF SALES ...............................         41,501          20,122          17,371
                                                    --------        --------        --------
      Gross profit ..........................          5,861           7,180           7,763
                                                    --------        --------        --------

OPERATING EXPENSES:
   General and administrative ...............          3,221           3,091           2,585
   Selling ..................................          3,720           3,346           2,749
   Research and development (Note 2) ........          7,364           4,306           1,150
                                                    --------        --------        --------
                                                      14,305          10,743           6,484
                                                    --------        --------        --------
      Income (loss) from operations .........         (8,444)         (3,563)          1,279

INTEREST EXPENSE, net .......................            948           1,310             832
OTHER EXPENSE, net ..........................              6              55              67
                                                    --------        --------        --------
      Income (loss) before income taxes .....         (9,398)         (4,928)            380

PROVISION (BENEFIT) FOR INCOME TAXES ........         (3,759)         (1,976)             33
                                                    --------        --------        --------
      Net income (loss) .....................       $ (5,639)       $ (2,952)       $    347
                                                    ========        ========        ========

PER SHARE INFORMATION:
   Net income (loss) per common share .......       $  (0.54)       $  (0.36)       $   0.05
                                                    ========        ========        ========
   Weighted average common shares outstanding         10,375           8,172           7,500
                                                    ========        ========        ========
</TABLE>


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


                                      F-4
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                             Additional   
                                                                                              Paid-in     
                                        Preferred Stock                Common Stock           Capital     
                                        ---------------                ------------           -------     
                                       Shares   Amount             Shares       Amount    
                                       ------   ------             ------       ------
<S>                                     <C>     <C>               <C>         <C>            <C>          
BALANCE, December 25, 1993 ......       --      $     --          7,500       $     75       $  2,925     
   Net income ...................       --            --             --             --             --     
   Unrealized loss on investment
      in marketable securities ..       --            --             --             --             --     
                                    --------    --------       --------       --------       --------     

BALANCE, December 31, 1994 ......       --            --          7,500             75          2,925     
      Net loss ..................       --            --             --             --             --     
   Unrealized gain on investment
      in marketable securities...       --            --             --             --             --     
   Realized loss on investment in
      investment in marketable
      securities.................       --            --             --             --             --     
   Initial public offering
      (Note 4) ..................       --            --          2,875             29         20,351     
    Reclassification of notes
      receivable from
      shareholders (Note 11) ....       --            --             --             --             --     
                                    --------    --------       --------       --------       --------     

BALANCE, December 31, 1995 ......       --            --         10,375            104         23,276     
      Net loss ..................       --            --             --             --             --     
                                    --------    --------       --------       --------       --------     

BALANCE,  December 31, 1996 .....       --      $     --         10,375       $    104       $ 23,276     
                                    ========    ========       ========       ========       ========     

<CAPTION>
                                                        Unrealized                                                     
                                      Notes            Gain (Loss)on     Retained                              
                                      Receivable       Investment in     Earnings                              
                                      from              Marketable     (Accumulated                            
                                      Shareholders      Securities       Deficit)        Total                 
                                      ------------      ----------       --------        -----                 
<S>                                    <C>             <C>             <C>             <C>                     
BALANCE, December 25, 1993 ......      $   (263)       $     --        $  3,391        $  6,128                
   Net income ...................            --              --             347             347                
   Unrealized loss on investment                                                                                            
      in marketable securities ..            --             (59)             --             (59)               
                                       --------        --------        --------        --------                
                                                                                                               
BALANCE, December 31, 1994 ......          (263)            (59)          3,738           6,416                
      Net loss ..................            --              --          (2,952)         (2,952)               
   Unrealized gain on investment                                                                                            
      in marketable securities...            --              31              --              31                
   Realized loss on investment in            
      investment in marketable                                                                                               
      securities.................            --              28              --              28                
   Initial public offering                                                                                     
      (Note 4) ..................            --              --              --          20,380                
    Reclassification of notes                                                                                                 
      receivable from 
      shareholders (Note 11) ....            38              --              --              38                
                                       --------        --------        --------        --------                
                                                                                                               
BALANCE, December 31, 1995 ......          (225)             --             786          23,941                
      Net loss ..................            --              --          (5,639)         (5,639)               
                                       --------        --------        --------        --------                
                                                                                                               
BALANCE,  December 31, 1996 .....      $   (225)       $     --        $ (4,853)       $ 18,302                
                                       ========        ========        ========        ========                
</TABLE>
                                     

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


                                      F-5
<PAGE>


                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                     Year Ended
                                                                                    ------------------------------------------------
                                                                                    December 31,      December 31,     December 31,
                                                                                        1996              1995             1994
                                                                                     --------           --------           --------
                                                                                                      (in thousands)
<S>                                                                                  <C>                <C>                <C>     
OPERATING ACTIVITIES:
  Net income (loss) .......................................................          $ (5,639)          $ (2,952)          $    347
  Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
   Depreciation and amortization ..........................................             1,189                958                904
   Deferred income taxes ..................................................            (3,699)            (1,981)               (75)
   Loss on sale of property, plant and equipment ..........................                 3                 23                 55
   Loss on sale of investment in marketable securities ....................                --                 28                 --
   Amortization of deferred financing costs as interest expense ...........                --                126                 --
   Changes in operating assets and liabilities:
    Accounts receivable ...................................................             1,944             (5,351)               944
    Inventories ...........................................................             4,551            (11,621)            (1,481)
    Prepaid expenses and other assets .....................................              (433)              (431)               115
    Accounts payable and accrued liabilities ..............................               707              3,908               (117)
                                                                                     --------           --------           --------
            Net cash provided by (used in) operating activities ...........            (1,377)           (17,293)               692
                                                                                     --------           --------           --------
INVESTING ACTIVITIES:
  Purchases of property, plant and equipment ..............................              (912)            (2,315)              (662)
  Proceeds from sale of property, plant and equipment .....................                15                  8                 22
  Acquisition of a business ...............................................                --                 --             (3,383)
  Investment in marketable securities .....................................                --                 --                (27)
                                                                                     --------           --------           --------
            Net cash used in investing activities .........................              (897)            (2,307)            (4,050)
                                                                                     --------           --------           --------
FINANCING ACTIVITIES:
  Proceeds from long-term debt ............................................                --                800              2,534
  Principal payments of long-term debt ....................................               (40)            (2,992)              (418)
  Net proceeds from revolving credit loans ................................             3,110              2,859              2,154
  Settlement of amounts payable under stock purchase agreement ............                --                 --             (1,300)
  Advances to affiliates, net .............................................                --             (1,443)              (610)
  Deferred financing costs ................................................               (35)               (26)              (125)
  Net proceeds from issuance of common stock ..............................                --             20,380                 --
                                                                                     --------           --------           --------
            Net cash provided by financing activities .....................             3,035             19,578              2,235
                                                                                     --------           --------           --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..........................               761                (22)            (1,123)
CASH AND CASH EQUIVALENTS, beginning of year ..............................               388                410              1,533
                                                                                     --------           --------           --------
CASH AND CASH EQUIVALENTS, end of year ....................................          $  1,149           $    388           $    410
                                                                                     ========           ========           ========
SUPPLEMENTAL DATA:
  Cash paid for interest ..................................................          $  1,049           $  1,311           $  1,278
                                                                                     ========           ========           ========
  Cash paid for income taxes ..............................................          $     23           $     27           $     60
                                                                                     ========           ========           ========
</TABLE>

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


                                      F-6
<PAGE>


                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1996 and 1995
                      (in thousands, except per share data)

1.   THE COMPANY:

     On  September  3, 1991,  Charter  Electronics  Group,  Inc.  acquired  from
M/A-Com,  Inc. all of the outstanding  capital stock of Microwave Power Devices,
Inc. On June 14, 1995, the name of this entity was changed to MPD Wireless, Inc.
and on October 9, 1995 the name of this entity was changed to MPD  Technologies,
Inc. ("MPD").  On October 21, 1991, Charter  Electronics Group, Inc. changed its
name to MPD  Holdings,  Inc.,  which was changed on June 13,  1995 to  Microwave
Power Devices,  Inc. (the "Parent").  Prior to the  acquisition of MPD,  Charter
Electronics  Group,  Inc., which was formed on August 24, 1991, was engaged only
in activities related to its formation, the acquisition and its financing.

     The Company,  headquartered in Hauppauge, New York, is primarily engaged in
the  engineering  and  manufacturing  of radio  frequency  and  microwave  power
amplifiers for commercial and military applications.

2.   SIGNIFICANT ACCOUNTING POLICIES:

     Principles of Consolidation

     The consolidated  financial  statements  include the accounts of the Parent
and its wholly-owned operating subsidiary,  MPD (together,  the "Company").  All
intercompany balances and transactions have been eliminated in consolidation.

     Fiscal Year

     In 1994,  the  Company  reported  on a 52/53 week fiscal year ending on the
last  Saturday in  December.  The  consolidated  financial  statements  for 1994
contain 53 weeks.  Effective  July 1, 1995,  the Company  elected to report on a
calendar year.

     Cash and Cash Equivalents

     The Company considers all highly liquid investments with a maturity, at the
purchase date, of three months or less to be cash equivalents.

     Concentration of Credit Risk

     For the year ended  December 31, 1996,  sales to U.S.  commercial  original
equipment manufacturers ("OEMs") and U.S. prime contractors, the U.S. government
and  foreign  entities  accounted  for 49%,  8%, and 43% (34% and 9% to Asia and
Europe, respectively), respectively, of net sales. Accounts receivable from such
customers represent 66%, 6% and 28% of total accounts receivable,  respectively,
at December 31, 1996. For the year ended December 31, 1996, sales to one foreign
commercial  OEM  (Customer  A) and one  domestic  commercial  OEM  (Customer  B)
accounted for 34% and 19%, respectively, of net sales. At December 31, 1996, one
domestic  commercial OEM (Customer B) and one foreign  military OEM (Customer G)
represent 24% and 13% of accounts receivable, respectively.


                                      F-7
<PAGE>


                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     For the year ended  December 31, 1995,  sales to U.S.  commercial  OEMs and
U.S. prime contractors,  the U.S.  government and foreign entities accounted for
57%,  11% and 32% (27%,  4% and 1% to Asia,  Europe and  Canada,  respectively),
respectively,  of net sales.  Accounts  receivable from such customers represent
61%, 15% and 24% of total  accounts  receivable,  respectively,  at December 31,
1995. For the year ended December 31, 1995, sales to one foreign  commercial OEM
(Customer  A) and two  domestic  commercial  OEMs  (Customer  B and  Customer C)
accounted  for 26%,  21% and 10%,  respectively,  of net sales.  At December 31,
1995, one domestic  commercial  OEM (Customer B) and one foreign  commercial OEM
(Customer A) represent 34% and 16% of accounts receivable, respectively.

     For the year ended December 31, 1994, sales to U.S. prime contractors,  the
U.S. government and foreign entities accounted for 44%, 30% and 26% (16%, 6% and
4% to  Europe,  Asia and  Canada,  respectively),  respectively,  of net  sales.
Accounts  receivable  from such  customers  represent  49%, 33% and 18% of total
accounts  receivable,  respectively,  at December 31,  1994.  For the year ended
December 31, 1994,  sales to one  government  agency  (Customer D), one domestic
military OEM  (Customer E) and one foreign  military OEM  (Customer F) accounted
for 24%, 8% and 6%, respectively, of net sales.

     The  Company  generally  performs  credit  evaluations  of  its  customers'
financial condition prior to the extension of credit. The Company generally does
not require collateral, and, where appropriate,  requires that letters of credit
be provided on foreign sales.

     Inventories

     Inventories are stated at the lower of cost (using the first-in,  first-out
cost method) or net  realizable  value.  Work-in-process  associated  with fixed
price  long-term  contracts  is valued at the sum of the  direct  labor,  direct
material,  other direct costs and related  overhead  costs  incurred  under each
contract, less amounts charged to cost of sales.

     Progress Payments

     Progress  payments  received from customers are offset against  inventories
associated  with the contracts  for which the payments  were received  (Note 5).
Under contractual  arrangements by which progress payments are received from the
U.S.  Government,  the  U.S.  Government  has  a  lien  title  interest  in  the
inventories identified with related contracts.

     Long-term Contracts

     In  accordance  with industry  practice,  all  contract-related  assets and
liabilities   are   classified  as  current,   even  though   certain  of  these
contract-related  assets and  liabilities  may not be realized  within one year.
This practice is reflective  of the  Company's  operating  cycle as a contractor
under long-term contracts.


                                      F-8
<PAGE>


                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Property, Plant and Equipment

     Property,   plant  and  equipment  is  stated  at  cost  less   accumulated
depreciation  and  amortization  (Note 6).  Depreciation  and  amortization  are
provided using the  straight-line  method over the estimated useful lives of the
assets which are as follows:

         Building and improvements..........................   7 to 40 years
         Machinery and equipment............................   3 to 7 years
         Furniture and fixtures.............................   5 to 10 years

     Intangible Assets

     Intangible  assets,  net of accumulated  amortization of approximately $235
and $187 at December 31, 1996 and December  31, 1995,  respectively,  consist of
goodwill,  bond issuance costs and deferred financing costs. Goodwill represents
costs in excess of net assets acquired related to certain  acquisitions  made by
the Company and is being amortized over periods of 5 and 10 years. Bond issuance
costs  are  being  amortized  over 30 years,  which  represents  the term of the
respective  underlying  debt  agreement.  Deferred  financing  costs  were being
amortized over 5 years. However,  during 1995, in connection with the use of the
proceeds of the initial  public  offering (Note 4) to pay down the related debt,
these deferred  financing costs were charged to interest  expense.  During 1996,
the Company incurred $35 in additional  deferred financing costs associated with
the New Loan Agreement (Note 10), which will be amortized over 3 years.

     Long-Lived Assets

     During  March  1995,  the  Financial   Accounting  Standards  Board  issued
Statement of Financial  Accounting  Standards ("SFAS") No. 121,  "Accounting for
the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed
Of." This statement establishes financial accounting and reporting standards for
the  impairment of long-lived  assets,  certain  identifiable  intangibles,  and
goodwill related to those assets to be held and used, and for long-lived  assets
and certain  identifiable  intangibles  to be disposed  of.  This  statement  is
effective for financial statements for fiscal years beginning after December 15,
1995,  although  earlier  application  is encouraged.  The Company  adopted this
standard in 1996, and the effect of adoption was not material.

     Investment in Marketable Securities

     Effective  January 1, 1994, the Company  adopted SFAS No. 115,  "Accounting
for Certain  Investments in Debt and Equity  Securities." In connection with the
adoption  of this  pronouncement,  the debt  securities  held by the Company and
included in the  accompanying  consolidated  balance  sheets that may be sold in
response to changes in interest rates, prepayments,  and other factors have been
classified as  available-for-sale.  Such  securities are reported at fair value,
with  unrealized  gains and losses  excluded  from  earnings  and  reported in a
separate  component of  shareholders'  equity (on an after-tax  basis) (Note 7).
Gains and losses on the disposition of securities are recognized on the specific
identification  method in the  period in which  they  occur.  During  1995,  the
Company  realized gross proceeds of $451 and realized a loss of $28 on a sale of
these  securities.  There were no sales of these securities in 1994 or 1996. The
cumulative  effect of the adoption of this  pronouncement at January 1, 1994 was
not material.


                                      F-9
<PAGE>


                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Revenue Recognition

     Revenue and profits on fixed-price  long-term and commercial  contracts are
recognized using the unit of delivery method. Profits expected to be realized on
contracts  are based on total  sales  value as  related  to  estimated  costs at
completion. These estimates are reviewed and revised periodically throughout the
lives of the contracts, and adjustments to profits resulting from such revisions
are made  cumulative  to the date of the change.  Estimated  losses on long-term
contracts-in-progress  are  recorded in the period in which such  losses  become
known.

     Research and Development

     Research  and  development  costs  incurred by the Company are  included in
expenses in the year incurred. Such costs amounted to $7,364, $4,306, and $1,150
in the years ended  December 31, 1996,  December 31, 1995 and December 31, 1994,
respectively.  Certain other  development  costs are incurred in connection with
long-term  contracts  pursuant to which these costs are financed  under  related
contracts.  These costs are  included in cost of sales and the related  revenues
are  included  in net  sales  in the  accompanying  consolidated  statements  of
operations.

     Income Taxes

     The Company  provides  for income  taxes in  accordance  with SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method specified by
SFAS No.  109,  the  deferred  tax amounts  included  in the  balance  sheet are
determined based on the difference between the financial statement and tax bases
of assets and  liabilities  as measured by the enacted tax rates that will be in
effect  when  these  differences   reverse.   Differences   between  assets  and
liabilities  for  financial  statement and tax return  purposes are  principally
related to property, plant and equipment, inventories, accrued vacation expense,
accrued  warranty  costs,  real estate taxes,  accounts  receivable and contract
research and development.

     Net Income (Loss) Per Common Share

     Net income  (loss) per common  share was  computed by  dividing  net income
(loss) by the weighted  average number of common shares  outstanding  during the
respective years.

     Fully  diluted  net loss per  common  share  for 1996 and 1995 has not been
presented since the inclusion of the impact of stock options outstanding in 1996
and  1995  (Note  13)  would be  antidilutive  as the  Company  is in a net loss
position in 1996 and 1995.  Fully  diluted  net income per common  share has not
been presented for 1994 as there were no stock option plans in existence  during
that year.

     Stock-Based Compensation

     During October 1995, the Financial  Accounting  Standards Board issued SFAS
No. 123, "Accounting for Stock-Based  Compensation." This statement  establishes
financial   accounting  and  reporting   standards  for   stock-based   employee
compensation plans. SFAS No. 123 encourages entities to adopt a fair value based
method of accounting for stock compensation  plans.  However,  SFAS No. 123 also
permits the Company to continue to measure compensation costs under pre-existing
accounting  pronouncements.  If the fair value based method of accounting is not
adopted,  SFAS No. 123 requires pro forma  disclosures  of net income (loss) and
net income  (loss) per common  share in the notes to financial  statements.  The
Company has elected to provide the  necessary pro forma  disclosures  (Note 13),
beginning in 1996.


                                      F-10
<PAGE>


                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Use of 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.

     Reclassifications

     Certain prior year financial  statement  amounts have been  reclassified to
conform with the current year's presentation.

3.   ACQUISITION OF A BUSINESS:

     Pursuant to an asset  purchase  agreement  with  Republic  Electronics  Co.
("REC") dated April 8, 1994,  MPD acquired  certain  assets and assumed  certain
liabilities  of REC for $3,204 in cash plus costs related to the  acquisition of
$179. Costs in excess of net assets acquired of approximately $179 were recorded
as  goodwill  and are being  amortized  over a period of 5 years  (Note 2).  The
business  acquired  from REC develops  and  manufactures  air defense  radar and
navigational  simulators,  and its operations reside at the Company's Hauppauge,
New York facility.

     Pro Forma Results of Operations

     Summarized  below are the  unaudited pro forma results of operations of the
Company as though  this  acquisition  had  occurred  at the  beginning  of 1994.
Adjustments  have  been  made  for  pro  forma  income  taxes  related  to  this
transaction.

                                                         For the Year Ended
                                                         December 31, 1994
                                                         -----------------
         Pro forma net sales.....................              $ 27,929
         Pro forma net income....................                   508
         Pro forma net income per share..........              $   0.07

         These pro forma results of operations are not necessarily indicative of
the actual results of operations  that would have occurred had the purchase been
made at the beginning 1994, or of results which have occurred since December 31,
1994, or of results which may occur in the future.

4.   INITIAL PUBLIC OFFERING:

     In October 1995, the Company  completed an initial public offering of 2,500
shares of common stock at $8.00 per share. In November 1995, the Company sold an
additional  375  shares of  common  stock at $8.00  per  share  pursuant  to the
underwriters' overallotment related to the October 1995 initial public offering.
Aggregate  net proceeds to the Company  from the  offering,  after  deduction of
direct expenses,  were $20,380.  The Company used a portion of these proceeds to
repay $15,860 of its debt obligations outstanding at the closing date.


                                      F-11
<PAGE>


                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     During  1995,  in  connection  with  the  initial  public  offering  of its
securities,  the Company  effected a  recapitalization  whereby  the  previously
outstanding  Class A voting and Class B non-voting common stock was converted to
7,500 shares of a single class of common stock. All information contained in the
accompanying  financial statements and footnotes has been retroactively restated
to give effect to this transaction.

5.   INVENTORIES, NET:

     At December 31, 1996 and 1995, inventories, net, consists of the following:

                                                         1996              1995
                                                         ----              ----
         Raw materials............................    $  6,333          $  5,736
         Work-in-process..........................       8,918            14,382
         Unliquidated progress payments...........       (231)             (816)
                                                      --------          --------
                                                        15,020            19,302
         Less: Reserves...........................       (658)             (390)
                                                      --------          --------
                                                      $ 14,362          $ 18,912
                                                      ========          ========

     During  1996,  the Company  wrote-off  $6,550 of  wireless  work-in-process
inventory due to decreased  product demand and the resulting impact on estimated
costs at completion.

6.   PROPERTY, PLANT AND EQUIPMENT, NET:

     At December 31, 1996 and 1995, property, plant and equipment, net, consists
of the following:

                                                        1996              1995
                                                        ----              ----
         Land...................................     $    937          $    937
         Building and improvements..............        4,361             4,104
         Machinery and equipment................        6,606             6,183
         Furniture and fixtures.................          131                75
                                                     --------          --------
                                                       12,035            11,299
         Less: Accumulated depreciation
           and amortization...............             (3,978)           (2,935)
                                                     --------          --------
                                                     $  8,057          $  8,364
                                                     ========          ========

7.   INVESTMENT IN MARKETABLE SECURITIES:

     At December 31, 1996 and 1995, investment in marketable securities consists
of the following:

                                                   1996              1995
                                                   ----              ----
         Book value.......................       $   437           $   437
         Unrealized loss..................            --                --
                                                 -------           -------
         Market value.....................       $   437           $   437
                                                 =======           =======


                                      F-12
<PAGE>


                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

         This  investment  has a maturity of less than one year at December  31,
1996 and 1995, an is classified as  available-for-sale  (Note 2). However, this
investment has been classified as a non-current asset as the Company is required
to hold this  amount in escrow  in  accordance  with the terms of an  Industrial
Development Revenue Bond agreement (Note 10).

8.   ACCRUED LIABILITIES:

     At  December  31,  1996  and  1995,  accrued  liabilities  consists  of the
following:

                                                         1996              1995
                                                         ----              ----
         Accrued payroll and benefits................  $ 1,450           $ 1,445
         Accrued commissions.........................      422               467
         Accrued warranty............................      400                84
         Other.......................................      424               273
                                                       -------           -------
                                                       $ 2,696           $ 2,269
                                                       =======           =======

9.   NOTE PAYABLE TO RELATED PARTY:

     The  acquisition  of MPD  was  partially  financed  by a  $4,773  unsecured
promissory  note  from the  Company's  principal  shareholder,  of which  $2,853
remained  outstanding at December 31, 1994. Amounts  outstanding under this note
bore  interest  at 6.5% and were due on  September  3, 1996.  During  1995,  the
Company repaid this note with the proceeds from the initial  public  offering of
its securities (Note 4).

10.  LONG-TERM DEBT:

     At December 31, 1996 and 1995, long-term debt consists of the following:

                                                              1996        1995
                                                              ----        ----
         Industrial Development Revenue Bonds (a)....        $4,665      $4,705
         Loan and security agreement (b).............         8,124       5,013
                                                            -------      ------
                                                             12,789       9,718
         Less: Current portion.......................          (45)        (40)
                                                            -------      ------
                                                            $12,744      $9,678
                                                            =======      ======

(a)    On June 30, 1992,  MPD  purchased a 7.4 acre parcel of land and an 86,000
       square  foot   building   for  use  as  a  corporate   headquarters   and
       manufacturing  operation for $4,295.  MPD financed the  acquisition  with
       Industrial  Development  Revenue Bonds  ("IDRBs")  totaling $4,810 issued
       through the Suffolk County Industrial  Development Agency ("SCIDA").  The
       issuance was  comprised of $490 Series A Bonds at 7.75% and $4,320 Series
       B Bonds at 8.5% with interest payable  quarterly.  The Series A Bonds and
       the  Series  B  Bonds  mature  on  June  30,  2002  and  June  30,  2022,
       respectively,   and  are  subject  to  annual   mandatory   sinking  fund
       redemptions on June 30 of each year beginning with June 30, 1993 and June
       30, 2003,  respectively.  The Series B Bonds  include a $425 Debt Service
       Reserve  Fund due and payable on June 30,  2022.  Under IDRB  terms,  MPD
       transferred  ownership  of this  facility  to the  SCIDA at  closing  and
       immediately  leased back the facility with a lease term equal to the IDRB
       terms and provided for a one dollar buy-back option at lease end.


                                      F-13
<PAGE>


                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(b)    At December  31, 1996,  the Company had an amended and restated  loan and
       security agreement with a lender (the "Loan  Agreement"),  which provided
       for  borrowings up to $8,400 in the form of revolving  credit.  Aggregate
       borrowings  under the Loan  Agreement  were  limited by a borrowing  base
       calculation to the sum of 85% of accounts receivable,  as defined, 35% of
       raw materials, 35% of "non-wireless" work-in-process,  as defined, 50% of
       "wireless" work-in-process,  as defined (reduced by 1% per week until 35%
       was reached on February 21, 1997),  and 65% of finished goods  inventory,
       as defined (borrowings based on eligible inventory were limited to $6,000
       (reduced by $40 per week until  $5,680 was reached on January 3,  1997)).
       Borrowings  under the Loan  Agreement  were  collateralized  by  accounts
       receivable,  inventory,  equipment  and certain  other  assets.  The Loan
       Agreement  was to expire on April 5, 1999 and was  renewable for one-year
       terms. Borrowings under the Loan Agreement at December 31, 1996 and 1995,
       relate  strictly to  revolving  credit  loans which bear  interest at the
       bank's  base rate  (8.25% and 8.5% at  December  31,  1996 and 1995) plus
       1.0%, in the amount of $8,124 and $5,013, respectively.

     The aggregate  annual  maturities of long-term  debt, at December 31, 1996,
are as follows:

         1997................................     $    45
         1998................................          50
         1999................................       8,179
         2000................................          60
         2001................................          65
         Thereafter..........................       4,390
                                                  -------
                           Total.............     $12,789
                                                  =======

     On February 13, 1997, the Company replaced the Loan Agreement with a credit
facility from another lender (the "New Loan Agreement").  The New Loan Agreement
provides for  borrowings up to $13,000 in the form of a revolving line of credit
and a term loan.  Aggregate  borrowings under the New Loan Agreement are limited
by a borrowing  base  calculation to the sum of 85% of accounts  receivable,  as
defined and 40% of raw materials  and  work-in-process  inventories,  as defined
(borrowings based on eligible inventory are limited to $6,000). Borrowings under
the New Loan Agreement are  collateralized  by accounts  receivable,  inventory,
equipment and certain other assets.  The New Loan Agreement  expires on February
12, 2000 and is renewable  thereafter for one-year terms. The New Loan Agreement
contains  a  covenant  to  maintain  a  certain  fixed  charge  coverage  ratio.
Borrowings under the New Loan Agreement for the revolving line of credit and the
term  loan will  bear  interest  at the  bank's  base rate plus 1.0% and  1.25%,
respectively.

11.  SHAREHOLDERS' EQUITY:

     Notes  receivable  from  shareholders  resulted  from the  issuance  of the
Company's  common  stock and are secured by the pledge of such stock.  The notes
bore  interest at 8.0% and were due on September 3, 1996.  On February 24, 1997,
the  notes  were  extended  to  September  3,  1998 and bear  interest  at 8.0%.
Subsequent to December 31, 1995, $38 of the  outstanding  notes  receivable from
shareholders were repaid.


                                      F-14
<PAGE>


                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12.  INCOME TAXES:

     For the years ended  December 31, 1996,  December 31, 1995 and December 31,
1994, the provision (benefit) for income taxes consists of the following:

                                       1996              1995              1994
                                    -------           -------           -------
        Current:
         Federal .........          $    --           $    --           $    95
         State ...........               --                --                39
                                    -------           -------           -------
                                         --                --               134
                                    -------           -------           -------
        Deferred:
         Federal .........           (3,384)           (1,779)              (91)
         State ...........             (375)             (197)              (10)
                                    -------           -------           -------
                                     (3,759)           (1,976)             (101)
                                    -------           -------           -------
                                    $(3,759)          $(1,976)          $    33
                                    =======           =======           =======

     The following table reconciles the Federal  statutory rate to the Company's
effective  income tax rate for the years ended  December 31, 1996,  December 31,
1995 and December 31, 1994:
<TABLE>
<CAPTION>
                                                        1996        1995        1994
                                                        ----        ----        ----
<S>                                                      <C>         <C>         <C>
     Statutory rate ............................         34%         34%         34%
     State taxes, net of federal benefit .......          6           6           7
     Utilization of NOL carryforwards ..........         --          --         (34)
     Other .....................................         --          --           2
                                                       ----        ----        ----
     Effective Rate ............................         40%         40%          9%
                                                       ====        ====        ====
</TABLE>

     For the years ended  December 31, 1996,  December 31, 1995 and December 31,
1994,  the deferred  income tax  provision  (benefit) is related to  differences
between the financial and tax bases of assets and liabilities resulting from the
following:

<TABLE>
<CAPTION>
                                                  1996           1995         1994
                                                -------        -------       ------- 
<S>                                            <C>            <C>            <C>    
     Depreciation ......................       $  (137)       $   (96)       $    38
     Inventories .......................           (56)            41            (74)
     Accrued vacation expense ..........           (34)            77            (36)
     Accrued warranty costs ............          (126)           (10)            (4)
     Prepaid real estate taxes .........             3            (30)           (25)
     Accounts receivable ...............            (3)             7             --
     Contract research and development .           231             --             --
     Net operating loss carryforwards ..        (3,637)        (1,965)            --
                                               -------        -------        ------- 
                                               $(3,759)       $(1,976)       $  (101)
                                               =======        =======        =======
</TABLE>


                                      F-15
<PAGE>


                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     The Company  acquired a net operating loss  carryforward  of  approximately
$2,600 for federal income tax purposes,  the  utilization of which is subject to
Internal  Revenue Code limitations and expiration in 2004. At December 31, 1996,
approximately  $1,340 of the loss carryforward was available for future use. The
Company  has not  recorded  a  deferred  tax  asset  with  respect  to this loss
carryforward as the utilization may be required to offset potential  adjustments
to  previously  filed  income tax returns  currently  under  examination  by the
Internal Revenue Service.

     The Company has  recorded  deferred tax assets of $3,759 and $1,976 for the
benefit  of  federal  income  tax  loss  carryforwards  and  timing  differences
generated in 1996 and 1995.  Realization  is dependent on generating  sufficient
taxable  income  prior  to  expiration  of  the  loss  carryforwards.   Although
realization is not assured,  management believes it is more likely than not that
all of the deferred  tax asset will be realized.  The amount of the deferred tax
asset  considered  realizable,  however,  could be  reduced  in the near term if
estimates of future taxable income during the carryforward period are reduced.

13.  STOCK OPTION PLANS:

     In June 1995,  the Company  adopted  the 1995 Stock  Option Plan (the "1995
Plan")  pursuant to which key employees of the Company and eligible  consultants
to the Company are  eligible to receive  incentive  and/or  non-qualified  stock
options to purchase up to 525 shares of the  Company's  common  stock.  The 1995
Plan,  which  expires on June 26,  2005,  is  administered  by the  Compensation
Committee of the Board of  Directors.  The selection of  participants,  grant of
options, determination of price and other conditions relating to the exercise of
options is determined by the Compensation Committee of the Board of Directors.

     In March 1996,  the Company  adopted the 1996 Stock  Option Plan (the "1996
Plan"),  which was approved by the  Stockholders in May 1996,  pursuant to which
key  employees  of the  Company  and  eligible  consultants  to the  Company are
eligible to receive incentive and/or  non-qualified stock options to purchase up
to 475 shares of the  Company's  common stock.  The 1996 Plan,  which expires on
March 5, 2006, is  administered  by the  Compensation  Committee of the Board of
Directors.  The selection of  participants,  grant of options,  determination of
price and other conditions  relating to the exercise of options is determined by
the Compensation Committee of the Board of Directors.

     Incentive and  non-qualified  stock options granted under the 1995 Plan and
the 1996 Plan are  exercisable  for a period of up to 10 years  from the date of
grant at an exercise  price which is not less than the fair market  value of the
common  shares on the date of the grant,  except  that the term of an  incentive
stock  option  granted  under the 1995  Plan and the 1996 Plan to a  shareholder
owning more than 10% of the outstanding common shares may not exceed 5 years and
its  exercise  price may not be less than 110% of the fair  market  value of the
common shares on the date of the grant.


                                      F-16
<PAGE>


                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Transactions  involving the 1995 Plan and the 1996 Plan for the years ended
December 31, 1996 and December 31, 1995 are summarized as follows:

<TABLE>
<CAPTION>

                                                                  1995 Plan                     1996 Plan  
                                                                  ---------                     ---------  
                                                 Shares         Option Price         Shares    Option Price
                                                 ------         ------------         ------    ------------
         <S>                                       <C>          <C>                    <C>      <C>        
             Year Ended December 31, 1995                                                                  
         Granted ..........................        459          $ 8.00 - $10.75         --           $--   
         Exercised ........................         --                 --               --            --   
         Cancelled ........................         (4)              $8.00              --            --   
                                                   ---          ---------------        ---           ----  
         Outstanding at December 31, 1995 .        455          $ 8.00 - $10.75         --           $--   
                                                   ---          ---------------        ---           ----  
             Year Ended December 31, 1996                                                                  
         Granted ..........................         70         $11.125 - $11.375         49       $11.125  
         Exercised ........................         --                       --         --            --   
         Cancelled ........................        (12)         $ 8.00 - $10.75         --            --   
                                                   ---          ---------------        ---        -------  
         Outstanding at December 31, 1996 .        513          $ 8.00 - $11.375         49       $11.125  
                                                   ===          ================       ===        =======  
</TABLE> 


     At  December  31,  1996,  223 shares  were  exercisable  and 12 shares were
available for grant under the 1995 Plan and no shares were  exercisable  and 426
shares were available for grant under the 1996 Plan.

     The  Company  accounts  for these  plans  under APB No. 25,  under which no
compensation cost is recognized for stock options granted with an exercise price
at or  above  the  prevailing  market  price  on  the  date  of the  grant.  Had
compensation cost for these plans been determined consistent with the fair value
approach  required  by SFAS No.  123,  the  Company's  net loss and net loss per
common share would have been increased to the following pro forma amounts:

<TABLE>
<CAPTION>
                                                                     1996             1995
                                                                     ----             ----
<S>                                    <C>                         <C>              <C>     
       Net loss:                       As reported                 $(5,639)         $(2,952)
                                       Pro forma                    (6,202)          (3,174)

       Net loss per common share:      As reported                  $(0.54)          $(0.36)
                                       Pro forma                     (0.60)           (0.39)
</TABLE>

     The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions used
for the grants made in June 1995,  November 1995,  February 1996 and March 1996,
respectively: risk-free interest rates of 5.8%, 5.63%, 5.41% and 5.49%; expected
dividend  yields of 0% for each grant;  expected lives of 3.5 years,  3.0 years,
3.0 years and 4.0 years;  expected  stock price  volatility of 52%, 54%, 54% and
54%.

     The effects of applying SFAS No. 123 in this pro forma  disclosure  may not
be  indicative  of future  amounts  because SFAS No. 123 does not apply to stock
options granted prior to January 1, 1995 and additional  stock option grants are
anticipated in future years.


                                      F-17
<PAGE>


                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                  (formerly MPD Holdings, Inc. and subsidiary)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

14.  DEFINED CONTRIBUTION PENSION PLAN:

     MPD maintains a defined  contribution  plan which covers  substantially all
employees, and provides for employee contributions of up to 14% of their salary,
a portion of which is matched by MPD.  Contributions by MPD were $493, $464, and
$364, in 1996, 1995 and 1994, respectively.

15.  TRANSACTIONS WITH RELATED PARTIES:

     Prior to the Company's  initial public offering in 1995 (Note 4), corporate
charges were assessed by a related party for management services provided to the
Company.  These  charges  were  $0,  $342,  and $456 in  1996,  1995  and  1994,
respectively,  and are  included in general and  administrative  expenses in the
accompanying consolidated statements of operations.

16.  COMMITMENTS AND CONTINGENCIES:

     Operating Leases

     Rent expense,  including  amounts  charged to inventory as part of overhead
allocations  and the rental of  machinery  and  equipment  (on a  month-to-month
basis) in all three years was  $1,434,  $571,  and $165 in 1996,  1995 and 1994,
respectively.

     Litigation

     In the normal course of business,  the Company is a party to various claims
and/or  litigation.  Management  believes that the settlement of all such claims
and/or litigation, considered in the aggregate, will not have a material adverse
effect on the Company's financial position and results of operations.

     Employment and Consulting Agreements

     The  Company  has an  employment  agreement  with its  President  and Chief
Executive  Officer  which  expires on August 30, 1997 and provides for an annual
base salary of $250.  The terms of the agreement are  automatically  renewed for
successive one year terms.  Additionally,  the Company has consulting agreements
with two  director/shareholders  which provide for aggregate annual compensation
of $225.

     Letters of Credit

     As of December  31,  1996,  the Company has  outstanding  letters of credit
aggregating $260.


                                      F-18