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, 1998
        
                               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 1, 1999: $46,648,830.

Number of shares of Common Stock outstanding as of March 1, 1999:  10,468,802

                       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.
                         1998 ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENTS

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

Part I

        1.   Business .........................................................3
        2.   Properties.......................................................15
        3.   Legal Proceedings................................................15
        4.   Submission of Matters to a Vote of Security Holders..............16

Part II

        5.   Market for Registrant's Common Equity
                and Related Stockholder Matters...............................16
        6.   Selected Consolidated Financial Data.............................17
        7.   Management's Discussion and Analysis
                of Financial Condition and Results of Operations..............18
        7A.  Quantitative and Qualitative Disclosures About Market Risk.......24
        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...............24
        11.  Executive Compensation...........................................24
        12.  Security Ownership of Certain Beneficial Owners and Management...24
        13.  Certain Relationships and Related Transactions...................24

Part IV

        14.  Exhibits, Financial Statements and Reports on Form 8-K...........24

Signatures....................................................................25

Exhibit Index.................................................................26
<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 wireless 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, GSM, W-CDMA
and cdma2000. These products are marketed to the cellular, PCS, paging and
wireless local loop ("WLL") 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 31 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, LG Information and Communications, Ltd. ("LGIC") and
QUALCOMM Incorporated 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 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 and
their demands for enhanced services. To increase capacity, these service
providers are


                                       3
<PAGE>

investing in infrastructure equipment that provides greater efficiency in the
management of the limited spectrum licensed to them.

      Wireless service has been one of the fastest growing segments of the
wireless telecommunications market. According to consensus estimates from
infrastructure OEMs, there were approximately 200 million wireless subscribers
worldwide at year-end 1997 and 140 million at year-end 1996, as compared to U.S.
Department of Commerce estimates of approximately 87 million, 52 million and 33
million at year-end 1995, 1994 and 1993, respectively. The growth in wireless
communications has required, and will continue to require, substantial
investment by wireless service providers in wireless infrastructure equipment.
Moreover, intensified competition among wireless 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, wireless 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
wireless 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 wireless
network are 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 WLL system, radio systems are used 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 WLL
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
wireless 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.

      In order to further increase system capacity and add additional services,
a third generation ("3G") of wireless systems is beginning to emerge. These
systems are expected to provide high speed data transmission (at 2 megabytes per
second), wireless internet connectivity and other multi-media capabilities, all
driven by the demands of the subscriber. For existing systems requiring upgrades
to 3G, the technology solution is anticipated to be cdma2000. For new 3G
infrastructure deployments, W-CDMA technology is anticipated to be utilized.


                                       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:

      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 wireless systems by enabling a more efficient
      use of digital transmission technologies, microcellular architectures and
      adaptive channel allocation. In current wireless 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.

      Analog to Digital Transition. Traditional wireless 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.

      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 cellular and PCS digital
      protocols include CDMA, TDMA and GSM. Digital protocols that are being
      utilized in emerging WLL systems include W-CDMA and cdma2000.

      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.

      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 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 


                                       5
<PAGE>

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 31 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. The
Company believes that its long standing technological capability will allow for
wireless market share growth with a continued nurturing of its satellite,
medical and military product lines.

      Increase Penetration of Leading Integrated Wireless Infrastructure
Equipment Manufacturers. The Company has developed relationships with certain
large integrated wireless telecommunications OEMs. 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 WLL 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,
CDPD and NMT-450 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. For WLL systems, the Company currently supports
W-CDMA and cdma2000 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. In this way, the Company hopes
to develop additional relationships with worldwide wireless telecommunications
OEMs.

      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.


                                       6
<PAGE>

      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 wireless 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
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. For example, 3G
technology, which will be used for data transmission and internet access, as
well as for voice, is expected to utilize a wide-band 5-20 MHz CDMA signal. 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 wireless 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.


                                       7
<PAGE>

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 400-3500 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 significantly 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:

--------------------------------------------------------------------------------
                           Single Channel Amplifiers  Multi-Channel Amplifiers
     Wireless System               Protocol                   Protocol
--------------------------------------------------------------------------------
      Analog Cellular:            AMPS                       AMPS
                                  CDPD                       N-AMPS
                                                             TACS
                                                             SETACS
                                                             ETACS
                                                             NMT-450

--------------------------------------------------------------------------------
      Digital Cellular:           CDMA                       CDMA
                                  TDMA                       TDMA
                                  GSM-900                    GSM-900

--------------------------------------------------------------------------------
      PCS:                        CDMA                       CDMA *
                                  TDMA                       TDMA *
                                  DCS-1800                   DCS-1800 *
                                  PCS-1900                   PCS-1900 *

--------------------------------------------------------------------------------
      IMT-2000/WLL:               W-CDMA *                   W-CDMA *
                                  cdma2000 *                 cdma2000 *

--------------------------------------------------------------------------------

*     Products in the prototype phase.

      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
NMT, AMPS, TDMA and CDMA channels.


                                       8
<PAGE>

      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 $40,000. A power amplifier subsystem consists
of multiple cast housings and adds digital 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
and continental 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 human
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, 1998 and December 31,
1997 was $123.3 million and $83.9 million, respectively, of which, as of
December 31, 1998, approximately $65.5 million is currently scheduled to be
shipped during fiscal 1999. The $123.3 million backlog as of December 31, 1998
included $61.0 million to wireless telecommunications customers, $20.6 million
to satellite communications customers, $2.5 million to medical and other
commercial customers and $39.2 million to military customers. In general, the
Company includes in its backlog only those orders for which it has accepted
purchase orders, some of which may be of a consignment nature. Backlog is not
necessarily indicative of future sales. Moreover, nearly all of the Company's
backlog can be cancelled and/or delayed at any time (including the consignment
orders) 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, 1998 include product specifications not yet achieved by the Company.

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 Ericsson, Motorola, Nokia,
Nortel and others supply the majority of the wireless infrastructure equipment
worldwide. In addition, a number of South Korean infrastructure OEMs are
participating in the wireless infrastructure build-out in that country and are
emerging as providers of 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 wireless
base stations increase, many of these equipment


                                       9
<PAGE>

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, 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 address
the high-power amplification needs of its OEM customers. Sales to integrated
wireless telecommunications OEMs require close account management by the
Company. As such, relationships are established 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 base stations. 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, 1998, the Company had a direct sales staff of
seven people.

      To date, the Company has sold its products overseas with the assistance of
independent sales representatives to OEM customers. As of December 31, 1998, the
Company has worldwide relationships with approximately 75 independent sales
representative organizations. The Company's direct sales staff provides
direction and support to its worldwide independent sales representative
organizations. Sales outside of the United States represented 16%, 24% and 43%
of net sales in fiscal 1998, 1997 and 1996 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.

Manufacturing

      The Company assembles, tests, packages and ships amplifier products at its
manufacturing facility located in Hauppauge, Long Island, 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. During the fourth quarter of 1997,
a second stencil printer and convection oven for the surface-mount center was
put into service. In the second quarter of 1998, a second automated
surface-mount pick-n-place machine was added. In the first quarter of 1999, the
Company anticipates adding a third stencil printer and convection oven and in
the second half of 1999, a third automated surface-mount pick-n-place machine.
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.

      The Company began introducing automated tuning and testing into its
automated manufacturing processes in the second half of 1996. Essentially all
wireless production amplifiers are now tuned and tested in an automated fashion,
as are certain satellite, medical and military production amplifiers. As a
by-product of its automated tuning and testing efforts, the Company has been
able to implement statistical process control ("SPC") as well. With SPC in
place, various data measurements are accumulated automatically and can be
graphically displayed in real time. Through continuous 


                                       10
<PAGE>

feedback, the benefits of SPC are that corrective actions can be implemented
more timely and with more accuracy, product design ideology can be adjusted
accordingly to optimize manufacturing efficiencies and product performance, and
product throughput can be more effectively measured. The Company expects the
implementation of SPC to result in greater production yields.

      The Company's movement during the past few years into high volume
automated production was the result of time-to-market and pricing demands of the
wireless telecommunications industry. The Company believes that it must continue
to maintain direct control over this process if it wants to continue to satisfy
the timely needs of wireless telecommunications OEMs. Furthermore, the Company
has introduced the automated manufacturing processes described above into its
other product segments much to the benefit of the satellite, medical and
military customers and their associated equipment. As a result, the Company has
begun to leverage its high volume design and production capabilities into its
low and medium volume product lines.

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 1998, 1997 and 1996 were $6.0 million, $4.4
million, and $7.4 million, respectively, and represented 10.7%, 8.4% and 15.5%,
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 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 may be already better established in the
wireless amplification market than the Company. No assurance can be given that
the


                                       11
<PAGE>

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 as well as enabling
them to more aggressively pursue various pre-production opportunities.

      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 and its
thirty-one year military industry stature.

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 holds one U.S. patent, owns two U.S.
trademarks and has one U.S. patent 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 "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, 1998
included $5.3 million of orders from Republic Electronics' customers. In 1998,
sales attributable to Republic Electronics' business were $5.8 million,
comprising 10.4% of the Company's net sales.

    The Company has a U.S. patent (which expires in January 2012) relating to a
windshear radar warning system tester. 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 held 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 the Company
determined not to maintain and permitted to expire on December 6, 1998.
"REPUBLIC" and "MRES 2000" are U.S. registered trademarks of the Company. The
Company also has a U.S. patent pending for a flightline test of satellite-based
airborne navigation systems. This invention relates to the testing of instrument
approach and landing systems which utilize a global navigation satellite system.


                                       12
<PAGE>

Employees

      As of December 31, 1998, the Company had a total of 400 regular, temporary
and contract employees, including 254 in operations and quality, 103 in
engineering, 10 in sales and marketing and 33 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 commercial markets
in 1992. More specifically, the Company only began to focus on the wireless
telecommunications market in 1994. 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,
1998 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.

      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 and to develop new products that can be sold at higher average sales
prices, 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


                                       13
<PAGE>

have limited operating histories and limited financial and other resources and,
therefore, may prove to be unreliable sources of supply. Further, during the
past few years, the Company has 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 due to limited availability of components 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 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, PCS and other wireless telecommunications
services 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.

      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") has recently adopted new regulations that
impose more stringent RF and microwave emissions standards on the
telecommunications industry. There can be no assurance that, as a result of such
regulations, 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 effect the market for the Company's
products.

      The continuing financial market turmoil and economic slowdown in South
Korea may have a material adverse effect on the Company's sales. The Company's
primary customer in this region is LGIC, which is one of a number of South
Korean OEMs that are participating in the wireless infrastructure build-out in
that country. In addition, since worldwide pricing of the Company's products are
in U.S. dollars, the current instability in South Korea and other Asian
financial markets may have the effect of making the Company's products more
expensive to LGIC as compared to those of other manufacturers whose products are
priced in one of the affected Asian currencies. As a result, LGIC may reduce or
eliminate future purchases of the Company's products.

      The Company anticipates that a material portion of its 1999 wireless
product revenue could result from shipments (directly or indirectly) into
countries facing economic uncertainty or political unrest. While the pricing of
such products is in U.S. dollars, the effect of the economic uncertainty or
political unrest could cause a reduction, cancellation or delay in these
wireless product shipments. In addition, financial instability in these
countries could cause currency fluctuations that make these products more
expensive than the customer originally anticipated, which could result in the
reduction, delay or elimination of future orders. These factors could materially
adversely affect the Company's business, financial condition and results of
operations.


                                       14
<PAGE>

      The Company has recently begun to enter into arrangements with its major
OEM customers whereby those customers stock the Company's amplifiers on a
consignment basis until they are consumed in production. Under these
arrangements, the Company receives a forecast each week from the customer
reflecting the customer's future product requirements. These forecasts provide
the Company with a one year forward-look which details the weekly requirements
for the first 26 weeks and the monthly requirements for the remaining six
months. If those product needs do not ultimately meet the Company's expectations
or, conversely, if they substantially exceed those expectations such that the
Company cannot fulfill them, there could be a material adverse effect on the
Company's business, financial condition and results of operations.

ITEM 2. PROPERTIES.

      The Company's operations are located in an 86,000 square foot facility on
7.4 acres of land in Hauppauge, Long Island, New York. The building was
constructed in 1986 and purchased by the Company in June 1992 with the proceeds
from Industrial Development Revenue Bonds ("IDRBs") 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 engineering, manufacturing,
quality assurance, sales and marketing and administrative personnel. The plant
has been customized to suit the Company's operations, which includes electrical
power upgrades and 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 into fiscal year 2000, the Company has zoning
approvals 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.

      On January 30, 1998, a complaint was filed against the Company in the
United States Bankruptcy Court for the Northern District of Texas, Dallas
Division, alleging the Company's failure to turn over property to the estate of
Pinpoint Communications, Inc. ("Pinpoint") which, as of August 13, 1996, is in
Chapter 7 liquidation. The suit alleges that the Company has failed to return
advance monies of approximately $0.5 million paid by Pinpoint pursuant to an
equipment purchase agreement dated March 31, 1995 between the parties. On April
16, 1998, the Chapter 7 bankruptcy trustee (the "Trustee") for Pinpoint, filed
an amended complaint objecting to the Company's claim for $0.6 million in unpaid
contract obligations and asserting a counterclaim for the return of $0.5 million
that Pinpoint paid to the Company under the terms of the purchase agreement
between the parties. The Company answered the Trustee's amended complaint and
began to defend against the Trustee's claims and counterclaim. More recently, an
agreement in principle has been reached to settle the claim with payment by the
Company of an immaterial amount, subject to the approval of the United Stated
bankruptcy trustee.

      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 other 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.


                                       15
<PAGE>

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 1998.

                                     PART II

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

      The Common Stock of the Company is traded on The Nasdaq Stock Market(R)
under the symbol MPDI. On March 1, 1999 there were approximately 2,400
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
           ---------------             ----             ---

           1997:

           First Quarter.............  4-1/4            2-13/32

           Second Quarter............  5-1/2            2-7/16

           Third Quarter.............  12-3/8           4-17/64

           Fourth Quarter............  11               4-3/4

           1998:

           First Quarter.............  9-1/4            4-7/8

           Second Quarter............  9                5-5/8

           Third Quarter.............  6-7/8            2-1/4

           Fourth Quarter............  13-1/16          2-1/4

      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.


                                       16
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

      The following selected consolidated financial data as of and for the years
ended December 31, 1998 and 1997, and for the year ended December 31, 1996 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, 1996 and as of and for the years ended December 31, 1995 and 1994
have been derived from the Consolidated Financial Statements of the Company
audited by Arthur Andersen LLP, independent public accountants, not included
herein.

<TABLE>
<CAPTION>
                                                                                         Year Ended
                                                       -----------------------------------------------------------------------------
                                                       December 31,    December 31,    December 31,      December 31,   December 31,
                                                           1998            1997            1996             1995           1994
                                                       ------------    ------------    -------------     ------------   ------------
<S>                                                      <C>              <C>             <C>              <C>              <C>     
Consolidated Statements of Operations Data:                                 (in thousands, except per share data)
Net sales .......................................        $ 55,774         $ 52,037        $ 47,362         $ 27,302         $ 25,134
Cost of sales ...................................          38,482           38,142          41,501           20,122           17,371
                                                         --------         --------        --------         --------         --------
Gross profit ....................................          17,292           13,895           5,861            7,180            7,763
Operating expenses:
  General and administrative ....................           3,877            3,575           3,221            3,091            2,585
  Selling .......................................           3,748            3,963           3,720            3,346            2,749
  Research and development ......................           5,973            4,367           7,364            4,306            1,150
                                                         --------         --------        --------         --------         --------
    Total operating expenses ....................          13,598           11,905          14,305           10,743            6,484
                                                         --------         --------        --------         --------         --------
Income (loss) from operations ...................           3,694            1,990          (8,444)          (3,563)           1,279
Interest expense, net ...........................           1,185            1,237             948            1,310              832
Other (income) expense, net .....................               2              (16)              6               55               67
                                                         --------         --------        --------         --------         --------
Income (loss) before income taxes ...............           2,507              769          (9,398)          (4,928)             380
Provision (benefit) for income taxes.............             775              189          (3,759)          (1,976)              33
                                                         --------         --------        --------         --------         --------
Net income (loss) ...............................        $  1,732         $    580        $ (5,639)        $ (2,952)        $    347
                                                         ========         ========        ========         ========         ========

Net income (loss) per common share:
  Basic .........................................        $   0.17         $   0.06        $  (0.54)        $  (0.36)        $   0.05
                                                         ========         ========        ========         ========         ========
  Diluted .......................................        $   0.17         $   0.06        $  (0.54)        $  (0.36)        $   0.05
                                                         ========         ========        ========         ========         ========
Common shares used in computing
per share amounts:
  Basic .........................................          10,380           10,376          10,375            8,172            7,500
                                                         ========         ========        ========         ========         ========
  Diluted .......................................          10,478           10,465          10,375            8,172            7,500
                                                         ========         ========        ========         ========         ========
</TABLE>

<TABLE>
<CAPTION>
                                                       December 31,    December 31,    December 31,     December 31,   December 31,
                                                           1998            1997            1996              1995           1994
                                                       ------------    ------------    -------------     ------------   ------------
<S>                                                       <C>              <C>             <C>              <C>              <C>    
Consolidated Balance Sheet Data:                                                          (in thousands)
Cash and cash equivalents .......................         $   667          $   687         $ 1,149          $   388          $   410
Working capital .................................          21,676           18,183          16,151           24,529            8,614
Total assets ....................................          46,875           41,822          38,890           41,227           21,834
Total debt ......................................          13,244           13,276          12,789            9,718           11,903
Total stockholders' equity ......................          20,781           18,949          18,302           23,941            6,416
</TABLE>


                                       17
<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 31 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 wireless telecommunications applications.

      The Company historically had been dependent upon the military market as
its principal source of revenue. In 1992, as the military market was declining,
the Company leveraged its military technological leadership position and
increased the scope of its business by entering commercial markets, thereby
broadening its product offerings. In 1994, the Company started producing power
amplifiers for the wireless telecommunications market. The Company now develops
precision high-power amplifiers for a variety of commercial uses. As a result of
these efforts, the Company is now well positioned to service the low, medium and
high volume needs of all of its military and commercial customers.

      The following table summarizes certain key financial information:

--------------------------------------------------------------------------------
                                         Change                Change   
                               1998       from       1997       from      1996
                              ($000s)  prior year   ($000s)  prior year  ($000s)
--------------------------------------------------------------------------------
 Net Sales                   $55,774           7%  $52,037        10%   $47,362
--------------------------------------------------------------------------------
 Gross Profit                $17,292          24%  $13,895       137%   $ 5,861
                                                                        
 Gross Profit Margin            31.0%                 26.7%                12.4%
--------------------------------------------------------------------------------
 General and Administrative  
   Expenses                  $ 3,877          8%   $ 3,575        11%   $ 3,221
                                                                        
 Percentage of Net Sales         7.0%                  6.9%                 6.8%
--------------------------------------------------------------------------------
 Selling Expenses            $ 3,748         (5)%  $ 3,963         7%   $ 3,720
                                                                        
 Percentage of Net Sales         6.7%                  7.6%                 7.9%
--------------------------------------------------------------------------------
 Research and Development    
   Expenses                  $ 5,973         37%   $ 4,367       (41)%  $ 7,364
                                                                        
 Percentage of Net Sales        10.7%                  8.4%                15.5%
--------------------------------------------------------------------------------
 Interest Expense            $ 1,185         (4)%   $1,237        30%   $   948
                                                                        
 Percentage of Net Sales         2.1%                  2.3%                 2.0%
-------------------------------------------------------------------------------
 Provision (Benefit) for     
   Income Taxes              $   775         310%   $  189       N/A    $(3,759)
                                                                        
 Effective Tax Rate             30.9%                 24.6%                40.0%
-------------------------------------------------------------------------------


                                       18
<PAGE>

Results of Operations

Fiscal Years Ended December 31, 1998 and December 31, 1997

      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 7% to
$55.8 million in 1998 from $52.0 million in 1997. This sales increase was
primarily due to higher shipments of the Company's military products, partially
offset by lower shipments of the Company's commercial products. Sales of
military products increased by 120% to $29.6 million in 1998 from $13.4 million
in 1997, representing 53% and 26%, respectively, of net sales in such years. The
military sales increase was predominantly due to higher shipments on a U.S.
Government military program and higher shipments to a domestic military OEM,
partially offset by lower shipments to other military customers. Sales of
commercial products decreased by 32% to $26.2 million in 1998 from $38.6 million
in 1997, representing 47% and 74%, respectively, of net sales in such years. The
commercial sales decrease was predominantly due to lower shipments to one
domestic and one foreign wireless telecommunications OEM and lower shipments to
one domestic satellite communications OEM, partially offset by higher shipments
to other domestic and foreign wireless telecommunications OEMs.

      International sales decreased by 30% to $8.8 million in 1998 from $12.7
million in 1997, totaling 16% of net sales in 1998 compared to 24% in 1997. The
decrease in international sales was primarily due to lower market demand for
foreign wireless telecommunications OEM business. In 1998, sales to two domestic
military OEMs (Customer F and Customer G) and one domestic commercial OEM
(Customer B) accounted for 26%, 10% and 17%, respectively, of the Company's net
sales. In 1997, sales to two domestic commercial OEMs (Customer B and Customer
C) and one foreign commercial OEM (Customer A) accounted for 33%, 16% and 13%,
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 increased by 24% to $17.3 million in 1998 from $13.9 million in
1997. The Company's gross profit margin (gross profit as a percentage of net
sales) also increased to 31.0% in 1998 from 26.7% in 1997. The increase in gross
profit margin was primarily due to a more favorable revenue mix of higher gross
profit margin business in the MPD military versus commercial product lines, a
more favorable revenue mix of higher gross profit margin business in the
Company's single channel versus multi-channel wireless product line and a lower
commercial warranty expense (specifically for the Company's multi-channel,
cellular CDMA wireless product). Despite the above, the following factors
adversely affected the gross profit margin for 1998: (i) the low gross profit
margins the Company is experiencing on three foreign military OEM contracts (the
result of technical problems and competitive pricing pressures), (ii) the costs
associated with the introduction and pre-production of GSM products and (iii)
the overall low gross profit margin the Company is experiencing on one of its
single channel, cellular CDMA wireless products (due to a customer-directed slow
down, creating inefficient manufacturing lot sizes).

      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, 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.

      Certain of the purchase orders or contracts comprising backlog at December
31, 1998 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 continue to improve. If
the Company is not able to reduce its production costs to the extent
anticipated, or to introduce new products with greater gross profit 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.


                                       19
<PAGE>

      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 8% to
$3.9 million in 1998 from $3.6 million in 1997, representing 7.0% and 6.9%,
respectively, of net sales. The increase in general and administrative expenses
resulted primarily from higher compensation expenses associated, in part, with
the Company achieving certain fiscal year performance goals, the costs
associated with the settlement of an employee-related lawsuit and higher
professional fees.

      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 decreased by 5% to $3.7
million in 1998 from $4.0 million in 1997, representing 6.7% and 7.6%,
respectively, of net sales. The decrease in selling expenses resulted primarily
from lower accrued warranty costs due to a decrease in wireless warranty
requirements, as a percentage of net sales, from the higher levels experienced
in early 1997.

      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 37% to $6.0 million in 1998 from $4.4
million in 1997, representing 10.7% and 8.4%, respectively, of net sales. The
increase in research and development expenses resulted primarily from increased
wireless telecommunications product development and, to a lesser extent,
increased military research and development. The Company believes that the
continued introduction of new products is essential to its competitiveness,
especially in the wireless telecommunications market, and is committed to
continued investment in research and development. The Company viewed the lower
level of wireless telecommunications product development in 1997 as a short term
solution to assist in reducing costs to match reduced wireless revenue.
Fundamental to this effort was a planned temporary reallocation (in the first
quarter of 1997) of some of the Company's engineering and technology resources
to either revenue producing or customer-funded product development. This action
enabled the Company to leverage its other commercial and military product lines
while insuring a continued and focused emphasis on critical wireless
telecommunications development projects. The Company views the level of research
and development expenses incurred during 1998 to be more indicative of typical
research and development expenses for the Company.

      Interest Expense. Interest expense consists principally of interest
expended on the Company's credit facility and IDRBs, partially offset by
interest earned on the Company's cash balances. Interest expense remained
relatively stable at $1.2 million in both 1998 and 1997 and represented 2.1% and
2.3%, respectively, of net sales.

      Provision for Income Taxes. The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." The Company has recorded deferred tax assets for
the benefit of federal income tax net operating loss carryforwards ("NOLs") and
timing differences generated in those years. The Company has reserved a portion
of the deferred tax asset with respect to its NOLs. Realization is dependent on
generating sufficient taxable income prior to expiration of the NOLs. Although
realization is not assured, management believes it is more likely than not that
all of the net deferred tax asset will be realized. The amount of the deferred
tax asset considered realizable, however, could be reduced if estimates of
future taxable income during the carryforward period are reduced. The Company's
effective tax rate increased to 30.9% in 1998 from 24.6% in 1997. The 1998 rate
was favorably impacted by the partial recovery of the previously reserved
deferred tax asset resulting from the Company's improved profitability position
as compared to 1997. Without the benefit of this change in the reserve, the
effective tax rate for 1998 would have been 40.7%. The 1997 rate was also
favorably impacted by the partial recovery of the previously reserved deferred
tax asset resulting from the Company's improved profitability position as
compared to 1996. Without the benefit of this change in the reserve, the
effective tax rate for 1997 would have been 40.2%. The Company will continue to
assess the reserved deferred tax asset each reporting quarter. There can be no
assurances that the Company will continue to achieve taxable income in the
future.

Fiscal Years Ended December 31, 1997 and December 31, 1996

      Net Sales. Net sales increased by 10% to $52.0 million in 1997 from $47.4
million in 1996. This sales increase was primarily due to higher shipments of
the Company's commercial products, partially offset by slightly lower shipments
of the Company's military products. Sales of commercial products increased by
15% to $38.6 million in 1997 from $33.6 million in 1996, representing 74% and
71%, respectively, of net sales in such years. The commercial


                                       20
<PAGE>

sales increase was predominantly due to higher shipments to one domestic
wireless telecommunications OEM and one satellite communications OEM, partially
offset by lower shipments to one foreign wireless telecommunications OEM. Sales
of military products decreased by 3% to $13.4 million in 1997 from $13.8 million
in 1996, representing 26% and 29%, respectively, of net sales in such years. The
military sales decrease was predominantly due to an overall lower market demand
for Republic products.

      International sales decreased by 38% to $12.7 million in 1997 from $20.6
million in 1996, totaling 24% of net sales in 1997 compared to 43% in 1996. The
decrease in international sales was primarily due to lower foreign wireless
telecommunications OEM business, partially offset by higher foreign military
business. In 1997, sales to two domestic commercial OEMs (Customer B and
Customer C) and a foreign commercial OEM (Customer A) accounted for 33%, 16% and
13%, respectively, of the Company's net sales. 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.

      Gross Profit. Gross profit increased by 137% to $13.9 million in 1997 from
$5.9 million in 1996. The Company's gross profit margin (gross profit as a
percentage of net sales) increased to 26.7% in 1997 from 12.4% in 1996. The
increase in the gross profit margin was primarily due to the non-recurrence of
the 1996 $4.9 million write-off of wireless multi-channel work-in-process
inventory caused by then diminished demand for those particular products, the
1996 $1.0 million write-off of wireless multi-channel work-in-process inventory
related to the cancellation of the remainder of the AirNet contract and the 1996
$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. The increase in
gross profit was primarily due to the non-recurrence of the above mentioned
items plus the recognition of a more favorable gross profit associated with the
net sales increase in 1997. In addition, the following factors adversely
affected the Company's 1997 gross profit margin: (i) low gross profits the
Company is experiencing on three military OEM contracts (the result of
production delays, technical problems and software integration difficulties),
(ii) the overall low gross profit margin obtainable on the Company's
multi-channel product line (the result of competitive pricing pressures), (iii)
engineering and manufacturing difficulties experienced on the pre-production
phase of two newer wireless products and (iv) a high level of warranty expense
(as a percentage of net sales) specifically related to those warranty costs
associated with the Company's more recent introduction of wireless
telecommunications products.

      General and Administrative Expenses. General and administrative expenses
increased by 11% to $3.6 million in 1997 from $3.2 million in 1996, representing
6.9% and 6.8%, respectively, of net sales. The increase in general and
administrative expenses was primarily due to the Company-wide upgrade of
computer hardware, software and data processing equipment (that portion of which
did not meet the Company's capitalization criteria) as well as higher accounting
and legal expenses.

      Selling Expenses. Selling expenses increased by 7% to $4.0 million in 1997
from $3.7 million in 1996, representing 7.6% and 7.9%, respectively, of net
sales. The increase in selling expenses resulted primarily from higher bid and
proposal expenses (incurred in connection with a $12.0 million foreign military
order awarded in the third quarter of 1997 and a generally higher level of
proposal activity across all product lines).

      Research and Development Expenses. Research and development expenses
decreased by 41% to $4.4 million in 1997 from $7.4 million in 1996, representing
8.4% and 15.5%, respectively, of net sales. The decrease in research and
development expenses resulted primarily from reduced military and, to a lesser
extent, wireless telecommunications product development efforts.

      Interest Expense. Interest expense increased by 30% to $1.2 million in
1997 from $0.9 million in 1996, primarily reflecting increased average
borrowings under the Company's credit facility.

      Provision for Income Taxes. The Company's effective tax rate decreased to
24.6% in 1997 from 40.0% in 1996. The 1997 rate was favorably impacted by the
partial recovery of the previously reserved deferred tax asset resulting from
the Company's improved profitability position as compared to 1996. Without the
benefit of this change in the reserve, the effective tax rate for 1997 would
have been 40.2%. The Company will continue to assess the reserved deferred tax
asset each reporting quarter. The 1996 rate was due to the net loss incurred by
the Company in 1996, the benefit of which the Company expects to utilize to
offset future taxable income, as prescribed by SFAS No. 109.


                                       21
<PAGE>

Liquidity and Capital Resources

      Since the Company successfully completed its IPO in 1995, the Company has
financed its operations and met its capital requirements through the following
two sources: (i) a credit facility and/or (ii) cash provided by operating
activities.

      In February 1998, the Company entered into a loan agreement with IBJ
Schroder Business Credit Corporation ("IBJ") which provides for a $15.45 million
credit facility consisting of a revolving line of credit in the amount of $10.3
million, a term loan in the amount of $2.15 million and a $3.0 million capital
equipment ("Capex") loan facility. The revolving line of credit and both the
term loan and Capex loan bear interest at annual rates equal to the prime rate
plus 0.5% and 0.75%, respectively. The credit facility matures in February 2001
and automatically renews for one-year periods thereafter, unless terminated by
either the Company or IBJ. 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 eligible raw materials and
work-in-process inventories (with borrowings based on aggregate eligible
inventory limited to $6.0 million). The term loan requires a monthly principal
payment of $0.05 million. The revolving line of credit increases each month
commensurate with term loan repayments until a maximum revolving line of credit
of $12.0 million is reached. The Capex loan requires monthly principal payments
that are recalculated each month based on the prior month's Capex borrowings, if
any, amortized over 60 months. Capex loan borrowings had to occur prior to
February 27, 1999, at which time the aggregate Capex loan borrowings totaled
$3.0 million. At December 31, 1998, the term loan balance was $1.65 million,
borrowings under the $3.0 million Capex facility were $2.1 million (with a
balance due of $1.9 million) and borrowings under the $10.8 million revolving
line of credit were $5.1 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 provided net cash of $1.9 million and $0.5 million in
1998 and 1997, respectively. From December 31, 1997 to December 31, 1998,
accounts receivable increased by $3.8 million, inventory increased by $1.9
million, accounts payable and accrued liabilities increased by $3.9 million and
customer advance payments decreased by $0.6 million. The increase in accounts
receivable was primarily due to the higher revenue level in the fourth quarter
of 1998 compared to the fourth quarter of 1997 (especially in December 1998
versus December 1997). In addition, receivables were higher due to a U.S.
Government military progress payment program which reached the liquidation
crossover point, in the fourth quarter of 1998, which created a higher
percentage receivable associated with each deliverable shipment. The increase in
inventory was predominantly due to the build-up required to satisfy the needs of
the recently awarded wireless consignment order and a customer directed slow
down on one cellular CDMA program, partially offset by a decrease in inventory
associated with two long-term military programs and build-to-forecast military
products. The increase in accounts payable and accrued liabilities was primarily
the result of higher supplier trade credit. The decrease in customer advance
payments was primarily due to the use of advance payments received in the fourth
quarter of 1997, and in the second quarter of 1998, from a foreign military OEM.
Investing activities, which consisted primarily of equipment acquisitions, used
net cash of $1.9 million and $1.3 million in 1998 and 1997, respectively.
Financing activities, which consisted predominantly of proceeds from long-term
debt, net repayments on the credit facility and principal payments of long-term
debt, provided net cash of $0.05 million and $0.4 million in 1998 and 1997,
respectively.

      Capital expenditures were $1.9 million and $1.3 million in 1998 and 1997,
respectively. These expenditures were funded primarily through cash provided by
a Capex loan under the Company's credit facility in 1998 and cash provided by
beginning of year cash balances, operating activities and the Company's credit
facility in 1997. Principal capital expenditures for 1998 included the
procurement of engineering and manufacturing test equipment and the purchase of
a second automated surface-mount pick-n-place machine. The Company expects that
1999 capital expenditures, anticipated to include additional engineering and
manufacturing test equipment, will be financed by cash provided by operating
activities, the Company's credit facility and/or third party financing sources.

      As of December 31, 1998, the Company had working capital of approximately
$21.7 million, compared to approximately $18.2 million as of December 31, 1997.
Working capital as of December 31, 1998 included approximately $12.2 million and
$18.9 million in accounts receivable and inventory, respectively, compared to
December 31, 1997 working capital which included approximately $8.3 million and
$16.9 million in accounts receivable and inventory, respectively. The Company's
current ratio (ratio of current assets to current liabilities) as of 


                                       22
<PAGE>

December 31, 1998 was 2.6:1, compared with a current ratio of 2.8:1 as of
December 31, 1997. As of December 31, 1998 the Company's debt to equity ratio
was 0.6:1, compared with a debt to equity ratio at December 31, 1997 of 0.7:1.

      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.

      YEAR 2000 - The Company has developed a Year 2000 Readiness Plan. This
plan addresses three main areas: (a) information technology systems (including
the Company's business systems, engineering and test equipment, both hardware
and software related), (b) non-information technology systems (including
embedded technology such as microcontrollers, typically found in such equipment
as telephone systems, fax systems, elevators, security systems, HVAC, etc.) and
(c) supply chain readiness or third party issues (including customers as well as
inventory and non-inventory suppliers). The Company's Chief Operating and
Financial Officer has been tasked with overseeing this process and reports
periodically to the Company's Board of Directors.

      The Company has identified potential deficiencies related to Year 2000 in
its information technology systems and is in the process of addressing them
through upgrades or other remediation. For example, in 1997 the Company's
business and computing system was upgraded and is now Year 2000 compliant
(according to the Company's software providers). The Company expects to complete
remediation and testing of its internal systems in the second quarter of 1999.
In terms of non-information technology systems, the Company has identified those
material items which may require remediation or replacement. The Company is in
the process of addressing those items and expects to complete remediation or
replacement and testing of its non-information technology systems in the second
quarter of 1999. As for third parties, the Company is in the process of
identifying and contacting suppliers, both inventory and non-inventory, as well
as customers. This process includes the solicitation of written responses to
questionnaires and/or meetings with certain third parties. The Company expects
to have a better understanding of the Year 2000 readiness of these third parties
over the next several months.

      Based upon the Company's current estimates, additional out-of-pocket costs
associated with its Year 2000 compliance are not expected to be material. These
costs are anticipated to be incurred primarily in 1999 and include third party
consultants, remediation of existing computer software and replacement or
remediation of embedded chips. Such costs do not include internal management
time and the deferral of other projects, the effects of which are not expected
to be material to the Company's results of operations or financial condition. At
this point in time, the Company believes that it is difficult to specifically
identify the cause of the most reasonable worst case Year 2000 scenario. As with
all engineering and manufacturing companies, a reasonable worst case scenario
would be the result of failures of third parties (including, without limitation,
governmental entities and entities with which the Company has no direct
involvement) that continue for more than several days in various geographic
areas from which the Company's raw materials and components are sourced or to
which the Company's products are sold. In connection with the production of
products and the procurement of raw materials and components, the Company is
considering various contingency plans. Continuing failures in key geographic
areas in the United States and in certain European and Asian countries that
limit procurement or delivery of product, would most likely have a material
adverse effect on the Company's results of operations. The extent of such lost
revenue cannot be estimated at this time; however, the Company is considering
contingency plans to limit, to the extent possible, the effect of such lost
revenue on the Company's result of operations. Any such plans would necessarily
be limited to matters over which the Company can reasonably control.

      The Company's Year 2000 efforts are ongoing and its overall plan, as well
as the consideration of contingency plans, will continue to evolve as new
information becomes available. While the Company anticipates continuity of its
business activities, that continuity will be dependent upon its ability, and the
ability of third parties with whom the Company relies on directly, or
indirectly, to be Year 2000 compliant.


                                       23
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      The Company's principal financial instrument is long-term debt under a
credit facility (consisting of a revolving line of credit, term loan and Capex
loan facility) that provides for interest at a spread above the prime rate. The
Company is affected by market risk exposure primarily through the effect of
changes in interest rates on amounts payable by the Company under this credit
facility. A significant rise in the prime rate could materially adversely affect
the Company's business, financial condition and results of operations. At
December 31, 1998, an aggregate principal amount of $8.7 million was outstanding
under the Company's credit facility, with spreads ranging from 0.5% to 0.75%
over prime, and represented a weighted average interest rate of 9.8%. If
principal amounts outstanding under the Company's credit facility remained at
this year-end level for an entire year and the prime rate increased or
decreased, respectively, by 1.25%, the Company would pay or save, respectively,
an additional $0.1 million in interest in that year. The Company does not
utilize derivative financial instruments to hedge against changes in interest
rates or for any other purpose.

      Where appropriate, the Company requires that letters of credit be provided
on foreign sales. In addition, all transactions by the Company are denominated
in U.S. dollars. As such, the Company has shifted foreign currency exposure onto
its foreign customers. As a result, if exchange rates move against foreign
customers, the Company could experience difficulty collecting unsecured accounts
receivable, the cancellation of existing orders or the loss of future orders.
The foregoing could materially adversely affect the Company's business,
financial condition and results of 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.

                                    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 fourth quarter of
            1998.

      (c)   Exhibits

        See Exhibit Index immediately following signature pages.


                                       24
<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 15, 1999

      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 15, 1999
----------------------      (Principal Executive Officer)
    Edward J. Shubel   


/s/ Paul E. Donofrio        Chief Operating/Financial Officer     March 15, 1999
----------------------      (Principal Financial Officer and
    Paul E. Donofrio        Principal Accounting Officer)


/s/ George J. Sbordone      Director                              March 15, 1999
----------------------
    George J. Sbordone


/s/ Merril M. Halpern       Director                              March 15, 1999
----------------------
    Merril M. Halpern


/s/ A. Lawrence Fagan       Director                              March 15, 1999
---------------------
    A. Lawrence Fagan


/s/ Alfred Weber            Director                              March 15, 1999
----------------------
    Alfred Weber


/s/ David J. Aldrich        Director                              March 15, 1999
-----------------------
    David J. Aldrich


/s/ Warren A. Law           Director                              March 15, 1999
----------------------
    Warren A. Law


/s/ James S. Silver         Director                              March 15, 1999
------------------------
    James S. Silver


                                       25
<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 -  Security Control Agreement dated September 5, 1997 between MPD
         Technologies, Inc. and the United States Department of Defense
         (incorporated by reference to Exhibit 10.12 to the Company's Annual
         Report on Form 10-K dated December 31, 1997).

10.12 -  Amendment No. 1 dated as of February 27, 1998 to a Loan and Security
         Agreement dated as of February 13, 1997 among IBJ Schroder Business
         Credit Corporation, as Lender and Agent, and MPD Technologies, Inc
         (incorporated by reference to Exhibit 10.13 to the Company's Annual
         Report on Form 10-K dated December 31, 1997).

10.13 -  Microwave Power Devices, Inc. 1996 Stock Option Plan, Amendment No.1
         (incorporated by reference to Exhibit 4.2 to the Company's Form S-8
         dated July 30, 1998 (Commission File No. 333-60165)).

10.14    Change in Control Agreement dated as of March 1, 1999 between Microwave
         Power Devices, Inc. and Edward J. Shubel. *


                                       26
<PAGE>

10.15    Agreement dated as of March 1, 1999 between Microwave Power Devices,
         Inc. and Edward J. Shubel. *

10.16    Change in Control Agreement dated as of March 1, 1999 between Microwave
         Power Devices, Inc. and Paul E. Donofrio. *

10.17    Agreement dated as of March 1, 1999 between Microwave Power Devices,
         Inc. and Paul E. Donofrio. *

10.18    Change in Control Agreement dated as of March 1, 1999 between Microwave
         Power Devices, Inc. and Fuat Agi. *

10.19    Change in Control Agreement dated as of March 1, 1999 between Microwave
         Power Devices, Inc. and Larry Konopelko. *

10.20    Change in Control Agreement dated as of March 1, 1999 between Microwave
         Power Devices, Inc. and Nicholas Mazzella. *

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)).

23.1 -   Consent of Independent Public Accountants. *

27.1 -   Financial Data Schedule. *


* Filed herewith.


                                       27
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

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

Consolidated Balance Sheets as of December 31, 1998 and 1997.................F-3

Consolidated Statements of Operations for the three years 
  ended December 31, 1998....................................................F-4

Consolidated Statements of Shareholders' Equity for the three years ended
  December 31, 1998..........................................................F-5

Consolidated Statements of Cash Flows for the three years ended 
  December 31, 1998..........................................................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. (a Delaware corporation) and subsidiary as of December 31,
1998 and 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for the three years ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
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, 1998 and 1997, and the results of their
operations and their cash flows for the three years ended December 31, 1998 in
conformity with generally accepted accounting principles.

                                        ARTHUR ANDERSEN LLP

Melville, New York
March 1, 1999


                                      F-2
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                        AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
                                                                          1998       1997
                                                                          ----       ----
                                                                          (in thousands,
                                                                        except share data)
<S>                                                                     <C>         <C>     
                           ASSETS
CURRENT ASSETS:
   Cash and cash equivalents ........................................   $    667    $    687
   Accounts receivable, net of allowance for doubtful accounts of $75     12,178       8,329
   Inventories, net .................................................     18,861      16,931
   Prepaid expenses and other current assets ........................        476         706
   Deferred income taxes ............................................      3,426       1,777
                                                                        --------    --------
        Total current assets ........................................     35,608      28,430

PROPERTY, PLANT AND EQUIPMENT, net ..................................      8,834       8,273
INTANGIBLE ASSETS, net ..............................................        307         389
OTHER LONG-TERM ASSETS ..............................................        673         903
DEFERRED INCOME TAXES ...............................................      1,453       3,827
                                                                        --------    --------
                                                                        $ 46,875    $ 41,822
                                                                        ========    ========
                 LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
   Current portion of long-term debt ................................   $  1,082    $    650
   Accounts payable .................................................      8,970       4,848
   Accrued liabilities ..............................................      2,959       3,186
   Customer advance payments ........................................        921       1,563
                                                                        --------    --------
        Total current liabilities ...................................     13,932      10,247
                                                                        --------    --------
LONG-TERM DEBT ......................................................     12,162      12,626
                                                                        --------    --------

COMMITMENTS AND CONTINGENCIES (Note 12)

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;
        10,397,520 and 10,378,750 shares issued and outstanding,
        respectively.................................................        104         104
   Additional paid-in capital .......................................     23,406      23,306
   Notes receivable from shareholders ...............................       (188)       (188)
   Retained earnings (accumulated deficit) ..........................     (2,541)     (4,273)
                                                                        --------    --------
        Total shareholders' equity ..................................     20,781      18,949
                                                                        --------    --------
                                                                        $ 46,875    $ 41,822
                                                                        ========    ========
</TABLE>

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


                                      F-3
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     Year Ended
                                                      ----------------------------------------
                                                      December 31,  December 31,  December 31,
                                                          1998          1997          1996
                                                          ----          ----          ----
                                                        (in thousands, except per share data)

<S>                                                     <C>           <C>           <C>     
NET SALES ...........................................   $ 55,774      $ 52,037      $ 47,362
COST OF SALES .......................................     38,482        38,142        41,501
                                                        --------      --------      --------
     Gross profit ...................................     17,292        13,895         5,861
                                                        --------      --------      --------
                                                                                    
OPERATING EXPENSES:                                                                 
   General and administrative .......................      3,877         3,575         3,221
   Selling ..........................................      3,748         3,963         3,720
   Research and development (Note 2) ................      5,973         4,367         7,364
                                                        --------      --------      --------
                                                          13,598        11,905        14,305
                                                        --------      --------      --------
     Income (loss) from operations ..................      3,694         1,990        (8,444)
                                                                                    
INTEREST EXPENSE, net ...............................      1,185         1,237           948
OTHER (INCOME) EXPENSE, net                                    2           (16)            6
                                                        --------      --------      --------
     Income (loss) before income taxes ..............      2,507           769        (9,398)
                                                                                    
PROVISION (BENEFIT) FOR INCOME TAXES ................        775           189        (3,759)
                                                        --------      --------       -------
     Net income (loss) ..............................   $  1,732      $    580      $ (5,639)
                                                        ========      ========       =======
                                                                                    
PER SHARE INFORMATION (Note 2):                                                     
   Net income (loss) per common share:                                              
     Basic ..........................................   $   0.17     $   0.06       $  (0.54)
                                                        ========     ========       ========
     Diluted ........................................   $   0.17     $   0.06       $  (0.54)
                                                        ========     ========       ========
   Common shares used in computing per share amounts:                               
     Basic ..........................................     10,380       10,376         10,375
                                                        ========     ========       ========
     Diluted ........................................     10,478       10,465         10,375
                                                        ========     ========       ========
</TABLE>

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


                                      F-4
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                               Notes       Retained
                                                                                 Additional  Receivable    Earnings
                                                                                   Paid-in      from     (Accumulated 
                                      Preferred Stock           Common Stock       Capital   Shareholders   Deficit)    Total
                                      ---------------           ------------       -------   ------------   -------     -----
                                     Shares      Amount      Shares      Amount
                                     ------      ------      ------      ------
<S>                                  <C>         <C>       <C>         <C>         <C>         <C>         <C>         <C>
BALANCE, December 31, 1995 .....         --        $ --      10,375    $    104    $ 23,276    $   (225)   $    786    $ 23,941
   Net loss ....................         --          --          --          --          --          --      (5,639)     (5,639)
                                       ----        ----    --------    --------    --------    --------     -------    --------

BALANCE, December  31, 1996 ....         --          --      10,375         104      23,276        (225)     (4,853)     18,302
   Net income ..................         --          --          --          --          --          --         580         580
   Exercise of  stock options ..         --          --           4          --          30          --          --          30
   Repayment of notes receivable
     from shareholders (Note 7)          --          --          --          --          --          37          --          37
                                       ----        ----    --------    --------    --------    --------     -------    --------

BALANCE, December 31, 1997 .....                     --      10,379         104      23,306        (188)     (4,273)     18,949
   Net income ..................         --          --          --          --          --          --       1,732       1,732
   Exercise of stock options ...         --          --          19          --         100          --          --         100
                                       ----        ----    --------    --------    --------    --------     -------    --------

BALANCE, December 31, 1998 .....         --        $ --      10,398    $    104    $ 23,406    $   (188)   $ (2,541)   $ 20,781
                                       ====        ====    ========    ========    ========    ========    ========    ========
</TABLE>

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


                                      F-5
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   Year Ended
                                                    -----------------------------------------
                                                    December 31,  December 31, December 31,
                                                        1998         1997          1996
                                                        -----        -----         ----
                                                                 (in thousands)
<S>                                                    <C>        <C>        <C>     
OPERATING ACTIVITIES:
  Net income (loss) ................................   $ 1,732    $   580       $(5,639)
  Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities:
   Depreciation and amortization ...................     1,470      1,211         1,189
   Deferred income taxes ...........................       725        194        (3,699)
   (Gain) loss on sale of property, plant and 
     equipment......................................        --        (19)            3
   Changes in operating assets and liabilities:
    Accounts receivable ............................    (3,849)      (847)        1,944
    Inventories ....................................    (1,930)    (2,569)        4,551
    Prepaid expenses and other assets ..............       461        104          (433)
    Accounts payable and accrued liabilities .......     3,895        235           707
    Customer advance payments ......................      (642)     1,563            --
                                                       -------    -------       -------
          Net cash provided by (used in) operating 
            activities..............................     1,862        452        (1,377)
                                                       -------    -------       -------


INVESTING ACTIVITIES:
  Purchases of property, plant and equipment .......    (1,937)    (1,337)         (912)
  Proceeds from sale of property, plant and
    equipment ......................................        10         23            15
  Investment in marketable securities ..............        (1)        (4)           --
                                                       -------    -------       -------
          Net cash used in investing activities ....    (1,928)    (1,318)         (897)
                                                       -------    -------       -------

FINANCING ACTIVITIES:
  Proceeds from long-term debt .....................     2,133      2,700            --
  Principal payments of long-term debt .............      (896)      (495)          (40)
  Net proceeds from (repayments on) revolving 
    credit loans....................................    (1,269)    (1,717)        3,110
  Deferred financing costs .........................       (22)      (114)          (35)
  Net proceeds from issuance of common stock .......       100         30            --
                                                       -------    -------       -------
          Net cash provided by financing activities.        46        404         3,035
                                                       -------    -------       -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...       (20)      (462)          761
CASH AND CASH EQUIVALENTS, beginning of year .......       687      1,149           388
                                                       -------    -------       -------

CASH AND CASH EQUIVALENTS, end of year .............   $   667    $   687       $ 1,149
                                                       =======    =======       =======

SUPPLEMENTAL DATA:
  Cash paid for interest ...........................   $ 1,239    $ 1,302       $ 1,049
                                                       =======    =======       =======
  Cash paid for income taxes .......................   $   155    $   104       $    23
                                                       =======    =======       =======
</TABLE>

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


                                      F-6
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1998 and 1997
                      (in thousands, except per share data)

1. THE COMPANY:

      The Company, headquartered in Hauppauge, Long Island, New York, is
primarily engaged in the engineering and manufacturing of radio frequency and
microwave power amplifiers for commercial and military applications. The Company
currently markets its products to the wireless telecommunications industry and
to the satellite communications, medical and both the U.S. and foreign military
marketplaces.

2. SIGNIFICANT ACCOUNTING POLICIES:

      Principles of Consolidation

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

      Cash and Cash Equivalents

      The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

      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 3).
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.

      Property, Plant and Equipment

      Property, plant and equipment is stated at cost less accumulated
depreciation and amortization (Note 4). 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


                                      F-7
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Intangible Assets

      Intangible assets, net of accumulated amortization of approximately $432
and $328 at December 31, 1998 and 1997, 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 are being amortized over 3 years.
During 1998 and 1997, the Company incurred $22 and $114, respectively, in
deferred financing costs associated with a loan agreement (Note 6).

      Long-Lived Assets

      Effective January 1, 1996, the Company adopted 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. The effect of the adoption of this
standard and its current application have not been material.

      Investment in Marketable Securities

      The Company follows the provisions of 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). Gains and
losses on the disposition of securities are recognized on the specific
identification method in the period in which they occur. There were no sales or
material gains, losses or changes in the valuation of these securities in 1998,
1997 or 1996.

      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 are expensed as incurred. Such costs
amounted to $5,973, $4,367 and $7,364 for the years ended December 31, 1998,
1997 and 1996, 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 


                                      F-8
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

      Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings
Per Share." Basic net income (loss) per common share ("Basic EPS") is computed
by dividing net income (loss) by the weighted average number of common shares
outstanding. Diluted net income (loss) per common share ("Diluted EPS") is
computed by dividing net income (loss) by the weighted average number of common
shares and dilutive common share equivalents then outstanding. SFAS No. 128
requires the presentation of both Basic EPS and Diluted EPS on the face of the
consolidated statement of operations. The impact of the adoption of this
statement was not material to all previously reported EPS amounts.

      A reconciliation between the numerator and denominator of Basic EPS and
Diluted EPS is as follows:

<TABLE>
<CAPTION>
                                                                                                          Net Income (Loss)
                                                                      Net Income (Loss)   Common Shares   Per Common Share
                                                                      -----------------   -------------   ----------------
                                                                              For the year ended December 31, 1996
                                                                              ------------------------------------
<S>                                                                       <C>              <C>            <C>     
Basic EPS
Net loss attributable to common stock                                      $(5,639)         10,375         $ (0.54)
Effect of dilutive securities: stock options ...........................        --              --              --
                                                                           -------         -------         -------
                                                                                                          
Diluted EPS                                                                                               
Net loss attributable to common stock and assumed option exercises .....   $(5,639)         10,375         $ (0.54)
                                                                           =======         =======         =======
                                                                                                           
                                                                              For the year ended December 31, 1997
                                                                              ------------------------------------
<S>                                                                       <C>              <C>            <C>     
Basic EPS                                                                                                  
Net income attributable to common stock ................................   $   580          10,376         $  0.06
Effect of dilutive securities: stock options ...........................        --              89              --
                                                                           -------         -------         -------
                                                                                                          
Diluted EPS                                                                                               
Net income attributable to common stock                                                                   
    and assumed option exercises .......................................   $   580          10,465         $  0.06
                                                                           =======         =======         =======
                                                                                                           
                                                                              For the year ended December 31, 1998
                                                                              ------------------------------------
<S>                                                                       <C>              <C>            <C>     
Basic EPS                                                                                                  
Net income attributable to common stock ................................   $ 1,732          10,380         $  0.17
Effect of dilutive securities: stock options ...........................        --              98              --
                                                                           -------         -------         -------
                                                                                                          
Diluted EPS                                                                                               
Net income attributable to common stock                                                                   
    and assumed option exercises .......................................   $ 1,732          10,478         $  0.17
                                                                           =======         =======         =======
</TABLE>

      Diluted EPS for 1996 does not include the impact of stock options then
outstanding as their inclusion would be anti-dilutive. Diluted EPS for 1997 and
1998 does not include the impact of other stock options then outstanding as
their inclusion would be anti-dilutive.

      Stock-Based Compensation

      The Company follows the provisions of 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, 


                                      F-9
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 9).

      Comprehensive Income

      In the first quarter of 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires companies to report all changes in equity
during a period, except those resulting from investment by owners and
distribution to owners, for the period in which they are recognized.
Comprehensive income is the total of net income and all other nonowner changes
in equity (or other comprehensive income) such as unrealized gains or losses on
securities classified as available-for-sale, foreign currency translation
adjustments and minimum pension liability adjustments. Comprehensive and other
comprehensive income must be reported on the face of annual financial
statements. The Company's operations did not give rise to items includible in
comprehensive income which were not already included in net income for the years
ended December 31, 1998, 1997 and 1996. Accordingly, the Company's comprehensive
income is the same as its net income for all periods presented.

      Recently Issued Accounting Standard

      In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting.

      SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
A company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired or substantively
modified after December 31, 1997 (and, at the company's election, before January
1, 1998).

      While the Company operates in international markets, it does so presently
without the use of derivatives and therefore this new pronouncement is not
applicable.

      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.


                                      F-10
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. INVENTORIES, NET:

        At December 31, 1998 and 1997, inventories, net consist of the
following:

                                                            1998          1997
                                                            ----          ----
        Raw materials................................    $  8,598      $  7,504
        Work-in-process..............................      14,316        12,349
        Finished goods...............................         296            --
        Unliquidated progress payments...............      (2,755)       (1,789)
                                                         --------      --------
                                                           20,455        18,064
        Less: Reserves...............................
                                                           (1,594)       (1,133)
                                                         --------      --------
                                                         $ 18,861      $ 16,931
                                                         ========      ========

4. PROPERTY, PLANT AND EQUIPMENT, NET:

      At December 31, 1998 and 1997, property, plant and equipment, net consists
of the following:

                                                            1998         1997
                                                            ----         ----
        Land.........................................    $    937      $    937
        Building and improvements....................       4,485         4,384
        Machinery and equipment......................       9,211         7,448
        Furniture and fixtures.......................         201           201
                                                         --------      --------
                                                           14,834        12,970
        Less: Accumulated depreciation and
           amortization..............................      (6,000)       (4,697)
                                                         --------      --------
                                                         $  8,834      $  8,273
                                                         ========      ========

5. ACCRUED LIABILITIES:

      At December 31, 1998 and 1997, accrued liabilities consist of the
following:

                                                           1998          1997
                                                           ----          ----
        Accrued payroll and benefits.................    $ 1,537       $ 1,868
        Accrued commissions..........................        512           474
        Accrued warranty.............................        685           715
        Other........................................        225           129
                                                         -------       -------
                                                         $ 2,959       $ 3,186
                                                         =======       =======


                                      F-11
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. LONG-TERM DEBT:

      At December 31, 1998 and 1997, long-term debt consists of the following:

                                                         1998          1997
                                                         ----          ----
        Industrial Development Revenue Bonds (a).....   $4,570        $4,620
        Loan and security agreement (b)..............    8,674         8,656
                                                        ------        ------
                                                        13,244        13,276

        Less: Current portion........................   (1,082)         (650)
                                                       -------       -------
                                                       $12,162       $12,626
                                                       =======       =======

(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. Approximately $442 and $441 was in an escrow
      account in accordance with the terms of the IDRBs and is included in
      long-term assets in the accompanying consolidated balance sheets as of
      December 31, 1998 and 1997, respectively. 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.

(b)         On February 13, 1997, the Company entered into a loan agreement with
      IBJ Schroder Business Credit Corporation ("IBJ"). The loan agreement
      provided for borrowings up to $13,000 in the form of a revolving line of
      credit in the amount of $10,300 and a term loan in the amount of $2,700.
      At December 31, 1997, the line of credit and term loan had outstanding 
      borrowings of $6,406 and $2,250, respectively. Aggregate borrowings under
      the loan agreement were 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 loan agreement were
      collateralized by accounts receivable, inventory, equipment and certain
      other assets. The loan agreement would have expired on February 12, 2000
      and was renewable thereafter for one-year terms. The loan agreement
      contained a covenant to maintain a certain fixed charge coverage ratio.
      Borrowings under the loan agreement for the revolving line of credit and
      the term loan bore interest at the bank's base rate plus 1.0% and 1.25%,
      respectively. Effective February 1, 1998, in accordance with the terms of
      the loan document, the above rates were reduced by 0.5% each.

            On February 27, 1998, the Company entered into an amended loan
      agreement with IBJ which provides for a $15,450 credit facility consisting
      of a revolving line of credit in the amount of $10,300, a term loan in the
      amount of $2,150 and a $3,000 capital equipment ("Capex") loan facility.
      The revolving line of credit and both the term loan and Capex loan bear
      interest at annual rates equal to the prime rate plus 0.5% and 0.75%,
      respectively. The credit facility matures on February 12, 2001 and
      automatically renews for one-year periods thereafter, unless terminated by
      either the Company or IBJ. 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, as defined, and 40% of eligible
      raw materials and work-in-process inventories, as defined (borrowings
      based on aggregate eligible inventory are limited to $6,000). Borrowings
      are collateralized by accounts receivable, inventory, equipment and
      certain other assets. The term loan requires a monthly principal 


                                      F-12
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      payment of $50. The revolving line of credit increases each month
      commensurate with term loan repayments until a maximum revolving line of
      credit of $12,000 is reached. The Capex loan requires monthly principal
      payments that are recalculated each month based on the prior month's Capex
      borrowings, if any, amortized over 60 months. Capex loan borrowings had to
      occur prior to February 27, 1999. At December 31, 1998, the term loan
      balance was $1,650, borrowings under the $3,000 Capex facility were $2,133
      (with a balance due of $1,887) and borrowings under the $10,800 revolving
      line of credit were $5,137. 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.

      The aggregate annual maturities of long-term debt, at December 31, 1998,
      are as follows:

        1999......................................................      $ 1,082
        2000......................................................        1,087
        2001......................................................        6,685
        2002......................................................           70
        2003......................................................           80
        Thereafter................................................        4,240
                                                                        -------
                      Total.......................................      $13,244
                                                                        =======

7. 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
bear interest at 8.0% and are due on September 3, 2001.

8. INCOME TAXES:

      For the years ended December 31, 1998, 1997 and 1996, the provision
(benefit) for income taxes consists of the following:

                                                       1998     1997     1996
                                                       ----     ----     ----
        Current:
               Federal.............................. $   --   $   --  $    --
               State................................
                                                         --       --       --
                                                     ------   ------  -------
                                                         --       --       --
                                                     ------   ------  -------
        Deferred:
               Federal..............................    698      170   (3,384)
               State................................     77       19     (375)
                                                     ------   ------  -------
                                                        775      189   (3,759)
                                                     ------   ------  -------
                                                       $775     $189  $(3,759)
                                                     ======   ======  =======  


                                      F-13
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      The following table reconciles the Federal statutory rate to the Company's
effective income tax rate for the years ended December 31, 1998, 1997 and 1996:

                                                           1998    1997    1996
                                                           ----    ----    ----
Statutory rate ..........................................    34%     34%     34%
State taxes, net of federal benefit .....................     6       6       6
Change in valuation allowance on deferred tax asset .....    (9)    (15)     --
                                                            ---     ---     ---
Effective Rate ..........................................    31%     25%     40%
                                                            ===     ===     ===

      For the years ended December 31, 1998, 1997 and 1996, the deferred income
tax provision (benefit) is related to differences between the financial and tax
bases of assets and liabilities resulting from the following:

                                                 1998         1997         1996
                                                 ----         ----         ----
Depreciation ............................     $    82      $    46      $  (137)
Inventories .............................        (203)        (218)         (56)
Accrued vacation expense ................         (13)         (23)         (34)
Accrued warranty costs ..................          12         (126)        (126)
Prepaid real estate taxes ...............          --           (7)           3
Accounts receivable .....................          --           --           (3)
Contract research and development .......         (92)         (46)         231
Other ...................................           7           --           --
Net operating loss carryforwards ........         982          563       (3,637)
                                              -------      -------      -------
                                              $   775      $   189      $(3,759)
                                              =======      =======      =======

      The Company has recorded deferred tax assets for the benefit of federal
income tax loss carryforwards and timing differences generated in those years.
The Company has reserved a portion of the deferred tax asset with respect to its
loss carryforwards. 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 net
deferred tax asset will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced if estimates of future taxable
income during the carryforward period are reduced.

        The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset, net, at December 31, 1998 and 1997, are as
follows:

                                                           1998           1997
                                                           ----           ----
Depreciation ...................................        $  (350)        $  (268)
Inventories ....................................            730             528
Accrued vacation expense .......................            290             276
Accrued warranty costs .........................            274             286
Prepaid real estate taxes ......................            (54)            (53)
Accounts receivable ............................             30              30
Contract research and development ..............            (92)           (185)
Net operating loss carryforwards ...............          4,222           5,406
                                                        -------         -------
                                                          5,050           6,020
Less: valuation allowance ......................           (171)           (416)
                                                        -------         -------
Deferred tax asset, net ........................        $ 4,879         $ 5,604
                                                        =======         =======


                                      F-14
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

9. 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 are 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 amended in March 1998, 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 975 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 are 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. Incentive stock options are exercisable 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.
Non-qualified stock options are exercisable at an exercise price which is not
less than the par value of the Company's common stock on the date of the grant.

      Transactions involving the 1995 Plan and the 1996 Plan for the years ended
December 31, 1998, 1997 and 1996 are summarized as follows:

<TABLE>
<CAPTION>
                                               1995 Plan                    1996 Plan
                                               ---------                    ---------
                                         Shares     Option Price     Shares     Option Price
                                         ------     ------------     ------     ------------
<S>                                         <C>   <C>                   <C>     <C>
     Outstanding at December 31, 1995       455    $8.00 - $10.75        --           $--
     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
     Granted.........................        25    $2.875 - $9.50       187      $2.875 - $9.50
     Exercised.......................        (4)       $8.00             --            --
     Cancelled.......................       (18)   $8.00 - $10.75        (8)          $2.875
                                           ----    ----------------     ---      ---------------
                                                                    
     Outstanding at December 31, 1997       516    $2.875 - $11.375     228     $2.875 - $11.125
     Granted.........................        --          --             208     $6.375 - $7.0625
     Exercised.......................        (8)    $8.00 - $10.75      (10)        $2.875
     Cancelled.......................       (12)       $8.00            (25)     $2.875 - $9.50
                                           ----    ----------------    ----     ----------------
     Outstanding at December 31, 1998       496    $2.875 - $11.375     401     $2.875 - $11.125
                                           ====    ================    ====     ================
</TABLE>


                                      F-15
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      At December 31, 1998, 460 shares were exercisable and 17 shares were
available for grant under the 1995 Plan and 77 shares were exercisable and 564
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 income (loss) and net
income (loss) per common share would have been the following pro forma amounts:

                                              1998           1997        1996
                                              ----           ----        ----
  Net income (loss):         As reported     $1,732          $580      $(5,639)
                             Pro forma        1,396            78       (6,202)
  Basic net income (loss)
      per common share:      As reported      $0.17         $0.06       $(0.54)
                             Pro forma         0.13          0.01        (0.60)
  Diluted net income (loss)  
    per common share:        As reported      $0.17         $0.06       $(0.54)
                             Pro forma         0.13          0.01        (0.60)

        The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option pricing model with the following weighted
average assumptions:

                                              1998          1997          1996
                                              ----          ----          ----
  Fair value................................ $3.49          $1.94         $5.26
  Expected life (years).....................   4.0            4.0           4.0
  Risk-free interest rate...................   5.7%           6.1%          5.5%
  Volatility................................    66%            70%           54%
  Dividend yield............................     0%             0%            0%

      The effects of applying SFAS No. 123 in this pro forma disclosure may not
be indicative of future amounts because additional stock option grants are
anticipated in future years.

10. DEFINED CONTRIBUTION PENSION PLAN:

      MPD maintains a defined contribution pension 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
$536, $500 and $493, in 1998, 1997 and 1996, respectively.

11. SEGMENT INFORMATION:

      Effective December 31, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
Reportable operating segments are determined based on the Company's management
approach. The management approach, as defined by SFAS No. 131, is based on the
way that the chief operating decision maker organizes the segments within an
enterprise for making operating decisions and assessing performance. While the
Company's results of operations are primarily reviewed on a consolidated basis,
the chief operating decision maker also manages the enterprise in two segments:
(i) wireless products and (ii) satellite, medical and military products. The
following represents selected consolidated financial information for the
Company's segments for the years ended December 31, 1998, 1997 and 1996:


                                      F-16
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
                                                      Satellite, Medical
                                  Wireless Products  and Military Products     Total 1998
                                  -----------------  ---------------------     ----------
<S>                                    <C>                  <C>                <C>    
  Net sales...................         $16,986              $38,788            $55,774
  Gross profit................           3,799               13,493             17,292
  Net income (loss)...........         (3,322)                5,054              1,732
  Assets......................          12,492               34,383             46,875

<CAPTION>
                                                      Satellite, Medical
                                  Wireless Products  and Military Products     Total 1997
                                  -----------------  ---------------------     ----------
<S>                                    <C>                  <C>                <C>    
  Net sales...................         $26,397              $25,640            $52,037
  Gross profit................           5,048                8,847             13,895

<CAPTION>
                                                      Satellite, Medical
                                  Wireless Products  and Military Products     Total 1996
                                  -----------------  ---------------------     ----------
<S>                                    <C>                  <C>                <C>    
  Net sales...................         $26,783              $20,579            $47,362
  Gross profit (loss).........           (405)                6,266              5,861
</TABLE>

      The Company has not restated any other prior period information, as it
would be impracticable.

      For the years ended December 31, 1998, 1997 and 1996, sales and accounts
receivables as a percentage of net sales and total accounts receivable,
respectively, by geographic area and major customer are as follows:

Geographic Data:
                                                          1998     1997     1996
                                                          ----     ----     ----
Sales:
        U.S. Commercial OEMs & Prime Contractors.......    56%      72%      49%
        U.S. Government................................    28%       4%       8%
        Europe.........................................    10%      10%       9%
        Asia...........................................     4%      14%      34%
        South America..................................     2%      --       -- 
        Other Foreign (less than 1%)...................    --       --       --
Accounts Receivable:
        U.S. Commercial OEMs & Prime Contractors.......    50%      62%      66%
        U.S. Government................................    21%       7%       6%
        Europe.........................................    18%      26%      26%
        Asia...........................................     2%       5%       2%
        South America..................................     9%      --       --
        Other Foreign (less than 1%)...................    --       --       --


                                      F-17
<PAGE>

                  MICROWAVE POWER DEVICES, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Major Customers:
                                                          1998     1997     1996
                                                          ----     ----     ----
Sales:
        Customer A.....................................     --      13%      34%
        Customer B.....................................     17%     33%      19%
        Customer C.....................................     --      16%      --
        Customer D.....................................     --      --       --
        Customer E.....................................     --      --       --
        Customer F.....................................     26%     --       --
        Customer G.....................................     10%     --       --
Accounts Receivable
        Customer A.....................................     --      --       --
        Customer B.....................................     16%     26%      24%
        Customer C.....................................     --      11%      --
        Customer D.....................................     --      12%      --
        Customer E.....................................     --      --       13%
        Customer F.....................................     18%     --       --
        Customer G.....................................     13      --       --

12. 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) was $1,270, $1,487 and $1,434 for the years ended December 31, 1998, 1997
and 1996, 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, Consulting and Other Agreements

      The Company has an employment agreement with its President and Chief
Executive Officer which expires on August 30, 1999 and provides for an annual
base salary of $279. 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. The Company also has agreements with certain individuals which include
certain provisions related to severance and other benefits due upon a change in
control of the Company, as defined in these agreements.

      Letters of Credit

      As of December 31, 1998 and 1997, the Company had outstanding letters of
credit aggregating $3,859 and $1,799, respectively.


                                      F-18