EIP MICROWAVE INC, POS AM, 1998-03-03

EIP MICROWAVE INC
POS AM, 1998-03-03
INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1998

Registration No. 333-42595

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

POST-EFFECTIVE AMENDMENT NO. 3
FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

DELAWARE 3825 95-2148645

(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
No.)

4500 Campus Drive
Suite 219
Newport Beach, California 92660
714-851-3177
(Address and telephone number of
principal executive offices)

1745 McCandless Drive
Milpitas, California 95035
408-945-1477
(Address of principal place of business)

J. Bradford Bishop
1745 McCandless Drive
Milpitas, California 95035
408-945-1477
(Name, address and telephone number of agent for service)

Copies to:
Michael E. Johnson, Esq.,
Bainbridge Group, A Law Corporation
18301 Von Karman Avenue, Suite 410
Irvine, California 92612
714-442-6600

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the Registration Statement becomes effective.

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]

<PAGE>

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Title of each Amount to be Proposed Proposed
class of registered maximum maximum Amount of
securities offering price aggregate registration
to be per share offering price fee
registered
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 4,249,070* $0.50* $2,124,535* $1,253.48*
par value
$0.01
per share
- ----------------------------------------------------------------------------
</TABLE>

/*/ Previously paid. This registration statement is filed pursuant to Rule
429(a) and relates to an earlier registration statement (Registration No.
333-37289). Such earlier registration statement registered 1,699,628
shares and a total combined registration fee of $875.57 was paid.

The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.

Pursuant to Rule 429, the prospectus contained in this registration statement is
a "combined prospectus" relating to an earlier registration statement
(Registration No. 333-37289).

<PAGE>

PROSPECTUS
EIP MICROWAVE, INC.

5,948,698 Shares of Common Stock
(Par value, $0.01 per Share)

RIGHTS OFFERING

EIP Microwave, Inc., a Delaware corporation (the "Company"), offers
5,948,698 shares (the "Shares") of its Common Stock, $0.01 par value, at $0.50
per Share to its stockholders of record on November 7, 1997 (the "Record Date")
who reside in states either where state registration of this offering is not
required or, if required, in the judgment of the Company can reasonably be
effected ("Stockholders of Record"). This offering is referred to as the
"Rights Offering." Each Stockholder of Record's right to subscribe is not
transferable. See "Prospectus Summary--The Rights Offering, --Method of
Exercising Rights" for information on how to subscribe.

The Company's Common Stock is quoted on the NASD's Bulletin Board under the
symbol "EIPM". On February 13, 1998, the closing bid and closing asked prices
of the Company's Common Stock were $0.88 and $1.22, respectively. The
Company's Common Stock is thinly traded and may experience significant price and
volume fluctuations which could adversely affect the market price of the Common
Stock without regard to the operating performance of the Company. There is no
assurance that a more active public market for such securities will develop
after the conclusion of the Rights Offering or, if a more active trading market
develops, that it will be sustained. The price at which the Common Stock is
being sold is not based on an independent valuation of the Company or its assets
or other recognized criteria of investment value. The subscription price of
$0.50 does not indicate that the Common Stock has a value of or could be resold
at that price.

This Rights Offering commenced on November 14, 1997 with a lower number of
Shares and a higher subscription price. See "Prospectus Summary--Rights
Offering--Background." Stockholders who subscribed for Shares at the previous
subscription price of $1.70 or $1.00 in the Rights Offering should refer to the
paragraph entitled "Treatment of Previously Subscribing Stockholders" on page 2.
The funds previously submitted by subscribing stockholders have been held
uncashed and undeposited by the Company pending expiration of the Rights
Offering.

THE RIGHTS WILL EXPIRE AT 5:00 P.M., CALIFORNIA TIME, ON MARCH 20, 1998, UNLESS
EXTENDED BY THE COMPANY. IN NO EVENT WILL THE EXPIRATION DATE BE EXTENDED
BEYOND MARCH 27, 1998. FAILURE TO EXERCISE RIGHTS COULD RESULT IN SUBSTANTIAL
DILUTION TO NON-EXERCISING STOCKHOLDERS. SEE "RISK FACTORS--DILUTION FROM
RIGHTS OFFERING."

The Rights Offering is being made on an any or all basis, which means that
the Company may accept any subscription received even if all 5,948,698 Shares
offered are not purchased. See "Risk Factors--No Minimum Size of Rights
Offering." The following persons (collectively, the "Committed Subscribers")
have committed to the Company that they will subscribe for an aggregate of
5,600,000 Shares with an aggregate subscription price of $2,800,000 in the
Rights Offering: J. Bradford Bishop, Chairman and Chief Executive Officer, a
Director and a principal stockholder of the Company, has committed to subscribe
for 3,200,000 Shares with an aggregate subscription price of $1,600,000; John
F. Bishop, Vice Chairman, Secretary and Treasurer, a Director and a principal
stockholder of the Company, has committed to subscribe for 1,300,000 Shares
with an aggregate subscription price of $650,000 on behalf of the Bishop Family
Trust; James N. Cutler, Jr., a Director of the Company, has committed to
subscribe for 1,000,000 Shares with an aggregate subscription price of $500,000
in Common Stock; and J. Sidney Webb, Jr., a Director of the Company, has
committed to subscribe for 100,000 Shares with an aggregate subscription price
of $50,000. See "Prospectus Summary--Rights Offering--Commitments," "Risk
Factors--Control by Management and Principal Stockholders", and "-- Dilution
from Rights Offering."

The net proceeds of the Rights Offering will be used in part to repay
existing debt and other obligations of the Company owed to John F. Bishop
and J. Bradford Bishop and their affiliates, which amounted to approximately
$2,280,000 at February 13, 1998, or approximately 82% to 88% of the estimated
net proceeds from the Rights Offering. See "Use of Proceeds".

<PAGE>

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Price to Public Underwriting Proceeds to
Discounts and Issuer (1)
Commissions
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $0.50 $0 $0.50
- --------------------------------------------------------------------------------
Total: 5,948,698 Shares $2,974,349 $0 $2,974,349
- --------------------------------------------------------------------------------
</TABLE>

(1) Before deducting estimated expenses of the offering of $195,000 payable by
the Company.

The date of this Prospectus is March 3, 1998.

<PAGE>

The Company is a "reporting company," as such term is employed in the Securities
Exchange Act of 1934. It is not listed on any exchange, and its Common Stock is
not eligible for quotation on the NASDAQ SmallCap Market ("NASDAQ") but is
quoted on the NASD's "Bulletin Board." Reports and other information filed by
the Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
DC 20549, and at the Regional Offices of the Commission located at 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, CA 90036-3648, 7 World Trade Center, New
York, NY 10048 and Citicorp Center, 500 Madison Street, Suite 1400, Chicago, IL
60661. Copies of such material can be obtained upon written request addressed
to the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549, at prescribed rates. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission; the address of
such site is http://www.sec.gov.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission in
Washington, D.C. a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Common Stock offered by this Prospectus. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits listed
in the Registration Statement. The Registration Statement can be examined at
the Public Reference Section of the Securities and Exchange Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies may be obtained upon
payment of the prescribed fees.

The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, on the written or oral request of such person,
a copy of any or all documents incorporated by reference into this Prospectus
that are not delivered herewith, except the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to: Corporate Investor
Communications, Inc., 111 Commerce Road, Carlstadt, NJ 07072-2586, Attn: Joseph
A. Caruso, Tel. (800) 631-8985.

The Company's Common Stock is not listed on any exchange. See "Risk
Factors--Delisting from NASDAQ."

<PAGE>

TABLE OF CONTENTS

Contents
Page

Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Rights Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Treatment of Previously Subscribing Stockholders . . . . . . . . . . 2
Method of Exercising Rights. . . . . . . . . . . . . . . . . . . . . 2
Avoiding Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Qualified Opinion of Independent Auditor. . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Recurring Material Losses and Accumulated Deficit . . . . . . . . . . . . 3
Future Cash Requirements. . . . . . . . . . . . . . . . . . . . . . . . . 4
Repayment of Existing Debt and Future Debt Facilities . . . . . . . . . . 4
Inventory Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Dependence on New OEM Relationship. . . . . . . . . . . . . . . . . . . . 5
Dependence on Government Contractors. . . . . . . . . . . . . . . . . . . 5
Uncertainty of Product Development and Introduction . . . . . . . . . . . 5
Uncertainty of External Strategic Opportunities . . . . . . . . . . . . . 5
Dependence on Key Suppliers . . . . . . . . . . . . . . . . . . . . . . . 6
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Dependence on Key Personnel . . . . . . . . . . . . . . . . . . . . . . . 6
Control by Management and Principal Stockholders. . . . . . . . . . . . . 6
Offering Price Not Based on Actual Value. . . . . . . . . . . . . . . . . 7
Dividends Not Likely. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Dilution from Rights Offering . . . . . . . . . . . . . . . . . . . . . . 7
Possible Future Dilution. . . . . . . . . . . . . . . . . . . . . . . . . 7
No Minimum Size of Rights Offering. . . . . . . . . . . . . . . . . . . . 7
Possible Extension of Expiration Date . . . . . . . . . . . . . . . . . . 8
Delisting from Nasdaq . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Limited Trading Volume and Volatility of Stock Price in Public Market . . 8
Market Restrictions on Broker-Dealers . . . . . . . . . . . . . . . . . . 8
Potential Anti-Takeover Effects of Delaware Law . . . . . . . . . . . . . 8
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Determination of Offering Price. . . . . . . . . . . . . . . . . . . . . . . . 9
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
The Rights Offering . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Subscription Expiration Date. . . . . . . . . . . . . . . . . . . . . . .10
Basic Subscription Rights . . . . . . . . . . . . . . . . . . . . . . . .11
Over-Subscription Privilege . . . . . . . . . . . . . . . . . . . . . . .11
Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Method of Exercising Rights . . . . . . . . . . . . . . . . . . . . . . .12
Treatment of Previously Subscribing Stockholders . . . . . . . . . .12
Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Purchase and Sale of Rights. . . . . . . . . . . . . . . . . . . . .13
Delivery of Certificates . . . . . . . . . . . . . . . . . . . . . .13
Information Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Market for the Company's Common Stock and Related Stockholder Matters . . . .13
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
General/Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Markets/Principal Customers . . . . . . . . . . . . . . . . . . . . . . .15
Methods of Distribution . . . . . . . . . . . . . . . . . . . . . . . . .16
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Research, Development and Engineering . . . . . . . . . . . . . . . . . .16

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Raw Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Patents, Copyrights, Trademarks and Intellectual Property . . . . . . . .17
Government Approval of Principal Products . . . . . . . . . . . . . . . .17
Effect of Existing or Probable Governmental Regulations . . . . . . . . .17
Compliance with Provisions on Environmental Protection . . . . . . . . .17
Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Expired Working Capital Facility. . . . . . . . . . . . . . . . . . . . .18
Bishop Family Trust Loan Facility . . . . . . . . . . . . . . . . . . . .18
Demand Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Acquisition/Divestiture Discussions . . . . . . . . . . . . . . . . . . .19
Management's Discussion and Analysis . . . . . . . . . . . . . . . . . . . . .20
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . .20
Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Directors, Executive Officers and Key Employees . . . . . . . . . . . . .23
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . .24
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . .25
Summary Compensation Table. . . . . . . . . . . . . . . . . . . . . . . .25
Option Grants in Fiscal 1997 . . . . . . . . . . . . . . . . . . . .26
Aggregate Option Exercises in Fiscal 1997 and FY-End Option
Values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Interest of Management and Others in Certain Transactions. . . . . . . . . . .27
Bishop Family Trust Loan Facility . . . . . . . . . . . . . . . . . . . .27
Demand Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Subordinated Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Bridge Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Employment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . .27
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Security Ownership of Certain Beneficial Owners and Management . . . . . . .28
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . .29
Authorized Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Dividend Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Liquidation Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Dissenter's Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Certain Anti-Takeover Provisions. . . . . . . . . . . . . . . . . . . . .30
Transfer Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Legal Matters and Interests of Counsel . . . . . . . . . . . . . . . . . . . .31
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Change in Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Disclosure of Commission Position on Indemnification for Securities
Act Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1

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<PAGE>

PROSPECTUS SUMMARY

THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND
FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS TO
BE CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS.

THE COMPANY

EIP Microwave, Inc., a Delaware corporation (the "Company"), is engaged in
the development, manufacture and sale of high frequency microwave and radio
frequency (RF) test and measurement instruments. The Company's principal
executive offices are located at 4500 Campus Drive, Suite 219, Newport Beach, CA
92660, Tel. (714) 851-3177.

The Company recently introduced a new line of microwave frequency counters
which it began distributing in October 1997, on a private label basis worldwide
through an OEM relationship with Hewlett-Packard Company ("Hewlett-Packard").
The Company also recently received a five-year indefinite quantity, fixed price
subcontract from ManTech Systems Engineering Corporation, a government
contractor ("ManTech"), for the supply of RF synthesized signal generators and
RF down converters, with total sales value to the Company that could range from
approximately $3.5 to $20 million. In addition to these opportunities for
internal growth, the Company will pursue appropriate strategic opportunities to
acquire other companies or their technology or products. The proceeds from the
Rights Offering will assist the Company in meeting the cash requirements to
continue its business and pursue these opportunities. See "The
Company--General Products," "--Markets/Principal Customers," "--Methods of
Distribution" and "--Research, Development and Engineering."

THE RIGHTS OFFERING

The Company offers 5,948,698 shares (the "Shares") of its Common Stock,
$0.01 par value, to its stockholders of record on November 7, 1997 (the "Record
Date"), who reside in states either where state registration of this offering is
not required or, if required, in the judgment of the Company can reasonably be
effected ("Stockholders of Record"). The Shares are offered at a purchase price
of $0.50 per Share (the "Subscription Price"). This Rights Offering will expire
on March 20, 1998, unless extended by the Company.

The Rights Offering entitles the Stockholders of Record to subscribe at the
Subscription Price for Shares on the basis of fourteen Shares for each share of
Common Stock held on the Record Date (the "Basic Subscription Rights"). In
addition, each Stockholder of Record may over-subscribe to purchase as many
additional Shares as desired (the "Over-Subscription Privilege"). If there are
not sufficient Shares to honor all over-subscriptions, the available Shares will
be allocated among those who over-subscribe based solely on the number of shares
subscribed for by each over-subscribing holder pursuant to the Basic
Subscription Rights.

The Rights Offering is being made directly by the Company to its
Stockholders of Record. No underwriters are involved. No commissions are being
paid. All net proceeds from subscriptions go directly to the Company in their
entirety.

Common Stock offered 5,948,698 shares
Common Stock to be outstanding
after the offering 6,373,605 shares (1)
Use of proceeds Repay debt and fund working capital
requirements.

(1) Assuming all the Shares offered herein are subscribed and sold.

BACKGROUND. The Company commenced this Rights Offering on November 14,
1997, and initially offered 1,699,628 Shares at an initial subscription price of
$1.70 per Share to its Stockholders of Record with an initial expiration date of
December 15, 1997. Under the initial terms of the Rights Offering, Stockholders
of Record were entitled to purchase four Shares for each share of Common Stock
of the Company which they owned on the

1
<PAGE>

Record Date, and also had the opportunity to subscribe for as many additional
Shares as they desired. On December 16, 1997, the Company announced the
extension of the expiration date for the Rights Offering to January 5, 1998.
On December 23, 1997, the Company increased the number of Shares offered to
5,948,698 and lowered the subscription price to $1.00 per Share. The Company
thereafter announced the extension of the expiration date of the Rights
Offering to January 30, 1998, then February 26, 1998, and then March 6,
1998. As set forth in this Prospectus, the Company has further extended the
expiration date of the Rights Offering to March 20, 1998, and has lowered the
subscription price to $0.50 per Share.

The decrease in the prior subscription price, and the increase in
the number of Shares subject to the Rights Offering, were approved by the
Company's Board of Directors based on a number of factors, including the
Company's continued need for additional capital, the low participation of
stockholders at the prior subscription price, and the irrevocable commitment
of the Committed Subscribers to subscribe for 5,600,000 Shares at the reduced
subscription price of $0.50. See "Determination of Offering Price."

Stockholders who previously subscribed for Shares in the Rights Offering at
the prior subscription price of $1.70 or $1.00 should refer to the paragraph
entitled "Treatment of Previously Subscribing Stockholders" below.

COMMITMENTS. The following persons (collectively, the "Committed
Subscribers") have committed to the Company that they will subscribe for a
minimum of 5,600,000 Shares in the Rights Offering, representing a minimum
aggregate subscription price of $2,800,000:

J. Bradford Bishop, Chairman and Chief Executive Officer, a Director and a
principal stockholder of the Company, has committed to subscribe for at
least 3,200,000 Shares with an aggregate subscription price of $1,600,000.
The Board of Directors has approved the payment of his aggregate
subscription price by a reduction in amounts owed to him by the Company
($700,000 as of February 13, 1998), and the balance will be paid in cash.
874,622 of such Shares will be purchased under his Basic Subscription
Rights, and 2,325,378 of such Shares will be subscribed under his
Oversubscription Privilege.

John F. Bishop, Vice Chairman, Secretary and Treasurer, a Director and a
principal stockholder of the Company, has committed to subscribe for at
least 1,300,000 Shares with an aggregate subscription price of $650,000 on
behalf of the Bishop Family Trust. The Board of Directors has approved the
payment of his aggregate subscription price by a reduction in amounts owed
to him by the Company. All of such Shares will be purchased under his
Basic Subscription Rights; John F. Bishop has not committed to purchase the
remaining 355,640 Shares available to him under his Basic Subscription
Rights.

James N. Cutler, Jr., a Director of the Company, has committed to subscribe
for at least 1,000,000 Shares with an aggregate subscription price of
$500,000. The aggregate subscription price will be paid in cash. 14,000
of such Shares will be purchased under his Basic Subscription Rights, and
986,000 of such Shares will be subscribed under his Oversubscription
Privilege.

J. Sidney Webb, Jr., a Director of the Company, has committed to subscribe
for at least 100,000 Shares with an aggregate subscription price of
$50,000. The aggregate subscription price will be paid in cash. 11,200
of such Shares will be purchased under his Basic Subscription Rights, and
88,800 of such Shares will be subscribed under his Oversubscription
Privilege. This subscription price will be paid in cash.

See "Risk Factors--Control by Management and Principal Stockholders", and
"--Dilution from Rights Offering."

TREATMENT OF PREVIOUSLY SUBSCRIBING STOCKHOLDERS. Before distributing
the new Prospectus and subscription agreement to Stockholders of Record, the
Company will return to all Stockholders who previously subscribed for Shares
under the Rights Offering at the previous subscription prices of $1.70 or
$1.00 (collectively, "Previously Subscribing Stockholders") all payments
submitted with such earlier subscriptions, without interest. All Previously
Subscribing Stockholders may subscribe for shares under the new terms of the
Rights Offering in the same method as other Stockholders of Record, as set
forth herein.

METHOD OF EXERCISING RIGHTS. Stockholders of Record may not transfer their
rights to purchase the Shares. Subscriptions must be made in writing by
completing and signing the enclosed subscription agreement and mailing or
delivering it, with a good and sufficient check for the subscribed amount, to
the Company. Completed subscription agreements and checks must, in any event,
be received by the Company no later than 5:00 P.M.,

2
<PAGE>

California time, on March 20, 1998, unless extended by the Company (such date,
as it may be extended on one or more occasions, is referred to herein as the
"Expiration Date").

Checks should be made payable to "EIP MICROWAVE, INC." Should the offering
be oversubscribed, the Company will return to subscribers within five business
days after the Expiration Date that portion of their subscription amounts that
could not be filled, without any interest.

AVOIDING DILUTION

Each Stockholder of Record may avoid dilution of his or her percentage
interest in the Company by subscribing for all Shares subject to his or her
Basic Subscription Rights. See "Risk Factors--Dilution from the Rights
Offering."

QUALIFIED OPINION OF INDEPENDENT AUDITOR

The report of Meredith, Cardozo, Lanz & Chiu LLP on the Company's financial
statements for the year ended September 30, 1997, and issued as of November 20,
1997, includes an explanatory paragraph to express substantial doubt regarding
the Company's ability to continue as a going concern. The report of Price
Waterhouse LLP on the Company's financial statements for the year ended
September 30, 1996 has been reissued with dual dates of December 23, 1996 and
October 23, 1997. The reissued report includes an explanatory paragraph to
express substantial doubt regarding the Company's ability to continue as a going
concern. See "Risk Factors--Recurring Material Losses and Accumulated Deficit."

RISK FACTORS

AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, IN ADDITION TO
THE INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS IN EVALUATING THE COMPANY AND THE COMMON STOCK OFFERED HEREBY. THESE
RISK FACTORS COULD CAUSE ACTUAL RESULTS OR EVENTS TO DIFFER MATERIALLY FROM
THOSE CONTAINED IN ANY FORWARD-LOOKING STATEMENT MADE BY OR ON BEHALF OF THE
COMPANY.

RECURRING MATERIAL LOSSES AND ACCUMULATED DEFICIT

The Company made a profit of $125,000 in the fiscal year ended September
30, 1995, operated at a loss of $493,000 in the fiscal year ended September 30,
1996, operated at a loss of $1,290,000 in the fiscal year ended September 30,
1997, and operated at a loss of $1,213,000 in the fiscal quarter ended December
31, 1997. Net cash used in operations and investing activities by the Company
in the fiscal years ended September 30, 1995, 1996 and 1997, and in the three
months ending December 31, 1997, was $85,000, $89,000, $1,045,000 and $412,000,
respectively. At the end of fiscal year 1996, the Company's retained earnings
were $374,000, and stockholders' equity was $1,227,000. At the end of fiscal
year 1997, the Company's accumulated deficit was $916,000, and stockholders'
deficiency was $63,000. At December 31, 1997, the Company's accumulated
deficit was $2,129,000, and stockholders' deficiency was $1,276,000. At
September 30, 1996 , September 30, 1997, and December 31, 1997, the Company's
ratio of interest-bearing indebtedness to total interest-bearing indebtedness
and stockholders' equity was 20%, 105%, and 474%, respectively. There can be,
and is, no assurance that profitable operations and positive cash flow can be
achieved or maintained or that any funds obtained from the Rights Offering will
be sufficient to carry the Company to a time when profitable operations and
positive cash flow would sustain the Company. Continued losses would
negatively impact the Company's working capital and the extension of credit by
its lenders and could cause such lenders to declare a default under the
Company's loan agreements, and declare all outstanding loans immediately due and
payable. See "Risk Factors--Repayment of Existing Debt."

3
<PAGE>

dates of December 23, 1996 and October 23, 1997. The reissued report includes
an explanatory paragraph to express substantial doubt regarding the Company's
ability to continue as a going concern. There can be no assurance that the
Company will not continue to incur significant operating losses or that required
additional financing will be available to meet the Company's business plan in
fiscal 1998 and beyond.

FUTURE CASH REQUIREMENTS

The Company believes that net proceeds from the Rights Offering and
borrowings under future debt facilities in an aggregate amount equal to
approximately $4,000,000 will be necessary to satisfy the Company's cash
requirements for implementing its business plan during the remainder of the
fiscal year ending September 30, 1998. The actual cash resources required will
depend upon numerous factors, including those described under "Risk
Factors--Dependence on New OEM Relationship," "--Dependence on Government
Contractors," "--Uncertainty of Product Development and Introduction", and
"--Uncertainty of External Strategic Opportunities" and the cash requirements
could be materially greater than $4,000,000.

The Company expects to meet such cash requirements with net proceeds from
the Rights Offering of approximately $2,775,000 and borrowings of approximately
$1,225,000 under future debt facilities. With the net proceeds from the Rights
Offering, the Company plans to repay all outstanding amounts under its existing
debt facilities. There is no assurance that the Company will be successful in
obtaining all such capital from the Rights Offering. After completion of the
Rights Offering, the Company plans to enter into one or more new debt facilities
with third party lenders (the "Future Debt Facilities") to provide for the
remaining cash required to implement its business plan for the remainder of
fiscal 1998.

The Company is continuing to pursue discussions with other lenders
concerning the Future Debt Facilities; however, there can be no assurance that
the Company will be able to obtain the Future Debt Facilities. Even if the
Company is able to obtain Future Debt Facilities, there can be no assurance as
to the terms thereof. If the Company is unable to obtain the Future Debt
Facilities, the Company and its business will likely be materially adversely
affected.

There is no assurance that the Company will be successful in obtaining all
such capital from the Rights Offering and from the Future Debt Facilities. If
the Company is unable to obtain such capital on a timely basis, the Company will
be required to consider, among other actions, a substantial reduction in its
research and development expenses which will impact the introduction of new
products, a substantial reduction in other operating expenses and the sale of
one or more products lines of the Company. Such actions to significantly
curtail its planned operations will likely have a materially adverse affect on
the Company's business, financial condition and results of operations.

REPAYMENT OF EXISTING DEBT AND FUTURE DEBT FACILITIES

The Company had a $500,000 working capital facility with a bank which
expired on January 31, 1998 and the Company repaid all amounts outstanding
thereunder in the amount of $179,000 on January 22, 1998. The Company has a
$1,450,000 term and revolving advance loan facility (the "Loan Facility") with
the Bishop Family Trust which expires in October 1998, and $1,250,000 was
outstanding thereunder on February 13, 1998. The Company has loans (the "Demand
Loans") payable on demand to J. Bradford Bishop, and $700,000 was outstanding
thereunder on February 13, 1998. See "The Company--Bishop Family Trust Loan
Facility" and "--Demand Loans". The Bishop Family Trust and J. Bradford Bishop
are affiliates of the Company, and the Company plans to repay all outstanding
amounts under the Loan Facility and the Demand Loans with the net proceeds from
the Rights Offering.

Assuming that the Company is able to obtain the Future Debt Facilities,
the Company expects that the Future Debt Facilities will impose various
covenants relating to the Company's performance and financial condition. If the
Company does not maintain compliance with such covenants, the lender will have
the right to declare all outstanding amounts immediately due and payable. There
can be no assurance that the Company will be able to maintain compliance with
the covenants under the Future Debt Facilities.

INVENTORY RESERVE

4
<PAGE>

The Company recorded a write-down of inventory by $600,000 in the first fiscal
quarter of 1998 to reserve for potential obsolescence related to discontinuance
of selected products. While management believes the amount of the inventory
reserve is appropriate under current circumstances, there can be no assurance
that the amount of the reserve will be sufficient to account for the
discontinuance of such products. See "Management's Discussion and
Analysis--Results of Operations."

DEPENDENCE ON NEW OEM RELATIONSHIP

The Company recently introduced a new line of microwave frequency counters
which it began distributing in October 1997, on a private label basis worldwide
through an OEM relationship with Hewlett-Packard Company ("Hewlett-Packard").
The Company expects that this OEM relationship will account for approximately
35% of its revenues in fiscal year 1998. However, Hewlett-Packard is not
obligated to purchase a minimum quantity of products, and the failure of
Hewlett-Packard to purchase the product quantity expected by the Company would
have a material, negative impact upon the Company's business and prospects of
profits. There can be no assurance that the Company will be able to maintain a
successful relationship with Hewlett-Packard and generate revenues or profits
from the relationship.

DEPENDENCE ON GOVERNMENT CONTRACTORS

Approximately 37% of the Company's revenues in the last two fiscal years
have been derived from the sale of products to government contractors. The
Company recently received a five-year indefinite quantity, fixed price supply
subcontract from ManTech Systems Engineering Corporation, a government
contractor ("ManTech"), for the supply of RF synthesized signal generators and
RF down converters, with total sales value to the Company that could range from
approximately $3.5 to $20 million. The Company has received an initial purchase
order under the subcontract in the amount of $227,000. Further production
purchase order releases under the subcontract are subject to satisfactory
completion of field testing of the U.S. Marine Corps' Third Echelon Test Set
(TETS) systems and the Company's components. The Company will incur substantial
expenses in preparing to satisfy its obligations under this subcontract.
However, despite the incurrence of such expenses, this and other subcontracts
with government contractors are subject to cancellation provisions in favor of
the government contractor. The subcontract with ManTech is subject to
termination by ManTech in the event the government terminates its contract with
ManTech. Further, this subcontract can be terminated if the Company's
components do not satisfy field testing requirements or the Company otherwise
defaults under the subcontract. There can be no assurance that such
subcontracts will not be canceled. Further, there can be no assurance that the
Company will receive additional subcontracts from government contractors.

UNCERTAINTY OF PRODUCT DEVELOPMENT AND INTRODUCTION

The Company's success depends to a large degree on its ability to develop
and introduce in a timely manner new or updated products which are affordable,
functional in purpose, distinctive in quality and design and tailored to the
purchasing patterns of the Company's customers and potential customers.
Misjudgments as to customer interest in new or updated products could lead to
excess inventories and markdowns and could have a material adverse effect on the
Company's financial condition and results of operations. There can be no
assurance that new products under development will be successfully developed and
introduced. Further, due to the uncertainty associated with any product
development and introduction (such as delays in development and lack of market
acceptance of a new product), there can be no assurances that the Company's
development and introduction efforts will be successful. If products under
development are not successfully introduced, the Company's business, financial
condition and results of operations could be materially adversely effected.

UNCERTAINTY OF EXTERNAL STRATEGIC OPPORTUNITIES

The Company intends to pursue appropriate strategic opportunities to
acquire other companies or their technology or products. The Company believes
that such opportunities are available that will have strategic benefit to the
Company; however, there can be no assurance that the Company will be able to
successfully identify, negotiate and consummate such acquisition opportunities.
Such acquisitions could enable the Company to generate additional revenues and
to increase its gross profit by an amount which exceeds any increase in
operating expenses;

5
<PAGE>

however, there can be no assurance that the Company would be able to obtain such
financial benefits. Further, the Company's current financial condition does not
enable it to make such acquisitions without incurring debt or issuing equity to
finance such acquisitions.

DEPENDENCE ON KEY SUPPLIERS

A number of the Company's products require specialized components currently
available only through single sources of supply. The loss of any of these
sources, or the inability of any such source to meet the Company's production
and quality control requirements, could be detrimental to the Company with
respect to the specific products involved. If any of the Company's single
source suppliers is not able to deliver these specialized components, the
Company would be required to implement alternative supply strategies (such as
changing to one or more other suppliers, which could require product design or
specification changes and would likely cause delays in shipment of the Company's
products) or discontinue sales of the affected products.

COMPETITION

The markets in which the Company's products are sold have become
increasingly competitive. Most of the Company's principal competitors have
substantially greater financial resources. The Company's results of operations
can be significantly affected by pricing pressures arising from customer demand
and pricing strategies by the Company's competitors, and the timing and market
acceptance of new product introductions by competitors of the Company. There
can be no assurance that pricing pressures will not have a material adverse
effect on the Company, or that the Company's competitors will not succeed in
developing products that would render the Company's technology and products
obsolete and noncompetitive.

DEPENDENCE ON KEY PERSONNEL

The loss of the services of any of the Company's management and other
key employees, for any reason, may have a materially adverse effect on the
prospects of the Company. While it is the practice of the Company to enter
into confidentiality agreements with its key employees, the Company does not
have employment contracts with any of its key employees, other than John F.
Bishop. Further, applicable law restricts the ability of the Company to
prohibit any employee from competing with the Company following his or her
termination of employment. See "Management--Directors, Executive Officers
and Key Employees."

CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS

J. Bradford Bishop, a member of the Board of Directors and Chairman and
Chief Executive Officer of the Company, is the son of John F. Bishop, a member
of the Board of Directors and Vice Chairman, Secretary and Treasurer of the
Company. Excluding outstanding options to purchase Common Stock, J. Bradford
Bishop and John F. Bishop (together, the "Bishops") beneficially owned 191,400
shares of Common Stock in the aggregate as of the Record Date, representing
approximately 45% of the currently outstanding shares of Common Stock. If
outstanding options are included, the Bishops beneficially owned 196,400 shares
of Common Stock in the aggregate as of the Record Date, representing
approximately 46% of the currently outstanding shares of Common Stock. In
addition, John F. Bishop is a trustee of the Bishop Family Trust, which has
entered into loan facilities providing for up to $1,450,000 in loans to the
Company ($1,250,000 outstanding as of February 13, 1998), and J.Bradford Bishop
has made demand loans to the Company ($700,000 outstanding as of February 13,
1998). See "The Company--Bishop Family Trust Loan Facility" and "--Demand
Loans."

J. Sidney Webb, Jr., Robert D. Johnson, Michael E. Johnson, James N.
Cutler, Jr. and the Bishops comprise all of the Board of Directors of the
Company (collectively, the "Directors"). Ivan Andres, General Manager and Chief
Operating Officer of the Company, and the Bishops comprise all of the Executive
Officers of the Company (collectively, the "Officers"). Excluding outstanding
options to purchase Common Stock, the Officers and Directors beneficially owned
193,400 shares of Common Stock in the aggregate on the Record Date, representing
approximately 46% of the currently outstanding shares of Common Stock. If
outstanding options are included, the Officers and Directors beneficially owned
235,933 shares of Common Stock in the aggregate as of the Record Date,
representing approximately 50% of the currently outstanding shares of Common
Stock.

By virtue of such stock ownership and their position with the Company,
the Bishops may have, and the Officers and Directors may have the practical
ability to determine the election of all directors and control the outcome of
substantially all matters submitted to the Company's stockholders. Such
concentration of ownership and lending relationship could have the effect of
making it more difficult for a third party to acquire, or discourage a third
party from seeking to acquire, control of the Company without the approval of
the Bishops and/or the Officers and Directors. This concentration of
ownership would also enable the Bishops, alone, or together with the Officers
and Directors to acquire all Common Stock of the Company with a smaller
incremental investment than would be required of other potential third party
acquirors. Further, the Bishops and the other Officers and Directors have
committed to the Company that they will subscribe for 4,500,000 Shares and
1,100,000 Shares, respectively, in the Rights Offering, with an aggregate
subscription price of $2,250,000 and $550,000, respectively. In the
aggregate, all Officers and Directors (including the Bishops) have committed
to the Company that they will subscribe for 5,600,000 shares in the Rights
Offering, with an aggregate subscription price of $2,800,000. If stockholders
do not exercise their Basic Subscription Rights in full, the Bishops and the
other Officers and Directors subscribing under the Rights Offering, would

6
<PAGE>

substantially increase their pro rata ownership of the Company's Common Stock.
See "Risk Factors--Dilution from Rights Offering."

OFFERING PRICE NOT BASED ON ACTUAL VALUE

The price at which the Common Stock is being sold is not based on an
independent valuation of the Company or its assets or other recognized criteria
of investment value. The Subscription Price does not indicate that the Common
Stock has a value of or could be resold at that price. In addition, the
Subscription Price of $0.50 is significantly less than the price at which the
Common Stock has traded at various times during the last twelve months, and
represents a 79% discount to the average closing price of the Common Stock in
the 30 days prior to the Record Date and a 43% discount to the closing bid for
the Common Stock on February 13, 1998. The effect of the Rights Offering will
likely be to decrease the current market value of the Common Stock. See
"Determination of Offering Price."

DIVIDENDS NOT LIKELY

Dividends have not been paid on the Company's Common Stock in more than six
years. For the foreseeable future it is anticipated that earnings which may be
generated from operations of the Company, if any, will be used to finance the
growth of the Company and repay debt and that cash dividends will not be paid to
holders of the Common Stock. Under the terms of agreements with the Company's
lenders, the Company may not pay or declare dividends without the lenders' prior
written consent.

DILUTION FROM RIGHTS OFFERING

Stockholders who do not exercise their Basic Subscription Rights will
realize substantial dilution of their percentage voting interest and ownership
interest in future net earnings, if any, of the Company. The amount of dilution
will depend on the number of shares of Common Stock purchased by other
stockholders in the Rights Offering. The Committed Subscribers have committed
to the Company that they will subscribe for at least $2,800,000 in Common Stock
in the Rights Offering. Assuming other stockholders purchase no Common Stock in
the Rights Offering, the Committed Subscribers would beneficially own
approximately 97% of the Company's Common Stock, the Bishops would beneficially
own approximately 78%, and the effective percentage ownership of any
non-exercising stockholder will be reduced by approximately 93%. The dilutive
impact on non-exercising stockholders would be even greater if the Committed
Subscribers or other stockholders purchase additional shares. If all
stockholders fully exercise their Basic Subscription Rights, the effective
percentage ownership of each stockholder will remain unchanged.

POSSIBLE FUTURE DILUTION

In addition to the Shares registered for the Rights Offering, the Company
earlier registered 200,000 shares of Common Stock which will be available for
issuance upon exercise of options granted or to be granted under the Company's
Second Amended and Restated 1994 Stock Option Plan. The Board of Directors has
also adopted, and the stockholders of the Company have approved, a 1998 Stock
Plan with 1,500,000 shares of Common Stock initially reserved for issuance
thereunder. The 1998 Stock Plan is subject to the issuance of at least
4,400,000 Shares pursuant to the Rights Offering. The Company has not
determined to whom it will grant options or shares under the 1998 Stock Plan.
Further, the Company has the right to issue additional shares of Common Stock to
the Bishop Family Trust in lieu of cash payment of facility fees. See "The
Company--Bishop Family Trust Loan Facility". The issuance of any such
additional shares would dilute the percentage ownership and could dilute the net
tangible book value per share of stockholders of the Company. Further, if
additional financing is required, additional dilution may take place.

NO MINIMUM SIZE OF RIGHTS OFFERING

The Rights Offering is being made on an any or all basis, which means that
the Company may accept any subscription received even if all 5,948,698 Shares
offered are not purchased. Although the Committed Subscribers have committed to
the Company that they will subscribe for at least $2,800,000 in Common Stock in
the Rights Offering, there is no minimum amount of proceeds required for the
Company to consummate the Rights Offering. For example, the Company may realize
no proceeds from the Rights Offering over and above the

7
<PAGE>

$2,800,000 committed to by the Committed Subscribers. A substantial portion of
the funds committed by the Committed Subscribers in the Rights Offering will be
used by the Company to repay debt and other obligations of the Company to John
F. Bishop and J.Bradford Bishop and their affiliates (amounting to approximately
$80,000 as of February 13, 1998). See "Use of Proceeds." Even with the
Committed Subscribers purchasing $2,800,000 in Common Stock in the Rights
Offering, the Company will still need additional funds from the Rights Offering
and other sources to meet its cash needs for fiscal 1998. No assurances can be
given as to the amount of gross proceeds that the Company will realize from the
Rights Offering, or the adequacy of such proceeds to meet the Company's cash
requirements. See "Use of Proceeds," "Plan of Distribution," and "Risk
Factors--Future Cash Requirements."

POSSIBLE EXTENSION OF EXPIRATION DATE

The Company has reserved the right to extend the Expiration Date to as late
as March 27, 1998. Funds deposited in payment of the Subscription Price may
not be withdrawn and no interest will be paid thereon to stockholders.

DELISTING FROM NASDAQ

Previously, the Company's Common Stock was traded on the NASDAQ SmallCap
Market ("NASDAQ"). However, the Company failed to maintain the minimum
standards required by NASDAQ to maintain its listing on NASDAQ. The Common
Stock was suspended from trading and delisted from NASDAQ on June 25, 1997, as a
result of the Company's failure to maintain capital and surplus of at least
$1,000,000. The delisting of the Company's Common Stock from NASDAQ could have
an adverse effect on the market value of the Common Stock. See "Market for the
Company's Common Stock and Related Stockholder Matters."

LIMITED TRADING VOLUME AND VOLATILITY OF STOCK PRICE IN PUBLIC MARKET

The Company's Common Stock is thinly traded and may experience significant
price and volume fluctuations which could adversely affect the market price of
the Common Stock without regard to the operating performance of the Company.
There is no assurance that a more active public market for such securities will
develop after the conclusion of the Rights Offering or, if a more active
trading market develops, that it will be sustained.

MARKET RESTRICTIONS ON BROKER-DEALERS

The Company's Common Stock is covered by a Securities and Exchange
Commission rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5 million or individuals with net worth in excess of $1 million or annual
income exceeding $200,000 or $300,000 jointly with their spouse). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of broker-dealers to sell the Company's securities and also
may affect the ability of persons purchasing Shares in this offering to sell
their Shares in the secondary market. Further, the Company's Common Stock is
quoted on an NASD inter-dealer system called the "Bulletin Board" and, following
the Rights Offering, the Company still will not have $4 million in net tangible
assets or $50 million in stockholders' equity, one of which is required for it
to qualify for quotation on NASDAQ, and the Shares are not expected soon to
command a market price of $5 per share, the price required for a
non-NASDAQ-quoted security to escape the trading severities imposed by the
Securities and Exchange Commission on so-called "penny stocks." These trading
severities tend to reduce broker-dealer and investor interest in penny stocks
and could operate (i) to inhibit the ability of the Company's stock to reach a
$4 per share trading price that would make it eligible for quotation on NASDAQ
even should it otherwise qualify for quotation on NASDAQ and (ii) to inhibit the
ability of the Company to use its stock for business acquisition purposes. See
"Market for the Company's Common Stock and Related Stockholder Matters."

POTENTIAL ANTI-TAKEOVER EFFECTS OF DELAWARE LAW

8
<PAGE>

Certain provisions of Delaware law, the Company's Certificate of
Incorporation and its Bylaws could delay, impede or make more difficult a
merger, tender offer or proxy context involving the Company, even if such events
could be beneficial to the interests of the stockholders. Such provisions could
limit the price that certain investors might be willing to pay in the future for
shares of Common Stock. See "Description of Securities--Certain Anti-Takeover
Provisions."

USE OF PROCEEDS

The net proceeds to the Company from the sale of all 5,948,698 shares of
Common Stock offered by the Company hereby are estimated to be $2,779,349 based
on a Subscription Price of $0.50 per share and after deducting the offering
expenses payable by the Company. If only the 5,600,000 shares of Common Stock
committed to be subscribed by the Committed Stockholders are sold, the net
proceeds to the Company are estimated to be $2,605,000 after deducting the
offering expenses payable by the Company.

The Company expects that the proceeds of the offering will be used to
repay existing debt and fund working capital requirements, as follows:

<TABLE>
<CAPTION>
Maximum Minimum
(Assuming (Assuming
5,948,698 5,600,000
Shares Sold) Shares Sold)
<S> <C> <C>

Estimated Net Proceeds $2,779,349 $2,605,000

Use of Proceeds

Repayment of Existing Debt and *$2,280,000 *$2,280,000
Other Obligations to Bishops and
their Affiliates

Fund Working Capital $ 499,349 $ 325,000
Requirements

Total $2,779,349 $2,605,000
</TABLE>

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

* This amount is comprised of the following debt and other obligations
outstanding to the Bishops and their affiliates as of February 13, 1998:
(1) $1,250,000 in debt outstanding under the Loan Facility with the
Bishop Family Trust, (2) $700,000 in debt outstanding under the Demand
Loans from J. Bradford Bishop, and (3) approximately $330,000 in other
obligations owed to the Bishop Family Trust, J. Bradford Bishop and John
F. Bishop, including interest of approximately $60,000, fees of
approximately $150,000, and deferred salary of approximately $120,000.
However, the Company reserves the right to issue shares of Common Stock
in lieu of cash for $141,000 of such fees. See "The Company--Bishop
Family Trust Loan Facility" and "--Demand Loans". The extinguishment of
such outstanding debt will facilitate the ability of the Company to
obtain Future Debt Facilities from third party lenders. See
"Management's Discussion and Analysis--Financial Condition."

DETERMINATION OF OFFERING PRICE

The Rights Offering is being conducted by the Company based on the
commitment of the Committed Subscribers to subscribe for at least $2,800,000 in
Common Stock in the Rights Offering. The terms of the Rights Offering were
approved by the independent members of the Company's Board of Directors (the
"Independent Directors"). The Subscription Price reflects a 79% discount to the
average closing price of the Company's Common Stock in the 30 days prior to the
Record Date and a 43% discount to the closing bid for the

9
<PAGE>

Common Stock on February 13, 1998. The terms of the Rights Offering were
unanimously recommended by the Independent Directors and approved by the
Company's Board of Directors.

The principal factors in the recommendation and approval of the terms of
the Rights Offering were as follows:

(1) The Company's need for additional capital to repay existing debt and
for working capital purposes: The Company's losses over the past
several years have materially deteriorated the financial condition of
the Company, and the Company's accountants have expressed substantial
doubt regarding the Company's ability to continue as a going concern.
Without additional capital the Company will not be able to pursue the
fiscal 1998 opportunities described in this Prospectus.

(2) The nonavailability of additional capital from other sources: The
Company has held numerous discussions with third parties to obtain
additional capital, but has been unable to obtain such capital on
satisfactory terms.

(3) The opportunity for stockholders to participate in the financing
through the Rights Offering: Additional capital from other sources
would be substantially dilutive to the Company's stockholders. While
the Rights Offering likewise will be substantially dilutive, each
stockholder of the Company has the opportunity to avoid dilution by
purchasing Shares in the Rights Offering under the stockholder's Basic
Subscription Rights.

(4) The low participation of stockholders in the Rights Offering at the
previous subscription prices of $1.70 and $1.00: The Company has
valid subscriptions with an aggregate subscription price of less than
$100,000 in the Rights Offering as of February 13, 1998. The amounts
previously subscribed are insufficient for the Company to meet its
expected capital needs in fiscal 1998.

(5) The commitments of the Committed Subscribers: At the reduced
subscription price of $0.50, the Company has obtained the irrevocable
commitment of the Committed Subscribers to subscribe for 5,600,000
Shares (with an aggregate subscription price of $2,800,000) in the
Rights Offering.

The Company has not sought an independent third party opinion with respect to
the value of the Company or the appropriateness of the Subscription Price. The
Subscription Price has no relation to the market value of the Common Stock of
the Company, the value of the Company's assets or the Company's prospects as a
going concern.

PLAN OF DISTRIBUTION

THE RIGHTS OFFERING

The Company offers 5,948,698 shares (the "Shares") of its Common Stock,
$0.01 par value, only to its stockholders of record on November 7, 1997 (the
"Record Date"), who reside in states either where state registration of this
offering is not required or, if required, in the judgment of the Company can
reasonably be effected ("Stockholders of Record"). The Shares are offered at a
purchase price of $0.50 per Share (the "Subscription Price").

The Rights Offering is being made directly from the Company to its
Stockholders of Record. No underwriters are involved. No commissions are being
paid. All net proceeds from subscriptions go directly to the Company in their
entirety.

SUBSCRIPTION EXPIRATION DATE

The Rights Offering will expire at 5:00 P.M., California time, on March
20, 1998, unless extended by the Company (such date, as it may be extended on
one or more occasions, is referred to herein as the "Expiration Date"). In
no event will the Expiration Date be extended beyond March 27, 1998. If the
Company elects to extend the term of the Rights Offering, it will issue a
press release to such effect not later than the first day The

10
<PAGE>

Nasdaq National Market is open for trading following the most recently announced
Expiration Date. Funds provided in payment of the Subscription Price will be
held by the Company, until the closing, which will occur promptly following the
Expiration Date. The subscription for Common Stock in the Rights Offering is
irrevocable once made, and no interest will be paid to subscribing stockholders.
AS DESCRIBED BELOW, SUBSCRIPTIONS MUST BE RECEIVED BEFORE THE EXPIRATION DATE
AFTER WHICH TIME THE RIGHT TO SUBSCRIBE WILL BE VOID AND VALUELESS.

BASIC SUBSCRIPTION RIGHTS

The Rights Offering entitles the Stockholders of Record to subscribe at the
Subscription Price for Shares on the basis of fourteen Shares for each share of
Common Stock held on the Record Date (the "Basic Subscription Rights").
Exercise of the Basic Subscription Rights will also entitle the holders to the
Over-Subscription Privilege described below.

OVER-SUBSCRIPTION PRIVILEGE

If some stockholders do not fully exercise all of their Basic Subscription
Rights, the remaining Shares will be offered to those holders of Basic
Subscription Rights who wish to acquire more than the number of shares to which
their Basic Subscription Rights entitle them (the "Over-Subscription
Privilege"). Each holder of Basic Subscription Rights who fully exercises Basic
Subscription Rights will be entitled to participate in such Over-Subscription
Privilege and will be asked to indicate on the Subscription Agreement how many
additional shares that stockholder would be willing to acquire pursuant to the
Over-Subscription Privilege. Each stockholder wishing to exercise its
Over-Subscription Privilege must exercise its Over-Subscription Privilege and
must tender payment for the Shares subscribed for pursuant to the
Over-Subscription Privilege at the time it exercises its Basic Subscription
Rights. If there remain sufficient Shares after the exercise of Basic
Subscription Rights, all over-subscriptions will be honored in full. If there
are not sufficient Shares to honor all over-subscriptions, the available Shares
will be allocated among those who over-subscribe based solely on the number of
shares subscribed for by each over-subscribing holder pursuant to the Basic
Subscription Rights. For example, if after the exercise of the Basic
Subscription Rights (1) there remain 150,000 Shares that were not subscribed for
pursuant to Basic Subscription Rights, (2) two stockholders each indicated that
they wished to acquire Shares through the Over-Subscription Privilege, (3) the
first stockholder oversubscribed for 150,000 Shares and the second stockholder
oversubscribed for 200,000 Shares and each tendered payment for that number of
shares and (4) the first stockholder acquired 100,000 shares pursuant to its
full Basic Subscription Rights and the second stockholder acquired 200,000
shares pursuant to its full Basic Subscription Rights; then the first
stockholder would be entitled to one-third or 50,000 Shares and the second
stockholder would be entitled to two-thirds or 100,000 Shares.

The allocation process may involve a series of allocations in order to
assure that the shares available for over-subscription are distributed
proportionately among all over-subscribing holders. Accordingly, the degree to
which each stockholder's request for Shares pursuant to the Over-Subscription
Privilege will be honored will depend on the number of Shares requested, the
number of shares acquired by the exercise of Basic Subscription Rights and the
total number of Shares available for over-subscription. After the expiration of
the subscription rights, the Company will send notice of the number of Shares
acquired pursuant to the Over-Subscription Privilege to each stockholder that
over-subscribed and promptly remit to such stockholder, without any interest,
within five days after the Expiration Date, any payment tendered for shares not
acquired under the Over-Subscription Privilege.

COMMITMENTS

The following persons (collectively, the "Committed Subscribers") have
committed to the Company that they will subscribe for a minimum of 5,600,000
Shares in the Rights Offering, representing a minimum aggregate subscription
price of $2,800,000:

11
<PAGE>

See "Risk Factors--Control by Management and Principal Stockholders", and "--
Dilution from Rights Offering."

METHOD OF EXERCISING RIGHTS

To subscribe for Common Stock, a Stockholder of Record must fill in
Section 1 on the Subscription Agreement and sign and transmit it along with the
required payment, in the envelope provided, to the Company at 1745 McCandless
Drive, Milpitas, California 95035. The Subscription Agreement must arrive on or
before the Expiration Date.

PAYMENT. The Subscription Agreement must be accompanied by payment of the
full Subscription Price in U.S. Dollars for all shares. Such payment may be made
by mail or hand delivery. Payment may be made by certified check or bank draft
drawn upon a United States bank, or postal, telegraphic or express money order,
payable to the order of "EIP Microwave, Inc." or, if approved by the Board of
Directors, by reduction in the amount of any Company liability to the
subscribing Stockholder. Sufficient mailing time should be allowed for the
Subscription Agreement and payment to be RECEIVED by the Company before the
expiration of the subscription period at 5:00 P.M., California time, March 20,
1998, unless extended by the Company (such date, as it may be extended on one or
more occasions, is referred to herein as the "Expiration Date"), after which
time the right to subscribe will be void and valueless.

The Rights Offering is being made on an any or all basis, which means that
the Company may accept any subscription received even if all 5,948,698 Shares
offered are not purchased. The Committed Subscribers have committed to the
Company that they will subscribe for at least 5,600,000 Shares, with an
aggregated subscription price of $2,800,000 in the Rights Offering. See "Risk
Factors--Control by Management and Principal Stockholders," "--Dilution from
Rights Offering," and "--No Minimum Size of Rights Offering."

The Company reserves the right to reject any Subscription Agreement and
payment not properly submitted. The Company has no duty to give notification of
defects in any Subscription Agreement and/or payment and will

12
<PAGE>

have no liability for failure to give such notification. The Company will
return any Subscription Agreement and/or payment not properly submitted.

Any questions or requests for assistance concerning the method of
exercising subscription rights or requests for additional copies of this
Prospectus, the Subscription Agreement or the Instructions to the Subscription
Agreement should be directed to the Information Agent at 1-800-631-8985.

PURCHASE AND SALE OF RIGHTS. Subscription rights may not be transferred,
divided, combined, purchased or sold.

DELIVERY OF CERTIFICATES. Certificates for Shares issuable on exercise of
subscription rights will be mailed as soon as practicable after the Expiration
Date.

INFORMATION AGENT

The Company has appointed Corporate Investor Communications, Inc. ("CIC")
as Information Agent for the Rights Offering. Any questions or requests for
additional copies of this Prospectus, the Subscription Agreement or the
Instructions to the Subscription Agreement may be directed to the Information
Agent at the telephone number and address below.

Corporate Investor Communications, Inc.
111 Commerce Road
Carlstadt, NJ 07072-2586
(201) 896-1900

Or call
Toll Free

(800) 631-8985

The Company will pay the fees and expenses of the Information Agent and has
also agreed to indemnify the Information Agent from certain liabilities in
connection with the Rights Offering.

MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

As of the Record Date, there are 424,907 shares of Common Stock of the
Company owned of record by approximately 244 stockholders.

There are 5,948,698 shares of Common Stock reserved for issuance pursuant
to the Rights Offering. An additional 200,000 shares of Common Stock of the
Company are reserved for issuance against the exercise of Company stock options
under the Second Amended and Restated 1994 Stock Option Plan. Further, subject
to the issuance of 4,400,000 shares of Common Stock pursuant to the Rights
Offering, an additional 1,500,000 shares of Common Stock are reserved for
issuance under the 1998 Stock Plan. The Company may also issue 282,000 shares
of Common Stock to the Bishop Family Trust in lieu of paying outstanding
facility fees in cash.

The following sets forth for each calendar quarter since January 1995,
the range of high and low closing bids for the Company's Common Stock as
reported to the Company by NASDAQ. For the period through June 25, 1997, the
Common Stock was listed on the NASDAQ SmallCap Market under the symbol EIPM.
For the period since June 25, 1997, the Common Stock has been quoted on the
NASD Bulletin Board under the symbol EIPM. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may
not represent actual transactions.

13
<PAGE>

Calendar Quarter High ($) Low ($)
- ---------------- -------- -------
<S> <C> <C>
1st quarter 1998 (through 2/13/98) 0.88 0.81
4th quarter 1997 2.75 0.75
3rd quarter 1997 3.625 1.25
2nd quarter 1997 6.00 1.25
1st quarter 1997 2.00 1.00
4th quarter 1996 5.00 1.00
3rd quarter 1996 6.75 3.50
2nd quarter 1996 7.50 2.00
1st quarter 1996 7.25 2.75
4th quarter 1995 5.50 1.50
3rd quarter 1995 7.75 5.50
2nd quarter 1995 9.25 1.25
1st quarter 1995 7.00 1.75
</TABLE>

The Company's stock is quoted on an NASD inter-dealer system called the
"Bulletin Board." While some Bulletin Board stocks are actively traded, they do
not draw the interest of the NASD brokerage community held by NASDAQ stocks or
exchange-listed stocks. The eligibility requirements for listing the Company's
stock on exchanges are generally as high or higher than the requirements for
eligibility for quotation on NASDAQ, and the Company has no present plans to
list its stock on an exchange.

The Company's stock will not be eligible for quotation on the NASDAQ
SmallCap Market ("NASDAQ") unless it meets various NASDAQ requirements, which it
will not meet even if all the Shares offered herein are subscribed. No
assurance can be made that the Common Stock will ever become eligible for
quotation on NASDAQ.

Further, holders of the Shares offered herein face the prospect of an
indefinite period during which the Shares will be subject to trading severities
imposed on Bulletin Board, so-called "penny stocks" (stocks that trade at less
than $5 per share) by regulations of the Securities and Exchange Commission. The
effect of these trading severities is to reduce broker-dealer and investor
interest in trading or owning "penny stocks" and, hence, could inhibit the
ability of the Company's stock to reach a trading level of $4 per share or
higher and thereby become eligible for quotation on NASDAQ even if the Company
meets NASDAQ's assets and stockholders' equity requirements in the future.

<PAGE>

THE COMPANY

THE FOLLOWING DISCUSSION CONTAINS TREND INFORMATION AND OTHER FORWARD-LOOKING
STATEMENTS THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. THE ACTUAL RESULTS
OF EIP MICROWAVE, INC. (THE "COMPANY") COULD DIFFER MATERIALLY FROM THE
COMPANY'S HISTORICAL RESULTS OF OPERATIONS AND THOSE DISCUSSED IN THE FORWARD-
LOOKING STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY INCLUDE, BUT ARE NOT LIMITED TO, THOSE IDENTIFIED UNDER THE HEADING
"RISK FACTORS" ABOVE. DUE TO SUCH RISK FACTORS AND OTHER FACTORS, PAST RESULTS
ARE NOT A RELIABLE PREDICTOR OF FUTURE RESULTS.

GENERAL/PRODUCTS

The Company was incorporated under the laws of the State of Delaware in
1987 under the name EIP Microwave, Inc. The predecessor corporation was
organized under the laws of California in 1961, and merged with the Company in
1987.

The Company is engaged in a single industry segment constituting the
development, manufacture and sale of high frequency microwave and radio
frequency (RF) test and measurement instruments. These instruments include
microwave heterodyne-type automatic frequency counters, microwave and RF pulse
frequency counters, microwave and RF synthesized signal generators, pulse
generators, and downconverters. All of these products are electronic devices
which are used in the design, manufacture and maintenance of microwave and RF
products and systems throughout the world.

Stand-alone microwave frequency counters represented 53% of net sales in
fiscal 1997, 50% of net sales in fiscal 1996, and 64% of net sales in fiscal
1995, and 60% and 52% of net sales in the first quarter of fiscal 1998 and 1997,
respectively. The balance of sales in those periods was mainly derived from the
Company's VXIbus-based products. VXIbus is a hardware and software standard for
modular instrumentation. EIP manufactures individual modules in the VXIbus
format that provide various functions, including frequency measurement,
synthesized signal generation, downconversion and modulation. These modules
plug in to standardized racks that supply power and computer resources.

During fiscal 1997, the Company introduced a new line of microwave
frequency counters suitable for use in laboratory, manufacturing and field
service environments. These products are portable and can be operated on their
own internal batteries. The Company began distributing these products in
October 1997, on a private label basis worldwide through an OEM relationship
with Hewlett-Packard Company ("Hewlett-Packard").

The Company designs and manufactures its own YIG (Yitrium iron garnet)
filters, which are a key feature of many EIP microwave products. Additionally,
the Company manufactures hybrid microwave integrated circuits (MICs) and
proprietary microwave subassemblies used in its microwave products. Management
believes that the Company's YIG and MIC capabilities provide its microwave
products with competitively superior performance, protection from overload, and
compact size.

MARKETS/PRINCIPAL CUSTOMERS

The Company has a variety of customers worldwide for its microwave
products, including the military, government agencies, government
subcontractors, the telecommunications industry, the aerospace industry, and
research and development facilities. The primary customers for the Company's RF
products are telecommunication companies. The Company's principal customers,
and the percent of its net sales attributable to such customers if exceeding 10%
in the applicable period, are Mantech (23% in first quarter of fiscal 1998),
Hewlett-Packard (15% in first quarter of fiscal 1998), Northrup-Grumman (20% in
fiscal 1997, 22% in fiscal 1996 and 11% in fiscal 1995) and Marconi (19% in
fiscal 1995). Other important customers that provided less than 10% of revenues
to the Company in such periods were Lockheed Martin, Kelly Air Force, Hughes
Aircraft, and Harris Corporation.

The Company's sales of microwave products to the United States Government
and its contractors comprised approximately 43%, 33% and 36% of net sales for
the fiscal years 1997, 1996 and 1995, respectively, and 33% and 34% of net sales
for the first quarter of fiscal 1998 and fiscal 1997, respectively. In
September 1997, the Company received a five-year indefinite quantity, fixed
price supply subcontract from a

15
<PAGE>

ManTech Systems Engineering Corporation, a government contractor ("ManTech"),
with total sales value to the Company that could range from approximately $3.5
to $20 million. Foreign sales represented 30%, 36% and 43% of of net sales
for the fiscal years 1997, 1996 and 1995, respectively, and 26% and 40% of net
sales for the first quarter of fiscal 1998 and fiscal 1997.

METHODS OF DISTRIBUTION

The Company has entered into a five-year OEM Agreement with Hewlett-Packard
Company ("Hewlett-Packard"). The Agreement contemplates the worldwide
distribution of the Company's recently developed line of microwave frequency
counters through Hewlett-Packard on a private label basis. The Company began
distributing this new line of products in October 1997.

The Company uses independent manufacturers' representatives for
distribution of its other products in the United States and in foreign
countries. The Company provides service and technical support to its
manufacturers' representatives, and directly to its customers.

From November 1992 until December 1995, the Company's products were
distributed in a number of foreign countries through an exclusive distribution
agreement with Marconi Instruments, a subsidiary of The General Electric
Company, Plc. of England. Foreign sales through Marconi Instruments represented
19% of net sales in fiscal 1995. The Company has since established agreements
with other independent manufacturers' representatives in these countries
previously covered by Marconi Instruments.

COMPETITION

The Company believes there are three to six competitors in the respective
markets in which it competes; however, reliable data on sales and profits of
most of the Company's competitors is not readily available because the
competitors are either privately held or are separate divisions of large
publicly held companies which do not separately report financial results for
competing divisions.

The markets in which the Company's frequency counters are sold are
well-defined and narrow markets which have become increasingly competitive both
in the United States and abroad. Within these narrow markets, the Company
believes it holds a significant competitive position, generally believed to be
number two or three in market share. The Company encounters competition,
however, from certain firms which are substantially larger and have greater
financial resources than the Company; the market leader is believed to be
Hewlett-Packard. Other companies selling products in the same markets as the
Company include Anritsu, Advantest, Racal, and XL Microwave.

The market for microwave synthesized signal generators is considered to be
larger than the microwave frequency counter market. As the market for this type
of product is still developing, the Company has not been able to determine
market share. At present, the only other known supplier of VXIbus microwave
synthesized signal generators is Giga-tronics.

The Company's VXIbus pulse generator and downconverter are sold primarily
as companion products for integrated systems. Competitors for the pulse
generator include Wavetek and Tektronix. There is no known current direct
competition for the VXIbus downconverter.

Competition is based upon performance, reliability, product design,
availability and price and is characterized by technological change.

RESEARCH, DEVELOPMENT AND ENGINEERING

Management believes that the Company's future success is dependent to a
significant extent upon engineering and new product development. Expenditures
for research, development and engineering during the past three years have
ranged between 21% and 11% of annual net sales. Research, development and
engineering expenditures were $996,000, $978,000 and $742,000, for fiscal years
ended September 30, 1997, 1996, and 1995, respectively, and $241,000 and
$216,000 for the first quarter of fiscal 1998 and fiscal 1997, respectively.
Due to cash restrictions, the Company expects to defer current development
efforts that previously were

16
<PAGE>

anticipated to result in the introduction of new test instrumentation for the
wireless telecommunications market in 1998. There is no assurance that the
Company will introduce such new test instrumentation in the future. All of the
Company's research, development and engineering activities have been
Company-funded.

RAW MATERIALS

The principal raw materials used by the Company in its manufacturing
operations include capacitors, resistors, semiconductors, integrated circuits,
transformers, printed circuit boards, display devices, and metal and plastic
cases, most of which are purchased from outside suppliers. For the majority of
materials, the Company has access to many suppliers, and believes that it is not
dependent upon any one supplier, and that adequate alternate sources for its
materials are, for the most part, readily available. There are, however, many
applications which require specialized components currently available, in each
instance, only through a single source of supply. The loss of any of these
sources, or the inability of any such source to meet the Company's production
and quality control requirements, could be detrimental to the Company with
respect to the specific products involved.

EMPLOYEES

The Company had 36 employees at December 31, 1997 (31 of whom were full
time), 45 employees at September 30, 1997 (39 of whom were full time ), and 52
employees at September 30, 1996 (49 of whom were full time ). The Company
believes that its employee relations are good, but can make no assurances that
it will continue to be able to attract and retain qualified employees. The
Company also has engaged the services of consultants when appropriate.

PATENTS, COPYRIGHTS, TRADEMARKS AND INTELLECTUAL PROPERTY

The Company holds no patents, trademarks, franchises, concessions or
royalty agreements that have a material importance to or effect on its frequency
counter, pulse counter, synthesized signal generator, pulse generator, or
downconverter product lines. However, the Company has obtained a license from a
third party for digital modulation implementations relating to products under
development by the Company.

The Company relies on trade secrets and technical know-how in order to
maintain its competitive advantage and scientific expertise. It is the practice
of the Company to enter into confidentiality agreements with employees,
consultants, and any third party to whom it discloses confidential information.
There can be no assurance that such confidential information will not be
disclosed, that similar trade secrets or expertise will not be independently
developed, or that access to such information could not be gained inadvertently.

GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS

Government approval is not required for any of the Company's principal
products.

EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS

The Company believes it is in compliance with applicable governmental
regulations. The Company is not aware of any probable governmental regulation
which would have a detrimental or disruptive effect on the Company.

COMPLIANCE WITH PROVISIONS ON ENVIRONMENTAL PROTECTION

The Company does not believe that compliance with federal, state, and local
provisions which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, will have any material effect upon the capital expenditures,
earnings, or competitive position of the Company.

PROPERTY

The Company leases a 20,331 square foot one story, concrete structure
located in Milpitas, California, which contains production, warehouse and office
facilities. The lease term continues until October 1998, with an

17
<PAGE>

option to renew for an additional three years. The annual rent for the current
term is $226,000 plus applicable real property taxes and insurance. The Company
also leases 361 square feet of space as the Company's corporate offices located
in Newport Beach, California. The lease term continues until November 1998,
with an annual rent of $4,765. The current facilities are believed by the
Company to be suitable and adequate for its present requirements.

The Company owns and uses machinery, equipment, and furniture with an
original cost of approximately $5,267,000 at December 31, 1997, and $5,311,000
at September 30, 1997. The Company also leases and uses equipment with capital
lease obligations of $88,000 at December 31, 1997, and $98,000 at September 30,
1997. This personal property is believed to be in acceptable condition.

The Company's management believes the facilities and all machinery and
equipment of the Company are adequately insured to cover loss of equipment or
occupancy privileges.

The Company does not have any investments in real estate, real estate
mortgages or securities of persons primarily engaged in real estate activities,
and has no present policy or limitations with respect to any such future
investments.

EXPIRED WORKING CAPITAL FACILITY

The Company had a $500,000 working capital facility with a bank which
expired on January 31, 1998. All outstanding principal was repaid on
January 22, 1998. The working capital facility has not been replaced.

The Company is continuing to pursue discussions with other lenders
concerning a working capital facility; however, there can be no assurance that
the Company will be able to obtain a satisfactory working capital facility.
Even if the Company is able to obtain a working capital facility from another
lender, there can be no assurance as to the terms of such facility. If the
Company is unable to obtain a satisfactory working capital facility, the Company
and its business could be materially adversely affected.

BISHOP FAMILY TRUST LOAN FACILITY

At February 13, 1998, the Company had outstanding borrowings in the
aggregate principal amount of $1,250,000 under a loan and security agreement
(the "Loan Facility") with John F. Bishop and Ann R. Bishop, trustees of the
Bishop Family Trust (the "Bishop Family Trust"). The Loan Facility provides for
a term loan of $1,000,000 and revolving advances up to $450,000. Interest is
charged at the prime rate plus 5% per annum and is payable monthly (13.5% as of
February 13, 1998). Based on an aggregate principal amount of $1,250,000, the
monthly interest payment is $14,063. The Loan Facility expires on October 15,
1998. The Loan Facility contains various restrictive covenants requiring, among
other matters, the achievement of profitability on a rolling 3-month basis
commencing in August 1998, and the maintenance of minimum revenues from its OEM
relationship with Hewlett-Packard Company commencing in January 1998. The Loan
Facility also precludes or limits the Company's ability to take certain actions,
such as paying dividends, making loans, making acquisitions or incurring
indebtedness, without the Bishop Family Trust's prior written consent. The Loan
Facility is secured by substantially all of the Company's assets.

Under the terms of the Loan Facility, the Company is obligated to pay
facility fees of $141,000 the Bishop Family Trust. Such fees were payable by
the Company on January 22, 1998, but have not been paid. Further, if the
principal amount of the obligations outstanding under the Loan Facility on
April 22, 1998 exceeds $1,000,000, then an additional facility fee of
$141,000 will be fully earned on such date and will be payable by the Company
on April 22, 1998. The Company has the right to pay the facility fee in cash
or by issuance of Common Stock. The number of shares of Common Stock
issuable as payment for a facility fee will equal (a) the applicable facility
fee divided by (b) the Fair Market Value (as defined in the Loan Facility)
per share of Common Stock. For purposes of the outstanding $141,000 facility
fee under the Loan Facility, the "Fair Market Value" is the subscription
price for the Rights Offering, or $0.50. This value was determined in good
faith by the disinterested members of the Board of Directors based on
negotiations with the Bishop Family Trust.

18
<PAGE>

resulting in an effective annual interest rate on borrowings thereunder of
approximately 42%. If the Company does not repay all outstanding amounts under
the Loan Facility upon completion of the Rights Offering, and maintains the
current outstanding balance under the Loan Facility through October 15, 1998,
total interest and fees paid or payable under the Loan Facility would be
approximately $460,000, resulting in an effective annual interest rate on
borrowings thereunder of approximately 37%.

DEMAND LOANS

At February 13, 1998, the Company had outstanding borrowings in the
aggregate principal amount of $700,000 under demand loans (the "Demand Loans")
with J. Bradford Bishop. Interest is charged at 10% per annum and is payable on
demand. The Demand Loans are payable on demand. The Demand Loans are secured
by substantially all of the Company's assets. The Company plans to repay all
outstanding debt under the Demand Loans with the proceeds of the Rights
Offering.

LEGAL PROCEEDINGS

There are no pending legal proceedings to which the Company or its
subsidiary is a party or of which any of their property is the subject. The
Company is not aware of any such legal proceeding contemplated by a governmental
authority.

ACQUISITION/DIVESTITURE DISCUSSIONS

Since 1995, the Company has held discussions with several other companies
with respect to various possible transactions, including the divestiture of
certain product lines by the Company and the acquisition of such other
companies or their technology or products lines. The Board of Directors will
consider any future transactions in light of what appears to be in the best
interest of the Company's stockholders.

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS

THE FOLLOWING DISCUSSION CONTAINS TREND INFORMATION AND OTHER FORWARD-LOOKING
STATEMENTS THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE COMPANY'S HISTORICAL RESULTS OF
OPERATIONS AND THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDE, BUT ARE NOT LIMITED TO,
THOSE IDENTIFIED UNDER THE HEADING "RISK FACTORS" ABOVE. DUE TO SUCH RISK
FACTORS AND OTHER FACTORS, PAST RESULTS ARE NOT A RELIABLE PREDICTOR OF FUTURE
RESULTS.

IN ADDITION, THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES HEREIN, AND IS
QUALIFIED ENTIRELY BY THE FOREGOING AND BY OTHER MORE DETAILED FINANCIAL
INFORMATION APPEARING ELSEWHERE.

RESULTS OF OPERATIONS

Net sales for the three months ended December 31, 1997, were $998,000, a
21% decrease from sales of $1,258,000 in the same period last year. The
decrease in sales for the period was primarily attributable to lower sales of
continuous wave counters and VXI products. Net sales for fiscal 1997 were
$4,739,000, a 27% decrease from fiscal 1996 sales of $6,492,000. The decrease
in net sales in fiscal 1997, compared to the prior year, was primarily
attributable to lower export sales of frequency counters. The 3% decrease in
fiscal 1996 net sales, compared to fiscal 1995 net sales of $6,721,000 was
primarily attributable to market softness for the Company's products. Foreign
exchange rate fluctuation did not have a material impact on net sales or gross
profit margins for the last three fiscal years since substantially all sales and
financial transactions are completed in U.S. dollars.

Gross profit margin in the first quarter of fiscal 1998 was negative
compared to a 37% gross margin in the comparable quarter of fiscal 1997. This
was primarily due to a write-down of inventory by $600,000 to reserve for
potential obsolescence related to discontinuance of selected products. To a
lesser extent the gross margin was affected by lower sales levels without
corresponding reductions in fixed manufacturing overhead, and by selective price
reductions. The Company's gross profit margin increased in fiscal 1997 to 38%,
from 37% in fiscal 1996. The increase in the fiscal 1997 gross profit margin,
compared to fiscal 1996 was due almost entirely to an improved gross margin for
VXIbus products. An increase in sales of other units with a higher gross margin
had a relatively small impact. The Company's gross profit margin decreased in
fiscal 1996 to 37% from 46% in fiscal 1995. The decrease in the fiscal 1996
gross profit margin, compared to fiscal 1995, was primarily due to a sales mix
shift from higher margin stand-alone counter products to lower margin VXIbus
products and lower than expected gross profit margin on these VXI products.
Each of these factors had a comparable impact on the decrease in gross profit
margin.

Inflation did not have a material effect on revenues nor gross profit
during the three months ended December 31, 1997, or during fiscal years 1997,
1996, or 1995.

Incoming orders for the first fiscal quarter were $946,000, an 8% increase
from $876,000 for the same period a year ago. Backlog at December 31, 1997, was
$389,000, a 2% increase from $381,000 at the end of the first fiscal quarter
last year. The increase in orders and backlog resulted primarily from an
increase in orders for traditional counters.

Incoming orders for fiscal 1997 were $4,428,000, a 28% decrease from
$6,115,000 for the prior year. Backlog at September 30, 1997, was $441,000, a
42% decrease from $763,000 at September 30, 1996. The decrease in orders and
backlog in fiscal 1997, compared to the prior year, resulted primarily from a
shortfall in domestic and international large order bookings, particularly the
lack of a large VXI order in fiscal 1997, and international base level bookings.
Each of these factors had a comparable impact on the decrease in orders and
backlog. The decline in large order VXI business reflected a customer's
completion of a US Air Force contract and a slower than expected ramp up in that
customer's foreign military sales for the same system. The decline in
international sales reflected weakness in Asian markets. Management believes
the weakness in export markets in Asia will continue for the next 1 to 2 years
or longer and has refocused its sales emphasis to the European and domestic
markets.

Incoming orders for the fiscal 1996 year were $6,115,000, a 14% decrease
from $7,127,000 in fiscal 1995 orders. Backlog at September 30, 1996 was
$763,000, a 37% decrease from $1,210,000 at September 30, 1995.

20
<PAGE>

The decrease in orders and backlog in fiscal 1996, compared to the prior year,
was primarily due to a 36% decrease in large government-related orders.

Research, development and engineering expenses increased 12% to $241,000 in
the first quarter of fiscal 1998, compared to $216,000 for the same quarter last
year. The increase in research, development and engineering expenses was due to
new product development expenditures, primarily to support a new frequency
measurement product and products for an order from a government contractor.
Research, development and engineering expenditures increased 2% to $996,000 in
fiscal 1997, from $978,000 in the prior fiscal year. Research, development and
engineering expenditures in fiscal 1996 increased 32%, to $978,000, compared to
$742,000 in fiscal year 1995. The increases in both years were due to increased
new product development expenditures, primarily to support the development of a
new frequency measurement product introduced in 1997.

Selling, general and administrative expenses increased 16% to $540,000
during the first quarter of fiscal 1998, compared to $466,000 for the same
quarter last year. The increase in selling, general and administrative expenses
is due primarily to expenses related to the Company's pending Rights Offering.
This increase in expenses was partially offset by lower commissions on reduced
sales in the first quarter of fiscal 1998. Selling, general and administrative
expenses decreased 4% in fiscal 1997 to $2,005,000, compared to $2,084,000 in
fiscal 1996. The decrease in selling, general and administrative expenses was
due almost entirely to decreased commission expense resulting from decreased
sales volume. Overall expense control had a small impact. Selling, general and
administrative expenses decreased 9% in fiscal 1996, to $2,084,000, compared to
$2,289,000 in fiscal 1995, primarily due to the decrease in commission expense
resulting from lower sales volume (approximately 60% of the change), and a
decrease in advertising expenses (approximately 20% of the change).

Interest and other expense was $120,000 during the first quarter of fiscal
1998, compared to $5,000 for the same quarter last year. This increase was
primarily due to a higher level of outstanding debt and a higher effective
interest rate on such debt. Gains on the sale of capital equipment of $6,000
and $36,000 are also included for the first quarter of 1998 and 1997,
respectively.

Interest and other expense was $73,000 during fiscal 1997, compared to
($141,000) for fiscal 1996, and ($81,000) for fiscal 1995. The increase in
expense in fiscal 1997 was due to a higher level of outstanding debt and
associated interest expense ($80,000, $13,000, and $2,000, in interest expense
during fiscal 1997, 1996, and 1995, respectively), and lower cash balances and
associated interest and dividend income ($6,000, $26,000, and $25,000, during
fiscal 1997, 1996, and 1995, respectively). Also included in interest and
other for fiscal 1997, 1996, and fiscal 1995, are gains on sales of fixed assets
of $1,000, $14,000 and $56,000, respectively. Further, interest and other
expense in fiscal 1996 reflects a credit of $112,000 due to the waiver of fees
owed by the Company to members of the Board of Directors.

The Company recorded a net loss of $1,213,000 for the first quarter of
fiscal 1998, as compared to a net loss of $222,000 recorded during the same
period last year. The increase in the loss for the period, compared to the
same period last year, is primarily attributable to the inventory write-down
discussed above and, to a lesser extent, lower sales and increased operating
expenses discussed above.

The Company recorded a net loss of $1,290,000 in fiscal 1997, as compared
to a net loss of $493,000 recorded in fiscal 1996, and earnings of $125,000 in
fiscal 1995. The increase in losses for fiscal 1997 and fiscal 1996 is
primarily due to decreased sales.

The Company believes that it will incur costs of addressing Year 2000
issues in amounts of approximately $150,000 in fiscal 1998 and $50,000 in fiscal
1999, for hardware, software, installation, and related training, for a new
business management and accounting system.

FINANCIAL CONDITION

At December 31, 1997, the Company's cash, cash equivalents and short-term
investment balance was $92,000, as compared to $280,000 at September 30, 1997
and $540,000 at September 30, 1996. The Company's accounts payable balance was
$604,000 at December 31, 1997, as compared to $401,000 at September 30, 1997,
and $706,000 at September 30, 1996. At December 31, 1997, the Company had no
material commitments for capital expenditures.

21
<PAGE>

At December 31, 1997, working capital decreased $1,728,000 from September
30, 1997. Working capital also decreased by $681,000 in fiscal 1997, compared
to a decrease of $724,000 in fiscal 1996. The Company's current ratio decreased
to 0.43:1 at December 31, 1997, from 1.01:1 at September 30, 1997, and 1.42:1
at September 30, 1996.

At December 31, 1997, the Company had outstanding borrowings in the
aggregate principal amount of $179,000 under its bank line of credit (the "Bank
Line"). The Bank Line was repaid on January 22, 1998, and expired on
January 31, 1998.

At December 31, 1997, the Company had outstanding borrowings in the
aggregate principal amount of $1,350,000 under a loan and security agreement
(the "Loan Facility") with John F. Bishop and Ann R. Bishop, trustees of the
Bishop Family Trust (the "Bishop Family Trust"). At February 13, 1998, the
outstanding borrowings under the Loan Facility were $1,250,000. See "The
Company--Bishop Family Trust Loan Facility".

Since January 1, 1998, the Company has obtained demand loans (the "Demand
Loans") from J. Bradford Bishop, in an aggregate amount of $700,000 through
February 13, 1998. Interest is charged at 10% per annum, and is payable on
demand. See "The Company--Demand Loans".

On November 14, 1997, the Company began a rights offering (the "Rights
Offering"), whereby the Company offered 1,699,628 shares (the "Shares") of
its Common Stock at $1.70 per Share to its stockholders of record on November
7, 1997 (the "Record Date"). The Rights Offering was initially set to expire
on December 15, 1997. On December 16, 1997, the Company extended the
expiration date for the Rights Offering until January 5, 1998. On December
23, 1997, the Company increased the number of Shares offered to 5,948,698,
and lowered the subscription price for each Share to $1.00. The Company
thereafter extended the Rights Offering three additional times until January
30, 1998, February 26, 1998 and March 6, 1998, respectively. The Company is
still offering 5,948,698 Shares; however, the Company has lowered the
subscription price for each Share to $0.50 and extended the Rights Offering
until March 20, 1998. The net proceeds to the Company upon successful
completion of the Rights Offering will be used to repay debt under the Loan
Facility and the Demand Loans and to fund working capital requirements.

In addition to cash on hand and funds generated from operations the Company
believes that net proceeds from the Rights Offering and borrowings under
future debt facilities in an aggregate amount equal to approximately $4,000,000
will be necessary to satisfy the Company's cash requirements for implementing
its business plan during the remainder of the fiscal year ending September 30,
1998. The actual cash resources required will depend upon numerous factors,
and the cash requirements could be materially greater than $4,000,000.

22
<PAGE>

planned operations will likely have a materially adverse affect on the
Company's business, financial condition and results of operations.

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The following table sets forth information regarding the directors and
executive officers of the Company, including age, period served as a director,
present position with the Company, and other business experience during the past
five years, and any other public company for which the individual is a director.

NAME AGE POSITION
---- --- --------
J. Bradford 46 Director since 1978. Chairman of the Board and Chief
Bishop (1) Executive Officer of the Company since 1994.
President of the Company from 1990 to 1992. Managing
Director of Fibres International (formerly Continental
Paper Recycling), a paper recycling company, since
1995. Founder and Chief Executive Officer, Carson
Energy Group, a power plant development company, from
1985 until 1995.

John F. Bishop 74 Director since 1961. Vice Chairman of the Board of
(1) the Company since 1994. Chairman of the Board of
the Company prior to 1994. Treasurer of the
Company since 1985. Secretary of the Company since
1990.

Michael E. 37 Director since 1996. President, Bainbridge Group, a
Johnson law firm, since 1994. Counsel, Jones, Day, Reavis &
Pogue, a law firm, from 1990 until 1994.

Robert D. 74 Director since 1978. Private investor since 1992.
Johnson Director, Analogy Inc., a software engineering
(2)(3)(4) company, from 1990 to 1997. Director, Vielie
Circuits, Inc., a circuit board manufacturer, from
1990 to 1995.

J. Sidney Webb, 78 Director since 1981. Chairman of the Board, The
Jr. (2)(3)(4) Titan Corporation, a manufacturer of defense and
industrial products and systems, since 1984.
Director, Plantronics, Inc., a supplier of
communication headset products and services to users
and providers worldwide, since 1990. Director,
Visigenics Software, Inc., a software company, since
1993. Director, Micro Focus, a software company,
since 1997.

James N. Cutler, 46 Director since 1998. President and Chief Executive
Jr. Officer , The Cutler Corporation, a holding company
(2)(3)(4) for various private businesses, since 1974.
Director, Hollywood Entertainment Corporation, an
owner and operator of video rental superstores,
since July 1993. Director, Arrow Transportation Co.,
a transporter of bulk liquid chemical products, from
1993 to 1997. Trustee, University of Puget Sound,
Tacoma, Washington, since 1994.

Ivan N. Andres 49 General Manager and Chief Operating Officer of the
Company since December 1997. Vice President,
Marketing and Sales of the Company from 1994 to 1997.
Director of Marketing, On-Demand Environmental
Systems, an air pollution control company, from 1992-
1994.
_____________________________

(1) J. Bradford Bishop is the son of John F. Bishop.

(2) Member of Compensation Committee.

23
<PAGE>

(3) Member of Audit Committee.

(4) Member of Stock Option Committee.

COMPENSATION OF DIRECTORS

Non-management Directors are paid a monthly retainer of $600, and receive
$600 per day for attendance at Board Meetings. They also receive $200 per day
for committee meetings held on the same day as Board meetings and $400 per day
if held on a separate day. Committee chairmen receive $100 per day in addition
to the above. Directors who are officers of the Company receive no compensation
for service on the Board of Directors or committees thereof.

Accrued and unpaid retainers and fees for non-management Directors as of
February 13, 1996 (the "Accrued Directors Fees") were owed to Messrs. Robert D.
Johnson, James J. Shelton and J. Sidney Webb in amounts equal to approximately
$30,600, $29,100 and $30,900, respectively. As of February 13, 1996, each of
Messrs. Johnson and Webb agreed to waive all Accrued Directors Fees owing to him
in exchange for the grant by the Company of an option to purchase 5,000 shares
of Common Stock of the Company under the terms of the Company's Amended and
Restated 1994 Stock Option Plan, with the exception that such options would be
immediately vested and exercisable and would not terminate upon ceasing to be a
Director or upon death or disability. On February 7, 1996, Mr. Shelton's term of
office as Director expired and, as of February 13, 1996, he agreed to waive all
Accrued Directors Fees owing to him, in exchange for amending his Nonqualified
Stock Option Agreement with the Company to eliminate the requirement that his
options terminate three months after he ceases to be a Director and the
requirement that he continuously serve as a Director of the Company as a
condition to him becoming vested in the options to purchase the remaining 6,667
shares of Common Stock under the Nonqualified Stock Option Agreement.

24
<PAGE>

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth all compensation for services in all
capacities accrued by the Company during the fiscal years ended September 30,
1997, 1996, and 1995, for the Company's Chief Executive Officer and certain of
its most highly compensated executive officers who were serving as such at the
end of the last completed fiscal year. The Company issued no restricted stock
awards and there were no long term incentive plan payouts.

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------------- --------------
(a) (b) (c) (d) (e) (f) (g)
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND SALARY BONUS ( $ ) OPTIONS ( $ )
PRINCIPAL POSITION YEAR ($) ( $ ) (1) ( # ) (5)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J. Bradford Bishop 1997 $24,050 $ 0 $ 0 $ 0 $ 0
Chairman, Chief 1996 0 0 0 15,000 (6) 0
Executive Officer 1995 0 0 0 0 0

John F. Bishop 1997 43,550 0 19,085 (3) 0 331
Vice Chairman, 1996 58,500 0 13,853 (3) 0 328
Treasurer and Secretary 1995 75,000 0 30,677 (3) 0 362

Lewis R. Foster (4) 1997 100,732 0 5,337 (2) 40,000 (6) 561
President, and
Chief Operating Officer

Ivan Andres (4) 1997 77,659 2,000 4,225 (7) 0 561
Vice President, 1996 73,819 19,000 6,559 (7) 2,500 (6) 554
Marketing and Sales 1995 73,755 28,000 * (8) 8,000 (6) 530
</TABLE>
_________________

(1) Amounts in this column include compensation to officers from (a) the
Company's supplemental medical reimbursement plan in which all officers are
eligible to participate, (b) the Company's tax and financial counseling
reimbursement plan in which all officers are eligible to participate, (c)
the Company's legal services reimbursement plan in which the Vice Chairman
is eligible to participate, (d) the payment of car allowances to certain
officers in lieu of providing a company car, (e) the payment of private
club dues for certain officers and (f) contributions by the Company on
behalf of certain officers pursuant to its Retirement/Savings Plan which
qualifies as a thrift plan under Section 401(k) of the Internal Revenue
Code. The type and amount of each perquisite or other personal benefit
which exceeds 25% of the total perquisites and other personal benefits
reported for such officer are identified in a footnote.

(2) On behalf of Mr. Lewis R. Foster, the Company paid $4,200 in car allowances
and contributed $1,028 under the Retirement/Savings Plan in fiscal 1997.

(3) On behalf of Mr. John F.Bishop, the Company paid $7,429 under the
supplemental reimbursement plan and $7,691 under the legal services
reimbursement plan in fiscal 1997, paid $7,522 under the supplemental
medical reimbursement plan and paid $4,006 for private club dues in fiscal
1996, and paid $12,776 under the legal services reimbursement plan in
fiscal 1995.

(4) Mr. Lewis R. Foster's employment terminated on December 16, 1997, and Mr.
Ivan Andres was appointed General Manager and Chief Operating Officer on
such date.

(5) Amounts in this column consist of payments by the Company of premiums for
term life insurance.

(6) Options to purchase common stock awarded under the Company's Second Amended
and Restated 1994 Stock Option Plan.

25
<PAGE>

(7) On behalf of Mr. Andres, the Company paid $4,200 in car allowances in
fiscal 1997, and $4,200 in car allowances and contributed $2,305 under the
Retirement/Savings Plan in fiscal 1996.

(8) Perquisites and personal benefits provided to the named executive officer
under various Company programs did not exceed $50,000 or 10% of such
individual's salary and bonus.

OPTION GRANTS IN FISCAL 1997. The following table provides information
on options granted under the Company's Second Amended and Restated 1994 Stock
Option Plan in fiscal 1997 to the named executive officers:

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------------------------
NUMBER OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE OR BASE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR (1) PRICE ($/SH) DATE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J. Bradford Bishop ---- ---- ---- ----

John F. Bishop ---- ---- ---- ----

Lewis R. Foster 40,000(2) 100% $4.75 11/20/06

Ivan Andres ---- ---- ----- ----

</TABLE>

- ----------------------------
(1) Percentage based on grants to employees during the last fiscal year of
options to purchase 40,000 shares of Common Stock.

(2) The options granted to Mr. Foster became exercisable with respect to
one-fourth of such shares on October 16, 1997. As a result of Mr. Foster's
departure from the Company, no further options will become exercisable.

AGGREGATE OPTION EXERCISES IN FISCAL 1997 AND FY-END OPTION VALUES. The
following table provides information regarding option exercises in fiscal 1997
by the named executive officers and the value of such officers' unexercised
options at September 30, 1997:

<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options
FY-End (#) at FY-End ($) (1)
----------------- -----------------
Shares
Acquired Value Exercisable (E)/ Exercisable (E)/
Name on Exercise (#) Realized ($) Unexercisable (U) Unexercisable (U)
------------------- --------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
J. Bradford Bishop ---- ---- 5,000 (E) $0 (E)
10,000 (U) $0 (U)

John F. Bishop ---- ---- ---- ----

Ivan Andres ---- ---- 2,100 (E) $0 (E)
---- ---- 6,800 (U) $0 (U)

Lewis R. Foster (2) ---- ---- 40,000 (U) $0 (U)

</TABLE>
_________________

(1) The options at fiscal year end were not in-the-money based on a fair market
value per share of Common Stock of $2.72, which represents the mean between
the bid and asked prices of a share on the NASDAQ System at the close of
business on September 30, 1997.

26
<PAGE>

INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS

BISHOP FAMILY TRUST LOAN FACILITY

Under the terms of the Loan Facility, the Company is obligated to pay
facility fees of $141,000 the Bishop Family Trust. Such fees were payable by
the Company on January 22, 1998, but have not been paid. Further, if the
principal amount of the obligations outstanding under the Loan Facility on
April 22, 1998 exceeds $1,000,000, then an additional facility fee of $141,000
will be fully earned on such date and will be payable by the Company on
April 22, 1998. The Company has the right to pay the facility fee in cash or by
issuance of Common Stock. The number of shares of Common Stock issuable as
payment for a facility fee will equal (a) the applicable facility fee divided by
(b) the Fair Market Value (as defined in the Loan Facility) per share of Common
Stock. For purposes of the outstanding $141,000 facility fee under the Loan
Facility, the "Fair Market Value" is the subscription price for the Rights
Offering, or $0.50. This value was determined in good faith by the disinterested
members of the Board of Directors based on negotiations with the Bishop
Family Trust.

The Company plans to repay all outstanding debt under the Loan Facility
with the proceeds of the Rights Offering. Based on the repayment of all
outstanding amounts under the Loan Facility upon completion of the Rights
Offering, total interest and fees paid or payable under the Loan Facility would
be approximately $221,000, resulting in an effective annual interest rate on
borrowings thereunder of approximately 42%. If the Company does not repay all
outstanding amounts under the Loan Facility upon completion of the Rights
Offering, and maintains the current outstanding balance under the Loan Facility
through October 15, 1998, total interest and fees paid or payable under the Loan
Facility would be approximately $460,000, resulting in an effective annual
interest rate on borrowings thereunder of approximately 37%.

In the opinion of management and the disinterested members of the Board of
Directors, the terms of the Loan Facility are fair and reasonable and as
favorable to the Company as those which could be obtained from unrelated third
parties.

DEMAND LOANS

In the opinion of management and the disinterested members of the Board of
Directors, the terms of the Demand Loans are fair and reasonable and as
favorable to the Company as those which could be obtained from unrelated third
parties.

SUBORDINATED LOAN

The Company entered into a Subordinated Loan Agreement dated as of December
16, 1996 with J. Bradford Bishop, Chairman and Chief Executive Officer of the
Company, and John F. Bishop, Vice Chairman, Treasurer and Secretary of the
Company (together, the "Bishops"). The Bishops advanced $600,000 to the Company
under the Subordinated Loan Agreement. Interest accrued thereon at 8% per
annum, payable quarterly. In connection with the Subordinated Loan Agreement,
the Company issued warrants to the Bishops to purchase 90,000 shares of Common
Stock at $3.00 per share. The Subordinated Loan Agreement terminated on
October 15, 1997, and all principal thereunder was repaid in full on such date
with the proceeds from the Loan Facility with the Bishop Family Trust. As
consideration for the early repayment of such obligations, the warrants issued
to the Bishops were canceled on October 15, 1997.

In the opinion of management and the disinterested members of the Board of
Directors, the terms of the Subordinated Loan Agreement, including the warrants
to be issued thereunder, were fair and reasonable and as favorable to the
Company as those which could be obtained from unrelated third parties.

BRIDGE LOANS

The Company received several bridge loans from the Bishops payable on
demand (the "Bridge Loans"), which amounted to $400,000, plus interest, on
October 15, 1997. Interest accrued thereon at 10% per annum. All principal of
the Bridge Loans was repaid in full on such date with the proceeds from the Loan
Facility with the Bishop Family Trust.

In the opinion of management and the disinterested members of the Board of
Directors, the terms of the Bridge Loans were fair and reasonable and as
favorable to the Company as those which could be obtained from unrelated third
parties.

EMPLOYMENT AGREEMENT

On October 1, 1995, the Company entered into an Employment Agreement with
John F. Bishop, Vice-Chairman of the Board, Treasurer and Secretary of the
Company, whereby Mr. Bishop will provide his services for a monthly salary of
$6,500 for an initial term of two years. On the first day of each month, the
initial term is automatically extended for an additional month, unless either
party notifies the other in writing of his or its

27
<PAGE>

desire not to extend the term. In the event the Company elects not to extend the
term or there is a change in control of the Company (the date of such event is
referred to as the "Transition Date"), Mr. Bishop will continue to perform
services for the Company for a three month transition period and the Company
will maintain his compensation and other benefits for the three month transition
period and an additional twenty-one months. Should Mr. Bishop become permanently
disabled, the Company shall pay to him fifty percent (50%) of the agreed salary
for the remainder of the term. Effective January 1, 1997, Mr. Bishop agreed to
reduce his monthly salary to $3,250 until the Transition Date. In addition to
the foregoing compensation, the Company will provide Mr. Bishop with a private
office, secretarial and administrative assistance, office equipment and supplies
and other facilities and services suitable to his position. Mr. Bishop is also
entitled to all employee benefits provided to senior management personnel of the
Company and to participate in the Company's medical reimbursement plan which is
supplemental to the medical plan covering all employees, the tax and financial
counseling reimbursement plan and the legal reimbursement plan provided by the
Company as well as Company paid life insurance.

In addition to his monthly compensation, Mr. Bishop is entitled under the
Employment Agreement to the full and unrestricted use of the currently provided
1989 Mercedes Benz Model 560 automobile or its successor automobile if replaced
at any time prior to the end of his employment term. The Company provides all
gasoline, maintenance, repair and insurance with respect to the automobile
during the term of the Agreement. In consideration for Mr. Bishop's prior
agreement to reduce his monthly salary to $1 per month for the period from
February 1992 through July 1992 and the deduction of $217 per month from his
monthly salary for the period from August 1992 through October 1995, the Company
granted to Mr. Bishop the right to acquire the automobile with full credit for
the foregone salary totaling $56,846. Mr. Bishop has the right to acquire the
automobile at any time during the two months immediately preceding the end of
his employment term. If the automobile's Kelly Blue Book value is in excess of
$56,846, Mr. Bishop shall pay to the Company the difference at the time Mr.
Bishop acquires the automobile. If the value of the automobile is less than
$56,846, the Company shall pay the difference to Mr. Bishop at the time he
acquires the automobile. In the event that Mr. Bishop's employment is terminated
prior to the end of his employment term, he shall have the right to acquire the
automobile at that time. In the event of Mr. Bishop's death, the right to
acquire the automobile shall be exercisable by Mr. Bishop's widow or the
executor of his estate.

The Company may terminate the Employment Agreement only if Mr. Bishop were
to be convicted of a felony, if he willfully fails to fulfill his duties, if he
commits gross negligence in the performance of his duties, if he intentionally
misappropriates significant funds of the Company or if he dies. Mr. Bishop may
terminate the agreement at any time on thirty days notice to the Company.

Under the Employment Agreement, Mr. Bishop may not disclose confidential
information of the Company at any time. This provision survives termination of
the Employment Agreement. Mr. Bishop is further prohibited from soliciting
employees or customers of the Company for at least one (1) year following
termination of the Employment Agreement.

LEGAL COUNSEL

Bainbridge Group, a Law Corporation ("Bainbridge Group") provides ongoing
legal services for the Company. Michael E. Johnson, a director of the Company,
is President of Bainbridge Group. During fiscal 1997 and fiscal 1996, the
aggregate fees payable to Bainbridge Group for services rendered to the Company
were $173,000 and $93,000, respectively. In the opinion of management and the
disinterested members of the Board of Directors, the terms of the relationship
between the Company and Bainbridge Group are fair and reasonable and as
favorable to the Company as those which could be obtained from unrelated third
parties.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of the Record Date, certain information
as to the Common Stock of the Company beneficially owned, directly or
indirectly, by each person who is known to the Company to beneficially own more
than 5% of the outstanding Common Stock, by each director, by each nominee for
director, by each executive officer named in the Summary Compensation Table, and
by all executive officers and directors of the Company as a group. The persons
named hold sole voting and investment power with respect to the shares shown
opposite their respective names, unless otherwise indicated. (Note -- "Direct"
means Common Stock held individually, or held in joint tenancy or as
community property with spouse. "Indirect" means Common Stock held

28
<PAGE>

by spouse as separate property, or held of record by the stockholder for the
benefit of another person, or held of record by the stockholder as trustee of a
trust.)

Name and Address of Amount of Nature of Percent
Beneficial Owner Beneficial Ownership Beneficial Ownership of Class
- -------------------- --------------------- -------------------- ---------
<S> <C> <C> <C>
John F. Bishop 118,260 Indirect (2) 27.83%

J. Bradford Bishop 73,140 Indirect (3) 18.18%
5,000 Direct (6)

J. Sidney Webb 800 Indirect (4) 3.60%
15,000 Direct (6)

Robert D. Johnson 200 Indirect (5) 3.46%
15,000 Direct (6)

Michael E. Johnson 3,333 Direct (6) *

Lewis R. Foster 10,000 Direct (6) 2.30%

Ivan Andres 4,200 Direct (6) *

James N. Cutler, Jr. 1,000 Direct *

All Executive Officers 235,933 --- 50.47%
and Directors as a Group
(7 persons) (7)
</TABLE>

____________________________

* Less than 1% of the class

(1) The mailing address for such individual is in care of EIP Microwave, Inc.,
1745 McCandless Drive, Milpitas, CA 95035.

(2) Consists of 118,260 shares held by J.F. Bishop and his spouse as trustees
of the Bishop Family Trust.

(3) Consists of (i) 22,473 shares held by J.B. Bishop and his spouse as
trustees of a revocable trust, (ii) 40,000 shares held by J.B. Bishop and
his spouse as trustees of the Bishop 1993 Children's Trust and (iii) 10,667
shares held by J.B. Bishop as trustee for the benefit of certain of his
siblings.

(4) Held by J.S. Webb as trustee of the Webb Family Trust.

(5) Held by R.D. Johnson and his spouse as trustees of the Robert D. Johnson
and Dorothy A. Johnson Trust.

(6) Consists of shares for which the named individual has the right to acquire
beneficial ownership within 60 days after the Record Date by exercise of
options granted under the Company's Second Amended and Restated 1994 Stock
Option Plan.

(7) Total includes the shares indirectly held by Messrs. J.F. Bishop, J.B.
Bishop, J.S. Webb and R.D. Johnson as trustees, as noted above.

DESCRIPTION OF SECURITIES

The following description of the securities of the Company and all
material provisions of the Company's Certificate of Incorporation and Bylaws is
a summary and is qualified in its entirety by the provisions of the Certificate
of Incorporation and Bylaws, which have been filed as exhibits to the Company's
Registration Statement.

29
<PAGE>

AUTHORIZED STOCK

The Company is authorized to issue 10,000,000 shares of Common Stock, $0.01
par value. As of the date of this Prospectus the Company had 424,907 shares of
Common Stock issued and outstanding.

VOTING RIGHTS

Holders of the shares of Common Stock are entitled to one vote per share on
all matters submitted to a vote of the stockholders. Any action required or
permitted to be taken by the stockholders of the Company must be effected at a
duly called annual or special meeting of stockholders and may not be affected by
any consent in writing by such stockholders. Except as described in the
following paragraph, shares of Common Stock do not have cumulative voting
rights, which means that the holders of a majority of the shares voting for the
election of the board of directors can elect all members of the board of
directors.

As a Delaware corporation doing business in California, the Company is
subject to certain provisions of the California General Corporation law (the
"California Law") if certain property, payroll and sales factors are met and
more than 50% of the Common Stock is held of record by persons having addresses
in California (excluding shares held by broker-dealers, banks or other
nominees). The Company believes that it meets the statutory test for
applicability of certain provisions of California Law to the Company. One of
these provisions, Section 708, entitles a stockholder to cumulate his or her
votes at an election of directors. Accordingly, with respect to the election of
directors only, if one or more stockholders give notice at a meeting before the
voting of their intention to cumulate their votes, all stockholders entitled to
vote shall have the right to so cumulate their votes and to give one candidate,
who has been nominated prior to the voting, a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which his
or her shares are entitled, or to distribute such votes among two or more such
candidates on the same principle in such proportions as each stockholder may
determine. If such vote is not conducted by cumulative voting, stockholders may
vote in favor of all nominees, withhold their votes as to all nominees, or vote
in favor of specific nominees and withhold their votes as to other nominees.

DIVIDEND RIGHTS

Holders of record of shares of Common Stock are entitled to receive
dividends when and if declared by the board of directors out of funds of the
Company legally available therefor. The Company does not anticipate paying
dividends in the near future.

LIQUIDATION RIGHTS

Upon any liquidation, dissolution or winding up of the Company, holders of
shares of Common Stock are entitled to receive a pro rata share of the assets of
the Company available for distribution to stockholders.

PREEMPTIVE RIGHTS

Holders of Common Stock do not have any preemptive rights to subscribe for
or to purchase any stock, obligations or other securities of the Company.

DISSENTER'S RIGHTS

Under current Delaware law, a stockholder is afforded dissenter's rights
which if properly exercised may require the corporation to repurchase its
shares. Dissenters' rights commonly arise in extraordinary transactions such as
mergers, consolidations, reorganizations, substantial asset sales, liquidating
distributions, and certain amendments to the Company's certificate of
incorporation.

CERTAIN ANTI-TAKEOVER PROVISIONS

The Company's Certificate of Incorporation and Bylaws contain provisions
that could delay, defer or prevent a change in control of the Company. The
Company has a classified Board of directors. The Board is divided into three
classes, each class consisting of two directors. The terms of the directors in
each class expire at the 1999 Annual Meeting, 2000 Annual Meeting, and 2001
Annual Meeting, respectively. Further,

30
<PAGE>

the Bylaws set forth procedures for the nomination of director candidates by the
Board of Directors or stockholders, and require that a stockholder give
specified notice of its intent to nominate a director candidate at least 90 days
prior to the Annual Meeting.

The Bylaws of the Company may be amended by a majority of the total number
of authorized directors or by the affirmative vote of two-thirds of the voting
power of all outstanding shares of capital stock of the Company.

The Company's Certificate of Incorporation restricts the ability of the
Company to engage in specified business combinations with any interested
shareholder. A "business combination" is defined to include any merger, any
sale of 10% of the total value of assets of the Company, any issuance of
securities with a value of $1 million or more, any liquidation, and any
transaction which has the effect of increasing the proportionate interest of any
interested shareholder. An "interested shareholder" is defined to include any
individual or entity who is the beneficial owner of 10% or more of the Common
Stock. Such transactions are prohibited, unless the transaction is approved by
(i) the holders of two-thirds of the outstanding shares of Common Stock and a
majority of such shares not held by the interested shareholder, or (ii) a
majority of the directors who are unaffiliated with the interested shareholder
and who were directors prior to the time the interested shareholder became an
interested shareholder (or are successors to such directors), or (iii) with
respect to certain business combinations, other requirements related to the
consideration received by stockholders are satisfied.

TRANSFER AGENT

ChaseMellon Shareholder Services, L.L.C. serves as the transfer agent of
the Company.

LEGAL MATTERS AND INTERESTS OF COUNSEL

The validity of the authorization and issuance of the securities offered
hereby will be passed upon for the Company by Bainbridge Group, a Law
Corporation, of Irvine, California. Bainbridge Group also provides ongoing legal
services for the Company. Michael E. Johnson, President of Bainbridge Group, is
a director of the Company and is the holder of options to purchase 10,000 shares
of common stock of the Company.

EXPERTS

The consolidated balance sheet of EIP Microwave, Inc. and subsidiary as of
September 30, 1997, and the consolidated statements of operations, stockholders'
equity (deficiency) and cash flows for the year then ended, have been included
herein and in the Registration Statement in reliance upon the report of
Meredith, Cardozo, Lanz & Chiu LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

The report of Meredith, Cardozo, Lanz & Chiu LLP covering the
aforementioned financial statements contains an explanatory paragraph. The
explanatory paragraph states the Company has incurred significant recent losses
from operations and will need to obtain additional financing to meet its
business plans for fiscal 1998 and beyond. These conditions raise substantial
doubt about its ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

The consolidated balance sheet of EIP Microwave, Inc. and subsidiaries as
of September 30, 1996, and the consolidated statements of operations and
retained earnings (accumulated deficit), stockholders' equity and cash flows for
the years ended September 30, 1996 and 1995, have been included herein and in
the Registration Statement in reliance upon the report of Price Waterhouse LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.

The report of Price Waterhouse LLP covering the aforementioned financial
statements contains an explanatory paragraph. The explanatory paragraph states
the Company has incurred significant recent losses from operations and may need
to obtain additional financing to meet its business plans for fiscal 1998 and
beyond that raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

31
<PAGE>
CHANGE IN ACCOUNTANTS

The Company engaged Meredith, Cardozo, Lanz & Chiu LLP as its new
independent accountants as of October 9, 1997.

On October 9, 1997, EIP Microwave, Inc. (the "Company") dismissed Price
Waterhouse LLP as its independent accountants. The reports of Price Waterhouse
LLP on the financial statements for the years ended September 30, 1995 and 1996
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principle, except that
their reissued report on the financial statements for the year ended
September 30, 1996, which was dual dated December 23, 1996 and October 23, 1997
includes an explanatory paragraph to express substantial doubt regarding the
Company's ability to continue as a going concern. The Company's Audit Committee
participated in and approved the decision to change independent accountants. In
connection with its audits for the two most recent fiscal years and through
October 9, 1997, there have been no disagreements with Price Waterhouse LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of Price Waterhouse LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
Price Waterhouse LLP furnished the Company with a letter addressed to the
Securities and Exchange Commission stating that it agrees with the statements in
this paragraph.
INDEMNIFICATION

Under Delaware corporation law, a corporation is authorized to indemnify
officers, directors, employees and agents who are made or threatened to be made
parties to any civil, criminal, administrative or investigative suit or
proceeding by reason of the fact that they are or were a director, officer,
employee or agent of the corporation or are or were acting in the same capacity
for another entity at the request of the corporation. Such indemnification
includes expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such persons if they acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation or, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. In the case of any action or suit by or in the right of the
corporation against such persons, the corporation is authorized to provide
similar indemnification, provided that, should any such persons be adjudged to
be liable for negligence or misconduct in the performance of duties to the
corporation, the court conducting the proceeding must determine that such
persons are nevertheless fairly and reasonably entitled to indemnification. To
the extent any such persons are successful on the merits in defense of any such
action, suit or proceeding, Delaware law provides that they shall be indemnified
against reasonable expenses, including attorney fees. A corporation is
authorized to advance anticipated expenses for such suits or proceedings upon an
undertaking by the person to whom such advance is made to repay such advances if
it is ultimately determined that such person is not entitled to be indemnified
by the corporation. Indemnification and payment of expenses provided by
Delaware law are not deemed exclusive of any other rights by which an officer,
director, employee or agent may seek indemnification or payment of expenses or
may be entitled to under any by-law, agreement, or vote of stockholders or
disinterested directors. In such regard, a Delaware corporation is empowered
to, and may, purchase and maintain liability insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation.

Article Ninth of the Company's Certificate of Incorporation eliminates, to
the fullest extent permitted by law, the personal liability of directors for
monetary damages in certain instances for breach of a director's fiduciary duty
of care. Article IX of the Company's Bylaws provides that (i) each director,
officer and employee of the Company shall be indemnified by the Company to the
fullest extent authorized by Delaware law subject to certain limitations,
(ii) each indemnitee is entitled to be paid by the Company for its expenses in
defending proceedings in advance of final determination, (iii) the right of
indemnification provided therein shall not be exclusive, (iv) the Company is
authorized to enter into contracts with any director, officer, employee or agent
of the Company which provide for indemnification equivalent to or greater than
provided in Article IX, and (v) the Company is required to maintain insurance to
the extent reasonably available to protect itself and any such director,
officer, employee or agent. These provisions do not impact the availability of
equitable relief under the federal securities laws.

32
<PAGE>

provide mandatory indemnification protection in excess of that provided by
Delaware corporation law. The Indemnification Agreements provide certain
procedures relating to indemnification and advancement of expenses.

In addition, the Company currently carries limited insurance coverage for
its directors and officers. The Indemnification Agreements provide protections
beyond those currently available from the Company's existing director's and
officer's liability insurance.

As a result of the foregoing, the Company may, at some future time, be
legally obligated to pay judgments (including amounts paid in settlement) and
expenses in regard to civil or criminal suits or proceedings brought against one
or more of its officers, directors, employees or agents, as such, with respect
to the Company.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.

33
<PAGE>

EIP MICROWAVE, INC.

Index to Financial Statements for the
Years ended September 30, 1997 and 1996

- --------------------------------------------------------------------------------
Contents Page
- --------------------------------------------------------------------------------
Report of Independent Auditors F-2
- --------------------------------------------------------------------------------
Report of Independent Accountants F-3
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------
Consolidated Balance Sheets as of F-4
September 30, 1997 and 1996, and
December 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
Consolidated Statements of Operations for the F-5
Years Ended September 30, 1997, 1996 and 1995, and the
Three Months Ended December 31, 1997 and 1996 (unaudited)
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity (Deficiency) F-5
for the Years Ended September 30, 1997, 1996 and 1995, and
the Three Months Ended December 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows for the F-6
Years Ended September 30, 1997, 1996 and 1995, and the
Three Months Ended December 31, 1997 and 1996 (unaudited)
- --------------------------------------------------------------------------------
Notes to Financial Statements F-7
- --------------------------------------------------------------------------------

F-1

<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and
Stockholders of EIP Microwave, Inc.

We have audited the accompanying consolidated balance sheet of EIP
Microwave, Inc. and subsidiary as of September 30, 1997, and the related
consolidated statements of operations, stockholders' equity (deficiency), and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. The consolidated financial statements of EIP Microwave, Inc. and
subsidiary as of September 30, 1996 and for the years ended September 30, 1996
and 1995 were audited by other auditors whose report as of October 23, 1997
included an explanatory paragraph that described conditions that raise
substantial doubt about the Company's ability to continue as a going concern.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of EIP
Microwave, Inc. and subsidiary as of September 30, 1997, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred significant recent losses from
operations and will need to obtain additional financing to meet its business
plans for fiscal 1998 and beyond. These conditions raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

/s/ MEREDITH, CARDOZO, LANZ & CHIU LLP

MEREDITH, CARDOZO, LANZ & CHIU LLP
San Jose, California
November 20, 1997

F-2
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of EIP Microwave, Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of EIP
Microwave, Inc. and its subsidiary at September 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1996, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred significant recent losses from
operations and may need to obtain additional financing to meet its business
plans for fiscal 1998 and beyond that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/ PRICE WATERHOUSE LLP

PRICE WATERHOUSE LLP
San Jose, California
December 23, 1996, except for the third paragraph of Note 1, the second
paragraph of Note 6 and Note 9, which are as of October 23, 1997.

F-3
<PAGE>

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data) December 31 September 30, September 30,
1997 1997 1996
-----------------------------------------------------
ASSETS (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 62 $ 250 $ 216
Short-term investments 30 30 324
--------------------------------------------------
92 280 540

Accounts receivable, net 551 405 686
Inventories 594 1,023 1,067
Prepaid expenses 58 62 59
--------------------------------------------------
Total current assets 1,295 1,770 2,352

Property and equipment, net 496 590 631
--------------------------------------------------
$ 1,791 $ 2,360 $ 2,983
--------------------------------------------------
--------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)

Current liabilities:
Accounts payable $ 604 $ 401 $ 706
Accrued liabilities 846 629 546
Advanced payments from customers -- - 190
Bank borrowings 179 296 185
Notes payable to affiliates 1,350 400 -
Current portion of obligations under
capital leases 34 34 34
--------------------------------------------------
Total current liabilities 3,013 1,760 1,661
--------------------------------------------------

Long term notes payable to affiliates 0 600 -
Long term obligations under capital leases 54 63 95
--------------------------------------------------
Total liabilities 3,067 2,423 1,756
--------------------------------------------------

Commitments and contingencies (Note 5)

Stockholders' equity (deficiency):
Common stock, $.01 par value;
authorized -10,000,000 shares;
424,907 issued and outstanding 5 5 5
Additional paid-in capital 848 848 848
Retained earnings (accumulated deficit) (2,129) (916) 374
--------------------------------------------------
Total stockholders' equity (deficiency) (1,276) (63) 1,227
--------------------------------------------------
$ 1,791 $ 2,360 $ 2,983
--------------------------------------------------
--------------------------------------------------

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

F-4
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS AND STOCKHOLDERS' EQUITY (DEFICIENCY)

CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended For Years Ended
December 31, September 30,
1997 1996 1997 1996 1995
------------------------ -----------------------------------------
(Unaudited)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $ 998 $ 1,258 $ 4,739 $ 6,492 $ 6,721
-------------------------------------------------------------------
Cost and expenses:
Cost of sales 1,310 793 2,955 4,064 3,646
Research, development and engineering 241 216 996 978 742
Selling, general and administrative 540 466 2,005 2,084 2,289
Interest and other, net 120 5 73 (141) (81)
-------------------------------------------------------------------
Total costs and expenses 2,211 1,480 6,029 6,985 6,596
-------------------------------------------------------------------

Net income (loss) before income tax (1,213) (222) (1,290) (493) 125
Income tax provision - - - - -
-------------------------------------------------------------------
Net income (loss) $(1,213) $ (222) $(1,290) $ (493) $ 125
-------------------------------------------------------------------
-------------------------------------------------------------------

Net income (loss) per share $ (2.85) $ (0.52) $ (3.04) $ (1.16) $ 0.30
-------------------------------------------------------------------
-------------------------------------------------------------------

Weighted average common shares outstanding 425 425 425 423 423
-------------------------------------------------------------------
-------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

Retained
Additional Earnings
Common Stock Paid-in (Accumulated
(Dollars in thousands) Shares Amount Capital Deficit) Total

Balance at September 30, 1994 423,307 $5 $844 $ 742 $ 1,591
Net income - - - 125 125
---------------------------------------------------------------------

Balance at September 30, 1995 423,307 5 844 867 1,716
Stock issues 1,600 - 4 - 4
Net income - - - (493) (493)

Balance at September 30, 1996 424,907 5 848 374 1,227
Net income - - - (1,290) (1,290)

---------------------------------------------------------------------
Balance at September 30, 1997 424,907 5 848 (916) (63)
Net income (unaudited) - - - (1,213) (1,213)
---------------------------------------------------------------------

Balance at December 31, 1997 (unaudited) 424,907 $5 $848 $(2,129) $(1,276)
---------------------------------------------------------------------
---------------------------------------------------------------------

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

F-5
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash

Three Months Ended Years Ended
December 31, September 30,

(Dollars in thousands) 1997 1996 1997 1996 1995
----------------------- --------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,213) $ (222) $(1,290) $ (493) $ 125
Adjustments to reconcile
net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 52 76 167 147 220
Write down of inventory 600 -- -- -- --
(Gain) loss on the sale of capital equipment (6) (36) (118) (50) (146)
Change in assets and liabilities:
Accounts receivable, net (146) 233 281 378 (350)
Inventories (171) 65 44 66 (149)
Prepaid expenses and other assets 4 (8) (3) 45 (36)
Accounts payable 203 (251) (305) 96 83
Accrued liabilities 217 (47) 83 (130) 65
Advanced payments from customers -- (181) (190) 190 -
----------------------- -------------------------------------
Cash provided by (used in) operating activities (460) (371) (1,331) 249 (188)
----------------------- -------------------------------------

Cash flows from investing activities:
Purchase of short-term investments -- -- -- (213) (11)
Sale of short-term investments -- 298 294 208 --
Capital expenditures 12 (85) (168) (394) (41)
Proceeds from the sale of capital equipment 36 36 160 61 155
----------------------- -------------------------------------
Cash (used in) provided by investing activities 48 249 286 (338) 103
----------------------- -------------------------------------

Cash flows from financing activities:
Proceeds from bank borrowings -- -- 111 185 --
Proceeds from notes payable to affiliates 350 -- 1,000 -- --
Repayment of bank borrowings (117) -- -- -- --
Proceeds from sales of common stock to employees -- -- -- 4 --
Repayment of obligations under capital leases (9) (8) (32) (10) --
----------------------- -------------------------------------
Cash provided by financing activities 224 (8) 1,079 179 --
----------------------- -------------------------------------

Increase (decrease) in cash and equivalents (188) (130) 34 90 (85)
Cash and equivalents at beginning of period 250 216 216 126 211
----------------------- -------------------------------------
Cash and equivalents at end of period $ 62 $ 86 $ 250 $ 216 $ 126
----------------------- -------------------------------------

Supplemental information:

Interest paid $ 120 $ 5 $ 31 $ 13 $ 1
Equipment acquired pursuant to capital leases $ -- $ -- $ -- $ 124 $ -
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

F-6
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. THE COMPANY AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

The Company is engaged in a single industry segment constituting the
development, manufacture, and sale of high frequency microwave and radio
frequency (RF) test and measurement instruments. The Company's standalone
microwave frequency counters represented 60% of net sales in the first fiscal
quarter of 1998, 52% for the same period a year ago, 53% of net sales in
fiscal 1997, 50% of net sales in fiscal 1996, and 64% of net sales in fiscal
1995. Substantially all of its activities are conducted in the United States,
and the Company has no foreign manufacturing operations nor material amounts
of foreign assets. Total export sales, as a percent of net sales, were
approximately 26% in the first fiscal quarter of 1998, 40% for the same
period a year ago, 30% in fiscal 1997, 36% in fiscal 1996, and 43% in fiscal
1995. The Company makes export sales principally to customers in Western
Europe and Pacific Rim countries. Export sales to customers in Western
Europe, as a percent of net sales, were approximately 11% in the first fiscal
quarter of 1998, 14% for the same period a year ago, 13% in fiscal 1997, 20%
in fiscal 1996, and 25% in fiscal 1995. Export sales to customers in Pacific
Rim countries, as a percent of net sales, were approximately 8% in the first
fiscal quarter of 1998, 23% for the same period a year ago, 13% in fiscal
1997, 11% in fiscal 1996, and 13% in fiscal 1995. Profit margins are similar
on foreign and domestic sales. Direct sales to the United States government
and its contractors as a percent of net sales were approximately 43% in 1997
(20% to one government subcontractor), 33% in 1996 (22% to one government
subcontractor), 36% in 1995 (11% to one government subcontractor) and 33% and
34% for the three months ended December 31, 1997 and 1996 (23% and 31% to one
government contractor respectively).

LIQUIDITY

As shown in the accompanying consolidated financial statements, the Company
incurred a loss from operations for the year ended September 30, 1997 of
$1,290,000 and a loss from operations of $1,213,000 for the three months ended
December 31, 1997, and has experienced significant fluctuations in operating
results in the past. The fiscal 1998 operating plan includes the release of a
new frequency measurement product and other new products. To the extent that
product development is delayed or the new product introductions do not achieve
sufficient market acceptance, the Company's financial position and results of
operations will be adversely impacted. The Company's fiscal 1998 operating plan
also assumes additional financing will be necessary to fund its 1998 operations
(see notes 6 and 7).

The Company has incurred significant recent losses from operations and
additional financing will be required for the Company to meet its business plan
for fiscal 1998 and beyond. There can be no assurance that the Company will not
incur additional losses until its recently introduced and existing products
generate significant revenues. The accompanying consolidated financial
statements have been prepared assuming the Company will continue as a going
concern. The Company's business plan for fiscal 1998 involves two key internal
operating objectives: (1) increasing the manufacture and shipment of microwave
frequency counters to Hewlett-Packard Company for distribution on a private
label basis worldwide through an OEM relationship; and (2) completing field
testing of the Company's RF synthesized signal generators and RF down converters
under its five-year indefinite quantity, fixed price subcontract with ManTech
Systems Engineering Corporation, and preparing for shipment of production
quantities of these products in the fourth fiscal quarter of 1998. Management
believes that it can successfully implement these key operating objectives. In
addition to these opportunities for internal growth, the Company will pursue
appropriate strategic opportunities to acquire other companies or their
technology or products.

The Company's ability to generate sufficient cash to support its business
plan during the 1998 fiscal year depends on the ability of management to obtain
equity financing through the Rights Offering and additional debt financing.
Management is currently pursuing additional debt financing. There is no
assurance that the Company will be successful in obtaining all such capital from
the Rights Offering and from such future debt facilities. If the Company is
unable to obtain such capital from the Rights Offering and from such future debt
facilities on a timely basis, the Company will be required to consider, among
other actions, a substantial reduction in its research and development expenses
which will impact the introduction of new products, a substantial reduction in
other operating expenses and the sale of one or more product lines of the
Company. Such actions to significantly curtail its planned operations will
likely have a material adverse affect on the Company's business, financial
condition and results of operations. The accompanying financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.

F-7
<PAGE>

PRINCIPLES OF CONSOLIDATION

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

CASH EQUIVALENTS

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

SHORT-TERM INVESTMENTS

Short-term investments, consisting of publicly traded preferred stocks and
government bonds, are stated at fair value. The Company has adopted Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). SFAS 115 requires companies to
classify investments in debt and equity securities with readily determinable
fair values as "held-to-maturity", "available for sale", or "trading" and
establishes accounting and reporting requirements for each classification. The
Company classifies all securities held as available for sale. Securities
classified as available for sale are reported at their fair market value with
unrealized gains and losses reported as a separate component of stockholders'
equity. Such unrealized gains and losses were immaterial as of September 30,
1997 and 1996, and December 31, 1997. The Company's government bonds have a
maturity of one year or less. Publicly traded preferred stocks are considered
highly liquid and are classified as short-term investments.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents and
short-term investments and trade accounts receivable. The Company places its
cash, cash equivalents and short-term investments in a variety of financial
instruments such as certificates of deposit and marketable equity securities.

The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The
Company maintains an allowance for uncollectible accounts receivable based upon
the expected collectibility of all accounts receivable balances. At September
30, 1997, the accounts receivable balances from three customers represented 14%,
12%, and 8% of net trade receivables, and at December 31, 1997, 18%, 15% and 2%
of net trade receivables.

INVENTORIES

Inventories are stated at the lower of standard cost, which approximates
actual cost (determined on a first-in, first-out basis), or market.

The Company recorded a write-down of inventory by $600,000 in the first
fiscal quarter of 1998 to reserve for potential obsolescence. It is the
Company's policy to reserve inventory for potential obsolescence. The reserve
is based on estimated usage of material and product life cycle.

PROPERTY AND EQUIPMENT

Purchased property and equipment are stated at cost and are depreciated
using the straight-line method over lives ranging from three to eight years.
Self-constructed demonstrator products are stated at their standard
manufacturing cost.

REVENUE RECOGNITION AND WARRANTY

Sales are recognized at the time of shipment provided no significant
obligations remain and collectibility is probable. The Company provides for the
estimated costs of fulfilling its warranty obligation at the time the related
sale is recorded.

F-8
<PAGE>

INCOME TAXES

The Company utilizes an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequence of events that have been recognized in the Company's financial
statements or tax returns.

NET INCOME (LOSS) PER SHARE

Basic earnings per share is computed by dividing income available to
common stockholders by the weighted-average number of shares outstanding.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS.

In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Only the disclosure requirements of this standard were adopted
by EIP and, therefore, there was no impact on EIP's consolidated financial
position or results of operations.

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
SFAS 128 which is effective for the Company's fiscal year ending September 30,
1998, redefines earnings per share under generally accepted accounting
principles. Under the new standard, primary earnings per share is replaced by
basic earnings per share, and fully diluted earnings per share is replaced by
diluted earnings per share. The Company adopted SFAS 128 as of October 1,
1997. The impact of the change was not significant for the years ended
September 30, 1997, 1996 and 1995, nor the three months ended December 31,
1997 and 1996.

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 129 ("SFAS 129"), "Disclosure of
Information about Capital Structure." SFAS 129 requires disclosure of certain
information related to the Company's capital structure and is not anticipated to
have a material impact on the Company's financial position or results of
operations.

In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income."
SFAS 130 establishes standards for reporting comprehensive income and its
components in a financial statement that is displayed with the same prominence
as other financial statements. Comprehensive income as defined includes all
changes in equity (net assets) during a period from nonowner sources. Examples
of items to be included in comprehensive income, which are excluded from net
income, include foreign currency translation adjustments and unrealized
gain/loss on available-for-sale securities. The disclosure prescribed by SFAS
must be made beginning with the first quarter of 1998 and had no material impact
on the Company's financial position or results of operations.

In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information". This statement establishes standards for
the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
has not yet determined the impact, if any, of adopting this new standard. The
disclosures prescribed by SFAS 131 are effective in 1998.

F-9
<PAGE>

INTERIM RESULTS (UNAUDITED)

The accompanying balance sheet as of December 31, 1997 and the statements
of operations and of cash flows for the three months ended December 31, 1996 and
1997 are unaudited. In the opinion of management, the statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of the results of interim periods. The data disclosed in these
notes to financial statements for these periods are also unaudited.

NOTE 2. CONSOLIDATED BALANCE SHEET DETAIL

(Dollars in thousands) December 31, September 30, September 30,
1997 1997 1996
------------------------------------------------------

(unaudited)
Accounts receivable:
<S> <C> <C> <C>
Trade $ 601 $455 $ 736
Less - allowance for doubtful accounts (50) (50) (50)
-----------------------------------------------
$ 551 $405 $ 686
-----------------------------------------------
-----------------------------------------------

Inventories:
Raw materials $ 55 $531 $ 719
Work-in-process 537 452 320
Finished goods 2 40 28
-----------------------------------------------
$ 594 $ 1,023 $ 1,067
-----------------------------------------------
-----------------------------------------------

Note: The Company recorded a write-down
of inventory by $600,000 in the first fiscal
quarter of 1998 to reserve for potential
obsolescence related to the discontinuance of
selected products.

Property plant and equipment:
Machinery and equipment $ 3,086 $ 3,093 $ 3,121
Computer equipment and software 1,048 1,047 1,054
Demonstrator equipment 283 306 337
Furniture, fixtures and other fixed assets 850 865 807
-----------------------------------------------
5,267 5,311 5,319
Less: accumulated depreciation (4,771) (4,721) (4,688)
-----------------------------------------------
$ 496 $ 590 $ 631
-----------------------------------------------
-----------------------------------------------
Accrued liabilities:
Salaries, wages and benefits $ 361 $ 297 $ 215
Board of Directors fees and expenses 62 116 77
Legal and accounting 146 89 14
Accrued interest - affiliates 139 49 --
Commissions 31 25 83
Warranty 11 21 53
Other 96 32 104
-----------------------------------------------
$ 846 $ 629 $546
-----------------------------------------------
-----------------------------------------------
</TABLE>

NOTE 3. EMPLOYEE BENEFIT PLANS

RETIREMENT PLAN

The Company has a Retirement/Savings Plan which qualifies as a thrift plan
under Section 401(k) of the Internal Revenue Code. All employees who have
completed three months of service on or before the semiannual entry period are
eligible to participate in the Retirement Plan. The Retirement Plan allows
participants to contribute up to

F-10
<PAGE>

12% of their earnings to the Retirement Plan and deduct this amount from their
wages for federal income tax purposes. The Company will contribute 50 cents for
each dollar contributed by the employee up to 3% of total wages. Company
contributions in fiscal years 1997, 1996, and 1995, and for the three months
ended December 31, 1997, totaled $39,000, $49,000, $38,000 and $11,000,
respectively.

INCENTIVE COMPENSATION

The Company has an incentive compensation plan which provides for awards of
bonuses to officers and key employees based principally on achieving stipulated
Company financial objectives. In making specific awards, consideration is given
to the individual's contribution to the success of the Company, to the success
and performance of the unit or department of which the individual is a member,
and to the achievement of individual performance goals established at the
beginning of the fiscal year. The formula for computing bonuses has been
subject to annual modification and may in the future be again modified at the
discretion of the Board of Directors. No bonuses were awarded for the three
months ended December 31, 1997. Bonuses of $3,000, $30,000 and $61,000 were
awarded for fiscal years 1997, 1996 and 1995, respectively.

STOCK APPRECIATION RIGHTS PLAN

On November 11, 1992, the Board of Directors adopted a Stock Appreciation
Rights Plan ("SAR Plan"). The SAR Plan provides for the award of appreciation
rights ("SARs") to officers and key management employees of the Company
entitling such participants to receive the increase, if any, in the value of one
share of Company common stock from the date of the award to the date(s) of
valuation established at the time of the award. Generally, SARs are deemed
vested in five equal annual installments. Each award vested will be paid in
cash on a scheduled payment date. During the three months ended December 31,
1997, and during fiscal 1997, 1996, and 1995, no SARs were awarded. A total of
760, 760, 2,760, and 2,760 SARs were vested during the three months ended
December 31, 1997, and during fiscal 1997, 1996, and 1995, respectively. A
total of 4000 and 960 SARs were canceled during fiscal 1997 and 1995,
respectively. No SARs were outstanding at December 31, 1997. The Company
accrues a compensation liability over the vesting period based on the increase
in the market value of the common stock over the award price. The liability for
the periods ended December 31, 1997 and September 30, 1997, 1996 and 1995 were
$0, $2,000, $8,000 and $20,000, respectively.

STOCK OPTION PLAN

FASB Statement 123, "Accounting for Stock-Based Compensation", requires the
Company to provide pro forma information regarding net income and earnings per
share as if compensation cost for the Company's stock option plans had been
determined in accordance with the fair value based method prescribed in FASB
Statement 123. The Company estimates the fair value of stock options at the
grant date by using the Black-Scholes option pricing-model with the following
weighted average assumptions used for grants in 1996, 1995, and 1994,
respectively: dividend yield of 0; expected volatility of 211%, 198%, and 139%;
risk-free interest rates of 5.79%, 5.73%, and 5.72%; and expected lives of four
years for the plan options.

Under the accounting provisions of FASB Statement 123, the Company's net
(loss) income and (loss) earnings per share would have been increased/reduced to
the pro forma amounts indicated below. Pro forma results for 1997 may not be
indicative of pro forma results in future periods because the pro forma amounts
do not include pro forma compensation cost for options granted prior to October
1, 1996.

<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------
1997 1996 1995
------------- ----------- ----------
<S> <C> <C> <C>
Net (loss) income:
As reported (1,290,000) $ (493,000) $ 125,000
------------- ----------- ----------
------------- ----------- ----------
Pro forma $ (1,311,000) $ (493,000) $ 125,000
------------- ----------- ----------
------------- ----------- ----------

Basic (loss) earnings per share:
As reported $ (3.04) $ (1.16) $ 0.30
------------- ----------- ----------
------------- ----------- ----------
Pro forma $ (3.08) $ (1.16) $ 0.30
------------- ----------- ----------
------------- ----------- ----------
</TABLE>

F-11
<PAGE>

A summary of the status of the Company's stock option plan as of September 30,
1997, 1996, and 1995, and changes during the years ended on those dates is
presented below:

Options Outstanding
----------------------------------------------------------------------------------------------
September 30, 1997 September 30, 1996 September 30, 1995
--------------------------- -------------------------- -------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 95,400 $ 3.039 59,500 $ 2.375 -- $ --
Granted 50,000 4.750 37,500 4.030 59,500 2.375
Exercised -- -- (1,600) 2.375 -- --
Cancelled (13,000) 2.721 -- -- -- --
------- -------- ------ -------- ------ --------

Outstanding at
end of year 132,400 $ 3.727 95,400 $ 3.039 59,500 $ 2.375
------- -------- ------ -------- ------ --------
------- -------- ------ -------- ------ --------

Options exercisable
at year-end 49,765 24,299 --
------- ------ ------
------- ------ ------

Weighted-average
fair value of
options granted
during the year $ 4.750 $ 4.030 $ 2.375
-------- -------- --------
-------- -------- --------

</TABLE>

The following table summarizes information about stock options outstanding at
September 30, 1997:

Options Outstanding Options Exercisable
----------------------------------------------------- -----------------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 9/30/97 Contractual Life Exercise Price at 9/30/97 Exercise Price
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$2.375 47,900 7.5 Years $ 2.375 29,532 $ 2.375
$3.875 19,500 8.3 Years $ 3.875 11,900 $ 3.875
$4.263 15,000 8.3 Years $ 4.263 5,000 $ 4.263
$4.750 50,000 9.1 Years $ 4.750 3,333 $ 4.750
------- -------- -------- --------
132,400 $ 3.707 49,765 $ 3.082
------- -------- -------- --------
------- -------- -------- --------

</TABLE>

During the first fiscal quarter of 1998, no Options were granted or exercised;
however, during this period the Company cancelled 30,000 stock options having an
exercise price of $4.75 per share.

NOTE 4. INCOME TAXES

Deferred tax assets (liabilities) are summarized as follows:

December 31, September 30,
(Dollars in thousands) 1998 1997 1996 1995
----------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Net operating loss carryforwards $ 1,823 $ 1,613 $ 1,104 $ 1,016
Tax credit carryforwards 124 124 106 106
Inventory and other valuation reserves 469 229 221 190
----------------------------------------------------------------------
Gross deferred tax asset 2,416 1,966 1,431 1,312
----------------------------------------------------------------------

Gross deferred tax liability -- -- -- --
----------------------------------------------------------------------
Deferred tax asset valuation allowance (2,416) (1,966) (1,431) (1,312)
----------------------------------------------------------------------
Net deferred tax asset $ -- $ -- $ -- $ --
----------------------------------------------------------------------

</TABLE>

F-12
<PAGE>

The Company provides a valuation allowance for deferred tax assets when it
is more likely than not that some portion or all of the deferred tax asset will
not be realized.

The U.S. net operating loss carryforward of approximately $4,400,000 at
September 30, 1997, expires by fiscal year 2011 if not offset against taxable
income. The amount of and the benefit from net operating losses that can be
carried forward may be impaired in certain circumstances. Events which may
cause changes in the Company's tax carryovers include, but are not limited to, a
cumulative ownership change of more than 50% over a three-year period.

NOTE 5. COMMITMENTS AND CONTINGENCIES

The Company has signed a lease for 20,331 square feet in a building located
in Milpitas, California, for an initial term of three years ending October 31,
1998. The lease provides for rentals of $226,000 and $19,000 for fiscal years
1998 and 1999 plus applicable real property taxes and insurance, and contains
one three year renewal option. Future lease commitments for the next five
fiscal years for all other leases as of September 30, 1997 were as follows (in
thousands):

Fiscal year ending September 30, Capital Leases Operating Leases
-------------------------------- -------------- ----------------
<S> <C> <C>

1998 $ 40 $ 33
1999 28 24
2000 26 22
Thereafter 21 19
---- ----
Total minimum lease payments 115 $ 98
----
----
Less amount representing interest (18)
----
Present value of minimum lease payments 97
Less current portion (34)
----
Long-term lease obligation $ 63
----
----

</TABLE>

The Company also leases certain equipment on a month-to-month basis. Total
rental expense under all operating leases was $79,000 in the first fiscal
quarter of 1998, $69,000 for the same period a year ago, and $254,000, $258,000,
and $300,000, in fiscal years 1997, 1996, and 1995, respectively.

On October 1, 1995, the Company entered into an Employment Agreement (the
"Agreement") with John F. Bishop, Vice-Chairman of the Board, Treasurer, and
Secretary of the Company, whereby Mr. Bishop will provide his services for a
monthly salary of $6,500 for an initial term of two years. On the first day of
each month, the initial term is automatically extended for an additional month,
unless either party notifies the other in writing of his or its desire not to
extend the term. In the event the Company elects not to extend the term or
there is a change in control of the Company (the date of such event is referred
to as the "Transition Date"), Mr. Bishop will continue to perform services for
the Company for a three month transition period and the Company would maintain
his compensation and other benefits for the three month transition period and an
additional twenty-one months. Effective January 1, 1997, Mr. Bishop has agreed
to reduce his monthly salary to $3,250 until the Transition Date. The Agreement
also allows Mr. Bishop the use of an automobile and the right to receive title
to the automobile, arising out of his agreement to forgo $56,846 of salary in
prior years. Maintenance, insurance and gasoline costs for the automobile and
an office location are also part of the Agreement. The corporate office is
currently located in Newport Beach, California, leased at a monthly rate of
$1,320 on a month-to-month basis.

NOTE 6. BANK BORROWINGS

At September 30, 1996, the Company had a bank line of credit ("line") which
provided for borrowings up to $500,000, not to exceed 60% of eligible accounts
receivable. The balance outstanding was $185,000 as of September 30, 1996. The
line bears interest at the bank's prime rate plus 3% per annum, provided that
the interest rate in effect each month shall not be less than 10% per annum, and
is payable monthly (11.25% as of September 30, 1996). The line contains various
restrictive covenants requiring, among other matters, the maintenance of minimum
levels of tangible net worth and profitability and certain financial ratios,
including minimum quick ratio and maximum debt to net worth ratio. The line
also precludes or limits the Company in taking certain actions, such as paying
dividends, making loans,

F-13
<PAGE>

making acquisitions or incurring indebtedness, without the bank's prior written
consent. The line is secured by substantially all of the Company's assets. As
of November 15, 1996, the bank extended the maturity date of the line to
January 15, 1997 and amended certain restrictive covenants, but limited
borrowings to the $185,000 outstanding.

On January 15, 1997, the bank line was revised to provide for borrowings up
to $500,000. At September 30, 1997, the outstanding borrowings were $296,000.
As of October 23, 1997, the Company was not in compliance with the restrictive
covenants of the line, as so amended. In the event that the Company is unable
to maintain compliance with financial covenants, J. Bradford Bishop, the
Chairman and Chief Executive Officer of the Company, and John F. Bishop, the
Vice Chairman, Treasurer and Secretary of the Company (the "Bishops") have
agreed to finance up to $500,000 of working capital (in addition to funds
provided under the subordinated loan facility (note 7)) on terms acceptable to
the Bishops and the Company to replace the line of credit.

NOTE 7. SUBORDINATED LOAN AGREEMENT AND BRIDGE LOANS

The Company entered into a Subordinated Loan Agreement dated as of December
16, 1996 with J. Bradford Bishop, Chairman and Chief Executive Officer of the
Company, and John F. Bishop, Vice Chairman, Treasurer and Secretary of the
Company (together, the "Bishops"). The Bishops advanced $600,000 to the Company
under the Subordinated Loan Agreement. Interest accrued thereon at 8% per
annum, payable quarterly. In connection with the Subordinated Loan Agreement,
the Company issued warrants to the Bishops to purchase 90,000 shares of Common
Stock at $3.00 per share. The Subordinated Loan Agreement terminated on October
15, 1997, and all obligations thereunder were repaid in full on such date with
the proceeds from the Loan Facility with the Bishop Family Trust (Note 8). As
consideration for the early repayment of such obligations, the warrants issued
to the Bishops were canceled on October 15, 1997.

The Company has received several bridge loans from the Bishops payable on
demand (the "Bridge Loans"), which amounted to $400,000, plus interest, on
September 30, 1997. Interest accrued thereon at 10% per annum. The principal
amount of the Bridge Loans was repaid in full on October 15, 1997, with the
proceeds from the Loan Facility with the Bishop Family Trust.

NOTE 8. SUBSEQUENT EVENT

At December 31, 1997, the Company had outstanding borrowings in the
aggregate principal amount of $179,000 under the bank line. The bank line was
repaid on January 22, 1998, and expired on January 31, 1998.

On October 15, 1997, the Company entered into a loan and security agreement
(the "Loan Facility") with John F. Bishop and Ann R. Bishop, trustees of the
Bishop Family Trust (the "Bishop Family Trust"). The Loan Facility provides for
a term loan of $1,000,000 and revolving advances up to $450,000. Interest is
charged at the prime rate plus 5% and is payable monthly (13.5% as of October
15, 1997). The Loan Facility expires on October 15, 1998. The Loan Facility
contains various restrictive covenants requiring, among other matters, the
achievement of profitability on a rolling 3-month basis commencing in August
1998, and the maintenance of minimum revenues from its OEM relationship
commencing in January 1998. The Bishop Family Trust also precludes or limits
the Company's ability to take certain actions, such as paying dividends, making
loans, making acquisitions or incurring indebtedness, without the Bishop Family
Trust's prior written consent. The Loan Facility is secured by substantially
all of the Company's assets. The Bishop Family Trust has subordinated the Loan
Facility to the Bank Line. At October 15, 1997, the Company was in compliance
with the restrictive covenants of the Loan Facility. Under the terms of the
Loan Facility, the Company was obligated to pay facility fees of $141,000 on
January 22, 1998. If the principal amount of the obligations outstanding under
the Loan Facility on April 22, 1998 exceeds $1,000,000, then an additional
facility fee of $141,000 will be fully earned on such date and will be payable
by the Company on April 22, 1998. The Company has the right to pay the facility
fee in cash or by issuance of Common Stock. The number of shares of Common
Stock issuable as payment for a facility fee will equal (a) the applicable
facility fee divided by (b) the Fair Market Value (as defined in the Loan
Facility) per share of Common Stock. At December 31, 1997, the Company had
outstanding borrowings in the aggregate principal amount of $1,350,000 under the
Loan Facility. At February 13, 1998, the outstanding borrowings under the Loan
Facility were $1,250,000.

F-14
<PAGE>

payable on demand. The Demand Loans are payable on demand, and are secured by
substantially all of the Company's assets.

On November 14, 1997, the Company began a rights offering (the "Rights
Offering"), whereby the Company offered 1,699,628 shares (the "Shares") of its
Common Stock at $1.70 per Share to its stockholders of record on November 7,
1997 (the "Record Date"). The Rights Offering was initially set to expire on
December 15, 1997. On December 16, 1997, the Company extended the expiration
date for the Rights Offering until January 5, 1998. On December 23, 1997, the
Company increased the number of Shares offered to 5,948,698, and lowered the
subscription price for each Share to $1.00. The Company thereafter extended the
Rights Offering two additional times until January 30, 1998 and February 26,
1998, respectively. The Company has proposed a lowering of the subscription
price for each Share to $0.50. The net proceeds to the Company upon successful
completion of the Rights Offering will be used to repay debt under the Loan
Facility and the Demand Loans and to fund working capital requirements.

NOTE 9. BOARD OF DIRECTORS' FEES

During fiscal 1996, the Board of Directors waived fees owed to them by the
Company totaling $112,000. The reversal of previously accrued fees was
included in "Interest and other, net" cost and expenses in the statement of
operations, and thereby reduced the net loss for the year ended September 30,
1996.

F-15
<PAGE>
APPENDIX I

FORM OF SUBSCRIPTION AGREEMENT

(PLEASE CAREFULLY REVIEW THE ATTACHED INSTRUCTIONS)

EIP Microwave, Inc.
Subscription Agreement

This Subscription Agreement (the "Subscription Agreement") represents a
subscription to acquire the number of shares (the "Shares") of common stock of
EIP Microwave, Inc. (the "Company") set forth below at a subscription price of
$0.50 per share for the total subscription price set forth below. The
registered owner named below is entitled to subscribe for the Shares pursuant to
subscription rights granted to stockholders upon the terms and conditions of the
Rights Offering set forth in the related Prospectus. For each Share subscribed
for, the subscription price of $0.50 must be forwarded directly to EIP
Microwave, Inc.

The subscription rights expire at 5:00 p.m., California time, on March
20, 1998, unless extended by the Company (such date, as it may be extended on
one or more occasions, is referred to herein as the "Expiration Date"). No
subscription agreements will be accepted thereafter.

Stockholders who subscribed for Shares at the previous subscription price
of $1.70 or $1.00 in the Rights Offering should refer to the paragraph entitled
"Treatment of Previously Subscribing Stockholders" on the Attached Instructions.

Stockholder Name:
-------------------------

Stockholder Address:
-------------------------

Number of shares owned
by Stockholder on
November 7, 1997:
-------------------------

Number of shares subject
to Basic Subscription Rights:
(number of shares shown above x 14)
-------------------------

SECTION 1 - Subscription and Signature

I hereby irrevocably subscribe for the number of Shares indicated below, on
the terms specified in the related Prospectus.

A. Basic Subscription: shares
-------------
B. Over-Subscription: shares (No more than
------------- 5,948,698 less
the number
subscribed for
in A.)
C. Total subscription (A + B): shares
-------------
D. Total cost (C x $0.50): $
-------------

Signature of Telephone
Stockholder: Number: ( )
----------------------------- --------------------

SECTION 2 - Address for delivery of stock certificate if different from above.

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

A-1
<PAGE>

INSTRUCTIONS FOR USE OF SUBSCRIPTION AGREEMENT
----------------------
CONSULT THE INFORMATION AGENT, YOUR
BANK OR BROKER AS TO ANY QUESTIONS

Each stockholder of EIP Microwave, Inc. (the "Company") has the right to
subscribe for fourteen Shares for each full share of common stock of the Company
(the "Basic Subscription Rights") owned of record at the close of business on
November 7, 1997 (the "Record Date"). The number of Shares you are entitled to
subscribe for appears on the front of the Subscription Agreement or can be
calculated by multiplying the number of shares of common stock owned of record
on the Record Date by fourteen. The subscription price is $0.50 for each Share.
You may also subscribe for Shares pursuant to an over-subscription privilege
(the "Over-Subscription Privilege"). To exercise your rights, you must complete
the appropriate sections of the Subscription Agreement. If you wish to exercise
your rights for the Over-Subscription Privilege, you must do so by no later than
5:00 p.m., California time, on March 20, 1998, unless extended by the Company
(such date, as it may be extended on one or more occasions, is referred to
herein as the "Expiration Date"). Rights may be exercised only through the
Company.

Treatment of Previously Subscribing Stockholders. Before distributing the
new Prospectus and subscription agreement to Stockholders of Record, the
Company will return to all Stockholders who previously subscribed for Shares
under the Rights Offering at the previous subscription prices of $1.70 or $1.00
(collectively, "Previously Subscribing Stockholders") all payments submitted
with such earlier subscriptions, without interest. All Previously Subscribing
Stockholders may subscribe for shares under the new terms of the Rights
Offering in the same method as other Stockholders of Record, as set forth
herein.

Method of Exercising Rights. To exercise your rights please follow the
steps below to complete and return the Subscription Agreement.

1. Complete "SECTION 1--Subscription and Signature."

A. Basic Subscription Rights. Enter the number of shares you intend to
purchase under your Basic Subscription Rights. The maximum number of
shares you may purchase on basic subscription appears on the front of
the Subscription Agreement or can be calculated by multiplying the
number of shares of common stock owned of record on the record date by
fourteen.

B. Over-Subscription Privilege. Enter the number of shares you desire to
purchase under your Over-Subscription Privilege. The
Over-Subscription Privilege is available only if you exercised all of
your Basic Subscription Rights. The maximum number of shares that you
can purchase pursuant to the Over-Subscription Privilege is 5,948,698
shares less the number of shares you purchased on Basic Subscription
Rights. The number of shares that will actually be purchased by you
will be subject to allotment if there are not enough shares remaining
after the Basic Subscription Rights to completely fill all requests
for purchases on over-subscription.

C. Total Subscription. Enter the total number of shares you want to
purchase in the offer. This number is the sum of the number of shares
you are purchasing on Basic Subscription Rights plus the number of
shares you desire to purchase under the Over-Subscription Privilege.

D. Total cost. Enter the total cost of your subscription. Your total
cost is the dollar number obtained when you multiply the number of
shares shown under total subscription by $0.50, the subscription price
per share.

A-2
<PAGE>

2. Sign the Subscription Agreement in the space provide at the bottom of
Section 1. Include your daytime telephone number in the space provided.

3. Enclose the executed Subscription Agreement, together with a check or money
order made payable to "EIP Microwave, Inc." in the amount of the total cost
(Item D. of Section 1), in the envelope provided. If you use your own
envelope, address it to EIP Microwave, Inc., 1745 McCandless Drive,
Milpitas, California 95035-8024. You may also personally deliver your
Subscription Agreement and payment to EIP Microwave, Inc., at the same
address.

4. Mail or deliver your executed Subscription Agreement and payment for the
total cost on a timely basis so that it is received by the Company by no
later than 5:00 p.m., California time, on the Expiration Date. If the
Company has not received your Subscription Agreement and payment for the
total cost by 5:00 p.m., California time, on the Expiration Date, you will
not be entitled to purchase shares pursuant to the rights. Accordingly, if
you are sending your executed Subscription Agreement and payment by mail,
please allow sufficient time for them to be received by the Company prior
to 5:00 p.m., California time, on the Expiration Date.

The Rights Offering is being made on an any or all basis, which means that
the Company may accept any subscription received even if all 5,948,698
Shares offered are not purchased. The following persons (collectively, the
"Committed Subscribers") have committed to the Company that they will
subscribe for an aggregate of 5,600,000 Shares with an aggregate
subscription price of $2,800,000 in the Rights Offering: J. Bradford
Bishop, Chairman and Chief Executive Officer, a Director and a principal
stockholder of the Company, has committed to subscribe for 3,200,000 Shares
with an aggregate subscription price of $1,600,000; John F. Bishop, Vice
Chairman, Secretary and Treasurer, a Director and a principal stockholder
of the Company, has committed to subscribe for 1,300,000 Shares with an
aggregate subscription price of $650,000 on behalf of the Bishop Family
Trust; James N. Cutler, Jr., a Director of the Company, has committed to
subscribe for 1,000,000 Shares with an aggregate subscription price of
$500,000 in Common Stock; and J. Sidney Webb, Jr., a Director of the
Company, has committed to subscribe for 100,000 Shares with an aggregate
subscription price of $50,000.

The Company reserves the right to reject any subscription agreement and
payment not properly submitted. The Company has no duty to give
notification of defects in any subscription agreement and/or payment and
will have no liability for failure to give such notification. The Company
will return any subscription agreement and/or payment not properly
submitted.

Stockholders should carefully review the related Prospectus prior to making
an investment decision with respect to the rights referred to in this
Subscription Agreement.

5. Information Agent. The address, telephone and telecopier numbers of the
Information Agent are as follows:

Corporate Investor Communications, Inc. ("CIC")
111 Commerce Road
Carlstadt, NJ 07072-2586
Telephone: (201) 896-1900
or Toll Free: (800) 631-8985
Telecopier: (201) 896-0910

A-3

<PAGE>

PART II

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Consistent with Article IX of the Company's Bylaws, the Company has
entered into individual Indemnification Agreements with its directors and
officers. The Indemnification Agreements, among other things, provide
mandatory indemnification protection in excess of that provided by Delaware
corporation law. The Indemnification Agreements provide certain procedures
relating to indemnification and advancement of expenses.

To the extent of the indemnification rights provided by the Delaware statutes
and provided by the Company's charter, bylaws and indemnification agreements,
and to the extent of the Company's abilities to meet such indemnification
obligations, the officers, directors and agents of the Company would be
beneficially affected.

II-1
<PAGE>

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following are all expenses of this issuance and distribution. There are
no underwriting discounts or commissions.

<TABLE>
<CAPTION>
Item Amount (1)
------------------------ ----------

<S> <C>
SEC Registration fees $ 1,263

Blue sky fees 4,500

Printing 30,000

Transfer Agent 2,000

Information Agent 10,000

Legal 110,000

Accounting 20,000

Miscellaneous $ 17,237
------------------------ ----------

TOTAL $ 195,000
</TABLE>

(1) Estimate

RECENT SALES OF UNREGISTERED SECURITIES

On April 10, 1997 the Company issued warrants to purchase 90,000 shares
of its Common Stock to John F. Bishop and J. Bradford Bishop (together, the
"Bishops") in consideration for the loan of $600,000 by the Bishops to the
Company pursuant to the Subordinated Loan Agreement. These warrants were
canceled on October 15, 1997. See "Interests of Management and Others in
Certain Transactions--Subordinated Loan."

The Company issued debt securities to Silicon Valley Bank evidencing
cash loans of up to $500,000, which have been repaid. The Company also
issued debt securities to the Bishops evidencing cash loans of up to
$1,000,000, and such loans have been repaid with the proceeds of the Bishop
Family Trust Loan Facility. See "Interests of Management and Others in
Certain Transactions--Subordinated Loan" and "--Bridge Loans." In addition,
the Company issued debt securities to the Bishop Family Trust evidencing cash
loans through February 13, 1998 of $1,250,000. See "The Company--Bishop
Family Trust Loan Facility." The Company has also issued debt securities to
J. Bradford Bishop evidencing cash loans through February 13, 1998 of
$700,000. See "The Company--Demand Loans." No underwriting discounts or
commissions were paid in connection with the issuance of the foregoing debt
securities.

The securities were not registered under the Securities Act of 1933 in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act or by Regulation D of the Commission.

II-2

<PAGE>

EXHIBITS

Filed as part of this Form SB-2 Registration Statement or incorporated by
reference are the following exhibits.

Exhibit
Number

3(a) Company's Certificate of Incorporation, filed on April 29, 1987, and
Certificate of Amendment of Certificate of Incorporation, filed
February 8, 1993, previously filed on February 12, 1993, as Exhibit
3(a) to Form 10-QSB Quarterly Report for quarter ended December 31,
1992, and incorporated herein by reference.

3(b) Company's Bylaws, previously filed June 25, 1987 (File No. 0-5351), as
Exhibit 3(b) to Form 8-K, and incorporated herein by reference.

5(a) Opinion of Bainbridge Group, a Law Corporation, as to the legality of
the securities covered by the Form SB-2 Registration Statement.

10(a) Standard Form Lease dated August 18, 1995, by and between Berg & Berg
Developers, as landlord, and the Company, as tenant, covering the
Company's manufacturing facility located at 1745 McCandless Drive,
Milpitas, California, previously filed on December 29, 1995, as
Exhibit 10(a) to Form 10-KSB Annual Report for fiscal year ended
September 30, 1995 (the "1995 Annual Report"), and incorporated herein
by reference.

10(b) Loan and Security Agreement dated March 10, 1992, between the Company
and Silicon Valley Bank, previously filed on May 14, 1992, as Exhibit
10(a) to Form 10-Q Quarterly Report for quarter ended March 31, 1992,
and incorporated herein by reference.

10(c) Amendment to Loan Agreement dated December 20, 1994, between the
Company and Silicon Valley Bank, previously filed on December 29,
1994, as Exhibit 10(h) to the 1994 Annual Report, and incorporated
herein by reference.

10(d) Loan Modification Agreement dated as of November 27, 1995, between the
Company and Silicon Valley Bank, previously filed on December 29,
1995, as Exhibit 10(i) to the 1995 Annual Report, and incorporated
herein by reference.

10(e) Loan Modification Agreement dated as of June 28, 1996, between the
Company and Silicon Valley Bank, previously filed on August 13, 1996,
as Exhibit 10(a) to Form 10-QSB Quarterly Report for quarter ended
June 30, 1996, and incorporated herein by reference.

10(f) Loan Modification Agreement dated as of November 15, 1996 between the
Company and Silicon Valley Bank, previously filed on December 30,
1996, as Exhibit 10(f) to Form 10-KSB Annual Report for fiscal year
ended September 30, 1996 (the "1996 Annual Report"), and incorporated
herein by reference.

10(g) Loan Modification Agreement dated as of January 15, 1997, between the
Company and Silicon Valley Bank, previously filed on May 13, 1997, as
Exhibit 10(a) to Form 10-QSB Quarterly Report for quarter ended March
31, 1997, and incorporated herein by reference.

10(h) Loan Modification Agreement dated as of March 5, 1997, between the
Company and Silicon Valley Bank, previously filed on May 13, 1997, as
Exhibit 10(a) to Form 10-QSB Quarterly Report for quarter ended March
31, 1997, and incorporated herein by reference.

10(i) Loan Modification Agreement dated as of November 13, 1997, between the
Company and Silicon Valley Bank, previously filed on December 18,
1997, as Exhibit 10(i) to Form SB-2 Registration Statement
(No. 333-42595), and incorporated herein by reference.

II-3

<PAGE>

10(j) Loan and Security Agreement dated as of October 15, 1997, between the
Company and the Bishop Family Trust, previously filed on November 14,
1997, as Exhibit 10(i) to Form SB-2/A Registration Statement (No.
333-37289), and incorporated herein by reference.

**10(k) Fixed Price Subcontract dated August 15, 1997, between the Company and
ManTech Systems Engineering Corporation.

*10(l) Employment Agreement dated as of October 1, 1995, between the Company
and John F. Bishop, previously filed on December 29, 1995, as Exhibit
10(k) to the 1995 Annual Report, and incorporated herein by reference.

*10(m) Amendment dated November 20, 1996 to Employment Agreement between the
Company and John F. Bishop, previously filed on December 30, 1996, as
Exhibit 10(i) to the 1996 Annual Report, and incorporated herein by
reference.

*10(n) Company's medical reimbursement plan (entitled "Full Medical
Coverage") covering certain officers, previously filed on December 23,
1981 (File No. 0-5351), as Exhibit 10(o) to Form 10-K Annual Report
for fiscal year ended September 30, 1981, and incorporated herein by
reference.

*10(o) Company's Tax and Financial Counseling reimbursement plan covering
officers, previously filed on December 23, 1981 (File No. 0-5351), as
Exhibit 10(p) to Form 10-K Annual Report for fiscal year ended
September 30, 1981, and incorporated herein by reference.

*10(p) Written description of EIP Bonus Plan for Fiscal 1997, previously
filed on December 30, 1996, as Exhibit 10(l) to the 1996 Annual
Report, and incorporated herein by reference.

*10(q) Second Amended and Restated 1994 Stock Option Plan, previously filed
on December 30, 1996, as Exhibit 10(n) to the 1996 Annual Report, and
incorporated herein by reference.

*10(r) Non-qualified Stock Option Agreement-Form, previously filed on
December 29, 1995, as Exhibit 10(v) to the 1995 Annual Report, and
incorporated herein by reference.

*10(s) Incentive Stock Option Agreement-Form, previously filed on December
29, 1995, as Exhibit 10(w) to the 1995 Annual Report, and incorporated
herein by reference.

10(t) Indemnification Agreement dated July 15, 1992, between the Company and
J. Bradford Bishop, previously filed on December 20, 1992, as Exhibit
10(n) to Form 10-KSB Annual Report for fiscal year ended September 30,
1992 (the "1992 Annual Report"), and incorporated herein by reference.

10(u) Indemnification Agreement dated July 15, 1992, between the Company and
Robert D. Johnson, previously filed on December 20, 1992, as Exhibit
10(o) to the 1992 Annual Report for fiscal year ended September 30,
1992, and incorporated herein by reference.

10(v) Indemnification Agreement dated July 15, 1992, between the Company and
James J. Shelton, previously filed on December 20, 1992, as Exhibit
10(p) to the 1992 Annual Report for fiscal year ended September 30,
1992, and incorporated herein by reference.

10(w) Indemnification Agreement dated July 15, 1992, between the Company and
J. Sidney Webb, Jr., previously filed on December 20, 1992, as Exhibit
10(q) to the 1992 Annual Report for fiscal year ended September 30,
1992, and incorporated herein by reference.

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

* Management contract or compensatory plan or arrangement.
** Portions of this document are confidential, and have been omitted pursuant
to 17 C.F.R. Section 230.406 and filed separately with the Securities and
Exchange Commission.

II-4
<PAGE>

10(x) Indemnification Agreement dated July 15, 1992, between the Company and
John F. Bishop, previously filed on December 23, 1993, as Exhibit
10(m) to Form 10-KSB Annual Report, for fiscal year 1993 (the "1993
Annual Report"), and incorporated herein by reference.

10(y) Indemnification Agreement dated February 13, 1996, between the Company
and Michael E. Johnson, previously filed on May 9, 1996, as Exhibit
10(a) to Form 10-QSB Quarterly Report for quarter ended March 31,
1996, and incorporated herein by reference.

10(z) Indemnification Agreement dated February 19, 1997, between the Company
and Lewis R. Foster, previously filed on May 13, 1997, as Exhibit
10(c) to Form 10-QSB Quarterly Report for quarter ended March 31,
1997, and incorporated herein by reference.

10(aa) Indemnification Agreement dated February 19, 1997, between the Company
and Ivan Andres, previously filed on May 13, 1997, as Exhibit 10(d) to
Form 10-QSB Quarterly Report for quarter ended March 31, 1997), and
incorporated herein by reference.

10(bb) OEM Purchase Agreement effective on May 28, 1997, previously filed on
August 14, 1997, as Exhibit 10(a) to Form 10-QSB Quarterly Report for
quarter ended June 30, 1997, and incorporated herein by reference.**

10(cc) 1998 Stock Plan, previously filed on January 14, 1998, as an
attachment to the definitive Proxy Statement on Schedule 14A, and
incorporated herein by reference.

10(dd) Commitments to Subscribe in Rights Offering.

16 Letter dated November 13, 1997 from Price Waterhouse LLP to the
Securities and Exchange Commission, previously filed on November 14,
1997, as Exhibit 16 to Form 8-K/A Current Report, and incorporated
herein by reference.

21 Subsidiaries of the Company, previously filed on December 30, 1996, as
Exhibit 21 to the 1996 Annual Report, and incorporated herein by
reference.

23(a) Consent of Bainbridge Group, a Law Corporation, to the reference to it
as counsel who has passed upon certain information contained in the
Prospectus.

23(b) Consent of Meredith, Cardozo, Lanz & Chiu LLP.

23(c) Consent of Price Waterhouse LLP.

- -----------------------------------
** Portions of this document are confidential, and have been omitted
pursuant to 17 C.F.R. Section 230.406 and filed separately with the
Securities and Exchange Commission.

UNDERTAKINGS

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;

II-5
<PAGE>

(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

II-6
<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 (Post-Effective Amendment) and
authorized this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Milpitas, California
on February 27, 1998.

EIP MICROWAVE, INC.

By: /s/ J. Bradford Bishop
--------------------------------
J. Bradford Bishop
Chairman and Chief Executive
Officer

In accordance with the requirements of the Securities Act of 1933, this
amendment to the registration statement was signed by the following persons in
the capacities and on the dates indicated.

February 27, 1998 /s/ J. Bradford Bishop
------------------------------
J. Bradford Bishop
Chairman of the Board, Chief Executive Officer and
Director (Principal Executive Officer)

February 27, 1998 /s/ John F. Bishop
------------------------------
John F. Bishop
Vice Chairman, Treasurer, Secretary, and Director
(Principal Financial Officer)

February 27, 1998 /s/ James N. Cutler, Jr.
-------------------------
James N. Cutler, Jr.
Director

-------------------------
Michael E. Johnson
Director

February 27, 1998 /s/ Robert D. Johnson
------------------------------
Robert D. Johnson
Director

February 27, 1998 /s/ J. Sidney Webb
------------------------------
J. Sidney Webb
Director

February 27, 1998 /s/ E. O. Bince
------------------------------
E. O. Bince
Controller (Principal Accounting Officer)

II-7
<PAGE>

INDEX TO EXHIBITS

Exhibit No. Description
- ---------- -----------
5(a) Opinion of Bainbridge Group, a Law Corporation, as to the
legality of the securities covered by the Form SB-2
Registration Statement.*

10(k) Fixed Price Subcontract dated August 15, 1997, between the
Company and ManTech Systems Engineering Corporation.* **

10(dd) Commitments to Subscribe in Rights Offering.*

23(a) Consent of Bainbridge Group, a Law Corporation, to the
reference to it as counsel who has passed upon certain
information contained in the Prospectus.

23(b) Consent of Meredith, Cardozo, Lanz & Chiu LLP.

23(c) Consent of Price Waterhouse LLP.

- -----------------------------------
* Previously filed
** Portions of this document are confidential, and have been omitted
pursuant to 17 C.F.R. Section 230.406 and filed separately with the
Securities and Exchange Commission.

II-8

<PAGE>

EXHIBIT 23(a) Consent of Bainbridge Group, a Law Corporation, to the reference
to it as counsel who has passed upon certain information
contained in the Prospectus.

BAINBRIDGE GROUP

February 27, 1998

EIP Microwave, Inc.
4500 Campus Drive
Suite 219
Newport Beach, California 92660

Gentlemen:

The undersigned is named in a Form SB-2 Registration Statement of EIP
Microwave, Inc., a Delaware corporation (the "Company"), which registration
statement filed with the Securities and Exchange Commission in connection with a
rights offering of 5,948,698 shares of Common Stock of the Company to its
stockholders. The capacity in which the undersigned is named in such SB-2
Registration Statement is that of counsel to the Company and as a person who has
given an opinion on the validity of the securities being registered and upon
other legal matters concerning the registration or offering of the securities
described therein.

The undersigned hereby consents to being named in such SB-2 Registration
Statement in the capacity therein described.

Sincerely,

BAINBRIDGE GROUP

/s/ Michael E. Johnson
-----------------------------
Michael E. Johnson, President

Page 1

<PAGE>

EXHIBIT 23(b) Consent of Meredith, Cardozo, Lanz & Chiu LLP.

CONSENT OF INDEPENDENT AUDITORS

We consent to the use in the Prospectus constituting part of this Registration
Statement on Form SB-2 of our report dated November 20, 1997, relating to the
financial statements of EIP Microwave, Inc., which appears in such Prospectus.
We also consent to the references to us under the heading "Experts" in such
Prospectus.

/s/ MEREDITH, CARDOZO, LANZ & CHIU LLP

MEREDITH, CARDOZO, LANZ & CHIU LLP
San Jose, California
February 27, 1998

<PAGE>

EXHIBIT 23(c) Consent of Price Waterhouse LLP.

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 (No. 333-42595) of our report dated
December 23, 1996, except for the third paragraph of Note 1, the second
paragraph of Note 6 and Note 9, which are as of October 23, 1997, relating to
the financial statements of EIP Microwave, Inc., which appears in such
Prospectus. We also consent to the references to us under the heading
"Experts" in such Prospectus.

/s/ PRICE WATERHOUSE LLP

PRICE WATERHOUSE LLP
San Jose, California
March 2, 1998