U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   Form 10-KSB

                     ANNUAL REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended                                     Commission File Number
 September 30, 1996                                              0-3392

                             WESTERN MICROWAVE, INC.
                 (Name of small business issuer in its charter)


             Virginia                                       94-1530593
-------------------------------                       ----------------------
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                       Identification Number)

                   P.O. Box 64252, Sunnyvale, California 94086
                   -------------------------------------------
                    (Address of principal executive offices)


                                 (408) 745-6679
                            -------------------------
                            Issuer's telephone number

Securities registered under
Section 12(b) of the Exchange Act:  None

Securities registered under
Section 12(g) of the Exchange Act:  Common Stock, $.10 par value

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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 ___

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of the  registrant's  knowledge,  in  definitive  proxy or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

The issuer's  revenues for its most recent fiscal year ended  September 30, 1996
were $0.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
issuer on January  31,  1997,  based upon the average bid and ask prices of such
stock on that date,  was  $552,935.  The number of shares of Common Stock of the
issuer outstanding as of January 31, 1997 was 1,528,491.

Documents Incorporated By Reference:  None

Transitional Small Business Disclosure Format:  Yes ___  No _X__




                                      - 1 -





                                     PART I

ITEM 1.  BUSINESS

Western  Microwave,  Inc. (the "Company") was  incorporated in Virginia in 1962.
The Company's mailing address is P.O. Box 64252, Sunnyvale, California 94086.

From 1962 until the sale of  substantially  all of its operating assets in 1995,
the Company was engaged in the design,  development,  manufacture  and sale of a
wide range of microwave  devices,  components and subsystems  which were used in
both military and commercial  microwave electronic systems (the "WMI Business").
On July 21, 1995,  the Company sold  certain of the assets  associated  with the
conduct of the WMI Business to ST Microwave  Corp. (the "Buyer") in exchange for
cash and the  assumption  by the  Buyer of  certain  of the  liabilities  of the
Company.  Between July 21, 1995 and September 15, 1995 when the Company's  lease
for its  facility at 495  Mercury  Drive,  Sunnyvale,  California  expired,  the
Company disposed of  substantially  all of its remaining  tangible assets.  As a
result  of such  transactions,  the  Company  is no  longer  engaged  in the WMI
Business.  The Company's  remaining business activity involves the resolution of
the Company's ongoing  environmental  liability for the cleanup of the Company's
former  facility  in  Sunnyvale,  California  (See  Item 3,  LEGAL  PROCEEDINGS:
Environmental Claims).

Pending the resolution of the Company's environmental liability, the Company has
temporarily  invested its assets in a portfolio of marketable  securities with a
view towards the  preservation  of such assets and the  generation of investment
income from interest, dividends and capital gains.

On May 9,  1996,  the  Board of  Directors  of the  Company  approved  a Plan of
Liquidation and Dissolution of the Company (the "Plan"), subject to the approval
of the  shareholders  of the  Company.  The Company  will submit the Plan to its
shareholders  for approval at a Special  Meeting to be held on or about April 2,
1997.

Effective May 9, 1996,  the  Company's  Common Stock was deleted from the Nasdaq
SmallCap Market. The Company's Common Stock continues to trade on the Nasdaq OTC
Bulletin Board.

                             HISTORY OF BUSINESS AND
                            SALE OF THE WMI BUSINESS

BACKGROUND

In fiscal 1989, the Company began to experience a decline in sales  attributable
to a  significant  demand  reduction  in the defense  electronics  industry as a
whole. This



                                      - 2 -





trend  continued for the next six (6) fiscal years with annual sales  decreasing
from  approximately $9.7 million in fiscal 1989 to approximately $2.5 million in
fiscal  1994 (or a  reduction  of 74%).  During  the same  period,  a number  of
lawsuits  were  instituted  against  the Company  alleging  that the Company was
responsible for  contamination of the soil and groundwater at or in the vicinity
of the Company's  former facility on Reamwood  Avenue in Sunnyvale,  California.
The contamination of the soil and groundwater at the former facility was alleged
to have  occurred  sometime  in the  early  1980s  prior to the  closing  of the
Company's plating room operation in 1985.

In response to decreasing  sales levels and increasing  environmental  and legal
costs,  both of which had a significant  adverse effect on the Company's results
of operations,  management  instituted a series of cost reduction programs in an
attempt to remain profitable.  For example, in fiscal 1990,  management made the
decision to  substantially  terminate  the Company's  amplifier  business due to
substantial  losses  incurred in prior years and the  likelihood  of  continuing
losses in the future.

In fiscal  year 1991,  the Company  reorganized  its  manufacturing  facilities,
introduced  new  fabrication  techniques  and expanded its  automated  machining
operations  in an attempt to remain  competitive  in a declining  industry.  The
Company also  relocated to a new  facility,  reduced  overhead by  eliminating a
number of middle management and support positions and improved its manufacturing
efficiency.  During  this same  period,  the  Company  attempted  to develop and
introduce new products for commercial  applications to replace lost sales in the
defense sector.  The significant cost cutting measures  instituted by management
in 1990 and 1991,  as well as  increased  productivity,  resulted in a return to
profitability  in  fiscal  1991  with  the  Company   reporting  net  income  of
approximately $1.08 million.

The  Company  was unable to sustain  profitable  operations  in fiscal  1992 due
primarily to a 42% decline in sales from approximately  $8.17 million in 1991 to
$4.74 million in 1992. During this period, the Company also incurred significant
legal and other  expenses in  connection  with the defense of the  environmental
litigation instituted against the Company. As a result of the above, the Company
reported a net loss of approximately $80,000 in fiscal 1992.

Sales  continued to decline in fiscal 1993 from  approximately  $4.74 million to
$3.35 million.  The Company's  operations  were also adversely  impacted in such
year by the sudden  illness of Dr. Ibrahim  Hefni,  the Company's  President and
Chief Executive  Officer.  This resulted in a series of management changes until
Dr. Hefni's return to work on a full-time basis in fiscal 1994.  Notwithstanding
continuing cost cutting measures, the Company was unable to return to profitable
operations  in 1993 in the face of  decreasing  sales and  increasing  legal and
environmental costs. Although the Company reported net income of $9,160 for such
year, such profit was attributable




                                      - 3 -





exclusively to investment income of $396,584, with the WMI Business operating at
a loss.

As a result of the above,  in February,  1994 the  Company's  Board of Directors
solicited  offers for the purchase of the  operating  assets and business of the
Company.  Prospective  purchasers  were furnished  with a Confidential  Offering
Memorandum  describing  the WMI Business and seeking cash offers to purchase all
of the Company's operating assets (including machinery, equipment, inventory and
supplies),  as well as all  inventions,  customer  lists,  backlog and goodwill.
Although preliminary discussions were held with three (3) prospective purchasers
and a  preliminary  offer was made by one  prospective  purchaser,  the Board of
Directors  concluded that no acceptable offer had been received for the purchase
of the WMI Business and the offering  period  terminated in accordance  with its
original terms on March 31, 1994.

As a result of the prior  solicitation,  in the early part of 1995, ST Microwave
Corp. expressed a renewed interest in acquiring the WMI Business.  The Company's
lease for its facility on Mercury Drive in Sunnyvale, California was also due to
expire in September  of 1995.  Further,  although  the Company  reported a small
profit for the fiscal  year ended  September  30,  1994,  such  profit was again
attributable  exclusively to investment income with the WMI Business reporting a
continuing operating loss.  Accordingly,  after a review of the future prospects
for the Company's  defense-related  business,  the Board of Directors determined
that it was in the best  interests of the Company and its  stockholders  to sell
the WMI Business.  The Board also  determined  that it was in the Company's best
interests  to complete  the sale as quickly as possible to maximize the value of
the Company's  assets on a going concern basis.  As a result,  on July 21, 1995,
the Company completed the sale of the WMI Business to ST Microwave Corp.

SALE OF THE WMI BUSINESS

On July 25,  1995,  the  Company  announced  that it had  completed  the sale of
certain of its  operating  assets  associated  with the conduct of its microwave
components and subsystems  businesses (the "WMI Business") to ST Microwave Corp.
of Sunnyvale,  California,  a subsidiary of Signal  Technology  Corporation (the
"Buyer").  The sale of the WMI Business  was effected  pursuant to the terms and
upon the conditions contained in an Asset Purchase Agreement dated July 20, 1995
by and between the Company and the Buyer (the "Agreement").

The  following is a summary of the major  provisions  contained in the Agreement
and the other documents and agreements  relating to the purchase and sale of the
WMI Business:



                                      - 4 -





Acquired Assets:  Included in the purchase and sale of the WMI Business were all
government  contracts,  backlog of  customer  purchase  orders,  customer  list,
trademarks,  patents and rights to manufacturing know-how, drawings, designs and
technical  documentation,  inventories  (other  than  machine  shop  inventory),
selected  production  tooling,  test fixtures and test sets and  equipment,  and
trade accounts receivable and goodwill relating to the WMI Business.

Excluded  Assets:  Excluded  from the purchase and sale of the WMI Business were
cash and cash equivalents,  marketable securities,  all machine shop assets, all
other  production  machinery  and  equipment,   office  furniture  and  computer
equipment  and all other  intangible  rights and  assets not  related to the WMI
Business.

Purchase  Price:  The  Purchase  Price paid by the Buyer to the  Company for the
Acquired  Assets was $1,433,965 of which  $1,308,965 was paid at the closing and
$125,000 was deposited into an Escrow Account in accordance  with the Agreement.
The purchase price was later adjusted pursuant to a settlement agreement entered
into between the parties on October 20, 1995 to reflect decreases in outstanding
accounts receivable as of the closing date. The adjusted purchase price paid for
the  acquired  assets  was  $1,170,384.   However,  the  Company  is  contesting
approximately  $32,000 claimed by the Buyer as a reduction in the purchase price
for  uncollected  accounts  receivable  which may result in an  increase  in the
adjusted purchase price upon resolution of the Company's claim.

Reassignable  Accounts  Receivable:  The Company  agreed to repurchase  from the
Buyer any of the  accounts  receivable  purchased  by the Buyer  which  remained
outstanding  as of 120  days  after  the  closing  date  "Reassignable  Accounts
Receivable") on a dollar-for-dollar  basis. The Buyer was entitled to deduct the
purchase  price  to be  paid  by  the  Company  for  any  Reassignable  Accounts
Receivable  directly from the $125,000 Escrow Account established at the closing
for  such  purpose.  On  November  21,  1995,  the  Buyer  submitted  a claim of
$95,264.48 to the Escrow Agent for payment of Reassignable  Accounts Receivable,
which  amount is being  contested  by the  Company.  The  Company  responded  by
providing an  accounting  of the amounts  charged  against the $125,000  escrow.
Subsequently,  the Buyer  adjusted their claim to $32,000 . The Company is still
contesting  the claim and is  attempting  to resolve  the  matter,  however,  no
agreement has yet been reached.

Assumed  Liabilities:  At the closing,  the Buyer assumed only the  liabilities,
responsibilities  and obligations of the Company arising on or after the closing
for (i) the  government  contracts  and all customer  contracts  included in the
backlog and (ii) all  warranty  obligations  of the  Company.  The Buyer did not
assume any other  liabilities or obligations of the Company,  which  liabilities
and obligations,  including specifically all environmental liabilities, remained
with the Company after the closing.

Non-Competition:  As a condition  to the sale of the WMI  Business,  the Company
agreed that for a period of five (5) years from the closing,  the Company  would
not engage in any business which is in competition with the WMI Business sold to
the Buyer or solicit any customers to discontinue  or alter their  relationships
with the



                                      - 5 -





Buyer. The non-competition  agreement entered into by the Company with the Buyer
specifically  excluded the  continued  operation of the  Company's  machine shop
after the  closing  as well as the sale by the  Company  of any of the  Excluded
Assets to any  person  whether  or not such  person is in  competition  with the
Buyer.

Assignment of  Tradename:  As part of the purchase and sale of the WMI Business,
the  Company  has  granted to the Buyer a license to utilize  the name  "Western
Microwave" in the conduct of the microwave  business  formerly carried on by the
Company.  The Company has further agreed to assign all right, title and interest
in and to such tradename upon obtaining the necessary  shareholder approval to a
change in the Company's name.

PLAN OF LIQUIDATION AND DISSOLUTION

         Adoption of Plan by Board of  Directors.  On May 9, 1996,  the Board of
Directors of the Company  approved a plan of dissolution  and liquidation of the
Company  (the  "Plan"),  subject  to the  approval  of the  shareholders  of the
Company.  The  following  summary  description  of the Plan is  qualified in its
entirety by reference to the Plan itself.  The Plan  provides that upon adoption
by the Shareholders,  the Company will be dissolved and its corporate  existence
terminated in accordance with Virginia law.

         Sale or Other  Disposition of Remaining  Assets.  Pursuant to the Plan,
the  Company  will  dispose  of any  remaining  assets  other  than (i) cash and
marketable  securities  or (ii) any assets  associated  with the  cleanup of the
Former Headquarters.  At September 30, 1996,  substantially all of the Company's
assets consisted of cash and marketable securities.

         Environmental  Reserve;  Holdback  in  Liquidation  Distribution.   The
Company  previously  established  a  reserve  to cover the  potential  costs and
expenses  to  complete  the cleanup of the  environmental  contamination  at the
Company's Former  Headquarters  and matters related thereto (the  "Environmental
Reserve"). At September 30, 1996, the amount of the Environmental Reserve was $1
million.  Because it is  anticipated  that the cleanup of the  Company's  former
headquarters located at 1271 Reamwood Avenue,  Sunnyvale,  California may not be
accomplished  for a number of years,  and because  changes and conditions at the
site as the cleanup is undertaken or other unknown circumstances may result in a
significant  increase in future  clean up costs which cannot be  anticipated  at
this time,  the Board of  Directors  intends  to hold back $3  million  from the
initial  liquidating   distribution  to  the  stockholders   pending  the  final
resolution of the environmental cleanup (the "Environmental Holdback").

         The proposed liquidation will not discharge the Company's environmental
liabilities.  A Liquidating Trust is being established by the Board of Directors
to make



                                      - 6 -




available  assets for the  environmental  remediation  at the  Company's  Former
Headquarters and matters related thereto (the "Environmental Remediation").  See
-- Liquidating Trust Agreement. If the Environmental Holdback is insufficient to
discharge  the  Company's  obligations,  the  Shareholders  may be liable in the
amount of any  distributions  made to such  Shareholders  by the  Company or the
Trustee of the Liquidating Trust.

         If, when the Environmental Remediation is completed, the full amount of
the  Environmental  Holdback  has  not  been  utilized,  the  remainder  will be
distributed to the Shareholders  holding  interests in the Liquidating  Trust at
such time that the distribution is made.

         Liquidating  Trust  Agreement.  The Board of  Directors  will  create a
Liquidating  Trust for the  benefit of the  Company's  shareholders  to hold the
Company's  assets and to satisfy the Company's  liabilities  and expenses during
the  liquidation.  Shareholders  will  participate  pro rata, in accordance with
their  percentage  stock  ownership  interests  in the  Company,  in any  assets
remaining in the  Liquidating  Trust after the payment of all costs and expenses
and the  satisfaction of all liabilities and other financial  obligations by the
Company.   The   Directors   believe  that  the  reserved   amounts  for  future
environmental  costs and other  contingencies and expenses will be sufficient to
satisfy  all  present  and  future   obligations   of  the  Company  during  the
liquidation.  However, no assurances can be given that any assets will remain in
the Liquidating Trust after the satisfaction of such liabilities and expenses or
that any amounts will be available for future  distribution from the Liquidating
Trust. Further, due to the lengthy time period anticipated for resolution of the
environmental  issues, the existence of the Liquidating Trust may continue for a
considerable  period of time subsequent to the legal  dissolution of the Company
for purposes of discharging the Liquidating Trust's liabilities and distributing
the Liquidating Trust's assets.

         Investment  of Proceeds.  Pending any  liquidating  distributions,  the
assets of the Company will be invested in such manner as the Board of Directors,
in its sole discretion, deems appropriate,  with a view towards the preservation
of such assets.

         Costs and Expenses.  The Board of Directors  will authorize the payment
of reasonable and necessary  expenses relating to the administration of the plan
and liquidating distributions contemplated thereunder, including but not limited
to all legal,  accounting,  printing,  appraisal  and other fees and expenses of
persons rendering services to the Company.  The Plan also authorizes the payment
of reasonable  compensation  to any person  providing  services on behalf of the
Company in connection with the resolution of the Company's environmental matters
and the investment of the Company's assets pending final liquidation.




                                      - 7 -




Employees

As of September 30, 1996,  the Company had one full-time  employee,  Dr. Ibrahim
Hefni, the Company's President, Treasurer and Chief Executive Officer.

Environmental Laws

In 1990 the Company was named as a defendant in two environmental lawsuits. Both
lawsuits  relate to the  alleged  contamination  by the  Company of the soil and
groundwater at or in the vicinity of the Company's  former  headquarters at 1271
Reamwood Avenue, Sunnyvale, California (the "Former Headquarters") as the result
of the operation of a plating room in the early 1980s. The plating operation was
closed by the Company in 1985.

In 1992 the Company settled both environmental lawsuits.  Under the terms of the
settlements,  the  Company  agreed to  undertake  certain  soil and  groundwater
remediation  activities at the Former  Headquarters.  The clean-up of the Former
Headquarters  will be undertaken in accordance  with site clean-up  requirements
approved by the  California  Regional Water Quality  Control Board  ("RWQCB") in
response to a workplan for remedial action  submitted by the Company.  The RWQCB
is responsible for overseeing the remediation of contaminated  sites which might
affect the quality of the waters of the State of California.

The RWQCB has adopted  site  cleanup  requirements  for WMI to  investigate  and
remediate VOC contamination found in the soil and groundwater at the site. Since
the adoption of the cleanup  orders,  the RWQCB and WMI have disagreed as to the
extent of WMI's liability for the contamination.  In addition, WMI contends that
there  are  other   responsible   parties  who  have  contributed  to  the  site
contamination.

The  disagreements  between WMI and the RWQCB  resulted in the imposition by the
RWQCB in 1995 of  administrative  civil  liability  against WMI in the amount of
$600,000.  WMI appealed the order imposing civil  liability and in June 1995 the
parties entered into a Settlement  Agreement to avoid future  litigation.  Under
the terms of such Settlement Agreement,  WMI agreed to dismiss its appeal of the
RWQCB order, to pay a total of $100,000 in penalties, to expend $250,000 in soil
and groundwater  remediation activities and to contribute an additional $250,000
to an  irrevocable  account  to be used  solely  for  future  investigation  and
remediation  at  the  site.  In  addition,  WMI  agreed  to  accomplish  certain
remediation  tasks in accordance with an agreed to schedule.  In accordance with
the schedule of tasks,  in 1995 WMI undertook the excavation and  remediation of
contaminated  soil from most of the  "hot-spot"  areas at the site and continued
its efforts to evaluate and propose a final  remediation  plan for the remaining
soil and groundwater contamination at the site. (See Item 3, LEGAL PROCEEDINGS -
Environmental Claims).



                                      - 8 -





INVESTMENT OF CURRENT ASSETS

As a result of the sale of the WMI Business and the  subsequent  liquidation  of
other  tangible  assets,  substantially  all of the Company's  remaining  assets
consist  of cash and  marketable  securities.  As of  September  30,  1996,  the
Company's net current assets (current assets less current  liabilities)  totaled
approximately   $5.3   million.   Pending  the   resolution   of  the  Company's
environmental liability for the cleanup of the Former Headquarters,  the Company
has invested  substantially all of its current assets in a diversified portfolio
of marketable securities.

At September 30, 1996,  the Company's  portfolio was invested as follows:  2% in
fixed income securities  maturing in the year 2020; 67% in common stocks; 29% in
high-yielding  preferred stocks; and 2% in money market funds. The portfolio has
been  structured  to preserve  capital  with a view towards  generating  current
income from interest, dividends and capital gains.

The estimated  annual income from the  investment of the Company's  portfolio is
approximately  $410,000. In addition,  the Company is expected to derive capital
gains from the sale of certain  investments  which have  appreciated  over their
original cost. At September 30, 1996, the net  unrealized  appreciation  (net of
tax effect) in the value of the  investments  over their  original  cost totaled
$413,868.  In addition,  the Company had unrealized gains on put and call option
contracts of $408,360 at September 30, 1996.

ITEM 2.  PROPERTIES

The Company  maintains no operating  facility.  At the present time, the Company
maintains a Post Office Box for mailing purposes.

ITEM 3.  LEGAL PROCEEDINGS

ENVIRONMENTAL CLAIMS

LITIGATION MATTERS:

Two  environmental  lawsuits were instituted  against the Company in fiscal year
1990.  Both lawsuits relate to the alleged  contamination  by the Company of the
soil and groundwater at or in the vicinity of the Company's former  headquarters
at 1271 Reamwood Avenue, Sunnyvale, California (the "Former Headquarters").  The
two lawsuits were instituted  against the Company  separately by Intersil,  Inc.
("Intersil") and by the owner of the Former Headquarters.

         Suit by Intersil.  On September 28, 1990,  Intersil  instituted a civil
         action in the  United  States  District  Court,  Northern  District  of
         California pursuant to the

                                                       

                                     - 9 -




         Comprehensive  Environmental  Response,  Compensation and Liability Act
         ("CERCLA")  for  reimbursement  of response  costs  incurred  and to be
         incurred by Intersil in response to the release or  threatened  release
         of  hazardous  substances  from  the  Former  Headquarters  and  for  a
         declaratory  judgment as to the Company's liability for future response
         costs. The action also sought a judgment awarding Intersil compensatory
         damages,  costs and interest,  as well as an order  requiring  that the
         Company abate the  conditions  giving rise to the action.  The Intersil
         suit  followed  the  demand  made  in  May,  1990  for  not  less  than
         $807,831.50 which represented  approximately 50% of Intersil's response
         costs incurred as of February 28, 1990. In 1992, Intersil increased its
         demand to approximately $3.7 million. The suit also included claims for
         negligence,  nuisance,  waste  and  trespass,  all as a  result  of the
         alleged release or threatened release of hazardous  substances into the
         environment by the Company.

         Suit by Former  Landlord.  In  August,  1990,  the owner of the  Former
         Headquarters  instituted  legal action  against the Company in Superior
         Court of California, Santa Clara County, for the costs of investigating
         and remedying  suspected toxic contamination at the site. The complaint
         alleged  that  during its  occupancy  of the Former  Headquarters,  the
         Company released or disposed of certain toxic and hazardous  substances
         onto the property resulting in contamination of the groundwater beneath
         the property.  The complaint  estimated that the cost of  investigation
         and  clean-up  of the  alleged  contamination  exceeded  $200,000.  The
         owner's complaint also sought to hold the Company liable for lost rents
         in excess of  $30,000  per month  until  the  clean-up  of the  alleged
         contamination is complete.  In addition,  the owner's complaint alleged
         that the Company  damaged the property by failing to properly  maintain
         it and by removing  fixtures and causing other damage upon vacating the
         premises.  The complaint estimated that the costs that will be incurred
         to repair and  restore  such  alleged  damage  will total not less than
         $50,000. The complaint also sought to recover for the diminution in the
         value of the  property  caused  by all of the  alleged  actions  of the
         Company as described  above.  Finally,  the complaint  sought  punitive
         damages of $1,000,000  and payment of the owner's other  administrative
         costs and legal expenses.

The  Company  retained  environmental  counsel to defend the Company in both the
Intersil suit and the  environmental  lawsuit filed by the Former Landlord.  The
primary  liability issue in both lawsuits was whether or not the Company was the
source of any soil and/or groundwater  contamination at the Former  Headquarters
and, if so, the  allocation of the clean-up costs at or about the site among the
contributors.

On July 28,  1992,  the Company  announced  that it had reached an  agreement to
settle the two environmental lawsuits instituted against the Company by Intersil
and the Former  Landlord.  Definitive  settlement  agreements  were executed and
exchanged by



                                     - 10 -




all parties in November, 1992. Under the terms of both settlements,  the Company
agreed to  reimburse  both  Intersil and the Former  Landlord for certain  costs
alleged to have been incurred in remediating soil and groundwater  contamination
at the Former Headquarters.  The costs of both settlements were funded, in large
part, by $1,000,000 in proceeds obtained from the Company's  insurance  carriers
in exchange  for a release  forever  discharging  the  insurance  carriers  from
further  claims  in  connection  with  the  site.  In  addition,  as part of the
settlements the Company agreed to undertake soil and groundwater  remediation at
the Former Headquarters.

SITE CLEANUP REQUIREMENTS:

Since  1993,  the  Company  has  been  engaged  in the  clean-up  of the  Former
Headquarters  pursuant to the Settlement  Agreements and in accordance with site
cleanup orders adopted by the  California  Regional Water Quality  Control Board
(the  "RWQCB").  The RWQCB is  responsible  for  overseeing  the  remediation of
contaminated  sites which might affect the quality of the waters of the State of
California.

The RWQCB has adopted  site  cleanup  requirements  for WMI to  investigate  and
remediate VOC  contamination  found in the soil and  groundwater  at the site. A
workplan  for  remedial  action,   including  several  amendments  thereto,  was
submitted by the Company to the RWQCB in early 1993. In July of 1993,  the RWQCB
conditionally  approved the Company's  workplan.  The workplan  contemplated the
installation  by the  Company of a pilot  treatment  system for the  underground
removal of chemical contamination in the shallow groundwater at the site as well
as soil  remediation and additional  testing and  groundwater  monitoring at the
site. In fiscal 1994, the Company continued its efforts to obtain final approval
of a  workplan  for  remedial  action  from the  RWQCB.  Under  the terms of the
settlement  agreements entered into by the Company,  the Company was entitled to
hook  into  an  existing  groundwater  treatment  system  being  operated  on  a
contiguous site.  However,  after the settlement  agreements were executed,  the
operator  of the system  advised  the  Company of its  intention  to abandon the
system and to implement a passive treatment system. As a result of these changes
in   circumstances,   the  Company   experienced  some  delays  in  implementing
groundwater  treatment at the site and full  compliance  with the RWQCB  cleanup
orders.

Since the adoption of the cleanup orders, the RWQCB and WMI have disagreed as to
the extent of WMI's liability for the contamination.  In addition,  WMI contends
that  there are  other  responsible  parties  who have  contributed  to the site
contamination.  The  disagreements  between  WMI and the RWQCB  resulted  in the
imposition by the RWQCB in 1995 of administrative civil liability against WMI in
the amount of $600,000. WMI appealed the order imposing such civil liability and
in June 1995 the parties  entered  into a  Settlement  Agreement to avoid future
litigation.  Under the terms of such Settlement Agreement, WMI agreed to dismiss
its appeal of the



                                     - 11 -




RWQCB order, to pay a total of $100,000 in penalties, to expend $250,000 in soil
and groundwater  remediation activities and to contribute an additional $250,000
to an  irrevocable  account  to be used  solely  for  future  investigation  and
remediation  at  the  site.  In  addition,  WMI  agreed  to  accomplish  certain
remediation tasks in accordance with an agreed to schedule.

In October 1995,  Intersil  notified the Company that the  Intersil's  Bentonite
slurry  wall was  damaged  by  excavation  activity  performed  by the  Company.
Intersil  alleged  this  damage  was  responsible  for  increased  migration  of
groundwater  from Intersil's  site to the Company's site.  Following a series of
motions and proceedings  before a Special Master,  the court entered an order on
August 19, 1996 requiring the Company to pay  approximately  $210,000 in damages
to Intersil  plus $16,000 in Special  Master fees.  The order was confirmed in a
judgment  entered on October 30, 1996. In addition,  the Company may be required
to pay  additional  attorneys'  fee to  Intersil  of  $60,000.  The  Company has
appealed the order and is currently  investigating  its options.  Management  is
unable to determine  the outcome of the appeal but has taken this  judgment into
consideration in determining the environmental  liability reserve. During fiscal
1996, the Company incurred and expensed  approximately $200,000 in environmental
cleanup costs.

The Company has been  ordered to resubmit a Remedial  Action Plan ("RAP") to the
Regional Water Quality  Control Board  ("RWQCB")  which evaluates and proposes a
final  remediation  plan for the Sunnyvale  site.  The Company has submitted its
draft RAP to the RWQCB and expects to obtain approval in the next few months.

ENVIRONMENTAL RESERVE:

In fiscal year 1990, the Company established a reserve in the amount of $250,000
to cover the  anticipated  costs and expenses of  conducting  the  environmental
investigation  and  defending  against the  environmental  claims  instituted by
Intersil  and  by the  owner  of the  Former  Headquarters  or  which  might  be
instituted by the California Regional Water Quality Control Board. In the second
quarter of fiscal 1992, the legal reserve was increased by $150,000. As a result
of the settlement of the  environmental  lawsuits,  at the end of 1992 the legal
reserve was converted to a reserve for anticipated environmental clean-up costs.

As a result of the conditional approval of the Company's workplan  contemplating
significant  soil and groundwater  remediation  activities,  in 1993 the Company
increased the reserve for future  environmental  clean-up costs to $500,000.  In
fiscal 1994 and fiscal  1995,  the Company  expensed  all current  environmental
costs which totaled  approximately  $564,000 for the two year period.  In fiscal
1996, environmental cleanup related expenses totaled approximately $200,000.




                                     - 12 -




As a result of further  investigation and soil remediation  activities completed
by the  Company at the site in fiscal  1995,  the  Company  determined  that the
existing  $500,000  environmental  reserve would not be adequate to complete the
cleanup.  As a result,  in fiscal 1995,  the Company  increased  the reserve for
future  environmental  costs by  $500,000  to  $1,000,000.  Notwithstanding  the
additional cleanup expenses incurred during 1996, the Company has maintained the
reserve at $1,000,000 at September 30, 1996.

The $1,000,000 reserve represents  management's best estimate of the anticipated
costs and expenses to complete the clean-up of the site in  accordance  with the
Company's workplan. However, there is no assurance that the clean-up of the site
can be completed  for the reserved  amount and changes in conditions at the site
as the  clean-up is  undertaken  or other  unknown  circumstances  may result in
significant  increases  in future  clean-up  costs  which  cannot be  reasonably
anticipated by the Company at this time.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

The  Company  delayed  its  Annual  Meeting in 1996 to combine it with a Special
Meeting of  Shareholders  to be held for the  purpose of  approving  the Plan of
Liquidation  and  Dissolution  adopted by the Board of Directors on May 9, 1996.
The Company  filed a  Preliminary  Proxy  Statement on June 7, 1996 and received
comments  from  the  staff  of  the  Securities  and  Exchange  Commission  (the
"Commission")  on July 9, 1996.  However,  after  responding to the Commission's
comments in September,  1996, the Company's Board of Directors  decided to defer
the Special  Meeting  until the Annual Report on Form 10-KSB for the fiscal year
ended  September 30, 1996 was available for  distribution to  shareholders.  The
Company  anticipates  that the Meeting of Shareholders  will be held on or about
April 2, 1997.

                                     Part II

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

Western Microwave,  Inc. Common Stock is traded in the  over-the-counter  market
under the symbol  WMIC.  The  Company's  Common Stock was included in the Nasdaq
Small Cap  Market  until May 1996,  when it was  delisted  by the  Nasdaq  Stock
Market, Inc. The Company's Common Stock continues to be traded on the Nasdaq OTC
Bulletin Board.

The following  table shows the range of high and low bid  quotations as reported
in the Nasdaq  over-the-counter  market for the  Company's  Common Stock for the
periods indicated.



                                     - 13 -




                                         FISCAL YEAR              FISCAL YEAR
                                             1996                    1995
                                       HIGH        LOW         HIGH        LOW

First Quarter                          1-7/8     1-3/8         1-1/8       1
Second Quarter                         1-5/8     1-1/4         1           1
Third Quarter                          1-5/8     1-1/4         1-1/2       1
Fourth Quarter                         1-1/2     1             2-1/8       1-3/8

The over-the-counter  market quotations shown above reflect inter-dealer prices,
without  retail  markup,  markdown or commission  and may not  represent  actual
transactions. Since May, 1996, the trading in the Company's Common Stock has not
been  reported  and is  difficult to monitor.  The prices may  fluctuate  widely
depending  on the trading  volume and the balance  between buy and sell  orders.
Stockholders  are urged to contact their brokers to obtain  current  information
with respect to the trading price of the Common Stock.

No  dividends  have been paid by the  Company  on its  Common  Stock  during the
five-year period ended September 30, 1996; provided, however, that in the second
quarter of the 1992 fiscal year, the Company announced the redemption,  in their
entirety,  of all  outstanding  Rights under the Company's  Common Shares Rights
Agreement dated as of February 17, 1989 at a redemption  price of $.01 per Right
payable  in cash to  holders  of  record  as of  February  11,  1992.  The total
redemption  of such Rights was  effected  during the second  quarter of the 1992
fiscal  year  at  a  cost  to  the  Company  of  $14,052.33,  which  amount  was
characterized  as  an  extraordinary  dividend  distribution.  The  Company  had
approximately 600 shareholders of record as of September 30, 1996.

Item 6.      MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS

FINANCIAL CONDITION

Assets.  Total assets as of September 30, 1996  increased  from the beginning of
the fiscal year by approximately $1.23 million to a total of $8.55 million.  The
increase in total assets is the result of  additional  purchases  of  investment
securities  on  margin  ($1.1  million),  appreciation  in  the  fair  value  of
investment   securities  ($97,000)  and  proceeds  from  sale  of  common  stock
($150,000), offset by the net loss for the year of approximately $117,000.




                                     - 14 -




Total Stockholders'  Equity.  Total stockholders'  equity as of the close of the
1996 fiscal year increased from approximately $5.13 million (or $3.73 per share)
at the beginning of the fiscal year to approximately $5.27 million (or $3.44 per
share) at the close of the fiscal year. The increase of  approximately  $129,000
in total  stockholders'  equity for the current fiscal year is the result of the
aforementioned  increase in the fair value of investment securities and proceeds
from the sale of common stock offset by the net loss incurred for the year.  The
decline in the book value per share of $.29 is the result of  additional  shares
issued in the sale of common  stock  which  more than  offset  the  increase  in
stockholders' equity on a per share basis.

Environmental  Liability.  Under the terms of the settlement  agreements entered
into by the  Company in  connection  with the  settlement  of the  environmental
lawsuits,  the  Company has agreed to  undertake  certain  soil and  groundwater
remediation activities at its former headquarters on Reamwood Avenue, Sunnyvale,
California (See, Item 3, LEGAL PROCEEDINGS - Environmental Claims)

In fiscal year 1990, the Company established a reserve in the amount of $250,000
to cover the  anticipated  costs and expenses of  conducting  the  environmental
investigation  and  defending  against the  environmental  claims  instituted by
Intersil  and  by the  owner  of the  Former  Headquarters  on  which  might  be
instituted by the California Regional Water Quality Control Board. In the second
quarter of fiscal 1992, the legal reserve was increased by $150,000. As a result
of the settlement of the  environmental  lawsuits,  at the end of 1992 the legal
reserve was converted to a reserve for anticipated environmental cleanup costs.

As a result of the conditional approval of the Company's workplan  contemplating
significant  soil and  groundwater  remediation  activities in 1993, the Company
increased the reserve for future  environmental  cleanup  costs to $500,000.  In
fiscal 1994 and 1995, the Company expensed all current environmental costs which
totaled approximately $564,000 for the two year period.

As a result of further  investigation and soil remediation  activities completed
by the  Company at the site in fiscal  1995,  the  Company  determined  that the
existing $500,000  environmental  reserve should not be adequate to complete the
cleanup.  As a result,  in fiscal 1995,  the Company  increased  the reserve for
future  environmental costs by $500,000 to $1,000,000.  The $500,000 increase in
the  environmental  reserve at the close of the 1995 fiscal  year was based,  in
large part, on the  historical  costs expended by the Company in the clean up in
fiscal 1994 and 1995.  During such two year period,  the Company's cleanup costs
and  expenses  averaged  approximately  $282,000 per year.  Under the  Company's
workplan,  the Company could reasonably expect to continue groundwater treatment
for a  minimum  of two to  three  years at an  annual  cost per year of at least
$250,000. Accordingly, the $1,000,000 reserve at September 30, 1995 was intended
to cover the  anticipated  cleanup  costs of operating a  groundwater  treatment
system for a three to four year period.



                                     - 15 -




The Company, in fiscal 1996, expensed  approximately  $200,000 in costs relating
to the environmental cleanup but has left the $1,000,000 reserve unchanged.  The
$1,000,000  reserve at September 30, 1996 represents  management's best estimate
of the  anticipated  costs and  expenses to complete  the cleanup of the site in
accordance with the Company's proposed workplan.  However, there is no assurance
that the  cleanup  of the site can be  completed  for the  reserved  amount  and
changes in  conditions at the site as the cleanup is undertaken or other unknown
circumstances may result in significant  increases in future cleanup costs which
cannot be reasonably  anticipated  by the Company at this time. At September 30,
1996, the Company's  total assets  exceeded $8.5 million,  and,  therefore,  the
Company believes that it has more than sufficient assets to complete the cleanup
in the event  the  anticipated  costs  and  expenses  exceed  the  amount of the
reserve.

Liquidity and Capital Resources.  As a result of the sale of the WMI Business in
fiscal  1995,  substantially  all of the  Company's  assets  consist of cash and
marketable  securities.  Pending the  resolution of the Company's  environmental
liability for the cleanup of the Former  Headquarters,  the Company has invested
substantially all of its current assets in a diversified portfolio of marketable
securities.  As of September 30, 1996,  the  portfolio of marketable  securities
were valued at approximately $8.33 million.

RESULTS OF OPERATIONS

Sales or Cost of  Sales.  The  Company  had no sales or costs of sales in fiscal
1996.

Selling, General and Administrative Expenses. Included in total selling, general
and administrative  expenses for fiscal 1996 were compensation paid to Dr. Hefni
in the form of environmental  consulting fees of $150,000,  portfolio management
fees  of  $66,000  and  a  portfolio  value  increase  fee  of  $112,000.  Other
significant  expense items include legal expenses of $214,000 and  environmental
cleanup related expenses of $200,000.

Interest,  Dividends  and  Capital  Gains.  Investment  income for  fiscal  1996
consisting  of interest,  dividends and capital gains on the sales of securities
totaled  $731,531,  an increase of  approximately  $203,000 (or 38%) from fiscal
1995 levels.  In addition,  in fiscal 1996,  the Company  realized an additional
gain of  approximately  $105,000 on the sale of operating and business assets in
connection with the sale of WMI Business.



                                     - 16 -




ITEM 7.      FINANCIAL STATEMENTS

The Company's audited  financial  statements for the fiscal year ended September
30, 1996 and for the period indicated accompany this report as Item 13(a)1.

ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
             ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Grant  Thornton LLP audited the financial  statements of the Company for each of
the fiscal  years ended  September  30, 1990  through  1996.  There have been no
changes in or disagreements  with the Company's  independent  public accountants
during the two most recent fiscal years.


                                    PART III

ITEM 9.      DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH
             EXCHANGE ACT REPORTING REQUIREMENTS

The directors of the Company as of the date of this report are:

                                DIRECTOR
NAME OF DIRECTOR           PRINCIPAL OCCUPATION                  SINCE      AGE
----------------           --------------------                  -----      ---
Dr. Ibrahim Hefni          President, Treasurer                  1989       69
                           and Chief Executive
                           Officer of the Company

James M. Herrmann          President and Director of             1990       51
                           Microwave Engineering
                           Corporation, a manufacturer
                           of microwave and millimeter
                           wave components

Basil Hefni                Self Employed - Private Investor      1995       37

Except  as set  forth  below,  each of the  nominees  has  been  engaged  in his
principal  occupation described above during the past five years. Basil Hefni is
the son of Dr. Ibrahim Hefni.  There are no other family  relationships  between
any director or executive officer of the Company.



                                     - 17 -




Dr.  Hefni was  elected as Acting  Chief  Executive  Officer  of the  Company in
February, 1990 and assumed the offices of Chief Executive Officer, President and
Treasurer in November,  1991. On August 6, 1993, Dr. Hefni resigned as President
and Treasurer of the Company due to illness and on November 18, 1993,  Dr. Hefni
resigned  his  position as Chief  Executive  Officer of the  Company.  Dr. Hefni
reassumed the positions of Chief Executive  Officer,  President and Treasurer of
the Company on March 8, 1994.

Michael  Ghandehari,  who was  elected  to the  Board of  Directors  at the 1995
Meeting of Shareholders,  resigned his position as a director on August 11, 1995
after the closing of the sale of the WMI  Business to ST  Microwave  Corp.  as a
result  of his  subsequent  employment  by the  Buyer.  The  Board of  Directors
appointed  Basil Hefni to fill the  vacancy  created by the  resignation  of Mr.
Ghandehari to serve until the next Annual Meeting of Shareholders.

The Annual Meeting of Shareholders of 1997 is scheduled to be held on or about
April 2, 1997.

The executive officers of the Company as of the date of this report are:

NAME                                  POSITION                           AGE
----                                  --------                           ---
Dr. Ibrahim Hefni                     Chief Executive Officer,           69
                                      President, Treasurer
                                      and Secretary





                                     - 18 -





ITEM 10.      EXECUTIVE COMPENSATION

The  following  table  shows  the  total  compensation  of the  Company's  Chief
Executive  Officer  and of the other  executive  officers of the Company for the
periods indicated:

                                            SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
<S>                             <C>             <C>              <C>                 <C>                <C>   
Name and                                                                          Other Annual         Long-Term
Principal Position              Year           Salary           Bonus             Compensation         Compensation(1)
Ibrahim Hefni
  President, Treasurer & CEO    1996           $ - 0 -          $ - 0 -           $ 328,000(6)           None
  President, Treasurer & CEO    1995           $150,000         $398,000(2)        $100,000(3)           None
  President, Treasurer & CEO    1994           $ - 0 -          $ - 0 -           None                   (4)

Michael Ghandehari(5)
  Secretary                     1996           $ - 0 -          $ - 0 -           None                 None
  Secretary                     1995           $                $
  Secretary                     1994           $ 69,235         $ - 0 -           None                 None

</TABLE>

(1)      Incudes any award of restricted  stock,  stock options  granted,  SARs,
         long-term  incentive  plans  or  similar  arrangements   providing  for
         long-term compensation.

(2)      In fiscal 1995, Dr. Hefni was paid a total of $398,000 as  compensation
         for the management of the Company's  investment  portfolio for the four
         (4) year period 1991 through  1995 based on a percentage  of the income
         and net appreciation in the value of the investment portfolio.

(3)      In fiscal 1995, Dr. Hefni was paid an  environmental  consulting fee of
         $100,000 in addition to his salary as President, Treasurer and CEO.

(4)      In  consideration  of all services  rendered to the Company,  in fiscal
         1994,  Dr. Hefni was granted an option,  exercisable at any time within
         10 years,  to purchase  up to 150,000  shares of the  Company's  Common
         Stock at the current  fair  market  value per share on the date of such
         grant of $1.00 per share.  Dr. Hefni  exercised  the option to purchase
         these shares in May 1996.

(5)      On August 6, 1993, the Board of Directors  appointed Mr.  Ghandehari to
         serve as Acting  President  and Treasurer of the Company as a result of
         the  illness of Dr.  Hefni.  On March 8, 1994,  Dr.  Hefni  resumed the
         positions of President,  Treasurer  and Chief  Executive  Officer.  Mr.
         Ghandehari resigned as a director of the Company in August 1995.

(6)      In fiscal 1996, Dr. Hefni was paid an  environmental  consulting fee of
         $150,00,  portfolio  management  fees of $66,000 and a portfolio  value
         increase fee of $112,000.

Except as set forth in footnote 4 above,  neither the Company's  Chief Executive
Officer nor any other  executive  officer has been granted any stock  options or
stock  appreciation  rights  ("SARs")  or  participates  in any other  long-term
incentive plan ("LTIP") at the Company.




                                     - 19 -




The  Company  has  no  employment  contracts  or  other  compensatory  plans  or
arrangements  providing  for any payments by the Company  upon the  resignation,
retirement or other  termination of an executive  officer's  employment with the
Company or upon a change in control of the Company.  The Company did not pay any
Directors fees during fiscal 1996.

ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
              MANAGEMENT

As of December 30, 1996,  1,528,491  shares of the  Company's  Common Stock were
issued and  outstanding.  Information  as of December 30, 1996 as to each person
known to Management to be the beneficial  owner of more than 5% of the Company's
Common Stock is set forth below:

NAME AND ADDRESS                           AMOUNT OWNED          PERCENT OWNED
----------------                           -----------           -------------

I. and W. Hefni                             341,200                 22.32%
704 Hemenway Cove
Boulder City, NV 89005

Basil Hefni                                 240,000                 15.70%
940 Great Pond Road
North Andover, MA 01845

Microwave Engineering Corp.                 224,500                 14.69%
1551 Osgood Street
North Andover, MA 01845



                                     - 20 -





The following  table sets forth the beneficial  ownership of Common Stock of the
Company  (including shares subject to immediately  exercisable stock options) as
of December 30, 1996 of each  director of the Company and of all  directors  and
officers as a group:

                                    NUMBER OF                   APPROXIMATE
NAME                                SHARES OWNED            PERCENTAGE OWNERSHIP
----                                ------------            --------------------

Dr. Ibrahim Hefni                   565,7001(2)                   37.01%

Basil Hefni                         240,000                       15.70%

James M. Herrmann                   224,500(1)                    14.69%



All directors and
executive officers as
a group (3 persons)                 805,700                       52.71%
------------------
1        Includes, in the case of Dr. Hefni, and represents,  in the case of Mr.
         Herrmann, 224,500 shares owned by Microwave Engineering Corporation, of
         which Dr. Hefni and Mr. Herrmann are directors.

2        Does not include 240,000 shares beneficially owned by Basil Hefni as to
         which shares Dr. Hefni disclaims beneficial  ownership.  Basil Hefni is
         Dr.  Hefni's  adult son and does not share  the same  residence  as Dr.
         Hefni.


ITEM 12:      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS;
              OTHER TRANSACTIONS


During the fiscal year ended  September 30, 1996, the Company engaged in certain
transactions  with  Microwave  Engineering  Corporation  ("MEC"),  the holder of
224,500  shares of the  Company's  Common  Stock (or  16.29% of the  outstanding
Common Stock). James M. Herrmann,  President of MEC, serves as a Director of the
Company.  Dr. Hefni, Chief Executive Officer and a Director of the Company, is a
stockholder and a Director of MEC.

The transactions  between the Company and MEC included the preparation by MEC of
the Company's payroll and the Company's  quarterly payroll reports.  MEC did not
charge the Company for this service and no compensation  was paid by the Company
to MEC for such services in fiscal 1995 or 1996.





                                     - 21 -





                                     PART IV

Item 13.      INDEX OF EXHIBITS, FINANCIAL STATEMENTS AND REPORTS
              OF FORM 8-K

(a)      The following documents are filed as part of this report.

         1. Financial Statements.  The audited financial  statements,  including
            the Notes thereto, to be included in Part II, Item 7 which accompany
            this Report as Item 13(a)1 are as follows:

            (i)    Balance Sheet for Fiscal Year Ended September 30, 1996;

            (ii)   Statements of Operations for the Fiscal Years ended September
                   30, 1996 and 1995.

            (iii)  Statement  of  Stockholders'  Equity for Fiscal  Years  ended
                   September 30, 1996 and 1995; and

            (iv)   Statements of Cash Flows for Fiscal Years ended September 30,
                   1996 and 1995.

         2. Exhibits.

            Exhibit 21.    The Company's  sole  subsidiary is Western  Microwave
                           International    Inc.,    a    foreign    corporation
                           incorporated and based in the U.S. Virgin Islands.

            Exhibit 24.    Power of Attorney (below).

(b)      Reports on Form 8-K.  The Company did not file any reports on Form 8-K
during the fourth quarter ended September 30, 1996.




                                     - 22 -




                                   SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                             WESTERN MICROWAVE, INC.
                                             By:  Dr. Ibrahim Hefni


                                              /s/ I. Hefni
                                             -------------------------------
                                             President, Chief Executive Officer,
                                             and Treasurer

Dated:  February 11, 1997





                                     - 23 -





                                POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature  appears
below constitutes and appoints Ibrahim Hefni as his  attorney-in-fact,  with the
power of substitution, for him in any and all capacities, to sign any amendments
in connection  therewith,  with the Securities and Exchange  Commission,  hereby
ratifying and  confirming all that said  attorney-in-fact,  or his substitute or
substitutes, may do or cause to be done by virtue hereof.

In  accordance  with the Exchange  Act, this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates
indicated.

SIGNATURE                              TITLE                      DATE
---------                              -----                      ----
                               Chief Executive Officer,
/s/ I. Hefni                   President, Treasurer
---------------------          and Director                  February 11, 1997
Ibrahim Hefni



/s/ James M. Herrmann          Director                      February 11, 1997
---------------------
James M. Herrmann



/s/ Basil Hefni                Director                      February 11, 1997
---------------------
Basil Hefni




                                     - 24 -





                     WESTERN MICROWAVE, INC. AND SUBSIDIARY

                              FINANCIAL STATEMENTS
                                       AND
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

                           SEPTEMBER 30, 1996 AND 1995




               Report of Independent Certified Public Accountants
               --------------------------------------------------


Board of Directors
Western Microwave, Inc.

We have audited the accompanying balance sheet of Western Microwave, Inc., as of
September  30, 1996,  and the related  statements of  operations,  stockholders'
equity,  and cash flows for each of the two years in the period ended  September
30, 1996.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

As discussed  in Note I to the  financial  statements,  the  Company's  Board of
Directors has approved a plan of liquidation of the Company, pending shareholder
approval.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Western Microwave,  Inc., as of
September  30, 1996,  and the results of its  operations  and its cash flows for
each of the two years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles.



GRANT THORNTON LLP


San Jose, California
January 15, 1996





                             WESTERN MICROWAVE, INC.

                                  BALANCE SHEET

                               SEPTEMBER 30, 1996

<TABLE>
<CAPTION>


                                     ASSETS

<S>                                                                      <C>    
Cash and cash equivalents                                                    $   45,787
Money market fund                                                               160,668
Securities available for sale                                                 8,334,637
Other assets                                                                      9,861
                                                                             ----------
         Total assets                                                        $8,550,953
                                                                             ==========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
   Accounts payable                                                          $  142,341
   Margin account liability                                                   1,075,437
   Accrued liabilities                                                        2,067,319
                                                                             ----------
       Total liabilities                                                      3,285,097

COMMITMENTS AND CONTINGENCIES                                                         -

STOCKHOLDERS' EQUITY
   Common stock - $.10 par value; 3,000,000 shares authorized;
     1,555,233 issued, 1,528,491 outstanding                                    152,849
   Capital in excess of par value                                             4,148,981
   Unrealized gain on marketable securities                                     413,868
   Retained earnings                                                            550,158
                                                                             ----------
         Total stockholders' equity                                           5,265,856
                                                                             ----------
                                                                             $8,550,953
                                                                             ==========

</TABLE>

The accompanying notes are an integral part of this statement.





                             WESTERN MICROWAVE, INC.

                            STATEMENTS OF OPERATIONS

                            YEAR ENDED SEPTEMBER 30,


<TABLE>
<CAPTION>

                                                                                     1996               1995
                                                                                  ----------        -----------
<S>                                                                                <C>               <C>       
Sales                                                                              $       -         $2,153,713

Costs of sales                                                                             -          1,493,684
                                                                                  ----------        -----------

          Gross profit                                                                     -            660,029

Selling, general and administrative expenses                                         947,738          2,003,069
Investment income                                                                   (731,531)          (527,928)
Gain on sale of operating business and assets                                       (105,018)          (961,087)
Other income                                                                         (32,986)              (323)
                                                                                  ----------        -----------
                                                                                      78,203            513,731
                                                                                  ----------        -----------

          Earnings (loss) before income taxes                                        (78,203)           146,298

Income tax benefit (expense)                                                         (38,702)           192,652
                                                                                  ----------        -----------

          NET EARNINGS (LOSS)                                                      ($116,905)        $  338,950
                                                                                  ===========       ===========

Earnings (loss) per share of common stock                                             ($0.08)        $     0.25
                                                                                  ===========       ===========

Weighted average number of shares of common stock outstanding                      1,450,049          1,381,033
                                                                                  ===========       ===========

</TABLE>

The accompanying notes are an integral part of this statement.






                             WESTERN MICROWAVE, INC.

                        STATEMENT OF STOCKHOLDERS' EQUITY

                     YEARS ENDED SEPTEMBER 30, 1996 AND 1995


<TABLE>
<CAPTION>
                                                                 `                                       Unrealized
                                                           Outstanding         Capital in                  Gain on
                                                          Common Stock          Excess of    Retained     Marketable
                                                     Shares          Amount     Par Value    Earnings     Securities       Total
                                                     ------          ------     ---------    --------     ----------       -----
<S>                                              <C>              <C>         <C>          <C>          <C>           <C>       
Balance, October 1, 1994                           1,384,591        $138,459    $4,022,521   $328,113     $      -     $4,489,093

   Stock repurchase                                   (6,100)           (610)       (8,540)         -            -         (9,150)

   Fair value adjustment -
     securities available for sale                         -               -             -          -      317,252        317,252

   Net earnings                                            -               -             -    338,950            -        338,950
                                                   ---------       ---------     ---------  ---------    ---------      ---------
Balance, September 30, 1995                        1,378,491         137,849     4,013,981    667,063      317,252      5,136,145

   Fair value adjustment -
     securities available for sale                         -               -             -          -       96,616         96,616

   Sale of common stock                              150,000          15,000       135,000          -            -        150,000

   Net loss                                                -               -             -   (116,905)           -       (116,905)
                                                   ---------       ---------     ---------  ---------    ---------      ---------
Balance, September 30, 1996                        1,528,491        $152,849    $4,148,981   $550,158     $413,868     $5,265,856
                                                   =========       =========     =========  =========    =========      =========

</TABLE>

The accompanying notes are an integral part of this statement.






                             WESTERN MICROWAVE, INC.

                            STATEMENTS OF CASH FLOWS

                            YEAR ENDED SEPTEMBER 30,

<TABLE>
<CAPTION>

                                                                                              1996                1995
                                                                                              ----                ----
<S>                                                                                     <C>                 <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
   Net earnings (loss)                                                                     $(116,905)          $338,950
   Adjustments to reconcile net earnings (loss) to net cash
     provided by (used in) operating activities:
       Depreciation                                                                            1,996             51,061
       Deferred income taxes                                                                  33,702           (211,502)
       Gain on sale of securities                                                            (81,147)          (166,286)
       Gain on sale of operating business and assets                                        (105,018)          (961,087)
       Changes in assets and liabilities:
         Accounts receivable                                                                  (8,947)           (97,239)
         Other receivables                                                                    80,000             12,719
         Inventories                                                                               -             53,587
         Prepaid expenses                                                                      1,506             24,913
         Accounts payable                                                                   (146,863)           170,451
         Accrued liabilities                                                                 171,453          1,189,912
                                                                                           ---------          ---------
          Net cash provided by (used in) operating activities                               (170,223)           405,479

Cash flows from investing activities:
   Proceeds from sale of operating business and assets                                       105,018          1,607,873
   Purchase of investment securities                                                      (1,758,954)        (3,955,666)
   Proceeds from sale of investment securities                                             1,430,792          2,205,104
   Decrease in other assets                                                                        -             14,962
                                                                                           ---------          ---------
          Net cash used in investing activities                                             (223,144)          (127,727)

Cash flows from financing activities:
   Sale of common stock                                                                      150,000                  -
   Repurchase of Company stock                                                                     -             (9,150)
                                                                                           ---------          ---------
          Net cash provided by (used in) financing activities                                150,000             (9,150)
                                                                                           ---------          ---------

          NET INCREASE (DECREASE) IN CASH AND
             CASH EQUIVALENTS                                                               (243,367)           268,602

Cash and cash equivalents at beginning of year                                               289,154             20,552
                                                                                           ---------          ---------

Cash and cash equivalents at end of year                                                     $45,787           $289,154
                                                                                           =========          =========

Supplemental disclosures of cash flow information:
   Cash paid during the year for:
     Income taxes                                                                            $19,800           $    800

</TABLE>

The accompanying notes are an integral part of these statements.






                             WESTERN MICROWAVE, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           SEPTEMBER 30, 1996 AND 1995



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    The Company
    -----------

    Western  Microwave,  Inc. (the "Company")  sold the remaining  assets of its
    microwave  manufacturing  business to ST Microwave  Corp.  ("ST") in July of
    1995.  The  Company  is no longer  engaged  in the  microwave  manufacturing
    business.  The Company's remaining business activity involves the resolution
    of the  Company's  ongoing  environmental  liability  for the cleanup of the
    Company's former facility in Sunnyvale,  California. The Company's remaining
    assets  consist of  marketable  securities  which are managed by the Company
    with a view towards the  preservation  of such assets and the  generation of
    investment income in the form of interest,  dividends and capital gains. See
    Note I.

    Use of Estimates
    ----------------

    In preparing  financial  statements in conformity  with  generally  accepted
    accounting  principles,   management  is  required  to  make  estimates  and
    assumptions  that affect the reported  amounts of assets and liabilities and
    the  disclosure  of  contingent  assets and  liabilities  at the date of the
    financial statements,  as well as revenues and expenses during the reporting
    period. Actual results could differ from those estimates.

    Cash Equivalents
    ----------------

    For purposes of the  statements  of cash flows,  the Company  considers  all
    highly liquid debt instruments  purchased with an original maturity of three
    months or less to be cash equivalents.

    Earnings Per Share
    ------------------

    Earnings per share is based upon the weighted  average number of outstanding
    common shares.


NOTE B - SALE OF OPERATING BUSINESS AND ASSETS

    On July 21, 1995, the Company completed the sale of certain of its operating
    assets  associated  with  the  conduct  of  its  microwave   components  and
    subsystems businesses to ST of Sunnyvale, California, a subsidiary of Signal
    Technology  Corporation.  Under  the  terms of the  initial  asset  purchase
    agreement and a subsequent agreement entered into by the Company and ST, the
    Company sold selected equipment, certain inventory, all outstanding accounts
    receivable,  all  intangible  assets,  the  outstanding  backlog of customer
    orders and the right to operate  under the name of Western  Microwave  for a
    total net purchase price of  approximately  $1,150,000.  In fiscal 1995, the
    Company  recognized  a gain of  approximately  $431,000  as a result of this
    transaction.  During 1996,  as a result of settling out the final amounts of
    claims between the Company and ST, the Company recognized an additional gain
    of approximately $105,000.

    Excluded from the sale to ST were substantially all the Company's electronic
    test equipment and production  machinery,  as well as all assets  associated
    with the  Company's  machine shop  operation.  In  September of 1995,  these
    assets  were  liquidated  by  the  Company  which  resulted  in  a  gain  of
    approximately $530,000 recognized by the Company.






                             WESTERN MICROWAVE, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           SEPTEMBER 30, 1996 AND 1995


NOTE C - INVESTMENT SECURITIES

    The Company accounts for its investment  securities  portfolio in accordance
    with the provisions of FASB 115,  Accounting for Certain Investments in Debt
    and  Equity  Securities.   The  Company's  investment   securities  are  all
    classified  as  "available  for sale" and are  recorded in the  accompanying
    balance sheet at fair value,  with net unrealized  gains and losses on these
    investments shown as a component of stockholders' equity.

    The  amortized  cost,  unrealized  gains and losses,  and fair values of the
    Company's  available-for-sale  securities  held at  September  30,  1996 are
    summarized as follows:

<TABLE>
<CAPTION>
                                                                         Gross          Gross         Estimated
                                                        Amortized     Unrealized     Unrealized         Fair
                                                          Cost           Gains         Losses           Value
                                                     -------------   -------------  -------------  -------------
      <S>                                          <C>             <C>            <C>            <C>          
       Equity securities                             $   7,582,437   $   1,049,788  $    (460,088) $   8,172,137
       Debt security                                       160,531           1,969            -          162,500
                                                     -------------   -------------  -------------  -------------

                                                     $   7,742,968   $   1,051,757  $    (460,088) $   8,334,637
                                                     =============   =============  =============  =============
</TABLE>


    The debt security matures in the year 2020.

    Proceeds  on sales  of  securities  classified  as  available-for-sale  were
    $1,430,792 and $2,205,104 in 1996 and 1995,  respectively.  Gains of $91,675
    and $205,514 and losses of $34,562 and $39,228 were  realized on these sales
    for  1996  and  1995,   respectively.   The   Company   uses  the   specific
    identification method to determine the cost of securities sold.

    The Company has entered into certain contracts in which the Company receives
    a payment and agrees to buy shares of specific securities if the holder puts
    the securities to the Company (put  contracts).  This obligation could occur
    if the market  price of the  securities  drops  below the option  price.  At
    September  30,  1996,  the  aggregate  contract  obligation  to the Company,
    assuming all  contracts  were put to the Company would be  $12,828,250.  The
    aggregate obligation on put contracts for which the option price exceeds the
    market  price is  $1,738,250.  The market risk to the Company is that if the
    share  prices of the  securities  subject to the options  decline  below the
    option price, and the holder puts the securities to the Company, the Company
    would be required to buy the  securities at a price in excess of market.  At
    September  30, 1996,  the Company has  recorded a liability  for the amounts
    received on open put  contracts of  $853,730.  At  September  30, 1996,  the
    Company has net  unrealized  gains of $360,292  on open put  contracts.  The
    Company  has also  entered  into  certain  contracts  in which  the  Company
    receives a payment and agrees to sell shares of specific  securities  if the
    holder  calls  the  securities  from  the  Company  (call  contracts).  This
    obligation could occur if the market price of the securities rises above the
    option price.  The market risk to the Company is that if the share prices of
    the  securities  subject to the options rises above the option price and the
    holder calls the securities from the Company,  the Company would be required
    to buy the  securities  at market  price and sell them at a price  less than
    market. There were no uncovered call contracts at September 30, 1996. At




                             WESTERN MICROWAVE, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           SEPTEMBER 30, 1996 AND 1995


NOTE C - INVESTMENT SECURITIES (continued)


    September  30, 1996,  the Company has  recorded a liability  for the amounts
    received on open  contracts of $59,318.  At September 30, 1996,  the Company
    has net  unrealized  gains of $48,068 on these open  contracts.  The Company
    records the premium payments it receives from these activities as a deferred
    liability upon receipt.  Unrealized gains on open contracts are deferred and
    not recognized until the contracts lapse or are settled.  Unrealized  losses
    are not recognized until realized,  i.e., when the contract is either put to
    the Company or called from the Company.


NOTE D - ACCRUED LIABILITIES

    Accrued liabilities consist of the following at September 30, 1996:

          Payroll and other                                 $     154,271
          Environmental cleanup/Litigation (Note H)             1,000,000
          Deferred income (Note C)                                913,048
                                                            -------------
                                                            $   2,067,319
                                                            =============


NOTE E - INCOME TAXES

    The Company adopted,  effective  October 1, 1993, the Statement of Financial
    Accounting  Standards ("SFAS") No. 109,  Accounting for Income Taxes, issued
    in February  1992.  Under the asset and  liability  approach  for  financial
    accounting  and  reporting  for  income  taxes  specified  by SFAS 109,  the
    following basic principles are applied in accounting for income taxes at the
    date of the  financial  statements:  a) a  current  liability  or  asset  is
    recognized  for the estimated  taxes payable or refundable on income for the
    current year;  b) a deferred tax  liability or asset is  recognized  for the
    estimated  future tax effects  attributable  to  temporary  differences  and
    carryforwards;  c) the  measurement of current and deferred tax  liabilities
    and assets is based on the provisions of the enacted tax law; the effects of
    future  changes  in tax  laws  or  rates  are  not  anticipated;  and d) the
    measurement of deferred taxes is reduced, if necessary, by the amount of any
    tax benefits  that,  based upon available  evidence,  are not expected to be
    realized.

    Certain events and application of the tax laws create temporary  differences
    between the tax basis of an asset or liability  and its  reported  amount in
    the financial  statements.  The  principal  differences  between  assets and
    liabilities  for  financial  statement  and  tax  return  purposes  are  the
    environmental  reserve of  $1,000,000,  the  unrealized  gains on investment
    securities  of  approximately  $591,000,  and  federal  net  operating  loss
    carryforwards of $153,000.




                             WESTERN MICROWAVE, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           SEPTEMBER 30, 1996 AND 1995


NOTE E - INCOME TAXES (continued)

    Deferred taxes consist of the following at September 30, 1996:

          Deferred tax assets and (liabilities)
              Environmental reserves                       $   401,380
              Net operating loss carryforward                   52,000
              Unrealized gain on investments                  (229,800)
                                                           -----------
                                                               223,580
                 Less valuation allowance                     (223,580)
                                                           -----------
                                                           $       -
                                                           =========== 

    As of September 30, 1996, management does not believe,  based upon available
    evidence,  that it is more likely than not that the Company  will be able to
    realize any of the net deferred tax assets.

    The  following is a  reconciliation  of the expected tax expense  (computing
    using the  applicable  federal  and  state  statutory  rates) to actual  tax
    expense (benefit) for the years ended September 30:


                                                      1996              1995
                                             -------------     -------------
     Pretax income (loss)                    $     (78,203)    $     146,298
                                             -------------     -------------

     Tax at federal rate                            14,551            49,741
     State income tax and other                      5,000            17,951
     Non taxable income and other                   17,425           (68,633)
     Change in deferred tax asset
          valuation allowance                       30,828          (191,711)
                                             -------------     -------------

     Actual tax (benefit) expense            $      38,702     $    (192,652)
                                             =============     =============


NOTE F - COMMON STOCK

    The  Company's  common  shares  have been  previously  traded in the  NASDAQ
    SmallCap Market. On May 9, 1996, the Company's  securities were deleted from
    the NASDAQ SmallCap Market and, as a result, the Company's securities are no
    longer  traded on any  exchange and the Company does not intend to apply for
    re-listing on NASDAQ or any other exchange.

    Stock Options
    -------------

    On December 20, 1994, the Board of Directors of the Company granted CEO, Dr.
    Hefni,  a  non-statutory  stock  option to  purchase  150,000  shares of the
    Company's  common  stock  at a  purchase  price of $1.00  per  share,  which
    represented  the fair  market  value of the common  stock at the date of the
    grant. The option was exercisable  immediately and for a period of ten years
    from  the date of the  grant.  The  option  was  granted  to Dr.  Hefni  for
    consideration of his services as President and CEO of the Company during the
    year ended 1994.  Dr.  Hefni did not receive any other  compensation  during
    fiscal 1994. The options were exercised by Dr. Hefni in May 1996.






                             WESTERN MICROWAVE, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           SEPTEMBER 30, 1996 AND 1995



NOTE F - COMMON STOCK (continued)

    Stock Repurchase Program
    ------------------------

    On March 10, 1992, the Company  announced its intention to repurchase,  from
    time to time,  in open  market  transactions,  up to  100,000  shares of the
    Company's   Common  Stock.  As  of  September  30,  1996,  the  Company  had
    repurchased  a total of 26,742  shares  pursuant  to such  stock  repurchase
    program.


NOTE G - RELATED PARTY TRANSACTIONS

    During the fiscal  years  ended  September  30,  1996 and 1995,  the Company
    engaged in  certain  transactions  with  Microwave  Engineering  Corporation
    ("MEC"),  the holder of 224,500 shares of the Company's Common Stock (or 16%
    of the  outstanding  Common  Stock).  James M.  Herrmann,  President of MEC,
    serves as a Director of the Company.  Dr.  Ibrahim  Hefni, a director of the
    Company, is a stockholder and director of MEC.

    The  transactions  between the Company and MEC  included  the  provision  of
    financial consulting  services;  the provision of accounting and bookkeeping
    functions,  including the  preparation  of the  Company's  payroll and other
    accounting  functions for the Company; and the sale by MEC of certain parts,
    supplies,  computer  equipment and other tangible  personal  property to the
    Company.  MEC did not charge the Company for any  services  rendered  during
    fiscal 1995 and 1996.


NOTE H - ENVIRONMENTAL CLAIMS

    Two  environmental  lawsuits were  instituted  against the Company in fiscal
    year 1990. Both lawsuits relate to the alleged  contamination by the Company
    of the soil and  groundwater  at or in the vicinity of the Company's  former
    headquarters  at 1271 Reamwood  Avenue,  Sunnyvale,  California (the "Former
    Headquarters").  The two lawsuits have been  instituted  against the Company
    separately  by Intersil,  Inc.  ("Intersil")  and by the owner of the Former
    Headquarters.

       Suit by Intersil - On  September  28, 1990,  Intersil  instituted a civil
       action  in  the  United  States  District  Court,  Northern  District  of
       California   pursuant  to  the  Comprehensive   Environmental   Response,
       Compensation  and Liability Act ("CERCLA") for  reimbursement of response
       costs  incurred and to be incurred by Intersil in response to the release
       or   threatened   release  of  hazardous   substances   from  the  Former
       Headquarters and for a declaratory judgment as to the Company's liability
       for future  response  costs.  The action also sought a judgment  awarding
       Intersil  compensatory  damages,  costs and interest, as well as an order
       requiring  that the  Company  abate  the  conditions  giving  rise to the
       action.  The Intersil  suit  followed the demand made in May 1990 for not
       less than $807,831.50 which  represented  approximately 50% of Intersil's
       response  costs  incurred  as of February  28,  1990.  In 1992,  Intersil
       increased  its  demand  to  approximately  $3.7  million.  The suit  also
       included claims for negligence,  nuisance,  waste and trespass,  all as a
       result  of  the  alleged  release  or  threatened  release  of  hazardous
       substances into the environment by the Company.




                             WESTERN MICROWAVE, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           SEPTEMBER 30, 1996 AND 1995



NOTE H - ENVIRONMENTAL CLAIMS (continued)

       Suit by  Former  Landlord  - In  August  1990,  the  owner of the  Former
       Headquarters  instituted  legal  action  against  the Company in Superior
       Court of California,  Santa Clara County,  for the costs of investigating
       and remedying  suspected toxic  contamination  at the site. The complaint
       alleged that during its occupancy of the Former Headquarters, the Company
       released or disposed of certain toxic and hazardous  substances  onto the
       property  resulting  in  contamination  of the  groundwater  beneath  the
       property.  The complaint  estimated  that the cost of  investigation  and
       cleanup of the  alleged  contamination  exceeded  $200,000.  The  owner's
       complaint also sought to hold the Company liable for lost rents in excess
       of $30,000 per month until the cleanup of the alleged  contamination  was
       completed.  In addition,  the owner's  complaint alleged that the Company
       damaged the  property by failing to properly  maintain it and by removing
       fixtures  and  causing  other  damage upon  vacating  the  premises.  The
       complaint  estimated  that the costs to be incurred to repair the alleged
       damage would total not less than $50,000.  The  complaint  also sought to
       recover for the diminution in the value of the property  caused by all of
       the  alleged  actions of the Company as  described  above.  Finally,  the
       complaint  sought  punitive  damages  of  $1,000,000  and  payment of the
       owner's other administrative costs and legal expenses.

    The Company retained environmental counsel to defend the Company in both the
    Intersil suit and the  environmental  lawsuit filed by the former  Landlord.
    The primary  liability issue in both lawsuits was whether or not the Company
    was the source of any soil and/or  groundwater  contamination  at the Former
    Headquarters and, if so, the allocation of the cleanup costs at or about the
    site among the contributors.

    In fiscal  year 1990,  the  Company  established  a reserve in the amount of
    $250,000  to cover the  anticipated  costs and  expense  of  conducting  the
    environmental  investigation  and defending against claims for environmental
    matters  already  instituted  by  Intersil  and by the  owner of the  Former
    Headquarters  or which might be instituted by the California  Regional Water
    Quality Control Board  ("RWQCB").  In the second quarter of fiscal 1992, the
    legal  reserve was  increased by $150,000 and the reserve was converted to a
    reserve for anticipated  environmental cleanup costs. As of the close of the
    1992 fiscal year, the balance of the environmental reserve was approximately
    $360,000.

    On July 28, 1992, the Company  announced that it had reached an agreement to
    settle the two  environmental  lawsuits  instituted  against  the Company by
    Intersil and the Former  Landlord.  Definitive  settlement  agreements  were
    executed and exchanged by all parties in November,  1992. Under the terms of
    both settlements,  the Company has agreed to reimburse both Intersil and the
    Former  Landlord  for  certain  costs  alleged  to  have  been  incurred  in
    remediating soil and groundwater  contamination at the Former  Headquarters.
    The costs of both  settlements  were  funded,  in large  part,  by  proceeds
    obtained by the Company's  insurance carriers.  In addition,  as part of the
    settlements,   the  Company  agreed  to  undertake   soil  and   groundwater
    remediation at the Former Headquarters.




                             WESTERN MICROWAVE, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           SEPTEMBER 30, 1996 AND 1995


NOTE H - ENVIRONMENTAL CLAIMS (continued)

    A workplan for remedial action,  including several amendments  thereto,  was
    submitted  by the Company to the RWQCB in early 1993.  In July of 1993,  the
    RWQCB   conditionally   approved  the  Company's   workplan.   The  workplan
    contemplates the installation by the Company of a pilot treatment system for
    the underground removal of chemical contamination in the shallow groundwater
    at the  site  as  well  as  soil  remediation  and  additional  testing  and
    groundwater  monitoring at the site. As a result of the conditional approval
    of the  Company's  workplan,  the Company  increased  the reserve for future
    environmental cleanup costs at September 30, 1993 to $500,000.

    In fiscal 1994,  the Company  continued its efforts to obtain final approval
    of a workplan  for  remedial  action from the RWQCB.  Under the terms of the
    settlement  agreements entered into by the Company, the Company was entitled
    to hook in to an existing  groundwater  treatment system being operated on a
    contiguous site. However, after the settlement agreements were executed, the
    operator of the system  advised the Company of its  intention to abandon the
    system and to  implement a passive  treatment  system.  As a result of these
    changes  in   circumstances,   the  Company   experienced   some  delays  in
    implementing  groundwater  treatment at the site.  During  fiscal 1994,  the
    Company  expensed all current  environmental  costs with the result that the
    reserve for future  environmental  costs at September  30, 1994  remained at
    $500,000.

    In fiscal 1995,  the Company was fined  $100,000 and ordered to put $250,000
    in an irrevocable account, to be used solely for remediation activities,  by
    the RWQCB for  violating  certain site cleanup  requirements.  During fiscal
    1995,  the  Company  continued  its soil  remediation  and  implemented  its
    groundwater  treatment.  As a result  of  further  analysis  and  additional
    information  provided,  the Company increased the  environmental  reserve to
    $1,000,000 at September 30, 1995.

    In October 1995, Intersil notified the Company that the Intersil's Bentonite
    slurry wall was damaged by  excavation  activity  performed  by the Company.
    Intersil  alleged this damage was  responsible  for  increased  migration of
    groundwater  from Intersil's site to the Company's site.  Following a series
    of motions and  proceedings  before a Special  Master,  the court entered an
    order on August 19, 1996 requiring the Company to pay approximately $210,000
    in damages to Intersil  plus $16,000 in Special  Master fees.  The order was
    confirmed  in a judgment  entered on October  30,  1996.  In  addition,  the
    Company  may be  required to pay  additional  attorneys'  fee to Intersil of
    $60,000.  The Company has appealed the order and is currently  investigating
    is options.  Management is unable to determine the outcome of the appeal but
    has taken this judgment into  consideration in determining the environmental
    liability  reserve.  During fiscal 1996,  the Company  incurred and expensed
    approximately $200,000 in environmental cleanup costs.

    The Company has been  ordered to resubmit a Remedial  Action Plan ("RAP") to
    the Regional  Water Quality  Control  Board  ("RWQCB")  which  evaluates and
    proposes a final  remediation  plan for the Sunnyvale  site. The Company has
    submitted  its draft RAP to the RWQCB and expects to obtain  approval in the
    next few months.





                             WESTERN MICROWAVE, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           SEPTEMBER 30, 1996 AND 1995


NOTE H - ENVIRONMENTAL CLAIMS (continued)

    The Company has maintained its environmental liability reserve at $1,000,000
    at September 30, 1996. The $1,000,000 reserve  represents  management's best
    estimate of the  anticipated  costs and  expenses to complete the cleanup of
    the site in accordance  with the Company's  workplan.  However,  there is no
    assurance  that the cleanup of the site can be  completed  for the  reserved
    amount and changes in conditions at the site as the cleanup is undertaken or
    other unknown  circumstances  may result in significant  increases in future
    cleanup costs which cannot be reasonably  anticipated by the Company at this
    time.


NOTE I - PROPOSED LIQUIDATION OF THE COMPANY

    On May 1,  1996,  the  Company's  Board  of  Directors  approved  a plan  of
    dissolution  and  liquidation of the Company  subject to the approval of the
    Company's shareholders.  It is anticipated that voting on this proposal will
    occur sometime in the first  calendar  quarter of 1997. The Company plans to
    distribute  the  net  assets  to  the  shareholders   after  establishing  a
    liquidating trust of $3,000,000 to cover the environmental reserve. When the
    environmental  remediation is completed,  the remaining balance in the trust
    will be distributed to  shareholders  holding an interest in the liquidating
    trust.   Due  to  the   uncertainty   surrounding   the  resolution  of  the
    environmental reserve, the liquidating trust may continue in existence for a
    considerable  period  of time  subsequent  to the legal  dissolution  of the
    Company for purposes of discharging the trust's assets and liabilities.