<PAGE>



                                  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 December 31, 1999

                                       OR

         [   ]   Transition Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934
                         Commission File Number 0-21872

                                  ALDILA, INC.
             (Exact name of registrant as specified in its charter)

          DELAWARE                                      13-3645590
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

                  12140 COMMUNITY ROAD, POWAY, CALIFORNIA 92064
                    (Address of principal executive offices)
                                 (858) 513-1801
                          (Registrant's Telephone No.)

         Securities Registered Pursuant to Section 12(b) of the Act:

                Title of each class   Names of each exchange on which registered
                        None                              None
                        ----                              ----
           Securities registered pursuant to section 12(g) of the Act:
                     Common Stock, par value $0.01 per share
                     ---------------------------------------
                                (Title of Class)

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

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

As of March 24, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant, based on market quotations as of that date,
was approximately $26.5 million.

As of March 24, 2000, there were 15,462,204 shares of the Registrant's common
stock, par value $0.01 per share, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated into this report by
reference:
Part III The Registrant's definitive Proxy Statement for the 2000 Annual Meeting
of Stockholders to be filed with the Commission within 120 days after the close
of the fiscal year.


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                                  ALDILA, INC.

                               REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999


                                      INDEX

<TABLE>
<CAPTION>

                                                                                    Page
                                                                                    ----
<S>                                                                                <C>
   Part I

            Item 1.    Business                                                        3
            Item 2.    Properties                                                     14
            Item 3.    Legal Proceedings                                              14
            Item 4.    Submission of Matters to a Vote of Security Holders            14


   Part II

            Item 5.    Market for Registrant's Common Equity and Related
                       Stockholder Matters                                            15
            Item 6.    Selected Financial Data                                        16
            Item 7.    Management's Discussion and Analysis of Financial
                         Condition and Results of Operations                          17
            Item 7a.   Quantitative and Qualitative Disclosures about Market
                         Risk                                                         22
            Item 8.    Financial Statements and Supplementary Data                    22
            Item 9.    Changes in and Disagreements with Accountants on
                         Accounting and Financial Disclosure                          22


   Part III

            Item 10.  Directors and Executive Officers of the Registrant              23
            Item 11.  Executive Compensation                                          23
            Item 12.  Security Ownership of Certain Beneficial Owners
                        and Management                                                23
            Item 13.  Certain Relationships and Related Transactions                  23

   Part IV

            Item 14.  Exhibits, Financial Statement Schedules, and Reports
                        on Form 8-K                                                   24



   Signatures                                                                         40
   Exhibit Index                                                                      41

</TABLE>


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                                     PART I


     THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
THE FEDERAL SECURITIES LAWS. THESE FORWARD-LOOKING STATEMENTS ARE NECESSARILY
BASED ON CERTAIN ASSUMPTIONS AND ARE SUBJECT TO SIGNIFICANT RISKS AND
UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON MANAGEMENT'S
EXPECTATIONS AS OF THE DATE HEREOF, AND THE COMPANY DOES NOT UNDERTAKE ANY
RESPONSIBILITY TO UPDATE ANY OF THESE STATEMENTS IN THE FUTURE. ACTUAL FUTURE
PERFORMANCE AND RESULTS COULD DIFFER FROM THAT CONTAINED IN OR SUGGESTED BY
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF FACTORS SET FORTH IN THIS FORM
10-K (INCLUDING THOSE SECTIONS HEREOF INCORPORATED BY REFERENCE FROM OTHER
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION ), IN PARTICULAR AS SET
FORTH IN "BUSINESS RISKS" UNDER ITEM 1 AND SET FORTH IN THE "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" UNDER
ITEM 7.


ITEM 1.  BUSINESS

GENERAL

     Aldila, Inc. ("Aldila" or the "Company") is the leading designer and
manufacturer of high-quality innovative graphite (carbon fiber-based composite)
golf shafts in the United States today and has maintained this leading position
for over a decade. Aldila enjoys strong relationships with most major domestic
and many foreign golf club manufacturers including Callaway, Taylor Made, Ping
and Titleist. Aldila believes that it is one of the few independent shaft
manufacturers with the technical and production expertise required to produce
high-quality graphite shafts in quantities sufficient to meet rapidly growing
demand. The Company's current golf shaft product line consists of Aldila and G.
Loomis branded products designed for custom club makers, as well as hundreds of
custom shafts developed in conjunction with its major customers, which are
designed to improve the performance of any level of golfer from novice to tour
professional.

     In an effort to maintain its leadership position in the graphite shaft
market over the last several years, the Company has taken steps to vertically
integrate into the manufacture of its own raw materials in order to control its
raw material costs and ensure its sources of supply. In 1994, the Company
started production of its principal raw material for shafts, graphite prepreg,
which consists of sheets of carbon fibers combined with epoxy resin. See
"Manufacturing--Raw Materials." The Company now produces substantially all of
its graphite prepreg requirements internally.

     In 1998, the Company established a manufacturing facility in Evanston,
Wyoming for the production of carbon fiber. During 1998 and through the first
ten months of 1999, the Company has used the material from this facility to
satisfy a significant portion of its internal demand for carbon fiber in the
manufacturing of golf club shafts. During 1999, the Company also produced and
sold carbon fiber from this facility to other unrelated entities for the
manufacture of other carbon-based products. On October 29, 1999, SGL Carbon
Fibers and Composites, Inc. ("SGL") purchased a 50% interest in the Company's
carbon fiber manufacturing operation. The Company and SGL entered into an
agreement to operate the facility through a limited liability company with equal
ownership interests between the joint venture partners. The Company and SGL also
entered into supply agreements with the new entity, Carbon Fiber Technology LLC
("CFT"), for the purchase of carbon fiber at cost plus an agreed mark-up.
Profits and losses of CFT will be shared equally by the partners. The Company
anticipates that the carbon fiber from this facility will primarily be consumed
by the venture partners; however, any excess carbon fiber produced at this
facility could be marketed for sale to unrelated third parties.


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Graphite Golf Shafts and Other Composite Products:

     The Company was founded in San Diego, California in 1972 and was an early
leader in the design and production of graphite golf shafts. Since then, the
Company has continually improved upon its shaft designs and the materials used
in its shafts to meet the demands of a growing market. The Company believes it
is well positioned to remain a leader in the market for graphite shafts due to
its innovative and high quality products, strong customer relationships, design
and composite expertise and significant manufacturing capabilities.

     Most golf clubs being sold today have shafts constructed from steel or
graphite, although limited numbers are also manufactured from other materials.
Graphite shafts were introduced in the early 1970's as the first major
improvement in golf shaft technology since steel replaced wood in the 1930's.
The first graphite shafts had significant torque (twisting force) and appealed
primarily to weaker-swinging players desiring greater distance. Graphite shaft
technology has subsequently improved so that shafts can now be designed for
golfers at all skill levels. Unlike steel shafts, graphite shafts can be altered
with respect to weight, flex, flex location and torque to produce greater
distance, increased accuracy and reduced club vibration resulting in improved
"feel" to the golfer. The improvements in the design and manufacture of graphite
shafts and the growing recognition of their superior performance characteristics
compared to steel have resulted in increased demand for graphite shafts by
golfers of all skill levels. The initial acceptance of graphite shafts was
primarily for use in woods. Subsequently, after achieving dominant acceptance
and penetration in both the professional and consumer woods markets (with over
78% of new woods purchased including graphite shafts in 1999), graphite shafts
have started to achieve similar success in the irons market including increasing
acceptance among tour professionals. Since many golfers consider professionals
to be "opinion leaders," their acceptance and growing use of graphite shafts in
irons has helped broaden the overall graphite market. As a result, in 1999,
approximately 30% of new irons purchased were graphite shafted.

     Originally, graphite shafts were primarily sold for use in premium clubs,
while the value priced segment of the golf club market continued to be supplied
with steel shafts. In the last several years, however, an increasing percentage
of value priced clubs are being sold with graphite shafts. As a result, the
Company has taken steps to enable it to meet the needs of this segment of the
shaft market, including the design of shafts that can be manufactured at prices
acceptable to this market and continued efforts to reduce its overall
manufacturing costs.

     Carbon fiber is produced by processing acrylic fiber through a series of
stretching, stabilizing and carbonizing sequences converting it into essentially
a pure carbon chain fiber exhibiting stiffness and strength characteristics
similar to steel at significantly less weight. These carbon fibers combined with
various resins (prepregs) are then converted to composite structures which have
replaced metals in a number of weight critical aerospace, sporting and
industrial applications. Typically, the composite structure will weigh 25 to 50
percent less than the metal structure it has replaced. Carbon fiber composite
structures also provide toughness, resistance to corrosion, resistance to
fatigue, capacity to dissipate heat and electrical conductivity. Carbon fiber
has grown from its inception in the late 1950's into an industry producing
approximately 27 million pounds of carbon fiber per year.

     Carbon fiber usage has grown primarily for consumption by the aerospace
industry and for sporting goods applications. Aerospace grade carbon fibers
continue to be utilized for production of commercial and military
aerostructures. The higher-cost, aerospace grade carbon fibers were first used
in sporting goods and industrial applications until a lower-cost, large bundle
carbon fiber was developed as an alternative for use in many sporting goods and
industrial applications. Aldila was a leader in utilizing large bundle carbon
fibers purchased from outside vendors, initially for the manufacture of graphite
golf shafts. With the opening of its carbon fiber facility in Evanston, Wyoming
and subsequent joint venture in CFT, Aldila now procures large


                                       4
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bundle carbon fiber for its prepreg operation and graphite golf shaft production
from CFT. Aldila continues to purchase certain types of carbon fiber from
outside vendors for the manufacture of golf shafts.


PRODUCTS

     Aldila offers a broad range of innovative and high-quality graphite golf
shafts designed to maximize the performance of golfers of every skill level. The
Company manufactures hundreds of unique graphite shafts featuring various
combinations of performance characteristics such as weight, flex, flex point and
torque. The Company's customized shafts, which constituted approximately 75% of
net sales in the year ended December 31, 1999, are designed in partnership with
its customers (principally golf club manufacturers) to accommodate specific golf
club designs. The Company's standard models are typically sold to golf club
manufacturers, distributors and golf pro and repair shops, and are used either
to assemble a new custom club from selected components or to replace the steel
shaft of an older club. The Company also helps develop cosmetic designs to give
the customer's golf clubs a distinctive look, even when the customer does not
require a shaft with customized performance characteristics. The prices of
Aldila shafts typically range from $5 to $30.

     All of the Company's shafts are composite structures consisting principally
of carbon fiber and epoxy resins. The Company's shafts may also include boron
(added to increase shaft strength) or fiberglass. The Company regularly
evaluates new composite materials for inclusion in the Company's shafts and new
refinements on designs using current materials.

     Since 1994, the Company has manufactured graphite prepreg material for its
production of golf shafts. In 1998, the Company began selling graphite prepreg
manufactured in its Poway, California manufacturing facility to third parties.
Beginning in 1999, the Company offered for sale large bundle carbon fiber and
chopped fiber from its manufacturing facility in Evanston, Wyoming. Sales of
large bundle carbon fiber continued in 1999 through October 29, 1999, the date
that the Company sold a 50% interest in the carbon fiber manufacturing
operation. All subsequent outside carbon fiber revenues, if any, will be
attributed to the joint venture.

     Carbon fiber composite materials are suited for a diverse range of
applications based on their distinctive combination of physical and chemical
properties. Carbon fibers are used as reinforcements in composite materials that
combine fibers with epoxy resins or other matrix materials to form a substance
with high strength, low weight, stiffness, resistance to corrosion, resistance
to fatigue and capacity to dissipate heat and electrical conductivity. Carbon
fiber materials produced by the Company or CFT would be used in a variety of
applications such as molding compounds for the manufacture of electronic
components, masts and spars for the marine industry, hockey sticks, fishing rods
and other industrial products.


CUSTOMERS AND CUSTOMER RELATIONS

     For fiscal year 1999, the Company had approximately 300 golf shaft
customers, which included approximately 100 golf club manufacturers and more
than 60 distributors, with the balance principally consisting of custom club
assemblers, pro shops and repair shops. However, the majority of the Company's
sales have been and may continue to be concentrated among a relatively small
number of customers. Sales to the Company's top five customers represented
approximately 57%, 61% and 72% of net sales in 1999, 1998 and 1997 respectively.

     Historically, Aldila's principal customers have varied as a result of
general market trends in the golf industry, in particular the prevailing
popularity of the various clubs that contain Aldila's shafts, and there
typically are changes in the composition of the list of the Company's ten most
significant customers from year to year as a result. Due to the substantial
marketplace success of their clubs in recent periods, for the last several years
the Company's two largest customers have been Callaway and Taylor Made. While
the Company


                                       5
<PAGE>


believes its relationship with each of these two major customers is sound, the
Company is not the exclusive supplier to either Callaway or Taylor Made and as a
result the Company's sales to each of these customers has varied substantially
from year to year. Sales to Taylor Made represented 17%, 15% and 22% of the
Company's net sales in 1999, 1998 and 1997, respectively. Sales to Callaway
represented 12%, 26% and 32% of the Company's net sales in 1999, 1998 and 1997,
respectively. Sales to Ping represented 10% of the Company's net sales in 1999.
Because of the historic volatility of consumer demand for specific clubs, as
well as continued competition from alternative shaft suppliers, sales to a given
customer in a prior period may not necessarily be indicative of future sales and
it is often difficult to project the Company's sales to a given customer in
advance.

     The Company believes that its close customer relationships and responsive
service have been significant elements of its success to date, establishing it
as a premier graphite shaft company. Aldila's golf club manufacturer customers
often work together with the Company's engineers when developing a new golf club
in order to design a club that maximizes the performance features of the
principal component parts: the grip, the clubhead and the Aldila shaft. The
Company's partnership relationship with its customers continues after the
development of clubs containing Aldila's shafts. Following the design process,
the Company continues to provide high levels of customer support and service in
areas such as quality control and assurance, timely and responsive
manufacturing, delivery schedules and education. The Company believes its
physical proximity to many of its customers has facilitated a high degree of
customer interaction and responsiveness to customer needs. While the Company has
had long-established relationships with most of its customers, it is not the
exclusive supplier of graphite shafts to most of them and generally does not
have long-term supply agreements with its customers. Although the Company
believes that its relationships with its customers are good, the loss of a
significant customer or a substantial decrease in sales to a significant
customer could have a material adverse effect on the Company's business or
operating results.

     Aldila sells graphite prepreg primarily to manufacturers of composite
products such as hockey equipment, sail boat riggings and fishing rods. During
1999, the Company sold large bundle carbon fiber produced in Evanston, Wyoming
to outside customers. The majority of the sales were made to SGL, which became a
venture partner of the Company on October 29, 1999 by purchasing a one-half
interest in the facility.

     The Company now offers carbon fiber for sale to outside parties through its
50% owned joint venture, CFT. The Company does not anticipate that outside sales
of carbon fiber by CFT will be substantial in 2000, due to the requirement to
satisfy the fiber needs of the Company and SGL, prior to meeting any future
orders from unrelated third parties.

MARKETING AND PROMOTION

     The Company's marketing strategy is designed to encourage golf club
manufacturers to select and promote Aldila shafts, and to increase overall
market acceptance and use of graphite golf shafts. The Company utilizes a
variety of marketing and promotional channels to increase sales of Aldila brand
name shafts through its network of distributors, and to support Aldila's brand
name recognition and reputation among consumers for offering consistently high
quality products designed for a wide range of golfers. Although the Company does
not sell directly to the end users of its products, the Company believes that
its brand name recognition contributes to the marketability of its customers'
products.

     Aldila's marketing and promotion expenditures were approximately $0.6
million, $1.0 million and $2.5 million in 1999, 1998 and 1997, respectively.

SALES AND DISTRIBUTION

     Within the golf club industry, most companies do not manufacture the three
principal components of the golf club -- the grip, the shaft and the clubhead --
but, rather, source these components from independent suppliers that design and
manufacture components to the club manufacturers' specifications. As a result,
Aldila sells its graphite shafts primarily to golf club manufacturers and, to a
lesser extent, distributors, custom


                                       6
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club shops, pro shops and repair shops. Distributors typically resell the
Company's products to custom club assemblers, pro and custom club shops, and
individuals. The Company uses its internal sales force in the marketing and sale
of its shafts to golf club manufacturers. Sales to golf club manufacturers
accounted for approximately 75% of net sales for the year ended December 31,
1999.

     Graphite prepreg sales and carbon fiber sales are made primarily to
manufacturers of composite products. The Company has utilized its internal sales
force in the marketing and sale of these products to its customers in the past,
and will continue to utilize its internal sales force for the sales of graphite
prepreg in the future.

     International sales represented 21%, 9%, and 7% of net sales for the years
ended December 31, 1999, 1998 and 1997, respectively.

PRODUCT DESIGN AND DEVELOPMENT

     Aldila is committed to maintaining its reputation as a leader in innovative
shaft design and composite materials technology. The Company believes that the
enhancement and expansion of its existing product lines and the development of
new products are necessary for the Company's continued growth and success.
However, while the Company believes that it has generally achieved success in
the introduction of its graphite golf shafts, no assurance can be given that the
Company will be able to continue to design and manufacture products that meet
with market acceptance.

     The Company has been one of the leaders in developing the market for lower
cost large bundle carbon fiber by successfully converting to this fiber type
from a more expensive carbon fiber material for the manufacture of its graphite
golf shafts. The Company believes that in association with its venture partner,
SGL, it can also be effective in providing large bundle carbon fiber to other
manufacturing applications outside of golf shafts.

     Graphite shaft designs and modifications are frequently the direct result
of the combined efforts and expertise of the Company and its customers' to
develop an exclusive shaft for each customer's clubs. New golf shaft designs are
developed and tested using a CAD/CAE golf shaft analysis program, which
evaluates a new shaft design with respect to weight, torque, flex point, tip and
butt flexibility, swing weight and other critical shaft design criteria. In
addition, the Company researches new and innovative shaft designs on an
independent basis, which has enabled the Company to produce a variety of new
standard shafts as well as generate design ideas for customized shafts. To
improve and advance composites technology and shaft process manufacturing, the
Company's engineers test new and existing materials, such as boron, kevlar,
fiberglass, ceramic, thermoplastic and carbon fiber. The Company's design
research also focuses on improvements in graphite shaft aesthetics since
cosmetic appearance has become increasingly important to customers. Although the
Company emphasizes these research and development activities, there can be no
assurance that Aldila will continue to develop competitive products or that the
Company will be able to utilize new composite material technology on a timely or
competitive basis, or otherwise respond to emerging market trends.

     The Company has applied its carbon fiber technology to other products in
recent years, engaging in limited production of graphite tubing and other molded
parts on a special order basis.

MANUFACTURING

     The Company believes that its manufacturing expertise and production
capacity differentiate it from many of its competitors and enable Aldila to
respond quickly to its customers' orders and provide sufficient quantities on a
timely basis. The Company today operates five golf shaft manufacturing
facilities, one prepreg manufacturing facility (in conjunction with one of its
shaft manufacturing facilities) and through its 50% ownership interest in CFT,
one carbon fiber manufacturing facility. During its 28 years of operation, the
Company has improved its manufacturing processes and believes it has established
a reputation as the industry's leading volume manufacturer of high-performance
graphite shafts.


                                       7
<PAGE>


     SHAFT MANUFACTURING PROCESS. The process of manufacturing a graphite shaft
has several distinct phases. Different designs of Aldila shafts require
variations in both the manufacturing process and the materials used. In
traditional shaft designs, treated graphite known as "prepreg" is rolled onto
metal rods known as mandrels. The graphite is then baked at high temperatures to
harden the material into a golf shaft. At the end of the manufacturing process,
the shafts are painted and stylized using a variety of colors, patterns and
designs, including logos and other custom identification. Through each phase of
this process, the Company performs quality control reviews to ensure continuing
high standards of quality and uniformity and to meet exacting customer
specifications.

     RAW MATERIALS. The primary material currently used in all of the Company's
graphite shafts is carbon fiber, which is combined with epoxy resin to produce
sheets of graphite prepreg. Heating and stretching the graphite fibers
determines the tensile strength and modulus (stiffness) of the fiber. The
Company manufacturers graphite prepreg at its Poway, California facility.
Through 1997, the Company purchased all of its carbon fibers from outside
vendors. Beginning in 1998, the Company manufactured carbon fiber at its
Evanston, Wyoming facility for consumption by its golf shaft production
operation. Because many different forms of carbon fiber are required for golf
shaft products, including some not manufactured at the CFT facility, the Company
will continue to depend on outside suppliers for a portion of its ongoing carbon
fiber needs.

     GRAPHITE PREPREG MANUFACTURING PROCESS. In October 1994, the Company
initiated the internal production of graphite prepreg in its Poway, California
facility. The Company believes that by producing a major portion of its graphite
prepreg requirements internally it may better control the supply of raw material
for shafts and may reduce the impact of potential future price increases. The
Company now produces substantially all of its graphite prepreg requirements
internally. The Company is, however, dependent upon certain domestic graphite
prepreg suppliers for graphite prepreg which it does not produce and, therefore,
the Company expects to continue to purchase some prepreg products from outside
suppliers in the future. The Company is now dependent on its own prepreg
production operation to support its shaft manufacturing requirements. Although
the Company believes that there will continue to be alternative third party
suppliers of graphite prepreg, there can be no assurance that unforeseen
difficulties which could lead to an interruption in the Company's internal
prepreg production will not occur which would result in production delays.

     The Company's graphite prepreg operation is dependent on certain suppliers
for carbon fibers, which along with epoxy resins and paper constitute the
primary components in graphite prepreg. In 1999, the Company obtained most of
its carbon fiber from its Wyoming facility but also purchased carbon fiber from
Toho Carbon Fibers, Inc. The prices paid by the Company for carbon fiber
decreased during 1999 due to the state of over capacity in the carbon fiber
industry. However, management anticipates that the prices for carbon fiber will
increase in the future, although it cannot predict the timing or extent of any
future price changes.

     CARBON FIBER MANUFACTURING PROCESS. In the first quarter of 1998 the
Company completed construction of a 50,000 square foot carbon fiber
manufacturing facility in Evanston, Wyoming. The company sold a 50% interest in
this facility to SGL on October 29, 1999. In this facility the Company produces
large bundle carbon fiber material from acrylic fiber through a series of
stretching, stabilizing and carbonizing sequences. This material is now the
primary raw material for the Company's prepreg manufacturing operation to
support the manufacture of graphite golf shafts.

     In 1998 and 1999, the Company purchased substantially all of its raw
acrylic fibers for the carbon fiber operation from two outside vendors, Toho
Carbon Fibers, Inc. and Courtaulds Fibres, Ltd. The Company believes these two
vendors will be able to provide a reliable source of supply for raw materials at
the anticipated operating level of CFT. However, CFT will continue to pursue
alternate sources of supply for this material.


                                       8
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ENVIRONMENTAL MATTERS

     The Company is subject to various federal, state, local and foreign
environmental laws and regulations, including those governing the use, discharge
and disposal of hazardous materials as the Company uses hazardous substances and
generates hazardous waste in the ordinary course of its manufacturing of
graphite golf shafts, graphite prepreg and carbon fiber. The Company believes it
is in substantial compliance with applicable laws and regulations and has not to
date incurred any material liabilities under environmental laws and regulations;
however, there can be no assurance that environmental liabilities will not arise
in the future which may affect the Company's business.

COMPETITION

     Aldila operates in a highly competitive environment in both the United
States and international markets for the sale of its graphite golf club shafts.
The Company believes that it competes on the basis of its ability to provide a
broad range of high quality, performance graphite shafts; its ability to deliver
customized products in large quantities and on a timely basis to its customers;
the acceptance of graphite in general, and Aldila shafts in particular, by
professional and other golfers, whose preferences are to some extent subjective;
and, finally, price. Presently, there exists substantial excess graphite shaft
manufacturing capacity both in the United States and in other countries. This
has had the effect, and is expected by management to continue to have the effect
of decreasing the selling prices of the Company's shafts. Until recently, the
United States market for graphite shafts was dominated by a relatively small
number of United States based shaft manufacturers. The Company currently
competes against a number of well established United States based shaft
manufacturers for sales of premium shafts which constitute the majority of the
Company's revenues. This competition has made it more difficult to retain
existing customers, attract new customers and has placed increasing pressure on
prices for the Company's premium shafts. The Company now also competes with
foreign owned graphite shaft manufacturers for customers desiring lower priced
value shafts. The Company only recently entered into this segment of the market,
whereas the competing shaft manufacturers may be well established in this
segment of the market.

     The Company believes that it is the largest supplier of graphite shafts in
the United States, which results from its ability to establish a premium brand
image and reputation among golf club companies as a value-added supplier with
competitive prices.

     Aldila competes against other shaft manufacturers, both graphite and steel,
as well as against golf club companies that produce their own shafts internally,
some of which may have greater resources than Aldila. The Company also faces
potential competition from those golf club manufacturers that currently purchase
golf shaft components from outside suppliers but that may have, develop or
acquire the ability to manufacture all or a portion of its graphite shafts
internally. Should any of the Company's significant customers decide to meet any
of its shaft needs internally, it could have an adverse effect on the Company.

     The Company expects that in the future it may also compete against
companies who manufacture one or more of three principal components of the golf
club - the grip, the shaft and the clubhead and assemble completed golf clubs
for delivery to club companies. Should any of the Company's significant
customers decide to source their golf clubs in this manner where an Aldila shaft
is not included, it could have an adverse effect on the Company.

     The Company also competes for sales of graphite prepreg from its prepreg
facility and carbon fiber through its 50% interest in CFT with other producers
of graphite prepreg and carbon fibers, many of which have substantially greater
research and development, managerial and financial resources than the Company
and have been producing graphite prepreg and carbon fiber for substantially
longer periods of time than the Company has, and represent significant
competition for the Company. In addition, the Company's ability to


                                       9
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compete in the sale of graphite prepreg and carbon fiber is dependent to some
extent on the Company's ability to cause manufacturers and consumers of carbon
fiber-based products to utilize large bundle carbon fiber, which is the sole
type of carbon fiber manufactured by CFT and the principal type used in its
graphite prepreg, rather than the small bundle, aerospace grade carbon fiber,
that predominated in the industry until a few years ago.

INTELLECTUAL PROPERTY

     Aldila utilizes a number of trademarks and logos in connection with the
sale and advertising of its products. The Company believes that the strength of
its trademarks and logos are of considerable value to its business and intends
to continue to protect them to the fullest extent practicable. The Company takes
all reasonable measures to ensure that any product bearing an Aldila trademark
reflects the consistency and quality associated with the Company's products. As
of December 31, 1999 the Company had approximately 48 United States and foreign
registered trademarks.

EMPLOYEES

     As of December 31, 1999, Aldila employed approximately 1,120 persons on a
full-time basis, including seven in sales and marketing, 20 in research and
development and engineering, 980 in production, and the balance are
administrative and support staff. The number of full-time employees also
includes 550 persons who are employed in the Company's Mexico facilities and 360
who are employed in the Company's China facility. Because of seasonal demands,
the Company hires a significant number of temporary employees. As of December
31, 1999, the Company also employed an additional 160 temporary employees on a
full-time basis. Aldila considers its employee relations to be good.

SEASONALITY

     Because the Company's customers have historically built inventory in
anticipation of purchases by golfers in the spring and summer, the principal
selling season for golf equipment, the Company's operating results have been
affected by seasonal demand for golf clubs, which has generally resulted in
highest sales occurring in the second quarter. The timing of customers' new
product introductions has frequently mitigated the impact of seasonality in
recent years.

BACKLOG

     As of December 31, 1999, the Company had a sales backlog of approximately
$13.0 million compared to approximately $8.1 million as of December 31, 1998.
The Company believes that the dollar volume of its current backlog will be
shipped over the next three months. Orders can typically be cancelled without
penalty up to 30 days prior to shipment. Historically, the Company's backlog
generally has been highest in the first and second quarters, due in large part
to seasonal factors. Due to the timing and receipt of customer orders, backlog
is not necessarily indicative of future operating results.

BUSINESS RISKS

     RELIANCE ON CARBON FIBER MANUFACTURING FACILITY. In 1998, the Company
established a manufacturing facility in Evanston, Wyoming for the production of
carbon fiber. During 1998 and 1999, the Company used the material from this
facility to satisfy a significant portion of its internal demand for carbon
fiber in the manufacturing of golf club shafts. On October 29, 1999, the Company
sold a 50% interest in the Company's carbon fiber operation to SGL for
approximately $7.0 million in cash. The Company and SGL entered into an
agreement to operate the facility as a limited liability company with equal
ownership interests between the venture partners and supply agreements with the
new entity, CFT, for the purchase of carbon fiber at a price which approximates
cost plus an agreed mark-up.


                                       10
<PAGE>


     It is anticipated that the carbon fiber from this facility will primarily
be consumed by the venture partners; however, excess carbon fiber produced at
this facility will be marketed for sale to unrelated third parties. During the
period in which the Company has operated this facility, the market for carbon
fiber products has been soft, which has limited the Company's ability to take
full advantage of the opportunity offered by the vertical integration of its
carbon fiber raw material usage in graphite golf shafts. It is anticipated that
the combined carbon fiber requirements of the venture partners will allow the
operation to produce at increased volume levels resulting in lower carbon fiber
production costs. The extent to which the operation will achieve this result is
dependent, in part, on its ability to increase production close to the planned
capacity of the facility. If the facility does not produce high quality fiber at
the anticipated volumes, the per pound cost of the fiber produced will likely be
higher due to the substantial fixed costs involved in operating a carbon fiber
production facility. In addition, if the facility is not capable of producing
carbon fiber at sufficient volumes to satisfy the demands of both venture
partners, the Company would be required to purchase additional fiber from third
party suppliers, which is likely to be at higher costs to the Company than fiber
acquired from the joint venture.

     Additionally, the Company is subject to business and financial risks
associated with the joint venture relating to difficulties in operating and
managing the carbon fiber facility through the joint venture and the risk that
SGL will be unable to meet its financial obligations as to the joint venture.

     POTENTIAL CASH FLOW SHORTAGES. The Company has cash, cash equivalents and
short-term marketable securities totaling $8.6 million as of December 31, 1999
and a revolving credit facility from a financial institution, which allows the
Company to make advances against eligible accounts receivables and inventory.
Management anticipates that these sources of funds when combined with cash flow
generated from operations will be sufficient to finance its business operations
and meet its remaining $16.0 million in outstanding principal due under its
senior notes. Semi-annual principal payments of $4.0 million, plus accrued
interest, are due on March 31 and September 30 through September 30, 2001 on the
senior notes.

     However, the Company experienced a substantial decline in sales and
operating income in the latter half of 1998 and in 1999 as a result of the weak
demand for golf clubs in general and expects that 2000 will only show modest
improvement. If the Company is not able to generate the expected operating cash
flows from operations, there can be no assurance that the Company will meet the
debt covenants specified in the senior notes or to make mandatory scheduled
principal payments and as a result the Company could be adversely affected.

     CUSTOMER CONCENTRATION. The Company's sales have been, and very likely will
continue to be, concentrated among a small number of customers. In 1999, sales
to the Company's top five customers represented approximately 56% of net sales.
Aldila's principal customers have historically varied depending largely on the
prevailing popularity of the various clubs that contain Aldila shafts. In 1999,
Taylor Made accounted for 16% of net sales, Callaway accounted for 12% of net
sales and Ping accounted for 10% of net sales. The Company cannot predict the
impact that general market trends in the golf industry, including the
fluctuation in popularity of specific clubs manufactured by customers, will have
on its future business or operating results.

     While the Company has had long-established relationships with most of its
customers, it is not the exclusive supplier of graphite shafts to most of them,
and consistent with the industry practice, generally does not have long-term
contracts with its customers. In this regard, Callaway, Taylor Made and Ping,
who collectively represent in excess of 39% of the Company's sales in 1999, each
purchased from at least two other graphite shaft suppliers. In the event
Callaway, Taylor Made, Ping or any other significant customer increases
purchases from its other suppliers or adds additional suppliers, the Company
could be adversely affected. Although the Company believes that its
relationships with its customers are good, the loss of a significant customer or
a substantial decrease in sales to a significant customer, could have a material
adverse effect on the Company's business and operating results. In addition,
sales by the Company's major customers are likely to vary dramatically from time
to time due to fluctuating public acceptance of their products.


                                       11
<PAGE>


     SHAFT MANUFACTURING BY CLUB COMPANIES. Another factor that could have a
negative impact in the future on the Company's sales to golf club manufacturers
would be a decision by one of its customers to manufacture all or a portion of
its graphite shaft requirements. While the Company has not to date experienced
any material decline in its sales for this reason, should any of the Company's
major customers decide to meet any significant portion of their shaft needs
internally, it could have a material adverse impact on the Company and its
financial results.

     RAW MATERIAL COST/AVAILABILITY. The Company's gross profit margins, in
part, are dependent on the price paid for carbon fiber purchased from outside
vendors and more substantially in the latter part of 1998 and in 1999 the price
paid for the acrylic fiber used for the manufacture of carbon fiber in Evanston,
Wyoming and the other costs associated with the operation of the carbon fiber
plant.

     The Company experienced an increase in carbon fiber prices in 1996 and 1997
due to the growth experienced in the use of carbon fiber coupled with relatively
little excess capacity. The prices paid by the Company for carbon fiber leveled
in 1998 and decreased during 1999, due to the current state of over-capacity in
the carbon fiber manufacturing industry. Management is not able to predict the
timing or extent of any future price changes for carbon fiber, however, the
Company could be negatively impacted if future increases in carbon fiber prices
have a negative impact on the Company's gross margins.

     The Company expects to obtain the majority of its carbon fiber from CFT in
Evanston, Wyoming, but also has relationships with other outside vendors for its
additional carbon fiber needs through 2000. Depending on market conditions
prevailing at the time and extent to which production at CFT meets expectations,
the Company may face difficulties in obtaining adequate supplies of carbon fiber
from external sources to provide for any carbon fiber needs not met internally.
If it appears that CFT is not likely to satisfy a significant portion of the
Company's needs or if it appears that there will not be adequate availability in
the market, the Company may not have made arrangements in advance for the
purchase of material amounts of carbon fiber from alternative sources. In
addition, the Company is dependent on its internal production of graphite
prepreg to support its shaft manufacturing operations and has not secured
adequate additional sources of supply should its production of prepreg be
interrupted for any reason. The exposure to the Company resulting from its
increasing reliance on its own internal production of the raw materials for its
golf shaft business is enhanced because the Company currently operates only one
prepreg facility and has an interest in only one carbon fiber manufacturing
facility. Although there is currently overcapacity in these industries, there
have been significant market shortages of both carbon fiber and graphite prepreg
in the recent past and such shortages could be expected to recur in the future.

     In 1999 the Company purchased substantially all of its raw acrylic fibers
for the carbon fiber operation from two outside vendors. The Company believes
that these two vendors will provide a reliable source of supply of raw materials
at the anticipated operating levels, however, any interruption of precursor
supply from one or both of these suppliers would have a material adverse effect
on the Company's business.

     RELIANCE ON OFF-SHORE MANUFACTURING FACILITIES. The Company operates
manufacturing facilities in Tijuana, Mexico and Zhuhai, People's Republic of
China. The Company pays certain expenses of these facilities in Mexican pesos
and Chinese renminbis, respectively, which are subject to fluctuations in
currency value and exchange rates.

     The Company operates a shaft manufacturing facility in Tijuana, Mexico
pursuant to the "maquiladora" duty-free program established by the Mexican and
United States governments. Such program enables the Company to take advantage of
generally lower costs in Mexico, without paying duty on inventory shipped into
or out of Mexico. The Company also operates in the People's Republic of China in
a special economic zone which affords special advantages to companies with
regards to income taxes, import and export duties and value added taxes. There
can be no assurance that the governments of Mexico or the People's Republic of
China will continue the programs currently in place or that the Company will
continue to be able to benefit from these programs. The loss of these benefits
could have an adverse effect on the Company's business. The


                                       12
<PAGE>


Company is also subject to other customary risks of doing business outside the
United States, including political instability, other import/export regulations
and cultural differences.

     UTILIZATION OF CERTAIN HAZARDOUS MATERIALS. In the ordinary course of its
manufacturing processes, the Company uses hazardous substances and generates
hazardous waste. The Company has not to date incurred any material liabilities
under environmental laws and regulations, and believes that it is in substantial
compliance with applicable laws and regulations. Nevertheless, no assurance can
be given that the Company will not encounter environmental problems or incur
environmental liabilities in the future which could adversely affect its
business.

     NEW PRODUCT INTRODUCTION. The Company believes that the introduction of
new, innovative golf shafts using graphite or other composite materials will be
critical to its future success. While the Company emphasizes research and
development activities in connection with carbon fiber and other composite
material technology, there can be no assurance that the Company will continue to
develop competitive products or that the Company will be able to develop or
utilize new composite material technology on a timely or competitive basis or
otherwise respond to emerging market trends.

     The Company is also seeking to develop new applications for the type of
carbon fiber that is produced by the CFT facility. The Company's ability to
compete in the sale of graphite prepreg and sales of carbon fiber from CFT is
dependent to some extent on the Company's ability to cause manufacturers and
consumers of carbon fiber-based products to utilize large bundle carbon fiber,
which is the sole type of carbon fiber manufactured by CFT. There can be no
assurance, however, that these applications will develop to the extent
anticipated by the Company.

     Although the Company believes that it has generally achieved success in the
introduction of its graphite golf shafts, no assurance can be given that the
Company will be able to continue to design and manufacture products that meet
with market acceptance, either on the part of club manufacturers or golfers. The
design of new graphite golf shafts is also influenced by rules and
interpretations of the United States Golf Association ("USGA"). There can be no
assurance that any new products will receive USGA approval or that existing USGA
standards will not be altered in ways that adversely affect the sales of the
Company's products.

     COMPETITION. Aldila operates in a highly competitive environment for golf
equipment sales. The Company believes that it competes principally on the basis
of its ability to provide a broad range of high quality, performance graphite
shafts, its ability to deliver customized products in large quantities and on a
timely basis; the acceptance of graphite shafts in general, and Aldila shafts in
particular, by professionals and other golfers, whose preferences are to some
extent subjective; and finally, price.

     Aldila competes against both domestic and foreign shaft manufacturers. The
Company also experiences indirect competition from golf club manufacturers that
produce their own shafts internally. Some of the Company's current and potential
competitors may have greater resources than Aldila. The Company also faces
potential competition from those golf club manufacturers that currently purchase
golf shaft components from outside suppliers but that may have, develop or
acquire the ability to manufacture shafts internally.

     As the Company further enters into the manufacture and sale of carbon fiber
and prepreg products, it competes with other producers of carbon fibers and
prepregs, many of which have substantially greater research and development,
managerial and financial resources than the Company and represent significant
competition for the Company.

     DEPENDENCE ON DISCRETIONARY CONSUMER SPENDING. Sales of golf equipment have
historically been dependent on discretionary spending by consumers, which may be
adversely affected by general economic conditions. The Company believes that
golf equipment sales have remained flat in recent periods and may continue to be
so in the future. A decrease in consumer spending on golf equipment or, in
particular, a


                                       13
<PAGE>


decrease in demand for golf clubs with graphite shafts could have an adverse
effect on the Company's business and operating results.

     RELIANCE ON KEY PERSONNEL. The success of the Company is dependent upon its
senior management team, as well as its ability to attract and retain qualified
personnel. There is competition for qualified personnel in the golf shaft
industry as well as the carbon fiber business. There is no assurance that the
Company will be able to retain its existing senior management personnel or to
attract additional qualified personnel.

     CURRENT JUSTICE DEPARTMENT INVESTIGATION. The Company has received a
subpoena for documents from the Antitrust Division of the U.S. Department of
Justice in connection with the on-going investigation of an alleged price fixing
conspiracy in the carbon fiber and graphite prepreg industries. The Department
of Justice has informed the Company that it is not currently a target of the
investigation, although it has indicated that it has not cleared the Company of
any involvement in the alleged conspiracy. The Company is cooperating with the
Department of Justice's investigation.

ITEM 2. PROPERTIES

     The Company's principal executive offices are located in a 33,000 square
foot leased facility in Poway, California (in the San Diego metropolitan area).
The Company's golf shafts are manufactured at five separate facilities, one
located in Poway, California, three others located in Tijuana, Mexico and one in
the Zhuhai economic development zone of the People's Republic of China. The
Company leases 61,000 square feet of office and manufacturing space (which was
not being utilized as of December 31, 1999) in Rancho Bernardo, California. The
Company also leases a 73,000 square foot facility in Poway, California for shaft
manufacturing operations and graphite prepreg production. The Tijuana, Mexico
production operations are conducted in leased facilities that aggregate 61,000
square feet. The China facility is also leased and comprises 88,000 square feet.

     In addition, the Company's 50% owned unconsolidated subsidiary, CFT, owns
14 acres of land in Evanston, Wyoming on which it operates a 50,000 square foot
carbon fiber manufacturing plant.

ITEM 3.  LEGAL PROCEEDINGS

     There is no information required to be submitted by the Company under this
Item.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1999.


                                       14
<PAGE>


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


COMMON STOCK PERFORMANCE

<TABLE>
<CAPTION>

                                           1999                            1998
         --------------------------------------------------------------------------------

                                    High          Low                High          Low
                                    ----          ---                ----          ---
         <S>                        <C>           <C>                <C>           <C>
         First Quarter              $2 3/4        $1 7/16            $5 15/16      $4 3/8

         Second Quarter             $2 1/2        $1 5/8             $7 15/16      $5 7/8

         Third Quarter              $2            $1 3/16            $7 3/8        $3 1/2

         Fourth Quarter             $1 17/32      $1 1/8             $4            $2 1/8

</TABLE>

     On March 24, 2000, the closing common stock price was $1.88, and there
were approximately 500 common stockholders of record. The company believes a
significant number of beneficial owners also own Aldila stock in "street name."

     Aldila, Inc. common stock is traded on the NASDAQ national market, symbol:
ALDA.

     The Company intends to retain earnings for use in operations and does not
anticipate paying cash dividends on the common stock in the foreseeable future.
Aldila, Inc. is a holding company whose ability to pay dividends depends on the
receipt of dividends or other payments from its two principal subsidiaries,
Aldila Golf Corp. ("Aldila Golf") and Aldila Materials Technology Corp. The
Company's 6.13% senior notes restrict its ability to declare or pay cash
dividends unless certain financial criteria is satisfied.


                                       15
<PAGE>


ITEM 6.   SELECTED FINANCIAL DATA
-------------------------------------------

      The information required as to this Item is contained in the following
table.

                                  ALDILA, INC.
                             SELECTED FINANCIAL DATA
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                              ----------------------------------------------------------------------
                                                                    1999          1998          1997         1996          1995
                                                              ----------------------------------------------------------------------
<S>                                                                <C>           <C>          <C>          <C>           <C>
Operating Results (Year ended December 31):

      Net sales                                                    $45,091       $62,487      $55,636      $58,394       $56,545
      Cost of sales                                                 37,241        44,689       38,742       37,245        32,823
                                                              -------------------------------------------------------------------
           Gross profit                                              7,850        17,798       16,894       21,149        23,722
                                                              -------------------------------------------------------------------

      Selling, general and administrative                            7,179         9,005       10,255        9,112        10,850
      Amortization of goodwill                                       1,428         1,427        1,428        1,416         1,398
      Plant consolidation                                              900         1,200        1,500            -             -
                                                              -------------------------------------------------------------------
           Operating income (loss)                                  (1,657)        6,166        3,711       10,621        11,474
                                                              -------------------------------------------------------------------

      Interest expense                                               1,315         1,285        1,040        1,266         1,291
      Other (income), net                                             (379)         (218)        (418)        (727)         (857)
      Equity in earnings of joint venture                              (12)            -            -            -             -
                                                              -------------------------------------------------------------------

      Income (loss) before income taxes                             (2,581)        5,099        3,089       10,082        11,040
      Provision (benefit) for income taxes                            (476)        2,300        1,550        4,400         4,770
                                                              -------------------------------------------------------------------

      Net income (loss)                                            ($2,105)       $2,799       $1,539       $5,682        $6,270
                                                              ===================================================================


      Net income (loss) per common share-basic:                     ($0.14)        $0.18        $0.10        $0.35         $0.38
                                                              ===================================================================

      Net income (loss)  per common share, assuming dilution:       ($0.14)        $0.18        $0.10        $0.35         $0.37
                                                              ===================================================================

Selected Operating Results
As a Percentage of Net Sales:

      Gross profit                                                   17.4%         28.5%         30.4%        36.2%        42.0%
      Selling, general and administrative                            15.9%         14.4%         18.4%        15.6%        19.2%
      Operating income (loss)                                        (3.7%)         9.9%          6.7%        18.2%        20.3%
      Net income (loss)                                              (4.7%)         4.5%          2.8%         9.7%        11.1%

Financial Position (at December 31):

      Working capital                                              $15,356       $15,731       $16,775      $28,274      $24,770
      Total assets                                                 108,003       117,034       113,128      111,935      111,853
      Long-term debt, including current portion                     16,000        20,000        20,000       20,000       20,000
      Total stockholders' equity                                    78,149        80,254        77,283       78,826       75,481

</TABLE>


                                       16
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW - BUSINESS CONDITIONS

     The Company is principally engaged in the business of designing,
manufacturing and marketing graphite (carbon fiber based composite) golf club
shafts, with approximately 75% of its net sales resulting from sales to golf
club manufacturers for inclusion in their clubs. As a result, the Company's
operating results are substantially dependent not only on demand by its
customers for the Company's shafts, but also on demand by consumers for clubs
including graphite shafts such as the Company's.

     In 1998, the Company established a manufacturing facility in Evanston,
Wyoming for the production of carbon fiber. During 1998 and through the first
ten months of 1999, the Company has used the material from this facility to
satisfy a significant portion of its internal demand for carbon fiber in the
manufacturing of golf club shafts. During 1999, the Company also produced and
sold carbon fiber from this facility to other unrelated entities for the
manufacture of other carbon-based products. On October 29, 1999, SGL Carbon
Fibers and Composite, Inc. ("SGL") purchased a 50% interest in the Company's
carbon fiber manufacturing operation. The Company and SGL entered into an
agreement to operate the facility as a limited liability company with equal
ownership interests between the venture partners. The Company and SGL also
entered into supply agreements with the new entity, Carbon Fiber Technology LLC
("CFT"), for the purchase of carbon fiber at cost plus an agreed mark-up.
Profits and losses of CFT will be shared equally by the partners. The Company
anticipates that the carbon fiber from this facility will primarily be consumed
by the joint venture partners; however, any excess carbon fiber produced at this
facility could be marketed for sale to unrelated third parties. The Company does
not expect third party sales at CFT nor the sale of graphite prepreg to have a
significant effect on either its sales or profitability for several issues.


     Historically, graphite shafts have principally been offered by
manufacturers of higher priced, premium golf clubs, and the Company's sales have
been predominantly of premium graphite shafts. However, in recent years the
Company has realized substantial sales growth in the value priced segment of the
graphite shaft market. The Company now competes aggressively with primarily
United States based shaft manufacturers for premium graphite shafts and also
against primarily foreign based shaft manufacturers for lower priced value shaft
sales. The Company continues to maintain a broad customer base in the premium
shaft market segment. While the Company's market share in the value segment is
not as great as the premium segment, the Company has advanced rapidly in
securing new customers in this segment in recent years. Presently, there exists
substantial excess graphite shaft manufacturing capacity both in the United
States and in other countries. This has had the effect, and is expected by
management to continue to have the effect for at least the next several years,
of decreasing the selling prices of the Company's shafts. Although the Company's
gross profit margin is being adversely affected by the reduction in selling
prices, the adverse effects on gross margin have been mitigated in the past to
some extent by efforts being taken by the Company to control costs, including
obtaining lower prices for its raw materials and manufacturing its own graphite
prepreg, and should be mitigated to some extent in the future as the Company
increases the percentage of its shafts being manufactured in countries with
lower labor and overhead costs.

     In recent years, the Company's results of operations have been materially
affected on several occasions by dramatic year-to-year changes in sales to an
individual golf club manufacturer customer. Such changes can result either from
decisions by the customer to increase or decrease shaft purchases from an
alternative supplier or from the traditional volatility in consumer demand for
specific clubs. The Company believes that this volatility is likely to continue
in the future, particularly as club manufacturers seek to gain competitive
advantages through an increased rate of technological innovation in club design.
The Company's results will benefit whenever it has an opportunity to supply
shafts for the latest "hot" club and will be adversely affected whenever sales
of clubs containing Aldila shafts drop dramatically. In particular, in recent
years, a significant portion of the Company's sales has tended to be
concentrated in one or two customers, thereby making the


                                       17
<PAGE>


Company's results of operations dependent to a large extent on continued sales
to Taylor Made, Callaway and Ping. In 1999, sales to Taylor Made Golf, Callaway
Golf Company and Ping represented 17%, 12% and 10%, respectively, of the
Company's total net sales. The Company expects Taylor Made, Callaway and Ping to
continue to be the Company's largest customers, at least through 2000. The
Company believes that while it will often not be possible to predict, with any
certainty, shifts in demand for particular clubs, the Company's broad range of
club manufacturer customers should reduce in some cases the extent of the impact
on the Company's financial results.


RESULTS OF OPERATIONS

     The following table sets forth operating results expressed as a percentage
of net sales for the years indicated:

<TABLE>
<CAPTION>

                                                                       YEAR ENDED DECEMBER 31,
                                                          -------------------------------------------------
                                                              1999              1998              1997
                                                          -------------     -------------    --------------
<S>                                                         <C>               <C>               <C>
Net sales                                                    100.0%            100.0%            100.0%
Cost of sales                                                 82.6              71.5              69.6
                                                          -------------     -------------     --------------
         Gross profit                                         17.4              28.5              30.4
                                                          -------------     -------------     --------------
Selling, general and administrative                           15.9              14.4              18.4
Amortization of goodwill                                       3.2               2.3               2.6
Plant consolidation                                            2.0               1.9               2.7
                                                          -------------     -------------     --------------
         Operating income (loss)                              (3.7)              9.9               6.7
                                                          -------------     -------------     --------------
Other:
         Interest expense                                      2.9               2.0               1.9
         Other (income), net                                  (0.9)             (0.3)             (0.8)
                                                          -------------     -------------     --------------
Income  (loss) before income taxes                            (5.7)              8.2               5.6
Provision  (benefit) for income taxes                         (1.0)              3.7               2.8
                                                          =============     =============     ==============
Net income (loss)                                             (4.7%)             4.5%              2.8%
                                                          =============     =============     ==============

</TABLE>

1999 COMPARED TO 1998

     NET SALES. Net sales decreased $17.4 million, or 27.8%, to $45.1 million
for 1999 from $62.5 million for the prior year. The decrease in net sales was
attributable to decreased shaft unit sales at lower selling prices to the
Company's club manufacturer customers partially offset by a $4.4 million
increase in sales of other carbon fiber products in 1999 as compared to 1998.
Shaft unit sales decreased 19% in 1999 as compared to 1998 which was a result of
lower demand for both premium and value shafts, and the average selling price of
shafts sold in 1999 decreased 21% due to the highly competitive market
environment.

     GROSS PROFIT. Gross profit decreased $9.9 million, or 55.9%, to $7.9
million in 1999 from $17.8 million in 1998 principally as a result of the
decrease in net sales. Gross profit was negatively impacted in 1999 by $0.5
million in charges against cost of sales related to higher cost carbon fiber
produced in Evanston, Wyoming in


                                       18
<PAGE>


1998 which was consumed in 1999, a charge of $0.4 million for a write-down of
carbon fiber inventory not included in the joint venture transaction with SGL,
as well as higher fixed costs per unit for shafts shipped in 1999 based on lower
production volume. As a result of these factors, the Company's gross profit
margin decreased to 17.4% in 1999 from 28.5% in 1998.

     OPERATING INCOME. Operating income decreased $7.8 million, or 126.9%, to a
$1.7 million loss in 1999 from $6.2 million operating income in 1998 and
decreased as a percentage of net sales to a loss of 3.7% in 1999 compared to
income of 9.9% in 1998. Selling, general and administrative expense decreased
$1.8 million from 1998 but increased as a percentage of net sales to 15.9% in
1999 as compared to 14.4% in 1998 primarily as a result of lower net sales in
1999 as compared to 1998.

     The Company has reflected plant consolidation charges in 1999 ($0.9
million) and 1998 ($1.2 million) primarily in connection with the consolidation
of its domestic golf shaft manufacturing operations in Rancho Bernardo,
California into its facility in Poway, California. See - "Notes to Consolidated
Financial Statements", Note 9.

     INTEREST EXPENSE. Interest expense was $1.3 million in 1999 and 1998. A
total of $20.0 million in long term borrowings remained outstanding during the
first three quarters of 1999 and $16.0 million in the fourth quarter. Borrowings
under the Line of Credit were also made in the first three quarters of 1999. The
weighted average interest rate on borrowings was 6.16% in 1999 as compared to
6.13% in 1998.

     INCOME TAXES. The Company recorded a benefit for income taxes of $476,000
in 1999 primarily as a result of the effect of the Company's pretax loss, which
is partially offset by non deductible amortization of goodwill. The Company's
effective tax rate in 1998 was 45.1%.

1998 COMPARED TO 1997

     NET SALES. Net sales increased $6.9 million, or 12.3%, to $62.5 million for
1998 from $55.6 million for the prior year. The increase in net sales was
attributable to increased shaft unit sales to the Company's club manufacturer
customers as well as a $1.5 million increase in sales of other carbon fiber
products in 1998 as compared to 1997. Shaft unit sales increased 22% in 1998 as
compared to 1997, which was offset by a 12% decrease in the average selling
price of shafts sold, as a result of a change in product mix to lower priced
value shafts.

     GROSS PROFIT. Gross profit increased $0.9 million, or 5.4%, to $17.8
million in 1998 from $16.9 million in 1997 principally as a result of the
increase in net sales. Gross profit was negatively impacted in 1998 by $1.6
million in charges against cost of sales related to production ramp-up in the
new facility in Evanston, Wyoming ($0.7 million) and inventory markdowns on
carbon fiber recorded in the fourth quarter of 1998 ($0.9 million). Including
these charges, the Company's gross profit margin decreased to 28.5% in 1998
compared to 30.4% in 1997. Before considering these charges, gross profit margin
in 1998 increased by 0.7% over the 1997 gross profit margin to 31.1%.

     OPERATING INCOME. Operating income increased $2.5 million, or 66.2%, to
$6.2 million in 1998 from $3.7 million in 1997 and increased as a percentage of
net sales to 9.9% in 1998 compared to 6.7% in 1997. Selling, general and
administrative expense decreased as a percentage of net sales to 14.4% in 1998
as compared to 18.4% in 1997 primarily as a result of lower advertising,
promotional and other administrative expenses in 1998 compared to 1997.

     The Company has reflected plant consolidation charges in 1998 ($1.2
million) and 1997 ($1.5 million) in connection with the consolidation of its
domestic golf shaft manufacturing operations in Rancho Bernardo, California into
its facility in Poway, California. See - "Notes to Consolidated Financial
Statements", Note 9.


                                       19
<PAGE>


     INTEREST EXPENSE. Interest expense was $1.3 million in 1998 and $1.0
million in 1997. A total of $20.0 million in long term borrowings remained
outstanding during each period. In 1997, $0.2 million of interest was
capitalized during the construction period for the Company's new carbon fiber
manufacturing facility. The weighted average interest rate on borrowings was
6.13% in 1998 and 1997.

     INCOME TAXES. The Company's effective tax rate in 1998 was 45.1% as
compared to 50.2% in 1997. The decrease resulted primarily from the increase in
profit before tax with constant non-deductible amortization of goodwill in each
year.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has in place a $12.0 million revolving credit facility from a
financial institution which is secured by substantially all the assets of Aldila
Golf and guaranteed by the Company. Borrowings under the line of credit bear
interest, at the election of the Company, at the bank reference rate or at the
adjusted Eurodollar rate plus 2.5%. Availability for borrowings under the Line
of Credit was approximately $6.7 million at year end 1999. The Company has $16.0
million in principal amount of senior notes outstanding which bear interest at
6.13%. Semi-annual principal payments of $4.0 million, plus accrued interest,
are due on March 31 and September 30 through September 30, 2001.

     On October 29, 1999, the Company received approximately $7.0 million from
the sale of a 50% interest in its carbon fiber manufacturing operation. These
funds are included in working capital as of December 31, 1999 and are available
for the scheduled principal payments due under the senior notes.

     Cash (including cash equivalents) provided by operating activities in 1999
was $5.5 million compared to $4.6 in 1998. This increase resulted principally
from a decrease in working capital. The Company used $1.0 million for capital
expenditures during 1999, primarily related to the completion of construction of
a shaft manufacturing facility in China. Management anticipates capital
expenditures to approximate $0.7 million for 2000. The Company may also incur
capital expenditures over the next several years to expand and enhance the
production capacity of the CFT operation in Evanston, Wyoming in order to take
advantage of new opportunities brought to CFT and further reduce production
costs for the carbon fiber acquired by the Company, in addition to an obligation
to support one half of CFT's fixed annual cost. The Company believes that it
will have adequate cash resources, including anticipated cash flow and borrowing
availability to meet its obligations at least through 2001.

     The Company may from time to time consider the acquisition of businesses
complementary to the Company's business. The Company could require additional
debt financing if it were to engage in a material acquisition in the future.

SEASONALITY

     Because the Company's customers have historically built inventory in
anticipation of purchases by golfers in the spring and summer, the principal
selling season for golf equipment, the Company's operating results have been
affected by seasonal demand for golf clubs, which has generally resulted in
highest sales occurring in the second quarter. The timing of customers' new
product introductions has frequently mitigated the impact of seasonality in
recent years.

YEAR 2000

     The Company recognizes the need to ensure its operations will not be
adversely impacted by the inability of the Company's information systems and the
information systems of its major customers and suppliers to process data having
dates on or after January 1, 2000 (the "Year 2000" issues).


                                       20
<PAGE>


     The Company has evaluated its information technology ("IT") and non-IT
systems, including but not limited to computer hardware and software, alarm
systems, manufacturing equipment and software, and all other mechanical
equipment, to determine areas of exposure to potential Year 2000 issues. The
Company has not experienced any significant problems related to the Year 2000
issue to date.

     The possibility exists that the Company's manufacturing operations could be
affected by external suppliers systems that are not Year 2000 compliant. Key
risk areas identified by the Company include its energy suppliers to the CFT
facility in Evanston, Wyoming as well as electrical providers to the Company in
Tijuana, Mexico and Zhuhai, China. If one of these providers is not able to
provide the necessary requirements to the Company, there likely would not be a
reasonable alternative available to the Company and as a result the Company's
business could be negatively impacted.

     To date, the Company has not expended a significant amount in identifying
and fixing Year 2000 issues and estimates it will not incur a significant amount
for remediation of its remaining Year 2000 issues. Total expenditures are not
expected to exceed $100,000.

     The Company does not expect significant Year 2000 issues subsequent to the
1999 fiscal year end. Although the Company believes it has taken the appropriate
steps to address Year 2000 readiness, there can be no assurance that the
Company's efforts will prevent a material adverse impact on the results of
operations and financial condition.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

     With the exception of historical information (information relating to the
Company's financial condition and results of operations at historical dates or
for historical periods), the matters discussed in this Management's Discussion
and Analysis of Financial Condition and Results of Operations are
forward-looking statements that necessarily are based on certain assumptions and
are subject to certain risks and uncertainties. These forward-looking statements
are based on management's expectations as of the date hereof, that necessarily
contain certain assumptions and are subject to certain risks and uncertainties.
The Company does not undertake any responsibility to update these statements in
the future. The Company's actual future performance and results could differ
from that contained in or suggested by these forward looking statements as a
result of the factors set forth in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, the Business Risks described in
Item 1 of this Report of Form 10-K and elsewhere in the Company's filings with
the Securities and Exchange Commission.


                                       21
<PAGE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's only indebtedness as of December 31, 1999 was related to its
fixed rate financing. The Company has taken advances against the line of credit
in 1999 to meet short-term working capital requirements, which are at variable
rates. The Company believes that its exposure to market risk relating to
interest rate risk is not material. Based on historical movements of these
currencies, the Company does not believe that reasonably possible near-term
changes in these currencies will have a material adverse effect on the Company's
financial position or results of operations. The Company believes that its
business operations are not exposed to market risk relating to commodity price
risk or equity price risk.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required as to this Item is incorporated by reference from
the consolidated financial statements and supplementary data listed in Item 14
of Part IV of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     There is no information required to be submitted by the Company under this
Item.


                                       22
<PAGE>


                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required as to this Item is incorporated by reference from
the section headed "Election of Directors" in the Company's Proxy Statement for
the 2000 Annual Meeting of Stockholders for the year ended December 31, 1999,
which will be filed with the Commission within 120 days of the end of the fiscal
year covered by this report ("2000 Proxy Statement").



ITEM 11.  EXECUTIVE COMPENSATION

     The information required as to this Item is incorporated herein by
reference from the data under the caption "Executive Compensation" in the 2000
Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required as to this Item is incorporated herein by
reference from the data under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 2000 Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     There is no information required to be submitted by the Company under this
Item.


                                       23
<PAGE>


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)      Documents included as part of this report:

     1.   The consolidated financial statements for the Registrant are included
          in this report.

                           Consolidated Balance Sheets at
                                    December 31, 1999 and 1998;

                           Consolidated Statements of Operations for
                                    the years ended December 31,
                                    1999, 1998 and 1997;

                           Consolidated Statements of Stockholders' Equity
                                    for the years ended December 31, 1999,
                                    1998 and 1997;

                           Consolidated Statements of Cash Flows
                                    for the years ended December 31,
                                    1999, 1998 and 1997;

                           Notes to Consolidated Financial Statements

                           Independent Auditors' Report.

     2.   All financial statement schedules have been omitted because they are
          not required or the information required to be set forth therein is
          included in the consolidated financial statements or the notes
          thereto.

     3.   See the Index to Exhibits on page 41 of this Form 10-K. Management
          contracts or compensatory plans or arrangements required to be filed
          as exhibits to this report are identified on the Index to Exhibits by
          an asterisk.

(b)      Reports on Form 8-K:

         No reports on Form 8-K were filed during the quarter ended December
         31, 1999.


                                       24
<PAGE>


                          ALDILA, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>

                                                                                     DECEMBER 31,          DECEMBER 31,
                                                                                         1999                  1998
                                                                                  -------------------   -------------------
<S>                                                                               <C>                   <C>
ASSETS

CURRENT ASSETS:
          Cash and cash equivalents                                                           $4,077                $1,972
          Marketable securities                                                                4,513                     -
          Accounts receivable                                                                  4,807                 3,421
          Inventories                                                                         12,326                17,326
          Deferred tax assets                                                                  4,010                 5,126
          Prepaid expenses and other current assets                                              741                 1,006
                                                                                  -------------------   -------------------
               Total current assets                                                           30,474                28,851

PROPERTY, PLANT AND EQUIPMENT                                                                 11,298                27,453

INVESTMENT IN JOINT VENTURE                                                                    7,181                     -

TRADEMARKS AND PATENTS, less accumulated amortization
           of $3,505 and $3,070                                                               13,833                14,268

GOODWILL, less accumulated amortization of $11,290 and $9,862                                 44,770                46,198

DEFERRED FINANCING FEES, less accumulated amortization of
          $280 and $198                                                                          256                    68

OTHER ASSETS                                                                                     191                   196
                                                                                  -------------------   -------------------

TOTAL ASSETS                                                                                $108,003              $117,034
                                                                                  ===================   ===================

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
          Accounts payable                                                                    $3,258                $3,658
          Accrued expenses                                                                     3,693                 3,897
          Income taxes payable                                                                   167                 1,565
          Long-term debt, current portion                                                      8,000                 4,000
                                                                                  -------------------   -------------------
               Total current liabilities                                                      15,118                13,120

LONG-TERM LIABILITIES:
          Long-term debt                                                                       8,000                16,000
          Deferred tax liabilities                                                             6,338                 7,143
          Deferred rent liabilities                                                              398                   517
                                                                                  -------------------   -------------------
               Total liabilities                                                              29,854                36,780
                                                                                  -------------------   -------------------

COMMITMENTS AND CONTINGENCIES ( Notes 11 and 13 )

STOCKHOLDERS' EQUITY:
          Preferred stock, $.01 par value; authorized 5,000,000 shares;
               no shares issued
          Common stock, $.01 par value; authorized 30,000,000 shares;
               issued and outstanding 15,462,204  shares in 1999 and 1998                        155                   155
          Additional paid-in capital                                                          42,627                42,627
          Retained earnings                                                                   35,367                37,472
                                                                                  -------------------   -------------------
               Total stockholders' equity                                                     78,149                80,254
                                                                                  -------------------   -------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                  $108,003              $117,034
                                                                                  ===================   ===================

</TABLE>

                 See notes to consolidated financial statements.


                                       25
<PAGE>


                          ALDILA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>

                                                                                   YEAR ENDED
                                                                                  DECEMBER 31,
                                                                  ---------------------------------------------
                                                                      1999            1998            1997
                                                                  -------------   -------------   -------------
<S>                                                                    <C>             <C>             <C>
NET SALES                                                              $45,091         $62,487         $55,636
COST OF SALES                                                           37,241          44,689          38,742
                                                                  -------------   -------------   -------------
          Gross profit                                                   7,850          17,798          16,894
                                                                  -------------   -------------   -------------

SELLING, GENERAL AND ADMINISTRATIVE                                      7,179           9,005          10,255
AMORTIZATION OF GOODWILL                                                 1,428           1,427           1,428
PLANT CONSOLIDATION                                                        900           1,200           1,500
                                                                  -------------   -------------   -------------
          Operating income (loss)                                       (1,657)          6,166           3,711
                                                                  -------------   -------------   -------------

OTHER EXPENSE (INCOME):
          Interest expense                                               1,315           1,285           1,040
          Other, net                                                      (379)           (218)           (418)
          Equity in earnings of joint venture                              (12)              -               -
                                                                  -------------   -------------   -------------

INCOME (LOSS) BEFORE INCOME TAXES                                       (2,581)          5,099           3,089
PROVISION (BENEFIT) FOR INCOME TAXES                                      (476)          2,300           1,550
                                                                  -------------   -------------   -------------

NET INCOME (LOSS)                                                      ($2,105)         $2,799          $1,539
                                                                  =============   =============   =============


NET INCOME (LOSS) PER COMMON SHARE-BASIC                                ($0.14)          $0.18           $0.10
                                                                  =============   =============   =============

NET INCOME (LOSS) PER COMMON SHARE,
          ASSUMING DILUTION                                             ($0.14)          $0.18           $0.10
                                                                  =============   =============   =============


WEIGHTED AVERAGE NUMBER OF
         COMMON SHARES OUTSTANDING                                      15,462          15,452          15,625
                                                                  =============   =============   =============

WEIGHTED AVERAGE NUMBER OF
         COMMON AND COMMON EQUIVALENT
         SHARES                                                         15,462          15,519          15,738
                                                                  =============   =============   =============

</TABLE>

                 See notes to consolidated financial statements.


                                       26
<PAGE>


                          ALDILA, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                      Common Stock       Additional
                                                             --------------------------    Paid-in        Retained
                                                                 Shares     Amount         Capital        Earnings       Total
                                                             -------------------------- -------------  -------------- ------------
<S>                                                          <C>           <C>           <C>              <C>           <C>
Balance at January 1, 1997                                      16,011       $160           $45,532        $33,134       $78,826
Repurchases of common stock                                       (600)        (6)           (3,159)                      (3,165)
Common stock issued upon stock option exercises,
     including income tax benefits of $12                           18                           83                           83

Net income                                                                                                   1,539         1,539
                                                             ---------- ----------     -------------  --------------  ------------

Balance at Deccember 31, 1997                                   15,429        154            42,456         34,673        77,283
Common stock issued upon stock option exercises,
     including income tax benefits of $16                           33          1               171                          172

Net income                                                                                                   2,799         2,799
                                                             ---------- ----------     -------------  --------------  ------------

Balance at December 31, 1998                                    15,462        155            42,627         37,472        80,254

Net loss                                                                                                    (2,105)       (2,105)
                                                             ---------- ----------     -------------  --------------  ------------

Balance at December 31, 1999                                    15,462       $155           $42,627        $35,367       $78,149
                                                             ========== ==========     =============  ==============  ============

</TABLE>

                 See notes to consolidated financial statements.


                                       27
<PAGE>


                          ALDILA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                                                  YEAR ENDED
                                                                                                 DECEMBER 31,
                                                                                -----------------------------------------------
                                                                                    1999             1998              1997
                                                                                ------------     ------------     -------------
<S>                                                                             <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
         Net income (loss)                                                          ($2,105)          $2,799            $1,539
         Adjustments to reconcile net income (loss) to net cash
           provided by operating activities:
               Depreciation and amortization                                          6,015            5,996             5,373
               Gain on joint venture transaction                                       (334)               -                 -
               Loss on disposal of fixed assets                                          13              313                33
               Changes in assets and liabilities:
                      Accounts receivable                                            (1,386)           1,219            (2,180)
                      Inventories                                                     4,422           (4,140)           (5,377)
                      Deferred tax assets                                             1,116           (2,224)             (601)
                      Prepaid expenses and other current assets                         131             (272)             (266)
                      Accounts payable                                                   (7)            (393)            1,989
                      Accrued expenses                                                  (78)             201             1,419
                      Income taxes payable/receivable                                (1,398)           1,579              (115)
                      Deferred tax liabilities                                         (805)            (344)             (419)
                      Deferred rent liabilities                                        (119)             (94)             (152)
                                                                                ------------     ------------     -------------
                           Net cash provided by operating activities                  5,465            4,640             1,243
                                                                                ------------     ------------     -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
         Purchase of property and equipment                                          (1,037)          (5,886)          (14,791)
         Proceeds from sales in joint venture transaction                             6,972                -                 -
         Investment in marketable securities                                         (4,513)               -                 -
         Investment in joint venture                                                   (500)               -                 -
         Other                                                                          (12)               -                 -
                                                                                ------------     ------------     -------------
                           Net cash provided by (used for) investing activities         910           (5,886)          (14,791)
                                                                                ------------     ------------     -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
        Principal payments on long-term debt                                         (4,000)               -                 -
        Proceeds from issuance of common stock                                            -              156                71
        Repurchase of common stock                                                        -                -            (3,165)
        Other, net                                                                     (270)              16                12
                                                                                ------------     ------------     -------------
                           Net cash provided by (used for) financing activities      (4,270)             172            (3,082)
                                                                                ------------     ------------     -------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  2,105           (1,074)          (16,630)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                          1,972            3,046            19,676
                                                                                ------------     ------------     -------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                               $4,077           $1,972            $3,046
                                                                                ============     ============     =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
        Net assets contributed to joint venture                                     $13,276                -                 -
        Cash paid during the year for:
              Interest                                                               $1,288           $1,246            $1,226
              Income taxes                                                             $444           $3,273            $2,674

</TABLE>


                 See notes to consolidated financial statements.


                                       28
<PAGE>


                          ALDILA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     THE COMPANY - Aldila, Inc. (a Delaware Corporation) (The "Company")
designs, manufacturers and markets graphite golf club shafts for sale
principally in the United States.

     PRINCIPLES OF CONSOLIDATION - The consolidated financial statements of the
Company include the accounts of the Company and its wholly-owned subsidiaries,
Aldila Materials Technology Corporation ("AMTC"), Aldila Golf, and Aldila Golf's
subsidiaries, Aldila de Mexico, Aldila Graphite Products (Zhuhai) Company Ltd.
and Aldila Foreign Sales Corporation. The Company accounts for its investment in
the Carbon Fiber Technology joint venture under the equity method of accounting
for the period of October 29, 1999 through December 31, 1999. All intercompany
transactions and balances have been eliminated in consolidation.

     USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions. The recorded amounts of assets, liabilities, revenues
and expenses are affected by such estimates and assumptions. Actual results
could differ from estimates.

     REVENUE RECOGNITION - The Company recognizes revenues as of the date
merchandise is shipped to its customers.

     CASH EQUIVALENTS - The Company's investment policy is to invest its excess
cash in corporate debt, tax-exempt and government securities, bank related
instruments and money market accounts. The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. The Company has not historically experienced losses on such
investments.

     MARKETABLE SECURITIES - Management determines the appropriate
classification of marketable debt and equity securities at the time of purchase
and re-evaluates such designation as of each balance sheet date. At December 31,
1999, the Company's portfolio consisted of high grade commercial paper. The
securities are classified as "held-to-maturity" and are carried at amortized
cost, which approximates fair value. The average maturity period is 101 days.

     FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of short-term
financial instruments, including cash and cash equivalents, marketable
securities, trade accounts receivable and payable and certain accrued expenses,
approximate their carrying amounts in the financial statements due to the short
maturity of such instruments. The fair value of investments are determined using
quoted market prices for those securities.

     ACCOUNTS RECEIVABLE - The Company sells graphite golf club shafts primarily
to golf club manufacturers on credit terms. Historically, credit losses have
been minimal in relation to the credit extended.

     INVENTORIES - Inventories are stated at the lower of first-in, first-out
(FIFO) cost or market.

     PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Repairs
and maintenance are charged to expense as incurred. The Company depreciates its
property and equipment using the straight-line method over the estimated useful
lives of the assets, as follows:


                                       29
<PAGE>


<TABLE>
<CAPTION>

                                                            Years
                                                            -----
               <S>                                          <C>
               Building                                        39
               Machinery and equipment                       5-10
               Office furniture and equipment                3-10

</TABLE>

     Leasehold improvements are amortized over the shorter of the asset life or
the remaining term of the related lease.

     TRADEMARKS AND PATENTS - Trademarks and patents are being amortized on a
straight-line basis over 40 years and 17 years, respectively. Amortization
expense was $435,000 in each of 1999, 1998 and 1997.

     GOODWILL - Goodwill represents the excess of cost over fair value of net
assets acquired and is being amortized over 40 years on a straight-line basis.

     EVALUATION OF LONG-LIVED ASSETS - Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of" requires that impairment losses be
recognized when the carrying value of an asset exceeds its fair value. The
Company's policy is to evaluate, at each balance sheet date, the appropriateness
of the carrying values of the unamortized balances of trademarks, patents and
goodwill on the basis of estimated undiscounted future cash flows and other
factors. If such evaluation were to indicate a material impairment of these
intangible assets, such impairment would be recognized by a write down of the
applicable asset to its estimated fair value.

     DEFERRED FINANCING COSTS - Costs associated with the issuance of debt are
amortized over the life of the related debt using the straight line method. Such
amortization is included in interest expense.

     NET INCOME PER COMMON SHARE - In December 1997, the Company adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings Per Share", which requires the presentation of net income per common
share - basic and net income per common share assuming dilution ("EPS") amounts
on the face of the income statement. Net income (loss) per common share - basic
is calculated based upon the weighted average number of shares outstanding
during the year, while diluted EPS also gives effect to all potential dilutive
common shares outstanding during each year such as options, warrants and
contingently issuable shares.

     Net income per common share, assuming dilution includes 67,000 and 113,000
dilutive equivalent shares from outstanding stock options for 1998 and 1997,
respectively, which are not included in the calculation of net income per common
share - basic. Options to purchase 3,029,659 shares of common stock at prices
ranging from $1.38 to $16.38 per share were not included in the computation of
diluted EPS at December 31, 1999 because the effect of such options would be
anti-dilutive. Such options expire at various dates through December of 2009.

     ACCOUNTING FOR STOCK BASED COMPENSATION - SFAS 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.

     RECLASSIFICATIONS - Certain reclassifications have been made to prior
years' financial statements to conform to current year classifications.


                                       30
<PAGE>


2.   ACCOUNTS RECEIVABLE

     Accounts receivable at December 31 consist of the following (in thousands):

<TABLE>
<CAPTION>

                                                           1999            1998
                                                       ------------    ------------
        <S>                                            <C>             <C>
        Trade accounts receivable                      $ 5,771         $   4,821
        Less:  allowance for doubtful accounts            (254)             (640)
                  allowance for sales returns             (710)             (760)
                                                       ------------    ------------
                 Accounts Receivable                   $ 4,807         $   3,421
                                                       ============    ============

</TABLE>

3.   INVENTORIES

     Inventories at December 31, net of reserves of $3,157,000 and $3,530,000,
in 1999 and 1998 respectively, consist of the following (in thousands):

<TABLE>
<CAPTION>

                                                     1999           1998
                                                 -----------    -----------
               <S>                               <C>            <C>
               Raw materials                     $   6,026       $ 11,210
               Work-in-process                       3,658          3,141
               Finished goods                        2,642          2,975
                                                 -----------    -----------
                   Inventories                   $  12,326       $ 17,326
                                                 ===========    ===========

</TABLE>

4.   PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment at December 31 consist of the following (in
thousands):

<TABLE>
<CAPTION>

                                                                                1999             1998
                                                                           -------------      ----------
               <S>                                                         <C>                 <C>
               Land                                                                            $     140
               Machinery and equipment                                     $  15,485              22,683
               Building                                                                            5,894
               Office furniture and equipment                                  2,166               1,842
               Leasehold improvements                                         10,436               8,830
               Property and equipment not yet in service                          27               2,518
                                                                           -----------        ----------
                                                                              28,114              41,907
               Less accumulated depreciation and
                 amortization                                                (16,816)            (14,454)
                                                                           -----------        ----------
               Property, plant and equipment                               $  11,298           $  27,453
                                                                           =============      ==========

</TABLE>

     Depreciation and amortization expense was $4,070,000, $4,094,000 and
$3,471,000 in 1999, 1998 and 1997, respectively. $225,000 of interest was
capitalized in 1997.


                                       31
<PAGE>


5.   INVESTMENT IN JOINT VENTURE

     The Company and SGL each own 50% of CFT in a joint venture to produce
carbon fiber. CFT which was previously a wholly-owned subsidiary of AMTC was
formed on October 29, 1999. AMTC contributed net assets with a book value of
approximately $13,276,000. SGL purchased a 50% interest in AMTC's carbon fiber
manufacturing operations with a net book value of approximately $6,638,000 for
approximately $6,972,000 in cash, which resulted in a gain of approximately
$334,000. Based on their respective ownership interest of 50% in the joint
venture, profit and loss are allocated equally to each member. The Limited
Liability Company Agreement provides that CFT is to continue until December 31,
2099 unless it is dissolved earlier, its affairs are wound up and final
liquidating distributions are made pursuant to the Limited Liability Company
Agreement. The Company's equity in earnings from the joint venture for the year
ended December 31, 1999 was approximately $12,000. The Company's investment
includes the unamoritzed excess of the Company's investment over its equity in
the joint venture net assets. The excess was approximately $164,000 at December
31, 1999 and is being amortized on a straight-line basis over estimated economic
useful lives of approximately 101 months.

6.   ACCRUED EXPENSES

     Accrued expenses at December 31 consist of the following (in thousands):

<TABLE>
<CAPTION>

                                                              1999              1998
                                                          ------------      --------------
               <S>                                        <C>                 <C>
               Payroll and employee benefits              $    800             $    832
               Plant consolidation                           1,812                1,726
               Interest payable                                248                  306
               Other                                           833                1,033
                                                          ------------      --------------
                        Accrued Expenses                  $  3,693             $  3,897
                                                          ============      ==============

</TABLE>

7.   LONG-TERM DEBT

     SENIOR NOTES -The Company placed $20.0 million in principal amount of
senior notes with an institutional investor on November 30, 1993. $16.0 million
in principal remains outstanding at December 31, 1999. The notes bear interest
at 6.13%, payable semi-anually on March 31 and September 30. Semi-annual
principal payments of $4.0 million are due beginning on March 31 and September
30 through September 30, 2001. The senior notes contain certain restrictions,
including limitations on additional borrowings, the payment of dividends and
capital stock repurchases. Under the most restrictive provision of the note
agreement, the Company must meet consolidated fixed charge coverage ratios at
specified levels. As of December 31, 1999, the Company was in compliance with
all covenants under the senior notes. The fair value of the fixed rate senior
notes approximates their carrying amount based on the estimated current
incremental borrowing rates for similar obligations with similar terms.

     REVOLVING CREDIT AGREEMENT - On July 9, 1999, Aldila Golf, a wholly-owned
subsidiary of the Company, entered into a Loan and Security Agreement (the
"Agreement") with a financial institution which provides Aldila Golf with up to
$12.0 million in secured financing. The Agreement has a three year term and is
secured by substantially all of the assets of Aldila Golf and guaranteed by the
Company. Advances under the Agreement are made based on eligible accounts
receivables and inventories of Aldila Golf and bear interest at the Adjusted
Eurodollar rate (as defined) plus 2.5% or at the bank reference rate at the
election of the Company. The Agreement requires the Company to maintain a
minimum level of tangible net worth (as


                                       32
<PAGE>


defined). As of December 31, 1999, the Company was in compliance with all
covenants under the Agreement and there were no outstanding borrowings.


8.   STOCKHOLDERS' EQUITY

     On October 26, 1995, the Board of Directors of the Company authorized the
repurchase of up to 2.5 million shares of the Company's common stock. The
Company intends to repurchase shares from time to time in the market at then
prevailing prices, depending on market and general economic conditions. The
Company repurchased 600,000 shares at an average price of $5.28 per share in
1997.

9.   PLANT CONSOLIDATION

     In November of 1997, the Company announced its plans to consolidate its
United States graphite golf shaft manufacturing facilities by integrating its
operations in Rancho Bernardo, California with its operations in Poway,
California. In connection with this decision, a charge in the amount of
$1,500,000 (after tax $900,000 or $0.06 per share) was recorded in the fourth
quarter ended December 31, 1997. The charge reflected $900,000 of non-cash
write-downs for plant and equipment, $450,000 for the estimated future losses on
the Rancho Bernardo facility lease and $150,000 for other associated
consolidation costs.

     In the fourth quarter ended December 31, 1998, the Company recorded an
additional plant consolidation charge in the amount of $1,200,000 (after tax
$720,000 or $0.05 per share) for estimated future losses on the Rancho Bernardo
facility lease in excess of the provision established in the fourth quarter of
1997. The total plant consolidation charge of $2,700,000 represents management's
best estimate of the costs to vacate and sublease this facility. The Company
remains obligated under an operating lease for this property through December
31, 2001.

     In the fourth quarter ended December 31, 1999, the Company recorded an
additional plant consolidation charge in the amount of $900,000 (after tax
$540,000 or $.03 per share) for the remaining estimated loss ($650,000) on the
Rancho Bernardo Facility and an estimated plant charge ($250,000) associated
with the shut down of the Plant 1 manufacturing operation in China. The charge
associated with the China facility reflects approximately $200,000 of non-cash
write downs and $50,000 for other associated costs.


10.  INCOME TAXES

     The components of the provision for income taxes are as follows (in
thousands):

<TABLE>
<CAPTION>

                                                          1999             1998             1997
                                                      ------------     ------------    ------------
<S>                                                   <C>              <C>             <C>
Current:
         Federal                                      $  (751)            $  4,088        $  2,014
         State                                            (37)                 764             544
                                                      ------------     ------------    ------------
             Total                                       (788)               4,852           2,558
                                                      ------------     ------------    ------------
Deferred:
         Federal                                          284               (2,030)           (734)
         State                                             28                 (538)           (287)
                                                      ------------     ------------    ------------
             Total                                        312               (2,568)         (1,021)
                                                      ------------     ------------    ------------
Tax benefit credited directly to
         additional paid-in-capital                      ----                   16              13
                                                      ------------     ------------    ------------
Provision (benefit) for income taxes                  $  (476)            $  2,300        $  1,550
                                                      ============     ============    ============

</TABLE>



                                       33
<PAGE>


     Net deferred income taxes included in current assets in the balance sheet
at December 31, consist of the tax effects of temporary differences related to
the following (in thousands):

<TABLE>
<CAPTION>

                                                                       1999               1998
                                                                       ----               ----
<S>                                                                    <C>              <C>
Inventories                                                            $2,012           $2,712
Accrued expenses                                                        1,172            1,098
Allowance for doubtful accounts and
      sales returns                                                       413              600
Deferred expenses                                                         395              520
Property and equipment                                                    110              ---
State income taxes                                                         18              196
                                                                 ------------     ------------
Deferred tax assets - current                                          $4,120           $5,126
                                                                 ============     ============

</TABLE>

     Net deferred income taxes included in long-term liabilities in the balance
sheet at December 31 consist of the tax effects of temporary differences related
to the following (in thousands):

<TABLE>
<CAPTION>

                                                                       1999             1998
                                                                       ----           ------
<S>                                                                    <C>              <C>
Trademarks and patents                                                 $6,053           $6,252
Property and equipment                                                    ---              413
Other                                                                     395              478
                                                                 ------------     ------------
Deferred tax liability - long term                                     $6,448           $7,143
                                                                 ============     ============

</TABLE>

     Differences between the statutory federal income tax rate and the effective
tax rate as a percentage of income taxes are summarized below.

<TABLE>
<CAPTION>

                                                                  1999                  1998              1997
                                                                  ----                  ----              ----
<S>                                                               <C>                    <C>               <C>
       Statutory rate                                             (34.0%)                34.0%             34.0%
       State income taxes, net of Federal tax benefit              (0.3)                  2.9               7.9
       Non-deductible amortization                                 19.1                   9.7              15.9
       Other items                                                 (3.2)                 (1.5)             (7.6)
                                                                 -------                -----             -----
       Effective rate                                            (18.4%)                45.1%             50.2%
                                                                 =======                =====             =====

</TABLE>

     As of December 31, 1999, the Company has state net operating loss
carryforwards available to offset future state tax liabilities of $416,645. Such
state net operating loss carryforwards expires in the year 2004.

11.  STOCK OPTION PLAN

     In 1992, the Company adopted a Stock Option Plan for management. The
Company has reserved 526,292 shares for issuance under this Plan. Options are
granted at the fair market value of the shares at the date of grant, generally
become fully vested three years after grant, and expire ten years from the date
of grant.

     In May of 1994, the stockholders adopted the 1994 Stock Incentive Plan for
employees, directors and consultants of the Company. The Company has reserved
3,100,000 shares for issuance under this Plan.


                                       34
<PAGE>


Options are granted at the fair market value of the shares at the date of grant,
generally become fully vested three years after grant, and expire ten years from
the date of grant.

     The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation expense
has been recognized for its stock option plan. Had compensation cost for the
company's stock option awards been determined based upon the fair value at the
grant date for awards from 1995 through 1999 and recognized on a straight-line
basis over the related vesting period, in accordance with the provisions of SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below:

<TABLE>
<CAPTION>

                                                               1999             1998             1997
                                                           ------------     ------------    -------------
<S>                                                         <C>                <C>                <C>
     Net income (loss) - pro forma                          $(3,248)           $1,616             $864
                  (in thousands)
     Net income (loss) per share, basic and                  $(0.21)            $0.10            $0.05
                  assuming dilution - pro forma

</TABLE>

     The pro forma effect on net income (loss) is not representative of the pro
forma effect on net income (loss) in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995. The weighted average fair value of options granted under the Company's
stock option plans during 1999, 1998 and 1997 were estimated at $0.74, $3.18 and
$2.02 respectively, on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions: 0% dividend yield,
volatility of 43% in 1999, 43% in 1998 and 34% in 1997, risk free rate of return
of 5.9% in 1999, 5.7% in 1998 and 6.3% in 1997 and expected lives of five years.
The estimated fair value of options granted is subject to the assumptions made
and if the assumptions changed, the estimated fair value amounts could be
significantly different.

     A summary of the Company's fixed stock option plans as of December 31,
1999, 1998 and 1997 and activity during the years then ended is presented below:

<TABLE>
<CAPTION>

                           1999                               1998                                       1997
                  -------------------------------    ------------------------------    -------------------------------
                                       Weighted                          Weighted                        Weighted
                                       Average                            Average                        Average
                                       Exercise                           Exercise                       Exercise
                         Shares         Price             Shares          Price            Shares         Price
                  ------------------ -------------    --------------- --------------    --------------- -------------
<S>                     <C>            <C>               <C>            <C>              <C>             <C>
     Outstanding at
         January 1         2,142,159      $5.81              2,003,992      $5.56              1,193,064       $6.09
     Granted                 957,500      $1.62                480,000      $6.94              1,058,814       $4.85
     Exercised                   ---                           (33,333)     $4.70               (17,719)       $4.00
     Terminated              (70,000)     $5.46               (308,500)     $6.05              (230,167)       $5.21
                            --------                         ---------                         --------

     Outstanding at
         December 31      3,029,659       $5.74              2,142,159      $5.81             2,003,992        $5.56
                          =========       =====              =========      =====             =========        =====

</TABLE>


                                       35
<PAGE>


     The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:

<TABLE>
<CAPTION>

                                                Options Outstanding                             Options Exercisable
                               ----------------------------------------------------     ----------------------------------
                                                      Weighted
                                      Number          Average          Weighted              Number             Weighted
  Range of                         Outstanding        Remaining        Average             Exercisable          Average
  Exercise                        at December 31,     Contractual      Exercise          at December 31,        Exercise
    Prices                             1999           Life (Yrs.)        Price                1999                Price
-----------------------------------------------------------------------------------     ----------------------------------
<S>                            <C>                 <C>               <C>                <C>                  <C>
 $1.38 - $2.00                       977,586            9.5              $1.63                35,086             $2.00
 $4.44 - $7.06                     1,924,923            7.0              $5.34             1,368,634             $5.15
 $12.56 - $16.38                     127,150            4.3             $13.65               127,150            $13.65
                            ------------------------------------------------------     ----------------------------------
 $1.38 - $16.38                    3,029,659            7.7              $5.74             1,530,870             $5.74
                            ======================================================     ==================================

</TABLE>

     As of December 31, 1999, 1998 and 1997, 1,530,870 1,011,837 and 600,861
shares were exercisable under the Plans at a weighted average exercise price of
$5.74, $6.04 and $7.16 per share respectively.

     As of December 31, 1999, an aggregate of 119,287 shares remain available
for grant under the Plans. In addition, during each of 1994 and 1993, options
covering 26,314 shares were granted to two directors of the Company apart from
the Stock Option Plans. The options were granted at $14.13 and $16.38 per share,
respectively. The terms of these options are consistent with those granted under
the 1992 Stock Option Plan.

12.  EMPLOYEE BENEFIT PLAN

     In July of 1994, the Company adopted the Aldila, Inc. 401(k) Savings Plan
(the "Plan") for employees of the Company and its subsidiaries. The Plan became
effective on October 1, 1994. This defined contribution plan allows employees
who satisfy the age and service requirements of the Plan to contribute up to 19%
of pre-tax wages, limited to the maximum amount permitted under federal law. The
Company matches the first 4% of wages contributed by employees at a rate of
$0.25 for every $1.00. The Company's matching contribution vests over four years
based on years of service. The Company's contributions amounted to approximately
$53,000, $53,000 and $61,000 in 1999, 1998 and 1997, respectively.

13.  COMMITMENTS AND CONTINGENCIES

     The Company leases building space and certain equipment under operating
leases. The Company's leases for office and manufacturing space contain rental
escalation clauses and renewal options. Rental expense for the Company was
$1,245,000, $1,046,000 and $1,404,000 for 1999, 1998 and 1997, respectively

     As of December 31, 1999, future minimum lease payments for all operating
leases are as follows (in thousands):

<TABLE>

                   <S>                        <C>
                   2000                           $1,223
                   2001                              714
                   2002                              616
                   2003                              621
                   2004                              626
                   Thereafter                     $1,536
                                              ----------
                                                  $5,336
                                              ==========
</TABLE>


                                       36
<PAGE>


14.  SEGMENT INFORMATION

     The Company designs and manufacturers graphite shafts for golf club
manufacturers. In doing so, the Company also manufactures carbon fiber and
prepreg materials which are utilized in the manufacture of graphite golf shafts.
In accordance with SFAS No. 131, the Company considers its business to consist
of one reportable operating segment.

     The Company markets its products domestically and internationally, with its
principal international market being Europe. The table below contains
information about the geographical areas in which the Company operates. Revenues
are attributed to countries based on location in which the sale is settled.
Long-lived assets are based on the country of domicile. Sales to a major
customer represented 12%, 26%, and 32% of net sales in 1999, 1998, and 1997,
respectively. Sales to a second customer represented 17%, 15%, and 22% of net
sales in 1999, 1998, and 1997, respectively.

<TABLE>
<CAPTION>

            (in thousands)
            1999                                     Sales              Long Lived Assets
            ----                                     -----              -----------------
            <S>                                   <C>                   <C>
            United States                         $ 35,470                       $ 74,077
            Scotland                                 4,194                             --
            England                                  2,231                             --
            China                                       --                          3,269
            Mexico                                      --                            183
            Other Foreign Countries                  3,196                             --
                                                  --------                       --------
            Total                                 $ 45,091                       $ 77,529
                                                  ========                       ========

</TABLE>

<TABLE>
<CAPTION>

            1998                                     Sales              Long Lived Assets
            ----                                     -----              -----------------
            <S>                                   <C>                   <C>
            United States                         $ 56,521                       $ 84,555
            Scotland                                   209                             --
            England                                  2,417                             --
            China                                       --                          3,269
            Mexico                                      --                            359
            Other Foreign Countries                  3,340                             --
                                                  --------                       --------
            Total                                 $ 62,487                       $ 88,183
                                                  ========                       ========

</TABLE>

<TABLE>
<CAPTION>

            1997                                     Sales              Long Lived Assets
            ----                                     -----              -----------------
            <S>                                   <C>                   <C>
            United States                         $ 52,103                       $ 86,859
            Scotland                                   103                             --
            England                                  1,909                             --
            China                                       --                          1,099
            Mexico                                      --                            648
            Other Foreign Countries                  1,521                             --
                                                  --------                       --------
            Total                                 $ 55,636                       $ 88,606
                                                  ========                       ========

</TABLE>


                                       37
<PAGE>


15.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     The following is a summary of the quarterly results of operations for the
two years in the period ended December 31, 1999 (in thousands, except per share
data):

<TABLE>
<CAPTION>

                                                                       Quarter Ended
                               -------------------------------------------------------------------------------------
                                    March 31,              June 30,            September 30,        December 31,
                               -------------------     ----------------     ------------------    -----------------
    <S>                         <C>                     <C>                 <C>                   <C>
    1999:
    Net sales                             $10,563             $12,612                $10,305              $11,611
    Gross profit                            2,289               2,656                  1,286                1,619
    Net loss                                 (307)                (72)                  (754)                (972)
    Net income (loss) per common
     share, assuming dilution             $ (0.02)            $  0.00                $ (0.05)             $ (0.07)

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

    1998:
    Net sales                             $19,117             $21,153                $13,609               $8,608
    Gross profit                            5,840               5,976                  4,111                1,871
    Net income (loss)                       1,141               1,564                    755                 (661)
    Net income (loss) per common
     share, assuming dilution             $  0.07             $  0.10                $  0.05              ($ 0.04)

</TABLE>

16. RELATED PARTY TRANSACTIONS

     During 1999, the Company entered into a joint venture for the production of
carbon fiber with SGL (see Note 5). Prior to the joint venture, the Company
recognized revenues for the sale of carbon fiber to SGL in the amount of
$4,184,000. The amount owed to CFT as of December 31, 1999 was approximately
$71,000.

17.  SUBSEQUENT EVENTS

     The Company completed a Lease Termination Agreement ("Agreement") with the
landlord of the Rancho Bernardo manufacturing facility subsequent to December
31, 1999. The Agreement allows the Company to buy itself out of the remaining
years (through 12/31/2001) of the lease for a sum of $900,000. The Agreement was
finalized and the payment was made on February 18, 2000. As such, the Company
anticipates the recovery of approximately $400,000 against previously taken
plant consolidation charges (see Note 9).


                                       38
<PAGE>


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Aldila, Inc.:


We have audited the consolidated balance sheets of Aldila, Inc. and its
subsidiaries (the "Company") as of December 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1999
and 1998 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.



Deloitte & Touche LLP

San Diego, California

February 4, 2000, except for Note 17,
as to which the date is February 18, 2000


                                       39
<PAGE>


                                   SIGNATURES

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

                                          ALDILA, INC.

                                          By:     /s/ Peter R. Mathewson
                                             ---------------------------------
                                                      Peter R. Mathewson
                                                  Chairman of the Board,
                                                  Chief Executive Officer

<TABLE>
<CAPTION>

                  Signature                             Title                                           Date
                  ---------                             -----                                           ----
<S>                                                <C>                                             <C>
              /s/ Peter R. Mathewson               Chief Executive Officer                         March 22, 2000
     ------------------------------------               and Director (Principal
                  Peter R. Mathewson                    Executive Officer)


               /s/ Robert J. Cierzan               Vice President, Finance                         March 22, 2000
     ------------------------------------               (Principal Financial Officer
                   Robert J. Cierzan                    and Principal Accounting Officer)

                 /s/ Gary T. Barbera               Director                                        March 22, 2000
     ------------------------------------
                     Gary T. Barbera

                /s/ Peter E. Bennett               Director                                        March 22, 2000
     ------------------------------------
                    Peter E. Bennett

            /s/ Marvin M. Giles, III               Director                                        March 22, 2000
     ------------------------------------
                Marvin M. Giles, III

                   /s/ John J. Henry               Director                                        March 22, 2000
     ------------------------------------
                       John J. Henry

            /s/ Donald C. Klosterman               Director                                        March 22, 2000
     ------------------------------------
                Donald C. Klosterman

                /s/ Wm. Brian Little               Director                                        March 22, 2000
     ------------------------------------
                    Wm. Brian Little

                    /s/ Chapin Nolen               Director                                        March 22, 2000
     ------------------------------------
                        Chapin Nolen

                 /s/ Thomas A. Brand               Director                                        March 22, 2000
     ------------------------------------
                     Thomas A. Brand

</TABLE>

                                       40
<PAGE>


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

     EXHIBIT
     NUMBER                      EXHIBIT                                                                          PAGE
     ------                      -------                                                                          ----
     <S>                         <C>                                                                              <C>
      2.1                        Agreement of Purchase and Sale, dated as of December
                                     14, 1991, by and among Aldila Acquisition Corp.,
                                     Aldila, Inc. and all of the Shareholders of Aldila, Inc.,
                                     as amended by the First Amendment dated January
                                     9, 1992 by and among Aldila Acquisition Corp., Aldila,
                                     Inc. and all the Shareholders of Aldila, Inc. (Filed as
                                     Exhibit 2.1 to the Company's Registration Statement
                                     on Form S-1 (Registration No. 33-61560)and incorporated
                                     herein by reference).

      3.1                         Restated Certificate of Incorporation.  (Filed as Exhibit
                                     3.1 to the Company's Registration Statement on
                                     Form S-1 (Registration No. 33-70010) and incorporated
                                     herein by reference).

      3.2                         Restated By-Laws of the Company.  (Filed as Exhibit 3.2
                                     to the Company's Registration Statement on Form S-1
                                     (Registration No. 33-61560) and incorporated herein
                                     by reference).

      4.1                         Specimen form of Company's Common Stock Certificate.
                                     (Filed as Exhibit 4.1 to the Company's Registration
                                     Statement on Form S-1 (Registration No. 33-61560)
                                     and incorporated herein by reference).

      4.2                         Note Purchase Agreement dated as of November 1,
                                     1993, with respect to the Company's 6.13% Senior
                                     Notes due 2001.  (Filed as Exhibit 4.2 to the
                                     Company's Report on Form 10-K for the year ended
                                     December 31, 1993 and incorporated herein by
                                     reference).

      4.3                         Form of 6.13% Senior Note due 2001.  (Filed as Exhibit
                                     4.3 to the Company's Report on Form 10-K for the
                                     year ended December 31, 1993 and incorporated
                                     herein by reference).

    *10.1                         1992 Stock Option Plan of the Company, as amended.
                                     (Filed as Exhibit 10.6 to the Company's Registration
                                     Statement on Form S-1 (Registration No. 33-61560)
                                     and incorporated herein by reference).

    *10.2                         Form of Stock Option Agreement in connection with Stock
                                     Option Plan.  (Filed as Exhibit 10.7 to the Company's
                                     Registration Statement on Form S-1 (Registration
                                     No. 33-61560) and incorporated herein by reference).

</TABLE>



                                       41
<PAGE>


<TABLE>
<CAPTION>

    EXHIBIT
    NUMBER                        EXHIBIT                                                                              PAGE
    ------                        -------                                                                              ----
    <S>                           <C>                                                                                  <C>
    *10.3                         Executive Bonus Plan of the Company.  (Filed as
                                     Exhibit 10.2 to the Company's Report on Form 10-Q
                                     for the quarterly period ended September 30, 1994
                                     and incorporated herein by reference).

     10.4                         Form of Indemnification Agreement between the
                                     Company and its directors and executive officers.
                                     (Filed as Exhibit 10.13 to the Company's Registration
                                     Statement on Form S-1 (Registration No. 33-61560)
                                     and incorporated herein by reference).

     10.5                         Business Park Net Lease dated as of May 29, 1987,
                                     between the Company and Kaiser Development
                                     Company as amended by the First Amendment to
                                     Lease dated as of January 12, 1992, between the
                                     Company and Bedford Development Company.
                                     (Filed as Exhibit 10.15 to the Company's Registration
                                     Statement on Form S-1 (Registration No. 33-61560)
                                     and incorporated herein by reference).

     10.6                         Lease Agreement dated as of October 15, 1990, between
                                     the Company and Baja del Mar, S.A. de C.V. (Filed
                                     as Exhibit 10.16 to the Company's Registration
                                     Statement on Form S-1 Registration No. 33-61560)
                                     and incorporated herein by reference).

     10.7                         Lease Agreement dated as of August 30, 1993, between
                                     the Company and T.M. Cobb Company.  (Filed as
                                     Exhibit 10.16 to the Company's Registration
                                     Statement on Form S-1 (Registration No. 33-70010)
                                     and incorporated  herein by reference).

     10.8                         First Amendment to Lease Agreement dated as of
                                     August 30, 1993, between the Company and T.M.
                                     Cobb Company.  (Filed as Exhibit 10.14 to the
                                     Company's Report on Form 10-K for the year ended
                                     December 31, 1993 and incorporated herein by
                                     reference).

     10.9                         Lease Agreement dated as of November 30, 1993, between
                                     the Company and T.M. Cobb Company.  (Filed as
                                     Exhibit 10.15 to the Company's Report on Form 10-K
                                     for the year ended December 31, 1993 and incorporated
                                     herein by reference).

   *10.10                         Form of Stock Option Agreement, dated October 5, 1993,
                                     between Marvin M. Giles, III and the Company.
                                     (Filed as Exhibit 10.18 to the Company's Registration
                                     Statement on Form S-1 (Registration No. 33-70010) and
                                     incorporated herein by reference).

</TABLE>



                                       42
<PAGE>


<TABLE>
<CAPTION>

    EXHIBIT
    NUMBER                        EXHIBIT                                                                              PAGE
    ------                        -------                                                                              ----
    <S>                           <C>                                                                 <C>
    10.11                         1994 Stock Incentive Plan of the Company, as amended.
                                     (Filed as Exhibit A to the Company's 1997 Proxy
                                     Statement dated March 26, 1997 and incorporated
                                     herein by reference).

    10.12                         Form of Stock Option Agreement in connection with the
                                     1994 Stock Incentive Plan. (Filed as Exhibit 10.1 to
                                     the Report on Form 10-Q for the quarterly period
                                     ended September 30, 1994 and incorporated herein
                                     by reference).

    10.13                         Lease Agreement dated May 15, 1995 between the
                                     Company and Desarrollo Industrial de Tijuana, S.A.
                                     de C.V.   (Filed as Exhibit 10.1 to the Company's
                                     Report on Form 10-Q for the quarterly period ended
                                     June 30, 1995 and incorporated herein by reference).

    10.14                         Supply Agreement commencing January 1, 1998
                                     between Courtaulds Fibres, Ltd. And Aldila Materials
                                     Technology Corp.  (Filed as Exhibit 10.20 to the Company's
                                     Report on Form 10-K for the year ended December 31, 1997
                                     and incorporated herein by reference).

    10.15                         Loan Agreement dated March 27, 1998 between Aldila, Inc. and
                                     Union Bank of California, N.A. (Filed as Exhibit 10.1 to the
                                     Company's Report on Form 10-Q for the quarterly period
                                     ended March 31, 1998 and incorporated herein by reference).

    10.16                         First Amendment to Loan Agreement dated March 22, 1999
                                     between the Company and Union Bank of California, N.A.
                                     (Filed as Exhibit 10.16 to the Company's Report on Form 10-K
                                     for the year ended December 31, 1998 and incorporated herein
                                     by reference).

    10.17                         Member Interest Purchase Agreement dated as
                                     of October 20, 1999 among SGL Carbon Fibers
                                     and Composites, Inc., SGL Technik GmbH,
                                     Aldila Materials Technology Corp. and the
                                     Company.

</TABLE>


                                       43
<PAGE>


<TABLE>
<CAPTION>

<S>                              <C>                                                                             <C>
    10.18                        Loan and Security Agreement by and between Aldila Golf Corp.
                                     and Foothill Capital Corporation dated July 9, 1999. (Filed as
                                     Exhibit 10.1 to the Company's Report on Form 10-Q for the
                                     quarterly period ended June 30, 1999 and incorporated
                                     herein by reference).

   *10.19                        Severance Protection Agreement dated March 11, 1999 between
                                     the Company and Gary T. Barbera. (Filed as Exhibit 10.2 to the
                                     Company's Report on Form 10-Q for the quarterly period ended
                                     June 30, 1999 and incorporated herein by reference).

   *10.20                        Severance Protection Agreement dated March 11, 1999 between
                                     the Company and Peter R. Mathewson. (Filed as Exhibit 10.3 to the
                                     Company's Report on Form 10-Q for the quarterly period ended
                                     June 30, 1999 and incorporated herein by reference).

   *10.21                        Severance Protection Agreement dated March 11, 1999 between
                                     the Company and Robert J. Cierzan. (Filed as Exhibit 10.4 to the
                                     Company's Report on Form 10-Q for the quarterly period ended
                                     June 30, 1999 and incorporated herein by reference).

   *10.22                        Severance Protection Agreement dated March 11, 1999 between
                                     the Company and Michael J. Rossi. (Filed as Exhibit 10.5 to the
                                     Company's Report on Form 10-Q for the quarterly period ended
                                     June 30, 1999 and incorporated herein by reference).

     11.1                        Statement re:  Computation of Net Income per Common Share

     21.1                        Subsidiaries of the Company.

     23.1                        Independent Auditors' Consent

     27.1                        Financial Data Schedule

</TABLE>

*Indicates management contracts or compensatory plans or arrangements required
to be filed as exhibits to this Report on Form 10-K.




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