UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended July 30, 2000

                                       OR

           [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
        For the transition period from ...............to ...............

                           Commission File No. 0-5411

                             Herley Industries, Inc.
                             -----------------------
             (Exact name of registrant as specified in its charter)

     Delaware                                                  23-2413500
     --------                                              -------------------
     State or other jurisdiction                          (I.R.S. Employer
     of incorporation or organization                       Identification No.)

     10 Industry Drive, Lancaster, Pennsylvania                    17603
     ------------------------------------------                   --------
     (Address of Principal Executive Offices )                   (Zip Code)

     Registrant's telephone number, including area code: (717) 397-2777
                                                         --------------

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

 Title of each class                       Name of Exchange on which registered
 -------------------                       ------------------------------------
        None                                               None

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

                          Common Stock, $ .10 par value
                          -----------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X] No [ ]

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

Based on the closing  sale price of $20.50 as of October 11, 2000 the  aggregate
market value of the voting stock held by  non-affiliates  of the  registrant was
$106,351,335.

The number of shares  outstanding of registrant's  common stock, $ .10 par value
as of October 11, 2000 was 5,994,338.

Documents incorporated by reference:
-----------------------------------
Registrant's  definitive  proxy statement to be filed pursuant to Regulation 14A
of the Securities Exchange Act of 1934.


<PAGE>



                             HERLEY INDUSTRIES, INC.

                                TABLE OF CONTENTS

                                                                          Page
                                                                          ----
PART I
   Item 1     Business                                                      1
   Item 2     Properties                                                   10
   Item 3     Legal Proceedings                                            10
   Item 4     Submission of Matters to a Vote of Security Holders          10

PART II
   Item 5     Market for Registrant's Common Equity and Related
                 Stockholder Matters                                       11
   Item 6     Selected Financial Data                                      11
   Item 7     Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                       12
   Item 7A    Quantitative and Qualitative Disclosures About Market Risk   15
   Item 8     Financial Statements and Supplementary Data                  16
   Item 9     Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure                       16
PART III
   Item 10    Directors and Executive Officers of the Registrant           16
   Item 11    Executive Compensation                                       16
   Item 12    Security Ownership of Certain Beneficial
                 Owners and Management                                     16
   Item 13    Certain Relationships and Related Transactions               16

PART IV
   Item 14    Exhibits, Financial Statement Schedules and Reports
              on Form 8K                                                   17

SIGNATURES                                                                 18

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES                  F-1


<PAGE>



PART I

Forward-Looking Statements

All statements  other than statements of historical fact included in this Annual
Report, including without limitation statements under,  "Management's Discussion
and Analysis of Financial  Condition and Results of Operations"  and "Business,"
regarding  the Company's  financial  position,  business  strategy and plans and
objectives   of   management   of  the  Company  for  future   operations,   are
forward-looking  statements.  When used in this  Annual  Report,  words  such as
"anticipate," "believe," "estimate," "expect," "intend" and similar expressions,
as they  relate  to the  Company  or its  management,  identify  forward-looking
statements.  Such  forward-looking  statements  are based on the  beliefs of the
Company's  management,  as well as assumptions made by and information currently
available to the Company's  management.  Actual results could differ  materially
from those contemplated by the forward-looking statements as a result of certain
factors including but not limited to, competitive factors and pricing pressures,
changes  in  legal  and  regulatory   requirements,   technological   change  or
difficulties,   product   development   risks,   commercialization   and   trade
difficulties  and  general  economic  conditions.  Such  statements  reflect the
current  views of the Company with  respect to future  events and are subject to
these and other risks, uncertainties and assumptions relating to the operations,
results of  operations,  growth  strategy  and  liquidity  of the  Company.  All
subsequent  written  and oral  forward-looking  statements  attributable  to the
Company  or  persons  acting on its  behalf  are  expressly  qualified  in their
entirety by this paragraph.

Item 1.  Business

Herley  Industries,  Inc.  ("Herley" or  "Company") a Delaware  corporation  was
incorporated in 1965. The Company's executive offices are located at 10 Industry
Drive,  Lancaster,  PA 17603. The Company's common stock is listed on The Nasdaq
National Market under the symbol "HRLY".

Herley is a microwave  technology  company with five  manufacturing  facilities,
over sixty  microwave  engineers and  approximately  600 employees.  The Company
operates in a single  business  segment  consisting  of  research,  engineering,
product development, and manufacturing of complex microwave radio frequency (RF)
and millimeter wave components and subsystems for commercial  wireless,  defense
and space customers worldwide.

Herley  has  over 35  years of  experience  in the  design  and  manufacture  of
sophisticated  RF,  microwave and millimeter wave electronic  components for the
defense  industry.  These products  receive,  transmit and process wireless data
signals.  During  1998 the  Company  began to explore  the  commercial  wireless
industry to determine the level of market potential for its technology.

Herley   believes  a  significant   portion  of  its  microwave   technology  is
transferable  to  commercial   wireless   applications.   As  an  example,   the
Interference  Cancellation System ("ICS") was derived from technology  developed
during the creation of military systems that deliberately jam microwave signals.
ICS  generates an equal  amplitude  and opposite  phase signal that  effectively
cancels the interfering signal.

The  Company's  defense  business is expected  to continue  its current  rate of
growth,  generating  consistent earnings that would be available,  if needed, to
invest in the commercial wireless opportunities to achieve top line growth.

Herley's  acquisition of General Microwave in January 1999 was the first step in
this process.  The  acquisition  added depth and breadth to the defense  product
line, strengthened an already strong team of engineers,  and gave the Company an
immediate  entry into  commercial  wireless  markets  with  General  Microwave's
commercial products catalog.

Subsequent to the General Microwave acquisition,  Herley began to coordinate the
direction of its  facilities,  determine  the  viability of the existing line of
commercial wireless products, and ascertain how best to apply existing microwave
technology in the  development of new products.  Herley  Wireless  Technologies,
Inc. was

                                        1

<PAGE>



formed in February  2000 to pursue  commercial  wireless  opportunities  through
product development, teaming agreements, investments and acquisitions.

Herley's  technology range covers the entire wireless spectrum,  from RF (at 900
MHz to  1800  MHz),  microwave  frequencies  (2.4  GHz  through  18.0  GHz),  to
millimeter wave  frequencies (20 GHz through 40 GHz). This capability  gives the
Company the ability to select opportunities in both fixed wireless broadband and
mobile wireless applications.

Strategy

The  Company's  strategy is to attempt to continue to leverage  its  proprietary
technology,  microwave  development  and  manufacturing  capabilities to further
expand its penetration in the wireless  communications and defense markets.  Key
components of the Company's strategy include the following:

Increase Levels of Component Integration and Value Added Content

Due to acquisitions,  product  development and growth of engineering  expertise,
the Company has increased its capability to provide more component  integration.
Component  integration adds value and will enable Herley to increase content and
revenue levels on wireless and defense systems.

Further Expansion into Commercial Markets

The  Company  has over 35  years  experience  in  microwave  technology  used in
designing and manufacturing complex microwave products for the defense industry.
The Company  recently  successfully  leveraged this experience into the wireless
communications  markets  and will  continue  to expand  its  presence  in select
markets.

Maintain Leadership in Microwave Technology

The Company intends to pursue further  technological  advances through continued
investment  in research  and  development.  The Company will seek to advance its
leadership in microwave  technology by continuing its  participation in selected
defense programs that involve highly  sophisticated  state-of-the-art  microwave
technology.

Strengthen and Expand Customer Relationships

The Company has developed  mutually  beneficial  relationships  with defense and
commercial  companies.  The Company  expects to continue to build and strengthen
relationships  with industry  leaders by  recognizing  their needs and providing
them with timely and cost effective solutions.

Enhance High Volume Manufacturing Capability

The Company intends to continue to implement  process  manufacturing  automation
and believes  that its ability to develop a high level of  automated  production
and test capability will help to further improve its cost effectiveness and time
to market.

Pursue Strategic Acquisitions

The  Company  intends to continue to augment  its  existing  technology  base by
acquiring specialized technology companies that complement its product offerings
and  market  strategies.  The  Company  believes  that  expansion  of  its  core
competencies through the acquisition of such specialized  technology  companies,
when combined with its  technological  and  manufacturing  skills,  will provide
improved  levels of  integration,  leading to  subsystems  and complete  systems
products.


                                        2

<PAGE>



Company Products

Commercial Wireless

Herley  has  selected  the  following  applications  to focus  upon  within  the
commercial  wireless  market:  point-to-  point  access and  point-to-multipoint
access;  handset,  radio and  infrastructure  test equipment;  power amplifiers,
repeaters, and interference cancellation systems, and fiber optic communication.

Test Equipment

Test equipment is used in the  manufacturing  of cell phones,  base stations and
radio  requiring  components  and  assemblies  with  very high  performance  and
quality.   These  systems   operate  over   bandwidths  much  greater  than  the
transmission  bandwidth in order to check  parameters  outside of the  operating
band.  Herley has pushed the state of the art in  wideband  components,  such as
attenuators, IQ modulators and up/down converters.

The Company  initially focused on this segment of the wireless market because of
the wide range of catalog  products it can offer and because the price pressures
are significantly less than in the higher volume infrastructure equipment.

The  wireless  equipment  (handsets  and  infrastructure)  market  is  likely to
increase  by  approximately  30% in  2000,  to $119  billion.  Wireless  telecom
equipment should remain one of the fastest-growing  segments of the $340 billion
telecom  equipment  market.  It is expected that the market will post a compound
annual  growth  rate of 18% - 20%  over  the  next  five  years,  driven  by new
applications such as data as well as higher penetration rates.

The key driver for wireless  equipment spending is the conveniences of "anytime,
anywhere"  voice  communications.  Herley expects voice (both minutes of use and
new  subscribers) to remain a critical  catalyst of telecom  equipment  spending
over the next 12-18 months.  However, in 2001, as the penetration rate begins to
exceed 50% in the developed countries and 10%-15% in many developing  countries,
the growth rate for wireless voice products is likely to begin to level off. The
overall  worldwide  penetration  rate was estimated at 8% at the end of 1999 and
should reach over 12% by the end of 2000.

Point-to-Point and Point-to-Multipoint Radio

Point-to-point   radios   have  been  used  for  some  time  in  line  of  sight
communications where land-based  telecommunication  was absent. The rapid growth
of this market has resulted  from the use of radios to connect base  stations in
the cellular infrastructure.

Point-to-point fixed wireless connects a central building to the fiber backbone.
It has  multiple  antennas;  each  targeted  at a single  antenna  on a customer
building,  giving each customer the full bandwidth of the antenna,  i.e.  higher
speeds.  Maximum  speed is 155  million  bits per second as  compared to a "high
speed" line that provides 1.54 million bits per second.

Point-to-multipoint  fixed  wireless  connects  multiple  buildings to the fiber
backbone through a central building.  For example, the central building has four
antennas. Each antenna covers 90 degrees so the central building can communicate
with all  surrounding  buildings.  In most cases,  all customers  share the four
antennas.  Costs of  Point-to-multipoint  are less, but this application  offers
lower speed services. Herley supplies subsystems  (receiver/transmitter modules)
to digital microwave radio original equipment manufacturers ("OEMs").

Power Amplifiers, Repeaters, and Interference Cancellation System

Herley has recently broadened its technical and marketing capability in the area
of power amplifiers,  which opens opportunities in various power-based products.
The cellular  infrastructure  uses power  amplifiers in the base stations and in
tower top  amplifiers and repeaters to extend the range and capacity of the base
stations.  The Company's  initial focus will be on supplying power amplifiers to
service providers.

                                        3

<PAGE>



Herley has an additional  advantage and opportunity in this market segment.  The
Company  has  signed a  teaming  agreement  with  Cyber  Dynamics  to  introduce
interference  cancellation  systems into  repeaters,  which would  significantly
enhance their performance.  This product is unique in the market and is based on
patented  and  proprietary  technology  from Cyber  Dynamics  and Herley.  It is
particularly  useful in wideband  multicarrier  systems expected to dominate the
next generation (3G) systems. The interference  cancellation system is presently
in production for a military  communication  system and field trials are planned
with domestic and international cellular service providers.

Fiberoptic Communications

The  fixed and  mobile  Internet  infrastructure  has  boosted  again the use of
high-speed  fiberoptics.   The  speed  in  fiberoptic   communication  has  been
increasing  steadily  and has now  reached  into the 10 to 40 Gbit  range.  This
necessitates  the use of  microwave  circuits to drive the  optical  components.
Herley  engineers have long  predicted the merger of  fiberoptics  and microwave
technologies.  In 1993,  one of the  Company's  leading  engineers  designed  an
optical device based on Lithium Niobate that can transmit signals at 40 Gbit for
which the Company has received a patent.

In simple terms,  fiber optic  technology uses a strand of glass as thin as hair
that  transmits  both  voice  and data  signals  in the  form of  light  pulses.
Information is encoded in digital signals (binary code) and transmitted  through
a fiber by modulating a light source similar to a laser effect.  At the signal's
destination,   the  signal  is  decoded  and   reconstructed   as  the  original
information.

The fiber optic cable has a core through which the signal travels and a cladding
that surrounds and protects the core confining the light signal. These lightwave
signals are guided through the core of the optical fiber similar to the way that
radio frequency (RF) signals are guided through coaxial cable.

Fiber optics are produced in single or multimode.  Single mode has smaller cores
resulting  in higher  transmission  rates and lower signal  losses.  Single mode
fiber optics have higher  transmission  and receiving  costs but carry 50 to 100
times more  capacity.  On the other hand,  multimode  fiber  optics are used for
short distances or for slower transmission requirements.

Fiber is  designed  to last  approximately  20 years or more.  Fiber optic cable
offers much greater bandwidth than the older copper technologies, is more secure
and robust,  and has been developed to coexist with next  generation  networking
technologies.  The major trunk lines, those between one telephone company switch
to another, are now primarily fiber optic cables.  However, the cabling from the
Telephone  Company  to  residential  and  some  business  areas  still  consists
primarily  of older  coaxial  cable  and  copper  pairs.  The  Company  supplies
microwave  products to fiber optic  manufacturers,  including voltage controlled
oscillators.


Defense and Space Products

The Company has focused its efforts on providing  microwave  products to defense
programs,  which  have  extended  production  cycles.  Herley's  subsystems  and
integrated  components use  specialized  combinations of components that perform
various  microwave  functions  including  filters,  switches,  oscillators,  and
amplifiers, among others.

The Company is involved in the following applications:

         Carrier Landing Systems
         Electronic Countermeasure Systems
         Rear Warning Receivers
         Space Launch
         Fire Control Radar


                                        4

<PAGE>



Microwave Components

Herley   manufactures   microwave   devices   at  its   facilities   in  Woburn,
Massachusetts;  in Nashua  New  Hampshire,  in  Farmingdale,  New  York;  and in
Jerusalem,  Israel for existing long-term military programs,  for new production
units, as well as for spare parts and repair services.  These microwave  devices
are  used in a  variety  of  radar,  communications  and  missile  applications,
including airborne and shipboard navigation and missile guidance systems.

The Company  designs and  manufactures  complex  microwave  integrated  circuits
("MICs"), which consist of sophisticated assemblies that perform many functions,
primarily  involving  switching of microwave  signals.  MICs manufactured by the
Company are employed in many  defense  electronics  military  systems as well as
missile programs. The Company also manufactures magnetrons,  which are the power
source utilized in the production of the Company's transponders.

Command and Control Systems (C2)

The Company's command and control systems have been used to fly remotely a large
variety of unmanned aerial vehicles ("UAVs"),  typically aircraft used as target
drones  or  Remotely  Piloted  Vehicles   ("RPVs")  and  some  surface  targets.
Operations  have been conducted by users on the open ocean,  remote  landmasses,
and instrumented test and training ranges.

Telemetry Systems

Missile,  UAV,  or target  testing on  domestic  and  international  test ranges
requires  flight safety and  performance  data  transmission  to maximize flight
safety during the test operation.  Surveillance and intelligence  gathering UAVs
also  require a data  transmission  downlink  and a command and control  systems
uplink to accomplish their mission. The Company has developed a telemetry system
capability that can be configured to meet individual  customers' needs.  Various
components  of  the  system  include  data  encoders,  transmitters  and  flight
termination  receivers.  Each  has a  distinctive  role  and  each is key to the
success of the mission.

Transponders

The Company manufactures a variety of expendable  transponders,  including range
safety,  identification friend or foe ("IFF"),  command and control, and scoring
systems. Transponders are small, expendable,  electronic systems consisting of a
transmitter,   sensitive  receiver  and  internal  signal  processing  equipment
comprised of active and passive components,  including  microwave  subassemblies
such as  amplifiers,  oscillators  and  circulators.  The  transponder  receives
signals from radars,  changes and amplifies  the  frequency of the signals,  and
sends back a reply on a different frequency and signal level. This reply will be
a strong,  noise free signal upon which the tracking  radar can "lock",  and one
that is far superior to skin  reflection  tracking,  particularly  under adverse
weather conditions after the launch.

Flight Termination Receiver

A flight  termination  receiver ("FTR") is installed in a test missile, a UAV, a
target or a space  launch  vehicle  as a safety  device.  The FTR has a built-in
decoder that enables it to receive a complex  series of audio tones which,  when
appropriate,  will set off an explosive charge that will destroy the vehicle.  A
Range Safety Officer ("RSO") using the range safety  transponder  will track the
vehicle in flight to  determine  if it is  performing  as  required.  If the RSO
detects a malfunction  in the test or launch vehicle that causes it to veer from
a planned trajectory in a manner that may endanger personnel or facilities,  the
RSO will  transmit a coded  signal to the  onboard  FTR to explode  the  vehicle
harmlessly.

HF Communications and IFF Interrogators

The  Company  also  designs  and  manufactures  high  frequency  radio  and  IFF
interrogators.  This high frequency communications equipment is used by the U.S.
Navy and foreign navies that conduct joint military exercises

                                        5

<PAGE>



with  the  U.S.  Navy.  The IFF  interrogators  are  used  as part of  shipboard
equipment and are also placed on  coastlines,  where they are employed as silent
sentries.  The Company has been a significant  supplier to the Republic of Korea
("ROK") for over twenty  years and has a large,  established  installed  base of
equipment.  The Company has been, and continues to be, a supplier to the ROK KDX
destroyer program.

Customers

During the fiscal year ended July 30, 2000,  approximately  26% of the Company's
sales were  attributable  to  contracts  with  offices and agencies of the U. S.
Government.  No other  customers  accounted  for  shipments  in excess of 10% of
consolidated net sales.

During fiscal year 2000, sales to foreign customers  accounted for approximately
23% of the  Company's  consolidated  net  sales  and  included  shipments  to 31
countries.  All of the Company's contracts with foreign customers are payable in
U. S. dollars.

Sales to  foreign  customers  for  each of the  last  three  fiscal  years  were
$16,506,000,  $17,680,000  and  $11,943,000  in  fiscal  2000,  1999,  and 1998,
respectively.

Herley sells  commercial  wireless  communications  products  primarily to OEMs,
which in turn  integrate  its products into  wireless  infrastructure  equipment
solutions sold to network service providers.  In addition,  Herley sells certain
niche products directly to network service providers. Some of Herley's customers
for commercial wireless subsystems include:

         Alcatel
         Digital Microwave
         Teradyne
         P-Com
         Tadiran
         Matra BAe

The Company also offers  defense  electronics  equipment to major  defense prime
contractors  for  integration  into larger  systems.  Some of its  customers for
defense electronics equipment include:

         Boeing
         British Aerospace
         Harris
         Lockheed Martin
         Litton
         Northrop Grumman
         Raytheon

Business Acquisition

The  Company  entered  into an  agreement,  as of  January  3,  2000 to  acquire
substantially all of the assets of Robinson  Laboratories,  Inc.  ("Robinson" or
"Robinson  Labs"),  a New Hampshire  corporation,  which is being  operated as a
division of Herley Industries, Inc.  Robinson designs, develops and manufactures
microwave   components   and   subassemblies   for  the   defense,   space   and
telecommunications  markets. The transaction,  which closed on February 1, 2000,
provided for the payment of $6,000,000 in cash, the issuance of 33,841 shares of
Common Stock of the Company  valued at $15.188 per share,  and the assumption of
approximately $3,140,000 in liabilities. In addition, the agreement provides for
the issuance of additional shares of Common Stock at a future date,  aggregating
97,841 shares, based on new orders booked through January 2001. The cash portion
of the purchase  price was financed by borrowing  under the  Company's  existing
line of credit with its bank. The  transaction  has been accounted for under the
purchase method.  Accordingly the consolidated  statement of income includes the
results of Robinson's operations from January 3, 2000. Excess cost over the fair
value of net assets acquired of approximately $5,467,000 is being amortized over
20 years.


                                        6

<PAGE>



Sales and Marketing

The Company  markets its  products  worldwide  to OEMs and service  providers in
commercial  markets and prime contractors in defense markets primarily through a
sales  force  generally  organized  by  geographic  territory  and  markets.  In
addition,  the Company has contracts with manufacturers'  representatives in the
United  States  and  international  representatives  who are  located in Western
Europe, the Middle East and Asia. As part of its marketing efforts,  the Company
advertises in major trade publications and attends major industrial shows in the
commercial wireless communications and defense markets.

After the Company has  identified  key  potential  customers,  the Company makes
sales calls with its own sales,  management  and  engineering  personnel and its
manufacturers' representative.

In order to promote widespread  acceptance of its products and provide customers
with support for their wireless  communications  needs,  the Company's sales and
engineering teams work closely with its customers to develop tailored  solutions
to their  requirements.  The  Company  believes  that its  customer  engineering
support provides it with a key competitive advantage.

Manufacturing

The Company manufactures its products from standard components,  as well as from
items  that are  manufactured  by  vendors to the  company's  specifications.  A
majority of the Company's  commercial  and defense  electronics  assemblies  and
subsystems products contain proprietary  technology which is designed and tested
by the Company's  engineers and technicians and is manufactured at the Company's
own facilities.

The  Company   continues  to  invest  in  the  advancement  of  its  proprietary
manufacturing  processes  and  in  automation  of the  manufacturing  processes.
Automation   is   critical  in  meeting   its   customers'   demands  for  price
competitiveness,  world class quality and on-time delivery.  The Company is also
investing  to  enhance  its   responsiveness  to  production  demands  from  its
customers.

Electronic components and other raw materials used in the Company's products are
purchased  by the  Company  from a large  number  of  suppliers  and all of such
materials are readily available from alternate sources.

The  Company  does not  maintain  any  significant  level of  finished  products
inventory.  Raw  materials are  generally  purchased for specific  contracts and
common  components  are purchased  for stock based on the  Company's  firm fixed
backlog.

There are no significant  environmental  control procedures  required concerning
the discharge of materials into the  environment  that would require the Company
to invest in any  significant  capital  equipment  or that would have a material
effect on the earnings of the Company or its competitive position.

Quality  assurance  checks are performed on manufacturing  processes,  purchased
items,  work-in-process  and finished  products.  Due to the  complexity  of the
Company's products, final tests are performed on some products by highly skilled
engineers and technicians.

Herley's primary manufacturing facilities have earned the ISO 9001 Registration.
The ISO 9000 series standards are internationally  recognized quality management
system requirements.  ISO 9001, the most comprehensive  Standard in the ISO 9000
Series covers design, manufacturing, installation, and servicing systems.

Assembly,  test,  package and  shipment of  products  are done at the  Company's
manufacturing facilities located in the following cities:

         Lancaster, Pennsylvania
         Farmingdale, New York
         Woburn, Massachusetts

                                        7

<PAGE>



         Nashua, New Hampshire
         Jerusalem, Israel

Backlog

The Company's total backlog of orders was approximately  $53,127,000 on July 31,
2000 as  compared  to  $49,230,000  on August 1, 1999.  Of the  Company's  total
backlog of $53,127,000 at July 30, 2000, $31,178,000 is attributable to domestic
orders and $21,949,000 is attributable to foreign orders. Management anticipates
that approximately  $41,835,000 of its backlog will be shipped during the fiscal
year ending July 29, 2001.

All of the  orders  included  in backlog  are  covered  by signed  contracts  or
purchase   orders.   Backlog  is  not  directly   indicative  of  future  sales.
Accordingly,  the Company does not believe that its backlog as of any particular
date is representative of actual sales for any succeeding period.

Substantially all of the Company's contracts are fixed price contracts,  some of
which require  delivery over time periods in excess of one year.  With this type
of contract,  the Company agrees to deliver products at a fixed price except for
costs incurred because of change orders issued by the customer.

In accordance with  Department of Defense  procedures,  all contracts  involving
government programs may be terminated by the government, in whole or in part, at
the  government's  discretion.  In  the  event  of  such  a  termination,  prime
contractors on such contracts are required to terminate  their  subcontracts  on
the program and the  government or the prime  contractor is obligated to pay the
costs incurred by the Company under the contract to the date of termination plus
a fee based on the work completed.

Research and Development

The Company  believes that its growth depends,  in part, on its ability to renew
and expand its technology, products, and design and manufacturing processes with
an emphasis on cost effectiveness.  The Company's primary efforts are focused on
engineering design and product development activities rather than pure research.
A substantial portion of the Company's development activities has been funded by
the Company's  customers.  Certain of the  Company's  officers and engineers are
involved  at various  times and in  varying  degrees  in these  activities.  The
Company's policy is to assign the required engineering and support people, on an
ad hoc basis,  to new product  development as needs require and budgets  permit.
The  cost  of  these  development  activities,  including  employees'  time  and
prototype  development,  net of amounts paid by  customers,  were  approximately
$1,727,000,   $1,685,000,  and  $1,562,000  in  fiscal  2000,  1999,  and  1998,
respectively.

Competition

The microwave  component and subsystems  industry is highly  competitive and the
Company  competes  against many  companies,  both foreign and domestic,  many of
these are larger,  have greater  financial  resources and are better known. As a
supplier, the Company also experiences significant competition from the in-house
capabilities of its actual prospective customers.

Competition  is  generally  based  upon  technology,   design,  price  and  past
performance.  The Company's ability to compete depends,  in part, on its ability
to offer better design and performance than its competitors and its readiness in
facilities, equipment and personnel to undertake to complete the programs.

Government Regulation

The Company's  wireless  communications  products are incorporated into wireless
telecommunications  systems that are subject to regulation  domestically  by the
FCC and internationally by other government  agencies.  In addition,  because of
its participation in the defense industry,  the Company is subject to audit from
time  to  time  for  its  compliance  with  government  regulations  by  various
government  agencies.  The Company is also subject to a variety of local,  state
and federal government regulations relating to, among other things, the storage,
discharge, handling, omission, generation,  manufacture and disposal of toxic or
other hazardous substances

                                        8

<PAGE>



used to  manufacture  the  Company's  products.  The  Company  believes  that it
operates  its  business  in  material   compliance   with  applicable  laws  and
regulations.  However,  any  failure to comply  with  existing or future laws or
regulations  could have a material  adverse  impact on the  Company's  business,
financial condition and result of operations.

Intellectual Property

While the Company  holds  several  patents,  the Company  relies  primarily on a
combination of trade secret, employee and third-party  nondisclosure  agreements
to  protect  its  intellectual  property,  as well  as  limiting  access  to the
distribution  of  proprietary  information.  There can be no assurance  that the
steps taken by the Company to protect its  intellectual  property rights will be
adequate to prevent  misappropriation of the Company's technology or to preclude
competitors from independently  developing such technology.  Furthermore,  there
can be no assurance that, in the future,  third parties will assert infringement
claims against the Company or with respect to its products for which the Company
has  indemnified  certain of its  customers.  Asserting the Company's  rights or
defending  against  third  party  claims  could  involve  substantial  costs and
diversion of resources,  thus  materially and adversely  affecting the Company's
business,  financial  condition and results of operations.  In the event a third
party were  successful in a claim that one of the Company's  products  infringed
its proprietary  rights,  the Company may have to pay  substantial  royalties or
damages,  remove that product from the marketplace or expand substantial amounts
in order to modify the product so that it no longer  infringes such  proprietary
rights,  any of which  could have a  material  adverse  effect on the  Company's
business, financial condition and results of operations.

Employees

As of October 1, 2000,  the Company  employed  583 persons  full time.  Of these
employees,  61 comprise the  engineering  staff,  438  constitute  manufacturing
personnel, 30 occupy sales and marketing positions, and 35 are in management and
support  functions.  None of the  Company's  employees are covered by collective
bargaining  agreements  and the Company  considers its employee  relations to be
satisfactory. The Company believes that its future success will depend, in part,
on its  continued  ability  to  recruit  and retain  highly  skilled  technical,
managerial and marketing  personnel.  To assist in recruiting and retaining such
personnel, the Company has established competitive benefits programs,  including
a 401k employee savings plan and stock option plans.


                                        9

<PAGE>



Item 2.  Properties

The Company's properties are as follows:
<TABLE>
<CAPTION>

                                                                                                 Owned
                                                                                                   or
Location                                Purpose of Property                         Area         Leased
-------------------         ------------------------------------------          --------------   ------
<S>                         <C>                                                 <C>              <C>
Lancaster, PA (1)           Production, engineering, administrative             71,200 sq. ft.   Owned
                            and executive offices

Woburn, MA                  Production, engineering and administration          60,000 sq. ft.   Owned

Farmingdale, NY (2)         Production, engineering and administration          46,000 sq. ft.   Leased

Jerusalem, Israel           Production, engineering and administration          12,000 sq. ft..  Owned

Nashua, NH (3)              Production, and engineering                         20,000 sq. ft.   Leased

Chicago, IL                 Engineering and administration                        3,000 sq. ft.  Leased

Lancaster, PA               Land held for expansion                                20.4 Acres    Owned
--------------
</TABLE>
[FN]

     (1) The Company's  executive offices occupy  approximately 4,000 sq. ft. of
space at this facility with  engineering and  administrative  offices  occupying
10,000 sq. ft. each.

     (2) On September 23, 1999 the Company closed on the sale of its prior owned
facility in  Amityville,  NY and relocated the plant to this leased  facility in
Farmingdale,  NY. The  Company  entered  into a 10 year lease  agreement  with a
partnership owned by the children of certain officers of the Company.  The lease
provides for initial  minimum annual rent of $312,390,  subject to escalation of
approximately 4% annually throughout the 10 year term.

     (3) As of January 3, 2000 the  Company  acquired  substantially  all of the
assets of  Robinson  Laboratories,  Inc.  which  operates  as a division at this
location.
</FN>

In addition to the above operating facilities,  the Company has an idle facility
in Billerica,  MA which is under lease.  The Company is looking to sublease this
facility.

The  Company  believes  that its  facilities  are  adequate  for its current and
presently anticipated future needs.

Item 3.  Legal Proceedings

The Company is not involved in any material legal proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders

     Not Applicable.


                                       10

<PAGE>



PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholders
       Matters

     (a)   The Company's  Common Stock is traded in the NASDAQ  National  Market
           under the symbol HRLY.  The  following  table sets forth the high and
           low sales  price as reported  by the NASDAQ  National  Market for the
           Company's Common Stock for the periods indicated.

                                                        Common Stock
                                                       --------------
                                                       High      Low
                                                       -----    -----
     Fiscal Year 1999
         First Quarter................................ 10.50     7.63
         Second Quarter............................... 15.31     9.56
         Third Quarter................................ 15.13    11.13
         Fourth Quarter............................... 16.19    11.50
     Fiscal Year 2000
         First Quarter................................ 15.00    12.19
         Second Quarter............................... 15.50    11.13
         Third Quarter................................ 19.38    13.88
         Fourth Quarter............................... 19.06    15.69
     Fiscal Year 2001
         First Quarter (through October 11, 2000)..... 22.75    17.44

     The closing price on October 11, 2000 was $20.50.

     (b)   As of October 11, 2000, there were approximately 1,000 record holders
           of the Company's Common Stock.
     (c)   There have been no cash dividends  declared or paid by the Company on
           its Common Stock during the past two fiscal years.

     Item 6.  Selected Financial Data (in thousands except per share data)
<TABLE>
<CAPTION>

                                                                         52 Weeks ended
                                                   ------------------------------------------------------------
                                                   July 30,     August 1,   August 2,    August 3,     July 28,
                                                   2000 (2)     1999 (3)     1998 (4)       1997         1996
                                                   --------     --------     --------       ----         ----
<S>                                               <C>           <C>          <C>           <C>         <C>
Net sales                                         $ 70,537       61,036       40,798       32,195      29,001
                                                    ======       ======       ======       ======      ======

Net income                                        $  7,639        7,735        5,497        4,804       3,669
                                                    ======       ======      =======      =======     =======

Earnings per common share (1)
     Basic                                          $ 1.57         1.48         1.11         1.18         .97
                                                      ====         ====         ====         ====         ===
     Assuming Dilution                              $ 1.45         1.37         1.02         1.01         .86
                                                      ====         ====         ====         ====         ===

Total Assets                                      $ 86,656       74,056       57,553       39,257      42,509
Total Current Liabilities                         $ 12,783       10,513        9,843        9,813       7,559
Long-Term Debt net of current portion             $  2,931       15,437        4,111        2,890      11,021
</TABLE>
[FN]

     (1) As adjusted to give effect to a 4-for-3 stock split effective September
         30, 1997.

     (2) On January 3, 2000, the Company acquired  Robinson  Laboratories,  Inc.
         See Note B of the financial statements.

     (3) On January 4, 1999, the Company acquired General Microwave Corporation.
         See Note B of the financial statements.

     (4) On August 4, 1997, the Company acquired Metraplex Corporation. See Note
         B of the financial statements.
</FN>


                                       11

<PAGE>



Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations

Results of Operations

The  following  table sets forth for the  periods  indicated  certain  financial
information  derived  from  the  Company's  consolidated  statements  of  income
expressed as a percentage of net sales. There can be no assurance that trends in
sales growth or operating results will continue in the future.

<TABLE>
<CAPTION>

                                                               52 weeks ended
                                                       ----------------------------------
<S>                                                    <C>          <C>         <C>
                                                       July 30,     August 1,   August 2,
                                                        2000          1999        1998
                                                        ----          ----        ----

Net sales                                              100.0 %       100.0 %     100.0 %

Cost of products sold                                   62.9 %        60.2 %      59.2 %
                                                        ----          ----        ----
Gross profit                                            37.1 %        39.8 %      40.8 %
Selling and administrative expenses                     19.2 %        19.5 %      20.4 %
                                                        ----          ----        ----

Operating income                                        17.9 %        20.3 %      20.4 %
                                                        ----          ----        ----

Other income (expense), net:
        Investment income                                0.3 %         0.5 %       1.4 %
        Interest expense                                (1.6)%        (1.2)%      (1.1)%
                                                        ----          ----        ----
                                                        (1.3)%        (0.7)%       0.3 %
                                                        ----          ----        ----

Income before income taxes and extraordinary item       16.6 %        19.6 %      20.7 %
Provision for income taxes                               5.8 %         6.7 %       7.2 %
                                                        ----          ----        ----
Income before extraordinary item                        10.8 %        12.9 %      13.5 %
Extraordinary item                                        -           (0.2)%        -
                                                        ----          ----        ----
Net income                                              10.8 %        12.7 %      13.5 %
                                                        ----          ----        ----

</TABLE>



                                       12

<PAGE>



    Fiscal 2000 Compared to Fiscal 1999

Net sales for the 52 weeks  ended July 30, 2000 were  approximately  $70,537,000
compared to  $61,036,000  for fiscal  1999.  The sales  increase  of  $9,501,000
(15.6%) is partially  attributable  to the  acquisition  of Robinson  Labs as of
January 3, 2000 which contributed $4,690,000 in revenues, and the acquisition of
GMC as of January 4, 1999 which contributed  $5,101,000  additional revenue over
the volume  generated  in fiscal  1999,  as well as an  increase in net sales of
approximately  $2,478,000  in  microwave  component.  Space  and  communications
products experienced a drop in revenue of approximately $2,768,000.

Gross  profit of 37.1%  for the 52 weeks  ended  July 30,  2000 is less than the
prior year of 39.8%.  The  decline in margin of 2.7% is due  primarily  to lower
margins on microwave components,  which includes the revenues from Robinson Labs
and GMC.

Selling and  administrative  expenses  for the 52 weeks ended July 30, 2000 were
$13,497,000  compared to $11,877,000 for fiscal 1999, an increase of $1,620,000.
The primary  increase  is due to the  acquisition  of Robinson  Labs which added
$1,069,000  in  selling  and  administrative  expenses  in  fiscal  2000.  As  a
percentage of revenues, expenses declined from 19.5% in 1999 to 19.2% in 2000.

Interest  expense  increased  approximately  $390,000  due  to  additional  bank
borrowings to fund the acquisitions of GMC and Robinson.

The  effective  income tax rate  increased to 35.0% in fiscal 2000 from 34.3% in
1999 due primarily to a decreased  benefit  received from the Company's  foreign
sales corporation in fiscal 2000.

    Fiscal 1999 Compared to Fiscal 1998

Net sales for the 52 weeks ended August 1, 1999 were  approximately  $61,036,000
compared to  $40,798,000  for fiscal  1998.  The sales  increase of  $20,238,000
(49.6%) is primarily  attributable  to the  acquisition  of GMC as of January 4,
1999 which  contributed  $14,374,000  in revenues in fiscal  1999,as  well as an
increase in net sales of  approximately  $3,508,000 in space and  communications
products, and approximately $2,356,000 in microwave components.

Gross  profit  of 39.8% for the 52 weeks  ended  August 1, 1999 is less than the
prior  year of 40.8%.  The  decline  in margin of 1% is due  primarily  to lower
margins on microwave components, as well as the lower margins generated from the
added GMC revenues.

Selling and  administrative  expenses for the 52 weeks ended August 1, 1999 were
$11,877,000  compared to $8,339,000  for fiscal 1998, an increase of $3,538,000.
The acquisition of GMC added $3,222,000 in selling and  administrative  expenses
in fiscal 1999.  As a percentage  of revenues,  expenses  declined from 20.4% in
1998 to 19.5% in 1999.

Investment  income  declined  $288,000  from the prior year due to a decrease in
investments,  the proceeds of which were used to partially fund the  acquisition
of GMC. In addition,  bank borrowings of approximately  $11,400,000 used to fund
the balance of the acquisition price resulted in additional  interest expense of
approximately $302,000.

The effective  income tax rate  decreased  from 34.8% in fiscal 1998 to 34.3% in
fiscal 1999.

In February 1999, the Company  refinanced the existing  mortgage on its property
located in  Lancaster,  Pa. The proceeds of the new  mortgage  loan were used to
prepay the existing  mortgage note having an  outstanding  principal  balance of
$2,890,000 plus a prepayment  premium of $115,600.  Unamortized debt expenses of
$79,226 and the $115,600 prepayment premium related to the early  extinguishment
of the existing mortgage debt were charged to expense as an extraordinary  loss,
net of an income tax benefit of $68,000.


                                       13

<PAGE>



    Liquidity and Capital Resources

As of July 30,  2000 and  August 1,  1999,  working  capital  was  approximately
$35,476,000 and  $25,703,000,  respectively,  and the ratio of current assets to
current liabilities was 3.78 to 1 and 3.44 to 1, respectively. At July 30, 2000,
the Company had cash and cash equivalents of approximately $7,665,000.

As of January 3, 2000, the Company acquired  substantially  all of the assets of
Robinson  Laboratories,  Inc.  ("Robinson" or "Robinson  Labs"), a New Hampshire
corporation,  which is being operated as a division of Herley  Industries,  Inc.
The transaction  provided for the payment of $6,000,000 in cash, the issuance of
33,841  shares of Common Stock of the Company  valued at $15.188 per share,  and
the assumption of  approximately  $3,140,000 in  liabilities.  In addition,  the
agreement  provides for the issuance of  additional  shares of Common Stock at a
future  date,  aggregating  97,841shares,  based on new  orders  booked  through
January 2001.

As of January 4, 1999,  the  Company  completed  the  acquisition  of all of the
issued and outstanding  common stock of GMC, a New York  corporation,  including
outstanding stock options,  for $18.00 per share and 966,675 three-year warrants
to purchase one share of the Company's  common stock,  at an aggregate  purchase
price of approximately $24,556,000. The purchase price includes shares of common
stock of General  Microwave  purchased  in the open market,  acquisition  of the
remaining  shares of common  stock  outstanding,  an estimate of the fair market
value of the warrants based on the trading price of similar  warrants  currently
on the market, and transaction expenses.  The warrants are exercisable at $15.60
per share of common stock of the Company and expire in January 2002.

On  August  4,  1997,  the  Company   completed  the  acquisition  of  Metraplex
Corporation,  a Maryland  corporation for 313,139 (as adjusted) shares of common
stock of the Company,  with a fair market value of  $3,170,471,  in exchange for
all of the issued and outstanding common stock of Metraplex.

As is customary  in the defense  industry,  inventory  is partially  financed by
advance  payments.  The  unliquidated  balance  of these  advance  payments  was
approximately $1,006,000 in 2000, and $439,000 in 1999.

Net cash provided by operations was approximately  $9,854,000,  and $12,723,000,
in 2000 and 1999 respectively.

Net  cash  used in  investing  activities  in 2000 of  approximately  $4,571,000
relates to the  acquisition of Robinson Labs, in part for cash of  approximately
$6,000,000  which was funded by  borrowings  under the bank line of credit,  and
capital   expenditures   of   $2,618,000,   including   building  and  leasehold
improvements of $1,676,000 to accommodate the move of GMC from Amityville, NY to
a leased  facility  in  Farmingdale,  NY,  and  consolidation  of the GMC leased
facilities in Billerica,  MA with the Company's Woburn, MA facility.  Offsetting
the cash  outflows  were the net  proceeds  from  the  sale of the  facility  in
Amityville of $4,125,000.

Net cash  used in  investing  activities  in 1999 of  approximately  $21,757,000
relates  primarily to the  acquisition of GMC, net of cash  acquired,  which was
funded by available cash balances and borrowings under the bank line of credit.

Net cash  flows from  financing  activities  in fiscal  2000  included:  (1) net
payments  under the bank line of credit of  $12,500,000;  (2) proceeds  from the
exercise of stock options and warrants of $21,574,000, including the exercise of
approximately  1,314,000 of the warrants  issued in connection  with the sale of
common  stock to the  public in 1997  resulting  in  proceeds  of  approximately
$20,492,000;  and (3) the acquisition of treasury stock in the aggregate  amount
of $7,565,000.

Net cash  flows from  financing  activities  in fiscal  1999  included:  (1) net
borrowings  under the bank line of credit of  $11,000,000  the proceeds of which
were used to  partially  fund the  acquisition  of GMC; (2)  refinancing  of the
existing mortgage on the property in Lancaster,  Pa., which reduced the interest
rate from 10.4% to 7.43% and extended the  repayment  schedule to 10 years;  and
(3) the acquisition of treasury stock in the aggregate amount of $7,688,000.


                                       14

<PAGE>



Net cash  provided  by  financing  activities  in fiscal  1998  consists  of net
proceeds of  $7,452,000  from the sale of 700,000  shares of common  stock,  and
1,265,000 Common Stock Purchase  Warrants to the public.  Net borrowings under a
bank line of credit provided $1,500,000 in financing. Cash was used in financing
activities  for payments of  long-term  debt of  $2,257,000  and the purchase of
treasury stock of $1,084,000.

The Company  maintains a revolving  credit facility with a bank for an aggregate
of $30,000,000,  as amended in January 2000,  which expires January 31, 2002. As
of August 1, 1999 the Company had borrowings  outstanding under this facility of
$12,500,000. No borrowings were outstanding as of July 30, 2000.

During  the fiscal  years  ended  July 30,  2000 and August 1, 1999 the  Company
acquired  512,000  and  561,050  shares  of its  outstanding  common  stock  for
approximately  $7,565,000  and  $7,688,000,  respectively  through  open  market
purchases, pursuant to a stock repurchase plan to acquire up to 1,250,000 shares
of Common Stock.  In January 1998,  the Company  purchased  89,888 shares of its
outstanding  common stock for  $1,084,326  from certain  officers of the Company
based on the fair market value of the stock on the date acquired.

The Company also  acquired  8,982,  410,593 and 42,016 shares of common stock in
fiscal 2000,  1999 and 1998,  respectively,  valued at $80,000,  $5,989,000  and
$538,000,  respectively, in connection with certain "stock-for- stock" exercises
of stock options by which certain employees elected to surrender "mature" shares
owned in  settlement  of the option  price.  Such  exercises  are  treated as an
exercise  of a stock  option  and the  acquisition  of  treasury  shares  by the
Company. See "Management - Stock Plans."

The Company believes that presently anticipated future cash requirements will be
provided by internally generated funds and existing credit facilities.

    Subsequent Events

The  Company  entered  into an  agreement,  as of August  28,  2000,  to acquire
substantially all of the assets of American Microwave Technology,  Inc. ("AMT"),
a California corporation. AMT designs, develops and manufactures radio frequency
and microwave  power  amplifiers  for the medical and  scientific  markets.  The
transaction,  which  closed on October  12,  2000,  provided  for the payment of
$5,400,000  in  cash,  and  the  assumption  of   approximately   $1,153,000  in
liabilities.  The transaction will be accounted for under the purchase method of
accounting.  The  allocation of the aggregate  estimated  purchase price will be
determined  based on detailed  reviews of the fair value of assets  acquired and
liabilities  assumed. Any excess cost over the fair value of net assets acquired
will be  amortized  over 20 years.  The Company  also  entered into an exclusive
license agreement with AMT related to certain application  specific and wireless
products under which the Company will pay a royalty of 10% of net sales of these
products for a period of four years,  after which no additional  royalty will be
due.

On October 13, 2000 the Company  notified the holders of the warrants  issued in
connection  with the  acquisition  of GMC (see Note Q) of its intent to call the
warrants at a price of $1.00 per warrant  effective  30 days after  notice.  The
holders of the  warrants  may elect to  exercise  the  warrant  for one share of
common stock of the Company at $15.60 per share.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

The Company is subject to market risk  associated with changes in interest rates
and stock  prices.  The Company has not entered  into any  derivative  financial
instruments  to manage the above risks and the Company has not entered  into any
market risk  sensitive  instruments  for trading  purposes.  The Company's  debt
consists of a working  capital  credit  facility  with a bank having an interest
rate that is set at 1.65%  over the FOMC  Federal  Funds  Target  Rate  based on
tangible  net worth in excess of  $25,000,000,  or at an  increment  of 1.80% if
tangible net worth is less than  $25,000,001,  and a mortgage on its facility in
Lancaster,  Pa. at a fixed rate of 7.43%.  The FOMC Federal Funds Target Rate at
July 30, 2000 was 6.50%.  The credit line is reviewed on an annual basis.  Since
the acquisition of GMC, the Company is subject to movements in foreign  currency
rate changes related to GMC's Israel operations. The Company does not anticipate
any other material changes in its primary market risk exposures in fiscal 2000.


                                       15

<PAGE>



As of July 30, 2000,  the Company  holds an  investment in the common stock of a
public company that is exposed to price risk with a cost basis and a fair market
value basis of $143,330.

The table below provides  information about the Company's debt that is sensitive
to  changes  in  interest  rates.  The table  presents  principal  cash flows by
maturity  date.  Future  principal  payment cash flows by maturity date required
under the  mortgage  and line of credit,  and  corresponding  fair values are as
follows:

             Fiscal year ending during:       Mortgage
             -------------------------        --------
                        2001                    $   69
                        2002                        74
                        2003                        80
                        2004                        85
                        2005                        93
                        2006 and later           2,439
                                                 -----
                                                $2,840

                        Fair value              $2,840
                                                 =====

Item 8.  Financial Statements and Supplementary Data

The financial  statements and supplementary data listed in the Index on Page F-1
are filed as a part of this report.

Item 9.  Changes in and Disagreements on Accounting and Financial Disclosure

Not applicable

PART III

The  information  required  by Part  III is  incorporated  by  reference  to the
Company's  definitive  proxy  statement in connection with its Annual Meeting of
Stockholders  scheduled  to be  held in  January  2001,  to be  filed  with  the
Securities  and Exchange  Commission  within 120 days  following  the end of the
Company's fiscal year ended July 30, 2000.

                                       16

<PAGE>



PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)  Exhibits

     3.1  Certificate  of  Incorporation,  as amended  (Exhibit 3(a) of Form S-1
          Registration Statement No. 2- 87160).

     3.2  By-Laws, as amended (Exhibit 3(b) of Form S-1  Registration  Statement
          No. 2-87160).

     10.1 1996 Stock Option Plan (Exhibit 10.1 of Annual Report on Form 10-K for
          the fiscal year ended July 28, 1996).

     10.2 1997 Stock Option Plan (Exhibit 10.1 of Report on Form 10-Q dated June
          10, 1997).

     10.3 1998 Stock Option Plan (Exhibit 10.3 of Annual Report on Form 10-K for
          the fiscal year ended August 1, 1999).

     10.4  Amendments  dated  January 26,  1999 and July 30, 1999 to  Employment
           Agreement between Herley  Industries,  Inc. and Lee N. Blatt dated as
           of October 1, 1998  (Exhibit  10.4 of Annual  Report on Form 10-K for
           the fiscal year ended August 1, 1999).

     10.5  Amendments  dated  January 26,  1999 and July 30, 1999 to  Employment
           Agreement between Herley Industries,  Inc. and Myron Levy dated as of
           October 1, 1998 (Exhibit  10.5 of Annual  Report on Form 10-K for the
           fiscal  year  ended August 1, 1999).

     10.6  Agreement and Plan of  Reorganization  dated as of July 8, 1997 among
           the  Company,   Metraplex   Acquisition   Corporation  and  Metraplex
           Corporation  (Exhibit 2.1  of Registration  Statement  Form S-3 dated
           September 4, 1997).

     10.7 Agreement and Plan of Merger dated as of August 21, 1998 among General
          Microwave Corp., Eleven  General  Microwave Corp.,  Shareholders,  GMC
          Acquisition  Corporation  and  Registrant  (Exhibit 1 of  Schedule 13D
          dated August 28, 1998).

     10.8 Lease  Agreement  dated  September 1, 1999 between  Registrant and RSK
          Realty LTD. (Exhibit 10.8 of Annual Report on Form 10-K for the fiscal
          year ended August 1, 1999).

     10.9 Loan Agreement  dated  February 16, 1999  between  Registrant  and The
          First National Bank of Maryland, a division of FMB Bank. (Exhibit 10.9
          of  Annual  Report  on  Form 10-K  for the fiscal year ended August 1,
          1999).

     10.10  Asset  Purchase  Agreement  dated as of  February  1,  2000  between
            Registrant and Robinson  Laboratories,  Inc.  (Exhibit  10.2 of Form
            10-Q dated March 13, 2000).

     10.11 Amendment to Loan Agreement dated January 11, 2000 between Registrant
           and Allfirst Bank, successor to  The First  National Bank of Maryland
           (Exhibit 10.1 of Form 10-Q dated March 13, 2000).

     10.12  Asset  Purchase  Agreement  dated as of  October  12,  2000  between
            Registrant and American Microwave Technology Inc.

     10.13 Lease Agreement dated March 1, 2000 between Registrant and RSK Realty
           LTD.

     23.1  Consent of Arthur Andersen LLP.

     27.   Financial Data Schedule (for electronic submission only).

(b)  Financial Statements

         See Index to Consolidated Financial Statements at Page F-1.

(c)  Reports on Form 8-K

         None

                                       17

<PAGE>



SIGNATURES:

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 23th day of October, 2000.

                                HERLEY  INDUSTRIES,  INC.

                                By:        /S/  Lee N. Blatt
                                   -----------------------------------
                                   Lee N. Blatt, Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been  signed  below on  October  23,  2000 by the  following  persons in the
capacities indicated:


By:    /S/  Lee N. Blatt            Chairman of the Board
   ------------------------         (Principal Executive Officer)
      Lee N. Blatt

By:    /S/  Myron Levy              President and Director
   ------------------------
      Myron Levy

By:    /S/  Anello C. Garefino      Vice President Finance, CFO, Treasurer
   ---------------------------      (Principal Financial Officer)
      Anello C. Garefino

By:    /S/  David H. Lieberman      Secretary and Director
   ---------------------------
      David H. Lieberman

By:    /S/  Thomas J. Allshouse     Director
   ----------------------------
      Thomas J. Allshouse

By:    /S/  John A. Thonet          Director
   -----------------------
      John A. Thonet

By:    /S/ Alvin M. Silver          Director
   -----------------------
      Alvin M. Silver

By:    /S/ Edward K. Walker, Jr.    Director
   -----------------------------
      Edward K. Walker, Jr.


                                       18

<PAGE>
Item 8.  Financial Statements and Supplementary Data


                             HERLEY INDUSTRIES, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                           Page
                                                                           ----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................    F-2

FINANCIAL STATEMENTS:

    Consolidated Balance Sheets, July 30, 2000 and  August 1, 1999......    F-3

    Consolidated Statements of Income for the 52 weeks ended
       July 30, 2000, August 1, 1999, and August 2, 1998................    F-4

    Consolidated Statements of Shareholders' Equity for the 52 weeks
       ended July 30, 2000, August 1, 1999, and August 2, 1998..........    F-5

    Consolidated Statements of Cash Flows for the 52 weeks ended
       July 30, 2000, August 1, 1999, and August 2, 1998................    F-6

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



Schedules have been omitted as not applicable.


















                                       F-1


<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors of
Herley Industries, Inc.

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Herley
Industries, Inc and Subsidiaries as of July 30, 2000 and August 1, 1999, and the
related consolidated  statements of income,  shareholders' equity and cash flows
for the 52 weeks ended July 30, 2000,  August 1, 1999 and August 2, 1998.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidted  financial position of Herley
Industries,  Inc.  and  Subsidiaries  as of July 30, 2000,  August 1, 1999,  and
August 2, 1998, and the consolidated  results of their operations and their cash
flows for the 52 weeks ended July 30, 2000, August 1, 1999 and August 2, 1998 in
conformity with accounting principles generally accepted in the United States.


                                       /S/  ARTHUR ANDERSEN LLP

Lancaster,  PA
September 20, 2000
(except with respect to the matters  discussed
in Note Q, as to which the date is October 13, 2000)




                                       F-2


<PAGE>

                    HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands except share data)

                                                            July 30,   August 1,
                                                              2000       1999
                                                              ----       ----
                                     ASSETS
Current Assets:
         Cash and cash equivalents                           $ 7,665     $ 2,741
         Accounts receivable                                  14,315      10,679
         Costs incurred and income recognized in excess
            of billings on uncompleted contracts                 146        --
         Other receivables                                       293         273
         Inventories                                          23,045      19,880
         Deferred taxes and other                              2,795       2,643
                                                              ------      ------
                          Total Current Assets                48,259      36,216
Property, Plant and Equipment, net                            18,004      21,888
Intangibles, net of amortization of $3,095 in 2000
         and $2,137 in 1999                                   18,096      13,574
Available-For-Sale Securities                                    146         148
Other Investments                                              1,020         948
Other Assets                                                   1,131       1,282
                                                              ------      ------
                                                             $86,656     $74,056
                                                              ======      ======
                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
         Current portion of long-term debt                   $   282     $   258
         Accounts payable and accrued expenses                 9,602       8,035
         Income taxes payable                                  1,426         276
         Reserve for contract losses                             467       1,505
         Advance payments on contracts                         1,006         439
                                                              ------      ------
                          Total Current Liabilities           12,783      10,513
Long-term Debt                                                 2,931      15,437
Deferred Income Taxes                                          5,571       5,144
Minority Interest                                               --            62
                                                              ------      ------
                                                              21,285      31,156
                                                              ------      ------
Commitments and Contingencies
Shareholders' Equity:
         Common stock, $.10 par value; authorized
           20,000,000 shares; issued and outstanding
           5,993,870 in 2000 and 5,030,283 in 1999               599         503
         Additional paid-in capital                           29,808      15,072
         Retained earnings                                    34,964      27,325
                                                              ------      ------
                          Total Shareholders' Equity          65,371      42,900
                                                              ------      ------
                                                             $86,656     $74,056
                                                              ======      ======

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

                                       F-3

<PAGE>


                    HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                      (In thousands except per share data)


                                                       52 weeks ended
                                               July 30,    August 1,   August 2,
                                                 2000        1999        1998
                                                -------     -------     -------

Net sales                                      $ 70,537    $ 61,036    $ 40,798
                                                -------     -------     -------

Cost and expenses:
     Cost of products sold                       44,382      36,749      24,169
     Selling and administrative expenses         13,497      11,877       8,339
                                                -------     -------     -------
                                                 57,879      48,626      32,508
                                                -------     -------     -------

         Operating income                        12,658      12,410       8,290
                                                -------     -------     -------

Other income (expense), net:
     Investment income                              232         298         587
     Interest expense                            (1,138)       (748)       (446)
                                                -------     -------     -------
                                                   (906)       (450)        141
                                                -------     -------     -------

         Income before income taxes and
            extraordinary item                   11,752      11,960       8,431
Provision for income taxes                        4,113       4,098       2,934
                                                -------     -------     -------
         Income before extraordinary item         7,639       7,862       5,497
Extraordinary item - loss on extinguishment
     of debt (net of income tax benefit
     of $ 68)                                      --           127        --
                                                -------     -------     -------

         Net income                            $  7,639    $  7,735    $  5,497
                                                =======     =======     =======

Earnings per common share - Basic
     Earnings before extraordinary item            1.57        1.50        1.11
     Extraordinary loss on extinguishment
         of debt                                    -           .02         -
                                                   ----        ----        ----
     Net earnings per common share - Basic       $ 1.57      $ 1.48      $ 1.11
                                                   ====        ====        ====

     Basic weighted average shares                4,872       5,233       4,969
                                                  =====       =====       =====

Earnings per common share - Diluted
     Earnings before extraordinary item            1.45        1.39        1.02
     Extraordinary loss on extinguishment
         of debt                                    -           .02         -
                                                   ----        ----        ----
     Net earnings per common share - Diluted     $ 1.45      $ 1.37      $ 1.02
                                                   ====        ====        ====

     Diluted weighted average shares              5,285       5,660       5,407
                                                  =====       =====       =====


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



                                       F-4
<PAGE>


                    HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
         52 weeks ended July 30, 2000, August 1, 1999 and August 2, 1998
                        (In thousands except share data)
<TABLE>
<CAPTION>

                                             Common Stock         Additional
                                            --------------         Paid-in        Retained       Treasury
                                         Shares        Amount      Capital        Earnings        Stock         Total
                                       ---------      --------    ----------      --------       -------       -------
<S>                                    <C>          <C>           <C>             <C>            <C>        <C>
Balance at August 3, 1997              4,209,365    $      421         8,857        14,093          -       $   23,370

Net income                                 5,497         5,497
Net proceeds from public offering
  of 700,000 shares of common stock
  and 1,265,000 warrants                 700,000            70         7,381         7,451
Issuance of common stock in
  connection with business acquired      313,139            31         3,139         3,170
Exercise of stock options
  and warrants                           175,559            18           885          (538)          365
Tax benefit upon exercise of stock
  options                                  1,671         1,671
Purchase of 89,888 shares
  of treasury stock                       (1,084)       (1,084)
Retirement of treasury shares           (131,904)          (13)       (1,609)        1,622          -
                                       ---------      --------    ----------      --------      --------      --------
Balance at August 2, 1998              5,266,159    $      527        20,324        19,590          -       $   40,440

Net income                                 7,735         7,735
Issuance of warrants in
  connection with business acquired        1,450         1,450
Exercise of stock options
  and warrants                           735,767            73         4,752        (5,989)       (1,164)
Tax benefit upon exercise of stock
  options                                  2,127         2,127
Purchase of 561,050 shares
  of treasury stock                       (7,688)       (7,688)
Retirement of treasury shares           (971,643)          (97)      (13,581)       13,678          -
                                       ---------      --------    ----------      --------      --------      --------
Balance at August 1, 1999              5,030,283    $      503        15,072        27,325          -       $   42,900

Net income                                 7,639         7,639
Issuance of common stock in
  connection with business acquired       33,841             3           511           514
Exercise  of warrants issued in
  connection with public offering
   in 1998                             1,313,613           131        20,361        20,492
Exercise of stock options
  and warrants                           137,115            14         1,213          (140)        1,087
Tax benefit upon exercise of stock
  options                                    304           304
Purchase of 512,000 shares
  of treasury stock                       (7,565)       (7,565)
Retirement of treasury shares           (520,982)          (52)       (7,653)        7,705          -
                                       ---------      --------    ----------      --------      --------      --------
Balance at July 30, 2000               5,993,870    $      599        29,808        34,964          -       $   65,371
                                       =========      ========    ==========      ========      ========      ========
</TABLE>

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



                                       F-5


<PAGE>
                    HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                          52 weeks ended
                                                                  July 30,    August 1,    August 2,
                                                                    2000        1999        1998
                                                                 --------    --------    --------
<S>                                                              <C>         <C>         <C>
Cash flows from operating activities:
     Net Income                                                  $  7,639    $  7,735    $  5,497
                                                                   ------      ------      ------
     Adjustments to reconcile net income to net cash
       provided by operations:
         Depreciation and amortization                              3,998       3,289       1,869
         Gain on sale of fixed assets                                 (21)       --          --
         Extraordinary loss on extinguishment
            of debt, net of income taxes                             --           127        --
         Equity in income of limited partnership                      (71)        (99)       (129)
         (Increase) decrease in deferred tax assets                  (148)        483       1,207
         Increase (decrease) in deferred tax liabilities              342        (141)        173
         Changes in operating assets and liabilities:
            (Increase) in accounts receivable                      (1,568)       (361)       (768)
            Decrease in notes receivable-officers                    --          --         2,101
            (Increase) decrease in costs incurred
                and income recognized in excess of
                billings on uncompleted contracts                    (146)      1,665      (1,665)
            (Increase) decrease in other receivables                  (20)         36         (23)
            Decrease (increase) in prepaid income taxes              --           377        (377)
            (Increase) decrease in inventories                     (1,625)        729      (3,758)
            Decrease (increase) in prepaid expenses and other           4         199         (55)
            Increase (decrease) in accounts payable and
                accrued expenses                                      685      (2,119)        773
            Increase in income taxes payable                        1,458       2,019         469
            (Decrease) increase in reserve for contract losses     (1,038)        360         667
            Increase (decrease) in advance payments
                on contracts                                          195      (1,620)     (1,364)
            Other, net                                                170          44         (46)
                                                                   ------      ------      ------
                Total adjustments                                   2,215       4,988        (926)
                                                                   ------      ------      ------
         Net cash provided by operations                            9,854      12,723       4,571
                                                                   ------      ------      ------

Cash flows from investing activities:
     Acquisition of business, net of cash acquired                 (6,095)    (20,101)       --
     Proceeds from sale of fixed assets                             4,142           6           1
     Partial distribution from limited partnership                   --          --           593
     Capital expenditures                                          (2,618)     (1,662)     (1,645)
                                                                   ------      ------      ------
         Net cash used in investing activities                     (4,571)    (21,757)     (1,051)
                                                                   ------      ------      ------

Cash flows from financing activities:
     Net proceeds from public offering of common stock               --          --         7,452
     Borrowings under bank line of credit                          13,900      29,500       4,050
     Proceeds from refinance of mortgage note                        --         2,915        --
     Proceeds from exercise of stock options and warrants, net     21,574      (1,164)        364
     Payments under bank line of credit                           (26,400)    (18,500)     (2,550)
     Payments of long-term debt                                    (1,868)       (971)     (2,257)
     Extinguishment of debt                                          --        (3,006)       --
     Purchase of treasury stock                                    (7,565)     (7,688)     (1,084)
                                                                   ------      ------      ------
         Net cash (used in) provided by financing activities         (359)      1,086       5,975
                                                                   ------      ------      ------

         Net increase (decrease) in cash and cash equivalents       4,924      (7,948)      9,495
Cash and cash equivalents at beginning of period                    2,741      10,689       1,194
                                                                   ------      ------      ------

Cash and cash equivalents at end of period                       $  7,665    $  2,741    $ 10,689
                                                                   ======      ======      ======
Supplemental cash flow information:
     Cashless exercise of stock options                          $     80    $  5,989    $    538
                                                                   ======      ======      ======
     Stock issued for business acquired                          $    514        --         3,170
                                                                   ======      ======      ======
     Warrants issued for business acquired                       $   --         1,450        --
                                                                   ======      ======      ======
     Tax benefit related to stock options                        $    304       2,127       1,671
                                                                   ======      ======      ======
</TABLE>

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

                                       F-6

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.     Nature of Operations

       The Company, a Delaware corporation, is engaged in research, engineering,
       product  development,   and  manufacturing  of  complex  microwave  radio
       frequency  (RF)  and  millimeter   wave  components  and  subsystems  for
       commercial wireless, defense and space customers worldwide.

2.     Fiscal Year

       The Company's fiscal year ends on the Sunday closest to July 31. Normally
       each  fiscal year  consists of 52 weeks,  but every five or six years the
       fiscal  year  will  consist  of 53  weeks.  All  fiscal  years  presented
       consisted of 52 weeks.

3.     Basis of Financial Statement Presentation

       The  consolidated  financial  statements  include the  accounts of Herley
       Industries, Inc. and its subsidiaries, all of which are wholly-owned. All
       significant  inter-company accounts and transactions have been eliminated
       in consolidation.  The presentation 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 as of the
       date of the financial  statements as well as revenues and expenses during
       the period. Actual results could differ from those estimates.

4.     Cash and Cash Equivalents

       The Company considers all liquid investments with an original maturity of
       three months or less at the date of acquisition  to be cash  equivalents.
       Short-term  investments  are recorded at the amortized  cost plus accrued
       interest which  approximates  market value. The Company limits its credit
       risk to an  acceptable  level by  evaluating  the  financial  strength of
       institutions  at which  significant  investments  are made and based upon
       credit ratings.

5.     Concentration of Credit Risk

       Financial  instruments  which  potentially  subject the Company to credit
       risk consist primarily of trade accounts receivable.  Accounts receivable
       are  principally  from  the  U.S.   Government,   major  U.S.  Government
       contractors,  several foreign governments,  and domestic customers in the
       aerospace,  communications,  and defense  industries.  Credit is extended
       based  on  an  evaluation  of  the  customer's  financial  condition  and
       generally  collateral is not required.  In many cases irrevocable letters
       of credit  accompanied  by advanced  payments are  received  from foreign
       customers,  and progress  payments are received from domestic  customers.
       The Company  performs  periodic  credit  evaluations of its customers and
       maintains reserves for potential credit losses.

6.     Inventories

       Inventories,  other than inventory costs relating to long-term  contracts
       and  programs,  are  stated  at  lower  of  cost  (principally  first-in,
       first-out) or market. Inventory costs relating to long-term contracts and
       programs are stated at the actual  production  costs,  including  factory
       overhead,  reduced by amounts identified with revenue recognized on units
       delivered or progress completed.

       Inventory costs relating to long-term  contracts and programs are reduced
       by any  amounts  in  excess  of  estimated  realizable  value.  The costs
       attributed to units delivered under long-term  contracts and programs are
       based on the average costs of all units produced.

                                       F-7

<PAGE>



7.     Property, Plant and Equipment

       Property,  plant  and  equipment  are  stated at cost.  Depreciation  and
       amortization are provided  principally by the  straight-line  method over
       the  estimated  useful  lives of the  related  assets.  Gains and  losses
       arising from the sale or disposition of property, plant and equipment are
       recorded in income.

8.     Intangibles

       Intangibles  are comprised of customer  lists,  installed  products base,
       drawings,   patents,  licenses,  certain  government  qualifications  and
       technology and goodwill in connection  with the  acquisitions of Robinson
       Laboratories,  Inc.  in  2000,  General  Microwave  Corporation  in 1999,
       Metraplex Corporation in 1997, and Vega Precision  Laboratories,  Inc. in
       1993.  Intangibles  are being  amortized over twenty years.  Amortization
       charges totaled $1,109,000, $754,000, and ($71,000) in fiscal 2000, 1999,
       and 1998, respectively. The negative amortization in 1998 is attributable
       to the negative  goodwill in connection  with the  acquisition of Stewart
       Warner Electronics in 1995.

       The carrying  amount of  intangibles  is evaluated on a recurring  basis.
       Current  and  future   profitability   as  well  as  current  and  future
       undiscounted cash flows of the acquired businesses are primary indicators
       of recoverability.  For the three fiscal years ended July 30, 2000, there
       were no adjustments  to the carrying  amount of the cost in excess of net
       assets acquired resulting from these evaluations.

9.     Marketable Securities

       The Company  accounts for its  investments  in  marketable  securities in
       accordance  with  Statement of Financial  Accounting  Standards  No. 115,
       "Accounting for Certain Investments in Debt and Equity Securities."

       Management  determines the appropriate  classification of debt securities
       at the time of  purchase  and  reevaluates  such  designation  as of each
       balance sheet date. Debt  securities are classified as held-to-  maturity
       when  the  Company  has the  positive  intent  and  ability  to hold  the
       securities to maturity.  Marketable equity securities and debt securities
       not classified as held-to-maturity are classified as  available-for-sale.
       Available-for-sale  securities are carried at fair value.  Realized gains
       and losses and  declines in value judged to be  other-than-temporary  are
       included in other income , net. The cost of  securities  sold is based on
       the specific  identification method. Interest and dividends on securities
       are included in other income, net.

10.    Other Investments

       The Company is a limited partner in a nonmarketable  limited  partnership
       in  which  it owns  approximately  a 10%  interest.  This  investment  is
       accounted for under the equity method.

11.    Revenue and Cost Recognition

       Under  fixed-price  contracts,  revenue  and related  costs are  recorded
       primarily  as  deliveries  are  made.   Certain  costs  under  long-term,
       fixed-price contracts (principally either directly or indirectly with the
       U.S. Government),  which include non-recurring billable engineering,  are
       deferred  until these costs are  contractually  billable.  Revenue  under
       certain  long-term,   fixed  price  contracts  is  recognized  using  the
       percentage  of completion  method of  accounting.  Revenue  recognized on
       these  contracts  is based on  estimated  completion  to date (the  total
       contract  amount  multiplied  by percent of  performance,  based on total
       costs  incurred  in  relation  to total  estimated  cost at  completion).
       Prospective losses on long-term  contracts are based upon the anticipated
       excess of inventoriable manufacturing costs over the selling price of the
       remaining  units to be delivered and are recorded  when first  reasonably
       determinable.  Actual  losses  could differ from those  estimated  due to
       changes in the ultimate manufacturing costs and contract terms.


                                       F-8

<PAGE>



       Contract  costs  include  all direct  material  and labor costs and those
       indirect  costs  related to contract  performance.  Selling,  general and
       administrative costs are charged to expense as incurred.

12.    Income Taxes

       Income  taxes  are  accounted  for by  the  asset/liability  approach  in
       accordance  with  Statement of Financial  Accounting  Standards  No. 109,
       "Accounting  for Income  Taxes."  Deferred  taxes  represent the expected
       future  tax  consequences   when  the  reported  amounts  of  assets  and
       liabilities are recovered or paid. They arise from temporary  differences
       between the financial  reporting and tax bases of assets and  liabilities
       and are adjusted for changes in tax laws and tax rates when those changes
       are  enacted.  The  provision  for income taxes  represents  the total of
       income  taxes paid or payable  for the current  year,  plus the change in
       deferred taxes during the year.

13.    Stock-Based Compensation

       Statement of Financial  Accounting  Standards  No. 123,  "Accounting  for
       Stock-Based  Compensation," encourages, but does not require companies to
       record compensation cost for stock-based  employee  compensation plans at
       fair value. The Company has chosen to continue to account for stock-based
       compensation  using the intrinsic  value method  prescribed in Accounting
       Principles  Board  Opinion  No.  25,  "Accounting  for  Stock  Issued  to
       Employees," and related Interpretations.  Accordingly,  compensation cost
       for stock options is measured as the excess, if any, of the quoted market
       price of the Company's  stock at the date of the grant over the amount an
       employee must pay to acquire the stock. Because the exercise price of the
       Company's   employee  stock  options  equals  the  market  price  of  the
       underlying  stock  on the  date of  grant,  no  compensation  expense  is
       recognized.

14.    Product Development

       The  Company's  primary  efforts  are focused on  engineering  design and
       product  development  activities  rather than pure research.  The cost of
       these  development  activities,  including  employees' time and prototype
       development,   net  of  amounts  paid  by  customers,  was  approximately
       $1,727,000,  $1,685,000,  and $1,562,000 in fiscal 2000,  1999, and 1998,
       respectively.

NOTE B - ACQUISITIONS

       The Company entered into an agreement,  as of January 3, 2000, to acquire
       substantially   all  of  the  assets  of  Robinson   Laboratories,   Inc.
       ("Robinson" or "Robinson  Labs"), a New Hampshire  corporation,  which is
       being operated as a division of Herley  Industries,  Inc. The transaction
       provided for the payment of  $6,000,000  in cash,  the issuance of 33,841
       shares of Common  Stock of the Company  valued at $15.188 per share,  and
       the assumption of approximately  $3,140,000 in liabilities.  In addition,
       the agreement  provides for the issuance of  additional  shares of Common
       Stock at a future  date,  aggregating  97,841shares,  based on new orders
       booked through January 2001. The transaction has been accounted for under
       the purchase method. Accordingly, the consolidated balance sheet includes
       the  assets  and  liabilities  of  Robinson  at July  30,  2000,  and the
       consolidated  statement  of income  includes  the  results of  Robinson's
       operations  from January 3, 2000.  Excess cost over the fair value of net
       assets  acquired of  approximately  $5,467,000 is being amortized over 20
       years.  Pre-acquisition  debt in the amount of $1,479,000 was paid during
       the quarter ended April 30, 2000.

       On the basis of a pro forma consolidation of the results of operations as
       if the  acquisition  had taken  place at the  beginning  of fiscal  1999,
       unaudited  consolidated net sales, net income,  basic earnings per share,
       and diluted  earnings per share for the  fifty-two  weeks ended August 1,
       1999 would have been approximately  $69,283,000,  $7,272,000,  $1.39, and
       $1.28,  and  approximately  $73,246,000,  $7,275,000,  $1.49,  and $1.38,
       respectively,  for the fifty-two weeks ended July 30, 2000. The pro forma
       information includes adjustments for additional depreciation based on the
       estimated fair value  of the  property,  plant,  and  equipment acquired,
       the  amortization  of  intangibles,  and   additional  interest  on  bank
       borrowings  arising   from  the  transaction.  The  pro  forma  financial
       information is not necessarily

                                       F-9

<PAGE>



       indicative  of the results of  operations as they would have been had the
       transaction been affected at the beginning of fiscal 1999.

       As of January 4, 1999,  the Company  completed the  acquisition of all of
       the issued and outstanding common stock of General Microwave  Corporation
       ("GMC"), a New York corporation, including outstanding stock options, for
       $18.00 per share and 966,675 three-year warrants to purchase one share of
       the  Company's   common  stock,   at  an  aggregate   purchase  price  of
       approximately  $24,556,000.  This transaction was accounted for under the
       purchase  method.  The purchase price includes  shares of common stock of
       GMC purchased in the open market,  acquisition of the remaining shares of
       common  stock  outstanding,  an estimate of the fair market  value of the
       warrants based on the trading price of similar warrants  currently on the
       market, and transaction expenses.  The warrants are exercisable at $15.60
       per share of common  stock of the  Company,  subject to a call  provision
       after  October 11, 2000 at $1.00 per warrant if the average last reported
       sales  price of the common  stock of the  Company  has been not less than
       $17.60  per  share  for  fifteen  consecutive  trading  days  immediately
       preceding the call date. The warrants expire in January 2002.

       The aggregate  purchase  price is  calculated  as follows (in  thousands,
       except share and per share data):

           365,600 shares previously acquired in the open market    $   6,273
           848,675 shares at $18.00 per share                          15,276
           118,000 stock options at $18.00 per share,
              net of exercise price                                     1,279
           966,675 warrants at $1.50                                    1,450
           Transaction expenses                                           278
           Purchase price                                            $ 24,556

       The cash portions of the acquisition were financed through available cash
       equivalents and borrowings under the Company's line of credit.

       GMC  designs,   manufactures   and  markets   microwave   components  and
       subsystems,  and related electronic test and measurement  equipment.  The
       company is headquartered  in Farmingdale,  New York, and operates another
       facility in Israel.  The  transaction  has been  accounted  for under the
       purchase  method.  Accordingly,  the  consolidated  statements  of income
       include  the  results  of  GMC  operations  from  January  4,  1999.  The
       acquisition  resulted  in  excess  cost  over  fair  value of net  assets
       acquired of $7,538,501 which is being amortized over 20 years.

       As part of the Company's GMC acquisition  plans, the Company closed GMC's
       Billerica, MA operations and moved it into the Company's existing Woburn,
       MA location.  In connection  with the closure of the Billerica  facility,
       $180,000 of lease termination costs and $250,000 of severance was accrued
       as part of purchase  accounting.  Through July 30, 2000, $46,000 of lease
       termination costs were paid and $200,000 of severance was paid.

       On the basis of a pro forma consolidation of the results of operations as
       if the  acquisition  had taken  place at the  beginning  of fiscal  1998,
       unaudited  consolidated net sales, net income,  basic earnings per share,
       and diluted  earnings per share for the  fifty-two  weeks ended August 2,
       1998 would have been approximately  $63,477,000,  $6,606,000,  $1.33, and
       $1.22,  and for the fifty-two  weeks ended August 1, 1999 would have been
       approximately  $70,349,000,  $7,481,000,  $1.43, and $1.32, respectively.
       The  pro  forma   information   includes   adjustments   for   additional
       depreciation  based on the  estimated  fair market value of the property,
       plant,  and  equipment  acquired,  and the  amortization  of  intangibles
       arising from the transaction.  The pro forma financial information is not
       necessarily  indicative  of the results of  operations as they would have
       been had the transaction been effected at the beginning of fiscal 1998.

       On August 4, 1997,  the Company  completed the  acquisition  of Metraplex
       Corporation, a Delaware corporation,  for 313,139 (as adjusted) shares of
       common stock of the Company,  with a fair market value of $3,170,471,  in
       exchange for all of the issued and outstanding common stock of Metraplex.
       Metraplex

                                      F-10

<PAGE>



       is  a  leading  manufacturer  of  pulse  code  modulation  and  frequency
       modulation, telemetry and data acquisition systems for severe environment
       applications.  The  transaction  has been  accounted  for by the purchase
       method.  Accordingly,  the consolidated  statements of income include the
       results of  Metraplex  operations  from August 4, 1997.  The  acquisition
       resulted  in excess of cost over fair  value of net  assets  acquired  of
       $2,162,725 which is being amortized over twenty years.

NOTE C - NOTES  RECEIVABLE-OFFICERS

       In fiscal 1996 the Company  loaned an aggregate of  $2,000,000 to certain
       officers, as authorized by the Board of Directors,  pursuant to the terms
       of  nonnegotiable  promissory  notes.  The  loans  were paid in full with
       accrued interest as of December 19, 1997.

NOTE D - INVENTORIES

       The major components of inventories are as follows (in thousands):

                                                 July 30,     August 1,
                                                   2000         1999
                                                   ----         ----
           Purchased parts and raw materials     $ 12,804     $  9,862
           Work in process                          9,358        8,781
           Finished products                          883        1,237
                                                   ------       ------
                                                 $ 23,045     $ 19,880
                                                   ======       ======

NOTE E - OTHER INVESTMENTS

       In July 1994, the Company invested  $1,000,000 for a limited  partnership
       interest in M.D. Sass Municipal  Finance  Partners-I,  a Delaware limited
       partnership.  The objectives of the partnership are the  preservation and
       protection of its capital and the earning of income  through the purchase
       of  certificates  or other  documentation  that evidence liens for unpaid
       local taxes on parcels of real  property.  At July 30, 2000 and August 1,
       1999 the  percentage  of ownership was  approximately  10%. The Company's
       interest in the  partnership  may be transferred to a substitute  limited
       partner, upon written notice to the managing general partners,  only with
       the unanimous  consent of both general partners at their sole discretion.
       In July 1998,  the Company  received a partial  distribution  of $593,000
       from  the  Partnership.  As  of  July  30,  2000  the  Company's  limited
       partnership interest had an estimated fair value of $1,020,000.

NOTE F - PROPERTY, PLANT AND EQUIPMENT

       Property,  plant  and  equipment  are  comprised  of  the  following  (in
       thousands):

                                         July 30,      August 1,    Estimated
                                          2000           1999       Useful Life
                                         --------      ---------    -----------
       Land                             $   1,161     $   1,161
       Building and building
            improvements                    8,418        11,731     10-40 years
       Machinery and equipment             26,293        24,995      5- 8 years
       Furniture and fixtures                 915           789      5-10 years
       Automobiles                            108           131         3 years
       Tools                                   34            34         5 years
       Leasehold improvements               1,351           455      5-10 years
                                           ------        ------
                                           38,280        39,296
       Less accumulated depreciation       20,276        17,408
                                           ------        ------
                                         $ 18,004      $ 21,888
                                           ======        ======

       Depreciation  charges totaled $2,889,000,  $2,535,000,  and $1,940,000 in
       fiscal 2000, 1999, and 1998, respectively.

                                      F-11

<PAGE>



NOTE G - COMMITMENTS AND CONTINGENCIES

       Leases

       The Company  leases  office,  production  and warehouse  space as well as
       computer equipment and automobiles under noncancellable operating leases.

       Rent  expense for the 52 weeks ended July 30, 2000,  August 1, 1999,  and
       August 2, 1998, was  approximately  $1,053,000,  $519,000,  and $546,000,
       respectively.

       Minimum  annual  rentals  under  noncancellable  operating  leases are as
       follows (in thousands):

                                                     Amount
                                                     ------
             Year ending fiscal 2001               $   848
                                2002                   727
                                2003                   701
                                2004                   691
                                2005                   624
                              Future                 2,407

       Employment Agreements

       The  Company  has  employment  agreements  with  various  executives  and
       employees  of the Company,  which,  as amended,  expire at various  dates
       through December 31, 2002,  subject to extension each January 1 for three
       years, commencing January 1, 2000. These agreements provide for aggregate
       annual salaries for fiscal 2000 of $1,022,000. Certain agreements provide
       for an  annual  cost of living  adjustment  based on the  consumer  price
       index, and also provide for incentive compensation based on pretax income
       of the Company in excess of  $2,000,000.  Incentive  compensation  in the
       amount of $971,000,  $969,000,  and $728,000 was expensed in fiscal years
       2000, 1999, and 1998, respectively.

       Certain  agreements  also provide that, in the event there is a change in
       control of the Company,  as defined,  the  executives  have the option to
       terminate the agreements and receive a lump-sum  payment of approximately
       three times their annual salary.  As of July 30, 2000, the amount payable
       in the event of such termination would be approximately $3,154,000.

       One of the  employment  contracts  provides  for a  consulting  agreement
       commencing  at the end of the  employment  period which became  effective
       October 1, 1998, and terminating  December 31, 2010 at the annual rate of
       $100,000.  Another one of the employment contracts, as amended October 1,
       1998,  provides  for a  consulting  period  commencing  at the end of the
       period of active  employment and continuing for a period of five years at
       the annual rate of $100,000. Seven officers of the Company have severance
       agreements  providing for a lump-sum payment of $2,020,000 through fiscal
       2002 in the event of a change of control of the Company as defined in the
       agreements.

       Litigation

       The Company is involved in various  legal  proceedings  and claims  which
       arise in the  ordinary  course  of its  business.  While  any  litigation
       contains an element of uncertainty,  management believes that the outcome
       of such  litigation  will  not  have a  material  adverse  effect  on the
       Company's financial position or results of operations.

       Stand-by Letters of Credit

       The  Company  maintains  a letter  of  credit  facility  with a bank that
       provides for the issuance of stand-by  letters of credit and requires the
       payment of a fee of 1.0% per annum of the amounts  outstanding  under the
       facility.  The  facility  expires  January  31,  2002.  At July 30,  2000
       stand-by letters of credit aggregating approximately $1,809,000 were

                                      F-12

<PAGE>



       outstanding under this facility.

NOTE H - INCOME TAXES

       Income tax provision consisted of the following (in thousands):

                                                 52 Weeks ended
                                     ---------------------------------------
                                     July 30,        August 1,     August 2,
                                       2000            1999          1998
                                       ----            ----          ----
       Current
                  Federal            $ 3,573         $ 3,328 (1)    $ 1,469
                  State                  192             399             85
                  Foreign                154              29           -
                                       3,919           3,756          1,554
       Deferred
                  Federal                215             540          1,308
                  State                  (21)           (198)            72
                                         194             342          1,380

                                     $ 4,113          $ 4,098       $ 2,934

       (1)    Excludes  benefit of $68 from  extraordinary  loss  incurred  as a
              result of early extinguishment of long term debt (See Note I).

       The Company paid income taxes of  approximately  $2,241,000,  $1,324,000,
       and  $1,486,000  in  fiscal  2000,  1999,  and  1998,  respectively.  The
       following is a reconciliation  of the U. S. statutory income tax rate and
       the effective tax rate on pretax income:

                                                       52 Weeks ended
                                              ----------------------------------
                                              July 30,    August 1,    August 2,
                                                2000        1999         1998
                                                ----        ----         ----
         U.S. Federal statutory rate            34.0 %      34.0 %       34.0 %
         State taxes, net of
            federal tax benefit                  0.9         1.4          1.5
         Benefit of foreign sales
         corporation                            (2.1)       (3.2)        (1.8)
         Non-deductible expenses                 1.8         1.4           .8
         Benefit of foreign and
            foreign-source income               (1.8)       (1.2)          -
         Other, net                              2.2         1.9           .3
            Effective tax rate                  35.0 %      34.3 %       34.8 %

       Income taxes have not been provided on undistributed  earnings of foreign
       subsidiaries.  If remitted as  dividends,  these  earnings  could  become
       subject  to  additional  tax.  The  Company's  intention  is to  reinvest
       unremitted   earnings  of   subsidiaries   outside   the  United   States
       permanently.

       Deferred income taxes reflect the impact of temporary differences between
       the amount of assets and liabilities  recognized for financial  reporting
       purposes and such amounts recognized for tax purposes.


                                      F-13

<PAGE>



       Components  of  deferred  tax assets and  liabilities  are as follows (in
       thousands):
<TABLE>
<CAPTION>

                                           July 30, 2000             August 1, 1999
                                       ----------------------    -----------------------
                                       Deferred    Deferred      Deferred     Deferred
                                          Tax         Tax           Tax          Tax
                                        Assets    Liabilities     Assets     Liabilities
                                       --------   -----------    --------    -----------
<S>                                     <C>         <C>           <C>           <C>
         Intangibles                    $  -        $ 1,766$      $  -          $ 1,790
         Alternative minimum tax           -           -              643          -
         Accrued vacation pay               323        -              242          -
         Accrued bonus                      578        -              415          -
         Accrued pension                   -           -              199          -
         Warranty costs                      95        -              123          -
         Inventory                        1,011        -            1,176          -
         Depreciation                      -          3,770          -            4,415
         Contract losses                    345        -              390          -
         Net operating loss
            carryforwards                    96        -              219          -
         Other                              201         195           266           210
                                          -----       -----         -----         -----
                                        $ 2,649     $ 5,731       $ 3,673       $ 6,415
                                          =====       =====         =====         =====
</TABLE>

         As of July 30,  2000 the  Company  has  available  net  operating  loss
         carryforwards  for state income tax purposes of  approximately  $96,000
         which expire from fiscal 2001 through 2009.

NOTE I- LONG-TERM DEBT

       Long-term debt is summarized as follows (in thousands):

                                                            July 30,   August 1,
                                            Rate              2000       1999
                                       ---------------        ----       ----
       Revolving loan facility (a)     8.15% and 6.65%      $  -       $ 12,500
       Mortgage note (b)                         7.43%        2,840       2,902
       Other                                      -             373         293
                                                              -----      ------
                                                              3,213      15,695
       Less current portion                                     282         258
                                                              -----      ------
                                                            $ 2,931    $ 15,437
                                                              =====      ======

       (a) In  January  2000,  the  Company  entered  into an  amendment  to its
           revolving  loan  agreement  with a bank that provides for a revolving
           unsecured loan in the aggregate principal amount of $30,000,000 which
           may be  used  for  general  corporate  purposes,  including  business
           acquisitions.  The revolving credit facility  requires the payment of
           interest  only on a monthly  basis  and  payment  of the  outstanding
           principal balance on January 31, 2002.  Interest is set at 1.65% over
           the FOMC  Federal  Funds  Target Rate based on tangible  net worth in
           excess of  $25,000,000,  or at an  increment of 1.80% if tangible net
           worth is less than  $25,000,001.  The FOMC Federal  Funds Target Rate
           was 6.50% at July 30,  2000.  There is a fee of 15 basis  points  per
           annum  on the  unused  portion  of  the  credit  line  in  excess  of
           $20,000,000 payable quarterly. There are no borrowings under the line
           at July 30, 2000.

           The agreement contains various financial covenants,  including, among
           other  matters,  minimum  tangible  net worth,  debt to tangible  net
           worth, debt service coverage, and restrictions on other borrowings.

       (b) The  mortgage  loan is for a term of ten  years  with  fixed  monthly
           principal and interest installments of $23,359, including interest at
           a fixed rate of 7.43%, and is based upon a twenty year  amortization.
           The loan is secured by a mortgage on the Company's  land and building
           in Lancaster,  Pennsylvania  having a net book value of approximately
           $1,946,000. The proceeds of the mortgage loan were used

                                      F-14

<PAGE>



           to prepay the existing mortgage note having an outstanding balance of
           $2,890,000 plus a prepayment premium of $115,600.

           The mortgage note agreement  contains  various  financial  covenants,
           including,  among other matters,  the maintenance of specific amounts
           of tangible  net worth,  debt to  tangible  net worth,  debt  service
           coverage,  and restrictions on other  borrowings.  In connection with
           this loan, the Company paid approximately $45,000 in financing costs.
           Such  costs  are  included  in  Other  Assets  in  the   accompanying
           consolidated  balance sheet at July 30, 2000 and are being  amortized
           over the term of the loan (10 years).  Unamortized  debt  expenses of
           $79,226  related to the prior  mortgage and the  $115,600  prepayment
           premium were charged to expense in 1999 as an  extraordinary  loss in
           connection with the prepayment of this mortgage note.

       The Company paid interest of approximately  $1,200,000 in 2000,  $730,000
       in 1999, and $441,000 in 1998.

       Future payments required on long-term debt are as follows (in thousands):

                    Fiscal year ending during:             Amount
                    -------------------------              ------
                              2001                       $    282
                              2002                            186
                              2003                            108
                              2004                            106
                              2005                             92
                              Future                        2,439
                                                            -----
                                                          $ 3,213
                                                            =====

NOTE J - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

       Accounts   payable  and  accrued   expenses  include  the  following  (in
       thousands):

                                                July 30,        August 1,
                                                  2000            1999
                                                  ----            ----
         Accounts payable                       $ 3,812         $ 2,668
         Accrued payroll and bonuses              3,430           2,636
         Accrued commissions                        710             488
         Accrued interest                            19              84
         Accrued legal expenses                     129             123
         Accrued warranty costs                     220             284
         Accrued pension cost                      -                499
         Accrued severance                          594             538
         Lease termination cost                     134             180
         Accrued expenses                           554             535
                                                  -----           -----
                                                $ 9,602         $ 8,035
                                                  =====           =====

NOTE K - EMPLOYEE BENEFIT PLANS

       In August 1985, the Board of Directors  approved an Employee Savings Plan
       which  qualified  as a thrift plan under  Section  401(k) of the Internal
       Revenue Code.  This Plan, as amended and  restated,  allows  employees to
       contribute between 2% and 15% of their salaries to the Plan. The Company,
       at its discretion  can contribute  100% of the first 2% of the employees'
       contribution and 25% of the next 4%. Additional Company contributions can
       be made  depending  on  profits.  The  aggregate  benefit  payable  to an
       employee is dependent upon his rate of contribution,  the earnings of the
       fund, and the length of time such employee continues as a participant.

       Employees of GMC became  eligible to participate in the Plan as of May 1,
       1999. The existing  savings and investing plan of GMC did not provide for

                                      F-15

<PAGE>



       company matching contributions and has been frozen.

       The Company has recognized expenses of approximately  $415,000,  $266,000
       and  $197,000  for the 52 weeks ended July 30,  2000,  August 1, 1999 and
       August 2, 1998, respectively.

       At the time of the acquisition,  GMC also had a  noncontributory  defined
       benefit pension plan covering all eligible  employees of the company.  As
       part of the  acquisition  plan,  the Company froze all benefits under the
       plan effective  April 30, 1999 and elected to terminate the plan. As part
       of the allocation of the purchase price, the Company recorded a liability
       at the date of acquisition of $464,000.

       Net pension  (income)  expense recorded by the Company in fiscal 2000 and
       1999 includes the following components (in thousands):

                                                         July 30,    August 1,
                                                           2000        1999
                                                           ----        ----
              Service cost - benefits earned
                during the period                        $   -        $  21
              Interest cost                                 237         137
              Return on assets                             (736)       (123)
                                                            ---         ---
                   Net pension (income) expense          $ (499)      $  35
                                                            ===         ===

       The  following  table  sets forth the plan's  funded  status and  amounts
       recognized in the consolidated balance sheets at July 30, 2000 and August
       1, 1999 (in thousands):

                                                       July 30,      August 1,
                                                         2000          1999
                                                         ----          ----
       Projected benefit obligation,
         beginning of period                           $ 4,841      $ 4,793
              Service costs                               -              21
              Interest cost                                237          137
              Actuarial gain                              (348)        -
              Benefit payments                            (214)        (110)
       Projected benefit obligation,
         end of year                                   $ 4,516      $ 4,841

       Change in fair value of plan assets:
       Fair value at beginning of period               $ 4,342      $ 4,329
              Return on assets                             823          123
              Benefit payments                            (214)        (110)
       Fair value at end of year                         4,951        4,342

       Funded status                                      (435)         499
              Unrecognized net gain                        435         -
       Accrued pension costs                           $   -        $   499

       Assumptions used were:
              Discount rate                               5.00%        5.00%
              Expected return on plan assets             10.00%        5.00%

       Assets  held by the  trust  are  comprised  primarily  of  U.S.  Treasury
       securities.

NOTE L - RELATED PARTY TRANSACTIONS

       In connection with the move of the Amityville facilities of GMC in fiscal
       1999,  the  Company  entered  into  a 10  year  lease  agreement  with  a
       partnership owned by the children of certain officers of the Company. The
       lease  provides for initial  minimum  annual rent of $312,000  subject to
       escalation  of  approximately  4% annually  throughout  the 10 year term.
       Additionally, in March 2000, The Company

                                      F-16

<PAGE>



       entered  into  another  10 year  lease  with  the  same  partnership  for
       additional  space.  The initial minimum annual rent of $92,000 is subject
       to escalation of approximately 4% annually.

NOTE M - COMPUTATION OF PER SHARE EARNINGS

       The following table shows the calculation of basic earnings per share and
       earnings  per share  assuming  dilution  (in  thousands  except per share
       data):

<TABLE>
<CAPTION>
                                                                     52 Weeks ended
                                                            ---------------------------------
                                                            July 30,   August 1,   August 2,
                                                              2000        1999        1998
                                                              ----        ----        ----
<S>                                                         <C>         <C>         <C>
Numerator:
      Income before extraordinary item                      $ 7,639     $ 7,862     $ 5,497
      Extraordinary loss                                       -            127        -
                                                              -----       -----       -----
      Net Income                                            $ 7,639     $ 7,735     $ 5,497
                                                              =====       =====       =====

Denominator:
      Basic weighted-average shares                           4,872       5,233       4,969
      Effect of dilutive securities:
         Employee stock options and warrants                    413         427         438
                                                              -----       -----       -----
      Diluted weighted-average shares                         5,285       5,660       5,407
                                                              =====       =====       =====

Stock options and warrants not included in computation        1,648       3,047       1,424
                                                              =====       =====       =====
</TABLE>

       The number of stock options and warrants not included in the  computation
       of diluted EPS  relates to stock  options and  warrants  having  exercise
       prices  that are  greater  than the  average  market  price of the common
       shares during the period,  and therefore,  are antidilutive.  The options
       and warrants with exercise  prices  ranging from $15.60 to $17.88,  which
       expire at various dates through May 26, 2010 were  outstanding as of July
       30, 2000.

NOTE N - SHAREHOLDERS' EQUITY

       At the annual  meeting of  stockholders  held on February 18,  1998,  the
       stockholders of the Company  approved a proposal to amend the Certificate
       of Incorporation  to increase the authorized  shares of Common Stock from
       10,000,000 to 20,000,000 shares.

       In December 1997, the Company  completed the sale of 1,100,000  shares of
       common  stock to the  public,  of which  700,000  shares were sold by the
       Company and 400,000 shares were sold by certain selling stockholders.  In
       addition,  the Company also sold 1,265,000 Common Stock Purchase Warrants
       ("Warrant(s)").  The Company  received net proceeds of  $7,451,579  after
       underwriting   discounts  and  commissions  and  other  expenses  of  the
       offering.  Each  Warrant  entitles  the holder to  purchase  one share of
       common stock at $15.60 per share  (subject to  adjustment  under  certain
       conditions) through May 2000, as extended. The Company also issued to the
       underwriters,  for their own accounts,  Managing  Underwriters'  Warrants
       which  entitle the holder to purchase  110,000  shares of common stock of
       the Company  (subject to adjustment  under certain  circumstances),  at a
       price of  $14.40  per  share  through  December  2002,  and the  right to
       purchase  110,000  Warrants (as  described  above) at a price of $.12 per
       Warrant through May 2000, as extended.

       Approximately  1,314,000 of the warrants which were due to expire May 18,
       2000 were  exercised  at $15.60 per share of common  stock  resulting  in
       proceeds of approximately $20,492,000.  The proceeds were used to pay off
       the bank debt under the revolving credit facility.

       On  September  4, 1997 the Board of  Directors  declared a 4-for-3  stock
       split effected as a stock dividend payable  September 30, 1997 to holders
       of record on September 15, 1997.  The amount of $105,234 was  transferred
       from  additional  paid-in  capital to the common stock  account to record
       this distribution.  All share and per share data, including stock options
       and warrants,  included in the financial statements have been restated to
       reflect the stock split.

                                      F-17

<PAGE>



       The Company has various fixed option plans which reserve shares of common
       stock for  issuance to  executives,  key  employees  and  directors.  The
       Company  applies  APB  Opinion  No.  25 and  related  Interpretations  in
       accounting for these plans.  Statement of Financial  Accounting Standards
       No.123, "Accounting for Stock-Based Compensation" ("SFAS 123") was issued
       by the FASB in 1995 and , if  fully  adopted,  changes  the  methods  for
       recognition of cost on plans similar to those of the Company. The Company
       has adopted the disclosure-only  provisions of SFAS 123. Accordingly,  no
       compensation  cost has been  recognized  for the stock option plans.  Pro
       forma information regarding net income and earnings per share is required
       by Statement 123, and has been determined as if the Company had accounted
       for its  employee  stock  options  under  the fair  value  method of that
       Statement.

       The fair  value for  options  granted is  estimated  at the date of grant
       using a  Black-Scholes  option pricing model.  The  Black-Scholes  option
       valuation  model was developed  for use in  estimating  the fair value of
       traded  options  which  have  no  vesting   restrictions  and  are  fully
       transferable.  In addition,  option valuation models require the input of
       highly  subjective   assumptions   including  the  expected  stock  price
       volatility.   Because  the   Company's   employee   stock   options  have
       characteristics significantly different from those of traded options, and
       because changes in the subjective input assumptions can materially affect
       the fair value estimate, in management' s opinion, the existing models do
       not  necessarily  provide a reliable  single measure of the fair value of
       its employee stock options.

       For  purposes  of  computing  pro-forma   (unaudited)   consolidated  net
       earnings, the following assumptions were used to calculate the fair value
       of each option granted:

                                                 52 Weeks ended
                                          ----------------------------
                                  July 30, 2000  August 1, 1999  August 2, 1998
                                  -------------  --------------  --------------
       Expected life of options    .71 years       .65 years       .40 years
       Volatility                        .72             .58             .59
       Risk-free interest rate          6.1%            5.1%            4.9%
       Dividend yield                   zero            zero            zero

       Had  compensation  cost for stock  options  granted in fiscal years 2000,
       1999, and 1998 been determined  based on the fair value at the grant date
       consistent  with the provisions of SFAS 123, the Company's net income and
       earnings  per share  would  have been  reduced  to the pro forma  amounts
       indicated below using the statutory  income tax rate of 34% (in thousands
       except per share data):

                                                    2000      1999      1998
                                                    ----      ----      ----
            Net income  -  as reported             $7,639    $7,735    $5,497
            Net income  -  pro forma                5,952     5,940     4,925
            Earnings per share  -  as reported
                 Basic                              $1.57     $1.48     $1.11
                 Diluted                             1.45      1.37      1.02
            Earnings per share  - pro forma
                 Basic                              $1.22     $1.14      $.99
                 Diluted                             1.13      1.05       .91

       The effects of  applying  the pro forma  disclosures  of SFAS 123 are not
       likely to be  representative  of the effects on  reported  net income for
       future years due to the various vesting schedules.

       In April 1998, the Board of Directors approved the 1998 Stock Option Plan
       which covers  1,500,000  shares of the Company's  common  stock.  Options
       granted  under the plan may be incentive  stock options  qualified  under
       Section 422 of the Internal Revenue Code of 1986 or  non-qualified  stock
       options.  Under the terms of the Plan,  the  exercise  price for  options
       granted  under  the  plan  will be the fair  market  value at the date of
       grant.  Prices for incentive  stock options  granted to employees who own
       10% or more of the  Company's  stock are at least 110% of market value at
       date of grant.  The  nature  and terms of the  options  to be  granted is
       determined  at the time of grant by the Board of  Directors.  The options
       expire ten years from the date of grant, subject to certain restrictions.
       Options for 646,500 and 375,000 shares

                                      F-18

<PAGE>



       were  granted  during the fiscal  years ended July 30, 2000 and August 1,
       1999, respectively.

       In May 1997,  the Board of Directors  approved the 1997 Stock Option Plan
       which covers  1,666,666  shares of the Company's  common  stock.  Options
       granted  under the plan may be incentive  stock options  qualified  under
       Section 422 of the Internal Revenue Code of 1986 or  non-qualified  stock
       options.  Under the terms of the Plan,  the  exercise  price for  options
       granted  under  the  plan  will be the fair  market  value at the date of
       grant.  Prices for incentive  stock options  granted to employees who own
       10% or more of the  Company's  stock are at least 110% of market value at
       date of grant.  The  nature  and terms of the  options  to be  granted is
       determined  at the time of grant by the Board of  Directors.  The options
       expire ten years from the date of grant, subject to certain restrictions.
       Options for 86,000,  875,500 and 88,333  shares were  granted  during the
       fiscal  years  ended  July 30,  2000,  August 1, 1999 and August 2, 1998,
       respectively.

       In October  1995,  the Board of Directors  approved the 1996 Stock Option
       Plan which covers 666,666 shares of the Company's  common stock.  Options
       granted  under the plan may be incentive  stock options  qualified  under
       Section 422 of the Internal Revenue Code of 1986 or  non-qualified  stock
       options.  Under the terms of the Plan,  the  exercise  price for  options
       granted  under  the  plan  will be the fair  market  value at the date of
       grant.  Prices for incentive  stock options  granted to employees who own
       10% or more of the  Company's  stock are at least 110% of market value at
       date of grant.  The  nature  and terms of the  options  to be  granted is
       determined  at the  time of  grant  by the  Board  of  Directors.  If not
       specified, 100% of the shares can be exercised one year after the date of
       grant.  The options expire ten years from the date of grant.  Options for
       663,989 shares were granted during the fiscal year ended August 3, 1997.

       A summary of stock option activity under all plans for the 52 weeks ended
       July 30, 2000, August 1, 1999 and August 2, 1998 follows:
<TABLE>
<CAPTION>

                                             Non-Qualified Stock Options
                                       -----------------------------------------
                                                                        Weighted    Warrant Agreements
                                                                        Average   ------------------------
                                          Number        Price Range     Exercise    Number     Price Range
                                        of shares         per share     Price     of shares     per share
                                        ---------      --------------   --------  ---------  -------------
<S>                                     <C>            <C>              <C>       <C>        <C>
Outstanding August 3, 1997...........     916,327      $ 2.54  -10.41    $ 5.87     320,000   $ 4.64 - 5.35
   Granted ..........................      88,333       10.31  -13.88     12.04
   Exercised.........................    (135,594)       2.54  - 6.94      5.08     (40,000)           5.35
   Canceled..........................      (8,222)       2.54  - 6.47      5.31
                                        ---------       -------------     -----     -------     -----------
Outstanding August 2, 1998...........     860,844      $ 2.54  -13.88    $ 6.65     280,000          $ 4.64
   Granted ..........................   1,250,500        9.25  -16.46     11.44
   Exercised.........................    (669,100)       2.54  - 9.94      6.56     (66,667)           4.64
   Canceled..........................     (47,631)       6.47  -16.46     11.16
                                        ---------       -------------     -----     -------     -----------
Outstanding August 1, 1999...........   1,394,613      $ 2.54  -16.46    $10.74     213,333          $ 4.64
   Granted ..........................     732,500       13.88  -17.88     15.51
   Exercised.........................    (103,990)       2.54  -14.75      7.03                        4.64
   Canceled..........................     (13,700)      11.13  -15.69     12.72
                                        ---------       -------------     -----     -------     -----------
Outstanding July 30, 2000............   2,009,423      $ 6.09  -17.88    $12.65     213,333          $ 4.64
                                        =========                                   =======
</TABLE>


                                      F-19

<PAGE>



       Options Outstanding and Exercisable by Price Range as of July 30, 2000:
<TABLE>
<CAPTION>

                                            Options Outstanding                    Options Exercisable
                               ----------------------------------------------  --------------------------
                                                  Weighted
                                                   Average       Weighted                     Weighted
        Range of Exercise         Number         Remaining        Average        Number        Average
            Prices             Outstanding   Contractual Life  Exercise Price  Exercisable Exercise Price
        -----------------      -----------   ----------------  --------------  ----------- --------------
<S>    <C>                     <C>           <C>               <C>             <C>         <C>
       $ 6.09  -  $ 9.25         517,323            7.5          $  8.27         312,133       $  7.96
        10.41  -   13.88         577,100            8.7            12.46         331,300         12.16
        13.94  -   15.00         280,500            8.9            14.01         257,600         13.96
        15.69  -   17.88         634,500            8.0            15.80         372,000         15.70
        $6.09  -  $17.88       2,009,423            8.2           $12.65       1,273,033        $12.53
</TABLE>

       In April 1993,  common stock warrants were issued to certain officers and
       directors for the right to acquire  573,333 shares of common stock of the
       Company at the fair market value of $5.35 per share at date of issue.  In
       December  1995  warrants  for  533,333  shares  were  canceled,  and  the
       remaining  40,000  warrants  were  exercised in fiscal 1998.  In December
       1995, common stock warrants were issued to certain officers for the right
       to  acquire  293,333  shares of common  stock of the  Company at the fair
       market  value of $4.64  per  share at date of issue.  The  warrants  vest
       immediately and expire December 13, 2005.

NOTE O - SIGNIFICANT SEGMENTS, MAJOR CUSTOMERS, AND EXPORT SALES

       The  Company's  chief  operating  decision  maker is considered to be the
       Chairman and Chief Executive  Officer (CEO).  The Company's CEO evaluates
       both consolidated and disaggregated  financial information  consisting of
       revenue  information  in deciding  how to allocate  resources  and assess
       performance. The CEO uses certain disaggregated financial information for
       the Company's two product groups:  Space and Communications and Microwave
       Components.  The Company does not determine a measure of operating income
       or loss by product  group.  The Company's two product groups have similar
       long-term economic characteristics,  such as application, and are similar
       in regards to (a) nature of products and production  processes,  (b) type
       of customers,  and (c) method used to distribute  products.  Accordingly,
       the  Company is in a single  reportable  segment as a provider of complex
       microwave  radio  frequency  (RF)  and  millimeter  wave  components  and
       subsystems  for  commercial   wireless,   defense  and  space   customers
       worldwide.  All  of the  Company's  revenues  result  from  sales  of its
       products.  Revenues  by product  group (as  defined by the  Company)  for
       fiscal   years  2000,   1999  and  1998  were  as   follows:   Space  and
       Communications,  $27,590,000, $33,846,000 and $30,338,000,  respectively;
       Microwave   Components,   $42,947,000,   $27,190,000,   and  $10,460,000,
       respectively.

       Net sales to the U.S.  Government in 2000,  1999,  and 1998 accounted for
       approximately  26%,  17%,  and 26% of net sales,  respectively.  No other
       customer  accounted  for shipments in excess of 10% of  consolidated  net
       sales in fiscal  2000.  One  customer  accounted  for 12% of net sales in
       1999. Foreign sales amounted to approximately  $16,506,000,  $17,680,000,
       and $11,943,000 in fiscal 2000, 1999 and 1998, respectively.

       Included  in accounts  receivable  as of July 30, 2000 and August 1, 1999
       are amounts due from the U.S. Government of approximately  $2,269,000 and
       $2,470,000 respectively.

NOTE P - FAIR VALUES OF FINANCIAL INSTRUMENTS

       The  following  methods  and  assumptions  were  used by the  Company  in
       estimating its fair value disclosures for financial instruments:

         Cash and cash equivalents:  The carrying amount reported in the balance
         sheet for cash and cash equivalents approximated its fair value.


                                      F-20

<PAGE>


         Available-for-sale  securities:  The fair  value of  available-for-sale
         securities was based on quoted market prices.

         Long-term debt: The fair value of the mortgage note was estimated using
         discounted  cash  flow  analysis,   based  on  the  Company's   current
         incremental borrowing rate for similar types of borrowing arrangements.

The carrying amounts and fair values of the Company's financial  instruments are
presented below (in thousands):

                                                      July 30, 2000
                                                    ----------------
                                                    Carrying   Fair
                                                     Amount    Value
                                                    --------   -----
           Cash and cash equivalents                 $7,665   $7,665
           Long-term debt                             2,931    2,931

NOTE Q - SUBSEQUENT EVENTS

The  Company  entered  into an  agreement,  as of August  28,  2000,  to acquire
substantially all of the assets of American Microwave Technology,  Inc. ("AMT"),
a California corporation,  which is being operated as Herley- AMT, a division of
Herley  Industries,  Inc.  The  transaction,  which  closed on October 12, 2000,
provided  for  the  payment  of  $5,400,000  in  cash,  and  the  assumption  of
approximately  $1,153,000 in liabilities.  The transaction will be accounted for
under the  purchase  method  of  accounting.  The  allocation  of the  aggregate
estimated  purchase  price will be determined  based on detailed  reviews of the
fair value of assets acquired and liabilities  assumed. Any excess cost over the
fair value of net assets  acquired will be amortized over 20 years.  The Company
also  entered into an exclusive  license  agreement  with AMT related to certain
application  specific and wireless  products  under which the Company will pay a
royalty of 10% of net sales of these products for a period of four years,  after
which no additional royalty will be due.

On October 13, 2000 the Company  notified the holders of the warrants  issued in
connection  with the  acquisition  of GMC (see Note B) of its intent to call the
warrants at a price of $1.00 per warrant  effective  30 days after  notice.  The
holders of the  warrants  may elect to  exercise  the  warrant  for one share of
common stock of the Company at $15.60 per share.

                                      F-21