Notes to Financial Statements
(unaudited)

April 28, 1995

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION -- The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine-month period ending July 28, 1995 are not necessarily indicative of the results that may be expected for the year ending October 31, 1995. For further information, refer to the consolidated financial statements and footnotes thereto included in the CompanyÕs annual report on Form 10K for the year ended October 31, 1994.

EARNINGS PER SHARE -- Net income (loss) per share is computed using the weighted average number of shares of common stock outstanding and dilutive common equivalent shares from stock options (using the treasury stock method). Common equivalent shares from stock options are excluded from the computation for the three months ended July 28, 1995 as their effect is anti-dilutive.

INVESTMENTS --Effective November 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and Equity Securities." In accordance with SFAS 115, prior period financial statements have not been restated to reflect the change in accounting principle. The impact of adoption at November 1, 1994 was immaterial.

Management determines the appropriate classification of debt securities at the time of purchase and revaluates such designation as of each balance sheet date. The Company's debt securities, which consist primarily of U.S. Treasury Securities, are classified as available-for-sale and are carried at fair market value in short term investments and long term investments. Unrealized gains and losses, net of tax, are reported in shareholders equity as part of retained earnings and were immaterial for the nine months ended July 28, 1995. Realized gains and losses and interest on available-for-sale securities are included in interest income (expense), net. The cost of securities sold is based on the specific identification method. At July 28, 1995, the contractual maturities of the debt securities were staggered over three years all maturing by June 30, 1998.

The components of inventories consist of the following (in thousands):

                                   July 28, 1995       October 31, 1994

          Raw Materials               $   506               $   253

          Work in Process               7,874                 2,174

          Finished Goods                  629                   231
                                      _______               _______

                                        9,009                 2,658

          Precontract Costs               713                    56
                                      _______               _______

                                      $ 9,722               $ 2,714

Under the Company's accounting practice, the Company records contract revenues and costs for interim reporting purposes based on annual targeted indirect rates. At year end, the revenues and costs are adjusted for actual indirect rates. During the interim reporting periods variances may accumulate between the actual indirect rates and the annual targeted rates. All timing-related indirect spending variances are inventoried as part of work in process during these interim reporting periods. These rates are reviewed regularly and any permanent variances are reflected in the income statement as they become known. At July 28, 1995, the inventoried variance was approximately $4,150,000 ($828,000 at July 29, 1994) and was included in work in process. At October 31, 1994 the variance was zero since all revenues and costs were recorded at the actual indirect rates for fiscal 1994.

The remaining $2.8 million growth in inventory is the result of the Company-authorized buildup of product inventory to support the needs of the government for quick-reaction off-the-shelf product sales.

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